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Occidental Petroleum Corporation (OXY - Analyst Report) reported first-quarter 2013 pro forma earnings of $1.69, beating the Zacks Consensus Estimate by 12 cents. Quarterly earnings were however lower than the prior-year earnings of $1.92 per share.

On a GAAP basis, the company’s quarterly earnings per share were $1.68 versus $1.92 a year-ago. The variance between pro forma and GAAP earnings was due to a penny’s charge from the discontinued operations.

Total Revenue

Occidental Petroleum reported first-quarter revenues of $5.9 billion, beating the Zacks Consensus Estimate by $80 million. Revenues decreased 6.3% year over year due to lower contribution from the oil and gas segment.

First-Quarter 2013 Production, Sales and Realized Price

Occidental Petroleum’s average daily production volumes were 763 thousand barrels of oil equivalents (MBoe), up 1.1% from 755 MBoe a year-ago. The growth was primarily attributable to a 5.1% year-over-year rise in domestic productions.

During the quarter, the company’s daily oil and gas sales volumes increased marginally to 746 MBoe from the year-ago level.

Realized price for crude oil decreased to $98.07 per barrel from the prior-year level of $107.98 per barrel. Realized worldwide natural gas liquids (NGL) prices were down 23.3% at $40.27 per barrel from the prior-year quarter level of $52.51 per barrel. Domestic gas prices increased 8.5% year over year to $3.08 per thousand cubic feet (Mcf).

Segment Earnings

Oil and Gas: Earnings from this segment were $1.9 billion in first-quarter 2013, down 24% year over year due to higher depreciation, depletion and amortization expenses, lower natural gas and NGL prices, and decline in sales volumes in the Middle East and North Africa. These were partially offset by lower operating expenses and increase in domestic liquids volumes.

Chemicals: Earnings were $159 million versus $184 million a year-ago. A 3.6% year-over-year decline was primarily due to higher natural gas costs, weak demand and pricing for chlorinated organics; partially compensated by an increase in export volumes of caustic soda.

Midstream, Marketing and Other: Segmental earnings were $215 million, up 64.1% year over year due to strong results from marketing and trading operations.

Financial Update

Occidental Petroleum’s cash from operations during the first three months of 2013 totaled $2.7 billion compared with $2.8 billion in the year-ago comparable period.

Capital expenditure for first-quarter 2013 was $2.1 billion compared with $2.4 billion in the year-ago quarter. This decline was primarily due to a 12.5% year-over-year decrease in expenses in the oil and gas segment.

Total long-term debt as of Mar 31, 2013, was $7,624 million compared with $7,623 million as of Dec 31, 2012. The company’s total debt-to-capitalization ratio at quarter-end was 16%, unchanged from Dec 31, 2012.

Our Take

The results of Occidental Petroleum were primarily driven by strong performance by its domestic operations and rise in domestic natural gas prices. The company’s marketing and trading operations also contributed significantly in the reported quarter.

Occidental Petroleum also takes several cost-cutting measures, including reduction of domestic wells, to manage higher international operating expenses from its planned maintenance turnarounds in Qatar.

However, risks associated with the damage of oil exploration and production infrastructure, delay in drilling and development activities, and over-reliance on the crude oil price movement may to some extent challenge the company’s future performance.

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

Los Angeles, Calif.-based Occidental Petroleum along with its subsidiaries operates as an oil and gas exploration and production company. Other players from the sector – Murphy Oil Corporation (MUR - Analyst Report), Marathon Oil Corporation (MRO - Analyst Report) and Penn Virginia Corporation (PVA - Snapshot Report) – are yet to announce their quarterly results.

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