Occidental Petroleum will swallow CrownRock for $12 billion.

Last Updated: 15. Dezember 2023By

For some time, billionaire investor Warren Buffett has been gradually increasing his stake in US oil company Occidental Petroleum. Just this week, the Oracle of Omaha bought Occidental Petroleum securities worth over $588 million. As a result, the major investor now holds 27% of the energy company.

While Buffett is busy collecting shares of the company, Occidental itself is on a shopping spree. The company recently announced that it will acquire energy producer CrownRock for approximately twelve billion dollars.

Who is behind Occidental Petroleum? Occidental Petroleum is an international US-American company active in the exploration and production of oil and gas. Occidental Petroleum is a leading player in tertiary oil recovery in the Permian Basin (Texas). Outside the US, the company produces oil in the United Arab Emirates (40% of the Al Hosn gas field), Qatar (24.5% of the Dolphin gas project), Oman (oil) and Colombia (oil).

The purchase of Anadarko three years ago may have been expensive, but it enabled Occidental to increase its landholdings in the Permian to 2.8 million acres, or 14 times the size of the five boroughs of New York City. The company also gained stable and cash-flow-rich assets in the Gulf of Mexico and Algeria.

In the last fiscal year, Occidental Petroleum generated a net income of $13.3 billion on revenue of $36.63 billion.

Consolidation in the oil sector continues Now Occidental Petroleum wants to swallow the private company CrownRock โ€“ deal value is a whopping 12 billion dollars. To finance the deal, Occidental intends to take on new debt of $9.1 billion, issue $1.7 billion in common stock, and take on CrownRock’s existing debt of $1.2 billion. In other words, the deal will be paid for with 86% debt.

Quick repayment of debt planned However, Occidental is aiming to quickly pay off a large portion of this debt. In addition to increased free cash flow from the transaction, the company plans to launch a new asset sale program to raise between $4.5 and $6 billion in cash. This should enable Occidental to pay off at least $4.5 billion of the debt it takes on as part of the transaction within the next year.

Focus on lucrative Permian Basin The consolidation in the so-called Permian Basin, the largest oil production region in the United States, continues seamlessly. The Permian Basin is a preferred destination for producers looking to build up their reserves. The basin, located between Texas and New Mexico, has high shale oil production, large undeveloped reserves, and a solid infrastructure. With the CrownRock acquisition, the acquisition volume in the Permian Basin will reach over $100 billion in 2023.

Substantial production increase + unexploited areas The purchase of CrownRock will enable Occidental to increase its daily production by 170,000 barrels of oil equivalent and secure 1,700 unexploited sites in the Permian region. This includes 750 that are profitable at oil prices below $40. That will increase Occidental’s drillable inventory at prices below $40 by 25%.

Occidental Petroleum significantly strengthens market position The Occidental management also expects that the purchase of CrownRock will increase free cash flow next year by $1 billion. The calculations assume an average oil price of $70 per barrel, which is roughly the current price.

There is no doubt that the deal has an impressive dimension: According to Wood Mackenzie, the acquisition creates the sixth producer in the lower 48 US states with an oil equivalent of 1 million barrels per day, including Chevron, EOG, ExxonMobil, EQT and ConocoPhillips. Specifically in the Permian Basin, Occidental will even become one of the three largest producers behind the majors.