Occidental's Strategic Acquisition in Shifting Market Dynamics

On Monday, Occidental Petroleum (OXY:US) announced an agreement to acquire privately-held U.S. shale oil producer CrownRock in a cash-and-stock transaction valued at $12 billion, including assumed debt. 

This move is part of a broader trend of consolidation in the shale sector, with Exxon Mobil's (XOM:US) proposed $60 billion deal for Pioneer Natural Resources (PXD:US) and Chevron's (CVX:US) $53 billion agreement for Hess (HES:US) in October serving as notable examples.

Pending approval, the acquisition of CrownRock would position Occidental as a substantial player in the U.S. shale sector, surpassing the combined presence of Chevron and Hess. The deal is anticipated to close in the first quarter of 2024 and is projected to increase Occidental's Permian production by 170,000 barrels of oil and gas per day in the Midland, bringing it to 750,000 boed.

Vicki Hollub, Chief Executive of Occidental, highlighted the strategic alignment with CrownRock, emphasizing its potential benefits during extended periods of lower oil prices. Occidental's total production stood at 1.2 million boed as of September 30.

In addition to operational gains, the acquisition is expected to generate immediate cash flow for investors, estimated at approximately $1 billion based on a $70 per barrel WTI oil price. Occidental noted that nearly half of CrownRock's 1,700 undeveloped locations could yield profits even with WTI at $40 per barrel.

To finance the acquisition, Occidental plans to utilize $9.1 billion in new debt, assume CrownRock's existing $1.2 billion debt, and issue $1.7 billion in common stock.

In response to investor concerns, Occidental stated it would raise its quarterly dividend by $0.4, reaching $0.22 per share. The company aims to maintain its investment-grade credit ratings throughout this strategic expansion.

On the congressional front, about two months before the announcement of this acquisition, Congressman Michael McCaul invested between $100,000 to $200,000 in the hydrocarbon exploration firm OXY on October 12.