Occidental Petroleum Makes a Play for the Permian Basin

Occidental Petroleum, the oil giant in Berkshire Hathaway’s portfolio, announced it is acquiring CrownRock in a deal worth $12 billion. 

Photo of an oil rig
Photo by David Thielen via Unsplash

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Forget peak oil. It’s like the party is just getting started for the fossil fuel industry.

On Monday, Occidental Petroleum, the oil giant in Berkshire Hathaway’s portfolio, announced it’s acquiring private shale producer CrownRock in a deal worth $12 billion. 

Do Over

Life in the oil biz is a roller coaster. Oxy’s last big acquisition — a $57 billion megadeal for Anadarko Petroleum, completed by taking on massive amounts of debt — couldn’t have come at a worse time. By the time it closed in late 2019, the deal almost immediately looked like a big mistake as Covid enveloped the world mere months later, sending the price of oil to its lowest level in more than 15 years. 

But now, like much of the oil industry, a post-pandemic surge in demand has left Occidental flush with cash. And, as with pretty much else in the oil industry, Oxy is using that capital to rush into the Permian Basin in western Texas and New Mexico:

  • With CrownRock, Oxy would become the region’s second-biggest oil producer behind Exxon, which just purchased Pioneer to secure the basin’s top spot.
  • In the first year, the deal is projected to generate around $1 billion in free cash flow, Occidental CEO Vicki Hollub said in a statement, with Oxy’s production capabilities in the basin increasing from 170,000 barrels of oil and gas per day to 750,000.

Debt-y Downer: Nevertheless, some outsiders see a downside. Unlike Exxon’s recent all-stock acquisition of Pioneer, Oxy is completing its purchase entirely in cash — and it’s taking on even more debt to do so. In fact, its total debt is rising to $28 billion from about $18 billion. Hollub noted Monday that Berkshire decided not to finance the deal, unlike its active role in the 2019 Anadarko acquisition. It appears Warren Buffet is, fittingly, a believer in the no-nonsense “Fool me once, shame on you. Fool me twice, shame on me” theory.