Occidental Petroleum given "Neutral" rating by Goldman Sachs
Investing.com -- Occidental Petroleum Corporation (NYSE:OXY) shares were given a "Neutral" rating by analysts at Goldman Sachs on Wednesday.
In a note to clients, the Goldman Sachs analysts said Occidental's roughly $12 billion cash-and-stock acquisition of CrownRock, which closed in August, increases the firm's scale in the Permian Basin, the biggest US shale oilfield.
"[W]e see this as a positive given [Occidental]’s track record of execution in the [Permian Basin]," the analysts said.
However, they flagged that the deal also increases the group's ratio of net debt to earnings before interest, tax, depreciation and amortization, adding that this represents a shift in Occidental's free cash flow allocation priorities "back to debt reduction over capital returns."
They noted that Occidental's share price has underperformed US energy majors by 16% since the CrownRock agreement was first announced last December, arguing that the trend in part "reflects [its] less favorable leverage post-deal" compared to its peers, as well as decreased investor confidence in global oil demand.
"We believe the focus for investors and the company in the near-term will be on debt reduction, and while shares trade at a discount to peers, we see a less clear path for the shares to re-rate higher pending further progress towards debt reduction and a shift from debt reduction to capital returns," the Goldman Sachs analysts said.
Houston, Texas-based Occidental agreed to buy CrownRock, joining a wave of shale consolidation at the time that included Exxon Mobil 's (NYSE:XOM) $60 billion swoop for Pioneer Natural Resources (NYSE:PXD) and Chevron Corp's (NYSE:CVX) $30 billion purchase of Hess (NYSE:HES).
Large producers, flush with cash after oil prices jumped following the outbreak of the war in Ukraine, were hunting for acquisitions to expand their access to prime drilling sites.
Related Articles
Occidental Petroleum given "Neutral" rating by Goldman Sachs
Nikola's hydrogen-powered truck deliveries to dealers rise 22% in Q3