The following discussion should be read together with the Consolidated Condensed
Financial Statements and the notes to the Consolidated Condensed Financial
Statements, which are included in this report in Part I, Item 1; the information
set forth in Risk Factors under Part II, Item 1A; the Consolidated Financial
Statements and the notes to the Consolidated Financial Statements, which are
included in Part II, Item 8 of Occidental's Annual Report on Form 10-K for the
year ended December 31, 2021; and the information set forth in Risk Factors
under Part I, Item 1A of the 2021 Form 10-K.
INDEX
PAGE
Cautionary Statement Regarding Forward-Looking Statements 25
Current Business Outlook 26
Consolidated Results of Operations and Items Affecting Comparability 27
Segment Results of Operations 30
Income Taxes 34
Liquidity and Capital Resources 35
Environmental Liabilities and Expenditures 35
Lawsuits, Claims, Commitments and Contingencies 36
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Portions of this report contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, and they include, but are not limited to: any
projections of earnings, revenue or other financial items or future financial
position or sources of financing; any statements of the plans, strategies and
objectives of management for future operations, business strategy or financial
position; any statements regarding future economic conditions or performance;
any statements of belief; and any statements of assumptions underlying any of
the foregoing. Words such as "estimate," "project," "predict," "will," "would,"
"should," "could," "may," "might," "anticipate," "plan," "intend," "believe,"
"expect," "aim," "goal," "target," "objective," "commit," "advance," "likely" or
similar expressions that convey the prospective nature of events or outcomes are
generally indicative of forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Unless legally required, Occidental does not undertake any
obligation to update, modify or withdraw any forward-looking statements as a
result of new information, future events or otherwise.
Although Occidental believes that the expectations reflected in any of its
forward-looking statements are reasonable, actual results may differ from
anticipated results, sometimes materially. In addition, historical, current and
forward-looking sustainability-related statements may be based on standards for
measuring progress that are still developing, internal controls and processes
that continue to evolve and assumptions that are subject to change in the
future. Factors that could cause results to differ from those projected or
assumed in any forward-looking statement include, but are not limited to:
general economic conditions, including slowdowns and recessions, domestically or
internationally; Occidental's indebtedness and other payment obligations,
including the need to generate sufficient cash flows to fund operations;
Occidental's ability to successfully monetize select assets and repay or
refinance debt and the impact of changes in Occidental's credit ratings; the
scope and duration of the COVID-19 pandemic and ongoing actions taken by
governmental authorities and other third parties in response to the pandemic;
assumptions about energy markets; global and local commodity and
commodity-futures pricing fluctuations and volatility; supply and demand
considerations for, and the prices of, Occidental's products and services;
actions by OPEC and non-OPEC oil producing countries; results from operations
and competitive conditions; future impairments of Occidental's proved and
unproved oil and gas properties or equity investments, or write-downs of
productive assets, causing charges to earnings; unexpected changes in costs;
inflation, its impact on markets and economic activity and related monetary
policy actions by governments in response to inflation; availability of capital
resources, levels of capital expenditures and contractual obligations; the
regulatory approval environment, including Occidental's ability to timely obtain
or maintain permits or other governmental approvals, including those necessary
for drilling and/or development projects; Occidental's ability to successfully
complete, or any material delay of, field developments, expansion projects,
capital expenditures, efficiency projects, acquisitions or dispositions; risks
associated with acquisitions, mergers and joint ventures, such as difficulties
integrating businesses, uncertainty associated with financial projections,
projected synergies, restructuring, increased costs and adverse tax
consequences; uncertainties and liabilities associated with acquired and
divested properties and businesses; uncertainties about the estimated quantities
of oil, NGL and natural gas reserves; lower-than-expected production from
development projects or acquisitions; Occidental's ability to realize the
anticipated benefits from prior or future streamlining actions to reduce fixed
costs, simplify or improve processes and improve Occidental's competitiveness;
exploration, drilling and other operational risks; disruptions to, capacity
constraints in, or other limitations on the pipeline systems that deliver
Occidental's oil and natural gas and other processing and transportation
considerations; volatility in the securities, capital or credit markets;
governmental actions, war (including the Russia-Ukraine war) and political
conditions and events; legislative or regulatory changes, including changes
relating to hydraulic fracturing or other oil and natural gas operations,
retroactive royalty or production tax regimes, deep-water and onshore drilling
and permitting regulations and environmental regulations (including regulations
related to climate change); environmental risks and liability under federal,
regional, state, provincial, tribal, local and international environmental laws
and regulations (including remedial actions); Occidental's ability to recognize
intended benefits from its business strategies and initiatives, such as
Occidental's low carbon ventures businesses or announced greenhouse gas
emissions reduction targets or net-zero goals; potential liability resulting
from pending or future litigation; disruption or interruption of production or
manufacturing or facility damage due to accidents, chemical releases, labor
unrest, weather, power outages, natural disasters, cyber-attacks, terrorist acts
or insurgent activity; the creditworthiness and performance of Occidental's
counterparties, including financial institutions, operating partners and other
parties; failure of risk management; Occidental's ability to retain and hire key
personnel; supply, transportation, and labor constraints; reorganization or
restructuring of Occidental's operations; changes in state, federal or
international tax rates; and actions by third parties that are beyond
Occidental's control.
