Occidental Petroleum OXY is a Good Crude Oil Stock to Buy

By Robert Hsu, InvestorPlace Contributor


Occidental Petroleum Corp (NYSE: OXY) is a California-based company with a portfolio of oil- and gas-producing properties in the U.S., Latin America, and the Middle East. Occidental Petroleum stock offers favorable exposure to higher oil prices. According to the firm’s most recent presentation, a $1.00 increase in crude oil prices — a move of about 1.2% at today’s levels — adds about $34 million to its net income. OXY earnings that could be boosted by this trend.

Meanwhile, if natural gas prices rise [50 cents] per million British thermal units — a move of 12% at current prices — the company’s net income increases $24 million.

Fourth-quarter production growth was up 4.8% from a year ago and full-year production was up more than 7% in 2009. Occidental Petroleum is expected to report production growth of 1.1% to 2.5% when it releases its first-quarter results later this month. Production growth for the full-year should come from planned projects in California, Oman, Bahrain and the United Arab Emirates.

With around 64% of Occidental’s total reserves and 58% of total production coming from the US, the company has about 2.2 million acres in the Permian Basin of West Texas and New Mexico, and these holdings produced roughly 185,000 bbl/day last year. These wells boast low decline rates and maintenance costs, generating lot of free cash. 

Occidental’s discovery in Kern County, Calif. is an even more exciting prospect. The company had four producing wells in the first quarter of 2009, [ten] by mid-year and 15 by year-end. Over this same one-year period, total oil equivalent production soared from 7,700 bbl/day to about 31,700 bbl/day. Management estimates the play’s reserves at 150 to 250 million barrels of oil equivalent. The field likely contains plenty of oil and gas.

And the company began field operations on the Bahrain Oil and Gas Field on December 1, 2009. It’s looking to triple the field’s production to around 100,000 bbl/day over the next seven years.

Occidental has partnered with a consortium led by Proven Reserves holding Eni (NYSE: E) to produce the Zubair oilfield in Iraq. Zubair produces just 200,000 bbl/day of oil these days; it’s not out of the question that production could increase significantly over the next three to six years.

It appears as though the company is underpromising on growth and plans to overdeliver [at a scheduled analysts’ meeting to discuss production growth] on May 19th. In my view, that’s a specific and short-term catalyst for the stock. Such events are rarely scheduled to relay bad news; the company appears poised to make positive comments about growth from some of its main plays.

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