Occidental Petroleum Corporation (NYSE:OXY) Rating Update

Investing.com — Occidental Petroleum Corporation (NYSE:OXY) shares received a “Neutral” rating from analysts at Goldman Sachs on Wednesday.

In a note to clients, Goldman Sachs analysts commented on Occidental’s recent $12 billion cash-and-stock acquisition of CrownRock, which closed in August. This acquisition enhances the firm’s scale in the Permian Basin, the largest shale oilfield in the US.

“We see this as positive given [Occidental]’s track record of execution in the [Permian Basin],” analysts stated.

However, they raised concerns that this deal has increased the company’s net debt-to-earnings before interest, tax, depreciation, and amortization (EBITDA). They highlighted that this indicates a shift in Occidental’s free cash flow priorities towards debt reduction over capital returns.

The analysts pointed out that Occidental’s share price has underperformed compared to US energy majors, lagging by 16% since the CrownRock announcement last December. They attributed this trend to a less favorable leverage post-deal and a decline in investor confidence regarding global oil demand.

Goldman Sachs believes the company and investors will focus on debt reduction in the near term. Despite Occidental shares trading at a discount to peers, the analysts think there is no clear path for the shares to increase without more progress on debt reduction and transitioning back to capital returns.

Occidental, based in Houston, Texas, purchased CrownRock as part of a broader trend of shale consolidation. This movement included Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron Corp’s $30 billion purchase of Hess, as large producers sought to expand their access to high-quality drilling locations amid rising oil prices after the outbreak of the war in Ukraine.