Apparently inspired by last week's NFL draft, CNBC brought in
some experts last Friday to conduct a stock draft. One of the
"drafted" stocks was Occidental Petroleum (NYSE:
), the fourth-largest U.S. oil company.
experts did touch on some of the important
pertaining to California-based Occidental. For example, the idea
of Occidental following Marathon Oil (NYSE:
) and ConocoPhillips (NYSE:
) in spinning off its midstream or downstream operations to
unlock shareholder value was floated.
Indeed, that is a good idea as Occidental's earnings from
midstream, marketing and "other" related segments jumped to $215
million in first quarter from $131 million a year earlier,
according to the company's
latest earnings release
CNBC also briefly touched
on the role some activist investors are attempting
to play at Occidental
due in large part to some issues in the C-level executive
Long story short when it comes to who is actually running
Occidental, Steve Chazen sports the title of chief executive
officer and he will keep that post until the end of 2014.
Unfortunately for Chazen, and arguably for shareholders as well,
he must do his job under the watchful eye of former CEO and
current chairman, Ray Irani. Some investors believe it is really
Irani that still runs Occidental.
That poses some risk to the stock because for as much as they
have complained and tried to do something about it, activist
shareholders are still struggling with Irani's compensation
package that would make any Wall Street banker blush. Irani
received nearly $46 million last year just to be chairman. For
the five years through April 2010, Irani received a staggering
$782.48 million in compensation,
according to Forbes
Put Irani's five-year compensation into context this way:
Based on a current annual dividend of $2.56 per share and
just over 805.5 million shares outstanding
, Occidental has a dividend obligation of about $2.06 billion.
Irani's five-year compensation through April 2010 ate up nearly a
third of the company's current tab.
In other words, there are a lot of moving parts with
Occidental that may make ETFs the better way for investors to get
exposure to potential upside. Occidental is not nearly the size
of rivals Exxon Mobil (NYSE:
) and Chevron (NYSE:
), two companies that dominate cap-weighted ETFs. However, there
are a couple of credible ETF options for Occidental exposure.
The iShares Dow Jones U.S. Oil & Gas Exploration &
Production Index Fund (NYSE:
which was highlighted earlier this year
, features a 13.1 percent allocation to Occidental making the
stock the ETF's largest holding by about 500 basis points over
Anadarko Petroleum (NYSE:
Year-to-date, IEO has outpaced the Energy Select Sector SPDR
) by 170 basis points. IEO is home to over $319 million in assets
under management and charges an annual expense ratio 0.46
percent. The ETF works out to be a little cheaper than because
its annualized tracking error is 0.43 percent,
according to iShares data
Another Occidental ETF option is the far small Market Vectors
Unconventional Oil & Gas ETF (NYSE:
). FRAK, which debuted in February, is most often remembered for
its catchy ticker. However, the ETF has been a decent performer
this year with a 9.3 percent gain. Occidental is FRAK's
second-largest holding at a weight of 7.43 percent behind the
8.25 percent allocated to Anadarko.
FRAK is focused on companies with significant shale and oil
sands footprints. Other top holdings include EOG Resources (NYSE:
), Devon Energy (NYSE:
) and Hess (NYSE:
Why ETFs For Occidental One of the primary advantages of ETFs
is that these instruments help investors mitigate single stock
risk and some does exist with Occidental. The stock has
significant upside potential if the board could convince Irani
the company is not his personal ATM machine, but betting on that
happening anytime soon could be a losing bet.
Of course, Occidental, although it does not explore offshore,
has a comparable amount of international geopolitical risk as of
any of its rivals. For example, Occidental is a major operator in
Libya, not exactly the most stable country in the world.
Maybe even more risky to the Occidental investment thesis than
Irani or Libya is the company's home state government. A major
part of the long-term thesis for owning Occidental is
the company's dominant presence in
California's Monterey Shale. The estimates for recoverable
reserves there vary, but it is fair to say the Monterey Shale
could be a major part of domestic oil production going
Unfortunately, California's government is no more reliable for
Occidental than Libya's. Despite an unemployment rate that
remains among the nation's highest and a desperate need to close
funding gaps created by California's desire to make millionaires
out of public employees, Occidental cannot get all of the permits
it wants to fully tap the Monterrey Shale.
Bottom line: There is a lot of potential with Occidental, but
ETFs, for now anyway, look like the safer play.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga