Los Angeles-based Occidental Petroleum Corp. (Oxy) intends to stick with plans it announced last year to cut natural gas production in the Midcontinent because low prices continue to be “horrible,” CEO Stephen Chazen said Wednesday.

Chazen spoke with energy analysts during a conference call to discuss quarterly and year-end earnings results.

Net income for 4Q2011 was $1.6 billion ($2.01/share), compared with $1.2 billion ($1.49) for the same period in 2010. For the full-year 2011, profits were $6.8 billion ($8.32/share), compared with $4.5 billion ($5.56)/for 2010. In both cases oil and gas profits from the exploration business were far above the net income figures for comparative periods — nearly $1 billion and $3 billion more in the quarter and full-year periods, respectively.

Domestic production increased 12% in 2011 and hit an all-time high in 4Q2011 of 449,000 boe/d. Total natural gas liquids output was 310,000 boe/d.

“Domestically, we continue to have a substantial inventory of high-return projects to fulfill our growth objectives,” said Chazen, who also noted that low gas prices have caused some projects to be defered this year. Oxy plans to increase its total capital expenditures in 2012 by about 10% to $8.3 billion, compared with $7.5 billion spent last year.

About $500 million of the added capital spending will be in the United States, mostly in the Permian Basin, Chazen said. Close to 41% of the total budget is split between California (21%) and the Permian (20%), he noted.

Within this growth picture, Oxy plans to further cut back its pure gas drilling in the Midcontinent, South Texas and the Permian Basin.

However, Chazen noted that most of Oxy’s natural gas production is associated with oil and liquids, so there is not much that can be done to cut back on those drilling efforts. ConocoPhillips executives said the same thing during a conference call on Wednesday (see related story).

“Current [domestic] natural gas prices clearly are not sustainable,” Chazen said. “I don’t think anyone is doing any pure gas drilling at prices around $2.50-$2.60 [per Mcf]. I think we have to wait for the U.S. economy to improve…The $2.50 prices for a rational person drilling strictly pure gas wells is not a sustainable price and its significantly below any rational replacement costs.”

He said that Oxy cannot cut back on gas drilling that much since most of its reserves are associated with oil. “In order to [raise prices] you first have to have a reduction in gas drilling, improve the U.S. economy, and quite frankly the cost of drilling the wells have to come down,” said Chazen. He said it was unlikely the United States would see high gas prices anytime soon, “so we need to bring the cost of drilling gas well down to rational levels.”

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