西方石油 (OXY) 2007 Q4 法說會逐字稿

Good morning.

I would like to welcome everyone to the Occidental Petroleum Corp.

fourth quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

(OPERATOR INSTRUCTIONS) Thank you.

It is now my pleasure to turn the floor over to your host, Christopher Stavros.

Sir, you may begin your conference.

Thank you and good morning.

I'd like to welcome to you Occidental's fourth quarter 2007 earnings conference call.

Joining us on the call from Los Angeles are Dr.

Ray Irani, Oxy's Chairman and CEO; Steve Chazen, our President and CFO; Casey Olson, President of Occidental's Oil and Gas business in the Eastern Hemisphere; and John Morgan, President of Oxy Oil and Gas in the Western Hemisphere.

In a moment I will turn the call over to Steve Chazen who will review the details of our fourth quarter and full year 2007 financial results to be followed by a question-and-answer session.

The conference call presentation slides which refer to Steve's remarks can be downloaded off of our website at www.oxy.com.

I will now turn the call over to Steve.

Please go ahead.

Thank you, Chris.

Net income for the quarter was $1.452 billion, or $1.74 per diluted share compared to $930 million, or $1.09 per diluted share in the fourth quarter of last year.

2007 fourth quarter net income includes $16 million after-tax severance charges and $4 million of after-tax income from discontinued ops.

Core results were a record $1.464 billion or $1.76 per diluted share in the fourth quarter of 2007 compared to $784 million or $0.92 per diluted share in the fourth quarter of 2006.

Here's a segment breakdown for the fourth quarter.

Oil and gas fourth quarter segment earnings were $2.6 billion compared to $1.4 billion for the fourth quarter of last year.

The following accounted for the increase in oil and gas earnings between these quarters.

Higher worldwide oil and gas price realizations resulted in increase of $1.3 billion of earnings over the comparable period last year.

Occidental's average realized crude price in the 2007 fourth quarter was $27.75 higher than the comparable period last year.

Oxy's domestic average realized gas prices for the quarter was $6.77 compared to $5.63 in the fourth quarter last year.

Worldwide oil and gas production from continuing operations for the quarter averaged 590,000 barrels equivalent per day, an increase of 5.2% compared to the 561,000 BOE in production the fourth quarter last year.

The bulk of the production improvement was the result of the Dolphin project start-up which contributed 36,000 BOE per day.

Our guidance for the fourth quarter production was in the range of 600,000 to 615,000 BOE per day.

We were under this range due to the impact of product prices that reduced volume for production sharing contracts by 8,000 BOE per day.

A well blowout in Libya of 4,000 BOE.

And 5,000 BOE per day lower in Argentina due to election related strikes in October and November.

Dolphin contributed $62 million to after-tax income during the fourth quarter which was slightly ahead of our guidance of 50 million to $60 million.

Sales volumes were 36,000 BOE per day in line with our guidance.

The Dolphin 2007 production exit rate was 43,000 BOE per day.

Exploration expense was $101 million in the quarter.

Oil and gas production costs for the 12 months of 2007 were $12.87 per barrel compared with last year's cost of $11.70 a barrel.

The increase is a result of the higher field operating and maintenance costs.

Chemical segment earnings for the fourth quarter of 2007 were $94 million which is lower than our third quarter guidance of 100 million to $140 million.

The decline in earnings from our guidance was at a lower PVC margins due to higher feed stock cost and weaker industry demand.

Chemicals earned $157 million in last year's fourth quarter.

The primary factor tha accounted for quarter to quarter differences was lower PVC margins.

The worldwide effective tax rate excluding the impact of asset sales and other items was 42% in the fourth quarter of 2007, 4 points lower than our guidance of 46% due primarily significant higher oil and gas prices.

The increased oil prices result in a higher proportion of U.S.

income which has a lower apparent tax rate than our international operations.

Now let me turn to our performance for the 12 months.

Net income was a record $5.4 billion or $6.44 per diluted shares for the 12 months of 2007 compared to $4.2 billion or $4.87 per diluted share for the same period last year.

Core results were also a record at $4.4 billion or $5.25 per diluted share for the 12 months of 2007 compared to $4.1 billion or $4.78 per diluted share in the same period last year.

Worldwide oil and gas production for the 12 months averaged 570,000 barrels of oil equivalent per day, an increase of 4.6% compared to 545,000 BOE production 12 months last year.

