May 16, 2023 [The Motley Fool]- The oil companies share a lot of similarities.
ExxonMobil (XOM 0.19%) is a global oil and gas industry behemoth. It’s a leading hydrocarbon producer. It also boasts a globally integrated business, enabling it to maximize the value of the hydrocarbons it produces. Meanwhile, Exxon has an emerging low-carbon business.
Occidental Petroleum (OXY 0.74%) shares many of those same features, albeit on a smaller scale. However, the company has grand growth ambitions – it beat out oil giant Chevron (CVX 0.37%) to acquire Anadarko Petroleum in 2019. Here’s a look at whether it could eventually become a mega-cap oil stock like Exxon.
How Occidental stacks up against ExxonMobil
Exxon is over seven times the size of Occidental Petroleum, which currently ranks as the 6th largest U.S. energy company.
Exxon has a much larger global production base. The company produced an average of 3.8 million barrels of oil equivalent per day (BOE/d) during the first quarter. For comparison, Occidental Petroleum produced 1.2 million BOE/d during the period.
However, oil and gas production is only part of Exxon’s story. The company’s integrated operations also feature a large-scale downstream business of refining, chemicals, and marketing assets. Exxon’s downstream business is a big value driver. The company generated over $4 billion in energy products earnings during the first quarter to go along with nearly $6.5 billion of upstream production earnings.
Occidental Petroleum isn’t nearly as integrated as Exxon. It has some midstream assets, including owning a stake in Western Midstream (WES 2.56%). It also has a chemicals business, OxyChem. However, they’re not big earnings drivers for the company. OxyChem produced $472 million of income in the first quarter, while the company’s midstream and marketing business only generated $2 million of income. Add in its oil and gas earnings, and Occidental Petroleum’s total earnings were only $1.1 billion in the first quarter. Exxon’s profits were almost 10 times higher at $11.4 billion.
What can Occidental Petroleum do to bridge the gap?
The quickest path for Occidental to join Exxon as a mega-cap oil stock is to continue making needle-moving acquisitions like Anadarko Petroleum. It could pursue a merger of equals transaction with a rival like Pioneer Natural Resources (PXD 0.98%), which would boost its market cap up into the triple digits. However, it would have competition since Exxon has already set its sights on acquiring pioneer to beef up its presence in the Permian Basin.
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