Occidental Petroleum Corp.

Ticker (OXY)Domonic Zarrini

Presentation Outline• Portfolio Information• Stock Discovery Process• Sector/Industry Overview & Analysis• Company Overview & Analysis• Company News• Earnings Analysis• Valuation Analysis• Recommendation

Current Portfolio Holdings

• Focusing on domestic Financial stocks• Industry Classifications: Oil, Gas and Consumable fuels (Primary) (12233)• Index Constituents: S&P 500 Index (^SPX) (31)• Market Capitalization: (Latest) Ranks in the 1st-4th decile (13)• Forward P/E- Capital IQ (NTM): Ranks in the 3rd-7th decile (5)• Est. Annual EPS Growth – 1yr %: Ranks in the 2nd-4th decile (3)

Stock Discovery Process

Stock Discovery Process

• Apache Corp. (APA)• Occidental Petroleum Corp. (OXY)• Exxon Mobile Corp (XOM)• ConocoPhillips (COP)• Chevron Corp (CVX)

Sector Overview

• Largely mature industry• Great competition and margin pressures• Theoretically vast growth potential• Easy to value firms• Heavily interconnected industry groups• Energy Sector rated to “OutPerform”!

Sector Overview

S & P 500, Sector, Sub-sector Chart

Company overview

• OXY is the largest producer of oil in Texas• OXY is the largest producer of natural gas in California• OXY is the number one company in Operating Income per BOE for 11

Consecutive years• Ranked 13th in 10 year EPS Growth (25.7% per year) – Top 500• OXY is ranked number 1 in “fortune most admired” crude oil

production companies

• Q3 2014 record domestic oil production of 282,000 barrels per day• Q3 2014 Permian Resources year over year quarterly oil growth in

excess of 26%• Q3 2014 core income of $1.2 billion, or $1.58 per diluted share

Company overview

OXY SWOT Analysis

StrengthsGeographically Diverse BusinessIncremental Increase in Supply

Strong performance by its subsidiaries like Oxychem in helps drive the top line growth of the company

WeaknessesLegal proceeding

Overleveraged AcquisitionsUnsuccessful Acquisition Business Model

OpportunitiesIncrease in natural gas demand in the US Market can help the company to drive top-line growth and strengthen the

revenue contribution from the US marketStrategic initiatives as the Al Hosn gas project at Abu Dhabi (to develop one of the largest natural fields in the Middle

East) and a new Membrane Cell Chlor-Alkali plant in Tennessee will help it diversify its portfolio further and bring

in higher revenues

ThreatsPolitical Action

Windfall TaxExploration Risks common to drilling and other exploratory

activities can make the company incur significant losses

What Makes OXY Attractive?

• Management plans to spend cash on buying back stock and increasing dividends 18%.• Pays dividend of 2.88%• 5 year dividend growth rate of 17.2% increased consecutively for 11

years• Oxy will buy back 10% of outstanding shares while increasing dividend

in anticipation of a spinoff into 3 independent companies

• 2014 OXY announces spinoff of its California Divison, doing so will allow the company to focus on its core business.• In Regards to declining oil prices, OXY is still profitable with prices

under $50

What Makes OXY Attractive?

• Next Generation shale technology yet to be used in fields:• Automated Drilling• MicroDrilling (allows faster deployment with smaller rig footprint)• Big Data Analytics (Maximizes yields by tapping into the surprising volume of

data from complex shale operations)• NanoTechnology (radically improving chemical formulations and safety)

What Makes OXY Attractive?

What Makes OXY Attractive?• Raising the Dividend is an important goal for

management. OXY’s Board agreed to raise the dividend 2013 from $2.16 to $2.56 18.5% increase

• Feb 2014 board allowed another 12.50% increase in dividends of $0.72 a share

• Competitors of OXY cant not compete to such increases (XOM, IMO, HESS)

What Makes OXY Attractive?

• Capital Expenditure (CAPEX) biggest user of cash in energy companies.• FCF = OCF – CapEx remainder from which DIV can be paid• OXY forsee’s major jump in FCF in 2014

3 Factors that will drive jump of CF

• Improvement in drilling efficiencies• MicroDrilling, NanoTechnology, Automated Drilling, Data Analytics

• CapEx Reductions• Production Growth

Valuation – earnings & projected earnings

OXY 2012 2013 2014 2015 2016

EPS Normalized $5.66 $7.32 $7.17 $7.56 $7.97

EPS Growth 29.33% -2.05% 5.42% 5.42%

HES 2012 2013 2014 2015 2016

EPS Normalized $5.11 $4.69 $3.45 $3.66 $3.88

EPS Growth -8.22% -35.94% 6.00% 6.00%

COG 2012 2013 2014 2015 2016

EPS Normalized $ 0.71 $ 1.02 $ 1.22 $ 2.10

EPS Growth 43.66% 19.61% 72.13%

OXY HES

COG XOM

Dividend Growth Rate Forecast

Year Value g(T)

1 g1 9.22%

2 g2 10.18%

3 g3 11.14%

4 g4 12.09%

5 and there after g5 13.05%

Intrinsic Value of OXY Share

Intrinsic Stock Valuation

Year DIV DPS Value PV 16.32%

0 d0 2.56

1 d1 2.8 $2.41

2 d2 3.08 $2.28

3 d3 3.42 $2.17

4 d4 3.84 $2.10

5 d5 4.34 $2.04

5 TV(5) 150.04 $70.46

Intrinsic Value of OXY Share $81.45

Current Stock Price $85.23

Capital Asset Pricing Method

CAPM Rate of Return RF 2.76%E(RM) E(RM) 13.49Beta OXY B(OXY) 1.5

Required Rate of Return r(OXY) 20.22

OXY Recommendation

• Impressive Future Cash Flows• OXY 2014 appears to have growth drivers necessary to expand • Efficient E&P • Low cost producer allowing OXY to have lowest cost per barrel

permitting highest profit per barrel• Room for growth!• Undervalued, market realizing only half its value, potential

•RE BUY!!