|Shares Out. (in M):||764||P/E||0||0|
|Market Cap (in $M):||53,936||P/FCF||0||0|
|Net Debt (in $M):||7,100||EBIT||0||0|
After underperforming its large-cap Permian peers by ~30% (CVX, COP, EOG, PXD, CXO) over the past 6 months, OXY offers relative value and its positioned to outperform as it updates its Permian Resources inventory. OXY's underperformance over the past 6 months has primarily been a function of an under-levered balance sheet and concerns around Permian Resource depth. OXY's underperformance accelerated following 3Q earnings (11/1/16) when the company announced a $2b Permian acquisition. This acquisition lead many investors to question the size and quality of OXY's Permian Resource acreage given its headline 2mm net acre position and its willingness to spend $2b in the context of an already large land position. At this price, OXY now more than discounts the negatives that bears have pointed to for the past year. Over the next few months, OXY has the opportunity to change investor perception when it provides a detailed update of its Permian Resource acreage. Further the company has the opportunity to provide a long-term Permian Resource growth rate (similar to the outlooks provided by EOG, PXD, CXO), which may drive a positive re-rating. In the past, OXY's CEO has stated a desire for Permian Resources production to only represent 20% of the company's total, but this may be shifting as the company improves economics in Permian Resources. To the extent OXY shifts the majority of its capital to Permian Resources, OXY could again command a similar premium multiple as its large-cap Permian peers.
OXY trades at ~7.5x 2018 EV/EBITDA a roughly ~1.5x-2.0x discount to EOG, PXD, CXO. Relative to CVX, OXY trades at a 1.5x premium, however this premium has averaged ~3x since OXY spun off CRC in late 2014.
OXY is an international independent E&P with a primary focus on the Permian Basin and Middle East. The company also has a valuable chemicals and midstream business (~$10-11b EV) which helps justify a premium multiple. Today the Permian generates 44% of total production split between shale at 20% and EOR (Enhanced Oil Recovery) at 23%. The Middle East represents 47% of production. Oil production is 61% of the company's mix. From a capital allocation & growth perspective, the Permian today receives >60% of the capex and this percentage is likely to grow in 2017+ which will drive the Permian's share of total production higher.