Occidental Earnings: Weak U.S. Oil Pricing Drags on Bottom Line

Occidental OXY enjoyed very strong operational results in the first quarter, with production 2% above the high end of prior guidance. Output was higher than expected across the portfolio, but the Gulf of Mexico was the standout, with volumes coming in 10% above the high end of prior guidance. However, much of the upside was driven by delaying maintenance of the firm’s Horn Mountain project, which merely accelerated production from the second quarter to the first. The firm also cited the uplift from the expansion of a subsea system at Caesar-Tonga, though this was completed late last year. The Rockies area also exceeded the guidance range due to an improved base decline and higher non-operated activity. Permian volumes were in the upper half of guidance, albeit with some extremely impressive productivity anecdotes, and international volumes were lifted above the midpoint by tax barrels, which do not generate cash flow.

Despite the production surge, the firm’s earnings in the period were 14% below the FactSet consensus. Pricing was the biggest disappointment, with the U.S. WTI discount widening by about $2/bbl (due to downstream capacity issues in the Gulf of Mexico coupled with third-party processing outages in the Rockies). These issues are unlikely to spill into future quarters, though, and the outlook is improved. Management kept the budget in check and raised guidance for oil and gas production and Oxychem earnings.

We intend to incorporate these results shortly, but after this first look our fair value estimate is unchanged at $53 per share as is our no-moat rating.