Hold-rated Occidental Petroleum (NYSE:OXY) offers unlevered appreciation potential of 54% to a McDep Ratio of 1.0 and levered appreciation potential of 61% to Net Present Value (NPV) of $89 a share. During the first quarter, according to results released today, OXY generated cash from oil and gas production of about $21 a barrel of oil equivalent as the difference between price of about $34 and cash operating costs of about $13.
Compared to our expectations of three months ago, we overestimated the rate at which production cost would decline with price and we underestimated downstream cash flow. It looks like the first quarter was the low point from which results can build with rising price. Our valuation capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) for natural gas and oil.
Despite OXY’s historical international association, latest estimates again show most of the company’s oil and gas reserves in the U.S. Finally, pointing to expected oil price recovery, futures prices for the next six years averaged US$66 a barrel recently.
Originally published on April 23, 2009.