Occidental Petroleum: Active and Attractive

I suspect many Fools with a taste for energy agree with my conviction that ExxonMobil (NYSE: XOM  ) constitutes a sensible investment in this important sector. A similar case can be made for many of the so-called majors, but it's not necessary to descend too far in size to hit upon another oil and gas producer that merits Foolish attention.

I'm referring to Occidental Petroleum (NYSE: OXY  ) , our country's fourth-largest oil company and the biggest crude producer in the continental U.S. Occidental reported its quarterly results Wednesday, and while it's becoming more difficult for companies to overwhelm investors, Occidental's results seemed more positive than the market's reaction indicated.

The California company reported $1.2 billion, or $1.49 per share, in earnings, compared with $938 million, or $1.15 per share, in the year-ago quarter. But if you back out special items, it earned $1.3 billion, or $1.58 per share. Revenue was up 16% to $5.06 billion. The Wall Streeters who follow Occidental expected $1.51 in per-share earnings on revenues of $5.2 billion.

The quarter's profit increase was primarily attributable to gains from the company's Phibro LLC trading operation -- which it acquired from Citigroup in 2009 -- along with higher oil prices and somewhat increased oil production. In the quarter just past, Occidental's output averaged 753,000 barrels of oil equivalent (BOE) per day, versus 717,000 BOE a year ago.

Oil and gas core earnings after items were $1.9 billion, while the chemical segment earned $111 million, and the midstream and marketing unit (Phibro, pipelines, and gas processing facilities) added another $202 million to the total.

Occidental's oil and gas operations are conducted largely in the U.S., Latin America, and the Middle East/North Africa. Domestically, its primary activities occur in Texas and California. In South America, it works in Argentina, Bolivia, and Columbia, although it recently announced the sale of its Argentine operations to China Petroleum & Chemical Corp. (NYSE: SNP  ) , aka Sinopec, for $2.5 billion. At about the same time, it added to its Texas and California holdings.

The Middle East/North Africa operations include work in Qatar, Oman, Yemen, Libya, and Bahrain. In Qatar, where the likes of Royal Dutch Shell (NYSE: RDS-A  ) , Exxon, and Total (NYSE: TOT  ) are active, Occidental operates a 230-mile subsea pipeline that transports natural gas from offshore wells to Oman and the United Arab Emirates. Just last week Occidental agreed to partner with the Abu Dhabi National Oil Co. by taking a 40% stake in the $10 billion Shah sour-gas field development from which ConocoPhillips (NYSE: COP  ) withdrew last spring.

Digging into Occidental can lead Fools to even more positives on the company. The effort would be worthwhile.

Total is a Motley Fool Income Investor choice. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 17, 2011, at 9:12 PM, MHedgeFundTrader wrote:

    I have kept oil companies in my long term model portfolio for many years now. But there are a lot of belles at the ball, but you can’t dance with all of them.

    While a student at UCLA in the early seventies, I took a World Politics course which required me to pick a country, analyze its economy, and make recommendations for its economic development. I chose Algeria, a country where I had spent the summer of 1968 caravanning among the Bedouins, fighting rebels and bandits, crawling out of the desert starved, lice ridden, and half dead. I concluded in my paper that the North African country should immediately nationalize the oil industry, and raise prices from $3/barrel to $10. I knew that Los Angeles based Occidental Petroleum (OXY) was interested in exploring for oil there, so I sent my paper to the company for review. They called the next day and invited me to their imposing downtown headquarters, then the tallest building in Los Angeles.

    I was ushered into the office of Dr. Armand Hammer, one of the great independent oil moguls of the day, a larger than life figure who owned a spectacular impressionist art collection, and who confidently displayed a priceless Fabergé egg on his desk. He said he was impressed with my paper, and then spent two hours grilling me. Why should oil prices go up? Who did I know there? What did I see? What was the state of their infrastructure? Roads? Bridges? Rail lines? Did I see any oil derricks? Did I see any Russians? I told him everything I knew, including the two weeks spent in an Algiers jail for taking pictures in the wrong places. His parting words were to never take my eye off the oil industry, as it is the driver of everything else. I have followed that advice ever since.

    When I went back to UCLA, I told a CIA friend of mine that I had just spent the afternoon with the eminent doctor (Marsha, call me!). She told me that he had been a close advisor of Vladimir Lenin after the Russian Revolution, had been a double agent for the Soviets ever since, that the FBI had known this all along, and was currently funneling illegal campaign donations to President Richard Nixon. Shocked, I kicked myself for going into an interview so ill prepared, and had missed a golden opportunity to ask some great questions. I never made that mistake again.

    Some 40 years later, while trolling the markets for great buying opportunities set up by the BP oil spill, I stumbled across (OXY) once more (click here for their site at http://www.oxy.com ). (OXY) has a minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America. It was the first US oil company to go back into Libya when the sanctions were lifted in 2005. (OXY’s) substantial California production is expected to leap to 45% to 200,000 barrels a day over the next four years. Its horizontal multistage fracturing technology will enable it to dominate California shale. It has raised its dividend for the eighth year in a row, by 15% to 1.60%. Need I say more?

    The clear message that has come out of the BP oil spill is that onshore energy resources are now more valuable than offshore ones. I decided to add it to my model portfolio. Energy is one of a tiny handful of industries I am willing to put my money in these days (technology and commodities are the others), and BP has handed me a rare opportunity to get in as the tightwad that I truly am.

    Oh, and I got an A+ on the paper, and the following year Algeria raised the price of oil to $12.

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