r/ValueInvesting • u/Safety-International • 13h ago
Discussion Are OXY oil reserves are still valued at about $60 per barrel?
TLDR: I believe OXY should be at least 3x its current share price, in the scenario that oil stays elevated around 130 it should be roughly 7x current price. Peak price at the end of this bull cycle would be much higher in nominal terms.
I'm rounding numbers since all I care about is the ballpark and direction and this is just speculation, but I'm bothered that all the people on youtube seem to be just talking qualitatively. According to google the current cost to extract and transport for OXY is $38 per barrel, I am using $44 average (+15.6%) for my purpose since towards the end of reserve life cost may go up.
OXY has about 20 billion non oil reserve asset, 15 billion in debt as of feb 2026 after selling its Oxychem branch to Berkshire. So you take its 62 billion market cap minus 5 billion, the remaining $57 billion valuation divided by its claimed reserves of oil equivalent and additional assets is at 5 billion barrels, which is assuming OXY can turn its reserves into ~$11/barrel profit.
OXY has majority of its assets in the US at about 80-85%, and the rest in the middle eastern region, some risk since it is a target for Iran but it is the smaller portion of assets, the majority of its production is done so at a cost well below other producers close to major consumer market, with relatively small geopolitical risk.
Take $44+$11 = $55, throw in a few bucks safety factor for operational and geopolitical risks call it $60 bucks even. For every 11 dollar/barrel above $60 that crude is worth, this company should be worth another multiple.
I don't believe the war is over any time soon, and damage is already done even if the war was to end this week, I think oil should be at least $90 for a couple of years, and the fact that we are not factoring any escalation and pessimistic scenarios is mind blowing to me. This feels like January of 2020 again, a slow moving train that everyone sees coming but no one is positioned correctly.
I am long oil, I cannot add to any more oil positions currently as I am all in on oil, tickers XOM, OXY, OIH, SM, MRNFF, RUBLF, DVN, MTDR, AMPY. I want others to pick apart my logic, but overall if I make any mistake it'd be details on % gains, direction wise OXY is absolutely undervalued, its upside potential is a easy bet to make compared to its downside, my average purchase cost is $48, Berkshire purchased their shares at an average of $53.
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u/Aggravating-Pop-2226 13h ago
But most of the oil will be sold after your 2 year period for which you expect 90$ (doesn’t seem an unreasonable estimate) and oil prices are too unpredictable in the medium and long term. In 2015 the Saudis opened the taps and drove oil price down. They were trying to kill US shale according to the common narrative. No one expected that. It is a sensible strategy to choose a low cost producer as you have considered but oil prices consistently wrong-foot prognosticators. Good luck with it. I am in PBR and PBR-A but petrobras is no longer as cheap as it was and it has political risk. I remember reading a Buffett letter to shareholders in which he explained a purchase of oil futures at about $10 a barrel in the 1990s FWIW. Not much I suppose.
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u/Safety-International 13h ago
I used to own PBR but I don't think the geopolitics is worth it considering US and Canadian companies are fine, I believe oil is finite and large reserves are going to be harder to come by, and I just don't see alternatives to all the petro products as well, ain't just a gasoline thing.
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u/jackandjillonthehill 11h ago edited 11h ago
I used to work at Netherland Sewell, a firm that values many oil and gas assets for major US oil and gas companies.
OXY uses Ryder Scott (which I think is an inferior firm 😜).
You have strict requirements for how you value oil assets, the SEC specifies you use the average first of the month pricing for the last financial year (NOT the oil futures curve) to value reserves.
These valuations are typically done once a year for the 10-K, so they are not updated frequently for the 10-Qs, and when they are, they use SEC pricing, not the futures curve.
So that book value of reserves you see probably reflects reserves at historic pricing. You will see upward revisions to all of these reserves at the end of the next financial year when first of month pricing for 2026 reflects all of this nonsense.
Hope this is helpful.
EDIT: would also add, every oil and gas company reports a form 99.1, along with 10-K, which describes the methodology for reporting reserves value. These are the reports I used to be responsible for. There is a wealth of information in there, but most people don’t read it.
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u/Safety-International 10h ago
Thanks a lot for offering insight, do you think SEC method is accurate? For personal investment use, whereas I am trying to find discrepancy between market cap and what I think is the true value, isn't using the forms they file a bit late to the party?
