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Occidental Petroleum: Divestment Strategies to Aid Growth

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On Nov 8, 2016, we issued an updated research report on Occidental Petroleum Corporation (OXY - Free Report) . Occidental Petroleum has been benefiting substantially from its focus on the core oil and gas operations. Although commodity prices improved significantly from the first-quarter 2016 levels, they were well below the prior-year quarter tally, continually hitting the oil & gas companies.

Recently, Occidental Petroleum reported third-quarter 2016 loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 13 cents. In the year-ago quarter, the company had posted earnings of 3 cents. However, total revenue came in at $2,733 million, marginally beating the Zacks Consensus Estimate of $2,714 million.

Occidental Petroleum follows a systematic capital investment program to boost reserves in the U.S. and Middle East. Due to persistent softness in commodity prices, the company projects 2016 capital expenditure of $3 billion, down nearly 50% from the 2015 level.

Despite the expected reduction in capital investment, the company now projects 2016 oil and gas production growth of 7%, exceeding the high end of its previous guidance of 4–6%. Production in the fourth quarter is expected to range between 600,000 and 610,000 BOE per day. Occidental Petroleum estimates production growth of 5–8% in 2017 with capital expenditure of $3.3–$3.8 billion, slightly above the 2016 level. We believe preserving liquidity without sacrificing production is an excellent effort on the part of the company.

Occidental Petroleum is pursuing strategies to minimize activities and exposure in non-core operations in the Middle East and North Africa to lower or eliminate spending which is less competitive and not prudent in the current commodity price environment. Instead, the company will use that capital to focus on opportunities that can generate higher financial returns. In Sep 2016, Occidental Petroleum closed the sale of its South Texas Eagle Ford non-operated properties and filed for government approvals to sell its operations in Libya.

Ongoing volatility in crude oil prices is a primary cause of concern for energy companies like Occidental Petroleum, which generate their revenues from oil and gas operations. In the third quarter of 2016, the company’s total revenue tanked 15.8% year over year owing to a 13.2% decline in realized crude oil prices. The ongoing volatility in commodity prices is preventing the company from realize the full benefits of higher production of oil and gas.

Zacks Rank & Key Picks

Occidental Petroleum carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Oils-Energy sector include Cloud Peak Energy Inc. (CLD - Free Report) , Hallador Energy Company (HNRG - Free Report) and Alliance Resource Partners, L.P (ARLP - Free Report) .

Cloud Peak Energy has seen one upward estimate revision over the last month for 2016. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alliance Resource, another Zacks Rank #1 stock, has seen one upward estimate revision over the last month for the full year.

Hallador Energy has seen one upward estimate revision over the last month for 2016. The stock carries a Zacks Rank #2 (Buy).

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