1/ Buffett's hefty stake in Occidental Petroleum $OXY piqued my curiosity.
Went down the rabbit hole to understand what Buffett sees in this business.
๐งต A thread on OXY:
Went down the rabbit hole to understand what Buffett sees in this business.
๐งต A thread on OXY:
2/ OXY operates globally, but 80% of their revenue comes from the U.S.
A vital region within the US, the Permian Basin, contributes 54% of this.
A vital region within the US, the Permian Basin, contributes 54% of this.
3/ This dominance of the Permian Basin - the powerhouse of American oil and natural gas production - is not accidental but the result of their advanced technological capabilities and engineering expertise in hydrocarbon exploration.
4/ OXY operates through three primary segments:
- Oil & Gas (70.25% of revenues),
- Chemicals, and Midstream &
- Marketing.
It's important to note that their oil and gas segment can be subject to substantial volatility due to global market dynamics.
- Oil & Gas (70.25% of revenues),
- Chemicals, and Midstream &
- Marketing.
It's important to note that their oil and gas segment can be subject to substantial volatility due to global market dynamics.
5/ Despite the volatility inherent in OXY's business model, the company demonstrated its resilience by bouncing back from a $9.6 billion loss during the 2020 energy crash to a staggering $12.8 billion gain in 2022.
6/ The Chemical and Midstream segment serve as important stabilizers, offering a counterbalance to the volatility of the primary oil and gas segment.
Despite economic downturns, this segment continue to yield profit.
Despite economic downturns, this segment continue to yield profit.
7/ OXY's revenues surged by an impressive 40% from FY2021 to FY2022.
This can be attributed to the rise in energy prices and increased demand for energy, a trend that played to the strengths of all of OXY's business segments.
This can be attributed to the rise in energy prices and increased demand for energy, a trend that played to the strengths of all of OXY's business segments.
8/ The performance of OXY, and indeed the energy sector, is cyclical and correlates strongly with the trends in oil prices.
9/ OXY boasts a significant moat stemming from its scale and the current regulatory crackdown on oil & gas exploration.
Its strategic positioning within the Permian basin and midstream assets are other sources of this competitive advantage.
Its strategic positioning within the Permian basin and midstream assets are other sources of this competitive advantage.
10/ Yet, it's essential to recognize that an investment in OXY is fundamentally a wager on the trajectory of energy prices.
Given the historical volatility of these prices, OXY is typically a more attractive purchase following a period of downturn.
Given the historical volatility of these prices, OXY is typically a more attractive purchase following a period of downturn.
11/ Takeaway: OXY's strategic positioning, significant moat, and robust financials make it an enticing investment despite inherent volatility.
However, it's important to understand how oil price fluctuations affect its financial performance.
However, it's important to understand how oil price fluctuations affect its financial performance.
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