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Occidental (OXY) Down 63.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Occidental Petroleum (OXY). Shares have lost about 63.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Occidental due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Occidental Q4 Loss Wider Than Expected, Sales Beat

Occidental Petroleum Corporation reported fourth-quarter 2019 loss of 30 cents per share, wider than the Zacks Consensus Estimate of a loss of 9 cents. The company had recorded earnings of $1.22 per share in the prior-year quarter.

Total Revenues

Occidental's total revenues were $6,796 million, beating the Zacks Consensus Estimate of $6,558 million by 3.6%. The top line also increased 41.5% from $4,802 million in the year-ago quarter. The year-over-year improvement was driven by higher oil and gas revenues.

Production & Sales

Occidental’s average daily net oil, liquids and gas production volume — including the acquired Anadarko assets — expanded to 1,402 thousand barrels of oil equivalent per day (Mboe/d) from 700,000 Mboe/d in the prior-year quarter.

This improvement in production volume was backed by higher drilling activity and solid output from the Permian Resources region. Permian Resources production in the fourth quarter was 476 Mboe/d, which exceeded the midpoint of the guidance by 22 Mboe/d.

In the quarter under review, total sales volume was 1,400 Mboe/d compared with 702 Mboe/d recorded in the year-ago period.

Realized Prices

Realized prices for crude oil in the fourth quarter increased 0.2% year over year to $56.21 per barrel on a worldwide basis. Worldwide realized NGL prices decreased 22.3% from the prior-year quarter to $17.78 per barrel. Nonetheless, worldwide natural gas prices were up 7.9% from the year-ago quarter to $1.63 per thousand cubic feet.

Highlights of the Release

Its acquisition deal with Anadarko Petroleum has progressed per expectation. This boosted total production in the fourth quarter and strengthened Occidental’s presence in the resource-rich Permian Basin.

Selling, general and administrative, as well as other operating expenses in the fourth quarter were $337 million, up 108% from $162 million in the year-ago quarter.

Interest expenses in the reported quarter were $434 million compared with $99 million in the year-ago period. The higher interest expenses were due to increase in debt levels to fund the acquisition of Anadarko.

In 2019, Occidental’s management — which continues to increase the value of its shareholders — returned $2,624 million through dividend payments compared with $2,374 million a year ago.

Financial Position

As of Dec 31, 2019, Occidental had cash and cash equivalents of 3,032 million compared with $3,033 million in the corresponding period of 2018.

As of Dec 31, 2019, the company had a long-term debt (net of current portion) of $38,537 million compared with $10,201 million in the comparable period of 2018. The increase in debt level was due to the loan taken by the company to fund the acquisition of Anadarko. The company has been taking steps to lower debt level. Occidental lowered debt by nearly $2 billion in the fourth quarter.

In fourth-quarter 2019, cash from operations was $1,764 million, down from $2,500 million in the prior-year period.

In fourth-quarter 2019, Occidental’s total capital expenditure was $2,171 million, up 62.3% from $1,337 million invested in the year-ago period.

Guidance

Occidental expects first-quarter 2020 production in the range of 1,375-1,395 Mboe/d. Production from Permian Resources is expected in the range of 457-465 Mboe/d. International production is expected within 238-242 Mboe/d.

Occidental expects 2020 production in the range of 1,360-1,390 Mboe/d. Production from Permian Resources is expected in the range of 465-475 Mboe/d. International production is expected in the band of 242-250 Mboe/d.

The company expects exploration expense to be $75 million for the first quarter and $325 million for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -242.09% due to these changes.

VGM Scores

Currently, Occidental has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Occidental has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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