OXY - Embedded Expectations Analysis - 2019 04 29
Occidental Petroleum Corporation (OXY:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Assets, with a 1.1x Uniform P/B. At these levels, the market has muted expectations for the firm, and management is concerned about their ability to find new drilling sites, sustain cost efficiency, and continue increasing dividends.Specifically, management may lack confidence in their ability to replace cash flows from their exit of Qatar oil fields and find new drilling sites among existing assets. In addition, they may be exaggerating their existing infrastructure in the Permian Basin, their competitive advantage in cost efficiency, and their spending discipline. Also, they may lack confidence in their ability to reduce G&A expenses, continue dividend increases, and manage decreases in pipeline income. Finally, they may lack confidence in their ability to utilize data to understand subsurface reservoir size, sustain BOE increases, and continue balance sheet improvements and share repurchases.
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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