Capital spending was $987 million for the quarter, and about $3.5 billion for the 12 months.

We expect total capital spending for this year, 2008, to be between 3.8 billion and $3.9 billion.

We expect increased 2008 capital spending for Columbia LCI project, Argentina, and Vintage California.

Cash flow from operations for the 12 months was approximately $6.8 billion.

We received $1.6 billion in proceeds from the sale of assets.

We used $3.5 billion of the Company's cash flow to fund capital expenditures, $1.4 billion for acquisitions, $1.2 billion to retire debt, and $765 million to pay dividends.

We spent $1.13 billion to repurchase 20.6 million common shares at an average price of $54.75 per share.

These net cash flows increased our $1.6 billion cash balance at the end of last year by $400 million to $2 billion at December 31.

Debt was $1.8 billion at the end of December, a reduction of $1.1 billion from the debt balance of $2.9 billion at the end of last year.

The weighted average basic shares outstanding for the 12 months were 834.9 million, and the weighted average diluted shares outstanding were 839.1 million.

At December 31, there were 827.2 million basic shares outstanding, and diluted share amount was approximately 831.3 million.

Our debt to capitalization ratio was 7%, down from 13% last year.

Our return on equity was 26% with a return on capital employed of 24%.

As we look ahead to the current quarter, we expect oil and gas production to be in the range of 600,000 to 615,000 BOE per day during the first quarter.

At last quarter's $90 oil price.

Dolphin is expected to become fully operational in February and run at 78% of capacity this quarter, with a production of 53,000 BOE per day.

Dolphin's after tax earnings are expected to be between 90 million and 100 million in the first quarter based on a $90 oil price.

At about $80 oil expect production for the full year to increase to 620,000 to 630,000 BOE per day.

This is slightly above the outlook we gave you two years ago for 2008 when you adjust for a $30 increase in oil prices from that time.

The increase from last year's numbers due to full-year operations of Dolphin, increased production from [Haijian] and Oman, increased production in Argentina where the exit rate was around 40,000 a day, and Columbia, and the impact of acquisitions.

These were slightly offset by the new contract in Libya and, of course, higher oil prices.

Occidental received a share of production from production sharing contracts to recover its costs and additional share for profit.

Occidental's share of production from these contracts decreases when oil prices rise, it increases when oil prices decline.

Overall Oxy's net economic benefit from these contracts is much higher at higher oil prices.

A $5 change in oil prices affects Oxy's production by about 4,000 barrels a day.

Including this change in production, a change in oil price of $1 per barrel impacts quarterly earnings before income taxes by about $38 million.

A swing of $0.50 per million Btu's in domestic gas prices has a $24 million impact on quarterly earnings before income taxes.

We expect exploration expense to be about 70 million to 90 million for seismic and drilling this quarter.

We expect chemical earnings to be in the range of 100 million and$125 million, probably closer to the higher end of that range.

Compare with $94 million in the fourth quarter.

Improved volumes and prices in vinyls and higher caustic soda prices are the primary drivers of the improvement.

This is less than last year's first quarter earnings of $137 million due to weakness in construction which impacts industry demand.

We expect DD&A expense to be $2.4 billion for oil and gas and $300 million for the rest of the Company this year.

We expect our combined worldwide tax rate for the first quarter to be 43%.

The Company has embarked on a cost reduction program which will affect operating, G&A, and capital costs.

In 2007 we took restructuring charges totaling $25 million.

We expect a similar amount this year.

We've also made improvements in our procurement operations functions, taking advantage of the shift in power between producers and vendors.

Combined savings from this program are expected to be at least $200 million this year with an annualized run rate of over $300 million.

The primary focus of this program is on the more mature areas of the Company as opposed to our areas of growth.

Copies of the press release announcing our third quarter earnings and the Investor Relations supplemental schedules are available on our website or through the SEC's EDGAR system.

We're now ready to take your questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Robert Kessler of Simmons & Company.

Good morning, Steve.

Good morning.

As you look at the bidding grounds for projects in the Middle Eastern Gulf states it seems as though recent entrants have shown a willingness to bid away much of the value on these deals.

Then you look at share prices for equities, public equities so far this year they've languished relative to the commodity.

How does that change your view of the pecking order of uses of cash?

Are you inclined to increase the buybacks?

