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Neutral on Occidental Petroleum

OXY XOM

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We have maintained our recommendation on Occidental Petroleum Corporation (OXY - Analyst Report) to Neutral primarily owing to the company’s over-reliance on crude oil prices movement, and risks associated with oil exploration and production infrastructure damages. In addition, we are cautious about certain unavoidable circumstances like natural calamities and political instability, which may streamline our future anticipation.  However, we expect the company’s well-diversified asset base, strong balance sheet and liquidity position, steady capital investment program, and cost cutting measures to some extent mitigate those negatives.

In the third quarter of 2012, Occidental Petroleum’s earnings as well as revenue surpassed the Zacks Consensus Estimates driven by higher revenue from the Midstream, Marketing and Other segments, and decline in income tax charges. On a year-over-year basis, the company’s both earnings and revenues declined due to lower contribution from the Oil and Gas, and Chemical segments, and higher interest expenses.  

Occidental Petroleum is an organization with higher operating efficiencies, strong balance sheet and stable capital investment programs. In the forthcoming quarters, we expect the company to generate steady production growth from its diversified assets base located at the different regions, which will subsequently enable Occidental Petroleum to strengthen its operating results while augmenting its financial flexibility.

In spite of having numerous strong future growth drivers, we believe that Occidental Petroleum’s over-reliance on crude oil price movement may be pulling back its future projected growth-patterns as it is a crude oil-levered organization with no refining activities.  

Secondly, we are also skeptical about risks related to oil exploration and production infrastructure damages, natural calamities and political instability, which might obstruct the company’s future operations.

Despite facing several challenges, Occidental Petroleum continues to take some cost-cutting measures, such as planned shutdowns of few plants and production curtailment, which may allow the company to improve its overall future performance.

Occidental Petroleum Corporation currently has short-term Zacks #3 Rank (Hold rating).

Los Angeles, California-based Occidental Petroleum Corporation along with its subsidiaries engages in the exploration, development, production and marketing of crude oil, natural gas liquids and natural gas. The company has operations in the United States, Middle East and North Africa, and Latin America. With a market capitalization of $62.10 billion, Occidental Petroleum has 11,300 full time employees. The company competes with Exxon Mobil Corporation (XOM - Analyst Report).

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