There is actually no shortage of price drivers for oil stocks at the moment. Rising commodity prices are giving the sector a strong boost. Occidental Petroleum recently enjoyed an additional "energy boost": Berkshire Hathaway increased its stake in the US industry representative. The holding company of investor legend Warren Buffett bought Occidental stock for close to USD 1 billion, giving it a 14.6% stake. Berkshire has already held USD 10 billion of the company's preferred shares since 2019, a class the conglomerate had resorted to in order to help Occidental finance its acquisition of rival Anadarko Petroleum. With some delay, this Buffett investment seems to be paying off. In the first phase of the pandemic, Occidental Petroleum had still dipped into the single-digit price range. Meanwhile, the stock, with the abbreviation "Oxy," is trading at more than 6 times its 2020 low (see chart).
The stock market comeback has been accompanied by strong operational performance. Two years ago, the Covid-related oil price collapse and high impairment charges had left the Texas-based company with a bottom-line loss approaching USD 15 billion. In 2021, Occidental achieved a remarkable turnaround and earned around USD 2.3 billion, of which USD 800 million went directly to Berkshire Hathaway as dividends. Last but not least, the record inflow of funds made it possible for the Group to reduce net debt by almost one fifth to below USD 30 billion in 2021. CEO Vicki Hollub is targeting a value of USD 20 billion as the next milestone here. Nevertheless, investors are not to be shortchanged: In addition to debt repayment, increasing dividends and share buybacks are priorities for the top manager.
In its core business, Occidental significantly increased drilling activities again after the lull in 2020. As a result, oil and gas reserves increased by 600 million in 2021 to a total of around 3.5 billion barrels of oil equivalent (Boe) (see chart). The majority of this is attributable to U.S. fracking activities in the Permian Basin as well as the DJ Basin. The company also has oil fields in the Gulf of Mexico, the Middle East and North Africa. Occidental also operates a chemicals division and a midstream segment with the processing, transportation, storage and marketing of oil and gas. The management sees great potential in the storage of CO2. The subsidiary "Oxy Low Carbon Ventures" has just concluded a cooperation agreement with the forest owner Weyerhaeuser. It provides for the planning and development of an underground carbon capture and sequestration facility in the U.S. state of Louisiana.
Despite this positive news, Oxy shares have failed for now to break out above the round USD 60 level. Given the steep price increase and visibly overbought chart, a consolidation would not come as a surprise. Given this background and due to the relatively high volatility, Occidental Petroleum offers itself as an underlying for a Barrier Reverse Convertible. Leonteq has launched two variants of this popular structure: Investors can choose between an allocation in CHF and USD. The coupons amount to a high 16% p.a.. (CHF variant) and 18% p.a. respectively. (USD). Occidental Petroleum enters the maximum term of one year with a barrier of 59% of the initial fixing in each case. As long as the oil stock does not go to or below this mark, the maximum return is guaranteed. Otherwise, the partial protection expires and the investment would be exposed to the risk of the underlying. Please note: Due to the soft callable features, early termination and redemption of this Barrier Reverse Convertible may occur.
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