5 Things Occidental Petroleum Management Wants You to Know

Occidental is ramping up production, thanks to its prime asset in the Permian Basin. Here are a few things management wants investors to keep in mind going forward.

Sep 2, 2014 at 3:29PM

There's an oil and gas boom taking place in the United States, and Occidental Petroleum Corporation (NYSE:OXY) will be right in the thick of it for a long time to come. That's been the consistent message out of the company for several quarters now, and it has been thoroughly reiterated in company earnings reports and investor presentations.

That was once again the core message, when Occidental Petroleum management discussed its most recent quarterly performance with analysts. Here are a few of the most important things Occidental Petroleum had to say in its last conference call.

Domestic oil production leads the way

For the fourth consecutive quarter, we continued our strong domestic oil production growth with increases coming from both our Permian and California assets. -- Chris Stavros, Chief Financial Officer

Occidental has made U.S.-based oil production a huge focal point in recent years, and for a very obvious reason. Oil production in the United States is really ramping up, and it has recently reached levels not seen in decades. Occidental is benefiting hugely from this. Its domestic oil production grew 8% last quarter to 278,000 barrels per day, which set a new quarterly record. According to the company, it's the largest operator and largest producer of oil in the Permian Basin, one of the highest-producing oil fields in the country.

Occidental's premier assets pay off

Our area focus will consist of a significant and leading position in the Permian Basin. -- Steve Chazen, President and Chief Executive Officer

Speaking of the Permian Basin, Occidental's presence there is impressive and should contribute heavily to the company's future growth. Management's forecast calls for annual production growth to easily exceed 20% per year over the next several year, thanks in large part to the company's effective horizontal drilling program. Profitability will be boosted even further due to additional efficiencies, driven by lower drilling and well costs. This will help expand margins.

Future growth plan intact

For the third quarter, excluding Hugoton, we expect our domestic oil production to grow 6,000 and 8,000 barrels per day sequentially, roughly 10% on an annualized basis. -- Stavros

This demonstrates Occidental's intent to ramp up production. This is an ambitious forecast that is higher than many of its competitors. For example, ConocoPhillips maintains a long-term production forecast of just 3%-5% growth. Even better, Occidental management states that its rate of domestic oil production growth will actually accelerate over time.

Watch for changes in oil prices

Our second quarter 2014 worldwide realized oil prices of $100.38 per barrel improved slightly compared to the first quarter realizations of $99 a barrel. -- Stavros

Oil prices are a major consideration for exploration and production companies such as Occidental Petroleum. Occidental is highly sensitive to the price of oil, and it's important to note that oil prices have declined since last quarter. West Texas Intermediate is now around $95 per barrel, and management states that earnings before taxes fluctuate by $37 million for every $1 per barrel change in oil prices. If the downtrend in oil prices continues, Occidental could have a disappointment in store.

Actions taken to enhance shareholder value

We continue to make progress in the plant spin-off of the California Company. -- Chazen

Another important note for investors to keep in mind is the planned spinoff of Occidental's California operations. Management believes its large California business will succeed as a stand-alone entity. Companies often pursue spinoffs when they feel a higher-growing segment isn't getting enough credit, and can secure a higher valuation multiple on its own. Indeed, the company's California unit is impressive, as its oil production increased 10% last quarter. That segment generated $1.2 billion in operating cash flow through the first six months. In addition, the company will pursue $6 billion in debt financing, the proceeds of which will be a tax-free dividend to Occidental, so it's clear that the parent company will benefit as well.

Occidental Petroleum is firing on all cylinders right now, thanks to the success of the Permian Basin. Going forward, production growth should remain strong, and margins will be helped by cost efficiencies. These are solid catalysts for investors, and so is the looming spinoff of the company's highly productive California business. One item investors should be concerned with is the price of oil, which does have the potential to squeeze profits. All in all, the future looks extremely bright for Occidental Petroleum.

Do you know this energy tax "loophole"?

You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers