Is Occidental Petroleum a Buy on the Dip?

Occidental Petroleum has a market cap of $40 billion and is a relatively small energy company compared to ExxonMobil and Chevron. Buffett's involvement with Berkshire Hathaway helped finance Oxy's acquisition of Anadarko, a move to grow the company and compete with larger players. Oxy has strengthened its financial position and resumed growth via acquisition. However, the company has a modest dividend yield of 2.2%, making it a buy for growth rather than income. Buffett owns both Oxy and Chevron, making it possible to invest like him with either company.

Occidental Petroleum (OXY), with a market cap of $40 billion, is a relatively small energy company compared to industry giants like ExxonMobil and Chevron. The company's recent acquisition of Anadarko Petroleum, facilitated by Berkshire Hathaway's involvement, reflects its ambition to grow and compete with larger players. Despite facing financial challenges post-acquisition, Oxy has worked diligently to strengthen its financial position and resume growth through acquisitions [1].

The company's balance sheet was significantly weakened by the acquisition of Anadarko, but Oxy has since paid off a substantial amount of high-interest debt. This financial cleanup has not only reduced the company's annual interest expenses by $410 million but also positioned it for future growth [2]. Oxy's focus on cost optimization and operational efficiency has been evident, with a reduction of 20% in well costs and an improvement in drilling duration, contributing to significant cost savings [2].

Oxy's 2Q 2025 results demonstrated its ability to generate strong cash flow, with a free cash flow of $2.8 billion despite volatile market conditions. The company's 2025 capital spending is expected to result in mid-single-digit FCF improvement, further boosting its financial health [2]. Additionally, Oxy's involvement in the Stratos project, which focuses on CO2 capture, positions it at the forefront of decarbonization efforts, potentially opening new revenue streams [2].

However, Oxy's modest dividend yield of 2.2% makes it more of a growth play than an income-focused investment. For investors seeking income, Chevron, with its 4.4% dividend yield, might be a more suitable choice. Nonetheless, Buffett's continued support for Oxy, despite owning Chevron as well, indicates a long-term view on the company's growth prospects [1].

Given the current geopolitical uncertainties and fluctuating energy prices, Oxy's stock has been more volatile than Chevron's. While Chevron's stock has fallen around 5% over the past year, Oxy's shares have declined by over 20%. This disparity in performance is not surprising, given Oxy's focus on growth and the risks associated with its smaller size compared to Chevron [1].

In conclusion, Occidental Petroleum presents an interesting opportunity for growth-oriented investors. With a cleaned-up balance sheet, strong cash flow, and a focus on operational efficiency, Oxy is well-positioned to drive shareholder returns. However, investors should be aware of the risks associated with crude oil prices and the company's smaller size compared to its larger competitors.

References:
[1] https://finance.yahoo.com/news/occidental-petroleum-buy-dip-092200582.html
[2] https://seekingalpha.com/article/4812490-occidental-petroleum-q2-results-point-to-stronger-fcf-ahead