Impressive Continued Performance for Warren Buffett's Stock Pick
Occidental Petroleum Shines in Second Quarter, Boosting Berkshire Hathaway's Investment
Occidental Petroleum, an American energy company, has reported a strong performance in the second quarter of 2023, with the company's improved financial standing indicating a smart investment for Warren Buffett's Berkshire Hathaway.
The company's OxyChem business matched its first-quarter results, while the overall earnings, though lower due to lower commodity prices, still managed to impress. Occidental Petroleum produced 1.4 million barrels of oil equivalent (BOE) per day and generated $2.6 billion in operating cash flow before working capital adjustments.
Despite the continued volatility of crude oil prices, Occidental is optimistic about its future growth and its ability to enhance shareholder value. The company estimates that a combination of interest expense savings, earnings from upcoming chemicals projects, and midstream contract expirations will boost its free cash flow by $1 billion in 2026 and an additional $500 million in 2027.
In an effort to accelerate its debt-reduction efforts, Occidental has utilised its free cash flow to pay dividends, reduce debt, and sell noncore assets. Since the beginning of the second quarter, the company has secured an additional $950 million in cash app sales, adding to the $4 billion worth of assets it has agreed to sell since announcing its deal for CrownRock in late 2023. So far this year, Occidental has repaid $3 billion of debt using a combination of excess free cash and cash app proceeds.
The company also expects to continue using its excess free cash flow to repay debt. Occidental aims to address approximately $1.6 billion of 2026 debt maturities and another $1.5 billion coming due in 2027. This strategic move demonstrates Occidental's commitment to strengthening its financial position and ensuring a stable future.
Warren Buffett's Berkshire Hathaway continues to invest in Occidental Petroleum, owning nearly 27% of the company's outstanding shares. Despite selling a portion of its shares in the second quarter of 2023, Berkshire remains the seventh-largest holding in Berkshire's investment portfolio.
The midstream and marketing segment of Occidental also exceeded expectations, contributing to the company's overall success. The average global price of crude oil was 10% below the first quarter's level, but this did not significantly impact Occidental's performance.
In a positive development, Occidental Petroleum agreed to sell gas-gathering assets in the Midland Basin to Enterprise Products Partners for $580 million. This sale further demonstrates Occidental's strategic approach to asset management and its focus on debt reduction.
Occidental Petroleum reported an adjusted income of $396 million during the second quarter, with free cash flow totaling $700 million, slightly lower than the previous quarter. However, the company's strong second-quarter showing and its ongoing efforts to reduce debt and strengthen its financial position bode well for its future.
In conclusion, Occidental Petroleum's second-quarter performance underscores its resilience and strategic approach, even in the face of volatile commodity prices. The company's commitment to debt reduction, asset sales, and shareholder value growth positions it well for continued success in the future.
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