No, we expect -- we ended the year with about 6.3 million shares of authority from the Board.

We've used the majority of that so far this year, and we expect the Board to increase the authority by at least 20 million shares at the next meeting.

We have no debt maturities currently for this year, and very little for next year and the level of debt, current stock prices we would expect that we would be aggressive buyers of shares.

How do you think about the competitive landscape for these Middle Eastern projects now with people like Conoco/Philips in the mix willing to bid away the economics?

What we have said repeatedly, we do have a large number of projects in our pipeline, and we still follow religiously the discipline for our returns on investment.

So to the extent other people want to chase projects, for whatever reason, we're willing to give up on projects unless they meet our discipline.

We still feel we have a number of projects that can meet our financial discipline.

So that's the way the world goes.

I think that makes makes sense, Ray.

Is a 20% internal rate of return a reasonable international bogey at this point?

Well, I think when you get into these returns bear in mind we may be assuming different prices for oil than other folks are so that enters the picture.

So we have to look at a wide range of prices because you're making investments that go over a 30-year period.

So you can't just sit and say, all right, the price of oil today is $90, so that's what you can assume.

It would be foolish also to assume $40.

So you have to look at a whole range of prices looking to the future and look at the cost of capital and alternatives you may have.

We do have alternatives.

Not only in share buyback but other programs we're working on.

Thanks very much.

Our next question comes from Michael LaMotte of JPMorgan.

Please go ahead.

Mr.

LaMotte, your line is live.

Our next question comes from Doug Leggate of Citigroup.

A couple of questions.

Like to kick off with the project outlook, if I may, because obviously following the Shaw situation there are a couple others that have been talked about, namely in Bahrain, and perhaps additional, even more additional projects in Libya the (inaudible) and Oman.

Could you maybe just give us an update as to where we stand on what the likely news flow is positive or otherwise, that we should expect?

I remain optimistic, and -- but again, I can't give you a date on when something will happen.

I think these other projects are very solid, and they can achieve the returns that we'd like to have but, in the end, if somebody wants to assume the price of oil is going to be $100 for the next 20 years, I'm not going to compete with that.

So I'm very optimistic for a number of reasons, part of which is that we do have a number of these projects.

We've proven that we're not real good at estimating the timing, so I don't think we want to go there.

Okay.

Second one maybe is a little easier then.

You give us some reserve numbers in the press release.

Steve, could you give us an idea what the impact of PSC and titlement effects was?

How much did you actually -- how much was this number depressed by PSCs?

I don't remember how much the PSC impact was.

I think it was, in and of itself it was probably in the 50 million barrel area.

Do you have an F&D cost number, Steve?

Pardon me?

An F&D cost number?

Well, all you do is divide.

Okay.

I take it acquisitions are included in there.

Yes.

The SEC doesn't like to do the division for you, so we put the numbers together so it's relatively straightforward.

A final one, very quickly, Libya, the new contract, did that kick in on December 1?

Not yet.

So when does it become effective?

Well, it becomes effective when the people -- Parliament approves it and we have no concern on this.

I met with Khadafi himself and a number of other leadership in late November, and just when they meet this is not scheduled like Congress.

So whenever that approval takes place, it kicks in.

Just to clarify, it's effective December 1, and whenever they approve it will go into effect, and then there will be a financial settlement for the difference.

Got it.

Just like any other acquisition, you would make a settlement for effective date.

That's it it for me.

Thanks, guys.

Thank you.

Thank you.

Our next question comes from Nicki Decker of Bear Stearns.

Good morning.

Just following up on the reserve reports, did the Libya contracts affect reserve bookings for 2007?

No.

Okay.

All that's there in the Libyan contracts is the remainder of the contract at that point which is two years.

So you would normally expect that when a 30-year extension, that we'd have a lot more reserves when we book that.

I see.

The report showed a pretty good bump-up in reserves from improved recovery.

You essentially replaced production with improved recovery.

My question is, is this sustainable with the current asset base, or might we see a shift towards additional acquisitions?

Certainly for this year improved recovery will be very large again for 2008.

[Mahijana] is an improved recovery project, and we're just really starting the booking there.

So you are going to build a very sizable improved recovery number out of Mahijana alone.

Historically we ran about 140 million barrels in proved recovery.

The rest of the operations, we don't see how that's going to fall off.

