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Occidental Petroleum: Oil Turmoil Creates 20%-Plus Upside Potential
- Occidental's free cash flows over the next few years may be insufficient to meet forecasted dividend payment of $2B+ per annum.
- Fortunately, the company's strong balance sheet and liquidity from external sources would safeguard the current dividend level and growth pace in the period of low oil price.
- Potential 1-year upside would exceed 20% based on a dividend valuation model assuming a gradual recovery in oil market.
- Permian has logistical challenges, but cost of production here is still very low.
- In this oil price environment, the Permian is a very attractive place to invest.
- Occidental Petroleum and Permian Basin Royalty Trust are two good places to start.
Occidental Petroleum In 2015 - A Year Of Possible Shareholder Value Enhancement
- 2014 was a transformational year for Occidental Petroleum where it carried out divestments and spin offs. It has entered 2015 with a comfortable cash position.
- Shareholders can expect more share repurchases during the year which will enhance shareholder value through an increase in EPS.
- With a conservative balance sheet position, Occidental is in a position to benefit from any positive changes in the market.
- While it is expected that the company will continue to grow its output, capex reductions are foreseen. The capex cuts could be due to completion of long term projects.
- Investors should hold a long term view for Occidental Petroleum since it has the fundamentals to trade bullishly in the market.
- Occidental Petroleum has $5 billion for share buybacks in 2015 that will translate into EPS expansion and shareholder value creation.
- In addition, Occidental Petroleum will have a liquidity of $4.9 billion for investment and asset acquisition activities in the coming year.
- The low cash cost Permian assets will ensure decent cash flows even when oil prices trade at $60 per barrel.
- Considering the current liquidity and the production growth lined-up for 2015 (including potential asset acquisition), the company's $2.88 per share dividend is sustainable.
Occidental: Trying To Find A Reason To Invest In Oil
- Shares of Occidental have been pressured more than the likes of Exxon Mobil and Chevron so far this year.
- But it looks to be one of the better investments in the E&P space..
- In part, thanks to its cash hoard that will soon be returned to shareholders via dividends and buybacks.
- Occidental Petroleum will benefit from a decrease in capital expenses, while its focus on projects with superior returns is another positive.
- Oil pricing and demand is expected to improve, and this will act as a tailwind for Occidental.
- Occidental is a shareholder-friendly company that carries a robust dividend yield and has strong cash flow, which is another reason for investors to buy it on the dip.
Occidental Petroleum Best Prepared For This Downturn
- Occidental is reorganizing itself and spinning off assets.
- As a result, the company will be flush with cash at just the right time.
- Expect some good acquisitions going forward.
Occidental Petroleum Corporation, 4-Star Stock With A High Free Cash Flow Payout
- Occidental Petroleum Corporation is one of the largest oil and gas companies in the U.S., OXY has global exploration and production operations.
- OXY possesses a large and geographically diverse reserve base. The company built its business around finding and acquiring proven properties to drive its future production growth.
- Earlier in October, the company’s board approved a spin-off of its Californian oil and natural gas business to create an independent entity called California Resources Corporation.
Is The Spin-Off Worth The Hassle For Occidental Petroleum?
- The stock appears to be undervalued against 2015 earnings estimates as does every other commodity producing stock.
- The company has a pretty healthy dividend and has quite a bit more room to grow.
- My investment thesis in the name is because of the spinoff. Other than that I don't think I'd be in the name as future earnings are less than the past.
Positive Catalysts Make Oversold Occidental Petroleum Worth A Look
- OXY beat on earnings at $1.58 for Q3, which was mildly positive in this tough oil market.
- It is about to "demerge" its CRC subsidiary. This, along with a bevy of other actions, should help it rid itself of its long term debt.
- It is technically oversold; and it is near a strong technical support area. Plus oil may be about to rally??
- Its new Al Hosn development is expected to reach 60,000 Boe/d by 1H end 2015. Its Permian developments are growing production quickly.
- OXY expects to grow production by 8%-10% in 2015. Plus it expects to have a pristine balance sheet, if it wasn't already great enough.
Occidental Petroleum: Another High Quality Oil Company On Sale
- Occidental has fallen with oil prices to an attractive entry point.
- Dividends are above average and sustainable.
- Valuations are in a low historical range, the balance sheet looks strong, and management has been effective.
Update: Occidental Q3 Earnings Take A Hit, But Spinning Off California Assets
- Occidental Petroleum beat consensus on the bottom line, but missed on the bottom line.
- The spin-off confirms our bull thesis that Occidental could unlock shareholder value with spin-offs.
- We didn't expect the y/y earnings slide, but did note that the California spin-off would be the first major move in focusing the company.
