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Oxy Wishes Stock Price Would Match Performance
High energy prices and strategic actions initiated since 1997 have added $1.25 per share in recurring earnings annually for Occidental Petroleum and allowed the company to pay down a significant amount of debt this year, said CEO Ray R. Irani at the company's meeting last week with financial analysts in New York. But its stock price remains in the basement at about $20/share well below that of many of its peers.
"Based on the fact that the price-to-earnings multiple of our stock is the lowest in the industry, we don't believe these intrinsic improvements are reflected in our stock price" Irani said.
"We've increased production by a compound annual rate of 6% since 1997. We've increased our reserves-to-production ratio by 35%," he added. Occidental's price realization for natural gas rose from 91% of the Nymex average in 1997 to an estimated 96% in 2000, he said. During the same period, overhead costs were reduced by nearly 40% and operating costs declined by more than 15% below the 1997 level.
"The results of what we have done to strengthen our asset mix and reduce costs is apparent in the improvement we've achieved in profitability," Irani said. "In 1999, Oxy led its competitors in operating income per barrel of oil equivalent. This shows we have excellent assets with strong earnings power. The picture is much the same through the first nine months of 2000."
Of the $1.25 improvement per share in recurring earnings, $1 came from oil and gas operations and the remainder was from its chemicals business.
Since 1997, Occidental has sold or swapped a number of marginal oil and gas assets to concentrate on assembling a strong portfolio of large oil and gas holdings with competitive cost structures and high-quality, long-lived reserves in core areas in the U.S., the Middle East and Latin America.
The company's return on equity has risen from 11.1% in 1998 to 12.5% in 1999 and an estimated 37.7% in 2000. The return on capital employed has increased from 7.7% in 1998 to 9.1% in 1999 and an estimated 14.8% in 2000.
When Occidental acquired Altura Energy in April 2000, Oxy's debt rose to $9 billion from $5.4 billion at the end of 1999. But by the end of the third quarter, the company had met, three months ahead of schedule, its 2000 debt reduction goal of re-paying $2 billion. Irani said he expects additional debt reduction in the fourth quarter of $560 million, resulting in year-end 2000 total debt of $6.5 billion. The company also is anticipating additional debt reduction in 2001.
"We expect our year-end 2000 debt-to-capitalization ratio to be around 57%," Irani said, "as we move closer to our target in the mid-40% range." The company's debt-to-capitalization ratio at the end of 1997 was 67%, prior to the acquisition of Elk Hills and Altura Energy.
"A debt-to-capitalization ratio in the mid-40% range and a return on equity of 20% would result in a return on capital employed in the 12 to 15% range that would place Occidental among the top performers in the oil and gas industry," Irani said. "That's our primary objective. We're striving to be one of the industry's best-performing companies on a consistent basis."
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