A Valuation Of Occidental Petroleum Based On Its Three Sources Of Value

Of the companies impacted by the recent oil price collapse, Occidental Petroleum’s (OXY) story might be the most dramatic. The company bought Anadarko Petroleum in August 2019 to become America’s fourth largest oil and gas company. Since then, its shares have fallen by over 60%, in part due to concerns over the debt the company took on for that deal. Even the company's bonds have collapsed. Occidental’s bonds due in 2049 have dropped by over 50% in the past year. Such low prices imply many bondholders think the company will go bankrupt.

Of course, not everyone feels so negatively about the company. Six “Bullish” or “Very Bullish” articles were written about Occidental on Seeking Alpha in March alone, and three more in April. After all, much of the fall in the company’s shares has been caused by the recent oil price collapse. If oil prices go back up again, it is plausible that investors who buy now could triple their money. It's also worth noting that both Carl Icahn (IEP) and Warren Buffett (BRK.A) (BRK.B) are invested in the company, which gives even more impetus to whose who think that the company will do well as an investment.  

With so many diverging opinions about Occidental’s future, I think it is important to remember the company’s fundamentals. Occidental has three sources of value...(Read More)