The CEO of Warren Buffett’s favorite oil company thinks its stock is ‘very undervalued’

Occidental Petroleum (OXY), which is Warren Buffett’s preferred oil business, will reduce the amount of shares it buys back over the next couple of years in order to concentrate on decreasing the debt it incurred as a result of the acquisition of CrownRock, which is an oil and gas producer. According to CEO Vicki Hollub, who was speaking to Julie Hyman of Yahoo Finance at the CERAWeek conference hosted by S&P Global in Houston, “We’ve had a very healthy repurchase program over the last couple of years because of the fact that our stock right now is very undervalued, in our view.” Over the course of the previous year, Occidental distributed dividends totaling $600 million, repurchased $1.8 billion worth of common shares, and redeemed $1.5 billion worth of preferred shares.

The stock showed a decrease of 5% in 2023, following a stratospheric 119% increase in the previous year, which coincided with the peak of oil prices. This made it the equities that performed the best among the S&P 500 (^GSPC) that year. Shares have increased by more than five percent since the beginning of the year 2024. This is the latest in a series of industry consolidation maneuvers that have taken place in the Permian Basin. In December, the oil giant located in Houston made the announcement that it would purchase CrownRock, which is based in Midland, Texas, for a price of $12 billion. The takeover is distinct from other recent transactions because to the fact that it is financed with debt and that it includes a company that is privately held. In order to generate some of the funds necessary for the acquisition, Occidental Petroleum will sell off some of its assets.

A reduction in the amount of debt held by the corporation to $15 billion will be the company’s top aim. Following the news of the acquisition, Warren Buffett’s Berkshire Hathaway (BRK-A, BRK-B) made a purchase of over 600 million dollars’ worth of OXY shares within a span of three days. This shows that the company has faith in the company. At the moment, Berkshire owns slightly more than 28 percent of the corporation. In the short run, over the course of the next couple of years, we will proceed with the reduction of our debt. According to Hollub, once that two years have passed, we will resume the process of repurchasing shares. CrownRock, which has a total of 94,000 net acres in the Permian Basin of West Texas, will contribute approximately 170,000 barrels of oil equivalent per day to Occidental’s output with the acquisition of these properties. With the acquisition of CrownRock, we have gained some more scale.

Additionally, the scale is in the appropriate location, which means that it was an ideal match for the assets that we already possess, as stated by Hollub. She continued by saying, “We believe that the two most important ways to return value to shareholders are through a growing dividend, which the CrownRock acquisition does for us, and to repurchase shares.” However, by investing in our oil and gas activities in a natural way, we are able to achieve a very high return on the cash that we have invested.

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