There are a lot of odd things about Occidental Petroleum (NYSE:OXY) in the context of the broader energy sector. While investors have generally cheered the decisions of companies like ConocoPhillips (NYSE:COP) to separate from their refining and/or chemical businesses, Oxy seems in no particular hurry to match. Likewise, Oxy has a pretty good record of cash flow production and returns on internal investment, and while management has received rather generous compensation, they actually seem to run the business like a business.

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Not that any of that has helped all that much lately. Oxy has fallen along with many other energy companies, and there are the usual worries here about the company getting stuck between rising production costs and declining realizations. All of that said, today's valuation suggests investors ought to take another look at this company as a longer-term quality energy play.

Underappreciated Assets Should Deliver the Goods
Investors don't really think of California as an especially promising energy-producing region, but Oxy has made it work. Not only is Oxy the largest acreage holder in California, but these fields have proven to be both productive and profitable for the company. What's more, the company would seem to have a rich inventory of potential drilling sites, and the completion of the Elk Hills plant should help the company meet its CO2 needs for its enhanced recovery projects.

Elsewhere, Oxy is also the largest producer in the Permian, ahead of well-known names like Apache (NYSE:APA), Chesapeake (NYSE:CHK) and Exxon Mobil (NYSE:XOM). Here, too, Oxy's experience in enhanced recovery pays dividends, as more than half of its producing wells use CO2 floods to stimulate production.

While more than half of Oxy's production comes from the United States, operations in Libya and Iraq offer solid growth potential as well. These are not the easiest operating regions in the world, Oxy is still trying to bring Libyan production back to pre-war levels for instance, but they play into Oxy's strengths and also lend geographical diversification.

Familiar Challenges and Worries
Oxy has a good long-term history of earning economic returns on its asset base, but that seldom matters in the face of macro worries. As most investors know, energy production costs have been rising significantly, while global economic worries seem to be undercutting pricing.

For the time being, Oxy is managing these threats in a logical way. The company has cut back its activity in the Bakken as supply and service costs continue to spiral, and has likewise cut back on its North American dry gas production.

SEE: Understanding Oil Industry Terminology

The Bottom Line
Assuming that five to six times forward EBITDA is a fair price for an energy company, Occidental looks undervalued today. Investors certainly have to consider the risk that energy prices drop further and take the EBITDA estimates down with them, but that's an ever-present core risk to energy investing.

On a longer term outlook, Occidental not only has an attractive inventory of acreage and drilling opportunities, but a demonstrated history of disciplined and focused management of its assets. Like Apache, Occidental looks like a quality name to consider whenever macro fears push the sector down to attractive long-term prices.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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