UPDATE 1-Occidental quarterly profit lower

Thu Jul 26, 2012 1:19pm EDT

By Braden Reddall

July 26 (Reuters) - Occidental Petroleum Corp reported a 28 percent drop in quarterly profit on Thursday on lower oil prices, but earnings were better than expected and the company increased spending and planned more U.S. production growth.

The fourth-largest U.S. oil company said second-quarter output grew to 766,000 barrels per day of oil equivalent from 715,000 a year earlier. This included an average of 462,000 bpd of U.S. production, a rate it saw reaching 480,000 bpd by the end of this year.

Outside its home market, volumes would be about the same this quarter as in the second quarter, the company said, and production in Libya had now just about reached pre-war levels. Occidental said its worldwide effective tax rate would rise to 42 percent in the third quarter from 40 percent in the second.

Permitting in California had improved, Chief Executive Stephen Chazen said, and now he was holding back on investing in more drilling because the cost per well remained too high and he wanted to see it come down first.

"Giving them more money does not cause that," Chazen said on a conference call. "And so a little diet for a little while will have significant reductions in their cost per well. I'm talking not 10 percent, not 20 percent, but a third."

Net profit fell to $1.3 billion, or $1.64 per share, from $1.8 billion, or $2.23 per share, in the year-ago quarter. Analysts, on average, had expected $1.60 per share, according to

Thomson Reuters I/B/E/S.

Occidental shares were 2 percent higher at $85.14 in afternoon trading.

The company said its 2012 capital expenditure was now targeted at $9.2 billion, up from $8.3 billion, with two-thirds of the increase going to Al Hosn Shah in Abu Dhabi - a $10 billion gas project in which Oxy has a 40 percent stake.

On Wednesday, ConocoPhillips and Hess Corp also reported lower quarterly profits, and raised their spending plans in a bid to increase crude oil production.

Brent crude prices averaged about $109 per barrel in the second quarter, down $8 from the same quarter a year ago.

Chazen said investors should not expect large-scale dealmaking for the Los Angeles-based company after it spent $1 billion on deals scattered around South Texas, the Permian basin centered in West Texas, and North Dakota's Williston basin.

The Williston remained a clear "number three" priority domestically for Occidental after the Permian and California, said Chazen, who is cutting its number of rigs there in half.

"It is really a cost issue. I think that the service companies are getting rich as pigs there," Chazen said. "We are still continuing to put capital there, but not at the level we were ... it is clearly assets for the future rather than a big driver for today."