Occidental’s performance has surprised industry observers as realised oil prices fell to $64.78 per barrel in the last quarter from $75.33 during the same period last year.
Occidental Petroleum’s Q3 profits beat Wall Street expectations as increased production offset weaker oil prices. The US shale producer said that its 2024 acquisition of CrownRock in a $12 billion deal helped churn out higher profits as its quarterly average global production climbed from 1.41 million barrels of oil equivalent per day (MMboepd) last year to 1.46 MMboepd.
Oil and gas supply in the US reached a record high this August, despite the benchmark Brent crude dropping over 13% as OPEC increased supply and overall global demand shrank. Occidental’s performance has surprised industry observers as realised oil prices fell to $64.78 per barrel in the last quarter from $75.33 during the same period last year.
The company projects a production range between 1.44 MMboepd to 1.48 MMboepd for this quarter, although LSEG analysts forecast production to be nearly 1.44 MMboepd. Despite posting these positive indicators, Occidental’s shares still fell in extended trading, prompting market researchers to suggest that the market could show a little more ‘upside in Q4.’
In October, the shale producer announced that it would be offloading its chemicals arm, OxyChem, to the Warren Buffett-owned Berkshire Hathaway for $9.7 billion. This marked Occidental’s biggest divestment to date, and was driven by the company’s efforts to reduce debt, which had accumulated after it pursued a string of takeovers in the past years.
Industry observers commented that OxyChem’s sale could weigh on free cash flow growth in the years to come, for the oil company, as this unit had the potential to augment significant expansion.
Occidental’s debt problems began with its $55 billion buyout of Anadarko. Although the company denies these claims, its problem only worsened with its August 2024 acquisition of CrownRock. Therefore, to reduce debt, which was $23.34 billion in June, it has been steadily divesting in recent years. In August, it disclosed $950 million of additional divestitures since Q2, of which $370 million had already closed. Through this, it was possible for the US oil giant to repay $3 billion of debt year-to-date.
Occidental confirmed that $6.5 billion of the proceeds from this deal will be used to repay its debts, which would bring the total principal debt below its target of $15 billion, which was set after the CrownRock deal. As of September 30, its long-term net debt was $20.85 billion, having repaid $1.3 billion in Q3. The company also posted an adjusted profit of 64 cents per share for the last quarter, beating analysts’ expectations of 52 cents apiece.
This Houston-headquartered oil company is not the only energy sector giant to exceed Wall Street expectations. Earlier this month, Exxon Mobil also reported adjusted earnings of $8.1 billion, recording $1.88 per share, as opposed to analysts’ estimate of $1.82 per share. The company credited more oil and gas production in Guyana and the Permian Basin for these figures, as it helped counter weaker oil prices.
However, like its peer Occidental, Exxon also suffered from declining free cash flow in the aftermath of its acquisition of additional acreage in the Permian Basin. Cash flow dropped from $11.3 billion to $6.3 billion.
Similarly, industry rival Chevron posted adjusted earnings of $3.6 billion or $1.85 per share, comfortably surpassing analysts’ expectations of $1.68 apiece, for the three-month period. The second-largest oil producer in the US said that its performance this quarter was boosted by its $55 billion acquisition of Hess and stronger refining margins.
These figures indicate that despite a crunch in cash flow, energy companies are performing favourably and are attributing their success to their M&A strategy. If they continue to post increased earnings and revenue, it is likely that more such acquisitions will be announced in the oil and gas sector.
