Cost Management & Investments Aid Occidental Petroleum (OXY)

Occidental Petroleum OXY has been gaining from capital investments to strengthen infrastructure, its focus on the Permian region, the divestiture of non-core assets and efficient cost management. The synergy from the Anadarko acquisition is also likely to drive the performance over the long run.

Occidental Petroleum, which currently sports a Zacks Rank #1 (Strong Buy), delivered an average earnings surprise of 39.2% in the last four quarters. OXY’s long-term (three to five years) earnings growth is currently pegged at 33.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailwinds

Occidental Petroleum’s acquisition of Anadarko Petroleum has expanded its operation in the Permian Basin and is accretive to free cash flow. For 2022, Occidental Petroleum expects production in the range of 1,140-1,170 thousand barrels of oil equivalent (Mboe/d) and the output from Permian resources in the band of 527-537 Mboe/d. OXY is also set to bring online 300 to 330 company-operated wells in the Permian region and 80 to 90 wells in the Rockies region in 2022, which will further boost domestic onshore production.

Occidental Petroleum expects to invest in the range of $3.9-$4.3 billion in 2022, which will support the production goal. The company will continue with efficient cost-management initiatives in 2022 as well. Cost savings are embedded in the company’s operations and are trying to find new avenues to lower costs and expand margins. Occidental Petroleum is a low-cost operator with high-quality assets in different locations worldwide and has a competitive advantage over peers. OXY is also working to lower emissions and aims at net-zero emissions by 2050.

Occidental Petroleum continues to increase the production from high-quality asset holdings and lower outstanding debts through proceeds from non-core assets sales. The company completed the large-scale asset divestiture program and is working consistently to strengthen the balance sheet and has been successful in extending near-term $7-billion debt maturity beyond 2025.

Headwinds

Occidental Petroleum operates in a highly competitive oil and gas industry. Also, it needs to follow strict Federal, State and foreign rules and regulations. The loan taken by Occidental Petroleum to fund the Anadarko acquisition substantially increased long-term debt. Like its peers, OXY also faces cost overruns and development interruptions, which might adversely impact production growth and targeted returns.

Price Performance

In the past six months, shares of Occidental Petroleum have rallied 108%, outperforming the industry’s 37.1% growth.

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Other Stocks to Consider

Some other top-ranked stocks from the same sector, such as Conoco Phillips COP, Marathon Oil MRO and Devon Energy DVN, among others, are worth considering.

The long-term (three to five years) earnings growth of Conoco Phillips, Marathon Oil and Devon Energy is 20%, 14.4% and 51.4%, respectively.

The Zacks Consensus Estimate for 2022 earnings per share of Conoco Phillips, Marathon Oil and Devon Energy has moved up 74%, 95.5% and 81.3% year over year, respectively.

COP, MRO and DVN delivered an average earnings surprise of 12.6%, 6.8% and 1.4%, respectively, in the last four quarters.

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