Occidental Petroleum: What Would Warren Buffett Do?

Key Points

• Occidental Petroleum pulls back to $60, and Warren Buffett buys more. 
• Berkshire Hathaway owns 22% of the company and growing. 
• Dividend increases and buybacks will help support price action. 

In the case of Occidental Petroleum NYSE: OXY, Warren Buffett would buy shares when they move into the $60 range. According to the latest filings from Berkshire Hathaway NYSE: BRK.A, that’s precisely what he did. Shares of Occidental Petroleum fell back to the range where he’d been buying before, and he started buying them again. The purchases are notably in tandem with the Q4 earnings release and dividend increase which is as much a part of the catalyst as the price.

How much did he buy? About 5.8 million shares bringing his total up to 200.2 million or about 22% of the company. This is worth $144 in annual dividends and does not account for the $15 billion in preferred shares and warrants Berkshire owns. 

Insiders own a tiny 0.33% of the company and haven’t been buying or selling since spring 2022. The institutions, on the other hand, sold throughout most of 2022 but changed their tune in Q1 2023. Q1 2023 has seen a noticeable uptick in the accumulation of shares with institutional ownership up to 78.5% and growing. In the case of Berkshire Hathaway, it has the approval to buy up to 50% of the company, so it looks like institutional holdings will only get larger as time goes by. 

Analysts' Sentiment Is Mixed Toward Occidental Petroleum 

The analysts' sentiment toward Occidental Petroleum is mixed, although tilted to the upside. The Marketbeat.com consensus rating is a Firm Hold verging on Moderate Buy, which is down compared to last year but flat over the last quarter. On the other hand, the price target is almost double last year’s target but also flat over the past quarter. The takeaway is that analysts are at least holding the stock and see about 25% of the upside for the market. That puts the stock well above Mr. Buffett’s average of nearly $58.50. 

The earnings and dividend outlook may entice more analysts to board the Buffett-OXY train. The outlook for earnings growth is tepid now because the oil price has pulled back from Putin-induced highs. The opportunity here is that forecasts for 2023 production are high, according to Occidental Petroleum, and will underpin oil prices moving forward.

At the same time, China is reopening and forecasting mid-single-digit GDP growth in the face of constricted petroleum production, which will also underpin oil prices. 

Regarding the dividend, Occidental’s 38.5% increase is attractive, especially with the new $3 billion repurchase plan. These will also help support the price action in this stock, and there is an expectation for additional dividend increases. The downside is that Occidental has yet to bring the dividend distribution back to pre-pandemic despite having the power to do so. The silver lining is that funds are being used to reposition the company for a future with less carbon. 

Occidental Petroleum Invests In Texas Carbon Capture Facility 

Occidental unveiled plans for 1 of 5 intended carbon sequestration hubs in Texas. The 1st facility is expected to come online in 2026 and could capture up to 1.2 billion metric tons of CO2. Occidental is also exploring nuclear solutions and lithium extraction from the existing feedstock. Lithium, important for EVs and rechargeable batteries, is up more than 400% since pre-pandemic price levels. 

The chart of Occidental Petroleum is interesting as it shows a clear “Buffett Curve” driven by Berkshire Hathaway activity. This curve has the price up to $60 where it shows support. We can assume the stock will continue to move sideways within its current range until more news comes out or the market balance is tilted more firmly to the upside.