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Occidental Petroleum Corp. (NYSE: OXY) exited 2015 with quite a bankroll after a year of carefully minding the checkbook and ending with a $600 million Williston Basin divestiture.
The company had $4.4 billion in cash, but more sales appear to be in its future as it focuses on its core areas and disposes of others.
Oxy cut its 2016 capital budget by 50% to roughly $3 billion, with spending allocated to the Permian, long-term projects and midstream business. Its international portfolios, including its Al Hosn gas project with Abu Dhabi National Oil Co. in the United Arab Emirates, will also see less money as the company streamlines, said Thomas R. Driscoll, analyst, Barclay’s Research.
The Houston-based company ended its 2015 divestitures with the sale of Bakken Shale acreage in North Dakota for $600 million. A&D activity proceeds totaled $700 million.
In January, the company sold its E&P and midstream assets in the Pinon Field to SandRidge Energy Inc. (NYSE: SD).
Driscoll said Oxy isn’t stopping there. The company expects to exit Iraq/Yemen by mid-year.
“It is looking to exit Bahrain and to develop an exit plan for Libya,” he said. “Production from the remaining core assets is expected to rise modestly, with oil up a forecast 4% and gas production in decline. Oxy will focus on the Permian Basin and three Middle East core areas- Abu Dhabi, Qatar and Oman.”
And the company has expressed interest in buying longer-lived assets.
“The company said it would consider adding to its Permian EOR where it has significant infrastructure that cannot easily be replicated,” Driscoll said. “Oxy also sees opportunities in its three core areas of the Middle East, as well as in Colombia where it recently signed an agreement to develop more waterfloods.”
The company said it would like to keep its shale position at less than 20% of total production to weather downturns with low decline rates.
Vicki Hollub, president and COO, said in a Feb. 4 earnings call that while the company is reducing its capex from $5.6 billion, she expects overall production from core assets to grow by 2% to 4% on average compared with 2015.
“Our core assets are pro forma for the expected divestments in areas we plan to exit, including the Piceance Basin, Iraq, Yemen and Libya along with lower exposure in Bahrain,” Hollub said. “The full-year contribution of production from Al Hosn and the startup of Block 62 in Oman should add approximately 35,000 barrels of oil equivalent per day this year.”
Hollub said domestic production is expected to decline slightly through the year due to declining natural gas and NGL volumes as the company throttles back on drilling activity in gas assets.
“We expect a modest increase in production from Permian resources vs. last year and will hold our Permian EOR production flat,” she said.
Driscoll noted that with the company’s strong balance sheet and credit rating—the best in Barclays’ coverage universe—the company could afford to outspend cash flow by $2 billion.
Oxy should also benefit from an additional $900 million in cash from its Ecuador lawsuit settlement and about $300 million of asset sale proceeds.
The company appears committed to its $3 per share dividend, but is expected to lag behind its peers through 2017 in balance sheet-adjusted growth, Driscoll said.
The author, Darren Barbee, can be reached at dbarbee@hartenergy.com.
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