Warren Buffett’s favorite oil and gas pick, Occidental Petroleum (NYSE:OXY), delivered a disappointing performance in the first quarter. The quarterly results missed expectations and reflect a year-over-year decline in revenue and earnings on lower energy prices. OXY shares fell about 2% in Tuesday’s after-hours trading.
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The company is engaged in the exploration and production of oil and natural gas, primarily in the United States, the Middle East, and North Africa.
OXY’s Q1 Results Hammered by Lower Oil Prices
The company posted adjusted earnings of $1.09 per share, lower than the Street’s estimate of $1.24 per share. Moreover, the bottom line declined by about 49% from the prior-year quarter.
Meanwhile, Occidental posted revenues of $7.26 billion, down 15% from $8.53 billion in the year-ago quarter, and missed the Street’s estimate of $7.46 billion. The top line was impacted by lower sales in all segments, including Oil and Gas, Chemical, and Midstream.
Additionally, average worldwide realized crude oil prices fell nearly 11% from the prior quarter to $74.22 per barrel. Also, average worldwide realized natural gas liquids (NGL) prices declined nearly 7% from the prior quarter to $24.41 per barrel.
Nevertheless, the Oil and Gas unit’s average global production reached 1,220 thousand barrels of oil equivalent per day (Mboed) in the quarter, exceeding the mid-point guidance by 40 Mboed. The production level increased by 13% from last year’s quarter.
Cash flow from operations came in at $2.9 billion, down 11% year-over-year. In addition, free cash flow dropped 49% to $1.69 billion. During the quarter, Occidental repurchased shares worth $752 million, accounting for 25% of its $3 billion repurchase program.
Buffett “Loves” His OXY Shares
Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) has been accumulating OXY stock for quite some time now. As per the latest filings, BRK owns nearly 24% stake in Occidental. Additionally, it has around $10 billion of Occidental’s preferred stock, as well as warrants to purchase $5 billion shares of common stock at $59.62 per share.
During Berkshire’s annual meeting in Omaha on Saturday, Buffett said he has no intentions to buy a controlling stake in Occidental but added that “We love the shares we have.”
Separately, Occidental has begun redeeming the preferred shares it issued to Berkshire in 2019. In March, the company redeemed a part of the holding and paid about $474 million to Berkshire.
Is OXY a Buy or Sell Now?
Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating. This is based on nine Buy, seven Hold, and one Sell recommendations. The average OXY stock price target of $71.82 implies upside potential of 21.8%. Shares have dropped 3.1% so far in 2023.
It is worth highlighting that analyst Biju Perincheril of Susquehanna is the most accurate analyst in the case of OXY stock. The analyst has had a 75% success rate on his 16 ratings on Occidental. Importantly, replicating the analyst’s trades for a year would yield an average return of 36.36% per trade. Click on the image below to learn more.
