I am neutral on Occidental Petroleum Corporation (OXY) because while the business is currently generating massive free cash flow and is improving its efficiencies, the long-term outlook for petroleum is uncertain and the stock price is not extremely cheap.
Occidental Petroleum Corporation is an independent American hydrocarbon explorer and production company serving the U.S., Latin America, and the Gulf States. The company reported owning a network of 2.9 billion barrels of proved reserves of oil equivalent. (See Analysts’ Top Stocks on TipRanks)
Recent Results
Occidental Petroleum announced its second-quarter 2021 results with earnings of $0.32 per share as per consensus estimates. The company saw a loss of $1.76 in the same quarter of 2020.
Occidental total revenue for Q2 2021 was $6 million, which beat estimates of $5.8 billion. The top line also saw an improvement of 101.9% from Q2 2020, which was due to strong performance from all segments.
The company’s Oil and Gas segment revenues were $4.5 billion, showing an increase of 120.8% from the same quarter of the previous year. The Chemical segment reported revenues of $1.2 billion, up 40.3% year-over-year. Its Midstream & Marketing segment showed revenue of $497 million, showing an improvement of 143.6% from the same previous year quarter.
When it comes to the production volume for the quarter, Occidental delivered 1.2 million BOE/d, which beat the upper end of its guidance range. The high production volume is a result of higher volumes from the Permian Resources, which produced 504 million BOE/d.
Occidental Petroleum is generating $2 billion in annualized free cash flow, the highest in a decade. The company announced a debt tender offer of $3.1 billion in order to pay off selected upcoming debt maturities.
The company achieved the highest quarterly average drilling per day in Delaware, Midland, and DJ Basins, and saw a 15% improvement in drilling cost after employing Oxy Drilling Dynamics in the Gulf of Mexico.
For Q3 2021, Occidental has given a guided range of 1.1 million to 1.2 million BOE/d for production, and expects output from the Permian Resources to be between 484 million and 494 million BOE/d. It expects exploration costs to be around $55 million.
The company also expects to invest $2.9 billion this year to improve its current operations as compared to the $2.5 billion invested in 2020. A large part of its planned capital expenditure will be used to strengthen its Oil and Gas segment.
Wall Street’s Take
From Wall Street analysts, Occidental Petroleum Corporation earns a Moderate Buy analyst consensus based on nine Buy ratings, four Hold ratings, and one Sell rating in the past three months. Additionally, the average Occidental Petroleum Corporation price target of $37.79 puts the upside potential at 17.4%.
Summary and Conclusions
Occidental Petroleum Corporation is generating a lot of free cash flow right now, and is investing in improving its operations. That said, with green energy on the rise and ESG investing concerns at all-time highs, the future demand profile for petroleum is uncertain and therefore clouds the company’s growth prospects.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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