EXHIBIT 99.2
OCCIDENTAL PETROLEUM CORPORATION
STEPHEN CHAZEN
CHIEF FINANCIAL OFFICER AND
EXECUTIVE VICE PRESIDENT - CORPORATE DEVELOPMENT
- CONFERENCE CALL -
FIRST QUARTER 2003 EARNINGS ANNOUNCEMENT
APRIL 22, 2003
Los Angeles, California
Good morning, and thanks for joining us.
Those of you who have not received a copy of the press release announcing
our first quarter earnings, along with the Investor Relations Supplemental
Schedules, can find them on our website - www.oxy.com or on the SEC's EDGAR
site.
Core earnings for the first quarter were $433 million, $1.14 per share,
compared with $123 million, or $0.33 per share in the first quarter of 2002.
There are three unusual items that impacted earnings for the quarter.
We recorded an interest charge of $61 million, or approximately $40 million
after-tax, to repay a $450 million bond issue that had 10 years of remaining
life. We refinanced $300 million at four-and-one quarter percent and repaid the
rest. The impact of these transactions is $16 million in annual interest
savings.
The adoption of accounting standard 143, which is related to asset
abandonment costs, resulted in a non-cash cumulative after-tax charge of
approximately $50 million primarily for onshore oil and gas assets currently in
service. This new standard also results in additional ongoing depreciation and
liability accretion expense. The first quarter income impact for these
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non-cash charges was $4 million pre-tax and will be an ongoing charge that will
impact future quarterly results. The actual cash abandonment cost will not be
incurred until the asset is retired. In addition, there was a related one-time
depreciation adjustment of $13 million.
The FASB has rescinded EITF Issue Number 98-10 that was in effect since
1999, which required the mark to market of non-derivative trading positions. In
Oxy's case this relates mainly to physical natural gas inventories.
As a result of the FASB's rescinding of the previous requirement that
non-derivative trading positions be marked to market, we reversed the mark to
market gain for the physical gas inventory that was on our books at year-end.
This reversal resulted in a non-cash, after-tax charge of $18 million. As a
consequence of the FASB change, we will now book the gains in operating income
when the gas is sold. These sales resulted in $21 million of income in the first
quarter, which equates to $14 million after-tax. We expect to realize the
remainder in the second quarter.
Net income for the quarter was $325 million, or $0.86 per share. This
compares to $25 million, or $0.07 per share, we earned in the first quarter last
year. The quarter-to-quarter improvement was due primarily to significantly
higher oil and natural gas prices.
On a segment basis, oil and gas first quarter earnings were $727 million,
compared to $306 million for the first quarter of 2002. Higher oil and gas
prices accounted for virtually all of the improvement.
Chemical segment earnings for the quarter were $35 million compared to a
loss of $31 million last year. The primary factor driving the improvement was
higher prices for PVC, chlorine and ethylene dichloride. The positive impact of
these product price increases was weakened,
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however, by the sharp spike in energy prices in February and early March that
could not be passed on to consumers. We began to see improvements in
profitability in late March which continued into April.
In the first quarter of 2002, our core chemical operations had earnings of
$5 million for the quarter, excluding $36 million of losses from our Equistar
equity investment, but including $14 million of severance charges.
Cash flow from operations for the quarter was approximately $670 million.
Interest expense, including distributions on trust-preferred securities but
excluding the $61 million charge for debt repayment, was $74 million during the
first quarter 2003, compared to $82 million in the 2002 first quarter.
Turning to the balance sheet at the end of the quarter, we increased
shareholder equity to $6.7 billion, or $354 million higher than the year-end
2002 level.
At the same time, we reduced total debt by $182 million to $4.58 billion,
compared to $4.76 billion at the end of 2002. Our debt to total capitalization
ratio was down to 41 percent at the end of the quarter, compared to 43 percent
at the end of last year.
Capital spending for the quarter was $298 million compared to $254 million
in last year's first quarter. Oil and gas accounted for $225 million of this
year's first quarter expenditures. Of the $68 million in capital expended for
chemicals, $44 million was for the buyout of previously leased equipment. We
expect to purchase additional leased equipment this year.
As we look ahead in the second quarter:
o We expect production to average about 535,000 BOE per day - which is
an increase of 10,000 BOE above our initial 2003
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forecast. This could vary slightly due to price-driven adjustments in
the volumes under our production sharing contracts in Oman, Qatar,
Yemen and THUMS. In addition, our Colombia production is always
difficult to forecast.
o We expect exploration expense for the quarter to be about $30 million.
o We are cautiously optimistic about the outlook for chemicals -
assuming energy prices do not spike. Under this scenario, we expect
second quarter chemical earnings to be in the $40 to $70 million
range.
o We expect interest expense to be similar to the ongoing first quarter
expense of $74 million.
o A $1.00 per barrel change in oil prices impacts segment quarterly
earnings by about $31 million. The WTI price in the first quarter was
$33.85. A swing of 10-cents per million BTUs in gas prices has a $5
million impact on quarterly oil and gas earnings. The NYMEX gas price
for the first quarter was $4.75.
o We expect our tax rate in to be in the same range as the 31 percent
rate for the first quarter.
