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===Oil Reserves=== ===Oil Reserves===
Over the years, the company’s growth has been sustained by the continuous increase in oil and gas reserves as well as the growing access to international markets through acquisitions and agreements. The company’s ability to recover oil from old wells (also known as enhanced oil recovery techniques) is also facilitating its growth. Occidental’s oil reserves stood at 1,678 million barrels in the U.S. and 556 million barrels in international locations such as Argentina, Bolivia, Colombia, Libya, Oman, Pakistan, Qatar, Russia, UAE and Yemen. At the end of 2006, Occidental’s natural gas reserves stood at 2,442 billion cubic feet in the U.S and 1,368 billion cubic feet in international locations. Over the years, the company’s growth has been sustained by the continuous increase in oil and gas reserves as well as the growing access to international markets through acquisitions and agreements. The company’s ability to recover oil from old wells (also known as enhanced oil recovery techniques) is also facilitating its growth. Occidental’s oil reserves stood at 1,678 million barrels in the U.S. and 556 million barrels in international locations such as Argentina, Bolivia, Colombia, Libya, Oman, Pakistan, Qatar, Russia, UAE and Yemen. At the end of 2006, Occidental’s natural gas reserves stood at 2,442 billion cubic feet in the U.S and 1,368 billion cubic feet in international locations.
-===Factors Affecting Oil Reserves===+ 
-However, the value of these reserves (which are also the assets of the company) owned by the company is dependent on the prevalent oil and gas prices. If the price of oil declines, value of the assets owned by the company also declines and vice-versa. Thus, rising oil prices lead to increasing revenues as well as increase in value of assets owned by the company.+ 
===Recent Trends in Oil Reserves=== ===Recent Trends in Oil Reserves===
The global demand for crude oil has increased (from 84 million barrels of oil per day (mb/d) in 2005 to 85.2 mb/d in 2006) and Occidental is strengthening its oil reserves and production base to take advantage of this trend. The acquisition of Vintage Petroleum in 2006 increased the company’s oil reserves and production capacity by 53,000 barrels of oil equivalent (BOE) per day in addition to providing a better foothold in Latin America, California and the Middle East. The signing of a new production sharing contract with an area of 5,620 square kilometers in Southeastern Oman is another step in this direction. By expanding into the international markets, Occidental is able to tap the demand across the globe instead of relying only on the U.S. market for growth. The global demand for crude oil has increased (from 84 million barrels of oil per day (mb/d) in 2005 to 85.2 mb/d in 2006) and Occidental is strengthening its oil reserves and production base to take advantage of this trend. The acquisition of Vintage Petroleum in 2006 increased the company’s oil reserves and production capacity by 53,000 barrels of oil equivalent (BOE) per day in addition to providing a better foothold in Latin America, California and the Middle East. The signing of a new production sharing contract with an area of 5,620 square kilometers in Southeastern Oman is another step in this direction. By expanding into the international markets, Occidental is able to tap the demand across the globe instead of relying only on the U.S. market for growth.

Revision as of 16:53, January 28, 2010

Occidental Petroleum (NYSE:OXY) is one of the largest oil and gas companies in the U.S. with operations spread across geographies. At present, it has operations in three main regions, i.e., the U.S, the Middle East and Latin America. It is planning to expand its operations further through acquisitions and new contracts in countries, such as Oman and Libya. However, Occidental is only involved in exploration and production of oil and gas reserves, while large players such as ConocoPhillips are involved in refining oil and selling it through retail gas stations in addition to exploration and production of oil and gas reserves.

International operations of the company provide it with access to more oil and gas reserves as well as new markets. For example, as the global demand for oil and gas increases, the reserves available in the Middle East are becoming more valuable, especially considering the fact that the Middle East accounts for 61 percent of the world’s proven recoverable oil reserves and 41 percent of world’s gas reserves. Further, with the Middle East now consuming one-fifth of the oil it produces, it is also emerging as a potential market.

Occidental owns huge reserves of crude oil which are further enhanced due to company’s expertise in techniques to recover oil from old oil fields. The company is an industry leader in these techniques (also known as enhanced oil recovery), which enable it to extract oil from old oil fields where traditional methods of extracting oil are no longer useful. As a result, the company is now focussing on acquiring large and old oil fields in its primary markets to enhance production.

Occidental has a significant share of its operations in countries, such as Bolivia and Ecuador, which are experiencing political and social unrest, thus exposing the company to the risk of political instability. In 2006, the government of Ecuador seized Occidental’s assets in Ecuador as part of the government’s drive towards nationalization. International operations also expose the company to the risk of currency fluctuations.

