Shares of Occidental Petroleum (OXY +6.12%) jumped 16.9% in February. Rising oil prices helped fuel that rally. The oil and gas giant also reported strong fourth-quarter financial results last month.
Here's a closer look at the catalysts fueling the oil stock's rally last month and whether Occidental is still worth buying after its surge.
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The oil rally continued
Oil prices continued rising last month. WTI, the primary U.S. oil price benchmark, rose 2.8%, closing at just over $67 per barrel. That was its highest close since early August. Meanwhile, Brent oil (the global benchmark price) increased by 2.5% in February, settling at around $72.50 per barrel.
Rising tensions between the U.S. and Iran fueled the rally in oil prices last month. Cruel prices have continued surging in early March after the U.S. and Israel launched strikes against Iran, which retaliated by attacking oil tankers in the Persian Gulf. WTI is up another 10% in March to more than $73 per barrel, while Brent has surged nearly 15% to over $83 per barrel.
NYSE: OXY
Key Data Points
Higher oil prices enable oil companies to earn more money from their production. With crude prices continuing to rally, Occidental's stock price has already risen another 4% in early March.
Operating with excellence
Rising oil prices weren't the only catalyst fueling the rally in Occidental Petroleum's share price last month. The company also reported strong fourth-quarter results in February despite the impact of lower oil prices throughout the period.
Occidental Petroleum posted $0.31 per share of adjusted earnings, nearly double the consensus estimate of $0.17 per share. CEO Vicki Hollob highlighted the main factor fueling the company's better-than-expected results in the earnings press release. She stated, "Our emphasis on operational excellence and cost efficiency drove meaningful production and operating expense outperformance during the fourth quarter." The company produced an average of nearly 1.5 million barrels of oil equivalent per day during the period, exceeding the high end of its guidance, driven by strong well performance in the Permian Basin and the Rockies.
The oil company expects to become an even more efficient producer this year. It anticipates capital spending of $5.5 billion to $5.9 billion, a $550 million reduction from last year at the midpoint. This capital efficiency and other catalysts position Occidental to generate over $1.2 billion in incremental free cash flow this year at the same average oil price as last year. However, with crude prices surging, it should produce an even bigger gusher of additional free cash flow, which it can use to further strengthen its balance sheet and return additional capital to shareholders.
Shares could go either way
Shares of Occidental Petroleum have surged over the past month, largely due to higher oil prices. The uptick in crude prices will enable the company to generate even more free cash flow this year.
Oil prices could have further to run if the war disrupts oil flows out of the Middle East, which would likely continue to drive up Occidental's stock price. However, a de-escalation of tensions would likely cause crude prices (and Occidental's stock) to give back some of their gains. Given this near-term uncertainty, investors would need to be very bullish about oil prices before they buy the energy stock following its recent surge.
