Occidental Petroleum: Navigating Market Pressures with Berkshire's Backing
Warren Buffett's (Trades, Portfolio), Berkshire Hathaway has further increased its investment in Occidental Petroleum. The conglomerate now owns approximately 265 million shares, representing about 28.2% of Occidental's outstanding shares. Despite the increased stake, Buffett has indicated that Berkshire does not intend to take a controlling interest in Occidental.
Warning! GuruFocus has detected 3 Warning Sign with OXY.
Occidental's stock has faced challenges recently, declining approximately 21% from its 2025 peak of $53.20 to close at $42.16, with a low of $34.78 in the previous month. Despite these fluctuations, Berkshire's continued investment underscores its confidence in Occidental's long-term prospects.
Berkshire Hathaway has become the largest shareholder in Occidental Petroleum. However, this partnership could not shield Occidental (NYSE:OXY) from a significant decline in its stock during the first quarter of 2025. Falling oil prices and the market shock triggered by a Trump-era event known as "Liberation Day," widely regarded as a grey swan event that disrupted global sentiment, further intensified the decline. Brent is still down nearly 13% year over year.
Recent signs of economic recovery are partially driven by easing tensions and de-escalating the tariff conflict between the U.S. and China. For at least a few months, the two superpowers have been negotiating a trade agreement that may or may not be finalized.The chart below illustrates OXY's notably poor performance compared to some of its competitors. OXY has declined by 33% year-over-year, a significant drop compared to ExxonMobil (NYSE:XOM). While negotiations between the U.S. and China are underway, the long-term effects on the global economy remain concerning.
Warren Buffett (Trades, Portfolio) has steadily increased his stake in Occidental Petroleum since 2022. His involvement began in 2019 when Berkshire Hathaway invested $10 billion in Occidental in preferred stock with an 8% annual dividend, helping finance the company's acquisition of Anadarko Petroleum.
Occidental ultimately outbid Chevron by offering $76 per share, surpassing Chevron's $65 per share proposala move widely viewed as overpaying. The deal's hefty price tag and high debt load pushed Occidental to the brink of financial distress in the following years. Today, Occidental's stock trades around $42.16, well below Anadarko's acquisition price, highlighting the deal's long-term cost. This analysis also excludes the impact of suspended or reduced dividends, further underscoring Occidental's financial strain post-acquisition.Berkshire Hathaway's investment in Occidental included high-yielding preferred shares and lucrative warrants, which likely played a key role in attracting Buffett's interest. While crossing the 20% ownership threshold often signals a potential takeover, Buffett has publicly stated he has no intention of acquiring the company outright. Instead, this is a strategic, long-term bet on the enduring importance of oil and gas. Despite the global shift toward renewable energy, Buffett seems confident that traditional energy sources will remain essential to the world economy for decades.
When Warren Buffett (Trades, Portfolio) began investing in Occidental Petroleum, I took notice; who wouldn't? His track record speaks volumes. So, like many others, I followed his lead and purchased more shares. Fast forward 18 months, and here's the honest truth: Unfortunately, it hasn't paid off.
OXY has experienced a significant decline from the price range where Buffett was buying, which was around $51 to $60+. It closed today at $41.13, meaning that anyone who followed his trades during that time is likely facing a sizeable loss. In contrast, the broader market has recovered from the liberation day effect. It can be difficult to accept that even one of the greatest investors in the world can make a wrong call, at least in the short term. There were valid reasons to be bullish: oil prices were strong, Buffett's stake suggested deep conviction, and OXY has some top-tier assets. But debt, environmental liabilities, and oil market volatility have weighed heavily.
Lesson learned? Even the best make mistakes sometimes. While I still respect Buffett's long-term perspective, this experience reinforced a key rule for me: don't just follow the money, understand the business, the risks, and your own timeline.
In the short term, oil prices are expected to experience moderate volatility, which may allow OXY to stabilize and regain some value lost recently. This volatility will be influenced by weak demand from China and ongoing global economic uncertainty while also being supported by geopolitical risks and OPEC+ supply management.
Over the medium term, prices may trend higher due to years of underinvestment in production and sustained demand, even as the energy transition continues. U.S. oil production will likely be a stabilizing factor, although it will adopt a more disciplined growth approach. The market is projected to remain within the $65$85 range, with potential for upward movement if supply tightens unexpectedly.
Occidental Petroleum Corporation (NYSE:OXY) is a prominent American oil and gas exploration and production company based in Houston, Texas. As one of the largest independent oil and natural gas companies in the United States, OXY operates in the U.S., the Middle East, and Latin America. This article updates my previous publication on GuruFocus from January 6, 2025.
In 1Q25, Occidental Petroleum reported $6.843 billion in revenue, a 14% increase year-over-year.
The revenue discussed comprises three main segments: the oil and gas segment, OxyChem (the chemical division), and the midstream and marketing division. Overall, these results exceeded market expectations.
Below are the details presented in one chart:
The oil and gas segment was the primary contributor to the 1Q25 financial results, generating $5.697 billion in revenue and $1.7 billion in pre-tax income fueled by a 19% increase in production and rising commodity prices.