Moreover, with the consolidation of the industry, large integrated oil and gas producing companies are being formed, which have the financial power to outbid their rivals in a competitive bid for new exploration blocks. As a result, Occidental is facing continually increasing competition from its rivals. Occidental is striving to maintain a competitive edge by expanding operations in international markets as well as using improved technology to enable enhanced oil recovery and reduce cost of finding and developing new reserves.

Company Description

Occidental Petroleum primarily operates in the U.S. and has operations in countries such as Qatar, Libya, Colombia, Yemen, Ecuador, Oman, Canada, Pakistan and United Arab Emirates (U.A.E).

Occidental Petroleum was a relatively small company until the discovery of oil fields in California in the early 1960s. The company became a more focused oil and petroleum company in 1997, acquiring several companies in the U.S, the Middle East and Latin America. In 1998, the acquisition of the U.S. government’s 78 percent stake in California’s Elk Hills field helped Occidental become the largest gas producer and the third largest oil producer in the state. In 2003, Occidental agreed to supply gas to the Oman government. It also discovered two oil wells in Ecuador and added seven more production wells in the U.S at Horn Mountain field, which increased its capacity by 20,000 barrels. In early 2005, Occidental marked its return to the Libyan market. After the lifting of the U.S. sanctions, it was awarded the rights to operate nine exploration blocks in Libya.

ON January 28, 2010 Occidental Petroleum announced 2009 4th quarter net income of 938 million dollars or nearly double the 443 million that it earned in the 4th quarter of 2008. Revenue also rose from 4.02 billion to 4.54 billion in a year over year comparison. Occidental was helped by higher oil prices and did not suffer the same earnings deterioration that other more integrated firms such as COP endured. For the fiscal year 2010 Occidental seeks to increase its capital expenditures by 19% while increasing its output by 5-8% in the next five years. [1]

On Decmber 15, 2009, Occidental Petroleum completed the purchase of Citigroup's Phibro commodities trading division. Citigroup was under intense public and government pressure to sell the unit in order to avoid having to pay its top trader, Andrew Hall, his 100 million dollar contractual bonus. Due to the pressure, Occidental Petroleum was able to purchase the profitable unit at an extremely low price of 1 to 2 times its earnings (an exact price has not been released)[2].

Business Drivers

High Crude Oil Prices

As a general rule, the relationship between demand and price is inversely proportional, i.e., the demand declines with an increase in price. The oil and gas industry has witnessed a similar trend. However, in 2006, despite the higher price of crude oil, the demand continued to rise due to sustained economic growth in various countries. Occidental benefited from this trend. Its acquisition of Vintage in 2006, which enhanced the company’s oil and gas production capacity considerably, helped it to meet the growing demand.

Oil Reserves

Over the years, the company’s growth has been sustained by the continuous increase in oil and gas reserves as well as the growing access to international markets through acquisitions and agreements. The company’s ability to recover oil from old wells (also known as enhanced oil recovery techniques) is also facilitating its growth. Occidental’s oil reserves stood at 1,678 million barrels in the U.S. and 556 million barrels in international locations such as Argentina, Bolivia, Colombia, Libya, Oman, Pakistan, Qatar, Russia, UAE and Yemen. At the end of 2006, Occidental’s natural gas reserves stood at 2,442 billion cubic feet in the U.S and 1,368 billion cubic feet in international locations.


Recent Trends in Oil Reserves

The global demand for crude oil has increased (from 84 million barrels of oil per day (mb/d) in 2005 to 85.2 mb/d in 2006) and Occidental is strengthening its oil reserves and production base to take advantage of this trend. The acquisition of Vintage Petroleum in 2006 increased the company’s oil reserves and production capacity by 53,000 barrels of oil equivalent (BOE) per day in addition to providing a better foothold in Latin America, California and the Middle East. The signing of a new production sharing contract with an area of 5,620 square kilometers in Southeastern Oman is another step in this direction. By expanding into the international markets, Occidental is able to tap the demand across the globe instead of relying only on the U.S. market for growth.

Technological Innovations Used for Enhancing Oil Reserves

Occidental has expertise in enhanced oil recovery techniques, which are used to recover additional oil reserves or prolong production in mature oil fields where traditional methods to recover oil are no longer useful. These techniques increase the life of old oil fields by as much as 30 years, thereby increasing the oil reserves available as well as production efficiency of the company.

