LOS ANGELES - Nov. 19, 1998 (PRIMEZONE) -- Occidental Petroleum Corporation is engaged in a "never-ending" refinement of its assets to strengthen earnings, Dr. Ray R. Irani, the company's chairman and chief executive officer, said today.
"We're going to swap or sell existing assets that lack the critical mass and competitive cost structure needed to grow our business. We're going to replace them with assets that do meet our criteria for growth," Dr. Irani told a meeting of financial analysts in New York.
He added, "By creating a mix of large core assets, we will use economies of scale to drive down costs to assure that more of the revenue we generate falls to the bottom line."
Dr. Irani described 1998 as "difficult" and as a "pivotal transition year," adding, "We will continue to wrestle with achieving a balance between attaining significant long-term growth and reaching our near-term financial objectives."
Dr. Dale R. Laurance, Occidental's president, said depressed energy and chemical prices this year have reduced 1998 earnings by an estimated $850 million compared with 1997 earnings, assuming 1997 prices had been in effect.
To partially offset lower prices, the company is pressing ahead with programs designed to reduce selling, general and administrative costs by at least $200 million annually, or approximately 30 percent, by the year 2000, Dr. Laurance said. Some reductions already have been announced at Occidental's corporate offices in Los Angeles, at the headquarters of its oil and gas division in Bakersfield, California, and at its chemical division based in Dallas, Texas.
Dr. Irani said Occidental is concentrating its oil and gas business in the United States, the Middle East and Latin America, adding, "We want more assets like Elk Hills, Qatar and Cano Limon."
He said significant cost savings have been achieved at Elk Hills in California and at Qatar's Idd el Shargi North Dome in the Middle East, while production and reserves have increased.
Dr. Irani also noted a major international asset swap with Shell, in which Occidental acquired Shell's producing oil holdings in Colombia and Yemen in exchange for Occidental's interests in large gas discoveries in Malaysia and the Philippines that would require long lead times and nearly $2 billion in capital to develop. As a result of the swap, Occidental is expected to increase its net oil production by approximately 46,000 barrels per day.
Occidental's net worldwide oil production in 1999 is expected to increase about 8 percent to 347,000 barrels per day, from 320,000 this year, said Roger Abel, president and chief operating officer of Occidental's oil and gas division.
Abel also said Occidental's worldwide estimated recoverable deposits of oil are expected to increase approximately 22 percent to 1.1 billion barrels at year-end 1998, versus 900 million a year earlier. Of that total, U.S. reserves will account for 40 percent, compared with 22 percent in 1997, largely reflecting the Elk Hills acquisition. The company expects in 1998 to show a worldwide oil replacement ratio of approximately 415 percent and a worldwide gas replacement ratio of approximately 230 percent.
In chemicals, Dr. Irani said, Occidental is focusing on being number one or number two in all of its core products, either through internal expansions or alliances with other companies.
J. Roger Hirl, president and chief executive of Occidental's chemical division, said the Equistar petrochemicals alliance, completed this year with Lyondell and Millennium, and a pending vinyls alliance with Geon, to be completed in early 1999, will create leaders in their industries and are expected to achieve cost savings net to Occidental of $80 million and $60 million, respectively.
Dr. Laurance said Occidental's capital expenditures in 1999 will be an estimated $825 million, down about 20 percent from 1998 and 47 percent from 1997.
Of the total, approximately 80 percent will be allocated to oil and gas, versus 70 percent in recent years. Of the $650 million for oil and gas, $125 million will be allocated to exploration.
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