No. of Recommendations: 21
I hope Buffett doesn't buy OXY. It's basically a commodity O&G company with no real competitive advantages. It's redeeming feature is a sizeable position in the Permian. It has EOR recovery operations via CO2, but so does all its competitors.
Its negative feature is too much debt compared with its peers. The OXY CEO keeps going deeper into debt to try to keep up with the consolidations taking place in the Permian. She first bet her company on the deal that required Buffett's money at a high cost to do that. Still paying a high price for the money. Had the vaccine not restored the economy, OXY could easily have gone bankrupt then. Then the invasion of the Ukraine bailed out O&G prices and she got a second chance. Now she's done it again - Barron's suggests that she wants Buffett to bail her out again. She appears to have the "wildcatter" risk taking mindset. You don't want a lot of debt when O&G prices turn down. And you damn sure want the balance sheet strength to manage through the oil price cycles.
Ignore the CO2 recovery from air as a future bailout. The technology remains unproven, the costs highly uncertain, and the 75-100 commercial plants by 2035 a pipe dream. The major O&G companies are far stronger in carbon capture technology than OXY with much stronger project management and worldwide distribution capabilities. They also have downstream integration when they can develop and demonstrate their technologies. And the Trump administration brings into question support for carbon capture going forward.
If Buffett wants more position in the Permian, there are other, stronger, companies he should consider.
Would he really want to raise his bet on oil pricing going forward now?