Natural calamities and political instability are the main threats to the oil and gas industry. Companies operating in this sector face a major threat during the hurricanes as the risk of damage to their oil exploration and production infrastructure increases. However, during the hurricanes Katrina and Rita, Occidental’s operations in the Gulf Coast suffered only minor damages.

The table below provides proved oil and gas reserves and production figures for the company.

Growth of Occidental Petroleum
2004 2005 2006
Reserves Oil
(Millions of barrels)
Gas
(Billions of cubic feet)
BOE
(Millions of BOE)
Oil
(Millions of barrels)
Gas
(Billions of cubic feet)
BOE
(Millions of BOE)
Oil
(Millions of barrels)
Gas
(Billions of cubic feet)
BOE
(Millions of BOE)
United States 1,494 2,101 1,844 1,636 2,338 2,026 1,678 2,442 2,085
International 395 874 541 350 1,140 540 556 1,368 784
Consolidated 1,889 2,975 2,385 1,986 3,478 2,566 2,234 3,810 2,869
Production
United States 93 186 124 92 202 126 98 217 134
International 49 47 57 50 44 57 68 51 77
Consolidated 142 233 181 142 246 183 166 268 211

Source: Company Data

Note:

Business Segments and Products

The company operates through two major segments – oil & gas and chemicals. Oil and gas is the main business segment for the company in terms of revenue and is primarily involved in crude oil and gas exploration as well as production. This segment accounted for 72 percent of the company’s revenue in 2006.

However, Occidental is only involved in exploration and production of oil and gas reserves, while large players, such as ConocoPhillips is involved in refining oil and selling it through retail gas stations in addition to exploration and production of oil and gas reserves.

The company also owns and operates chemical manufacturing plants at 24 sites in the U.S. through its subsidiary Oxychem. This segment accounted for 28 percent of Occidental’s revenues in 2006. Oxychem is a leading North American manufacturer of basic chemicals (chlorine, caustic soda, potassium chemicals and ethylene dichloride, vinyl (Vinyl Chloride Monomer – VCM, Polyvinyl chloride – PVC) and performance chemicals (chlorinated iscyanurates, resorcinol and sodium silicates). It is also involved in the production of chemical products in Mexico and is the largest marketer of chlorine and caustic soda in the U.S.

Competitive Landscape

The main competitors of Occidental Petroleum are Exxon Mobil (XOM), Noble Energy (NBL), Newfield Exploration Company (NFX), Royal Dutch Shell and Burlington Resources Inc. These companies are involved in oil and gas exploration, production, refining, trading and marketing of various energy resources worldwide.

The table provided below compares the operational metrics for Occidental vis-a vis its competitors in 2006.

Comparison to Competitors
OCCIDENTAL EXXON MOBIL CONOCOPHILLIPS ROYAL DUTCH SHELL
Reserves
Crude Oil
(Millions of barrels)
2,234 8,194 3,200 3,270
Natural Gas
(Billions of cubic feet)
3,810 32,480 23,446 30,058
Production
Crude Oil
(Millions of barrels)
166 832 314 563
Natural Gas
(Billions of cubic feet)
268 2,771 1,971 2,227

Source: Company Data

With the consolidation of the industry, competition is intensifying. Large oil and gas companies are joining hands to form entities, which can exercise control and financial power to outbid their rivals. The intended merger of China National Offshore Oil Corporation with ChevronTexaco and the successful merger of CONOCOPHILLIPS (COP) with Burlington in 2005 indicates this trend. In this period of increasing competition, Occidental is striving to maintain a competitive edge by expanding operations to international markets as well as using improved technology to enable enhanced oil recovery and reduce cost of finding and developing new reserves.

Occidental has also been quite successful in drilling of new oil wells. For example, it was able to start production in 97 percent of the 519 wells it drilled in 2004. This helps reduce the cost of finding new reserves to increase production.

Due to its advanced oil recovery techniques, the cost of finding and developing a new oil well (also known as finding and development cost – F&D) is much lower for Occidental as compared to the industry average of USD 9.6 per BOE. During the period 2002-04, the company’s average cost was only USD 5.6 per BOE.




References

  1. [1] Occidental Petroleum 4Q Profit Up; '10 Capex To Rise 19% January 28, 2010
  2. Obama Expands Bailout of Federal Mortgage Giants Fannie and Freddie and Lavishes Money on Their CEOs December 28, 2009
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