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Occidental Petroleum (NYSE: OXY) is a major player in the energy sector and is one of the United States' top oil and gas producers. After a banner year in 2022, Occidental strengthened its balance sheet and reduced its debt.
However, the past couple of years have been tough for the company. Since its recent peak at $76 per share in late 2022, the stock has fallen by 35% over the past few years. With the stock down in recent years, investors may wonder if now is the time to jump in.
Let's delve deeper into the business and see if the stock is right for you.
Berkshire Hathaway can't stop buying Occidental
Occidental is perhaps best known as one of Warren Buffett's largest holdings in his Berkshire Hathaway portfolio. Last year, the conglomerate sold down numerous stock positions, including Apple, Bank of America, and Citigroup. However, it continued to hold and even add to its position in Occidental. Last year, Berkshire Hathaway added 20 million shares to its Occidental position and now has 264 million shares, or about 28% of Occidental's outstanding stock.
Berkshire Hathaway was a key player in helping Occidental finance its acquisition of Anadarko Petroleum in 2019, outbidding Chevron in the process. As part of the deal, Berkshire provided $10 billion in return for preferred stock yielding 8%. Berkshire also has warrants that give it the right to purchase another 83.9 million shares for around $59.62.
Breaking down Occidental's business
Occidental Petroleum operates in various segments of the oil and gas industry. The company has a significant presence in the United States, particularly in the Permian Basin, and operations in the Middle East and Africa. In addition to its exploration and production activities, Occidental transports oil and gas through pipelines, manufactures chemicals, and is expanding into carbon removal solutions.
Occidental's primary source of revenue is exploration and production. This focus makes the stock particularly sensitive to fluctuations in oil and gas prices, which can be affected by broader economic conditions.
For example, Russia's invasion of Ukraine in 2022 resulted in a significant surge in oil prices. This increase was driven by sanctions imposed by the U.S., Europe, and other nations on Russian oil. The combination of tight supplies and market uncertainty contributed to rising prices. Occidental Petroleum used this windfall to pay down debt and improve its balance sheet.
Last year, it achieved record production levels, with strong performance in the Delaware, DJ, Midland, and Powder River basins. The company also acquired CrownRock, enhancing its presence in the Midland Basin, and repaid $4.5 billion in near-term debt seven months ahead of schedule.