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Permian Oil And Infrastructure And Al Hosn Gas Are Value Levers For Occidental Petroleum

Jennifer Warren profile picture
Jennifer Warren


In spite of reduced oil prices in the last quarter, with West Texas Intermediate (WTI) hovering near $80 and Brent, the global benchmark, around $85, Occidental Petroleum (NYSE:OXY) continues to deliver on promises. And OXY is not flinching from lower oil prices or changing any plans at present. Given supply costs and supply/demand fundamentals, even lower prices are not in the cards for any length of time, notes an executive. In earlier articles, the impact of the Permian focus and OXY's diversified upstream-midstream portfolio were sources of profitability over the longer haul (see below).

Chief Financial Officer Chris Stavros noted in the earnings call last week:

"For the fifth consecutive quarter, we continued our strong domestic oil production growth. We met our guidance and achieved the year-over-year domestic oil production increase of 20,000 BOE per day or about 8%, led by our Permian and California assets."

OXY's total firm-wide oil and gas production volumes averaged 755,000 boe/day for the third quarter of 2014. U.S. oil and gas production averaged 475,000 boe/day in the third quarter, up 11,000 boe/day sequentially. Domestic oil production was 282,000 barrels per day during the third quarter, a new quarterly record. Domestic oil production volumes increased by 20,000 barrels per day from the year ago quarter with the Permian Resources business, its unconventional arm, growing its oil production by 26% to 43,000 barrels per day.

OXY expects an acceleration of total oil and gas production growth in 2015 from the Permian Resources group and the ramp-up of production from its Al Hosn project. Permian Resources is expected to deliver production growth of at least 20% in 2015, primarily from oil. They expect the Resources business to exit 2014 at over 80,000 boe/day and next year at over 100,000 boe/day. In the Permian, OXY expects to execute accelerated development in 2015, with the caveats

This article was written by

Jennifer Warren profile picture
Jennifer's areas of expertise include energy trends —their economic and geopolitical implications—and resource sustainability issues. She considers her investment approach eclectic, drawing from a multidisciplinary pool of work. Lately, she is working on market making in an impact area, trying to match capital to beneficial projects. With partners, she works from the ground-up through to a final end game, with some projects that are enduring or long-lived.Other interests include the energy transition, the impact of shale oil and natural gas, climate change, clean and efficient infrastructure, China, India, and the energy-water-resources nexus—all interrelated in various ways. Her work has been published in various academic, policy and business publications such as Far Eastern Economic Review, Economist Intelligence Unit’s Executive Briefing, Journal of Structured Finance, Lloyd's List, D CEO, Energy Trends Insider, Financial Sense, and many others. From Dec 2010 to April 2013, she was the CEO/President of a global affairs organization focused on cutting edge geopolitical and macroeconomic trends. She organized and moderated panels on global gas, energy security, energy infrastructure finance, and urban development. She has a master's degree from London School of Economics, and bachelor's in finance/marketing. She is principal of Concept Elemental, a strategic communications consultancy focusing on knowledge work, and includes over fifteen years of financial services industry work. She works with a top University, "translating" cutting edge research as well.Recent interview:https://podcasts.apple.com/us/podcast/wednesday-may-10-montana-world-affairs-council/id1511606812?i=1000612517083

Analyst’s Disclosure: The author is long OXY, APA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Comments (9)

Thanks for all your work...helpful as I search for players that can withstand this environment. You seem comfortable that RSPP has manageable debt.???
Pablomike profile picture
OXY made a lot of noise when they announced they would sell/spin-off CA assets. Any word on status of OXYs CA property??
Jennifer Warren profile picture
I suggest you read the recent transcript (scroll to CFO Chris Stavros noted). There is a lot more detail now at least about how it related to the bigger OXY. I think the real test will be once it is operational without the main Oxy.

I have not really focused on the split part so much as the main event, so to speak. Once things shake out more clearly I may.
Jennifer Warren profile picture
Appreciate it Richard.
richard simonetti profile picture

You make a compelling case for OXY’s upside.
RSPP is trading about 1.6 x book at 82 dollar WTI. Given adjustments for Gastar's Utica gas and Upper Hunton oil success in the last two months on an equivalent 1.6 x estimated 2014 end book, Gastar should be trading at 10-11 dollars per share.

Given GST has more cash and liquidity and they are very close on expected revenues and profitability, Gastar's debt leverage is actually a plus for the future stock performance as the company has a market value of around 300 million to RSPP's near 2 billion.

Such a dicodemy will not stand in this market, especially if the global economy recovers in the 4Q-which it typically does and WTI heads back toward 90. Gst also has a larger Hedge portfolio which is not in the stock price today.
TopDoggie profile picture
They are a nice stable company to hold in the long term account. Finding the small companies next to them that they buy out for their acreage is where the nice payoffs come. It surprises me with their size that they are able to offer that much growth. Keep up the good work.
Jennifer Warren profile picture
For sure, my plan... Thanks TD.
Gastar (GST) should also be about 60% oil 40% gas next year and will likely represent a better risk to reward to the smaller permian players like RSPP.
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