Occidental Is Going After The Crown(Rock)

Occidental Is Going After The Crown(Rock)
Paul Allison, CFA

3 months ago2 mins

Mentioned in story

What’s going on here?

Occidental Petroleum, a favorite of Warren Buffett’s, continued big oil’s big spending spree on Monday.

What does this mean?

Santa’s busy right now, so he might have to send an elf to deliver a stack of billion-dollar-bills to CrownRock’s owners. Mind you, they probably won’t mind if it’s not the big man himself delivering the parcel. After all, $12 billion – between three and four times the company’s sales – is a pretty special present, especially in light of oil’s recent price decline. But CrownRock’s on the nice list: it’s got a growing production of crude from one of the most attractive oil wells – the Permian Basin.

Deal boosts oil production

Why should I care?

Zooming in: Well wishing.

This time of year is pricey for everyone, but Occidental (OXY, to its trader pals) has only just put its finances back in order, after spending $55 billion on a poorly timed acquisition of Anadarko, right before the pandemic. So this deal, which will add another $9 billion in debt, will raise some eyebrows, especially with interest rates this high. Oxy’s not worried: it says the deal will add $1 billion to its cash flow, assuming that crude sticks above $70. Problem is, that’s a big assumption: it’s not far from that now. And Occidental could lose money here if it goes lower.

Brent crude price
Source: Google Finance

The bigger picture: Bigger fish.

Oil companies have tended to use the money they make from higher-than-normal energy prices to explore and extract as much oil as possible. But if predictions are right and the world continues to swap fossil fuels for greener alternatives, then flooding a declining market with even more oil is probably a bad idea. Occidental, Exxon, and Chevron all sense a shifting wind: instead of drilling more wells, they’re snapping up smaller players – and looking to ultimately command a bigger share of what might be a smaller market.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG