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Looking for Value at Occidental Petroleum
While a student at UCLA in the early seventies, I took a World Politics course which required me to pick a country, analyze its economy, and make recommendations for its development. I chose Algeria, a country where I had spent a summer hitchhiking among the Bedouins. I concluded that the North African country should immediately nationalize the oil industry, and raise prices from $3/barrel to $10. I knew that Los Angeles based Occidental Petroleum (OXY) was interested in exploring for oil there, so I sent my paper to the company for review. They called the next day and invited me to their imposing downtown headquarters, then the tallest building in Los Angeles. I was quite the sight, with hair down to my shoulders and ragged blue jeans in a building full of crew cuts and pocket protectors.
I was ushered into the office of Dr. Armand Hammer, one of the great independent oil moguls of the day, a larger than life figure who owned a spectacular impressionist art collection, and who confidently displayed a priceless Fabergé egg on his desk. He said he was impressed with my paper, and then spent two hours grilling me. Why should oil prices go up? Who did I know there? What did I see? What was the state of their infrastructure? Roads? Bridges? Rail lines? Did I see any oil derricks? Did I see any Russians? I told him everything I knew, including the two weeks in an Algiers jail for taking pictures in the wrong places. His parting advice was to never take my eye off the oil industry, as it is the driver of everything else.
When I went back to UCLA I told a CIA friend of mine that I had just spent the afternoon with the eminent doctor (Marsha, call me!). She told me that he had been a close advisor of Vladimir Lenin after the Russian Revolution, had been a double agent for the Soviets ever since, that the FBI had known this all along, and was currently funneling illegal campaign donations to President Richard Nixon. Shocked, I kicked myself for going into an interview so ill prepared, and had missed a golden opportunity to ask some great questions. I never made that mistake again.
Some 40 years later, while trolling the markets for great buying opportunities set up by the BP oil spill, I stumbled across OXY once more (click here for their site at http://www.oxy.com/ ). OXY has minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America. It was the first US oil company to go back into Libya when the sanctions were lifted in 2005. OXY’s substantial California production is expected to leap to 45% to 200,000 barrels a day over the next four years. Its horizontal multistage fracturing technology will enable it to dominate California shale. The company’s stock has been trashed with the rest of the industry, even though it just raised its dividend for the eighth year in a row by 15% to 1.90%. Need I say more? The clear message that has come out of the BP oil spill is that onshore energy resources are now more valuable than offshore ones. I decided to add it to my “buy on the next melt down” list. Energy is one of a tiny handful of industries I am willing to put my money in these days (technology and commodities are the others), and BP has handed me a rare opportunity to get in as the tightwad that I truly am.
And by the way, if you followed my advice to buy BP at $29 three weeks ago, please sell it. It peaked at $40 yesterday. Take the easy money and run. I’ve never seen a better opportunity to buy the rumor and sell the news. Don’t be the pig that gets slaughtered. A profit of 38%, some 76% if you used margin, and over 150% if you played the options is better than a poke in the eye with a sharp stick, especially in this miserable environment.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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My bullshit detector just went off, big time.
the thesis about non-deepwater is nice but the trade is old and the pair trade is even sillier at this point. goldman put oxy on CL buy long, long ago. zzz....
The DOW/SP00 leg down has started.
http://stockmarket618.wordpress.com
Hey MHFT,
At the end of April, you said "the only trade is risk on". [The DOW was over 11,000 at that point.] So, I went ahead and said "Risk On!' and gots some DIA.
In May, you said plow into the Yen at 88.00. I did. [Yen now sits at 86.5]
Last month you said Transocean was the steal of a lifetime, when RIG was at 50. I gobbled up those shares. [Got stopped out, though when it plunged 20%.]
Now this Occidental "play" sounds real promising, though. I'm thinking I'm going to get back "what's mine" and then some!
Unfortunately, I'm kinda tapped out after your previous plays. [I know they were great calls, though. I'm sure I just screwed up the trade in the execution. I mean, a 20% Stop? Foolish, I say. Next time, I'll remember to put that bad boy at no less than 50%].
Besides going to a clinic and complaining of back pain, which route should I go in order to take advantage of your OXY play? Should I max out my Visa and pay interest at 30% or raid my 401k and risk the wrath of the IRS?
Thanks in advance! I'm already dreaming about all the ways I'm going to spend My Moola! "I'm Reatch, Beatch!"
100% B.S.
If there was smth in Algeria, the French TOTAL or its subs would have been all over it.
And Armand Hammer was in no way an advisor to Lenin, they simply did business together: Lenin expropriated/confiscated items of value (gold, precious stones, art, religious icons) from the rich, from the museums, and from the church, and traded it all to Armand Hammer for wheat and potato. That's how he got the art collection and the Faberze egg.
Seems like a bass ackwards pair trade with OXY targeting down to 63
and BP targeting up to 64...
http://stockcharts.com/charts/gallery.html?s=bp
http://stockcharts.com/charts/gallery.html?s=oxy
Armand Hammer. Cool name for a Capitalist tool.
The only oil left, Middle East not withstanding, is one mile under the oceans.
BP at $30.00 was a no brainer.
Never confuse an Oligarch with fabulous cash flow savings from a cornucopia of energy industry write-offs, and oil-depletion allowances courtesy of the bought and paid for CONgress of the Federal Government of the United States, with a real Capitalist.