Is This Stock A Better Pick Over Occidental Petroleum?

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EOG: EOG Resources logo
EOG
EOG Resources

The shares of EOG Resources (NYSE: EOG) and Occidental Petroleum (NYSE: OXY) currently trade 60% and 45% above pre-Covid levels, respectively. Both companies are into independent exploration and production business with Occidental’s operations located in the United States, the Middle-East, and North Africa. As the finances of oil companies depend on benchmark prices, the recent surge has been assisted by the Russia-Ukraine war and rising transportation demand. Given EOG Resources’ lower long-term debt obligations and current dividend yield of 1.3%, Trefis believes that EOG stock is a better buy over OXY. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, EOG Resources vs. Occidental Petroleum: With Return Forecast Of 52%, EOG Resources Is A Better Bet

  1. Revenue Growth

EOG Resources’ growth was slightly better than Occidental Petroleum before the pandemic, with EOG’s revenues expanding at an average rate of 31% from $7.6 billion in 2016 to $17.3 billion in 2019. Occidental’s revenues observed a growth of 27% p.a. from $10 billion in 2016 to $21 billion in 2019. In 2020, EOG Resources and Occidental Petroleum reported a 35% and 25% topline contraction, respectively. With rising production numbers and benchmark oil prices, both companies reported strong growth figures in 2021.

  • EOG Resources’ three operating segments, United States, Trinidad, and Other International contribute 97%, 2%, and 1% of total revenues, respectively. The company is primarily involved in hydrocarbon exploration and production with 98% of the $38 billion asset base located in the U.S.
  • Occidental Petroleum’s three operating segments, Oil & Gas, Chemical, and Midstream & marketing contribute 63%, 18%, and 19% of total revenues, respectively. The company’s Oil & Gas segment is the key earnings contributor with a 75% share of the total asset base.
  • After observing revenue declines in 2020, Occidental Petroleum reported a 25% contraction of the total asset base compared to just 5% contraction reported by EOG Resources.

  1. Returns (Profits)
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Here we compare the cash generation capabilities of both companies as they return a sizable share of their operating cash flow to shareholders & creditors. In 2021, EOG Resources generated $8.8 billion of operating cash from $18.6 billion in total revenues – implying an operating cash flow margin of 47%. Whereas, Occidental Petroleum reported $26 billion in total revenues and $10.4 billion of operating cash flow resulting in a margin of 40%.

  • EOG Resources’ cash generation capabilities are slightly better than Occidental Petroleum largely due to lower operational costs.
  • In 2021, EOG invested $3.8 billion in property, plant & equipment and returned $2.6 billion to shareholders in dividends. Thus, dividend payouts accounted for 30% of the total cash from operations. In recent years, the company has been balancing its new property investments and shareholders returns.
  • In 2021, Occidental Petroleum utilized $1.2 billion in investing activities and returned $6.8 billion of long-term debt to creditors.
  • Thus, Occidental Petroleum has been focusing on improving the strength of its balance sheet as compared to a favorable shareholder return policy adopted by EOG Resources.
  1. Risk

In 2021, EOG Resources and Occidental Petroleum reported 13% and 39% of debt-to-asset ratio, respectively.

  • Higher financial leverage coupled with continued revenue growth is a boon for generating surplus equity returns. However, interest expenses weigh on finances as revenues decline – limiting dividend payouts and capital expenses.
  • While high benchmark prices are a boon for Occidental Petroleum stock, but the company’s focus to strengthen the balance sheet by utilizing excess operating cash to repay debt is unlikely to benefit investors in the near-term.
  • Moreover, broader market expectations of a decline in oil prices during the latter half of the year coupled with a huge debt load poses a downside risk to Occidental stock.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
EOG Return 3% 38% 21%
OXY Return 8% 112% -14%
S&P 500 Return -2% -6% 99%
Trefis Multi-Strategy Portfolio -2% -9% 257%

[1] Month-to-date and year-to-date as of 4/21/2022
[2] Cumulative total returns since the end of 2016

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