Occidental Earnings: Solid Results and CrownRock Integration Update

Key Morningstar Metrics for Occidental Petroleum

• Fair Value Estimate: $62.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Occidental Petroleum’s Earnings

Nothing in Occidental Petroleum’s OXY third-quarter results materially alters our long-term view of the firm, so we maintain our fair value estimate of $62 per share. However, the results were better than expected, particularly in cost efficiency. The company also marginally beat our expectations for third-quarter production. Total hydrocarbon production of 1,412 thousand barrels of oil equivalent per day translates to a roughly 12% sequential improvement, or a near-16% year-over-year increase.

Performance in the Delaware Basin and contributions from New Mexico drove Oxy’s production results. Management specifically called out the six-well Wolfcamp development project and its tank field in New Mexico, which produced 1.2 million barrels of oil in the first 90 days. We’ll see how long these benefits persist beyond the initial production period.

Increases in production during the quarter didn’t come at the cost of efficiency—quite the opposite. Cash operating costs of $14.82 (which by our math includes lease operating expenses, gathering, process and transportation costs, and general administrative expenses) were moderately lower than we expected, which we like to see.

We expect continued decreases in lease operating expenses on a per-barrel-of-oil-equivalent basis, as management has signaled continued momentum on cash margins heading into 2025. Furthermore, capital expenditure was materially lower than we expected.

This is the first full quarter following the close of Oxy’s CrownRock acquisition on Aug. 1, and management highlighted that the associated production from these assets exceeded expectations. Finally, Oxy has repaid roughly $4 billion of its debt during the quarter and has completed $1.7 billion of divestitures. We like that management has high-graded its portfolio and continues strengthening its balance sheet, particularly with elevated interest rates.