The coronavirus crisis and Anadarko’s acquisition have been weighing on Occidental Petroleum’s stock (NYSE: OXY) since the beginning of the year. With the stock down by a staggering 76%, is it the right time to take a closer look? The company’s cash position deteriorated through the first and second quarters as the declining benchmark prices dragged down operating margins. Occidental ended the June quarter with $1 billion of cash, but its short-term debt stood much higher at $2.4 billion. While long-term equity returns depend on the company’s strategy to manage its huge debt pile of $36 billion, Trefis believes that the ongoing asset sales are likely to provide an uptick to the stock and boost investor sentiments.

In order to address near-term debt maturities, the company has entered into purchase and sale agreements to divest Wyoming, Colorado, and Utah assets for $1.3 billion and its Colombia assets for $825 million. As the transactions are expected to close during the fourth quarter, the company will achieve its $2 billion asset divestiture target for 2020.

Occidental Petroleum’s revenues increased by 60% from $13.2 billion in 2017 to $21.2 billion in 2019, primarily driven by Anadarko’s acquisition and augmented by increased production & stable benchmark prices.

While the company has seen steady revenue growth over recent years, its P/S multiple has declined. The increased debt load and macroeconomic weakness have been key factors behind the falling stock price as interest expenses zoomed from $0.4 billion in 2018 to $1.06 billion in 2019 – taking the net income margin to negative territory. With a series of asset sales on the cards,

For a change, investors aren’t having to count on tech stocks to deliver the goods. The S&P 500 Index (SNPINDEX: ^GSPC) gained 27 points, up 0.8%, on Oct. 8. The Technology Select Sector SPDR ETF (NYSEMKT: XLK) gained 0.5%, while the Energy Select Sector SPDR ETF (NYSEMKT: XLE) surged 4.1% higher on another strong day for crude oil. IBM (NYSE: IBM) was the sole tech giant to have a big day, with shares gaining over 5% on news it was going to spin off part of its business.

Utility and real estate stocks, segments that usually do well in a recession but have underperformed in a 2020 that’s been anything but usual, also finished up today. Every stock in both sectors closed higher, with DTE Energy (NYSE: DTE) up 6.3% and Iron Mountain (NYSE: IRM) up 4%, leading the way.

Oil barrel and pumpjack paperweights on pile of cash.

Image source: Getty Images.

Is oil back? Investors are behaving that way

After falling sharply on supply/demand worries and the Friday announcement that President Donald Trump was diagnosed with COVID-19, West Texas Intermediate crude oil futures have surged from a low of $37 to today’s price above $41 per barrel.

Big Oil won big today, with Occidental Petroleum (NYSE: OXY) up 8.8% and Halliburton (NYSE: HAL) up 7.4%, two of the S&P’s biggest gainers. More than half of today’s biggest gainers in the index operate in the oil patch, including global giant ExxonMobil (NYSE: XOM), which added 5.3% and reclaimed its place as the biggest of the U.S. big oil companies, only a day after temporarily falling behind Chevron (NYSE: CVX) in market cap size.

Today’s move higher for the oil sector came on a combination of things behind crude oil’s move higher. To start, oil prices are moving up on worries about oil and refinery production in the



a close up of a sign: A magnifying glass zooms in on the Occidental Petroleum (OXY) website.


© Source: Pavel Kapysh / Shutterstock.com
A magnifying glass zooms in on the Occidental Petroleum (OXY) website.

Occidental Petroleum (NYSE:OXY) stock is down 16% in the past month and even over 75% in the year-to-date. OXY stock is wavering at 70% of its estimated $14.05 common stock tangible book value per share (TBVPS).




a close up of a screen: A magnifying glass zooms in on the Occidental Petroleum (OXY) website.


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A magnifying glass zooms in on the Occidental Petroleum (OXY) website.

Click to Enlarge

It’s likely that OXY stock will drift further down if oil does not rebound and if its TBVPS deteriorates. But in the near to long term, I believe that OXY stock will move higher as economic mobility increases.

In addition, as Covid-19 vaccines start to slow down the spread of the pandemic in 2021, the price of oil should rise. This will slowly push up OXY stock

Essentially, then, now is a good time to accumulate the stock, especially while it is selling below its TBVPS. I wrote about the calculation for TBVPS for OXY stock in my article last month and I wanted to update this analysis.

Estimating TBVPS Going Forward

Analysts expect the company to have another losing quarter in Q3. In Q2 Occidental lost $1.78 per share and its TBVPS fell from $23.93 per share to $14.79.

You can see the trend in the chart on the right. Note that TBVPS has been falling for the past several quarters. This tends to follow the company’s negative earnings per share in the past two quarters.




chart: 10-2-20 - OXY stock - History of TBVPS and EPS


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10-2-20 – OXY stock – History of TBVPS and EPS

Click to Enlarge

Source: Mark R. Hake, CFA

You can also see that analysts expect the company to lose money for the next four to six quarters. Therefore, the TBVPS should continue to fall. This chart

(Reuters) – Debt-laden U.S. oil producer Occidental Petroleum Corp

said on Thursday it has agreed to sell its onshore assets in Colombia to private equity firm Carlyle Group Inc

for $825 million.

The cash-strapped company said it is continuing to advance other asset sales as it tries to find cash to pay off debt amid a crude price crash. It has so far announced over $2 billion worth of divestitures this year.

The Colombia assets sale, expected to close in the fourth quarter, includes the company’s operations and working interests in the Llanos Norte, Middle Magdalena and Putumayo Basins.

The company has operated in the Andean country alongside Colombia’s majority state-owned Ecopetrol

for more than 40 years. The two companies also have a joint venture in the Permian Basin in the United States.

Occidental said it will retain a presence in the South American country through its offshore exploration blocks.

“We have expanded our strategic partnership with Ecopetrol to the onshore U.S. and to exploration blocks offshore Colombia,” Occidental Chief Executive Vicki Hollub said in a statement. “These highly prospective offshore blocks hold tremendous potential that could significantly bolster the country’s energy resources.”

A spokesman for Ecopetrol said the company had no comment on the sale of assets.

Occidental’s debt ballooned after it paid $38 billion to buy Anadarko Petroleum last year, an ill-timed bet on rising oil prices. The company had total long term debt of $36.03 billion as of the end of June, according to Refinitiv data.

In August, the company said it would sell some of its Wyoming, Colorado and Utah assets to Orion Mine Finance for about $1.33 billion.

(Reporting by Shruti Sonal in Bengaluru; additional reporting by Oliver Griffin in Bogota; Editing by Arun Koyyur and Jonathan Oatis)

Copyright 2020 Thomson Reuters.

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