This Top Warren Buffett Stock Continues to Deliver an Impressive Performance

Key Points

• Occidental Petroleum is one of Berkshire Hathaway's largest holdings.

• The oil company recently reported solid second-quarter results.

• It's making excellent progress on its plans to repay debt and grow shareholder value.

• 10 stocks we like better than Occidental Petroleum ›

Warren Buffett's company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), continues to be a big believer in Occidental Petroleum (NYSE: OXY). It's easy to see why when looking at the oil giant's recently reported second-quarter results. The company delivered strong performance across the board despite lower oil and gas prices during the period.

This consistent execution, even amid market volatility, gives Occidental Petroleum a solid foundation to grow shareholder value for Berkshire Hathaway and other investors in the years ahead.

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Drilling down into Occidental Petroleum's second-quarter results

Occidental Petroleum produced $396 million, or $0.39 per share, of adjusted income during the second quarter. That was down from the $860 million, or $0.87 per share, it earned in the first quarter.

The culprit was lower commodity prices. Occidental posted $934 million of pre-tax income in its oil and gas segment, down from $1.7 billion in the first quarter, due primarily to lower oil and gas prices. The average global price of crude oil was 10% below the first quarter's level, while the price of domestic natural gas tumbled 45%.

Despite these lower prices, Occidental delivered higher volumes and strong results from its midstream and marketing segment. The company produced 1.4 million barrels of oil equivalent (BOE) per day, exceeding the mid-point of its guidance, while midstream and marketing earnings came in above the high-end of expectations. The company's chemicals business (OxyChem) also delivered solid results that were on par with its first-quarter performance.

Additionally, strong well performance and enhanced operational efficiency supported robust cash generation. Operating cash flow before working capital adjustments was $2.6 billion, and free cash flow totaled $700 million, both slightly lower than the previous quarter.

More progress on its debt-reduction plan

Occidental Petroleum used its healthy free cash flow to pay its dividend and reduce debt. The company also continued to sell noncore assets to accelerate its debt-reduction efforts. It has secured $950 million of additional asset sales since the start of the second quarter. Those sales included $370 million of noncore and select non-operating Permian Basin upstream assets that closed during the quarter.

Occidental also recently agreed to sell some gas-gathering assets in the Midland Basin to midstream company Enterprise Products Partners for $580 million. Those sales added to the $1.3 billion of noncore-asset sales it closed during the first quarter. The company has now agreed to sell $4 billion of assets since announcing its deal for CrownRock in late 2023, which has it closing in on the low end of its $4.5 billion to $6 billion target range.

The energy company has used a combination of excess free cash and asset-sale proceeds to repay $3 billion of debt so far this year. Since July 2024, it has retired $7.5 billion of debt, saving it $410 million in annual interest expenses. The company has now significantly exceeded its target of delivering at least $4.5 billion of debt reduction within a year of closing its CrownRock deal.

More positive catalysts ahead

Occidental expects to continue using its excess free cash flow after paying dividends and noncore-asset sales to repay debt. It still has approximately $1.6 billion of 2026 debt maturities to address, as well as another $1.5 billion coming due in 2027.

The company shouldn't have a problem paying off that debt, given the anticipated surge in its free cash flow from non-oil sources. The company estimates that a combination of interest expense savings, incremental earnings from upcoming chemicals projects, and midstream contract expirations will boost its free cash flow by $1 billion in 2026 and by an additional $500 million in 2027.

As its debt continues to fall, Occidental will be positioned to return more cash to investors, beyond its dividend. It plans to eventually resume share repurchases and the redemption of Berkshire's preferred equity investment that it made in 2019 to support the company's acquisition of Anadarko Petroleum.

A well-oiled machine

Warren Buffett's Berkshire Hathaway has made a major bet on Occidental's ability to execute its plans to grow shareholder value. The company owns nearly 27% of the oil company's outstanding shares. That position is worth almost $12 billion (approximately 4% of Berkshire's investment portfolio), making it the seventh-largest holding.

Occidental's strong second-quarter showing and progress on its debt-reduction plan prove that Buffett's company has made a smart investment. The oil company is in an excellent position to grow shareholder value in the future, despite the continued volatility of crude oil prices.

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Matt DiLallo has positions in Berkshire Hathaway and Enterprise Products Partners. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.