Now I'd like to turn the conference call over to Dr. Ray Irani, Chairman
and CEO.
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This presentation includes forward-looking statements. The actual results could
differ materially from these statements based on factors listed in the
safe-harbor discussion in our 2002 Annual Report. These forward-looking
statements will not be updated or revised. See the "Investor Relations
Supplemental Schedules" and our website for the reconciliation of non-GAAP
items.
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OCCIDENTAL PETROLEUM CORPORATION
DR. RAY R. IRANI
CHAIRMAN AND CHIEF EXECUTIVE OFFICE
- CONFERENCE CALL -
FIRST QUARTER 2003 EARNINGS ANNOUNCEMENT
APRIL 22, 2003
Los Angeles, California
Thank you, Steve.
Last year, the Permian Basin accounted for 164,000 barrels of oil
equivalent per day, or 32 percent, of our total worldwide production of 515,000
BOE per day - making the Permian the single largest contributor to our
production profile. These assets have proven to be an excellent source of cash
flow.
On April 15, we announced the closing of three acquisitions involving a net
total of 73 million BOE of proved reserves at an average cost of about $3.20 per
BOE. These acquisitions increase our holdings in the Wasson Field, the largest
in the Permian and one of the five largest in the lower 48 states. They include
the Denver Unit and Wasson ODC Units - both of which we operate. In addition, we
acquired a majority interest in - and are now the operator of - the Wasson
Field's Willard Unit, which is directly adjacent to the Denver Unit.
Since acquiring Altura in April 2000, we have completed 32 acquisitions in
the Permian totaling 139 million BOE of proven reserves for a net cost of
approximately $2.50 per BOE.
These acquisitions are consistent with our strategy of increasing
production in and around our core areas. Being, by far, the largest oil
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producer in the Permian gives us economies of scale in a region where we have
significant competitive advantages as a consolidator. By purchasing synergistic
properties at attractive costs and integrating them with our existing
operations, we are able to generate better returns than the sellers. There are
many more such opportunities in the Permian.
When we purchased Altura we booked 850 million BOE of proven reserves. We
integrated the Altura assets with our existing Permian operations and at yearend
2000 our total proven reserves in the Permian Basin totaled nearly 970 million.
From the time of the acquisition through the end of 2002, we more than replaced
our total Permian production of approximately 160 million BOE. At the end of
last year, our total proven Permian reserves exceeded 1 billion barrels.
At current production rates, our Permian assets have a reserve life of
approximately 17 years. We expect to extend the producing life of these
operations well beyond 17 years by continuing to execute our strategy of adding
to our Permian reserves through a combination of acquisition, enhanced recovery
and exploration.
From the time we acquired them through the end of the first quarter this
year, the former Altura properties alone generated approximately $2 billion in
free cash flow after accounting for capital expenditures. That means in just
three years we've recovered 55 percent of the $3.6 billion purchase price.
The Permian acquisitions we announced last week will increase our
production by 10,000 BOE per day. Consequently, we are increasing our annual
production forecast for 2003 through 2006 by 10,000 BOE per day. The new numbers
are 535,000 BOE per day for 2003, 575,000 for 2004,
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590,000 for 2005, and 620,000 BOE for 2006. We are highly confident we will
achieve the increased production levels in this revised forecast.
Thank you, and now we're ready to answer your questions.
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See the "Investor Relations Supplemental Schedules" and our website for the
reconciliation of non-GAAP items.
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Statements in this presentation that contain words such as "will" or "expect",
or otherwise relate to the future, are forward-looking and involve risks and
uncertainties that could significantly affect expected results. Factors that
could cause results to differ materially include, but are not limited to: global
commodity pricing fluctuations, and supply/demand considerations, for oil, gas
and chemicals; higher-than-expected costs; and not successfully completing (or
any material delay in) any expansion, capital expenditure, acquisition, or
disposition. Occidental disclaims any obligation to update any forward-looking
statements. The United States Securities and Exchange Commission (SEC) permits
oil and natural gas companies, in their filings with the SEC, to disclose only
proved reserves demonstrated by actual production or conclusive formation tests
to be economically producible under existing economic and operating conditions.
We use certain terms in this presentation, such as probable, possible and
recoverable reserves, that the SEC's guidelines strictly prohibit us from using
in filings with the SEC. U.S. investors are urged to consider carefully the
disclosure in our form 10-K, available through the following toll-free telephone
number, 1-888-OXYPETE (1-888-699-7383) or on the Internet at http://www.oxy.com.
You also can obtain a copy from the SEC by calling 1-800-SEC-0330.
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