Occidental surprises investors again with Qatar lease loss

HOUSTON (Bloomberg) -- Occidental Petroleum dropped the most in over a year after deciding to hand over an oil field in Qatar to the government, an announcement that appeared to catch some investors off-guard.

The stock fell 6.1% to $72.24 on Monday, making it the worst performer in the S&P 500 Index, after Houston-based Occidental confirmed it will walk away from the 100,000-bpd Idd El-Shargi North Dome field next year when its 25-year lease expires.

It’s the second time in just over two months that the company has surprised shareholders. Occidental also plunged in August after announcing a $1.1 billion hike to its capital spending budget to keep pace with rivals and maintain its position as the biggest oil producer in the Permian basin.

For several years now, Occidental has sold foreign assets and invested less abroad to focus on the world’s fastest-growing major oil region in its own backyard. But while the company has made its overall strategy clear, the wider investment community appeared to be caught unprepared by the Qatar decision, according to Leo Mariani, an Austin-based analyst at NatAlliance Securities LLC.

“Most energy specialists were generally aware but Oxy is a widely held stock by generalist investors so that may have caught some people by surprise,” he said in a phone interview.

The move also stands in contrast to previous comments from Occidental. Speaking in September last year, CEO Vicki Hollub described the field’s "excellent performance" and said the company had started talking with Qatar about extending its contract. Occidental disclosed that the field’s lease will expire in 2019 in its 10-K filing in February.

The company said in a statement Monday that the Qatar field needed major infrastructure investment, and that the asset’s annual free cash flow would drop by 77% to an average of $70 million over the next five years.

The field’s management and operation will be taken over by state-owned Qatar Petroleum, which first announced the decision on Sunday. The field represents about 4% of Occidental’s worldwide output, according to NatAlliance Securities.

Redirecting capital to the Permian, rather than spending on costly infrastructure in the Persian Gulf “is a more constructive use of funds,” Bloomberg Intelligence analysts Vincent Piazza and Michael Kay wrote in a note. “However, higher spending and underwhelming growth aid skeptics."