Permian Oil And Infrastructure And Al Hosn Gas Are Value Levers For Occidental Petroleum
- The Permian Basin is a major focal point of domestic growth for Occidental Petroleum, one of the largest acreage holders in the Permian.
- OXY is not afraid to be opportunistic with its balance sheet if oil prices stay in lower ranges.
- The re-designed OXY is a result of the U.S. shale revolution and the knock-on effects of technological advances.
- OXY's diversified value proposition is an attractive feature of the stock.
- The production volumes have been almost flat over the last few years, which has resulted in poor performance by the company.
- The company is reducing its global operations and focusing more on the domestic sources in order to bring stability to production volumes.
- The Permian Basin will be a key growth driver for the company as it has increased its CapEx for this area.
Occidental Petroleum's Restructuring Efforts Could Disappoint
- Occidental Petroleum continues on a restructuring path into a smaller, more streamlined E&P company.
- However, slow progress, particularly in the Middle East, has disappointed investors.
- The company has been slower than its peers to exploit its unconventional assets in the Permian Basin.
- Occidental Petroleum is in the midst of extensive restructuring efforts that will place its high-potential Permian acreage in a front-and-center position going forward.
- After the restructuring, Occidental should be able to generation mid-single digit annual production growth (better than many large producers), with returns on capital employed climbing above the mid-teens.
- Occidental looks at least 10% undervalued on the basis of EV/DACF, EV/EBITDAX, discounted cash flow, and NAV, and also offers a decent dividend.
- Occidental continues to post higher production growth in the Permian Basin and is on track to deliver a long-term production target of more than 120,000 BOE/D.
- Some analysts believe that the company is too dependent on the Permian Basin and that makes it a risky investment compared to other diversified exploration and production companies.
- The company is progressing with its strategy of divesting old assets to introduce new assets and this will allow the company to improve cash flows.
- As part of its divestment strategy, Occidental recently announced its intention to partially sell its stake in the Shah natural gas field in the UAE.
- Occidental will soon split off its California assets and is looking to sell a number of others.
- Buybacks will be very significant.
- Pro forma Occidental will have considerably less geographical diversification.
Mon, Jan. 26, 12:58 PM
- ConocoPhillips (NYSE:COP) headlines BofA Merrill's list of five favorite large-cap energy stocks, after recently raising the stock to a Buy rating as the company has somewhat dampened earnings and growth expectations for a time even though it is cash rich.
- Occidental Petroleum (NYSE:OXY) faces the oil price correction with the strongest balance sheet in the sector, the firm says, with net cash at year-end 2014 estimated at $1.7B and a whopping $11/share of cash available for buybacks.
- Chatter about takeover speculation has resumed around Hess (NYSE:HES); with a market cap falling to just north of $21B, Merrill says the company could fall prey to larger integrated as a quick bolt-on acquisition to boost growth.
- Also recommended: XOM, PXD
Sat, Jan. 24, 8:25 AM
- In a low-yield world, the newly launched iBillionaire High Dividend Index - which tracks the trading moves of 25 investing-savvy billionaire investors such as Stanley Druckenmiller, James Dinan and Nelson Peltz - actually lives up to its name with a dividend yield of 5.34%.
- At 24%, the index has a high allocation of energy shares, including OXY, TRP, CNP, COP, BP, ATLS, CVI, WMB, APL, RIG and ARP.
- Also worth noting is that the index contains some high-yielding mortgage REITs, an area most investors hate right now but where billionaires seem to find value; examples are NRF, AGNC and CIM.
- No mutual fund or ETF tracks this index, but it offers a fishing pond of income investment ideas to research further.
- The top 20 holdings: TLM, CVC, GM, TIME, AEE, D, STAY, KMI, TROX, EXC, STNG, PPL, IRM, PFE, KKR, KAR, F, MIC, LO, ABBV.
Wed, Jan. 7, 12:39 PM
- BofA Merrill recommends that clients stay defensive on oil stocks and become more positive on natural gas names, highlighting four natural gas stocks and two oil stocks to consider.
- Range Resources (NYSE:RRC) is called a top stock to buy for possible gains in natural gas after shares have slumped 40% since July, especially with the possibility of continued harsh winter weather; the firm also likes Southwestern Energy (NYSE:SWN), Devon Energy (NYSE:DVN) and Memorial Resource Development (NASDAQ:MRD).
- Occidental Petroleum (NYSE:OXY) and Hess (NYSE:HES) are BofA's top oil stocks to buy, and are on the firm's US1 list.
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Dec. 22, 2014, 3:39 PM
- Occidental Petroleum (OXY -0.6%) is in talks to acquire closely held shale explorer Three Rivers Operating Co. II at a price below $20K/acre, Bloomberg reports.
- A purchase of Three Rivers' owned rights to 82K acres in the Permian Basin would cement OXY’s dominance in the area that is the most prolific U.S. crude region, and would be the company’s first significant acquisition in more than four years.
