Warren Buffett’s Berkshire Hathaway recently bought another $35.7 million worth of Occidental Petroleum stock. This boosts its stake to 28.8% of the company’s outstanding shares. Occidental is now Berkshire’s sixth largest holding, making up 4.3% of its investment portfolio.
Occidental’s recent quarterly report shows why Buffett’s company sees value in the oil stock. In the fourth quarter, Occidental produced an average of nearly 1.5 million barrels of oil equivalent per day. This exceeded the midpoint of its production guidance by 13,000 BOE/d.
The company delivered record U.S. production, led by strong growth in the Permian Basin and Rockies region. This helped offset lower oil prices during the period. Occidental’s oil and gas segment posted pretax income of $1.2 billion in the fourth quarter.
This remained flat compared to the third quarter despite a 7% decline in the average price realized for the oil it sold. The company’s chemicals business, OxyChem, reported $270 million of pre-tax income. This exceeded its guidance.
The midstream and marketing segment also surpassed the company’s guidance. Occidental’s strong operational performance helped fuel cash flow of $3.1 billion in the quarter.
Buffett’s increasing investment in Occidental
Free cash flow was a healthy $1.4 billion after accounting for about $1.8 billion of capital spending. The company used this free cash flow to pay dividends and repay debt. It achieved its near-term debt repayment target of $4.5 billion in the quarter, seven months ahead of schedule.
Deleveraging its balance sheet remains a key goal for Occidental. The company has already started on the next phase of its debt reduction plan. It agreed to sell $1.2 billion of assets, including some non-operated assets in the Rockies and Permian.
These sales are part of its goal to divest $4.5 billion to $6 billion of assets following its $12 billion acquisition of CrownRock. Occidental expects its capital spending to be between $7.4 billion and $7.6 billion this year. Most of that will go towards developing its oil and gas resources to continue modestly growing its oil production.
The company is also investing in growth projects like Stratos, a carbon capture and storage initiative. It is also working on the OxyChem Battleground modernization and expansion project. Occidental has multiple value-enhancing catalysts.
The company is operating exceptionally well, achieving record production and strong free cash flow. This enables it to deleverage its balance sheet, return cash to shareholders, and invest in business expansions. Buffett and his team believe Occidental will be worth much more in the future as it continues to execute its strategic plan.
Image Credits: Photo by Yorgos Ntrahas on Unsplash
