Occidental Petroleum Corporation OXY reported better-than-expected fourth-quarter 2024 earnings per share on Feb. 18. Earnings surpassed the Zacks Consensus Estimate by 19.4%. The fourth-quarter performance was driven by strong performance from its three segments and strong production volumes from its United States assets.
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OXY has been reporting strong earnings results, courtesy of solid financial and operational performance from its assets in the Permian region. The company surpassed expectations in the last four quarters, with an average earnings surprise of 23.56%.
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Highlights of Occidental Stock’s Q4 Earnings
The total production volume was 1,463 thousand barrels of oil equivalent per day (Mboe/d). The metric was near the upper end of the company’s production guidance of 1,430-1,470 Mboe/d. Permian and Rockies & Other Domestic volumes exceeded the midpoint of the guided range, which contributed toward strong average daily production volumes. Total sales volume was 1,463 Mboe/d, up 19.7% from the year-ago period.
Occidental reported strong fourth-quarter production due to strong contribution from Permian assets. Rockies & Other Domestic average daily production volumes in the fourth quarter were 325 Mboe/d, up 14% year over year, which also contributed toward overall strong volumes.
Occidental Petroleum has been a consistent payer of dividends, thanks to its strong performance, driven by consistent growth in production and cash flow levels. The company’s management raised its quarterly dividend rate by 9%, taking it to 24 cents per quarter. The new dividend will be paid to shareholders on April 15, to shareholders on record as of March 10, 2025. In February 2023, its board of directors authorized a new share repurchase program with a maximum limit of $3 billion and no set term limits. As of Dec. 31, 2024, Occidental Petroleum has nearly $1.2 billion remaining under its share repurchase program, which was authorized in 2023.
Realized prices of crude oil decreased 11.6% year over year to $69.73 per barrel on a worldwide basis. Realized natural gas liquids prices increased 4.15% year over year to $21.80 per barrel globally. Natural gas prices declined 32.9% year over year to $1.26 per thousand cubic feet. The drop in realized prices does not allow the company to enjoy the full benefit of an increase in production volume.
Occidental’s Earnings Estimates Moving North
The Zacks Consensus Estimate for Occidental’s 2025 and 2026 earnings per share has increased 8.9% and 2.4%, respectively, in the past 60 days.
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Factors Contributing Toward Occidental Stock’s Performance
Occidental continues to evaluate its high-quality asset portfolio for divestment opportunities and will apply those proceeds to further debt reduction, thereby strengthening its balance sheet. Courtesy of strong and increasing free cash flow, the company was able to lower debts and achieve its near-term debt retirement target of $4.5 billion.
Occidental's persistent focus on Permian resources has been beneficial for the company. Its core development area in the Permian region has been recording solid results.
Production from this region is expected to improve further from the current levels, courtesy of the new wells added in this region. Occidental is set to bring online 500-550 company-operated wells in the Permian region and 100-120 wells in the Rockies region in 2025, which will further boost the company's domestic onshore production.
Occidental’s investment plans and production growth support the company's cash flow generation capacity. It completed the acquisition of CrownRock L.P., which will further expand and strengthen operations in the Permian Basin. CrownRock assets will assist Occidental in increasing production volumes, lowering well costs and accelerating returns. Production from the CrownRock asset is expected to touch 170,000 Boe per day and keep boosting the overall production volume of the company.
Occidental, being a low-cost operator and possessing high-quality assets in different locations across the globe, has a competitive advantage over its peers. Efficient cost management is also going to boost the performance of the company. The systematic capital investment has allowed the company to strengthen its infrastructure. In 2024, it invested more than $7 billion to strengthen and expand its existing operations and aims to invest in the range of $7.4-$7.6 billion in 2025.
Occidental is also expanding its operation internationally. Occidental Petroleum has entered a new 25-year production-sharing agreement with Sonatrach in Algeria. The production-sharing agreement renews and strengthens operations in Algeria. Production from the International operation is expected in the range of 226-236 Mboe/d in 2025.
Headwinds for Occidental Stock
Fluctuations in demand and volatile global and local commodity prices affect Occidental’s results of operations. The company remains exposed to fluctuating commodity market prices, and as of Dec. 31, 2024, there were no active commodity hedges in place. If commodity prices drop substantially from their current level, it will impact OXY’s performance.
OXY Shares Underperforms its Industry
Occidental's shares have underperformed its industry in the past three months.
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Another stock in the same sector, Devon Energy Corporation DVN, outperformed its industry in the same time period.
Occidental’s ROE Lower Than the Industry
Occidental’s return on equity (ROE) is lower than the industry average in the trailing 12 months. ROE of OXY was 16.33% compared with the industry average of 18.96%.
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OXY’s Shares Are Trading at a Premium
Occidental’s shares are currently expensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 5.77X compared with its industry average of 4.74X.
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Summing Up
Occidental’s focus on the Permian region, accretive acquisition and strength in global operations will boost performance.
Yet, exposure to commodity price fluctuation, premium valuation and lower return compared with the industry also do not make a strong case for the company.
Despite the headwinds, it is advisable to keep this Zacks Rank #3 (Hold) stock in your portfolio, given its strong exposure to the prolific Permian Basin.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
