Warren Buffett-backed Occidental Petroleum reported better-than-expected third-quarter earnings late Tuesday, with the Permian Basin oil producer announcing it has paid off 90% of its short-term debt reduction target as it continues scouring its balance sheet.
Occidental Petroleum saw Q3 earnings of $1.00 per share, down 7% compared to $1.08 a year ago, while revenue totaled $7.17 billion, running flat compared to Q3 2023. Prior to Tuesday, analysts predicted Q3 EPS falling 37% to 74 cents per share with sales totaling $7.12 billion.
The company added Tuesday that it repaid $4 billion of debt, achieving about 90% of its short-term debt reduction target. In August, Occidental executives said they hoped to pay off about 85% of its near-term $4.5 billion debt reduction commitment by the end of Q3.
The Year's Best Operating Cash Flow
OXY ended the quarter with operating cash flow of $3.8 billion and operating cash flow before working capital totaling $3.1 billion. Occidental Petroleum also produced 1.412 million barrels of oil equivalent per day in Q3, slightly exceeding the mid-point of its guidance.
"Strong operational performance across all segments has resulted in our highest quarterly operating cash flow this year," Chief Executive Vicki Hollub said in the earnings release late Tuesday. "The integration of CrownRock is off to a great start in terms of personnel and operations, and we have made significant progress in our deleveraging efforts, achieving nearly 90% of our short-term debt reduction target."
Occidental Petroleum's better-than-expected third quarter follows a big expectations beat in Q2, when it saw a surprise 51% profit increase, breaking a string of five consecutive quarterly earnings declines.
The Q3 financial report arrives as U.S. oil prices traded around $68 per barrel Tuesday, riding the ebb and flow of concerns over the conflict between Israel and Iran along with weak demand from China. U.S. oil prices since July have traded between $65 and $78.
Occidental Petroleum stock advanced 1.7% to 51.12 during market trade on Wednesday after falling 1% on Tuesday.
Eying A Clean Balance Sheet
Going into the earnings release, OXY investors were looking for details about the company's plans to reduce the debt associated with its $12 billion acquisition of Permian Basin producer CrownRock. The deal adds 94,000 net Midland Basin acres and production of 170,000 barrels of oil equivalent per day to Occidental's holdings.
Occidental has already said it is committed to reduce its debt by at least $4.5 billion within 12 months of Aug. 1, when it closed its acquisition of CrownRock.
Occidental Petroleum announced on Aug. 19 that it achieved $3 billion in principal debt reduction, using organic cash flow from "operations and proceeds from divestitures."
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On Aug. 1, Occidental Petroleum reported that Colombia-based Ecopetrol "decided not to acquire any interest in the CrownRock assets," according to a regulatory filing. There had been speculation that Ecopetrol would take a 30% stake, or $3.6 billion, in CrownRock.
Ecopetrol has a joint venture in the Midland Basin with Occidental Petroleum. It has first right of refusal on participating in OXY projects or deals in the basin.
On July 29, OXY also signed a $818 million deal to sell its Barilla Draw property in the Delaware Basin to Permian Resources.
Occidental Petroleum said on Aug. 19 it plans to apply the proceeds from the $818 million transaction toward debt repayments.
Warren Buffett's OXY Stock Stake
Occidental Petroleum is pulled back from an April high, trading below both its 50-day moving average and its 200-day line and near its lowest level since early 2022. It has sunk around 29% since the April 12 high. Occidental is down about 15% in 2024.
Occidental's third-quarter results follow Permian Basin producer Diamondback Energy, which reported mixed Q3 earnings and revenue on Nov. 5, with EPS down 38%. Exxon Mobil and Chevron also recently announced third-quarter earnings and revenue, with both U.S. supermajors seeing profits drop significantly compared to a year ago.
Buffett has a 6.5% stake in CVX.
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Buffett's Berkshire Hathaway holds a 28.2% stake in Houston-based Occidental Petroleum, according to FactSet. Berkshire Hathaway also owns $10 billion of Occidental preferred stock and has warrants to buy another 83.9 million common shares for $5 billion.
In August 2022, the Federal Energy Regulatory Commission granted Berkshire Hathaway approval to purchase up to 50% of available OXY stock. However, Warren Buffett told shareholders in early 2023 he has no intention of taking over the company.
In December 2023, Warren Buffett also spent $588.7 million on more than 10 million shares of OXY stock, following Occidental's $12 billion acquisition of Permian Basin producer CrownRock. The deal adds 94,000 net Midland Basin acres and production of 170,000 barrels of oil equivalent per day to Occidental's holdings.
Meanwhile, the Organization of the Petroleum Exporting Countries, or OPEC, on Tuesday lowered its forecast for global oil demand growth in 2024 for the fourth straight month, estimating an increase of 1.82 million barrels per day, down from last month's 1.93 million. The reason was primarily due to weaker-than-expected data from major consumers like China.
Occidental Petroleum stock has a 31 Composite Rating out of a best-possible 99. Shares also have a 14 Relative Strength Rating and an 85 EPS Rating.
Please follow Kit Norton on X @KitNorton for more coverage.
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