Occidental Petroleum (OXY, Financial) has one of the strongest balance sheets in the division, an element that will permit it to keep on growing its dividend in addition to reserving the continuation of its share buyback program, notwithstanding the current low vitality price environment. Close term earnings multiple make the stock seem costly, however, given that oil price is on the move up and will likely move higher, Occidental petroleum is a great buy.
Why Occidental’s future looks bright
Occidental has endured because of the higher expense of tapping oil and regular gas. Anyway, Occidental is presently looking to right this by stripping non-center resources. For instance, the organization has chosen to offer its 50% stake in a pipeline that conveys unrefined petroleum to the Gulf Coast refineries from the Permian Basin in West Texas. The arrangement has been settled with Plains All American Pipeline (PAA, Financial) for $1.08 billion.
Likewise, Occidental as of late spun off California Resources (CRC, Financial). This will bring about lower money operating expenses, devaluation, exhaustion and amortization, and discovering and advancement costs for Occidental. In the meantime, the twist off will permit Occidental to diminish its debt by a huge margin. At present, the organization's debt remains at $8.44 billion. Presently, it has gotten $5 billion from California Resources' bond offering, and the utilization of the money is limited to dividend installments, debt retirement, or share buybacks.
Occidental's turnaround will also be supllemented by lower oil drilling fees. As per Bloomberg:
"Oil production margins won't be as severely squeezed as some observers are predicting because the drilling companies will have to cut fees to retain customers, Chazen said during the call. "We expect, since the service competitors were happy to raise prices when oil was going up, that they will be just as happy to have their prices lower in the future."
It is not simple for organizations in the oil business to cut their capital consumptions as they may miss out on exploration opportunities. On the other hand, Occidental is situated to begin generation at some of its advantages, for example, Al Hosn, which could be the explanation for its capex cut.
Anyway, the great part is that notwithstanding a drop in capital use, Occidental hopes to create around 6% to 10% creation development this monetary year. The generation development will be driven by Occidental's Al Hosn and Permian assets. The organization expects its Al Hosn gas task to add to its development in 2015 and past. Occidental estimates that Al Hosn will convey volumes of around 50,000 boe/d for the entire year. This volume will comprise of more than 40% as NGLs and condensate.
Conclusion
Occidental’s expense reducing initiatives will reward investors in the long run. Moreover, oil prices are moving higher and analysts have raised their outlook even further. With oil prices expected to rise in the months to come, Occidental Petroleum can prove to be a great investment for the long-term.
