Occidental Beats Profit Estimates and Hits $10 Billion Debt Milestone as Revenue Slips Below Consensus

Occidental reported adjusted earnings per share of $1.91 from continuing operations on Monday, well above the $1.47 a share analysts expected.

The results were released after Monday's close. Adjusted profit beat expectations, production exceeded the guidance midpoint, and the debt milestone was reached in the same quarter.

Occidental Petroleum is an international energy company headquartered in Houston. It produces, markets and transports oil and natural gas.

Reported profit more than doubled

On a reported basis, net income attributable to common stockholders was $1.64 billion. That compared with $661 million a year earlier.

Diluted earnings were $1.61 a share, against $0.65 a share a year earlier. The reported line includes discontinued operations, which lost $20 million in the quarter.

The adjusted line was higher still. Adjusted income from continuing operations attributable to common stockholders was $1.95 billion, against $513 million.

Adjusted earnings per share from continuing operations were $1.91, against $0.51 a share. The company said the gap between the two lines mainly reflects derivatives losses.

Derivatives losses of $345 million after tax explain most of that gap. Midstream derivatives lost $199 million after tax, and domestic crude derivatives lost $146 million.

Two gains partly offset those losses. A judicial-deposit recovery added $69 million after tax, and an early debt-extinguishment gain added $48 million.

Against outside expectations, the adjusted result was a clear beat. StockStory put the S&P Global consensus estimate at $1.47 a share.

The adjusted $1.91 came in $0.44 a share above that estimate, a TickerGrove calculation. Revenue, though, came in slightly below the consensus estimate.

Total revenues and other income were $6.77 billion, against $5.61 billion a year earlier. StockStory put the S&P Global consensus estimate for revenue at $6.82 billion.

StockStory reported revenue rose 20.6% year on year to $6.77 billion. That matches the total revenues line printed above.

Production topped the guidance midpoint as prices eased

Total production averaged 1,427 Mboed, or thousand barrels of oil equivalent per day. Production sat inside the guidance range, above its midpoint.

The Permian and Rockies units led the result. That strength offset a temporary curtailment at some Gulf of America facilities.

The curtailment reflected a third-party gas pipeline constraint and maintenance work. The release itself prints no numeric guidance range.

Permian production was 812 Mboed in the quarter. Gulf of America production was 110 Mboed, down from 144 Mboed in the second quarter.

Average worldwide realized crude oil prices fell 11% from the second quarter, to $85.91 a barrel. Marker prices were $85.79 a barrel for West Texas Intermediate and $91.62 for Brent.

Realized natural gas liquids prices were $24.63 a barrel, flat with the second quarter. Domestic realized gas prices rose to $1.61 per thousand cubic feet, from negative $1.48.

Pre-tax income from oil and gas was $2.56 billion in the quarter. That compared with $2.85 billion in the second quarter.

Cash flow carried debt to the milestone

Operating cash flow from continuing operations was $4.1 billion in the quarter. Operating cash flow before working capital was $4.1 billion.

Capital expenditures, net of noncontrolling interest, were $1.32 billion. Free cash flow before working capital from continuing operations was $2.78 billion.

Principal debt fell by $1.8 billion in the quarter, to $10.0 billion. The company said it retired $10.4 billion of debt since the beginning of the year.

"We reached an important milestone in the third quarter, reducing principal debt to $10.0 billion," said Richard Jackson, president and chief executive officer. "Our teams delivered another strong quarter," he added.

Jackson said the stronger balance sheet supports a plan for more than $4.0 billion in annual sustainable cash flow by 2030. He said the plan provides a pathway to accelerate capital returns.

Midstream beat its guide, on the adjusted line

Midstream and marketing reported pre-tax income of $55 million. That compared with $1.34 billion in the second quarter.

Excluding items affecting comparability, midstream and marketing results exceeded the high end of guidance. Adjusted segment income for midstream and marketing was $309 million.

The fall reflected lower gas margins as Waha-to-Gulf-Coast spreads narrowed. Lower crude margins on the timing of crude sales also weighed.

Higher sulfur volumes and prices at Al Hosn partly offset those pressures. Income from the WES equity method investment was $121 million.

The release reports no continuing chemicals segment. The chemical business sits in discontinued operations, not in continuing results.

What remains unknown

What remains unknown starts with the market verdict: the release came after Monday's close. No settled reaction to the results exists yet, and the first settled verdict comes Tuesday.

The release gives no numeric guidance range behind the production midpoint it exceeded. It also gives no fourth-quarter or full-year guidance update.

How quickly debt falls below the new $10.0 billion level is undisclosed. The timing of any acceleration in capital returns is also undisclosed.

Tuesday brings the first settled verdict

What to watch: Tuesday's first settled session after the results. It will show whether investors credit the profit beat or the softer revenue line.

Fourth-quarter production and realized prices are the second test. They will show whether output holds near the third-quarter level.

Debt and capital returns are the third test. Any move below $10.0 billion would extend the milestone reached this quarter.