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Occidental Falls on California Crude-Oil Production Outlook

Occidental Petroleum Corp., the fourth-largest U.S. oil company, fell after reporting it isn’t increasing the number of drilling rigs in California, where analysts said production was “a disappointment.”

Occidental expects to keep its California rig count at 29 through the end of the year, the Los Angeles-based company said in a second-quarter earnings presentation posted today. The shares declined $2.54, or 2.4 percent, to $104.83 at 4 p.m. in New York Stock Exchange composite trading.

“California’s been a disappointment over the last year or so,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said in a telephone interview today. “Overall volumes were lighter than I would have liked, but the other segments are operating very well and they’re benefiting from higher oil prices right now.”

Second-quarter net income rose 71 percent to $1.82 billion, or $2.23 a share, from $1.06 billion, or $1.31, a year earlier, Occidental said in a statement today. It was the company’s biggest quarterly profit since 2008 as increased production in Texas and North Dakota helped replace output disrupted by Middle East unrest. Occidental was expected to earn $2.12 a share, based on the average of five analysts’ estimates compiled by Bloomberg.

Occidental is the first U.S. integrated oil company to report its second-quarter earnings. Exxon Mobil Corp., the largest U.S. oil company, is scheduled to report on July 28. Chevron Corp. on July 29 and ConocoPhillips reports tomorrow.

Kern County Discovery

Occidental’s 2009 discovery in Kern County, California, may hold as much as 10 billion barrels of oil, Doug Leggate, an analyst at Bank of America Merrill Lynch in Houston, said in an April 29 note to clients.

Chief Executive Officer Steven I. Chazen said in an April 28 conference call that he expected California to speed up the permitting process.

Occidental said in the presentation today it has enough permits to continue its pace of drilling in California until the end of the year. “There remains some uncertainty around future permits, particularly related to injection wells,” the company said.

Chazen told analysts today that he can’t forecast how many more operating rigs the company would have in California past the end of the year.

‘Non-Transparent Process’

“We’re engaged with the state,” he said. He called the state’s permitting program a “non-transparent process.”

Occidental’s North American output is expected to grow the equivalent of between 3,000 to 4,000 barrels of oil a day through the end of 2011, Chazen said.

The company’s oil production in California rose to 78,000 barrels a day in the second quarter from 75,000 a year earlier. Output of natural gas and gas liquids fell in California.

The lack of production growth in the state is “disappointing,” Paul Sankey, a Deutsche Bank AG analyst in New York, said in a note to clients today.

The company boosted total oil and gas production to the equivalent of 715,000 barrels of crude a day in the second quarter, a 2 percent gain from the prior year. Occidental said the increase came in part from recent acquisitions in Texas and North Dakota that contributed to an 11 percent gain in U.S. output, to 424,000 barrels a day.

Sales Rise

Chazen said Occidental’s profit gains stemmed from higher commodity prices. The average price of crude futures on the New York Mercantile Exchange during the quarter rose 31 percent to $102.34 from a year earlier.

Sales rose 34 percent to $6.17 billion. The company sold oil for $103.12 a barrel in the quarter, more than the average price on Nymex, compared with $74.39 for the year-earlier period. It sold gas for $4.27 per thousand cubic feet, up from $4.19 in the second quarter of 2010, according to the statement.

Occidental reported no output from Libya in the quarter, down from 14,000 barrels a day in the same period last year. Production in Yemen also fell. Civil war in Libya has cut the country’s production and unrest in Yemen has led to attacks on oil pipelines in the Middle Eastern nation.

Occidental shares, which have 16 “buy” and eight “hold” ratings from analysts, have gained 7.7 percent this year.

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