Occidental rallies on Q2 beat; to focus on cutting debt, boosting CrownRock volumes

Occidental Petroleum (NYSE:OXY) finished +4.3% on Thursday after reporting Q2 adjusted earnings that easily topped expectations, and raising its production and capital spending plans for this year after closing its $12B CrownRock acquisition earlier this month.

Occidental (OXY) said the deal will increase its production by ~5% to 1.29M-1.34M boe/day in 2024, raising its footprint in the Midland side of the Permian Basin by ~25% and quadrupling its production from the eastern part of the basin, but analysts had expected to see 170K boe/day from the acquired assets.

But the deal also raised Occidental’s (OXY) long-term debt to ~$28B; the company said it expects to retire $2.3B in debt by the end of August and $4.5B by August next year.

Occidental (OXY) said it will focus on cutting debt and catching up with promised production goals before it launches an eagerly awaited expansion of its cash distribution program.

The strategy has sent share prices “much lower than we believe it should be,” but the company is ahead of schedule in repaying its debt, CEO Vicki Hollub said on the earnings conference call, according to Reuters.

Production goals from the CrownRock assets will take longer than expected due to weather events and other operational downtime, Occidental’s (OXY) head of U.S. onshore resources Richard Jackson said on the call.

The company also raised its capital spending estimate for the full year to $6.8B-$7B from its previous outlook of $6.4B-$6.6B.

Q2 production increased to 1.26M boe/day, up 3% Y/Y and slightly above analyst consensus estimate of 1.24M boe/day; in Q1, output totaled 1.17M boe/day, down 4% from the year-earlier quarter.

Q2 average realized oil price rose 5% Q/Q to $79.89/bbl, while average realized natural gas price fell 39% Q/Q to $0.92/Mcf.

For Q3, Occidental (OXY) sees production rising by another 140K boe/day to 1.37M-1.41M boe/day.

TD Cowen analyst David Deckelbaum, who rates Occidental (OXY) as a Buy, noted “lower than anticipated CrownRock volumes at closing,” as the pro-forma impact of the acquisition “dulls” even as legacy operations “shine,” according to Bloomberg.