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The 21st-century “white gold,” lithium (LMN24), is crucial for powering electric vehicles (EVs) in a world zipping toward green energy and consumer electronics, with high-voltage capacity and quick-charging batteries. According to the International Renewable Energy Agency, battery lithium demand is projected to surge tenfold by the end of the decade, driven by growing battery demand.
Oil and gas exploration company Occidental Petroleum Corporation (OXY) is steering toward a sustainable future. The company has teamed up with Berkshire Hathway’s BHE Renewables, harnessing cutting-edge Direct Lithium Extraction (DLE) technology to meet surging lithium demand. This strategic move underscores Occidental’s commitment to cleaner energy and aligns with the “Oracle of Omaha” Warren Buffett’s investment ethos, with Berkshire Hathway (BRK.A) (BRK.B) simultaneously boosting its stake in the energy firm.
Investors looking for stable income and energy sector exposure might find Occidental Petroleum appealing, especially with its long dividend-paying history and Buffett's backing. Let’s take a closer look.
About Occidental Petroleum Stock
Houston-based Occidental Petroleum Corporation (OXY), with a market cap of $53.7 billion, focuses on acquiring, exploring, and developing oil and gas properties across the U.S., Middle East, and North Africa. With over a century of expertise in hydrocarbon exploration and petrochemical manufacturing, Occidental has built extensive assets, infrastructure, and technological prowess.
Occidental is ambitiously transitioning to lower-carbon energy through investments in emerging technologies via its Oxy Low Carbon Ventures subsidiary. This strategic shift caught Warren Buffett's attention.
Buffett’s Berkshire Hathaway has owned Occidental stock since the first quarter of 2022, and his interest in the oil company has surged in recent years. A filing with the U.S. Securities and Exchange Commission (SEC) disclosed that Berkshire Hathaway significantly bolstered its holdings between June 5 and June 7 alone, acquiring approximately 2.6 million shares of Occidental Petroleum. This move brings Berkshire's total ownership in the energy giant to approximately 250.6 million shares, valued at $15.2 billion, highlighting Buffett's confidence in Occidental's strategic direction and market potential.
Shares of Occidental have gained just 2% over the past 52 weeks, but have surged 8.6% over the past six months.
On May 1, the company announced a quarterly dividend of $0.22 per share, payable to its shareholders on July 15. Its annualized dividend of $0.88 translates to a 1.46% forward yield. With a conservative payout ratio of 17.78%, the company has substantial room for further dividend increases.
In terms of valuation, the stock is trading at 15.46 times forward earnings, which is lower than its own five-year average of 31.83x.
Occidental’s Q1 Bottom Line Beats Wall Street Projections
Occidental reported its Q1 earnings results on May 7, which exceeded Wall Street’s bottom-line forecast. While the company’s total revenue amounted to $6 billion, it generated an adjusted profit of $0.63 per share, which surpassed projections.
Ending the quarter with nearly $1.3 billion in unrestricted cash, the company generated $720 million in free cash flow before working capital adjustments, despite third-party outages affecting Gulf of Mexico production. Strong performance in its onshore domestic operations and midstream, as well as its OxyChem segment, bolstered first-quarter free cash flow.
For fiscal Q2, the company forecasts total production to range between 1.23 million and 1.27 million barrels of oil equivalent per day, marking the highest quarterly output in over three years. Increased U.S. onshore activity, completion of annual plant maintenance at Dolphin, and resumed Gulf of Mexico production in mid-April are driving this production surge.
Looking ahead, Occidental anticipates unlocking more than $1 billion in annual free cash flow through cost efficiencies in its midstream and downstream operations and reducing total debt levels.
Occidental's Lithium Leap
On June 4, Occidental and Berkshire Hathaway Energy's wholly owned subsidiary, BHE Renewables, formed a joint venture to demonstrate and deploy TerraLithium’s DLE technology, a proprietary solution of Occidental's subsidiary, to extract and commercially produce high-purity lithium compounds from geothermal brine in California’s Imperial Valley.
BHE operates 10 geothermal power plants in the Valley, processing 50,000 gallons of lithium-rich brine per minute to generate 345 megawatts of clean energy. If the demonstration is successful, BHE plans to build and operate commercial lithium facilities in the Imperial Valley and beyond, licensing the DHE technology for wider use.
Occidental’s U.S. Onshore Resources and Carbon Management Operations President, Richard Jackson, said, “By leveraging Occidental’s expertise in managing and processing brine in our oil and gas and chemicals businesses, combined with BHE Renewables’ deep knowledge in geothermal operations, we are uniquely positioned to advance a more sustainable form of lithium production.”
What Do Analysts Expect for Occidental Stock?
Analysts tracking Occidental predict its profit per share to surge by 5.1% to $3.89 in fiscal 2024, before rising another 28.5% to $5.00 in fiscal 2025.
Occidental Petroleum has a consensus “Moderate Buy” rating overall. Of the 21 analysts covering the stock, six advise a “Strong Buy,” 14 suggest a “Hold,” and the remaining one gives a “Strong Sell” rating.
The mean price target of $72 suggests a potential upside of 19.5% from current price levels. However, the Street-high target price of $90, assigned by Scotiabank in April, implies that Occidental stock could rally as much as 49.4%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
