As more energy companies report calendar fourth-quarter earnings, we are beginning to see how much the downward swing in energy prices has affected earnings. Occidental Petroleum's (NYSE:OXY) fourth-quarter earnings were no exception.

For Oxy, much of the drop came from lower realized natural gas prices, which fell from $9.81 mcf down to $5.64 mcf. Oxy's realized worldwide barrel of oil was relatively flat at $51.18 per barrel for the quarter, compared to $51.87 per barrel in Q4 of 2005. Offsetting the loss of pricing, Oxy cranked out 616,000 barrels of oil equivalent a day (mboed) up from 546 mboed in last year's Q4. Production benefited from increased output in California and Latin America, specifically Argentina.

The smaller chemical division OXYChem also struggled with high prices as well as an unfavorable shift in sales mix. The chemical division's core earnings, which are adjusted for a comparable basis, were $156 million for the quarter, down 9% from Q4 of last year.

Even with lower earnings, management returned a significant amount of cash back to shareholders. For the year, the company spent $1.5 billion buying back 30.6 million shares, which more than accounted for the 28.7 million shares issued for the Vintage acquisition. Also for the year, the company paid out $645 million in dividends, up 34% from $483 million paid out in 2005.

Looking ahead, management plans to continue to develop its existing properties, especially those acquired from the Vintage acquisition. Capital spending for 2007 should be roughly $3.3 billion-$3.4 billion, up from 2006's $3 billion budget. Management also believes it can produce 590 mboed-600 mboed, which should increase when the Dolphin Project in Qatar comes online later in the year.

Considering Oxy's capital budget and potential growth in production brings up the very important issue of future commodity prices; how much do companies spend to increase production or replace reserves when commodity prices are falling? If the realized prices of oil and natural gas continue to fall, an exploration and production company like Oxy could find itself with a capital budget larger than the earnings from the production of oil and natural gas.

That's where Oxy and the lower-cost outfits like XTO Energy (NYSE:XTO) have the advantage. We won't know for sure how well Oxy increased its reserves (which were estimated on the conference call to have increased by a total of 230%) through organic means until February's audited report. However, my guess is it will be better than ConocoPhillips' (NYSE:COP) recently reported weak organic replacement estimates and probably better than the other majors as well.

So while energy prices are wrecking most energy companies' fourth-quarter earnings, Oxy's strong cash flows, disciplined capital spending, and low balance sheet leverage should help stabilize it from any continued weakness in the energy market.

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Fool contributor Matthew Crews welcomes your feedback -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy.