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Bottom Line: "After underperforming through much of the last quarter, we feel there is further room for OXY shares to rise vs large cap peers. This is driven by strong volume delivery in its North American business. OXY has increased the number of wells it plans to drill in California to 154 (from 107) and announced slightly lower well costs than we were expecting ($3.5m instead of $4.5m). With a high oil content and EUR's in the 300-400 range, these California shale wells look highly profitable. We increase longer term EPS by 11% and our TP to $135/sh from $128/sh. We are raising our 2011/2012/2013 EPS estimates to $8.16/$8.68/$11.79 (from $8.00/$8.00/$10.62) respectively."

Raised Earnings and Capex: "Partly due to remodeling the volumes and capex in each of OXY's key areas (Permian/California), partly due to strong results we raise our longer term EPS by 11% and raise our 2013 capex to $8.5bn. We don't mind higher capex on OXY's profitable reinvestment opportunities.

Investment Case: "Despite the recent bounce, OXY shares offer 16% more upside then the average major. OXY should deliver a 6% CAGR in volumes, through 2015 from high return investments and with a free cash flow yield (after full capex) of 6%. A 12% pa total shareholder return and some re-rating potential is attractive. After Q2 we said Closer to an Inflection Point. Given delivery and a better oil macro backdrop, this moment has arrived."

Valuation: "Based on the new earnings, we raise our target price to $135/sh. OXY shares offer more upside overall than the large cap Energy group. OXY, the most profitable large cap, is embedding cost of capital returns, despite having delivered good profitability for over a decade. Operating in California will likely still provide some volatility but with OXY's resource and return potential, this is worth suffering."

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