Entering text into the input field will update the search result below

Occidental Lowers Permian Costs

Summary

  • The Permian Resources division reaches cash flow breakeven.
  • The EOR operations in the Permian have long provided corporate cash flow.
  • The lower breakeven and the emphasis on lowering breakeven more should ease fears about the dividend in the future.
  • The rising WTI, if the higher prices are maintained, should produce a cash flow surplus.
  • Other new projects such as the ethylene cracker continue to become more efficient.

Occidental Petroleum (NYSE:OXY) has been in the bargain for some time. The bears have pointed out that there are good reasons for that bargain price. Occidental appears to be slowly eliminating the bear arguments. This is the management that saw the oil price drop coming a few years back, so it loaded up California Resources (CRC) with debt and spun it off. That adroit fiscal move allowed Occidental to have some extra liquidity without damaging its credit rating by increasing the debt.

Now comes the announcement that the Permian unconventional operations will achieve cash flow breakeven. This achievement represents a significant lowering of costs. Mr. Market has always had doubts about the unconventional business generating free cash flow. This announcement represents a growing number of operators that in fact are generating cash flow in excess of their needs in the unconventional oil business. All the unconventional business ever needed was time. Sooner or later the technology changes would lower the costs enough for the business to generate cash flow.

Occidental has two Permian operations. The unconventional steals the headlines. But Occidental has long operated an enhanced oil recovery business (EOR business) in the Permian for decades. Occidental was in the Permian long before the Permian was "cool."

Source: Occidental Fourth Quarter, 2017 Financial Supplemental Materials

As shown above, the Permian production represents about half of the total production that Occidental reports. The EOR business has long represented a source of steady cash flow for the company. Recent technology improvements in this area have quietly allowed the company to reduce costs.

However, the unconventional Permian Resources was a relatively new step for the company. Occidental was a little late "to join the Permian party." The company always had the acreage, it just never emphasized the unconventional business. In the last few years, that attitude has obviously changed as

This article was written by

Long Player profile picture
18.73K Followers
Get analysis on under followed Oil & Gas companies with an edge.
I am a high school teacher for a decade. I am now retired.  Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland. I have a high school teaching credential and an MA in Math Education


Occassionally write articles for Rida Morwa''s High Dividend Opportunities https://seekingalpha.com/author/rida-morwa/research


Occassionally write articles on Tag Oil for the Panick High Yield Report

https://seekingalpha.com/account/research/subscribe?slug=richard-lejeune

Analyst’s Disclosure: I am/we are 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.