LyondellBasell Industries NV (LYB), Occidental Petroleum Corporation (OXY), EV Energy Partners, L.P. (EVEP): Review of Billionaire Leon Cooperman’s 4 New Dividend-Paying Picks

Occidental

Another Omega Advisors’ new pick in the first quarter was Occidental Petroleum Corporation (NYSE:OXY), one of the largest U.S. energy companies. The position in the stock was likely Cooperman’s play on the possibility that Occidental Petroleum Corporation (NYSE:OXY) would try to refocus its operations by divesting international assets, especially those in unstable geographies such as Yemen and Libya, and, possibly, its midstream or chemical operations. The move would unlock value and, with a focus on mainly domestic operations, would warrant an increase in Occidental’s valuation multiple. According to a recent WSJ article, the company is currently entertaining ideas of “selling its Middle Eastern business” or splitting “into three businesses: one focused on the overseas assets, another focused on oil production in California, Colorado and the Bakken oil fields, and a third focused on the company’s 1.7 million acres in Texas and New Mexico’s Permian Basin, according to UBS.”

Given the company’s focus on shareholder returns, especially its seeking to deliver “consistent dividend growth that is superior to that of (its) peers,” we think asset divestments could boost shareholder value in the near future. Currently, about 60% of the company’s production is from North America and about 60% of production is concentrated in oils. The company’s output expansion (targeted at 5%-to-8% annually), its midstream capacity enhancement through BridgeTex pipeline, and continued cost cutting bode well for the bottom line. We also like Occidental Petroleum Corporation (NYSE:OXY) as a value play, given its forward P/E of 12.4x, representing a 23% discount to the E&P industry’s average forward multiple. Likewise, the stock is trading at a price-to-book lower that its five-year valuation average. Occidental has raised dividends for 11 consecutive years, and its current yield is attractive at 2.8%, with a payout ratio of 36% of its current-year EPS estimate.

EV Energy

EV Energy Partners, L.P. (NASDAQ:EVEP) was another pick in Omega Advisors’ portfolio last quarter. The position represents an upstream MLP with a market capitalization of about $1.8 billion. EV Energy’s stock price has declined by nearly 27% since the beginning of the year, amidst the uncertainty over the sale and monetization of the MLP’s 104,000 net acres in the Utica shale. In fact, last year, EV Energy Partners, L.P. (NASDAQ:EVEP) and EnerVest (a controlling member of EV Energy’s general partner), started a marketing process for 335,000 operated acres (104,000 net to EV Energy), but the sale negotiations “stalled over unacceptable terms.” The outlook is now uncertain, as new estimates emerge that the Utica play holds much higher reserves of the currently less-profitable natural gas than oil. The Ohio Department of Natural Resources recently reported that “oil production will be incidental to gas production in much of the Utica/Point Pleasant play,” based on the first full year of production. The report crushed expectations that the play would be oil rich like the Bakken or the Eagle Ford shale formations.