Occidental Earnings: CrownRock Transaction Should Still Close, but Not Until the Third Quarter
Reducing our fair value estimate of Oxy stock.
Key Morningstar Metrics for Occidental Petroleum
- Fair Value Estimate: $53.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Very High
What We Thought of Occidental Petroleum’s Earnings
Following our review of Occidental Petroleum’s OXY first-quarter results, we’ve reduced our fair value estimate by 7% to $53 per share. This reflects lower West Texas Intermediate oil strip prices, down to the high 70s from the mid-80s.
We originally expected the CrownRock acquisition to close by the end of the first quarter, as management said it hoped to during its December 2023 special call. However, it now appears the transaction will close sometime in the third quarter of 2024 as both Oxy and CrownRock work with the US Federal Trade Commission. Production results came in quite lower than we expected, which hurt our valuation because the transaction hasn’t closed yet. However, we point out that Oxy’s 2024 production guidance excludes the impacts from the CrownRock acquisition, and we still model a 100% probability that the deal will close.
During the first quarter, Oxy delivered a total hydrocarbon production of 1,172 thousand barrels of oil equivalent per day. Total production fell just slightly below the midpoint of guidance, with various puts and takes. The Rockies exhibited better-than-expected growth thanks to strong well performance in the DJ Basin and better production uptime, among other factors. However, better production there was more than offset by the outage of a third-party pipeline in the Gulf of Mexico. That said, Oxy’s midstream and chemical businesses outperformed the company’s guidance.
We expect the accelerated ramp-up of a 20-well pad to support continued production improvements in the Rockies. More importantly, production improvements won’t come at the expense of costs. In fact, well design improvements should continue to drive down costs, as seen in both the Rockies and the Permian.
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