Citigroup: Occidental Petroleum (OXY.US) Q3 cash flow greatly exceeded expectations, but the acceleration of debt repayment made it difficult to hide hidden production concerns in the fourth quarter

The Zhitong Finance App learned that Citi published a research report to maintain the “neutral” rating of Occidental Petroleum (OXY.US), with a target price of 65 US dollars. The bank pointed out in a report that Occidental Petroleum's third-quarter cash flow per share (CFPS) exceeded expectations. Thanks to operating and capital expenditure controls, it paid back $1.8 billion in debt, but due to contractual factors and equipment maintenance, Q4 production guidance was weak or hedging was favorable.

The bank said that Occidental Petroleum's Q3 cash flow per share was $4.06, higher than Citibank's forecast and LSEG market consensus of 23% and 13%, respectively. According to the report, this performance that exceeded expectations was mainly due to unit operating costs falling short of expectations, and overall production was basically in line with market consensus. Specifically, oil production was 697,000 barrels of oil equivalent per day, 3% lower than market consensus, but production of liquid natural gas (NGLs) and natural gas slightly exceeded expectations to offset this impact.

Capital expenditure was also strong, falling 6% and 2% lower than Citi's forecast and market consensus, respectively. After excluding projects that affect comparability, midstream and marketing pre-tax revenue exceeded the company's guideline limits.

Looking ahead to the fourth quarter, Citi pointed out that Occidental Petroleum's production guidelines are 2% lower than market consensus, mainly hampered by weak oil production. The factors behind this include the impact of product sharing contracts (PSC) and GOA maintenance. According to the report, although CFPS performance in the third quarter exceeded expectations, weak oil production guidance for the fourth quarter may weaken this advantage, and the company's stock price opening reaction is expected to be neutral.

On the debt side, Occidental Petroleum used strong cash flow to repay approximately $1.8 billion of principal debt in the third quarter. According to the report, the company has reached its principal debt target of 10 billion US dollars and proposed a new debt milestone of 6 billion US dollars.

Additionally, Occidental Petroleum announced that it has signed fixed-cost carbon dioxide offtake agreements with several project developers who will fund the construction of CCUS facilities and pipelines in the Permian Basin. The agreement will purchase a total of about 2 million tons/year of carbon dioxide, with the possibility of expanding to about 4 million tons/year; the first delivery is expected to be in 2029, and the unit cost of carbon dioxide captured can be reduced by up to 75%.