Why Is Occidental Petroleum Undervalued?

Shares of Occidental Petroleum Corp. (OXY) appear to be discounting oil prices of just $70 per barrel, according to Citigroup analyst Faisel Khan, who assumed coverage of the oil, gas and chemical company with a “buy” rating and $111 price target.

If Occidental can secure enough CO2 to double its flooding work – where carbon dioxide is injected oil reservoirs in order to boost output when extracting oil – Mr. Khan estimates production will rise by 60 thousand barrels per day. This would equate to $5 to $9 per share of upside to his target. If production from Oman continues to rise, this would also boost its share value, the analyst told clients.

In terms of catalysts going forward, Occidental is awaiting final approval of its production-sharing agreement in Libya, which could lead to it eventually booking as much as 200 million barrels of oil equivalent. It is also trying to secure 500 million cubic feet per day of CO2 for its Permian Basin enhanced oil recovery assets.

Mr. Khan said:

Further visibility of these supplies would give us visibility on further production and reserve growth.

He added that with as much as $5-billion in cash on its balance sheet at year end, Occidental’s share buybacks will continue to support the stock.

Comments

[pachanguero:]

this has ben very good to me.....

2008 Jun 03 07:13 AM

[stonebluff:]

Why do you think the buybacks will support OXY stock? Is there any evidence of that? Most writers say just what you say, but they never say how or why. As for PBR, I've done quite well, but these big new finds look years away from any return and huge drainers of cash in the meantime.

2008 Jun 03 12:47 PM

[vesgirl:]

Inherited stock in this and am pleased with the production. I am considering buying more at the cost now... any insight?

2008 Jun 20 12:50 PM

[petersterling:]

Buyback announcements are management's admission of complete failure to find anything else worth investing in. The announcements should always be followed by resignation announcements of the entire Board.

2008 Jun 29 11:11 PM