Sliding Oil Market Likely Reduced Occidental Petroleum's Quarterly Profit

Unlike larger conglomerates, company couldn't overcome falling prices

Arm of a driver pumping gas at a gas station

Declining crude oil production revenue, reflecting lower prices, likely will reduce Occidental Petroleum Corp.'s (OXY) profit when the company reports its first-quarter results on Tuesday.

Key Takeaways

  • Occidental Petroleum's revenue likely slid along with oil prices and declining upstream sales that account for about 70% of its business.
  • Operating profit margin at Occidental likely fell by a third amid slightly higher expenses.
  • Unlike large energy conglomerates, pure-play energy producers couldn't overcome lower oil prices in the first quarter.

Houston-based Occidental likely will post first-quarter earnings of $1.3 billion, down 42% from $2.3 billion (excluding a one-time tax benefit) in the same period a year ago, according to estimates from Visible Alpha. On a per-share basis, net income likely dropped to $1.28 from $2.13 a year ago.

A projected 11% decline in revenue to $7.6 billion likely will mirror a similar slide in the company's upstream sales, which account for about 70% of its business.

Occidental Petroleum Key Stats
   Q1 2023 (est.)  Q1 2022  Q1 2021
 Adjusted EPS ($)  1.28  2.13  -0.14
 Revenue ($B)  7.6  8.5  5.5
 Upstream Sales ($B)  5.5  6.1  3.7

Source: Visible Alpha

Those declines, in turn, echo an approximate 16% first-quarter drop in global benchmark Brent crude prices compared with a year ago.

Investors have anticipated the hit Occidental might take to its earnings as a result. The company's shares have dropped 6% so far this year, compared with a 10% decline for the S&P 500 Energy Index.

Year to date return of Occidental Petroleum stock, the S&P 500, and the S&P 500 Energy Sector (as of May 5, 2023).

Pure-Play Producers Get Pinched

Large, diversified energy conglomerates, such as ExxonMobil (XOM) and Chevron (CVX), overcame falling oil prices in the first quarter. Both reported higher profits as lower oil prices benefited their downstream refining operations.

However, energy companies deriving the bulk of their revenue from oil and gas production, such as Occidental, found it more challenging to do so.

Last week, for instance, producer Pioneer Natural Resources said its first-quarter earnings fell 39%. The firm said average prices for the oil and gas it sold during the quarter each dropped about 21%.

At Occidental, revenue also likely fell 5% and 8%, respectively, in its midstream pipeline and chemical businesses.

As the company's sales declined broadly, operating expenses rose marginally, up 2%. That narrowed its operating profit margin to 24.5% from 36.4% in last year's quarter.

Article Sources
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  1. Visible Alpha. "Financial Data."

  2. Reuters. "Chevron Tops Estimates with Q1 Profit Gain Despite Slide in Oil Prices."

  3. The Wall Street Journal. "Exxon, Chevron Profits Are Robust Even as Oil Prices Drop."

  4. Pioneer Natural Resources. "Pioneer Natural Resources Reports First Quarter 2023 Financial and Operating Results."

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