Dec. 22, 2014, 10:45 AM
- Natural gas prices fall 9.5% to near two-year lows at $3.133/mmBtu, in the biggest one-day percentage loss since February and the lowest intraday price since January 2013, on mild weather forecasts and inventory that is above year-ago levels.
- Prices are now down more than 15% in three straight losing sessions and are 30% lower than the six-month high closing price of $4.489/mmBtu it hit just a month ago.
- Weather has been unseasonably warm for December, limiting demand for home heating and allowing relatively low stockpiles to catch up to where they were a year ago and encouraging traders to sell based on the belief that supply is relatively healthy.
- Gas producers are among the biggest early decliners: XOM -1.1%, CHK -7.3%, APC -2.6%, SWN -6%, DVN -2.2%, COP -2.3%, BP -1.5%, COG -4%, BHP -1.9%, CVX -1.3%, ECA -5.1%, EQT -4.3%, RDS.A -1.7%, UPL -12%, WPX -6.9%, EOG -1%, OXY -1.1%, RRC -6.1%, APA -2.3%, AR -3.2%, CNX -3%, QEP -4.8%, LINE -4.9%, NBL -1.6%, SM -2.6%, XEC -4.2%, PXD -2.9%, NFX -5.1%.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, NAGS, DCNG
Dec. 20, 2014, 1:29 PM
- The super majors are probably the first place to look when oil prices fall, writes Avi Salzman, as their stocks tend to slide less drastically than smaller players, and maintenance of dividends is a priority for management. Favorites: Shell (RDS.A, RDS.B) and Chevron (NYSE:CVX).
- While smaller producers appear risky, Occidental (NYSE:OXY) came into the price plunge well-positioned with one of the industry's cleanest balance sheets.
- EOG Resources (NYSE:EOG) could be the pick among shale drillers, says Salzman, as it's chosen drilling spots carefully and its break-even price is among the lowest in the industry. "[The] best management team in Houston," says one fund manager.
- Oil service stocks look especially vulnerable with capex budgets being cut, but Schlumberger (NYSE:SLB) "should have protection in the downturn," writes Salzman, noting the company repurchased 1% of the float in Q3 and at 1.8% yields more than (soon to-be-merged) Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
- See also: Barron's: Five oils to be wary of (Dec. 20, 2014)
Dec. 15, 2014, 10:34 AM
- Occidental Petroleum (OXY +0.2%) draws two starkly different analyst outlooks today, as Sterne Agee upgrades shares to Buy from Neutral while Goldman Sachs issues a Sell rating.
- Sterne Agee calls OXY "a compelling opportunity" in an uncertain E&P landscape, citing its 3.9% yield, a balance sheet many integrateds would envy, and an active 76M-share repurchase program; a recent $8.5B after-tax capital raise bolsters a pristine balance sheet, leading the firm to believe continued dividend growth is likely.
- Goldman, however, rates OXY a Sell, expecting rising capital intensity as OXY seems relatively early in delineating its Permian position, contributing to lower returns; the firm also thinks OXY retains a premium valuation vs. its history and peers that is not justified given weakening fundamentals in growth, returns, free cash flow and dividend growth.
Dec. 3, 2014, 11:32 AM
- The energy sector (XLE +1.5%) continues its momentum from yesterday, leading the way again as the best performing sector in early trading with crude oil rising 1.2% so far today and reports that U.S. well permits fell 40% last month.
- Top performers include Clayton Williams (CWEI +7.7%), Transocean Partners (RIGP +10.6%), Gaslog (GLOG +13.8%) and Energy XXI (EXXI +15.7%).
- Other leading energy names are showing stronger recoveries as they clear last Friday's bearish gap zone: XOM +0.2%, CVX +0.4%, COP +2.5%, OXY +2.5%, DVN +2.9%, EOG +2.5%, HES +2.2%, MUR +1.5%, NBL +2.3%, PXD +4.2%, SU +3%, CNQ +1.9%.
- Some analysts warn that the worst may not be over, however, as much of the advance is being driven by investors repurchasing ETFs they used to make short bets; investors also could opt to sell oil shares at a loss in coming weeks to reduce tax burdens.
Dec. 1, 2014, 10:43 AM
- Occidental Petroleum (OXY -3.5%) is reiterated with Buy ratings but lower price targets at BofA Merrill and Jefferies after completing the spinout of 80% of the equity in California Resources Corp. (CRC -21.2%)
- BofA believes OXY has the defensive characteristics to complete its repositioning, starting with the CRC separation; implications for OXY start with removal of blackout restrictions to enable up to 15% of share buybacks and an accelerated pace of growth per share that remains competitive even at $70 oil.
