Over the past six years, Occidental Petroleum Corp. has morphed from being a large oil company with a reputation for discipline to an even larger oil company well on its way to becoming a business school case study in the perils of hubris. If Chief Executive Officer Vicki Hollub has been the architect of this transformation, Warren Buffett has been the key enabler. The latest chapter in this saga has now arrived in the form ofBerkshire Hathaway Inc.’s $9.7 billion acquisition of the company’s chemicals division, OxyChem.
Occidental, or Oxy as it is known, is selling because it needs to sell. In 2019, the company made an ill-timed acquisition of Anadarko Petroleum Corp. Berkshire provided $10 billion of funding in exchange for preferred stock paying 8% and warrants. Those preferreds, along with the associated debt, have been a millstone for Oxy ever since. In 2022, however, Berkshire began buying Oxy’s common stock, a bet that looked good during that year’s war-related spike in oil pricesbut is now underwater. Having doubled down with another large acquisition in 2024, of CrownRock LP, Oxy sports the highest leverage of its peers, and in the midst of a sloppy oil market where OPEC+ is raising output. Remarkably, Oxy’s adjusted net income this year is forecast to be lower than in 2018, the year before it bought Anadarko.
Selling OxyChem cuts net debt by $8 billion, allowing Oxy to meet its reduction target, and cuts interest payments by around 30%. Net debt falls from 1.7 times forecast Ebitda for 2025 to about 1.2 times, pro forma, by my calculation. Treating Berkshire’s preferred shares as half debt, leverage overall drops to about 1.6 times.
All useful, but it shouldn’t obscure that this is an exercise in repairing damage. Oxy’s acquisitions were supposed to propel it into the big leagues. But the point of getting bigger is to give yourself autonomy, the freedom to deploy capital efficiently and opportunistically. That can hardly be said of selling off your chemicals business in a year when its profit is expected to be the lowest in five years and bellwether rival Dow Inc.’s stock is down 39%. The fact that Berkshire is swooping in says it all, along with the added twist that Buffett helped Oxy dig its own hole. Oxy’s shares fell about 5% in early Thursday trading.
On the plus side, selling the chemicals business simplifies Oxy as a more straightforward upstream oil and gas producer and gives it a chance to simplify its balance sheet. The resulting company could eventually make for a more attractive takeover target in a sector that is rife with dealmaking and talk of further consolidation.
That isn’t quite the future envisaged when Oxy swallowed Anadarko, but could make a good coda for investors. Those include the biggest, of course: Berkshire with its roughly 27% stake. The OxyChem sale to Berkshire deals a further blow to hopes that Buffett, despite his professed admiration for the company, would just buy the whole thing. Apart from buying a chemicals business from a motivated seller, Berkshire gets the added benefit of knowing the proceeds will be used to cut debt, something Greg Abel, Buffett’s anointed successor, referred to pointedly in the announcement. That should, in turn, ease the burden on Oxy’s shares, helping to claw back Berkshire’s losses on that position and maybe, some day, even get its warrants into the money.
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