Occidental 12B Dollar Shale Play: Occidental Petroleum announced a $12 billion cash-and-stock deal to acquire CrownRock, a shale oil producer, in the current consolidation trend. Exxon Mobil’s $60 billion transaction for Pioneer Natural Resources and Chevron‘s $53 billion deal for Hess in October are part of a larger trend. Large oil producers are leveraging the post-pandemic profit boom to prepare for a future with potentially lower oil prices. The focus is on gaining scale in basins where they already operate to achieve cost efficiencies.
The acquisition of CrownRock is seen as a strategic fit for Occidental Petroleum, according to CEO Vicki Hollub. The move is expected to make Occidental a more significant player in the U.S. shale landscape than Chevron and Hess combined, pending approval. The deal is slated to close in the first quarter of 2024 and is set to enhance Occidental’s Permian production by 170,000 barrels of oil and gas per day in the Midland, bringing it to 750,000 boed. Occidental’s total production was 1.2 million boed at the end of September.
This acquisition not only expands Occidental’s footprint but also provides immediate cash flow for investors. Hollub noted that, based on WTI oil at $70 per barrel, the deal would contribute about $1 billion in cash flow. Additionally, almost half of CrownRock’s 1,700 undeveloped locations are expected to generate profits even with WTI at $40 per barrel.
The strategic move is aimed at creating more scale, especially in the Midland basin, enabling cost reductions over time. Despite the positive outlook, not all analysts are in favor of the deal. Occidental has only recently recovered from the criticized acquisition of Anadarko Petroleum in 2019, which was laden with debt. Some analysts view the CrownRock deal as potentially adding more debt to the company.
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Sankey Research analyst Paul Sankey expressed a negative stance, stating, “You’re adding a load of debt when arguably you should be paying with shares.” The deal is expected to increase Occidental’s debt to nearly $28 billion, up from $18.6 billion as of September 30. While Occidental plans to finance the purchase with $9.1 billion of new debt, the assumption of CrownRock’s $1.2 billion of existing debt, and issuing $1.7 billion in common stock, it puts the onus on shareholders to pay off the debt.
Despite the concerns, Occidental aims to reduce its debt by about $15 billion in the next 12 months through asset sales and cash flow. The company remains committed to maintaining its investment-grade credit ratings. Cole Smead, CEO of Smead Capital Management, highlighted the fixed return for paying off the debt, making it easier for the company to buy back stock later.
The move is part of the broader trend of consolidation in the oil and gas sector, with Occidental emphasizing its long-term view on oil prices and the strategic fit of CrownRock. As the industry continues to evolve, North America may see further consolidation, with only ten oil and gas companies remaining, according to some industry observers. Occidental’s acquisition of CrownRock positions it as a significant player in this transformative phase in the U.S. shale landscape.
Our Reader’s Queries
What is the price target for Oxy 12-month?
According to analyst ratings, Occidental Petroleum’s 12-month average price target stands at $68.69. So, what’s the upside potential for OXY based on this average price target? Well, the analysts’ projections suggest that Occidental Petroleum has a potential upside of 19.18%.
Is Oxy a buy sell or hold?
Occidental Petroleum stock has been given a hold rating, with 35 buy ratings, 45 hold ratings, and 6 sell ratings contributing to the average rating score. In the past 52 weeks, the lowest point for Occidental Petroleum stock was 55.13.
What is the CNN money forecast for Oxy?
According to 22 analysts, Occidental Petroleum Corp’s stock price is expected to increase by 11.27% in the next 12 months. The median target price is 67.65, with a high estimate of 82.00 and a low estimate of 59.00.
Who bought Oxy Petroleum?
Berkshire Hathaway, led by Warren Buffett, has shown its support for the Permian Basin-related purchase by buying over 10 million shares of Occidental Petroleum. The purchase is valued at $588 million and highlights Berkshire’s confidence in the company’s potential. This move is a testament to the strength of the Permian Basin and the opportunities it presents for investors.