Should You Buy Occidental While It's Below $60?

Core Viewpoint - Warren Buffett's Berkshire Hathaway has significantly increased its stake in Occidental Petroleum despite the company's recent struggles and stock price decline, indicating confidence in the long-term potential of the energy company [1][2]. Group 1: Berkshire Hathaway's Investment - Berkshire Hathaway has become one of Occidental's largest shareholders, holding over 25% of the company's outstanding shares as of Q2 [2]. - The initial investment in Occidental was part of the acquisition of Anadarko in 2019, which involved a $38 billion deal and included a $10 billion investment in preferred stock with an 8% dividend yield [2]. - As of June 2024, Berkshire holds warrants for 83.9 million common shares of Occidental at an exercise price of $59.62 per share, while Occidental currently trades at a discount to these warrants [2]. Group 2: Financial Performance and Debt Management - Occidental's business is cyclical and heavily focused on upstream operations, making it sensitive to oil price fluctuations [3]. - In 2022, Occidental capitalized on rising oil prices, generating significant profits, which were used to pay down $10 billion in debt and reduce annual interest charges by $400 million [3]. - The company has continued to strengthen its financial position in 2023, reducing debt by $3 billion as part of a $4.5 billion debt-reduction plan, achieving a 60% reduction from its peak [3]. Group 3: Market Conditions and Future Outlook - Recent market conditions have negatively impacted Occidental, with oil prices falling due to slowing global demand, particularly from China, and strong U.S. production [4]. - OPEC and the International Energy Agency have lowered global oil demand growth forecasts, predicting a "heavy surplus" of oil supplies in 2025, which could keep prices low [5]. - Occidental's investments in direct-air-capture (DAC) technology present a promising growth opportunity, with potential revenues comparable to current oil and gas production [5][6]. - The company's subsidiary, 1PointFive, received $500 million from the U.S. Department of Energy to support DAC development, with potential funding increasing to $650 million for an expanded carbon network [6]. Group 4: Long-term Investment Considerations - Occidental remains vulnerable to oil price swings, which have affected its stock price, and may continue to face headwinds in the near term [7]. - Despite the volatility, the company's balance sheet is improving, and long-term demand for oil and gas is expected to grow [7]. - The long-term potential of carbon capture utilization and sequestration (CCUS) technology could serve as a significant growth catalyst for Occidental [7].