Oil Earnings Clear the Low Bar (OXY, COP)

Occidental Petroleum Corp. (NYSE:OXY) and ConocoPhillips Corp. (NYSE:COP) reported a mixed bag of first quarter 2009 earnings this morning. Net income met analysts’ expectations, but revenue did not.

Occidental reported EPS of $0.45/diluted share on $368 million in net income and revenues of $3.07 billion. Analysts had expected EPS of $0.37 on revenue of $3.18 billion. Sales volumes averaged 654,000 barrels of oil equivalent/day, up nearly 8% from the same period a year ago.

One year ago, Oxy reported first quarter revenues of over $6 billion and EPS of $2.22. The bar for the first quarter of 2009 was set so low that the company would have had to close its doors to miss jumping over it.

And here’s why earnings were so soft. Worldwide average realized prices for crude oil plunged, from $86.75/barrel a year ago to $39.29, a drop of nearly 55%. US natural gas prices also fell off the table, from $8.15/thousand cubic feet a year ago to $3.54/thousand cubic feet in the first quarter of 2009.

Oxy was able to rein in production costs a bit, from $14.75/barrel of oil equivalent to $12.19, a reduction of 17%. The company’s midstream and marketing operations earnings were off nearly 90%, from $123 million a year ago to just $14 million this quarter, due to “significantly” lower margins on natural gas liquids and a negative mark-to-market adjustment in the crude marketing business.

Conoco’s story is very similar. The company reported EPS of $0.56/diluted share on net income of $840 million and revenue of $30.7 billion. Analysts were expecting EPS of $0.42 on revenue of $26.34 billion. A year ago, Conoco posted EPS of $2.62 on revenues of $54.9 billion and net income of $4.14 billion.  ConocoPhillips is still one of our energy stocks that could double, although it has so far not participated very much with the broad market rally.

The company’s report pretty much followed the outline presented in its interim update earlier this month. Production jumped 58,000/barrels of oil equivalent/day sequentially and 131,000 barrels/day year-over-year. Still,  E&P earnings fell by almost 50%, from $2.89 billion a year ago to $700 million in the first quarter of 2009. That’s a drop of about 76%.

Conoco expects production to be lower in the current quarter, mostly due to planned maintenance. Refining is expected to increase from the 81% level of the first quarter to “the upper-80-percent range.”

Occidental shares are up about 1.5% in pre-market trading, and Conoco shares are up nearly 4%.

Paul Ausick
April 23, 2009