Occidental: A Perfectly Reasonable Panic

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My aunt Carol, a woman who once attempted to corner the market on Beanie Babies (it didn’t end well), has been urging me to invest in Occidental Petroleum (OXY +3.14%). “Warren Buffett likes it!” she declared over a disturbingly sweet potato casserole at Thanksgiving. As if celebrity endorsement constitutes sound financial strategy. It reminded me of the time she bought a timeshare based solely on the salesman’s winning smile. Anyway, Occidental. It’s been the darling of energy bulls, and frankly, it makes me nervous. Not because of the numbers—though those are…numbers—but because everyone else seems so enthusiastic.

The story, as I understand it, is this: Occidental, after a rather ambitious acquisition of Anadarko, found itself saddled with debt. A lot of debt. Like, enough debt to make even my aunt Carol reconsider a second timeshare. Then came the pandemic, and oil prices briefly flirted with negative territory. It was a mess. But then, miraculously, things improved. They paid down $13.9 billion in debt. A truly impressive feat, if you ignore the fact that they sold off OxyChem, a perfectly good chemical business, to – you guessed it – Berkshire Hathaway. It’s all starting to feel a little…circular.

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Why Not? (Or, the Allure of the Slightly Risky)

I’ve been observing the midstream and marketing segments, and they’re…fine. Generating $4.3 billion in free cash flow is nothing to sneeze at, though it feels less like a triumph of business acumen and more like a temporary reprieve. They even exceeded their annual guidance by $550 million, which, in the grand scheme of things, is roughly the amount my neighbor spends on garden gnomes each year. The Permian Basin is doing well, apparently, and sulfur pricing is up. I’m not entirely sure what sulfur pricing entails, but it sounds…complicated.

And then there’s the natural gas. Occidental is selling an average of 2,278 million cubic feet per day. Which, if you picture it, is a truly staggering amount of gas. Enough to power a small country, or perhaps a very enthusiastic balloon animal convention. They have 7,745 billion cubic feet of proven reserves. It’s a lot of gas. A concerning amount, actually, when you consider the broader implications.

The Fine Print (And Why I’m Still Hesitant)

Here’s where things get tricky. Selling OxyChem was a clever move, ostensibly, allowing Occidental to focus on oil and gas. But it also removed a layer of protection against volatility. It’s like taking out the spare tire just before a cross-country road trip. And then there’s the preferred stock. Approximately $8.3 billion outstanding, held by Berkshire Hathaway. They paid $679 million in dividends last year, and can’t pay common dividends if the preferred dividends aren’t met. It’s a rather elegant trap, really. They’re essentially financing their recovery with a perpetual IOU to Warren Buffett.

So, Buy, Sell, or Hide Under the Covers?

Occidental has certainly improved its balance sheet. And if you’re convinced that oil and gas prices are headed north, it’s a reasonable bet. But it lacks the diversification of ExxonMobil or Chevron. It’s a leaner, more focused operation, which, in my experience, usually means more vulnerability. It feels a bit like a high-wire act without a net. My aunt Carol, of course, is already planning her retirement party. She’s convinced she’ll be sipping margaritas on a yacht, funded entirely by Occidental stock. I’m picturing something more akin to a slightly damp bungalow and a lifetime supply of Beanie Babies. I’m leaning toward “hold,” mostly because I’m afraid of disappointing my aunt. And also, because I haven’t quite figured out what sulfur pricing actually is.

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2026-03-01 22:52