Occidental Petroleum (NYSE:OXY) continued to delineate the company's recent oil discovery in Kern County along with other opportunities in California, but saw its second quarter of 2010 earnings hit by a large loss at the company's newly acquired trading unit.
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The oil and gas exploration company reported earnings of $1.1 billion, or $1.31 per share, in the second quarter of 2010. This was higher on a year-over-year basis due mostly to higher realized prices for oil and natural gas.
Occidental Petroleum also managed to increase production by 3% on a year over year basis. The company produced 743,000 barrels of oil equivalent (BOE) in the second quarter of 2010, up from 719,000 BOE per day in the same quarter of 2009.
Production growth would have been better but Occidental Petroleum was impacted by issues with its production sharing agreement in the Middle East, and infrastructure problems in California.
Phibro Loss
Occidental Petroleum surprised investors with lower earnings in the midstream segment, where the company reports trading results from the Phibro operation that was purchased from Citigroup (NYSE:C).
The company reported $13 million in operating income in the midstream segment led by a $104 million, or 7 cent per share, mark-to-market loss at the Phibro unit. Stephen Chazen, the president of Occidental Petroleum, called the results "lousy" during the company's conference call. (Find out what you can learn in a conference call in Conference Calls: Press 1 For Investor Insight.)
California Drilling
Occidental Petroleum continued to move forward on the development of the company's properties in California, where it has both unconventional and conventional opportunities.
Occidental Petroleum has drilled a total of 33 wells in the first six months of 2010 to extend its recent Kern County discovery, and to pursue other prospective areas in Kern County and in other parts of the state. The company will ramp this activity up in the second half of 2010, and plans to drill 66 wells across its portfolio in California.
Iraq Oil Field Development
Occidental Petroleum is also moving on its obligations to develop oil fields in Iraq, and is obligated to pay $100 million in capital here in 2010. The company is partnering with Eni (NYSE:E) to increase production at the Zubair field in southern Iraq, with a goal of reaching 1.2 million barrels per day of oil production by 2016.
New Acquisitions
Occidental Petroleum reported the purchase of an undisclosed number of properties in the United States for $1.5 billion. The properties are mostly in the Permian Basin, but are in the parts of the basin that produce more natural gas than oil. The company said during the conference call that the production being acquired was approximately 50% natural gas, with the balance split equally between oil and natural gas liquids.
The Permian Basin has been a hot area for acquisitions lately, but mostly for exploration and production companies looking to develop oil assets. Concho Resources (NYSE:CXO) just announced the $1.65 billion purchase of a private company with Permian Basin assets.
The Bottom Line
Occidental Petroleum is carefully evaluating the company's new oil discovery in Kern County, California, and is also exploring other conventional and unconventional formations on its large acreage holdings in the state. The company was also hurt by a trading loss during the quarter. (To learn more, see our Oil And Gas Industry Primer.)
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