3 months ago • 2 mins
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.
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.
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.
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