Should You Buy These Slimmed Down Oil Companies?

Photo credit: Apache Corporation

Last week, top U.S. independent oil companies Apache Corporation (NYSE: APA  ) and Occidental Petroleum Corporation (NYSE: OXY  ) both announced asset sales. Apache unloaded its operations in Argentina to YPF SA (NYSE: YPF  ) while Occidental sold its natural gas rich assets in the Hugoton Field of Kansas for $1.4 billion, as well as announcing its decision to split off its oil rich assets in California into a separate company. As both companies slim down, does it make either a tempting buy?

Apache is coming home
Over the past year Apache has slowly been slimming down. With the sale of its Argentinian business to YPF, Apache's asset sales now total more than $7 billion. About half of the assets the company sold were from its international operations. In addition to the latest sale of operations in Argentina, the company started heading for the exit in Egypt as it sold a third of its operations in that volatile country last August, while it also exited its Canadian coal bed methane business. Apache's other large sale was its Gulf of Mexico shelf assets.

Photo credit: Apache Corporation

There is one big reason why Apache's sale of these assets make sense. Its U.S. onshore operations that it'll now focus on offers very predictable growth at very attractive rates of returns. The same couldn't be said for the assets it sold. While Apache's operations in Argentina, for example, held tremendous promise, the company could earn a steadier return by focusing on the U.S. Further, with resource potential as much as four times its proved reserves, Apache has so much predictable, high return growth that it didn't need to burden its investors with risk outside our borders. Because of this, a slimmed down, return focused Apache is much more compelling than the bloated international energy company it had become. 

Slimming just beginning
Occidental Petroleum could end up shedding a lot more assets than Apache when all is said and done. Until recently the company's asset sales comprised mainly of its general partner interest in a major midstream company. However, last week the company really got the ball moving when it announced the sale of its Hugoton Field assets as well as its plan to separate its California operations into a separate public company.

Once these are complete the new Occidental Petroleum will have exploration and production assets in Texas, the Middle East and Colombia. In addition to that it'll continue to hold its midstream assets as well as its chemicals segment. Each remaining segment is a candidate for divestment, with the Middle East assets a likely target for the next sale. Further, the company could eventually decide to become a pure-play in oil and gas by selling its midstream and chemical segments. The issue for investors is that the end-game of what the new Occidental Petroleum will look like isn't yet known.

Investor takeaway
Apache is much farther along in its repositioning plan than Occidental Petroleum. Because of that Occidental might have more upside over the long-term as there are still plenty of catalysts. That makes buying either more of a personal preference. Investors looking for predictable growth have a clear and compelling candidate in Apache. Meanwhile, upside from catalysts, that might never materialize, are what awaits investors buying Occidental Petroleum today.

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