Oxy management has historically invested within its

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OXY management has historically invested within its cash flow, and has focused on achieving high returns rather than solely on growing production. The company also has an underlevered and cash-rich balance sheet, enabling it to take advantage of acquisition opportunities during periods of low oil prices. Over the long term, we expect OXY’s conservative strategy to lead to above-average shareholder returns and below-average share price volatility. The stock also carries an attractive dividend with a yield of about 3.6%. We also expect management to resume stock buybacks in the coming quarters. RECENT DEVELOPMENTS OXY shares have outperformed since the beginning of 2018, rising 17.4% while the S&P 500 Energy index has increased 6.2%. They have also outperformed over the past year, rising 47.6% while the Energy index has risen 19.3%. On May 8, Occidental reported an adjusted 1Q18 net profit of $708 million or $0.92 per share, up from $117 million or $0.15 per share in the prior-year quarter. EPS topped our forecast of $0.64 and the consensus estimate of $0.71. The stronger earnings reflected higher realized prices for crude oil and natural gas liquids (NGLs) and higher total company production. Average realized prices rose 25% from the prior year for crude oil and 17% for NGLs. Realized prices for natural gas fell 23%. Total 1Q18 revenue came to $3.763 billion, up 27% from the prior year. All operating segments posted higher sales, with increases of 30% in the Oil & Gas segment, 8% in the Chemical division, and 84% in the Midstream and Marketing unit. The Oil and Gas division reported a 1Q adjusted net profit of $750 million, up from $220 million in 1Q17, driven primarily by higher crude oil and NGL pricing. Total average daily worldwide production increased to 609,000 barrels of oil equivalent per day (boe/d) from 584,000 boe/d in the same period a year earlier. The improvement was largely the result of increased drilling and greater well productivity.
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M ARKET U PDATE - 14 - In the Chemicals segment, first-quarter after-tax earnings came to $298 million, up from $170 million a year earlier. The increase was driven by higher prices in most product lines, lower ethylene costs, and improved margins throughout the quarter. The Midstream and Marketing segment reported a 1Q net profit of $179 million, compared to a net loss of $47 million in 1Q17. The swing to a net profit was driven by lower operating expenses for the gas plants and improved operational efficiencies at the Seminole San Andres CO2 plant, which was acquired in 2017. EARNINGS & GROWTH ANALYSIS Based on recent better-than-expected production, OXY management raised its 2018 production forecast to 645,000-665,000 boe/d from 640,000-665,000 boe/d, which implies growth of 8%-12%. It continues to expect full- year capital expenditures of $3.9 billion, up from $3.6 billion in 2017. We are raising our 2018 EPS estimate to $4.49 from $2.65 based on the company’s strong 1Q results and our expectations for further increases in crude oil prices. The 2018 consensus estimate is $4.45.
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