OXY Preview: Expecting Big Numbers

Do the earnings even matter? Occidental Petroleum (OXY - commentary - Cramer's Take) is down 6% today on the continuing slide in oil, despite the likelihood that it will report bang-up earnings tomorrow.

The Street is looking for $2.75 on $6.77 billion in revenue, but the trend in estimate revisions has been so strong all year that whispers are for numbers something higher than those in print. The full-year 2008 estimate started the year at $5.95, yet it is now at $10.46 -- a steady and stunning improvement in prospects all year.

Having said that, high oil is pinching the company in unexpected ways. Notably, second-quarter volume may be lower than previous guidance of 615 mboe/day, because of the impact of production-sharing contracts at the much higher than expected oil price. (Management's original guidance assumed $100-a-barrel oil.) The strikes this spring in Argentina did not help either.

Generally speaking, Occidental doesn't have the operating leverage of some other producers, so it did not cash in on the huge price increase this quarter.

However, that phenomenon will also be felt as oil recedes this month, so OXY earnings won't take the hit that other producers will. OXY does have the highest exposure to oil as percentage of volume among the exploration-and-production universe, so the correlation with the move in oil will always be high.

The call starts at 11:30 a.m. EDT.

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At the time of publication, Dvorchak was long Occidental, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.