Occidental Petroleum (OXY) Focuses On Oil, Competition Rife

Occidental Petroleum Corp.’s (NYSE:OXY) continued focus on the Permian Resources has been beneficial for the company. Permian production grew 5% sequentially to 129,000 barrels of oil equivalent per day (BOE/d) in the first quarter of 2017. However, Occidental’s businesses operate in a highly competitive environment, which could adversely affect its profitability and growth.

In 2016, the company acquired working interest in 11 oil and gas producing properties and related infrastructure in the Permian Resources. This allowed it to operate in areas that are touted as the most prospective, thanks to high oil content.

Occidental sold its South Texas Gas properties for after-tax proceeds of nearly $600 million. The company also intends to monetize some non-core and non-strategic assets and utilize the net proceeds to strengthen its existing operation in resource-rich areas. It aims to invest in the range of $3–$3.6 billion in 2017. Of this, $1.7 billion set to be invested in the first half of 2017.

The company’s businesses operate in a highly competitive environment, which could adversely affect its profitability and growth. It faces intense competition from other oil and gas players, including state-owned foreign oil companies, major integrated oil companies and independent producers of oil and natural gas.

Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations, which are related to improving or maintaining environmental quality. The company’s compliance costs have increased over time and are expected to rise further in the future.

Price Movement

The company’s shares have suffered this year, along with other oil producers. However, the stock has performed better than the Zacks categorized Oil & Gas - U.S. Integrated industry. Year to date, the stock is down 15.0% compared with 16.4% loss for the industry.

We believe that Occidental’s systematic capital spending program, along with its continued focus on the Permian Resources and new startups, will boost its performance going forward.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Oil and Energy sector are Canadian Natural Resources Limited (TO:CNQ) , Delek US Holdings Inc. (NYSE:DK) and Contura Energy Inc. (NS:CNTE) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian Natural Resources reported a positive earnings surprise of 30.77% in the first quarter of 2017. Its earnings estimates for the year moved up 38.3% to $1.30 in the last 60 days.

Delek US Holdings reported a positive earnings surprise of 148.48% in the first quarter of 2017. Its 2017 loss estimates narrowed to 33 cents from 44 cents in the last 60 days.

Contura Energy reported a positive earnings surprise of 33.50% in the first quarter of 2017. Its 2017 earnings estimates moved up 21.2% to $13.03 in the last 60 days.

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