So I'm not going to predict this year's number, but we've just begun the book in Mahijana, so there's a lot more improved recovery.

You'll see that improved number to be sizable for several more years.

Sounds like there's a possibility that that number even ramps up.

You never know about reserves, but more likely than not you're right.

Where was the improved recovery in gas?

In gas?

That number was a big ramp-up from the prior year.

It was probably in the shales in -- it was at Elk Hills.

(OPERATOR INSTRUCTIONS) Our next question comes from Bernie Picchi of Wall Street Access.

Please go ahead.

Yes, good morning.

Just wanted to ask a question about the Plains acquisition.

Kind of got my attention with your involvement in the Piceance.

I wonder if this does represent a strategic shift in your attitude toward resource plays in gas in the United States?

Certainly the Permian didn't surprise me, but the Piceance did.

We've been in the Piceance for a while as you may know.

We had some legacy assets in land and fee, so we're producing about 40 million a day in the Piceance currently from our production.

We expect to boost that over the next few years to about 100 million a day just from our own stuff.

The Piceance stuff was, we thought was a reasonably priced acquisition.

Considering the size of the enterprise I wouldn't view it as a particularly strategic -- maybe a tweaking, but we were there, and we saw an opportunity to build more gas at reasonable prices.

Gas acquisitions, as you know, have not been, in our view, reasonably priced, and this was fairly priced, we thought.

Steve, just a follow-up question.

It looked as if in the fourth quarter you had quite a lot of capture, as the term has it, in your realization for U.S.

natural gas prices versus the Henry Hub price versus the prior quarters.

Looked like there was quite a nice jump in other words in your realized price in the fourth quarter.

Is that something that is kind of a one off or something you would expect to see going forward?

We think that's probably -- the fourth quarter is probably right.

In other words, it will continue.

And the reason why the sudden catch up or the increase in the capture versus prior quarters?

You've got some in the Piceance you picked up because the differentials narrowed.

In California there was a nice pickup in realized price, and in the Yucatan and Permian.

So we've made some structural changes.

I think that probably is why.

In our ability to deliver the gas.

Thanks.

Thank you.

Our next question comes from Michael LaMotte of JPMorgan.

Good morning.

Steve, any movement on the project in Abu Dhabi?

No.

Can you provide an update on Mukhaizna?

There's been in some of the trade journals lately some comments about leaking wellheads and other problems.

Can you give an update on what the target is for year end and ultimate objectives there?

The target for year end on Mukhaizna is still a gross 50,000 barrels a day, which is what we estimated all along.

We anticipated that through the first couple of years as the project ramped up, the exact timing month to month would be a bit fluid, but we're right on track, we believe, to hit the 50,000 this year and are feeling confident that we can still move the project to the 150 level as we've anticipated all along.

Okay.

And then lastly, there's been a lot of talk in the industry about Iraq finally moving on concessions.

What's your thoughts on potentially being involved in Iraq?

Well, as you know, the situation in Iraq is very fluid.

The oil law is not yet approved in Iraq.

The Kurds are beating up on doors, including ours, to obtain concessions et cetera, et cetera.

We are not talking to them.

U.S.

policy is against talking to regional players in Iraq, and we follow U.S.

policy to the word.

So I think it's premature, but whenever that opens up, we are sitting ready for looking at opportunities.

Any thoughts, preferences for North versus South?

I think that would be -- we think there's a number of opportunities we've identified.

It's premature.

Let's bring some of these troops home first, let's see some security.

The president was in the Middle East, and didn't bother to go to Iraq, so that's a message about security there.

Especially -- Condoleeza Rice went over to Iraq briefly and we think it's a fluid situation.

Some improvement in some areas of the country, as you see.

Security and others, especially where production could be, leaves a lot to be desired.

Because the focus, as you've seen, of our military is to secure the areas with high population, and that's not always where oil and gas is present.

So we care about our employees, we care about following U.S.

policy, and we're not going to be mavericks in this particular area.

Great.

Thank you very much.

Thank you.

There are no further questions at this time.

I would like to turn the floor back to Mr.

Stavros for any closing comments.

Thank you very much for joining us today on the conference call, and if you have any further questions, please feel free to call us in New York.

Thank you very much.

Thank you.

This concludes today's Occidental Petroleum Corp.

fourth quarter earnings conference call.

You may now disconnect and have a great day.