April 23 (Bloomberg) -- Occidental Petroleum Corp., the biggest oil producer in Texas, beat analyst estimates for first- quarter profit by cutting costs amid the biggest decline in energy prices on record.

First-quarter net income dropped to $368 million, or 45 cents a share, from $1.85 billion, or $2.22, a year earlier, the Los Angeles-based company said today in a statement. Excluding costs for one-time items such as terminated drilling contracts, per-share profit was 10 cents higher than the average of 18 analyst estimates compiled by Bloomberg. Sales declined 49 percent to $3.07 billion.

Chief Executive Officer Ray Irani is cutting capital spending this year by one-fourth in response to a record slide in crude prices. Production costs fell 17 percent during the quarter to the equivalent of $12.19 a barrel as Irani, 74, concentrated investments on fields in the Middle East, Africa and the U.S. that have been pumping oil for decades.

“With prices as low as they have been, the key is cost- containment and they have done a very good job of controlling costs,” said Ann Kohler, an analyst at New York-based Caris & Co. who has a hold rating on the shares and doesn’t own any.

Occidental rose 41 cents to $55.97 in composite trading on the New York Stock Exchange. Before today, the stock had dropped 7.4 percent this year after losing 22 percent last year in its largest decline in a decade.

Per-share profit was 26 percent above the average estimate, the largest deviation in more than three years, according to data compiled by Bloomberg.

Iraqi Elephants

Occidental, which made its first major oil discovery in 1964 beneath Los Angeles, hopes to buy minority stakes in Iraqi fields larger than 10 billion barrels, so-called elephants, that will be operated by bigger rivals, Irani said today during a conference call with analysts.

“A supermajor would probably head those elephant fields,” Irani said. “Of course, we don’t mind participating in some of those fields.” The company also plans to bid for the right to operate some of the smaller Iraqi fields that won’t be as expensive to develop as the largest prospects, he said.

Occidental plans to boost output from Oman’s Mukhaizna field by 33 percent this year to 80,000 barrels a day, Edward Lowe, president of the company’s international production business, said during today’s call. Occidental displaced Royal Dutch Shell Plc as operator of the field in 2005, when Mukhaizna was pumping about 5,000 barrels a day.

Plunging Prices

Occidental received an average price of $39.29 for each barrel of crude during the first three months of the year, down 55 percent fro a year earlier. U.S. oil futures plunged 56 percent in the same period, the steepest quarterly decline since the instruments began trading in 1983.

Every $1 drop in the price of oil reduces Occidental’s pretax income by $150 million, according to a public filing.

For natural gas, which accounts for 23 percent of Occidental’s output, the company received an average price of $3.54 per thousand cubic feet, a 57 percent decline, as U.S. factories slashed consumption of the fuel. A 50-cent drop in 1,000 cubic feet of gas cuts the company’s income by $93 million, a public filing showed.

Output Rises

Occidental raised output from its wells by 6.7 percent to the equivalent of 652,000 barrels of crude, led by increases in California, Texas, the Rocky Mountains and Oman.

One-time items during the first quarter included expenditures to cancel rig contracts, costs associated with railcar leases and severance payments. Excluding those items, Occidental said it had per-share profit of 50 cents.

Occidental spent almost $4 billion in 2008 on acquisitions and signing bonuses for rights to drill in Colorado, Texas, Canada and Libya. Last month, the company signed a $1.5 billion deal with Bahrain and the investment arm of Abu Dhabi to boost daily production from the Bahrain Field to more than 100,000 barrels of crude.

“Oil companies believe the price of oil is going back up and if you believe that, then it makes sense to keep investing now in production you can sell later when prices are higher,” said David Foley, who helps manage $2 billion at Estabrook Capital Management in New York.

Irani added new reserves last year at three times the pace of 2007, boosting the company’s untapped deposits almost 4 percent to the equivalent of 2.98 billion barrels of crude. Occidental’s reserves, three-fourths of which are oil, are large enough to sustain output for more than 13 years.

Operating Costs

Occidental’s most profitable wells last year were in the Middle East and Africa, where the company netted $37.19 per equivalent barrel of crude, a public filing showed. The U.S. was the second-most profitable region for the company at $30.10 of profit per barrel.

Occidental shares trade at about $16.50 per barrel of proved reserves, a 33 percent premium to the average of the company’s peer group, according to data compiled by Bloomberg.

ConocoPhillips, the third-biggest U.S. oil producer, also said today that profit excluding one-time costs beat analyst estimates by 10 cents.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

Last Updated: April 23, 2009 16:17 EDT