Occidental Petroleum Corp., the largest onshore crude producer in the continental U.S., said second-quarter profit fell 27 percent as new output in California and Texas failed to make up for declining oil prices.
Net income fell to $1.33 billion, or $1.64 a share, from $1.82 billion, or $2.23, a year earlier, Los Angeles-based Occidental said in a statement. Sales fell 6.6 percent to $5.77 billion.
Chief Executive Officer Stephen I. Chazen plans to boost its U.S. capital spending 27 percent to $5.5 billion in 2012 by developing oil and gas prospects, and by raising domestic output as much as 7 percent by concentrating on California and the Permian basin of Texas and New Mexico, according to slides released to accompany the company’s conference call with investors today.
Occidental is waiting to accelerate the pace of drilling in California, where permitting in the state has improved, until the cost per well can be reduced by a third, Chazen said on the call. The company holds about 1.7 million acres in California, including in the Monterey shale formation, which may hold as much as 15 billion barrels of oil, according to the U.S. Energy Information Administration.
“If I can reduce the cost, I’ll get more wells for the same money,” he said. “That’s really what I’m after.”
Occidental’s midstream and marketing business, which includes pipelines, gas processing and the Phibro LLC trading unit, posted a 59 percent decline from the same period a year ago, the biggest drop in any of the company’s businesses. The unit had higher profits in its pipeline businesses and lower margins in marketing, trading and gas processing, according to the statement. The company acquired Phibro from Citigroup Inc. in 2009.
The average price of West Texas Intermediate crude, the U.S. benchmark, fell 8.8 percent to $93.35 a barrel in the second quarter from a year earlier amid fears that Europe’s debt crisis would slow global economic growth and crimp demand for hydrocarbons.
The declining crude price offset production gains at Occidental in the quarter. U.S. oil and natural-gas production rose 9 percent to the equivalent of 462,000 barrels a day, an all-time high, including 88,000 barrels of crude a day in California and 138,000 barrels in the Permian basin, according to the statement. Domestic output may reach 480,000 barrels by the end of 2012, he said.
“The record production volumes, especially the domestic increase, is a positive,” Brian Youngberg, an analyst at Edward Jones in St. Louis, said in a telephone interview today. “It shows Occidental’s focus on growing volumes in the U.S. is working.” Youngberg rates Occidental shares a buy and owns none.
Occidental rose 4.6 percent to $87.32 at the close in New York. The shares, which have 18 buy ratings and six holds from analysts, have dropped 17 percent in the past year.