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After Occidental Petroleum reported its November results, we updated our fair value and raised our quality score to 4.3. We changed our rating from Buy to Watch. We raised our ratings for how much profit the business makes on its investments and how well it holds up against industry technology shifts. We have added the risk of natural gas price volatility and the narrowing of pipeline profit margins to what we track.
Occidental reported adjusted earnings of $1.91 per share, significantly higher than the $1.46 analysts expected. While revenue of $6.77 billion was slightly below targets, the company's operations were highly efficient. It produced about 1.4 million barrels of oil equivalent per day, beating its own internal goals, and generated $2.8 billion in cash after paying for its operations and equipment.
The most important milestone for long-term owners is that Occidental has finally reached its goal of reducing its principal debt to $10 billion. This was a key piece of our view on the stock, as hitting this target allows the company to spend less on interest and potentially return more cash to shareholders through buybacks or higher dividends. With the debt burden cleared, the company is in a much stronger position to fund its transition into carbon management technology.
See the full quarter, and how our tracked metrics did
Source: Company earnings report
Oil prices fell more than 3 percent after Donald Trump suggested that further military strikes on Iran are unlikely while negotiations continue. This shift in tone eased concerns that a wider conflict could disrupt global oil supplies.
Lower oil prices mean Occidental earns less cash for every barrel it pumps. Since the company relies on that cash to pay down its large debt and fund its transition into carbon capture technology, a sustained drop in prices could slow down those plans.
Source: WSJ
Occidental signed long-term deals to take carbon dioxide captured from natural gas plants in the Delaware Basin and use it for its own operations. Other companies will pay to build the pipes and equipment to deliver the gas. Occidental will use this carbon for "enhanced oil recovery," a process where carbon is pumped underground to squeeze more oil out of older or difficult wells.
This is a smart move because it helps the company two ways. It secures a steady supply of carbon to keep its oil production high without Occidental having to pay for the expensive infrastructure itself. It also advances the company's goal of becoming a leader in carbon management, proving it can find commercial uses for captured emissions while supporting its core drilling business.
Source: GlobeNewsWire
Occidental Petroleum is set to report its latest numbers today, with analysts looking for about $1.45 in profit per share on $6.80 billion in revenue. The company has a long streak of beating these expectations, having done so for eight quarters in a row. For long-term owners, the numbers that matter most are not the headline profit, but the progress on paying down debt. The company is aiming to get its total debt down to $10 billion. We will also be watching for updates on its carbon capture projects, which are central to its plan to move beyond just drilling for oil.
Management consistently sets conservative targets and then clears them by wide margins. This eight-quarter streak of beating expectations shows the business is more efficient and profitable than even its own forecasts suggest.
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