Occidental Petroleum Is a Strong BuyOXY) has a long history of returning significant cash to its key stakeholders through the strategic sell-out of California Resources Corp. to its shareholders during 2014 at an approximate value of $2.3 billion. Further, for more than 10 years concluding 2015, Occidental has uniquely reinvested $54 billion worth of capital into the business operations, achieved notable cash acquisitions of approximately $25 billion with the company’s long-term debt just increasing by about $5.5 billion.
The enhanced oil recovery (EOR) at Permian is capable of operating successfully at much smaller cash costs of about $22 per BOE.
In addition, the company plans to execute 2 to 4 drilling rigs for growth areas while maintaining efficiency enhancement momentum and continuing to improve superior recoveries. Also, Occidental is focused on integrating seismic and data analytics gained from generating wells to better identify inventory.
Occidental is believed to have significant financial flexibility to strategically invest all through the growth cycle while returning attractive cash to key stakeholders. The key energy company has achieved yearly cash flow alterations of nearly $100 million for an approximately $1.00 / barrel alteration in recorded oil prices. Moreover, Occidental has yearly cash flow alterations of nearly $40 million for an approximately $0.50 / Mmbtu alteration in recorded natural gas prices.
Occidental seems to have a robust operating structure targeted towards maximizing free cash flows while controlling both core and non-core expenditures, which is in line with its continued commitment to return a majority of the invested capital to its shareholders in the form of dividends and planned share repurchases.
Moving ahead, Occidental is focused on strategic investments amid the ongoing slowdown in the energy pricing environment for uniquely achieving four key objectives including acceleration of modeling, characterization and geoscience programs to improve productivity, recovery and daily economic returns, reduced base fall while setting up key development programs for both EOR and Resources segments, target initiatives for developing advanced applications and technologies and quicken ongoing enhancements in cost and execution. Occidental has superbly illustrated a CAGR of over 9% total production with reduction in rig count for Permian to about 2 to 4 rigs. Importantly, Occidental is believed to be the biggest Permian Basin explorer and much ahead of each of its key competitors.
Occidental has uniquely raised its forecast for the fiscal year 2016 production growth from the key U.S. fields by about 17,000 boe/d to 307,000 boe/d during the first quarter and this expansion is mainly due to the well-diversified Permian resources located all through southeast New Mexico and west Texas.
The well-planned capital expenditure approach focused on preserving cash while investing strategically in long-term company growth is expected to drive sustainable and lasting cash flow expansion for Occidental.
Overall, the investors are advised to “Hold” their position in Occidental Petroleum Corporation considering the ongoing slow recovery in the global key commodity demand and pricing environment and the company’s weaker financial position with significant total debt of $7.61 billion against weaker total cash position of $3.18 billion only, restricting the company to make future growth investments. The profit margin of -65.43% signifies no profit but loss. The PEG ratio of -0.61 seems disappointing and indicates no growth but decline.
Published on May 26, 2016By Subhen Mittra