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Occidental Petroleum Corporation's (OXY - Analyst Report) fourth-quarter 2012 pro forma earnings were $1.83, beating the Zacks Consensus Estimate of $1.66. Quarterly earnings were lower than the prior-year earnings of $2.02 per share.

Including a charge of $1.41 per share related to the impairment of gas assets in the Midcontinent, GAAP earnings per share were 42 cents, down from $2.01 in the year-ago quarter.

Occidental’s pro forma earnings for full-year 2012 of $7.09 per share surpassed the Zacks Consensus Estimate of $6.93. The company’s earnings fell 18.3% from the 2011 figure of $8.39 per share.

Including a one-time charge of $1.42 per share, GAAP earnings during 2012 were $5.67 per share versus $8.32 per share reported last year.

Total Revenue

Occidental's quarterly revenue increased 2.3% year over year to $6.2 billion. Total revenue increased on the back of higher contributions from all of its segments. Quarterly top line was ahead of the Zacks Consensus Estimate of $5.8 billion.

Occidental's full-year 2012 revenue was $24.2 billion, up 1% from $24 billion in the prior year. Annual revenues missed the Zacks Consensus Estimate by $17 million.

Full-year 2012 Production, Sales and Realized Price

Occidental's full-year 2012 average daily production volumes were 766 thousand barrels of oil equivalents (MBoe), up 4.5% from 733 MBoe a year-ago primarily due to a 11% year-over-year rise in domestic production.

The company’s daily oil and gas sales volumes during the year were 764 MBoe, up 4.5% year over year.

Occidental’s overall realized price for crude oil increased 2% to $99.87 per barrel from the prior-year level of $97.92 per barrel. However, full-year 2012 realized natural gas liquids (NGL) prices dropped 19% year over year to $45.18 per barrel and realized gas prices decreased 35% to $2.62 per thousand cubic feet (Mcf).

Segment Earnings

In 2012, Occidental’s segmental earnings were $8.3 billion versus $11.6 billion in 2011.

Oil and Gas: Earnings from this segment were $7.1 billion in 2012, down 30.4% year over year due to higher operating costs, exploration expenses, and depreciation, depletion and amortization (DD&A) rates, and lower NGL and natural gas prices. These were partially offset by a rise in oil prices and higher domestic volumes.

Chemicals: In 2012, earnings were $720 million versus $861 million in 2011. The 16.4% year-over-year decrease was primarily due to lower margins stemming from weaker macro conditions in Europe and Asia.

Midstream, Marketing and Other: Segmental earnings were $439 million in 2012, down by $9 million from the year-ago level.

Financial Update

Occidental’s cash from operations during the year totaled $11.3 billion compared with $12.3 billion in the year-ago comparable period.

Capital expenditure for 2012 was $10.2 billion compared with $7.5 billion in 2011. The majority of the expenditure was directed toward the development of its Oil and Gas, and Midstream, Marketing and Other segments.

Total long-term debt as of Dec 31, 2012, was $7.6 billion compared with $5.9 billion a year ago. The company’s total debt-to-capitalization ratio at quarter end was 16%, up from the prior-year ratio of 13%.

Our Take

The results of Occidental Petroleum were primarily driven by higher sales contributions from all of its segments and higher realized crude oil prices. However, the decrease in the realized natural gas prices in 2012 remains a cause of concern. Given the present market scenario, we believe the company will continue to benefit from rising oil prices given its oil-heavy production and reserve base.

In addition, Occidental Petroleum continues to take several cost-cutting measures like production curtailment and planned shutdowns of a few plants, which may improve its operating as well as financial performance in the forthcoming quarters.

However, Occidental Petroleum’s over-reliance on crude oil prices movement is a threat to its future financial performance. We are also skeptical about natural calamities, political instability and risks related to oil exploration and production infrastructure damages, which might restrict the company’s operations.

Occidental Petroleum Corporation currently has a short-term Zacks Rank #3 (Hold).

Los Angeles, California-based Occidental Petroleum along with its subsidiaries operates as an oil and gas exploration and production company. Other players from the sector - Cabot Oil and Gas Corporation (COG - Analyst Report), Penn Virginia Corporation (PVA - Snapshot Report) and Total SA (TOT - Analyst Report) - are yet to announce their quarterly results.

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