Oxy reports impairment charge largely on Midcontinent gas assets

Occidental Petroleum Corp. reported a $1.1 billion aftertax charge in the fourth quarter 2012, largely for impairments in its Midcontinent natural gas assets, executives announced during an earnings call on Jan. 31.

Cynthia Walker, Oxy chief financial officer, said more than 90% of the impairments were related to gas properties acquired more than 4 years ago on average.

“While the performance of the properties was generally as expected, natural gas prices have declined by approximately 50% since the acquisitions,” Walker said. “Also in 2012, natural gas prices and NGL prices used for reserve calculations were significantly lower than prices used in 2011, resulting in declines in economically feasible reserves in these properties.”

Oxy, based in Los Angeles, plans a $9.6 billion budget for 2013, down nearly 6% from 2012. But Chief Executive Officer Stephen Chazen said the company expects to boost US oil production by 8-10% for 2013 compared with 2012.

Executives said the company’s goal for 2013 is to reduce US drilling costs by 15% compared with 2012. Oxy expects its US rig count will average 55 rigs during 2013 compared with 64 rigs during 2012.

Bill Albrecht, Oxy president of US oil and gas operations, said the company expects to average 25-27 rigs in the Permian basin with one third of that program devoted to the Wolfberry play.

“Only about 15-20% or so of our wells in the Permian are going to be true horizontals,” Albrecht said. “Now, having said that, we do drill a number of highly deviated wells, but those are still not horizontals. It is only in certain specific limited plays where we are drilling horizontal wells.”

Chazen said Oxy continues to drill at a moderate rate in the Bakken formation as part of the company's overall plan to be conservative on spending.