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Occidental Petroleum: What to Expect from Its Q1 Earnings

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Occidental Petroleum’s earnings

Occidental Petroleum (OXY) is scheduled to announce its first-quarter results on May 6. Analysts expect the company’s core earnings per diluted share to fall ~41% sequentially in the first quarter. Analysts expect ConocoPhillips (COP) and Apache’s (APA) earnings to fall 24% and ~52% sequentially, respectively.

What changed in the last quarter?

Although lower oil prices could drag Occidental Petroleum’s earnings, the contraction in the Cushing-Midland WTI spread is a positive development for the company’s financials going forward. In the first quarter, the Cushing-Midland WTI spread averaged $1.20—compared to $6.26 in the fourth quarter of 2018. New pipeline additions and enhancing the pipeline infrastructure this year could lower the spread. The oil production in the Permian Basin accounts for 39% of the company’s total production.

Occidental Petroleum’s production is comprised of ~58.6% and ~15.6% oil and natural gas liquids, respectively, while the rest is natural gas. However, natural gas prices at the Waha Hub turned negative a few times in the last quarter. Drillers would have to pay to remove the natural gas glut without getting anything in return. Waha Hub natural gas prices are important to Permian Basin producers, which might have impacted the sharp fall in the earnings.

The discount between Midland and Magellan East Houston WTI fell ~40% sequentially in the last quarter, which could also impact Occidental Petroleum’s midstream earnings. In the fourth quarter of 2018, the discount fell ~32.8% sequentially. Occidental Petroleum’s midstream revenues fell 5.1% on a sequential basis.

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