Occidental Petroleum is an American multinational oil and gas exploration and production company. ( OXY -0.20% ) The oil company recently announced strong financial performance for the second quarter. They achieved high levels of oil and gas production and exceeded earnings expectations in their midstream and marketing divisions. Additionally, they disclosed strong revenue and funds received.
The oil stock’s Strong outcomes are likely to please Warren Buffett. The primary owner of Occidental the company owned by Buffett, Berkshire Hathaway is the name of a multinational conglomerate holding company. , is contributing to the achievement of Occidental, which appears to be on track to keep growing.
Analyzing Occidental Petroleum’s performance in the second quarter
On a daily basis, Occidental Petroleum produced around 1.3 million barrels of oil equivalent. during the second quarter . It surpassed its projected midpoint by an additional 6,000 barrels of oil equivalent per day.
Stronger-than-anticipated performance in the Permian Basin and Gulf of Mexico contributed to exceeding the projected results. The increased production and higher average oil prices (up 5% from the previous quarter) enabled Occidental to report impressive earnings in its oil and gas division ($1.6 billion as opposed to $1.2 billion in the first quarter).
The energy company exceeded its earnings expectations in the midstream and marketing sector, surpassing guidance by more than $180 million. This was attributed to the company’s successful investment in that area. a type of business structure that combines the tax benefits of a partnership with the liquidity of a publicly traded company Western Midstream Partners is the name of the company. , generating $163 million in revenue.
At the same time, the OxyChem subsidiary of the company experienced an increase in income to $296 million, due to the chemicals business profiting from increased prices and sales quantities.
CEO Vicki Hollub stated in the earnings press release that the remarkable financial results for the second quarter of 2024 were a direct outcome of the strong operational performance. The energy company with a variety of sources generated $3 billion in cash flow. approximately $1.3 billion in cash flow that was not tied up in operations during that time. Occidental Petroleum Corp. is using Its robust free cash flow allows it to cover its increasing dividend payments and reinforce its financial position.
It seems that there are even brighter days on the horizon.
The positive trend of Occidental Petroleum is set to persist as it recently completed a significant acquisition of CrownRock. This $12 billion transaction will greatly strengthen its leading position in the Permian Basin by increasing its high-margin production by 170,000 barrels of oil equivalent per day. Occidental Petroleum anticipates that CrownRock will boost its free cash flow by $1 billion in the first year of ownership, based on an oil price of approximately $70 per barrel (current price is above $75).
In the short run, the company will focus on using Occidental plans to utilize its free cash flow and proceeds from asset sales to reduce the debt it took on to complete the acquisition. The company issued $9.1 billion in new debt and also took on $1.2 billion of CrownRock’s existing debt. Occidental intends to sell assets worth $4.5 billion to $6 billion in the upcoming years with the goal of repaying a minimum of $4.5 billion of debt within the next year.
Occidental has the ability to repay $2.3 billion of debt by the end of August. decided to offload non-essential assets amounting to $970 million. to kickstart its efforts to reduce debt.
The company’s agreement to sell a portion of CrownRock to a current joint venture partner did not materialize. As a result, the company will need to sell additional assets in order to meet its divestiture goal.
CrownRock is not the sole driver of growth for the oil company. Occidental is also making significant investments in expanding OxyChem, which is projected to contribute significantly to earnings growth in the future. Additionally, there are anticipated improvements in the midstream sector, with cash distributions expected from investments in Western Midstream.
Moreover, paying off debt should lower the company’s interest expenses. Additionally, Occidental Petroleum is in the process of constructing. out a company that provides environmentally friendly solutions, which reduce carbon emissions capturing and storing carbon The company anticipates that these initiatives will contribute over $1 billion in additional annual free cash flow by the latter part of 2026. These sources of income will result in a more consistent cash flow, which will assist in decreasing the overall fluctuation of its earnings.
With so many factors supporting it, the reason for Warren Buffett’s intense interest in acquiring Occidental’s shares is clear. In June, he made another significant investment by buying 7.3 million shares within a span of nine trading days. Berkshire Hathaway now holds more than 255 million shares, equivalent to 28.8% of Occidental’s total outstanding shares. This investment, amounting to almost $15 billion, ranks as Berkshire’s sixth-largest holding, representing 4.9% of its overall investment portfolio. The rising cash flow of Occidental is expected to boost shareholder value, benefiting investors such as Buffett’s Berkshire Hathaway.
A high-quality oil investment option
Occidental Petroleum is currently performing exceptionally well. It has announced impressive financial results for the second quarter, driven by its varied energy business holdings. Moreover, even brighter prospects seem to be on the horizon. to be In the future, Occidental appears to be a promising energy stock to invest in for the long term, especially with the anticipated increase in value from CrownRock and the expansion of its non-oil revenue streams. is exactly what Warren Buffett has been taking action.
