Occidental Petroleum (NYSE:OXY) is one of the best companies operating in the oil & gas exploration and production industry. The company has been showing strong financial and production performance over the years by smartly deploying its cash in lucrative assets and making efficient management to enhance return from capital. As a result, OXY has been returning massive cash to investors in the form of dividends and buyback to investors.
At the moment, Occidental is undergoing a number of big strategic moves. The company is restructuring its business and reshaping its asset portfolio. Recently, the company announced separation of its Californian oil and natural gas assets. It also sold Hugoton assets and reduced its stake general partner of Plains All American Pipeline. The company has been spending and focusing more on its Permian assets. OXY's Al Hosn Gas Project and Bridge Tex pipeline will be online within the coming quarter.
With the restructuring of its business and reshaping of its assets portfolio, the company will generate reasonable volume growth, higher earnings, and improvement in cash flows and returns. To do that, the company is focusing more on its leading position in the Permian basin. Its Permian basin offers strong oil growth opportunities and the company is expecting to grow annual production from this basin by over 20%. Oxy is spending more than 20% of its capital budget on Permian to accelerate production.
In the recent quarter, OXY has generated around 72,000 barrels of oil on average per day, representing an increase of 28% on an annual basis. And the company has produced 40,000 barrels of oil per day which represents a 21% increase from the past year. In addition, it has drilled 67 horizontal wells in the first half of this year and around 43 are completed. In Q3, the company is planning to drill 54 horizontal wells. Further, OXY has identified 7,000 drilling locations in Permian basin which is substantially higher than the 2500 locations identified at the start of 2014.
Occidental Petroleum is also ready to complete its major Al Hosn Gas Project on which it has invested a significant amount of capital. This project has the capacity to process 500 million cubic feet of gas per day, and the project has capacity to produce more than 50,000 barrels per day of natural gas liquids. Occidental has a 40% stake in this project, which looks like a backbone for the company's future performance. The company's one more major BridgeTex's pipeline project is also near completion and it will provide an advantage in accessibility to the Gulf Coast for its Permian crude oil production.
Some risks are also associated with OXY's business. The major risk which can significantly impact its financial, liquidity situation and future investments is volatility in the oil and gas prices. At the moment, the company is investing heavily on liquid and oil production which are offering higher margin and cash compared to gas. It is expected that liquid and oil prices continues to offer higher margins. On the other hand, gas prices came down in the past years, but the trends has been stabilizing over the past quarters. In terms of liquidity risk, the company looks in a sound financial situation, and it has been generating sufficient cash flows to fulfill its capital requirements. In addition, its debt to equity ratio of 0.2 is well below the industry average of 0.5, signifying low liquidity threat.
Moving forward, with the new projects in place, the company looks to be in a better position to generate moderate growth in volumes, earnings, and cash flows in 2015 and beyond. The company is in a strong position to replace Californian oil and natural gas assets with an increased focus on Permian and two other big projects. At the moment, the company seems to be in a very sound financial position to make big changes in its business structure. At the end of the recent quarter, the company has generated $1.4B of net income which is higher than the past year's income of $1.3B. It has also repurchased 26 million shares since the start of fourth quarter of 2013 and it is looking to repurchase around 20.5 million shares under the current buyback plan. Buyback will positively impact its dividends, earnings per share and share price. Overall, the company seems to be heading in the right direction and it is set to generate big profits with its recent moves.
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