Occidental Petroleum (NYSE:OXY) recently announced that it would pursue the sale of a minority stake in its Middle Eastern and North African operations and would also consider a number of options its Midcontinent assets, including oil and gas interests in the Williston Basin, Hugoton Field, Piceance Basin and other Rocky Mountain assets. In the wake of Friday's news, I not only wanted to company's moves, but also note a number of the catalysts behind my decision to remain long on shares of Occidental Petroleum.
Enhancing Shareholder Value
On October 18, the Board of Directors of Occidental Petroleum announced three moves pertaining to the sale of certain assets and the exploration of strategic alternatives to a number of other assets. First, the board authorized the sale of a minority interest in its Middle East/North Africa operations in a financially efficient manner. These operational interests include 929 Mmboe of proven reserves (through the end of 2012) and net production of 263 Mboepd through the first six months of 2013.
Secondly, the board has authorized the pursuit of strategic alternatives for select Midcontinent assets, including oil and gas interests in the Williston Basin, Hugoton Field, Piceance Basin and other Rocky Mountain assets. These operational interests include 211 Mmboe of proven reserves (through the end of 2012) and net production of 66 Mboepd through the first six months of 2013.
Lastly, the board has authorized the Sale of a portion of the Occidental's 35% investment in the General Partner of Plains All-American Pipeline, L.P. (NYSE:PAA), resulting in pre-tax proceeds of $1.3 billion. Occidental's remaining interest in Plains All-American Pipeline, based on the IPO price, is worth approximately $3.4 billion.
These moves clearly consolidate the company's operations but also reduce its exposure to the various risks it faces in highly unstable regions such as North Africa and the Middle East. For example, Stephen I. Chazen, President and Chief Executive Officer of Occidental pointed out that, "Our goal is to become a somewhat smaller company with more manageable exposure to political risk".
Catalyst #1 - Recent Performance and Trend Status
On Thursday shares of OXY, which currently possess a market cap of $78.94 billion, a beta of 1.21, a P/E ratio of 17.90, a forward P/E ratio of 13.12, and a current dividend yield of 2.61% ($2.56), settled at a price of $98.08/share. Based on their closing price of $98.08/share, shares of OXY are trading 3.86% above their 20-day simple moving average, 8.15% above their 50-day simple moving average, and 13.14% above their 200-day simple moving average. These numbers indicate a short-term, mid-term, and long-term uptrend for the stock which generally translates into an aggressive buying mode for both near-term traders and long-term investors.
Catalyst #2 - Recent Dividend Behavior
Since March 8, 2011 the company has actually increased its annual dividend twice in the last 30 months. The company's forward dividend yield of 2.61% ($2.56) makes this particular oil & gas play a highly considerable option, especially for those who may be in the market for a moderately-yielding stream of quarterly income.
A Few Risks to Consider
According to Occidental's most recent 10-K there are a number of risk factors all investors should consider. Investors may want to consider the fact that Volatile global and local commodity pricing, various types of governmental action, and political instability strongly affect Occidental's results of operations. For example, "Occidental's financial results correlate closely to the prices it obtains for its products, particularly oil and, to a lesser extent, natural gas and its chemical products. Changes in consumption patterns, global and local economic conditions, inventory levels, production disruptions, the actions of OPEC, currency exchange rates, worldwide drilling and exploration activities, technological developments, weather, geophysical and technical limitations, transportation bottlenecks and other matters affect the supply and demand dynamics of oil and gas, which, along with the effect of changes in market perceptions, contribute to price unpredictability and volatility".
When it comes to those who may be looking to establish a position in Occidental Petroleum, I'd continue to keep a watchful eye on a number of additional catalysts. These catalysts include but are limited to how well the company's asset-sale efforts (which are intended to downsize exposure and reduce risk) will pay off over the next 12-18 months, as well as any increase the company's dividend over the next 6-12 months.
Disclosure: I am long OXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.