In southern California, Occidental Petroleum Corp.'s gas assets have been extremely profitable. Of the company's worldwide gas production, 46% is in California. Tyler Dann, who follows the company for Banc of America Securities LLC in Houston, estimates Oxy's California gas realized $13.50 to $14.50 per million cubic feet (MMcf) in the first quarter. The company's first-quarter upstream earnings before special items were $946 million, up $552 million from the same quarter last year and $183 million over fourth-quarter 2000. Much of the improvement came from approximately $200 million in premiums that the company received for its California gas production above New York Mercantile Exchange (Nymex) prices. "We expect our California gas production to continue to average about 300 million cubic feet per day in the second quarter," says Stephen Chazen, Oxy chief financial officer. "Because of the tightness of the California gas market we can and do sell our production only to credit-worthy buyers." A $1-per-MMBtu swing in gas prices has a $60-million impact on Oxy's quarterly oil and gas earnings, while a $1-per-barrel oil-price change has a $28-million impact. Dann has a Buy on Oxy stock, with a 12-month target of $28 per share and a 2002 target of $30, based on debt reduction, Oxy's U.S.-oriented asset portfolio and a medium-term California gas-price premium. Christopher Stavros of UBS Warburg LLC in New York, has a Strong Buy on Oxy and a target of $31. At press time, the stock was $29.56. "We believe that others have underestimated the sustainability of Occidental's earnings, particularly in light of [our] forecast for firmer North American natural gas markets for several quarters to come," Stavros says. "We expect further improvements in Oxy's balance sheet given favorable commodity prices, and do not expect the company to chase potential upstream asset acquisitions at high prices." -Nick Snow