CALLOXYabout 1 month ago10.6Kviews

Occidental: the reinvestment rate stayed low when it did not have to

Discipline is only observable under temptation, and this was the test.

The driver is reinvestment rate: the share of cash flow put back into the ground. Low reinvestment converts a cyclical business into a distribution vehicle, and the discipline is only testable during a price spike. Reinvestment rate is disclosed and it did not move through the price spike, which is the first time this company has passed that test. The position: long on Occidental, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. A regulatory or fiscal change in the host jurisdiction is the risk that is not hedged and would overwhelm the project economics entirely.

Discussion · 6

Omri ShakedAUG 13

Finally someone put numbers on this. The utilisation assumption is where I disagree. What is the base rate on this kind of setup working?

Dhruv AnandAuthorAUG 11

Good question. That is the objection in the steelman card. My answer is that the supply response is slower this time, which changes the timing rather than the direction.

Ines FerreiraAUG 13

This lines up with what I saw in the filings. The utilisation assumption is where I disagree. Any view on how the read-across affects the rest of the group?

Ines FerreiraAUG 12

Been on the sidelines on this one. The margin bridge is doing more work here than is acknowledged. Has anything in the last print changed the entry you would take?

Dhruv AnandAuthorAUG 12

Reasonable, and I have thought about it a lot. I would size it smaller at a higher entry rather than skip it, because the asymmetry degrades gradually rather than cliff-edges.

Omri ShakedAUG 11

I think the setup matters more than the thesis here. The capital intensity point is the one I keep coming back to. Interested in what the kill switch looks like in practice.