Occidental Petroleum surges 9% after slashing debt, boosting dividend
Oil producer uses $9.7B Berkshire Hathaway deal proceeds to strengthen balance sheet and return capital to shareholders
Occidental Petroleum shares surged 9.3% on Thursday as the oil producer delivered a one-two punch of financial strength, slashing $5.8 billion in debt and raising its dividend by 8.3% following the completion of a major asset sale to Warren Buffett's Berkshire Hathaway.
The Houston-based company completed the $9.7 billion cash sale of its OxyChem chemicals business to Berkshire Hathaway on January 2, using the proceeds to aggressively pay down borrowings that had accumulated during its expansion phase. Occidental has now reduced its debt by $7.5 billion since July 2024, bringing principal debt below $15 billion, according to company disclosures.
The transaction marks a significant milestone for chief executive Vicki Hollub, who has worked to strengthen Occidental's balance sheet since its controversial $38 billion acquisition of Anadarko Petroleum in 2019. That deal, heavily backed by Berkshire Hathaway financing, left the company with a substantial debt burden that has weighed on investor sentiment for years.
Berkshire's growing confidence in the oil producer was further underscored when its board approved a dividend increase to $0.26 per share from $0.24, payable April 15. The raise marks the company's second dividend increase in recent months, signaling a shift toward shareholder returns as debt reduction goals are met.
The Buffett connection adds an extra layer of credibility to the turnaround story. Berkshire Hathaway now owns approximately 27% of Occidental's outstanding shares, making it by far the largest shareholder. That stake, accumulated through preferred stock purchases during the Anadarko acquisition and subsequent common share buys, has been a source of both financial support and strategic guidance for the company.
"The OxyChem sale transforms Occidental into a more focused oil and gas operator with a much cleaner balance sheet," said analysts at Seeking Alpha in a recent note. "The debt reduction improves financial flexibility and positions the company to increase shareholder returns through dividends and potentially share buybacks."
Thursday's rally, which pushed shares above $51 for the first time since November, comes amid broader strength in energy markets. Oil prices have gained ground in recent sessions on geopolitical tensions in the Middle East, with potential military actions against Iran threatening supply from the region.
The company's improved financial position comes at an opportune moment, as Occidental continues to ramp up production from its Permian Basin assets while benefiting from higher oil prices. The sale of OxyChem allows management to focus exclusively on its core oil and gas operations, where it has been deploying technology to improve efficiency and reduce costs.
Analyst sentiment remains mixed but improving. Of the 26 analysts covering the stock, 7 rate it a buy or strong buy, while 15 recommend hold, according to MarketBeat data. The average price target of $48.44 suggests some caution about the sustainability of current levels, though recent debt reduction progress could trigger upward revisions.
For shareholders, the question now shifts from balance sheet repair to capital allocation strategy. With interest costs significantly reduced and dividend payments on the rise, investors will be watching for potential share repurchase announcements or further dividend increases as cash flow strengthens.
Buffett's continued backing through Berkshire's substantial ownership stake provides a stabilizing force, even as energy markets remain volatile. The billionaire investor has historically been patient with management teams executing turnarounds, and Occidental's progress on debt reduction suggests the strategy is gaining traction.