Occidental Petroleum (OXY, Financial) has enhanced its investment into the Permian Resources operation as illustrated by the 24% growth in total production on year-over-year basis. Other significant long-term investments including, the Al Hosn Gas project and the BridgeTex pipeline is estimated to start contributing considerably to its results for the present quarter.
Occidental is progressing well with the spinoff of California Resources and estimates to issue nearly 310 million shares of new California Company to Occidental shareholders by November end. The spinoff is also believed to generate about 5 billion in cash and add to the company’s tax-free dividend in October.
A majority of the cash flow from these proceeds is expected to be leveraged to repurchase its own shares, while Occidental also expects to significantly invest into the key acquisitions at the Permian Basin.
Operational focus
During the third quarter, Permian Resources recorded a daily production of 77,000 BOE per day, marking a 7% increase from just 72,000 BOE per day of production during the second quarter. Occidental produced 43,000 barrels of oil per day during the third quarter, representing a 26% growth from last year and an 8% expansion from previous quarter.
In the third quarter, Occidental drilled 75 wells and operated 24 rigs that include 44 horizontals. Approximately 71 wells were on full production comprising 36 horizontals. And during the fourth quarter, Occidental expects to operate 30 rigs on an average and conclude the year with 34 rigs. It plans to drill 80 wells and keep 75 wells on production, comprising 48 horizontals.
Therefore, Occidental seems to be well placed in terms of new drillings and significant production from the current wells, delivering considerable cash flows and superior shareholder returns, going forward.
Conclusion
According to Yahoo! Finance, the trailing P/E and forward P/E ratios of 11.31 and 22.12 respectively represent increasing company costs and declining profitability. Also, it is poorer to the healthy industry’s average P/E of 7.61. The PEG ratio of -338.50 is disappointing and signifies no growth but decline. However, the profit margin of 23.12% looks satisfactory.
The revenue per share and diluted EPS of 31.12 and 7.17 respectively signifies solid shareholder earnings. But, the quarterly revenue growth and quarterly earnings growth of -7.00% and -23.70% respectively depicts continued decline in investor earnings. The current ratio of 1.10 is marginally healthy. Finally, the investors are advised to stay away from the Occidental Petroleum Corporation till a major turnaround occurs and the company returns to profitability looking at the poor long-term growth prospects indicated by the CAGR for the next 5 years per annum of -0.04%, poorer to the solid industry’s average of 16.33%.
