Occidental Petroleum (OXY, Financial) posted mixed results in the recently reported first quarter. The overall performance was quite satisfactory as its earnings came in line with the consensus estimates. However, it failed to impress investors with its revenue. On the other hand, it has been a solid production quarter for Occidental, with its production rising by 13%.
The way ahead
The management of the company is quite optimistic about its better performance in future, and, is counting on its Permian Resources as it is in great shape. Besides this, it is also under process of starting a new Al-Hosn gas project, which is also expected to drive its cash flow in the upcoming quarters. Let us have a look.
Looking at the financial performance a bit, Occidental’s quarterly revenue came in at $3.08 billion which fell shy of consensus estimates of $3.3 billion. But, it didn’t disappoint on the earnings front as it posted EPS of $0.04 per share, which were just in line with its expectations. If we look at the last five year stock performance, the stock has been on a topsy turvy ride. Though it is now on the lower side, but, looking at the growth opportunities and present trend, the stock is expected to perform better in upcoming quarters.
Occidental has pin pointed key growth areas and has been working closely to further improve its cash flows. It has already undertaken cost cutting initiatives which are paying off for it now. It has made a 33% reduction in costs which has given it some financial stability, and, it is in good position as of now, to deal with the soft oil environment. Its Permian Basin is one of its solid offerings, which Occidental is counting on, and, it is now focusing on increasing its production and cash flow at it soon. With this, Occidental is mainly focused on improving its margins and not volume.
Impressive moves
Moving ahead, it has made some impressive moves in the past which are supporting it in present times as well. With its reduction initiatives, it has saved about $400 million, which it is now using in some key growth areas. Considering the growth prospects at Permian Resources, Occidental is now planning to ramp up its drilling activities for the rest of the year. It is planning to operate about 13 drilling rigs to drill 150 wells in this area.
Another important news for the investors is that Occidental has almost completed formalities to start a new Al-Hosn gas project in late April 2015. Considering the growth momentum, this is a great move by the company, as this new start up is expected to ramp up its production in future. It is expected to add 9,000 barrel of oil equivalent once it gets fully operational.
In addition, Occidental is also focusing on drilling activities. It is bringing in design enhancements and altering dynamics to improve its rate of penetration. It has plans to continue its cost reduction measures which is expected to again reduce costs about 20% to 25%. This will surely improve its margins.
Conclusion
Now moving to its fundamentals, the stock with a forward P/E of 27.00 indicates solid growth in earnings in the near term. Also, its moves at the Permian Resources and its cost reduction measures are expected to strengthen its performance, even in the soft oil and gas market. Based on this valuation, I would like to suggest the investors to definitely pick Occidental Petroleum as of now.
