Occidental (NYSE:OXY) released earnings during the trading day Thursday, beating Street estimates. With the subsequent release of guidance and a new financial framework, it appears the Company intends to reduce debt and reward shareholders at the expense of production growth:
- Production – the Company guided to 2022 upstream volumes of 1,155kboe/d (midpoint), versus Q4 2021 levels of 1,189kboe/d, a ~3% sequential decline.
- Capital – capex was guided to $4.1b in 2022, up ~41% from 2021 levels.
- Allocation – Management intends to continue paying down debt, with a near-term target of reducing net debt to $20b; the Company increased its dividend to 13c/s quarterly (1.3% forward yield), and announced a $3b share repurchase program (~8% of shares outstanding).
Occidental (OXY) has struggled with its balance sheet, and underperformed peers since acquiring Anadarko in 2019. However, sustained higher prices should allow the Company to work through its balance sheet challenges in the coming 4-6 quarters, and begin providing more substantial shareholder returns. The name remains a battleground for Wall Street analysts, but there’s no doubt higher commodity prices disproportionately benefit OXY.