Settlement With U.S. Nearly Erases Oxy Profit

A $205-million settlement with the Department of Energy in an old oil price dispute almost wiped out fourth-quarter earnings at Occidental Petroleum, the oil, gas, chemical and livestock company said Wednesday.

Oxy said it had agreed to reimburse the government for overcharging on crude oil during the period of price controls in 1979-1981. The company said it took a one-time charge of $45 million, which slashed fourth-quarter profit to $7 million.

Without the charge, Oxy said profit for the quarter would have climbed about 37%, as a strong performance by its chemicals business offset poor results in oil and gas. Sales rose 20% to $5.3 billion.

For the year, the Los Angeles-based conglomerate’s earnings climbed 26% to $302 million on sales of $19.4 billion, up 13%.

The Energy Department said the oil price dispute, similar to those settled recently by numerous other oil firms, stemmed from disagreements over definitions of “old” and “new” oil. Oil was priced according to when it was discovered.

The case involved Cities Service, which Oxy bought in 1982. The government originally wanted $700 million, but the deal calls for $40 million now and $20.34 million annually for eight years, which will total about $205 million. Oxy said it had already set aside reserves for all but $45 million, leading to the fourth-quarter charge.

In a statement, Chairman Armand Hammer said the company’s chemical business earned almost $900 million after taxes last year, underscoring Oxy’s growing dependence on chemicals. The imbalance prompted Hammer to say Oxy “is committed to remaining a major oil and gas company.”

However, the oil and gas division lost $43 million in the fourth quarter, roughly a break-even performance after the settlement of the pricing case. Oxy also continues to lose production from its destroyed Piper Alpha platform in the North Sea, which exploded July 6, killing 167. Occidental executives previously said that would cut year-end profits by up to $26 million.

For the year, the oil and gas division earned $210 million in 1988, down 24%, despite a $176-million gain from the sale of stock in the Oxy subsidiary, which owns its sizable holdings in Colombia.

In both 1988 and 1987, Oxy’s earnings were skewed by numerous one-time charges and gains. On actual operations, Oxy reported a 45% improvement to $262 million for the fourth quarter and a 47% rise to $1.38 billion for all of 1988.

Oxy credited strong demand and high profit margins in petrochemicals, electrochemicals, detergent products and plastics for the nearly threefold rise in chemicals earnings. These included a “substantial” contribution from Cain Chemical, which Oxy acquired last May.