Arnand Hammer’s back? No way? No way indeed. The man has been gone a long time. Over the weekend, Hammer’s old company, Occidental Petroleum (OXY) became the centerpiece in a game of musical chairs for billionaires. No way.
February 24th. Occidental Petroleum crushes both top and bottom lines fourth quarter estimates. The firm has struggled with its balance sheet and underperformed its group since acquiring Anadarko Petroleum back in 2019.
Suddenly, the firm was boasting record pre-tax earnings, a reduction in debt maturities of some $2.2B, and U.S. based production in terms of percentage of volume (MBOE/D) that approaches 70% of the firm’s whole, with slightly more than half of that U.S. production coming from oil. You may have noticed that U.S.-focused energy commodity production has become important to investors. For good reason. Did I mention that OXY raised the dividend (small, goes ex-div this Wednesday) at that time and announced a $3B share repurchase program?
Warren Buffet’s Berkshire Hathaway (BRK.A) (BRK.B) disclosed a rough 10% stake in Occidental Petroleum, according to filings up to and including Friday. Berkshire purchased $3B worth of OXY over the past week alone, adding 60M shares last Wednesday through Friday at prices ranging from $47.07 to $56.45.
Berkshire now owns about 91M shares after reporting no holdings of OXY common stock on its December 31st form 13-F. Berkshire also holds 84M warrants associated with the funds Berkshire provided to Occidental to help facilitate the Anadarko purchase as well as 100K preferred shares. The warrants have an exercise price of $59.62. The entire 10% stake is valued at roughly $5B.
One day later, activist investor Carl Icahn, according to the Wall Street Journal, had sold the last of what had been at one time a 10% stake in OXY. Readers may recall that Icahn had taken his original stake in OXY after the Anadarko deal, and was highly critical of the preferred shares that Berkshire had received for the $10B worth of financing that had been provided. Readers may recall that Occidental had to outbid Chevron (CVX) for Anadarko and the loan from Berkshire put them over the top.
Icahn also publicly criticized CEO Vicki Hollub, who still serves in that position, but after suing the firm and threatening a proxy fight, Icahn reached an agreement in March of 2020. That agreement landed Icahn three seats on the company’s board. Flash forward to the present, and Icahn is out of the name, has informed the board and his last two remaining representatives on that board have resigned those positions. On the way out, Icahn was complimentary of Hollub.
So, where is the balance sheet now or at least as of the end of 2022? The firm’s net cash position stands at $2.764B, up considerably from a year ago, while current assets are also higher on growth in accounts receivables to $10.211B. Current liabilities are basically flat from a year ago, at $8.324B. This puts the firm’s current ratio at 1.23, which is a stark improvement over time. OXY’s current ratio had gone below the all-important “one” level as recently as a year and a half ago.
Total assets of $75.036B easily outweigh total liabilities less common and preferred equity of $54.709B. This balance sheet does pass the Sarge test, but debt remains a bit high for my comfort. True, the firm can easily meet short to medium term obligations, and true, long-term debt of $29.363B has been reduced for nine consecutive quarters from a high of $48.393B in September of 2019. Still, the number stands at 10 times cash. I know that Hollub is working on this, and she has proven, at least to me, that she is serious about getting the balance sheet right.
I don’t see OXY as a poor stock to be in. I understand that investors need to be involved in U.S. focused energy producers. This is why I have been hitting you over the head for months with APA Corp (APA) , and to a lesser degree… Chevron (CVX) , Hess Corp (HES) , and Civitas Resources (CIVI) . I would not swap out any of my names for OXY at this time, as I think I have a nice mix of upstream, transport, and downstream operations, with a focus on U.S. production of WTI Crude and natural gas. I don’t want to become too heavy in any one of the three areas key (opinion) to trading equities at this time…energy, defense and miners/materials.