- Meanwhile, the first day of trading for CRC is not going well: The stock recently traded at ~$7.25 for a market cap of $2.25B but analysts estimated when the spinoff was announced in February that it could be worth as much as $19B.
Nov. 28, 2014, 7:25 AM
- OPEC yesterday decided to hold production numbers despite the bear market in oil. WTI crude is down about $5 per barrel to $69.
- A premarket look at the top 10 holdings of the XLE: Exxon Mobil (NYSE:XOM) -4.1%, Chevron (NYSE:CVX) -4.1%, Schlumberger (NYSE:SLB) -4.6%, ConocoPhillips (NYSE:COP) -4.4%, EOG Resources (NYSE:EOG) -4.3%, Pioneer Natural Resources (NYSE:PXD) -4.8%, Occidental Petroleum (NYSE:OXY) -4.3%, Haliburton (NYSE:HAL) -4.7%, Anadarko Petroleum (NYSE:APC) -5%, Williams Companies (NYSE:WMB) -1.6%.
- ETFs: ERX, VDE, OIH, XOP, ERY, FCG, DIG, PBW, GASL, DUG, IYE, XES, IEO, QCLN, IEZ, PXE, PXI, FENY, PXJ, PSCE, RYE, PUW, FXN, DDG, HECO
Nov. 24, 2014, 10:45 AM
- Exxon Mobil (XOM -0.8%) and Chevron (CVX -0.4%) are lower as Raymond James downgrades both companies given their limited leverage to potential improving oil prices, while analyst Pavel Molchanov feels oil is within weeks of bottoming regardless of the OPEC decision.
- In cutting shares to Market Perform from Outperform, the firm says XOM's "ultra defensive" characteristics, including a large chemicals and refining businesses, have insulated the company from the worst of the falling oil prices, but it still expects the stock to be a middling performer.
- CVX, which is reduced to Outperform from Strong Buy, is approaching the peak of its spending while production growth should accelerate in the next two years, the firm says.
- Also, Molchanov upgrades Occidental Petroleum (OXY +0.8%) to Strong Buy from Outperform and Hess (HES +0.1%) to Outperform from Market Perform.
Nov. 17, 2014, 10:58 AM
- Occidental Petroleum's (OXY -0.7%) California spinoff is being valued at ~$3.27B based on early trading last week, less than expected, amid falling crude prices.
- When-issued shares in California Resources Corp. closed Friday at $8.45, 15%-20% less than analysts would have expected as recently as three weeks ago, according to Oppenheimer's Fadel Gheit.
- "They were initiated by fire," Gheit says. “Whatever valuation people had in mind only a few months ago or three weeks ago - it’s a completely different ball game today.”
- Barclays downgraded OXY to Underweight and lowered its price target to $82 from $92 because of the low value of California Resources in when-issued trading.
Nov. 11, 2014, 2:52 PM
- Count BofA's Doug Leggate among analysts seeing an opportunity to become contrarian bullish on the energy sector, which he says is now discounting $75 oil.
- His top picks in the sector are Occidental Petroleum (NYSE:OXY) and Hess (NYSE:HES), while Anadarko Petroleum (NYSE:APC) and Devon Energy (NYSE:DVN) justify another look; also, pure play gas names Cabot Oil & Gas (NYSE:COG), Range Resources (NYSE:RRC) and Southwestern Energy (NYSE:SWN) remain Buy rated.
- On the technical side, BofA's Stephen Suttmeier notes the sector hit capitulation levels in mid-October not seen since 2002, suggesting the worst is over and energy is poised to build a base and head higher.
- Earlier: Top energy stocks may have bottomed even if oil has not, J.P. Morgan says.
Nov. 6, 2014, 7:43 AM
- Plains All American Pipeline (NYSE:PAA) agrees to acquire Occidental Petroleum's (NYSE:OXY) 50% stake in BridgeTex Pipeline for $1.075B.
- PAA says the acquisition of the new 300K bbl/day crude oil pipeline running from the Permian Basin to the Houston Gulf coast area will strengthen its access to the Gulf coast.
- Magellan Midstream Partners (NYSE:MMP), which owns the remaining 50% interest in BridgeTex, is buying the southern leg of the pipeline system running from Houston to Texas City for $75M.
- OXY says the deals are part of its attempt to streamline its business.
Nov. 3, 2014, 9:50 AM
- Occidental Petroleum (OXY -0.9%) reportedly is in the final steps of finalizing a deal to sell 75% of its 40% stake in the Shah natural gas project in the United Arab Emirates to Abu Dhabi-owned Mubadala for ~$3B.
- When operational, Shah is expected to process 1B cf/day of sour gas into about 500M cf/day of fuel, and also may process 4.4K tons/day of natural gas liquids, 35K bbl/day of condensates and 9.2K tons/day of sulfur.
- OXY plans to continue to operate the field.
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