It looks like the bad days are over for Occidental Petroleum (OXY, Financial), which had suffered a lot from the drop in the oil prices. The oil prices around the world are expected to improve, and that should act as a tailwind for the company going forward. However, the stock has experienced a massive drop in the past 12 months, and that unfortunately offers a great opportunity for investors and shareholders to own more of the shares. Moreover, Occidental Petroleum is tactically engaged in the acquisition, exploration and development of oil and gas properties across the globe. This should undoubtedly convey excessive returns to shareholders in the future.
Better times ahead
Moreover, the company should benefit from the recent spinoff of its California assets. This new California Resources Corporation (CRC, Financial) is likely to deliver incremental revenue to Occidental going forward. The company has allotted approximately 310 million shares to the new California company that Occidental shareholders should get by the end of November 2014. It has made significant investment in the California oil and gas business that should enhance value for shareholders going forward.
Alongside it is also concentrating on its asset portfolio in the United States and the Middle East. Occidental has boosted its investment in the Permian Resources operation that has produced about 24% annual growth in total production so far. Occidental is planning to invest in this higher growth and higher return in Permian Basin resources. It is investing in the operation by attractive bolt-on acquisitions in its core area of the Permian Basin. The company sees a lot of growth prospects for these accretive property acquisitions that should complement its existing acreage and enhance its growth and production going forward.
Growth in the cards
It expects its Permian Basin resources to deliver approximately 80,000 BOE per day, and deliver over 100,000 BOE per day in fiscal 2015. It is deploying capital in the Permian Basin. Also, its Bridge Tex project remains in under completion that sets forth tremendous growth opportunity in the long run for Occidental. It expects total oil and gas production growth of 20% in fiscal 2015.
It expects its total domestic production to grow in the range of 5% to 8% with slight decrease in its natural gas and NGL volumes. Moreover, its Permian EOR or enhanced oil recovery business and production look great. It has procured many contracts for the Middle East that should enhance its cash position. It had about total production of 148,000 BOE per day with high EBITDA margin during the third quarter.
In addition, the company has started getting benefit from its long-term investment in the Middle East. It expects its Al Hosn Gas project to have first production in the ongoing quarter. Occidental projects nearly 60,000 BOE per day from this project for next six months in fiscal 2015. It is ramping up production at its Al Hosn Gas project at present. It expects its oil and gas production in the Middle East to grow about 8% to10% in fiscal 2015.
Capital allocation is right
Apart from these investments and development in oil and gas properties, its capital program is well aligned with the movement of oil prices. It is now focusing on more of long-term assets and divesting is noncore assets that should lead to steady production in the future. It is engaged in selling off its Middle East and mid-continent assets in order to concentrate on the faster growing shale plays.
The spinoff of California Resource along with other monetization has produced nearly $8.5 billion. The company plans to utilize some of these cash to repurchase its authorized shares. It has already bought back about 31 million shares of company’s stock worth about $3 billion and plans to buy another 60 million shares company stock leaving the program with 76 million shares.
Ending remarks
Occidental Petroleum looks like a great investment platform. The company is investing in the long-term asset portfolio that should undeniably enhance its growth over the years.
