Occidental Petroleum Earnings: Well Performance Drives Productivity Gains

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What We Thought of Occidental Petroleum’s Earnings

Nothing in Occidental Petroleum’s OXY latest report materially alters our long-term view of the firm. Results were broadly in line with our expectations, though earnings came in a bit above our forecast, based on a lower tax outlay than we initially expected. While we foresee puts and takes in Oxy’s cost structure and expected Permian production, we maintain our $56 fair value estimate.

Oxy’s oil and gas business delivered 1,234 thousand barrels of oil equivalent per day, or mboe/d, in the fourth quarter. While results were within the range of prior guidance, they still exceeded the midpoint by 8 mboe/d despite a third-party outage in the eastern Gulf of Mexico, which posed a 28 mboe/d headwind. Aside from that, Oxy’s portfolio reflected broad-based strength in productivity. The Rockies, which represent roughly 20% of the company’s current sub-$40 breakeven inventory, particularly outperformed the midpoint of guidance by 19 mboe/d. Well performance has been a key driver of production in Oxy’s portfolio, with the DJ basin especially lifting results in the Rockies.

Cumulative recoveries also improved last year in the Delaware and Midland basins, though at least part of the improvement in the Permian appears driven by well designs for longer laterals. Longer laterals typically see diminishing returns over time, and any productivity gains could see offsets from higher costs like drilling. That said, near-term cumulative production appears strong relative to peers, so we still consider this a positive development, particularly given the attractive acreage the Permian boasts.