Occidental Petroleum (OXY, Financial) reported some disappointing numbers for the fourth quarter driven by lower crude oil and natural gas prices. Its earnings dropped significantly from last year but managed to beat the consensus estimate. As a result of falling prices, the stock touched its 52-week low a few days back. The company has strong fundamentals, but the macroeconomic factors will play a decisive role in shaping its future course of action. Let's see in detail how Occidental looks from a long-term perspective.
Trying to get better
Its revenue declined 15.3% from a year ago to $4.31 billion while adjusted earnings plunged 50.7% to 72 cents a share compared to last year. But even in tough times such as these, the management says, it is resilient and built to weather price shocks typical to this industry. It is an encouraging note and indicates the strength in its business. And as far as the headwinds are concerned, Occidental is taking various measures to mitigate these challenges.
The company is working hard to cut down costs and improve its operational performance. In this direction, it is renegotiating with its supplier contracts that will reduce the cost of executing its capital program and also lower the operational expenses. Along with this, it stopped its capital spending in the Williston Basin, on domestic gas properties, in the Bahrain and Joslyn oil sands projects as these facilities were not viable in the current pricing scenario.
Smart moves
Further, the company successfully completed the spinoff of California Resources. This indeed is a strategic decision that will review its result in a greater ability to concentrate Occidental’s resources in areas where we have key competitive advantages. Also, the company sold Hugoton gas properties, BridgeTex pipeline and PAGP units. These efforts will bring down its cost significantly and add to its bottom line in the days ahead.
But, in spite of these reductions it expects to deliver 6% to 10% annual production growth in 2015, which is mainly on account of the startup of the Al Hosn gas project, coupled with development program run in the Permian resources business. Looking into 2015, Occidental is not very optimistic because of the pricing issues and has therefore decided to curtail its capital spending as the year unfolds.
Conclusion
However, the company continues to develop the Ingleside terminal for both propane and crude export and expects to see energy cost reductions which are linked to oil and gas prices. It currently has a trailing P/E of 102.99 while its forward P/E looks impressive at 23.42, reflecting significant improvement in its earnings. The company has strong fundamentals for future but, because of the macroeconomic headwinds, it would be better to avoid such stocks for the moment