OxyChem, the chemical division, generated $1.246 billion in revenue and achieved a pre-tax income of $185 million, surpassing expectations despite facing challenges with pricing and costs.
The midstream and marketing segment generated $203 million but reported a pre-tax loss of $77 million, mainly due to losses from derivatives.
The company reported a positive free cash flow in 1Q25, which was significantly lower than I had anticipated. The free cash flow, calculated by subtracting capital expenditures from cash generated from operations, amounted to a disappointing $240 million in 1Q25. This figure marks the lowest free cash flow since 2021, as illustrated in the chart below.
Nevertheless, OXY increased its quarterly dividend to $0.24 per share for 2025, reflecting a 9% rise from the $0.22 per share paid last year. According to the company's earnings release and financial statements for 1Q25, there were no share buybacks during this period.
OXY calculates free cash flow using a different formula, reporting it as $1.155 billion, including "working capital and other." This approach is somewhat misleading, as it does not accurately represent the true free cash flow. Ultimately, deciding whom to trust on this issue is up to you.
On a different note, EBITDA was $3.567 billion in 1Q25, 19.4% higher than reported in 1Q24. Cash from operations totaled $2.148 billion, while capital expenditures (CapEx) reached $1.908 billion.
Despite the company's progress, Occidental Petroleum's debt situation is a significant concern. This issue is particularly troubling due to the recent decline in oil prices. The company's free cash flow has decreased to a level that hinders its ability to reduce its substantial debt burden effectively.
As of 1Q25, the net debt was approximately $22.18 billion. However, during the quarter, Occidental repaid $2.3 billion of its debt, which was supported by asset sales following the acquisition of CrownRock LP in August 2024. The company's cash, cash equivalents, and marketable securities totaled $2.612 billion, while its long-term debt, including the current portion, stood at $24.787 billion.
The upstream segment is the most significant part of the company, accounting for 83.3% of total revenue. This quarter, the company reported strong production results, with total oil equivalent production reaching 1,391K barrels of oil equivalent per day (Boepd).
However, this represents a slight decline from 1,463K Boepd in the previous quarter. Specifically, U.S. oil equivalent production was 1,167K Boepd, down from 1,233K Boepd in the prior quarter. While this production level remains solid, it does show some signs of weakness, as illustrated in the graph below:
In the first quarter of 2025, Occidental Petroleum reported domestic oil and gas operating costs of $9.05 per barrel of oil equivalent (BOE). This figure shows a slight improvement from the fourth quarter of 2024, when the LOE was $9.15 per BOE.
The decrease in operating expenses is primarily due to the integration of CrownRock's assets, which include 1,700 new wells, 750 of which have breakeven costs below $40 per barrel. Furthermore, Occidental has reduced its drilling and completion costs by 12% compared to 2023, with an additional improvement of 7% expected by 2025.
The US production breakdown by region was as follows:
The Permian segment is the most productive, accounting for approximately 64.6% of U.S. production in 1Q25. However, the significant increase year-over-year came from the Rockies and the Gulf of America.
In contrast, this quarter, international production reached 224K barrels of oil equivalent per day (Boepd). Additionally, oil production comprised 50.6% of the total production for this quarter.
The company sold oil for $71.07 per barrel, a decrease from $76.04 last year. The price of natural gas liquids (NGL) increased to $25.94, up from $22.14 last year. Additionally, the company sold its (global) natural gas for $2.30 per thousand cubic feet (Mcf), compared to $1.68 last year. NGL and natural gas have seen significant year-over-year increases, while oil prices have remained stable around $72 per barrel.
Note: The chart has been adjusted to account for the dividend.
Occidental is currently trading within a descending channel pattern, with resistance at $48.75 and support at $41.10. With the relative strength index (RSI) at 47 descending, the retracement to the previously formed support level of about $41 is justified, and it may then bounce higher once again toward the 200-day moving average (200MA). The RSI, however, implies that OXY might exhibit additional weakness before being oversold, pointing to a potential breakdown if oil keeps declining.
Please look at the chart above for more information.
I recommend adopting a Last-In-First-Out (LIFO) strategy for 6070% of your position. Set your target price just below the 200-day moving average, around $48 to $50. Given the current level of uncertainty in the market, using a LIFO strategy for the majority of your investment is advisable.
A descending channel is generally recognized as a bearish continuation pattern. It forms when the price consistently declines between two parallel downward-sloping lines: a resistance level and a support level. As I mentioned a few months ago, this pattern emerged from a descending trend, and we recently experienced a breakout. However, we now find ourselves in the opposite situation, where a potential breakdown may occur at the end of this new cycle.
Making a decision right now is exceedingly difficult due to the high levels of volatility and unpredictability. Therefore, maintaining a healthy financial position at all times is wise. Taking profits above $48 gradually and aiming for a higher resistance level at $54 is a good trading strategy. Alternatively, if the anticipated breakdown pattern occurs, watch for a retreat between $41 and $39 to begin accumulating once more.
Note: It is essential to frequently update the TA chart to remain relevant, as we operate in an extremely volatile environment.
This article first appeared on GuruFocus.
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