Report
Dave Meats
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Morningstar | Occidental Is the Largest Permian Basin Producer

Occidental Petroleum has cut the chaff from its upstream portfolio in the past few years, shedding noncore assets in North Dakota, Colorado, Kansas, Bahrain, Iraq, and Yemen. And like peers, it made huge strides cutting costs and enhancing productivity during the 2015-16 downturn. Now, management believes it can sustain cash flow-neutral production growth of 5%-8% per year with West Texas Intermediate crude averaging just $50/barrel (while continuing to increase the dividend). If prices exceed this level, excess cash flows will be used for accelerated growth, balance sheet strengthening, and potential share buybacks.The Permian resources segment will generate much of the company's future growth, even though it accounts for 35% of its current output. Oxy is among the largest acreage holders in the play, with about 650,000 total unconventional acres across the Midland and Delaware basins (which translates to decades of low-cost runway). The New Mexico portion is particularly attractive, and Oxy's well performance history there is spectacular: 90-day initial production rates regularly exceed 200 thousand barrels of oil equivalent per day per lateral foot, making these wells worth drilling even if WTI prices fall as low as $30/bbl.However, Oxy's other assets do not share these stellar economics. The Permian enhanced oil recovery segment, which delivers about 20% of the firm's production, is capital-intensive and unit costs are quite a bit higher. It has a low decline rate, making it a stable source of cash flows for years to come, but we believe few growth opportunities will justify diverting capital from the Permian resources segment.In April 2019, Occidental announced a bid to acquire Anadarko Petroleum, trumping an earlier bid from Chevron. Anadarko's board of directors is currently reviewing these options.
Underlying
Occidental Petroleum Corporation

Occidental Petroleum has three reporting segments: oil and gas, which explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas; chemical, which mainly manufactures and markets basic chemicals (chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride) and vinyls (vinyl chloride monomer, polyvinyl chloride and ethylene); and marketing and midstream, which purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide and power.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Dave Meats

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