Occidental Petroleum’s Strategic Shift: Buffett Partnership Sparks Investor Debate

A landmark $9.7 billion transaction between Occidental Petroleum and Warren Buffett’s Berkshire Hathaway has generated significant market discussion, though the initial reaction proved unexpectedly negative. The sale of Occidental’s chemical division, OxyChem, triggered an immediate 7% stock decline as investors questioned whether the energy giant secured adequate value.

Market Experts Question Valuation Metrics

The sharp sell-off following the deal announcement reflected deep-seated investor concerns. Several financial analysts had previously valued OxyChem above the final sale price. Paul Cheng of Scotiabank had estimated the chemical unit’s worth at approximately $12 billion, creating immediate skepticism about the transaction terms. In response, Occidental CEO Vicki Hollub defended the arrangement, noting that Berkshire Hathaway actually paid a higher earnings multiple than those observed in comparable chemical industry transactions.

The strategic rationale behind the divestment becomes clearer when examining the capital allocation plan. Approximately $6.5 billion from the proceeds will be directed toward debt reduction. This move follows Occidental’s CrownRock acquisition and aims to bring total corporate debt below the $15 billion threshold. Hollub characterizes this transaction as the “final phase of a decade-long transformation” that will enable the company to focus exclusively on its core oil and gas operations.

Chemical Division’s Performance Decline

Financial performance data reveals why OxyChem became a candidate for divestiture. The unit’s operating earnings experienced a dramatic contraction, falling from $2.5 billion in 2022 to under $1 billion over the most recent twelve-month period. This cyclical volatility had become an earnings burden. The exit from chemicals is projected to not only stabilize profit fluctuations but also reduce annual interest expenses by an estimated $350 million.

Should investors sell immediately? Or is it worth buying Occidental Petroleum?

Simultaneously, Occidental is positioning itself for emerging energy opportunities. Capital freed from the chemical business sale will support investments in carbon capture technologies. The company’s Direct Air Capture facilities stand to benefit from tax incentives available through the Inflation Reduction Act, creating a potential growth avenue alongside traditional hydrocarbon operations.

Recovery Prospects and Divided Analyst Views

Following the recent price decline, Occidental shares now trade approximately 30% below their annual peak. Upcoming quarterly results scheduled for November will provide critical evidence regarding whether this strategic repositioning will deliver intended benefits. The investment community remains divided on the company’s prospects: while HSBC and Mizuho have recently raised their expectations, Evercore ISI has reduced price targets.

The central question facing investors is whether Occidental can regenerate the lost cash flow from its chemical division within the two-and-a-half-year timeframe promised by CEO Hollub. The answer to this challenge will likely determine the future trajectory for the energy company’s stock performance.