Occidental Petroleum (OXY) Is a Solid Pick after OPEC Production Deal

Occidental Petroleum (NYSE:OXY) generated solid operational and financial performance over the last two years despite depressed pricing environment. Consequently, the company has sustained its dividend growth, when its competitors were slashing dividend amid lower prices. Recently, the company has increased its quarterly dividend by 1.3% to $0.76 a share.

In addition, the company shows an intention to expand its capital expenditure in the coming years, a first oil company so far to guarantee a spending growth next year.

It is looking to invest around $3.3B-$3.8B in growth opportunities in 2017, up from the recent guidance of $3B for fiscal 2016. Its attractive asset portfolio base and position in higher margin assets are driving strong results for the company. On the other hand, OXY has also been improving its cost structure through cost cuttings.

OXY is looking to drill 115 wells next year in the Permian Basin, which will lead it to generate a double-digit growth in oil production. Furthermore, Occidental Petroleum has been selling non-core assets to shift its portfolio towards higher margin assets. In the latest quarter, its production declined compared with the same period last year, as the company continued to decline its exposure to non-core assets in the Middle East, the U.S. and North Africa.

However, excluding discontinued operations, the company achieved production guidance of 605,000 BOE per day, supported by increased well productivity in Permian Resources, improvement in operational efficiency, and a record production in Abu Dhabi and Oman.

Considering its latest financial performances, its strategies are paying off, as the company continued to lower its total spend per barrel.

Occidental’s total spend per barrel was standing around $62 per barrel in 2014, around $40 per barrel in 2015, but the company has slashed its total spend per barrel to only $28.50 in 2016. Following the production deal, crude oil prices are likely to stand around $55 a barrel in the coming months. Thus, considering OXY after a production deal could be a good strategy for energy investors.

The author does not have any positions in the above mentioned companies.

Alexander is an analyst for EconomicCalendar.com who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.