UPDATE: Occidental Petroleum has just reported its third-quarter earnings, revealing a significant 5% increase in net production, now at 1,465 mboe/d. This surge in production comes as the company focuses on efficiency, with cash operating costs decreasing 9% to $14.28 per barrel of oil equivalent (boe).
This latest performance is critical as it underscores Occidental’s ability to navigate a challenging market. The company has successfully reduced its capital expenditures by 14% to $1.3 billion, while utilizing an additional $1.3 billion to pay down debt. Furthermore, it allocated $400 million for dividends, demonstrating a commitment to shareholder returns.
Why this matters: The results are better than expected, exceeding both guidance and internal forecasts. Investors are particularly focused on Occidental’s efficiency improvements in low-cost reservoirs like the Delaware Basin. As the company faces elevated debt levels compared to its peers, this strategic shift is crucial for enhancing capital efficiency and driving returns.
Ocidental’s management has also announced the sale of its chemical division, OxyChem, for $9.7 billion. While this move aims to reduce debt further, analysts express concerns about selling at a low point in the chemicals cycle, potentially missing out on better market conditions. However, this divestiture may provide the flexibility needed for stock buybacks in the near future.
The bottom line: Following these developments, analysts have raised Occidental’s fair value estimate to $64 per share, up from $63. Currently, the stock is trading at over a 30% discount to its underlying value, despite holding a Very High Uncertainty Rating. This higher uncertainty reflects the company’s position on the cost curve and the variable success of its non-upstream investments.
In an encouraging trend, Occidental has reported a 38% reduction in well costs in the Midland region and has successfully extracted 22% more oil this year from its low-cost reservoirs in the Permian and Rockies.
Investors should watch closely as Occidental continues to implement these strategies, with a focus on cost management and debt reduction. The next steps for the company will be critical in determining its future performance and the potential for enhanced shareholder value.
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