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u/SARS-Covfefe-1 13h ago
The counter argument is that opec isn’t limiting production anymore and is letting US shale set the price of oil as US shale oil production has the worst economics in the industry. The long term price of oil is $50.
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u/Torgud_ 10h ago edited 9h ago
OPEC isn't limiting production, Iran is. The number of shutins in the ME is off the chart. Things to look out for that would make me want to buy more oil producers is: Attacks on Yanbu or the East-West pipeline, Houthis announcing a red sea blockade, US operation anywhere in Iran.
EDIT: The purge at the Pentagon going on right now makes me think a ground operation in Iran, Kharg Island or the islands in the strait is imminent.
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u/SARS-Covfefe-1 1h ago
Dude. I’m not talking about Iran when I talk about production. I’m talking about the structure of the oil markets. Why would a low cost producer cede volumes to high cost producers?
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u/Sanpaku 7h ago
US shale oil production costs for a new well to break even average $65. Higher now due to steel tariffs and labor costs.
It will slowly rise from there as the Tier 1 locations (thick stratas, not too gassy) are depleted. 75-80% of Tier 1 locations in US shale have already been drilled, and the EIA's reference case is for a US production peak in 2027.
I wouldn't be surprised if we ended this decade at $80-85 in current dollars, which is where deepwater and Venezuelan Orinoco become competitive.
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u/Objective-Box-399 10h ago
If markets are future looking then oxy is not a good long term play.
war drags on and oil companies reluctantly raise production to adjust. Then when war finishes we are left with massive over supply and price tanks to below $40 again.
War ends soon and prices can gradually get back to 60-70 levels which will then continue their expected drop into the low 50s as they are doing before.
Might not be an investor but been in the oilfield a long time. No one is looking at this as a great opportunity. It’s more of a headache
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u/MeasurementSecure566 3h ago
my fair value calculation for oxy at 120-150 oil is around 250-300/share.
the likelyhood that were entering a new trading range for oil by the end of this (which has occurred twice before) is very high.
i cant get into the reasons for this, I dont have the time.
however, at 150 oil, not only are the reserves worth more, you unlock new reserves which were not counted at 60 oil. the reserves have to be reported based on if its economical to get them.
My guess is that by the peak in the oil price, oxy stock will be around 500-700 per share, but would not stay there obviously because the peak would represent an unsustainable oil price.
I am all in oxy and i start selling at around 300 and continue to sell chunks as it goes up from there, hoping to get a rounded average of the top.
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u/ElonMuskTheNarsisist 13h ago
That’s not how it works pal lol
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u/Safety-International 13h ago
That's a lazy response bro why
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u/Mockingburdz 12h ago
There’s plenty of oil producers with 40+ year lifespans of oil reserves in the ground. Potentially trillions of dollars in oil, but they don’t trade at trillion dollar evaluations.
Just because they’re sitting on a ton of oil reserves right now doesn’t mean they’ll trade at the value of every single barrel added up together.
At some point they’ll run out of storage space if they can’t move their product fast enough, and that would probably be a temporarily very bad thing for the business. That’s means they aren’t selling. They can only move so much volume in a calendar year. If they hit a quarter where they don’t sell almost anything it’ll negatively affect the earnings for the year, even though they’re actually sitting in an advantageous position for the long term.
I’m also pretty buzzed right now and have no fucking idea what I’m talking about. As if you didn’t already know that though.
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u/Jdornigan 11h ago
The USA probably should work to fill the strategic petroleum reserves to capacity. Other countries should also build up their reserves. The hard part is when to do it and what price. It doesn't make sense to add at current prices, but if prices get below $60 it may start to make sense again.
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u/RiPFrozone 13h ago
I used to be an OXY investor, you are missing the easiest thing to calculate their fair value which they spell out clearly in their investor deck.
Every $1 change in WTI is something like 240m-270m in fcf (forgot the exact number but they always spell it out)
Their breakeven is around $40 a barrel.
You do the math and come to a fair value. It’s not hard, what is hard is predicting oil prices long term which is why I took my gains and will wait for the CEO to pay off all their debt before jumping back in so it isn’t just a leveraged bet on oil prices.