While production grew 6% due, mainly to the Dolphin project, the realized oil price of $80.30 grew 53% year over year, and gas of $6.77 grew 20%. (In fact, the company missed production guidance because of a Libyan well blowout, strikes in Argentina and price impact on production sharing contracts.) The company did a great job of replacing production, with proved recoveries of 116% of 2007 production, leaving it with 13.7 years of supply.

Notably, 2008 looks just as good. Although management wouldn't provide exact numbers, the company is just starting to book a number of big projects, and it "can't see" how recoveries would lag production this coming year.

Occidental has plenty of upside leverage in 2008. Management gave forward guidance of 615 million barrels of oil equivalent per day at $90 for first quarter but conservatively is using 620 to 630 barrels at $80 for the year.

Each $1 move in oil price swings pretax earnings by $38 million, so a realized price close to $90 could add $380 million to operating earnings. Add on a G&A cost reduction program that the company initiated this fall, which should yield $200 million of savings in 2008 and $300 million per year beyond that, and there is plenty of room for upside revisions as the year progresses.

At 10 times earnings, with a simple story and steadily rising earnings, Occidental looks good right now. The big caveat, of course, is oil prices, since that $38 million swing can go in both directions. As such, Occidental will trade highly correlated with oil prices, but as long as global demand remains strong, and supply remains constrained, Occidental will work.

OXY Preview: Outlook Should Be Optimistic