Why did Omega Advisors sell its position in Occidental Petroleum?

Market Realist

Omega Advisors starts new positions in 3Q 2013 (Part 5 of 7)

(Continued from Part 4)

Omega Advisors Inc. is a New York–based investment advisory firm founded in 1991 by Leon G. Cooperman. Omega has approximately $10 billion under management (as of November 30, 2013).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Omega Advisors started new positions in Sprint Corp (S), Freeport-McMoRan Copper (FCX),  HCA Holdings Inc. (HCA), and Realogy Holdings Corp. (RLGY) and it sold Occidental Petroleum (OXY), Wells Fargo & Company (WFC), and Crocs Inc. (CROX).

Why sell Occidental Petroleum Corp. (OXY)?

Omega exited a 1.34% position in Occidental Petroleum Corp.

The company reported 3Q 2013 net income of $1.6 billion and EPS of $1.96 per share compared to $1.4 billion ($1.69 per diluted share) for 3Q 2012. Its domestic production was 476,000 barrels of oil equivalent per day (BOE), an increase of 7,000 BOE from the third quarter of 2012 and 6,000 BOE higher than the second quarter of 2013.

In 2Q 2013, the company’s earnings missed analyst estimates. Its 2Q earnings were flat, as a slight increase in production offset a decline in the price of oil overseas. Compared to 2Q 2013, the 3Q results reflected improved Oil and Gas segment earnings, driven by higher realized oil prices and domestic volumes, as well as higher core earnings in the Chemical segment. Moreover, the results were also driven by an improved performance in the Midstream segment, driven by higher margins in the marketing and trading businesses, largely due to commodity price movement.

Its oil and gas segment earnings were $2.4 billion for the third quarter of 2013, compared to $2.0 billion for the third quarter of 2012. The results reflected higher domestic oil and gas realized prices, lower operating costs, and higher domestic liquid volumes, partially offset by higher DD&A rates and lower Middle East and North Africa crude oil volumes.

Its chemical segment earnings for 3Q 2013 were $181 million, compared to $162 million in the third quarter of 2012. The improvement in 3Q 2013 results was primarily due to higher margins in polyvinyl chloride and vinyl chloride monomer.

Midstream segment earnings were $212 million for 3Q 2013, compared to $156 million for 3Q 2012. The increase in earnings reflected improved marketing and trading performance and better results in the pipeline, gas processing, and power generation businesses.

In terms of outlook for domestic production, the company said it’s on track to achieve its second-half oil growth average of 6,000 to 8,000 barrels per day increases over the first-half average. Its natural gas and NGL volumes are expected to decline modestly in the fourth quarter due to lower drilling on gas properties and natural decline coupled with the effect of a major turnaround in the Permian Basin. Internationally, it expects total production to be about flat compared to the third quarter, excluding the impact of insurgent activity in Colombia. It expects international sales volume to increase in the fourth quarter.

In October, it announced initial actions resulting from its strategic review to streamline and focus operations in order to execute its long-term strategy and enhance value for shareholders. It said it plans to sell a minority interest in its operations in the Middle East and North Africa region, follow strategic options at selected Midcontinent assets, and sell a part of the company’s 35% investment to the general partner of Plains All American Pipeline, L.P.

The company said its goal is to become a somewhat smaller company with more manageable exposure to political risk. It has embarked on a process to streamline the business, concentrate in areas where it has depth and scale, and improve overall profitability.

OXY

According to hedgefundletters.com, Omega Advisors primarily invests in domestic public equity and dabbles in markets such as bonds and commodities. When the fund focuses on investing in value equities, it uses a combination of a top-down approach, to carefully choose the sector, and a long-short fundamental analysis. To create his portfolios, Leon G. Cooperman takes a bottom-up approach to form his portfolios with the S&P 500 index as the benchmark.

Cooperman was born in New York and as an undergraduate at Hunter College, he joined and was an active member of Alpha Epsilon Pi. After graduating, he became a Xerox quality control engineer in 1965. He later received his M.B.A. from Columbia Business School, graduating in 1967. After 25 years of service, Leon Cooperman retired in 1991 from his positions as general partner of Goldman, Sachs & Co. and as chairman and chief executive officer of Goldman Sachs Asset Management in order to set up Omega.

Continue to Part 6

Browse this series on Market Realist:

Rates

View Comments (0)