Oil Industry Consolidation Wave: A New Era Begins
The oil industry is undergoing a massive transformation, with sector leaders ExxonMobil and Chevron leading the charge. In a series of blockbuster deals, these companies have acquired smaller rivals, including Pioneer Natural Resources and Hess, in transactions worth over $60 billion each. This consolidation wave has sent ripples throughout the industry, with other oil companies following suit.
Occidental Petroleum’s Debt-Funded Acquisition
One notable exception is Occidental Petroleum, which acquired CrownRock in a $12 billion deal primarily funded by debt. This move raised concerns, given the company’s past mistakes, including its debt-laden acquisition of Anadarko Petroleum in 2019. However, Occidental Petroleum has made significant progress in reducing its debt, achieving 90% of its near-term debt reduction goal.
A Focus on Debt Reduction
Occidental Petroleum’s CEO, Vicki Hollub, highlighted the company’s progress in debt reduction during the recent third-quarter earnings conference call. The company repaid $4 billion in debt, nearly 90% of its near-term commitments, within just two months of closing the CrownRock deal. This was achieved through a combination of excess free cash flow and asset sales, including the sale of a portion of its interest in Western Midstream.
The Road Ahead
While Occidental Petroleum has made significant progress, it still has a long way to go before achieving its optimal capital structure. The company plans to continue chipping away at its liabilities via excess free cash flow and asset sales, with a medium-term target of reducing debt to $15 billion. However, this will act as a headwind to cash returns in the near term.
Investment Opportunities
For investors seeking a financially strong oil stock with flexibility to return significant cash to shareholders, Exxon or Chevron may be a better option. However, Occidental Petroleum presents an intriguing opportunity for those looking for an oil stock with meaningful upside potential. As the company pays down debt, its stock price should rise, transferring value from creditors to equity holders.
Don’t Miss Out on the Next Big Opportunity
Our expert team of analysts has a track record of identifying companies poised for success. On rare occasions, they issue a “Double Down” stock recommendation for companies that are about to pop. Don’t miss out on the next big opportunity. Sign up to receive alerts for three incredible companies that are ready to take off.
Leave a Reply