Shares of Occidental Petroleum (OXY -9.30%) crashed today and were trading 10% lower as of 12:20 p.m. ET.
Ironically, Occidental Petroleum just revealed that it realized higher average prices for oil and gas in its first quarter versus the fourth quarter, which is good news for the company and its investors. Why did the stock then crash today? There are three things to keep in mind.
First, Occidental Petroleum's worldwide average realized price for crude oil was $71.07 per barrel in Q1 versus $69.73 per barrel in the fourth quarter. Even better, its average worldwide realized natural gas liquid prices jumped almost 19% sequentially, while its average realized domestic natural gas price surged nearly 92% to $2.42 per thousand cubic feet.
The problem is, unless Occidental Petroleum increased its production in Q1, the benefits of higher prices won't flow through its top and bottom lines. Unfortunately, I suspect low production, given the harsh winter, plant outages, and weak drilling activity in Q4.
Second, although Occidental Petroleum realized higher prices over Q4, its year-over-year comparisons don't look good, since the oil and gas producer realized $76.04 per barrel for crude oil worldwide in Q1 2024.
Third, and the biggest reason why Occidental Petroleum shares plummeted today, were oil prices. With the tariff war escalating between the U.S. and China, prices of crude oil dropped more than 3% this morning, with the West Texas Intermediate (WTI) plunging below the $60 mark.
While plunging oil prices hurts nearly every oil and gas producer, it's a bigger headwind for Occidental Petroleum, given its high debt load. The company largely funded its $12 billion CrownRock acquisition with debt last year -- also one of the biggest reasons why Occidental stock slumped 17% in 2024.
Occidental Petroleum, however, already repaid debt worth $4.5 billion in debt within months of the acquisition and expects to cut debt further in 2025 using its cash flows and proceeds from the sale of noncore assets. Meanwhile, CrownRock's Permian assets and Occidental's non-oil businesses should continue to add more value.
The near-term ride could be bumpy, but this Warren Buffett-owned oil stock looks like a great buy long term.
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