Warren Buffett’s favorite oil company, Occidental Petroleum (OXY), will taper stock buybacks for the next couple of years as it focuses on reducing its debt from the acquisition of oil and gas producer CrownRock.
“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,” CEO Vicki Hollub told Yahoo Finance’s Julie Hyman at the CERAWeek conference by S&P Global in Houston.
Last year Occidental paid out $600 million in dividends, repurchased $1.8 billion of common shares, and redeemed $1.5 billion of preferred shares.
The stock declined 5% in 2023 after skyrocketing 119% in the prior year, when oil peaked, making it the best-performing equity of the S&P 500 (^GSPC) that year. Since the start of 2024 shares are up more than 5%.
In December, The Houston-based energy giant announced it will buy Midland, Texas-based CrownRock for $12 billion, the latest in a string of industry consolidation moves across the Permian Basin.
The takeover differs from other recent deals in that it’s financed with debt and it involves a privately held company. Occidental Petroleum will partly finance the acquisition by selling off some of its assets. The company’s priority will be getting its debt level down to $15 billion.
In a vote of confidence, Warren Buffett’s Berkshire Hathaway (BRK-A, BRK-B) purchased nearly $600 million worth of OXY shares within a three-day span following the acquisition announcement. Berkshire currently owns just over 28% of the company.
“In the near term over the next couple of years, we’ll continue to pay debt down. Post those two years, we’ll get back to repurchasing shares,” said Hollub.
CrownRock, which owns 94,000 net acres in the Permian Basin of West Texas, will add to Occidental’s production by about 170 thousand barrels of oil equivalent per day.
“Acquiring CrownRock gives us a little more scale. The scale is also in the right position, so it was a perfect fit for the assets we already have,” said Hollub.
She added, “We think that the two important ways to return value to shareholders are through a growing dividend, which the CrownRock acquisition does for us, and to repurchase shares. But we get a really good return on capital employed by investing organically in our oil and gas developments.”
Ines is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre
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