ISI: OXY: STRONGER OPERATIONS, GOVERNANCE PLAN AHEAD $100 PX. OBJ (DAB)

* Equity Market Underperformance Transitory?
Occidental underperformed every US Integrated Oil company in recent weeks. Concerns relate to: 1) operational and 2) corporate governance issues. The latter item is vastly more important to investors and will likely extend the share price weakness if left unaddressed.

* E&P Results to Gain Momentum
Production rose by 3% in 1H 2010. However, results would have been stronger absent operational constraints in the US. Momentum is likely in 2H 2010, with output to rise by 6% in 2010 and 2011. We maintain projections for 7% annual gains during 2010-2012, the fastest growth rate in the group.

* Compensation Adjustments Ahead
OXY equity performed well last decade and with variable compensation significant, CEO Irani was rewarded. However, performance adjusted compensation appears 45% too high with significant modifications likely in coming months.

* New Management Succession/Development Plan Needed
OXY's succession and senior management development plan lacks clarity versus all of its other Integrated Oil peers. With CEO Irani and another 6 of 13 board members within 3 yrs. of OXY's stated retirement age; the loss of a senior leader due to lack of visibility in this area would be very negative for the company and its future equity value.

* Resolution on Governance Ahead, Price Target $100
Our top picks in Integrated Oils remain OXY, COP (PT-$65/sh) and CVX (PT-$92/sh.). We arrive at our $100/share price objective for OXY by applying 100% relative P/E and 60% relative dividend yield multiples. We are buyers of OXY at current levels.