Occidental Petroleum Corporation: Analysis and Outlook

Occidental Petroleum Corporation (NYSE: OXY) is the largest acreage holder in the prolific Permian Basin with significant unconventional and Enhanced Oil Recovery (EOR) operations. Occidental’s value is derived from its extensive proved reserves and its enterprise value suggests it is trading close to fair value. The company is well-positioned to benefit from gradual production volume growth and mid-cycle oil price appreciation.

Market Dynamics and Current Outlook

Global oil markets remain uncertain due to factors such as geopolitical tensions, potential disruptions in key oil-producing regions, and shifting demand trends in major markets such as China. Occidental’s operations in the Permian Basin offer exposure to the growth potential in one of the world’s most prolific oil regions. However, fluctuations in oil prices and uncertainty about peak global oil demand could impact the company’s short-term and long-term performance.

Production and Reserves

Occidental boasts 4 billion barrels of oil equivalent in proved reserves. The company generated an average realized price of $47.7 per barrel equivalent during the last fiscal year, with an average cash cost of approximately $21 per barrel. After taxes, this translates to approximately $21 of value per barrel, which supports an enterprise value of around $90 billion. This calculation suggests that Occidental is trading close to fair value when considering its midstream and chemical production assets.

Permian Basin Advantage

The Permian Basin, particularly the Delaware sub-basin, is a key asset for Occidental. The basin offers rich, multi-layered resources and a long runway for production growth. Enhanced Oil Recovery (EOR) methods present additional opportunities for increased production, though they come with higher costs.

Investment Considerations

Future Growth

Occidental is poised for future growth, driven by gradual production volume increases and a potential rise in average oil prices. This growth is dependent on maintaining low production costs and capitalizing on technological advancements.

Risks

• Commodity Price Volatility: Oil prices are subject to significant fluctuations, impacting Occidental’s profitability.
• Regulatory and Environmental Risks: Changes in regulations could increase costs or restrict operations.
• Geopolitical Instability: Operating in regions with potential geopolitical risks could disrupt production and supply chains.
• Technological and Operational Challenges: Extracting oil from unconventional reserves requires advanced techniques and high capital expenditures.

Conclusion

Occidental Petroleum Corporation presents a compelling investment opportunity, with its strategic positioning in the Permian Basin and potential for future growth. While the company faces short-term volatility, its long-term prospects remain strong, particularly if it can navigate market challenges and capitalize on operational efficiencies.