Occidental Petroleum plunged 7.5% as analysts questioned the timing and valuation of its sale of OxyChem to Berkshire.
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Occidental Petroleum saw its share price plunge as much as 7.5% on Thursday, making it one of the biggest losers in the S&P 500 index.
According to reports, the company has agreed to sell its chemical division, OxyChem, to Warren Buffett’s Berkshire Hathaway for $9.7 billion, in order to ease the heavy debt burden accumulated over years of costly acquisitions.
On Thursday, Occidental Petroleum closed down 7.32% at $44.23 per share.
Occidental CEO Vicki Hollub said in an interview that the company’s biggest issue is how to reduce its debt more quickly. Previously, the company acquired Anadarko Petroleum in 2019 and CrownRock in 2024. Hollub stated that the plan is to use $6.5 billion from the transaction to pay down debt, aiming to reduce principal debt to below $15 billion.
Hollub emphasized that this deal will “unlock the share price,” giving shareholders more confidence to increase their holdings and attracting new investors.
“So now we can restart our share buyback plan... This is the final step we need to complete since we began our major transformation ten years ago.”
However, analysts at TD Cowen believe the timing of the deal is less than ideal. While the deal does help reduce debt, it comes as OxyChem's years-long expansion capex cycle reaches its peak, which will cause the originally expected inflection point for free cash flow in the coming years to be lost.
Roth MKM analysts also stated that this sale could weaken future free cash flow growth, as the division had previously been viewed as an important support for the company's expansion plans.
Scotiabank analyst Paul Cheng pointed out that the selling price is relatively low, having previously estimated the division's value at around $12 billion.
Headquartered in Houston, Occidental Petroleum is mainly known for its oil and gas business and currently has a market value of about $46 billion. Berkshire is already its largest shareholder, currently holding more than $11 billion worth of Occidental stock, representing a 28.2% stake. Buffett has previously stated he will not take full control of the company founded by legendary oil tycoon Armand Hammer.
Occidental’s chemical division, OxyChem, produces and sells a variety of chemical products used in applications such as water chlorination, battery recycling, and papermaking. For the 12 months ending in late June, the division achieved sales of nearly $5 billion.
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