No. of Recommendations: 3
In not quite a month as Occidental Petroleum's (OXY.N), opens new tab CEO, Richard Jackson has already been challenged with looking for ways to lift a lagging stock price and pay down more debt. Longer term, Jackson may face a more fundamental question: whether to seek a buyer for the oil company that has a roughly $51 billion market cap.
"The biggest opportunity is to clean up the capital structure, strengthen the balance sheet and increase shareholder returns," said David Byrns, a portfolio manager at American Century Investments, which holds an Occidental stake worth about $131 million, according to LSEG data.
Despite operational improvements so far, Occidental must either make more acquisitions or look for a buyer, said Bill Smead, chief investment officer at Smead Capital Management, which owns a roughly $201 million Occidental position. The oil industry has seen a wave of mega-mergers in recent years, as producers sought to consolidate and lower operational costs. "Either Occidental needs to get bigger and beef up the oil in the tank, or they're probably going to have to be part of a larger oil and gas company," Smead said.
https://www.reuters.com/legal/transactional/occide...
No. of Recommendations: 9
"Either Occidental needs to get bigger and beef up the oil in the tank, or they're probably going to have to be part of a larger oil and gas company," Smead said."
I don't think that OXY will be able to find an attractive acquisition. In fact, they are the attractive acquisition right now. The value of an oil company lies primarily in its proven reserves. Here are the proven reserves and enterprise values of OXY, XOM and CVX at present:
company, proven reserves in barrel of oil equivalent (boe), enterprise value (EV), EV/boe
XOM, 17,700 million boe, $605,180 million, $34/boe
CVX, 10,600 million boe, $380,780 million, $36/boe
OXY, 4,600 million boe, $70,810 million, $15/boe
Vicki Hollub succeeded in her goal of concentrating reserves in the US Permian Basin, where OXY already had infrastructure. The problem was that she paid too much for Anadarko in 2019, $38.70/boe, which everyone said was too high, and she had to borrow money at 8% interest to pay for it. I think paying down debt is the right approach now for OXY, unless someone wants to offer $35+/boe for OXY.
No. of Recommendations: 0
I don't think that OXY will be able to find an attractive acquisition. In fact, they are the attractive acquisition right now.
I agree. That's why I still think there is a non-zero chance that Berkshire takes the entirety someday. The issue, of course, is economy of scale, it would probably make more sense for another oil company to do it.
No. of Recommendations: 4
When comparing valuation using proven reserve BOE, you should adjust for the different mix of upstream, midstream and downstream businesses. OXY is much more concentrated on upstream after selling OXYChem. They have some mid stream assets.
Bot XOM and CVX have significant downstream businesses which cushion earnings when oil and gas prices drop.
Most ONG exploration only companies trade at a significant discount to large integrated companies.
