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
"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
"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
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
"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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