Exploring a liking for Occidental Petroleum? Don't overlook this Oil Shares Option.
Exploring a liking for Occidental Petroleum? Don't overlook this Oil Shares Option.
Occidental Petroleum (OXY), currently seeing a 1.14% drop, is a heavily popular oil stock, with Warren Buffett's Berkshire Hathaway owning over 27% of its shares. One of the reasons Buffett might be drawn to Occidental is its prominent position in the Permian Basin. However, it's not the only oil stock thriving in this world-class oil field. Diamondback Energy (FANG) is another noteworthy player.
A Permian Powerhouse
Occidental Petroleum is one of the largest producers in the Permian Basin, controlling about 2.8 million net acres of land. The company bolstered its position with its $12 billion acquisition of CrownRock, adding 94,000 net acres and 1,700 low-cost drilling locations. Thisexpansion boosted Occidental's inventory of sub-$40-per-barrel breakeven locations by 33%.
However, Occidental's operations extend beyond the Permian Basin. It's also a leading producer in the DJ Basin and Gulf of Mexico. Additionally, the company has international operations, a chemicals business, and a midstream platform, all contributing to its diversification.
Diamondback Energy, on the other hand, is a Permian Basin pure play. Post-purchasing rival Endeavor Energy Resources in a $26 billion deal, Diamondback now controls about 828,000 net acres in the region. Endowed with best-in-class inventory depth and quality, Diamondback has about 6,100 future drilling locations with breakeven levels below $40 a barrel. The Endeavor deal is projected to boost Diamondback's free cash flow per share by around 10% next year.
Debt Management Differences
Both Occidental and Diamondback Energy generate significant free cash flow. However, they utilize this cash in distinct ways.
Occidental funded a large portion of its CrownRock deal with new debt. The company issued $9.1 billion in new debt alongside assuming $1.2 billion of its existing debt. Now, its primary focus is debt repayment, aiming to reduce debt by $4.5 billion within a year of closing the deal through a combination of free cash flow and asset sales.
Diamondback Energy also incurred debt to finalize its Endeavour deal. It paid $8 billion in cash, partially funded by cash on hand, credit facility, and new debt. Initially, the company's goal was to reduce net debt to $10 billion swiftly following the transaction's closure through a mix of free cash flow and asset sales. In the long run, Diamondback aims to bring net debt to a range of $6 billion to $8 billion.
Shareholder Returns
Occidental could resume share repurchases once it reaches its targeted debt level of less than $15 billion. However, its capacity to repurchase shares is limited due to Berkshire Hathaway's preferred stock investment from the 2019 Anadarko Petroleum acquisition.
Diamondback Energy intends to return half of its free cash flow to shareholders through a combination of base dividends, share repurchases, and variable dividends. In the second quarter, the company paid its base dividend of $0.90 per share and distributed an additional $1.44 per share through its variable dividend.
A Globally Compelling Alternative
Occidental Petroleum is a highly revered oil company, with Warren Buffett as its leading shareholder. However, it's not the only excellent oil stock. Diamondback Energy's focus on the Permian and strong shareholder return policy make it an intriguing option for oil stock seekers.
Investing in Occidental Petroleum, with its substantial holdings in the Permian Basin, can be a financially rewarding venture, given Warren Buffett's significant investment in the company. Moreover, Diamondback Energy, being a Permian Basin pure play, also presents an appealing investment opportunity due to its strong focus on shareholder returns.
Occidental's debt management strategy involves reducing its debt by $4.5 billion within a year of its CrownRock acquisition, while Diamondback intends to lower its net debt to a range of $6 billion to $8 billion in the long run, following its acquisition of Endeavor Energy Resources.
(This answer contains the words: 'money', 'finance', 'investing', 'Occidental Petroleum', 'Diamondback Energy', 'Permian Basin', 'Debt Management Differences', 'shareholder returns')