Occidental Petroleum's Shares Decreased by 17% in 2024 Yet May Surge in 2025
2024 was a tough year for Occidental Petroleum (OXY 1.12%), with the oil and gas stock losing a hefty 17.3% of its value. According to data from S&P Global Market Intelligence, Occidental was one of the worst-performing large-cap energy stocks, trailing far behind the S&P 500, which managed to gain a impressive 23% in the same period.
Despite Berkshire Hathaway's Warren Buffett consistently buying shares of Occidental throughout 2024, investors remained cautious. This was largely due to Occidental's soaring debt and the precipitous drop in crude oil prices, which hurt the company's bottom line and cash flows.
Occidental's debt increased significantly in the second half of 2024, following the acquisition of CrownRock for nearly $12 billion in August. While this acquisition included CrownRock's existing debt of $1.2 billion, Occidental funded it with almost $9 billion of new debt. This move sent shivers down the spines of investors, who were worried about the impact of lower oil prices and rising interest expenses.
Despite committing to cutting down debt and focusing on shareholder returns, investors remained unconvinced. However, Occidental's impressive performance in the third quarter might just be enough to win them back over.
But why is Occidental Petroleum a top stock to buy for 2025?
Well, for starters, Occidental targeted a debt reduction of $4.5 billion within a year of acquiring CrownRock. Remarkably, the oil and gas producer achieved 90% of its short-term reduction goal within just about two months of the acquisition.
Moreover, Occidental's strong cash flows in the third quarter were driven by CrownRock assets, which expanded its footprint significantly in the Permian and Midland basins. The acquisition is expected to add $1 billion in free cash flow within the first year, given a West Texas Intermediate (WTI) crude oil price of around $70 per barrel.
Occidental's production is on the rise, and management remains committed to paring debt further in 2025, regardless of where oil prices are. The company is also investing in other businesses, including OxyChem and carbon capture and storage, both of which have strong growth catalysts.
And let's not forget Occidental's dividend boost. The company increased its dividend by 22% in 2024, a move likely to be repeated in 2025, making Occidental Petroleum an attractive dividend play.
So, while 2024 was a difficult year for Occidental Petroleum, the company's strong fundamentals, debt reduction efforts, and potential for future growth make it a compelling investment opportunity for 2025.
Investors might still be hesitant about investing in Occidental Petroleum due to its high debt levels, despite Warren Buffett's continued support and the company's successful debt reduction strategy. Regardless, Occidental is planning to invest in areas like OxyChem and carbon capture and storage, aiming to boost its financial situation and attract more investors.
To capitalize on the potential growth in the oil and gas industry, some financial analysts suggest allocating a portion of one's investment portfolio towards companies like Occidental Petroleum, considering their solid financial performance and promising future prospects.
