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Occidental (OXY) Down 27.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Occidental Petroleum (OXY - Free Report) . Shares have lost about 27.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Occidental due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Occidental Q2 Loss Wider Than Expected, Sales Miss

Occidental Petroleum Corporation reported second-quarter 2020 loss of $1.76 per share, wider than the Zacks Consensus Estimate of a loss of $1.66. The company recorded earnings of 97 cents per share in the prior-year quarter.

Total Revenues

Occidental's total revenues were $2,976 million, which lagged the Zacks Consensus Estimate of $3,894 million by 23.6%. The top line also decreased 33.5% from $4,476 million in the year-ago quarter. The year-over-year decline was due to lower contribution from all segments.

Segment Details

Oil and Gas revenues for the quarter were $2,040 million, down 24.9% year over year.

Chemical revenues for the quarter were $846 million, down 15.2% year over year.

Midstream & Marketing revenues for the quarter were $204 million, down 77.6% year over year.

Production & Sales

Occidental’s total production volume for the second quarter was 1,406 thousand barrels of oil equivalent per day (Mboe/d), which exceeded the midpoint of the guidance by 36 Mboe/d. The strong production volumes were attributed to higher volumes from the Permian Resources region. Permian Resources production for the second quarter was 465 Mboe/d, which exceeded the upper end of the guidance by 5% and was up 60.9% year over year.

For the quarter under review, total sales volume was 1,416 Mboe/d, up 104.6% from 692 Mboe/d recorded in the year-ago period.

Realized Prices

Second-quarter realized prices for crude oil decreased 60.7% year over year to $23.17 per barrel on a worldwide basis. Worldwide realized NGL prices decreased 56.7% from the prior-year quarter to $7.79 per barrel. Worldwide natural gas prices improved 6.8% from the year-ago quarter to $1.10 per thousand cubic feet.

Highlights of the Release

Occidental, similar to other oil and gas companies, was adversely impacted by a steep decline in oil prices. Crude oil hedges provided some support to the company amid the falling commodity prices.

It is aggressively managing cost and implementing ways to lower expenditure. Occidental achieved 2020 annualized run rate of $1.5 billion of total overhead savings, including $900 million of synergies and $600 million of additional cost reduction. Courtesy of cost management and strong production, domestic operating expenses for the second quarter were $4.69 boe compared with $11.16 boe registered in the year ago quarter.

Interest expenses for the reported quarter were $310 million compared with $153 million in the year-ago period. Higher interest expenses were due to an increase in debt levels to fund the acquisition of Anadarko.

Financial Position

As of Jun 30, 2020, Occidental had cash and cash equivalents of $1,011 million compared with $3,032 million in the corresponding period of 2019.

As of Jun 30, 2020, the company had a long-term debt (net of current portion) of $36,034 million compared with $38,537 million on Dec 31, 2019. The increase in debt level was due to the loan taken by the company to fund the acquisition of Anadarko.

For second-quarter 2020, cash from operations was $365 million, down from $2,013 million in the prior-year period. For second-quarter 2020, Occidental’s total capital expenditure was $375 million, down 69% from $1,211 million invested in the year-ago period.

Guidance

Occidental expects third-quarter production in the range of 1,200-1,250 Mboe/d and Permian Resource production in the band of 392-408 Mboe/d. It expects 2020 production in the range of 1,300-1,330 Mboe/d and Permian Resource production within 421-431 Mboe/d.

The company expects exploration expenses for the third quarter and 2020 to be $25 million and $120 million, respectively. To preserve liquidity amid the unprecedented economic crisis as a result of the novel coronavirus pandemic, Occidental decided to spend in the range of $0.7-$0.8 billion in second-half 2020 and $2.4-$2.6 billion in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -24.82% due to these changes.

VGM Scores

At this time, Occidental has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Occidental has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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