Economic recovery in the U.S. has resulted in dramatic increases in commodity chemical prices.
And, says Ray R. Irani, chairman, president, and chief executive of Occidental Petroleum Corp., "We expect the momentum ... to carry through the remainder of the year and gain additional strength in the first quarter of 1995.11
Oxy has "very good reasons" to be bullish about its chemicals outlook, Irani told a meeting of securities analysts in New York.
The company's chemical division's earnings in the third quarter reached a rate of $600 million/year. By contrast, the division earned about $100 million in 1992, near the bottom of the business cycle.
J. Roger Hirl, president and chief executive of Oxy's chemical operation, noted the price of caustic soda has risen substantially in 1994. But the full benefit of the increase won't be felt until early 1995 as long term contracts expire and are renewed as expected at higher prices. Prices also are higher for Polyvinyl chloride and high density polyethylene. All are major Oxy products. Hirl expects demand for them to remain strong several years.
OIL AND GAS
In oil and gas operations, Irani expects Oxy's foray into enhanced oil recovery projects to yield substantial long term earnings. The company has EOR projects in Qatar, Russia, and Venezuela and is assessing opportunities elsewhere.
EOR projects can produce results similar to a successful exploration program but without the inherent risks of exploration, Irani said.
"Each of these projects has brought Oxy a substantial quantity of oil in place," said David R. Martin, president and chief executive of the oil and gas division. "As technology improves, Occidental expects, over a few short years, to substantially increase its reserve base."
Oxy's strategy of adding reserves through EOR, targeted exploration, and niche acquisitions has resulted in a steady rise in international production and reversal of a decline in U.S. production.
Oxy expects its natural gas transportation and marketing unit, MidCon Corp., to remain a source of strong earnings and cash flow as it completes the transition to partial deregulation. Cash flow from MidCon's regulated businesses will support its pursuit of growth in unregulated sectors in the U.S. and in gas fueled electrical power generation in international theaters.
Meantime, Oxy continues to seek ways to cut costs.
Irani said, "In all our businesses, our goal is to drive down costs on a unit-of-production basis and improve margins."
Oxy's 1995 capital spending and the share apportioned to each division will be similar to 1994, with non-U.S. oil and gas operations receiving the largest share.
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