Occidental's Obsession

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The fourth-quarter earnings of Occidental Petroleum (NYS: OXY) don't surprise me. Earlier this month, I showed why this stock's value is yet to be fully tapped by the market. The latest earnings release supports my argument.

Numbers don't lie
Net income for the fourth quarter stood at $1.6 billion, a 33% jump from the corresponding quarter of 2010. That's huge for a company with a market cap of $81 billion. In the same period, overall production rose an impressive 4.8% to 748,000 barrels of oil equivalent per day (Boe/d) -- and this is despite a 17,000-Boe/d drop in production from the Middle East, North Africa, and Colombia. Occidental more than compensated this by ramping up production in California, the Permian Basin, and the Williston Basin.

Smart move No. 1
Domestic production hit a record 449,000 Boe/d thanks to much increased capital spending. Capital allocation has been one of the strongest points of management, which I spoke about three weeks ago. The company, while remaining invested in long-term international projects, ensured that the more capital-intensive domestic projects aren't neglected. That's exactly why I'm impressed.

Occidental invested heavily in its Californian projects, which are into the development stage, as opposed to the exploration stage. In other words, these projects have a much lower turnaround time between the capital invested and the production. Along with Apache, the company has been a leader in exploiting the resources here. This way, the company ensured that it didn't miss the bus by taking advantage of higher crude oil prices in 2011 rather than just waiting for its long-term mission in the Middle East to bear fruit.

Smart move No. 2
Additionally, CEO Stephen Chazen emphasized that the acquisition route to expansion isn't worth the deal given the current lousy market conditions for natural gas. He noted that most of the domestic M&A activity is centered on natural gas players. Again, I'm impressed with the practicality of his logic. This comes at a time when there are plenty of companies clamoring for space in the shale gas regions.

Fellow Fool Travis Hoium gives a cogent argument as to why a natural gas recovery is a pipedream at least for the immediate future. Occidental's management seems to share a similar view.

Foolish bottom line
I can't help but reference Warren Buffett's famous principle: Don't lose money. Occidental's management seems to be following that adage to the last letter and has been by far successful. The overall picture looks bright going into 2012. To stay up to speed on the top news and analysis on Occidental Petroleum, you can start here by adding the company to your watchlist.

At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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