Occidental Petroleum Lowers Guidance

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Oxy announced that first-quarter international production would be 18 mboe/d lower than fourth-quarter levels, and sales volumes would be 40 mboe/d lower. The lower production volumes are a result of a facility turnaround in Qatar, the impact of full cost recovery on some production sharing contracts, and pipeline disruptions in Colombia.

The timing of liftings in the Middle East/North Africa region also affected sales volumes. Oxy’s previous forecast was for lower international volumes in the first quarter from the turnaround in Qatar, with volumes flat with the fourth quarter the remainder of the year. Its guidance for the remainder of the year is unchanged.

The lower sales volumes should reduce first-quarter aftertax earnings by $200 million while costs associated with the turnaround and pipeline disruption will result in a $100 million reduction. The reduction in production and negative earnings impact come against a backdrop of an improving cost structure and capital efficiency for Oxy in the U.S. Analysts expect those improvements to continue, while the disruptions of the first quarter are one-time in nature, though pipeline disruptions Colombia have occurred in the past. However, the difference in performance during the quarter between the U.S. and international segment will likely reignite calls for a breakup of the company.

Most analysts believe that is unlikely, though, under current management, which in the past has questioned the logic and value of such a move. That said, the improving U.S. operations and the strong oil growth remain a positive for Oxy and the shares remain undervalued.

 

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