Occidental Petroleum Corporation (OXY): Which Course Will This Company Take to Boost Shareholder Value?

Management response

At a conference hosted by UBS Securities in New York last week, CEO of Occidental Petroleum Corporation (NYSE:OXY), Mr. Steve Chazen, mentioned that reducing the size of the company is an indispensable solution to maximize shareholder value. The lion’s share of Occidental’s production is U.S.-based, accounting for nearly two-thirds of its annual output. However, the company has major investments in Latin America and the Middle East.

To pursue the CEO’s prescription, Occidental is considering selling operations, particularly in the Middle East, including both onshore and offshore projects in Oman as well as Qatar. Nevertheless, according the sources, it is reasonably challenging from the international regulatory perspective to sell overseas assets country by country, which necessitates government approvals and is subjected to lengthy bureaucratic procedures.

Mr. Chazen “hypothetically” suggested that splitting its operations into three master limited partnerships (MLP) would be a considerably tranquil process. Not to mention this move will favor Occidental Petroleum Corporation (NYSE:OXY) regarding domestic taxation as far as corporate tax brackets are concerned. Thus, it is likely that management will pursue a course of action to split the three business segments to boost share price in the near future compared to the idea of selling region specific overseas assets.

Should you get in?

Regardless of which course of action Occidental chooses to boost share price, the company’s strengths can be observed in multiple dimensions. Regardless of the less than expected growth in net income, the stock price of Occidental has increased since early April 2013; from below $80 to an yearly high of $92.65 (as of May 28). Among 13 analysts surveyed by TheStreet on May 28, 2013, no analyst rated Occidental Petroleum Corporation (NYSE:OXY)’s share as a “sell.” Only five analysts conveyed a sentiment as “hold” similar to Zacks’ rating. The remaining eight analysts also rated the company a “buy.”

Conclusion

Based on the analysis of various financial ratios such as expanding profit margins and reasonable debt levels, it is likely that the market will push the share price of Occidental Petroleum Corporation (NYSE:OXY) higher going forward.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends National-Oilwell Varco, Inc. (NYSE:NOV). The Motley Fool owns shares of Apache Corporation (NYSE:APA) and National Oilwell Varco.

The article Which Course Will This Company Take to Boost Shareholder Value? originally appeared on Fool.com.

Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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