Occidental Petroleum Profit Rises as Oil Climbs to a Record

Tag : liquid carbon dioxide
 Occidental Petroleum Corp. , the fourth-largest U.S. oil company by market value, said second-quarter profit rose 63 percent as crude prices climbed above $140 abarrel for the first time and production increased.

Net income jumped to $2.3 billion, or $2.78 a share, from $1.41billion, or $1.68, a year earlier, the Los Angeles-based companysaid today in a statement. Per-share profit was 10 cents above theaverage of 16 analyst estimates compiled by Bloomberg.

Occidental's profit from oil and gas sales more than doubled to $3.81 billionas a 5.4 percent production increase helped capitalize on soaringcommodity prices. The company increased its capital-spending budgetby 21 percent to expand drilling in the U.S., Texas, Argentina,Colombia and Libya.

``They certainly have the capacity to increase production fromdomestic assets,'' Jim Byrne , an analyst at BMO Capital Markets in Calgary who rates Occidentalshares `outperform'' and doesn't own any. ``It's a quitesubstantial capital-spending increase that seems prudent, givenwhere oil prices have been.''

Occidental rose $2.06, or 2.9 percent, to $74.28 at 9:41 a.m. inNew York Stock Exchange composite trading. The stock , which has 11 buy and 7 hold ratings from analysts, jumped 23percent in the second quarter.

Occidental's second-quarter output rose to the equivalent of 588,000 barrels of oil a day, led byincreases from the Dolphin project in Qatar and U.S. wells. Revenuejumped 61 percent to $7.12 billion.

Chief Executive Officer Ray Irani , 73, is focusing on West Texas, Canada, the Middle East and NorthAfrica to boost output and reserves. The company raised its dividend by 28 percent in May, the biggest increase in at least a decade,as crude prices surged toward an all-time high and natural gas roseeven faster.

Occidental's 29 percent profit margin is almost three times that ofits biggest competitor, Irving, Texas-based Exxon Mobil Corp. , according to data compiled by Bloomberg. The company signedagreements for new oil and gas projects this year in Libya, Canada,Texas and Abu Dhabi.

The company was paid $110.12 per barrel of crude sold in the secondquarter, an 86 percent increase from a year earlier, according tothe statement. Occidental sold gas in the U.S. for almost $10 perthousand cubic feet, a 41 percent gain.

Chemicals earnings declined 8.9 percent to $144 million as risingfeedstock costs eroded margins on chlorine and polyvinyl chloride,Occidental. Chemicals output fell.
Net income in the company's so-called midstream business increasedsix-fold to $161 million after a pipeline linking the Dolphin fieldto markets in the United Arab Emirates began operation, Occidentalsaid.

Almost 77 percent of Occidental's oil reserves and 70 percent of its gas are in the U.S., publicfilings showed. At the end of 2007, Occidental's reserves werelarge enough to sustain production for almost 14 years.

The Permian Basin of Texas and New Mexico is Occidental's biggestsource of oil and gas, accounting for 34 percent of the company'sworldwide output. Occidental agreed last month to build a $1.1billion gas-processing plant in Texas that will produce carbondioxide used to coax heavy oil from wells.

Occidental plans to use the carbon dioxide to increase oil outputby at least 50,000 barrels a day. The company's partner in theproject, Oklahoma City-based SandRidge Energy Inc. , will sell the gas once the carbon dioxide has been removed.

Irani plans to increase production to the equivalent of 630,000barrels of oil a day. The company increased its oil and gas reserves by the equivalent of 830,000 barrels of crude last year. ExxonMobil and Chevron Corp. saw reserves decline.

In a June 30 interview, Chief Financial Officer Stephen Chazen estimated that carbon-dioxide injections will help the companyproduce oil for $20 to $30 a barrel, providing a ``reasonably goodmargin'' at current prices.

Pavel Molchanov , an analyst at Raymond James & Associates Inc. in Houston,said he expects oil prices to average $130 a barrel in 2009,lifting profits for Occidental, whose production is 80 percentcrude, more weighted to oil than any of its biggest U.S. rivals.Oil futures traded 90 percent higher than a year earlier in thesecond quarter.
Occidental spent $436 million on stock buybacks in the first three months ofthis year, a 36 percent increase from a year earlier. During thesame period, free cash flow, or cash available after capitalspending, more than doubled to $1.82 billion.