Additional information concerning these and other factors that may cause
Occidental's results of operations and financial position to differ from
expectations can be found in Occidental's other filings with the SEC, including
Occidental's 2021 Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K.
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CURRENT BUSINESS OUTLOOK
Occidental's operations, financial condition, cash flows and levels of
expenditures are highly dependent on oil prices and, to a lesser extent, NGL and
natural gas prices, the Midland-to-Gulf-Coast oil spreads, chemical product
prices and inflationary pressures in the macro-economic environment. The average
WTI price per barrel for the nine months ended September 30, 2022 was $98.09,
compared to $64.82 for the nine months ended September 30, 2021. The return of
oil demand to its pre-pandemic levels, the ongoing global impact of the
Russia-Ukraine war and whether the oil industry will be able to sustain a
continued supply response have resulted in a significant increase in benchmark
oil prices year-over-year. Occidental does not operate or own assets in either
Russia or Ukraine. It is expected that the price of oil will be volatile for the
foreseeable future given the current geopolitical risks, evolving macro-economic
environment and recent activity from OPEC and non-OPEC oil producing countries
and the Biden Administration.
Occidental works to manage inflation impacts by capitalizing on operational
efficiencies, locking in pricing on longer term contracts and working closely
with vendors to secure the supply of critical materials. As of September 30,
2022, substantially all of Occidental's outstanding debt is fixed rate. As
interest rates have been increasing the fair value of our debt and interest rate
swaps have decreased, this has resulted in more favorable terms to repay or
settle such instruments.
2022 PRIORITIES
Occidental's capital and operational priorities for 2022 are intended to
maximize cash flow by sustaining 2021 production levels and maintaining capital
discipline. Occidental intends to utilize operating cash flows to:
?continue to reduce financial leverage;
?maintain a robust liquidity position; and
?continue its shareholder return framework in the form of a sustainable common
share dividend and an active share buyback plan.
During the first nine months of 2022, Occidental generated cash flow from
continuing operations of $12.8 billion and incurred capital expenditures of
$3.0 billion.
LIABILITY MANAGEMENT
Occidental repaid debt with maturities ranging from 2024 through 2048 and a face
value of $1.3 billion. Subsequent to September 30, 2022, but before the date of
this filing, Occidental repaid additional debt principal of $191 million with
maturities ranging from 2024 to 2049. Following these repayments, the face value
of Occidental's debt was $18.9 billion and near-term debt maturities are
$362 million in 2023 and $1.3 billion in 2024. In October, Occidental exercised
a par call for all $340 million of its 2.70% Senior Notes due February 2023,
which will be redeemed on November 15, 2022. Cash on hand, cash flow from
operations, funds available from the RCF and/or the receivables securitization
facility could be used to service near term debt maturities.
For the nine months ended September 30, 2022, Occidental used $8.3 billion of
cash, which reduced outstanding debt with a total face value of $9.4 billion and
a net book value of $8.7 billion, which resulted in a gain of $143 million. In
addition, in the third quarter of 2022, Occidental terminated interest rate
swaps with a notional principal amount of $275 million for $86 million, which is
net of collateral previously held by the bank.
DEBT RATINGS
As of September 30, 2022, Occidental's long-term debt was rated Ba1 by Moody's
Investors Service, BB+ by Fitch Ratings and BB+ by Standard and Poor's.
Occidental received credit rating upgrades from all three agencies in the period
from December 2021 through March 2022. Any downgrade in credit ratings could
impact Occidental's ability to access capital markets and increase its cost of
capital. In addition, given that Occidental's current debt ratings are
non-investment grade, Occidental or its subsidiaries may be requested, and in
some cases required, to provide collateral in the form of cash, letters of
credit, surety bonds or other acceptable support as financial assurance of its
performance and payment obligations under certain contractual arrangements such
as pipeline transportation contracts, environmental remediation obligations, oil
and gas purchase contracts and certain derivative instruments.
SHAREHOLDER RETURNS
During the nine months ended September 30, 2022, Occidental declared dividends
to common shareholders of $369 million or $0.39 per share and repurchased 41.0
million common shares at an average price of $61.47. In the period from October
1, 2022, through November 7, 2022, Occidental repurchased an additional
2.2 million shares for $148 million under its share repurchase plan.
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CONSOLIDATED RESULTS OF OPERATIONS AND ITEMS AFFECTING COMPARABILITY
Occidental's operations and cash flows can vary significantly based on changes
in oil, NGL and natural gas prices and the prices it receives for its chemical
products. Such changes in prices could result in adjustments in capital
investment levels and how such capital is allocated, which could impact
production volumes. Significant changes have occurred in the macro-economic
environment over the previous year, which have led to an increase in commodity
prices, chemical product pricing, and correspondingly Occidental's results of
operations and cash flows. Occidental's results of operations and cash flows are
driven by these macro-economic effects rather than seasonality. In accordance
with the SEC final rule issued in November 2020, Occidental elected to discuss
its results of operations on a sequential-quarter basis starting with
Occidental's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
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