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Why Is Occidental (OXY) Up 54.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Occidental Petroleum (OXY - Free Report) . Shares have added about 54.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Occidental due for a pullback? 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 catalysts.

Occidental Posts Wider-Than-Expected Q3 Loss, Cuts Debt

Occidental Petroleum Corporation reported third-quarter 2020 loss of 84 cents per share, wider than the Zacks Consensus Estimate of a loss of 70 cents. The company recorded earnings of 11 cents per share in the prior-year quarter.

Total Revenues

Occidental's total revenues were $3,283 million, which lagged the Zacks Consensus Estimate of $4,266 million by 23%. The top line also decreased 44.1 from 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 $2,989 million, down 25.1% year over year.

Chemical revenues for the quarter were $937 million, down 12.5% year over year.

Midstream & Marketing revenues for the quarter were $364 million, down 68.7% year over year.

Production & Sales

Occidental’s total production volume for the third quarter was 1,237 thousand barrels of oil equivalent per day (Mboe/d), which exceeded the midpoint of the guidance by 12 Mboe/d. The strong production volumes were attributed to higher volumes from the Permian Resources region. Permian Resources production for the third quarter was 420 Mboe/d, which was up 7.7% year over year and exceeded the higher end of the guided range of 392-408 Mboe/d.

For the quarter under review, total sales volume was 1,228 Mboe/d, up 10.2% from 1,114 Mboe/d recorded in the year-ago period.

Realized Prices

Third-quarter realized prices for crude oil decreased 31.5% year over year to $38.67 per barrel on a worldwide basis. Worldwide realized natural gas liquids (NGL) prices decreased 1.1% from the prior-year quarter to $14.85 per barrel. Worldwide natural gas prices decreased 5.1% from the year-ago quarter to $1.31 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 falling commodity prices.

It is aggressively managing cost and implementing ways to lower expenditure. Courtesy of cost management and strong production, domestic operating expenses for the third quarter were $5.38 per boe compared with $8.45 registered in the year-ago quarter.

The company exceeded the $2-billion non-core asset divestiture target for 2020, which will assist it to lower debt level. Occidental has reduced outstanding debt by $1.3 billion year to date.

Interest expenses for the reported quarter were $353 million compared with $360 million in the year-ago period. The decline was due to a reduction of outstanding debts of the company.

Financial Position

As of Sep 30, 2020, Occidental had cash and cash equivalents of $1,896 million compared with $4,840 million in the corresponding period of 2019.

As of Sep 30, 2020, the company had a long-term debt (net of current portion) of $35,899 million compared with $47,583 million on Dec 31, 2019. The decrease in debt level was due to effective management of debt since the acquisition of Anadarko.

For third-quarter 2020, cash from operations was $815 million, down from $1,863 million in the prior-year period.  For third-quarter 2020, Occidental’s total capital expenditure was $246 million compared with $1,717 million invested in the year-ago period.

Guidance

Occidental expects fourth-quarter production in the range of 1,105-1,155 Mboe/d and Permian Resource production in the band of 360-380 Mboe/d. The company expects exploration expenses for the fourth quarter to be $30 million. To preserve liquidity amid 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 -5.22% due to these changes.

VGM Scores

Currently, Occidental has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. It's no surprise Occidental has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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