Higher oil and natural gas prices carried Occidental Petroleum back into profit in the third quarter, but the company remains more focused on de-leveraging debt than increasing production, following the troubled acquisition of Anadarko Petroleum.
Occidental reported net income in the third quarter of $628 million — a significant improvement over a $3.78 billion loss in the third quarter of 2020 — and delivered free cash flow of approximately $2.3 billion.
“The commodity price environment continued to be supportive in the third quarter as our focus remained on generating free cash flow and maximising margins,” chief executive Vicki Hollub told an earnings call.
She stressed that the company’s focus remains on cutting its overall debt, which increased to more than $40 billion after its 2019 acquisition of Anadarko.
Capital that might otherwise have gone into increased production will continue to be directed to the balance sheet, with net debt currently at about $30.9 billion after the company paid off another $4.3 billion during the third quarter
Hollub said Occidental’s production had come in at the higher end of its guidance but, while greater efficiency has led to improved production totals, expanding the capital budget is not on the cards.
“Production growth is not a priority for us right now,” she said. “If you look at our cash flow generating capabilities, and with our strategy around that going forward is to... get to our net debt target of $25 billion. That's not where we'll end... we want to continue working to reduce our debt beyond that.”
Occidental increased capital spending in the third quarter as a result of the effects of Hurricane Ida in the Gulf of Mexico, but fourth-quarter spending will drop back to within current parameters, the company said.
The company has also decided to bring two onshore rigs online in the Permian basin in the fourth quarter, instead of a previous plan for early 2022, but said that expense had been offset by cost savings from improved efficiency.
“The Texas Delaware [basin] and New Mexico are two of our highest-return assets. Introducing activity in the fourth quarter will place us in a stronger position for 2022,” chief financial officer Rob Peterson said.
Although Hollub discussed the value of Occidental’s holdings in areas such as Colorado and the Middle East, she said those in the Permian basin would remain the focus of most operations.