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Occidental Petroleum Corporation (OXY - Free Report) reported third-quarter 2013 pro forma earnings of $1.97 per share, surpassing the Zacks Consensus Estimate by 6 cents. Quarterly earnings jumped 15.9% from the year-ago figure primarily due to an increase in top line and lower interest expenses as well as operating expenses.

On a GAAP basis, the company’s earnings per share were $1.96, higher than the year-ago earnings by 27 cents. The variance between pro forma and GAAP earnings was due to a penny charge from discontinued operations.

Total Revenue

In the quarter under review, Occidental’s revenues were $6,449 million, beating the Zacks Consensus Estimate by 0.1%. Revenues increased 8.1% year over year driven by higher contribution from all segments.

Production, Sales and Realized Price

Occidental’s average daily production volumes were 767 thousand barrels of oil equivalents (MBoe), up 0.1% from 766 MBoe a year ago. The growth was primarily attributable to higher domestic production, partially offset by a decline in production from the Middle East/North African operations.

In the quarter, domestic oil and gas production increased 7 MBoe year over year to 476 MBoe.

During the quarter, daily oil and gas sales volumes was 765 MBoe, flat with the year-ago figure due to the timing of liftings at the company’s international operations.

Realized price for crude oil increased to $103.95 per barrel from the prior-year level of $96.62 per barrel. Worldwide realized natural gas liquids (NGL) prices were $40.53 per barrel, almost flat with the year-ago level of $40.65. Domestic gas prices increased 32% year over year to $3.27 per thousand cubic feet (Mcf).

Segment Earnings

Oil and Gas: The segment’s quarterly earnings were $2,363 million, up 16.6% year over year due to increased domestic realized prices for oil and natural gas, lower operating expenses and improved domestic liquids volumes.

Chemicals: The segment’s quarterly earnings were $181 million up from $162 million a year ago. A rise of 11.7% year over year was primarily due to improved margins in polyvinyl chloride and vinyl chloride monomer.

Midstream, Marketing and Other: Segmental earnings edged up 35.9% year over year to $212 million driven by favorable results from marketing and trading activities, and improved performance in pipeline, power generation and gas processing businesses.

Financial Update

As of Sep 30, 2013, cash balance was $3.8 billion versus $1.6 billion as of Dec 31, 2012.

Occidental’s cash from operations during the first nine months of 2013 totaled $9,800 million compared with $8,500 million in the year-ago comparable period.

Long-term debt (including current maturities) as of Sep 30, 2013 was $7,561 million compared with $7,623 million as of Dec 31, 2012. The company’s total debt-to-capitalization ratio is 15%, down 1.0% from Dec 31, 2012 level.

In third-quarter 2013, the company’s capital expenditure was $2,271 million compared with $2,591 million a year ago.

Other Company Releases

Murphy Oil Corp. (MUR - Free Report) is slated to release its third-quarter earnings on Oct 31. The Zacks Consensus Estimate is $1.49.

Marathon Oil Corp. (MRO - Free Report) is slated to release its third-quarter earnings on Nov 4. The Zacks Consensus Estimate is 78 cents.

Our Take

In the third quarter of 2013, Occidental reported favorable results primarily on the heels of strong performance from its domestic operations and improvement in crude oil prices. The company also carried out several cost-cutting measures, including disciplined drilling operations and a reduction in domestic oil and gas operating expenses.

Recently, the company announced preliminary phase of the strategic review to streamline its existing operations. Occidental plans to sell a minority interest in its operations in the Middle East/North Africa region, follow strategic options at selected Midcontinent assets and sell a part of the company’s 35% investment to the general partner of Plains All American Pipeline, L.P. (PAA - Free Report) .

The current strategy will likely enable the company to execute its long-term growth plans in an efficient manner, improve shareholders’ value while managing political risks.

However, risks related to damage of oil exploration and production infrastructure and over-reliance on the crude oil price movement may to some extent challenge the company’s future performance.

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

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