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Following Q1/18 Production Beat, Oil/Gas E&P to Launch Buyback
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Pavel Molchanov, an analyst with Raymond James, reviewed this energy firm's favorable first quarter production numbers and cash position.

Oil pump

In a May 9 research note, analyst Pavel Molchanov with Raymond James reported that Occidental Petroleum Corp. (OXY:NYSE) Q1/18 production exceeded the top end of guidance and is "on track for above-trend organic growth in 2018." Raymond James raised its target price to $85 from $80 per share on the company, whose stock is currently trading at around $78.20 per share.

Occidental's adjusted Q1/18 earnings per share came in at $0.92, much higher than Raymond James' estimate of $0.67 and consensus of $0.70.

The energy company's Q1/18 production was 609 million barrels of oil equivalent per day (609 MMboe/day). This exceeded guidance for the quarter of 592603 MMboe/day. Resources in Q1/18 were 177 MMBoe/day, up 11% quarter over quarter (QOQ). Permian Liquids grew 5% QOQ.

The company has increased full year 2018 guidance to 645665 MMBoe/day from 640665, "equating to growth of 9% at the midpoint, above the long-term target of 58%," Molchanov noted. Raymond James' estimate is midrange, at 649 MMBoe/day.

The bottom line is Occidental "has plenty of cash to return to shareholders," indicated Molchanov. Pretax income from OxyChem alone in Q1/18 was $298 million, and that was 37% higher than the amount in Q1/17.

For the energy firm, Raymond James projects free cash flow in 2018 of $3.8 billion, twice that of 2017, and even more in 2019. This $3.8 billion compares to $2.4 billion Occidental paid out in dividends last year. "The company clearly has the ability to reinstate share buyback, last seen on a meaningful scale in H1/15, and we are delighted to see management finally pulling the trigger," wrote Molchanov. In doing so, Occidental would join other oil/gas explorers and producers, including Anadarko, Devon and Hess, and would be "notably, ahead of either Exxon or Chevron in this regard."

Overall, Occidental has a "longstanding track record of capital discipline, a natural hedge in OxyChem and one of the highest liquids weightings among large caps," Molchanov described. "The stock's total return attributes, the yield plus the about-to-resume share buyback are also enticing."

Raymond James' rating on Occidental Petroleum is Outperform.

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Disclosures from Raymond James, Occidental Petroleum Corp., May 9, 2018


Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Raymond James & Associates makes a market in shares of OXY.

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