Following the earnings release for Occidental Petroleum Corporation (OXY) on April 29, 2010, the company issued a detailed outlook in an analyst meeting held on May 19, 2010. Occidental’s better-than-expected performance in the first quarter was mainly driven by higher production volumes.
The company continues to focus on improving its reserve base through a strong pipeline of projects worldwide. Further, the company builds on its financial discipline, with greater emphasis on efficient capital allocation.
Earnings Review
Net income from continuing operations was $1.32 per share, below the Zacks Consensus Estimate of $1.35 but substantially higher than last year’s net income of 45 cents.
Revenues increased 55% year over year to $4.8 billion in the first quarter. Revenue in the quarter increased over last year due to increased production and higher realized crude oil prices, partially offset by lower natural gas prices.
We have discussed the quarterly results at length here: Occidental Profits Rise but Miss
Agreement of Analysts
The overall trend in annual estimates remains mixed, with only 1 out of 19 upside revision for 2010 in the last 7 days. Five analysts raised their estimates in the last 30 days. However, estimates were lowered by 1 analyst in the last 7 and by 9 in the last 30 days.
For 2011, there were 2 upward revisions in the last 7 days, while 6 out of the 19 analysts raised estimates in the last 30 days. Nevertheless, 1 analyst in the last 7 days and 7 in the last 30 days moved estimates in the opposite direction.
Magnitude of Estimate Revisions
Given the number of negative revisions, earnings estimate for fiscal 2010 has fallen 2 cents over the past week and 6 cents compared with a month ago. Earnings estimates for fiscal 2011, however, rose by a penny from past week and fell by 2 cents from the past month. The current Zacks Consensus Estimates are $6.02 and $7.69 for 2010 and 2011, respectively.
Maintain Neutral
We believe Occidental remains well positioned to continue delivering strong results and long-term value, given its portfolio of low-risk and long reserve-life properties that provide the company with a steady production-growth profile and above peer-group crude oil leverage. Additionally, a strong balance sheet, effective capital discipline and high operating efficiency remain the cornerstones of Occidental’s competitive advantage.
Occidental outlined its multi-year production outlook in an analyst meeting held yesterday. Going forward, Occidental expects to achieve annual production growth of at least 5%-8% through 2014 from its existing properties. Furthermore, the company expects production growth to expand between 6% and 9% annually or possibly beyond, based on continued success in its exploration and asset development programs.
Moreover, we believe Occidental is successfully building a compelling longer-term growth profile relative to many integrated oil peers, through its discoveries in the U.S. and the Middle East. In the U.S., the company anticipates a minimum of 6%-11% production boost over the next five years, with net production between 512,000 – 632,000 barrels of oil equivalent per day (BOEPD) in 2014.
On the domestic front, California provides significant upside potential through robust operations at its Elk Hills field and new discoveries in the Kern County. Further growth in the U.S. will be fueled by the enhanced oil recovery (EOR) activity in the Permian basin. Internationally production is expected to grow through ramp-ups at Mukhaizna, Bahrain, Zubair oilfield and at Qatar.
Apart from improving production and reserves, Occidental’s long-term strategy continues to focus on improving returns, raising dividend and maintaining low level of financial risk. Over the years, Occidental has been effectively handling the capital programs, relative to its peers. The company expects capital expenditure of $27.5 billion within the period of 2010-2014, with 55% slated for the U.S. projects and 45% for international. For 2010, the company expects capital expenditure to be roughly $4.5 billion.
Furthermore, the company has been delivering strong returns to shareholders in the form of dividend increases. Recently, the company declared dividend increase of 15%, increasing the annual dividend rate to $1.52 per share.
Though there is confidence in Occidental’s growth prospects in the coming years, we believe that the upside from many of the company’s visible ongoing growth projects have already been priced into the stock. This leaves very little, if any, room for further upside from current levels. Consequently, we maintain our Zacks #3 Rank and Neutral recommendation on the stock.
Read the full analyst report on “OXY”
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