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Occidental Sees Upswings for Oil, Chemical Businesses

This quarter it announced a quarterly dividend increase to $0.13 a share along with a $3 billion buyback program.

Occidental OXY exceeded fourth-quarter production guidance and announced compelling financial results as a robust commodity environment propelled the firm to record free cash flows. And Oxy has taken full advantage of higher prices, reducing debt by an additional $2.2 billion during the quarter (bringing full-year debt reduction to over $6.7 billion). While many U.S. E&Ps have spent the past few quarters rolling out generous capital return programs, Occidental had been forced to prioritize its balance sheet, given the debt hangover from its 2019 merger with Anadarko. But the commodity windfall has enabled the firm to catch up, and this quarter it announced a quarterly dividend increase to $0.13 a share along with a $3 billion buyback program.

Companywide output in the period was 1,189 mboe/d, with production in the Permian, Rockies, and Gulf of Mexico all exceeding the high point of guidance. Despite slight offsets due to higher exploration and overhead expenses, oil and gas income during the fourth quarter improved over the third quarter, reflecting higher crude volumes and increased pricing. Occidental’s chemical segment also surpassed guidance, recording pretax income of $574 million (in comparison with guidance of $480 million).

For 2022, Occidental intends to keep production relatively flat between 1,140-1,70mboe/d, but announced a capital spending plan of $3.9 billion-4.3 billion, a significant increase from 2021. Baked in are the inflationary pressures, which have hit much of the industry, but also projects for OxyChem margin improvements, along with a continued investment in Occidental’s low-carbon venture projects. We continue to keep an eye on the firm’s GHG emissions plans, especially as the push for net zero accelerates and E&Ps strive to differentiate themselves amid a rather undiscerning ESG investment landscape.

We plan to incorporate these financial and operating results shortly, but after this first look our fair value and no moat rating are unchanged.

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