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Occidental Petroleum: As Its Yield Exceeds 11.5%, I Started A Position On A Bad Day For Oil

Steven Fiorillo profile picture
Steven Fiorillo


  • OXY's dividend is approaching 12% which is presenting an opportunity which we may not see again.
  • Berkshire has started purchasing common stock in OXY over Q3 and Q4 2019 in addition the the preferred shares from the financing deal.
  • There is blood in the water within the energy markets which could present an opportunity for people with a high tolerance for risk.

On 3/6/2020 Russia refused to sign on to the additional 1.5 mb/d of oil production cuts which were championed by Saudi Arabia. There were reports that Saudi Arabia and Russia had negotiated behind closed doors prior to the OPEC + meeting in Vienna but the desired results didn't come to fruition for Saudi Arabia. As a result of the news oil prices plunged more than 8% per barrel after the OPEC+ meeting broke and there is speculation on whether the OPEC+ alliance will survive this critical disagreement. WTI Crude and Brent Crude both fell off a cliff after the decision was released as WTI fell by $4.62 or 10.07% to $41.28 and Brent finished the day down $4.72 or 9.44% as it closed at $45.27. The news and sharp price decline in oil lead to a large sell-off within the energy sector which may have created an opportunity.

I have had my eye on Occidental Petroleum Corporation (NYSE:OXY) for some time but I wasn't too keen on adding another oil producer to my portfolio. It could get uglier for the energy sector but with shares of OXY under $27 I started a position. I allocated 50% of what I was willing to invest in case shares continue to retreat next week. If shares drop below $22.50 I will increase my position by 25% of the capital I set aside for OXY and add to my position with the remaining capital if OXY dips below $19 or if they rebound to $32 per share. There were a few factors that made me jump in including what I listened to on the Q4 2019 conference call, OXY's assets including the 3 million-plus acres in the Permian Basin, my personal thesis on energy and of course the dividend. I established a position at $26.605 per share which puts me at a forward yield of 11.88% on

This article was written by

Steven Fiorillo profile picture
I am focused on growth and dividend income. My personal strategy revolves around setting myself up for an easy retirement by creating a portfolio which focuses on compounding dividend income and growth. Dividends are an intricate part of my strategy as I have structured my portfolio to have monthly dividend income which grows through dividend reinvestment and yearly increases. Feel free to reach out to me on Seeking Alpha or https://dividendincomestreams.substack.com/

Analyst’s Disclosure: I am/we are long OXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fits into their portfolio parameters.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (182)

With the poison pill the BOD has installed they have negated Icahn thus insuring their and Buffet's position.
Common owners and employees think about this: Management went around shareholders to guarantee the Anadarko deal. OXY had prided itself on no lay off's to employees. The dividend would not be cut. Now with the poison pill you cannot be bought out. Vicki has shown what a scuzz she is and the BOD is only driven by self interest. Buffet will take his pound of flesh every year because OXY now has no choice. Common OXY shareholders, you are screwed.
MrFireby2023 profile picture
a complete replacement of the Board (Icahn's plans) could negate the poison pill?
But now it cannot happen. The BOD action has put a limit on who will own OXY. BOD or Berkshire.
Big Boom profile picture
Sounds like you are short on OXY :)

Shareholders can vote down the pill in May; I am interested to see which way it goes.

"The limited duration rights plan, which Occidental stockholders will have the opportunity to vote on at the 2020 annual meeting, is intended to enable all stockholders to realize the long-term value of their investment in Occidental.”

Buffett is also a common shareholder ~2%; and holds warrants at 62.5 which could make him a 10% owner if he exercises. The board can elect to pay the preferred in stock or cash. They may dilute us by some $200mil in April to counter Icahn position further. Yet, I think having Buffett on board is beneficial as it brings some stability and he pushes hard for share buybacks countering the initial dilution.

Investment horizon is definitely not short term.
12 Mar. 2020
BGR. buy them all, good divy
tomatojuice profile picture
I suspect this falls more before it gains strength.
Big Boom profile picture
Icahn just layed down the cards! 10% Position.
MrFireby2023 profile picture
Carl Icahn just upped his stake to 10% of the float. He is trying to remove and revamp the entire board of directors and he’s got a great track record. Carl will save investors, Also, Buffett has $128 billion in cash and is looking to purchase whole companies. The market cap of OXY is now only $11 billion. A potential Buffett takeover? Possibly!
Warren Buffet can afford to be *way wrong* longer than most of us.
jerrydbrowning profile picture
Jim Cramer Hates! OXY. Thoughts?
Jim has been right so far.
"They know nothing." - Cramer
Fcfrag profile picture
Today kind of makes you look like an idiot.
Hope you got those shares at the prices you wanted!
Big Boom profile picture
Not for the weak or Fainthearted! (or those using leverage)

It's a value buy. I opened a position with a 5-10yr window in mind.

The quarterly slides answer lots of questions here about the hedge. Link below:


To clear some things up:

Buffett has 10bil 8% preferred with div payable as $800 mil in cash or STOCK and is locked in for ~9 years, with no hedging allowed; if they aren't paid, they accrue at 9% a year. So they won't cause a cash crunch but will cause dilution. OXY can redeem in ~9yrs. Buffett can also roll $5bil of pref into warrants.

OXY is doing good divesting its assets and paid off 30% of the debt from Darko - $47bi to $38bi in ~7 months, part was from a contract sale of $8bil with Total, $~4bil of which is settled, and ~4bil is pending a reg review in Ghana and once unlocked can be used to meet upcoming liabilities.

So rough outflows are as follows:

2020: CAPEX$ 3.5bi + Debt due $0 + int. due ~$1.5 +$0.8 (BRK) +$ 1bil Div = $6.8bi
2021: CAPEX$ 4.5bi + Debt due $4.5 bil + int. due ~$1.5 +$0.8 (BRK) +$0.4bil Div = $11.7bi
2022: CAPEX$ 5 bi + Debt due $4.8 bil + int. due ~$1.5 +$0.8 (BRK) +$0.4bilDiv = $12.5bi
2023: CAPEX$ 5 bi + Debt due $1.4 bil + int due ~$1.5 +$0.8 (BRK) +$0.4bil Div = $ 9.1bi

The company does have an untapped $5bil revolver until 2023, some ~$3 bill in cash, a ton of premium assets it can sell once oil recovers, (lets say $3 bil a year for asset sales to be conservative), and as OXY alone had a $3.5 bil in cash flow for 2016, 4.7bil in 2017, and 7.8bil in 2018. As a joined company, estimates for 2020 cash flow was close to $8.7bi before the Saudi tantrum.

So rough inflows in a bad scenario:

2020: CF $3.5 + Asset Sale $4bi = $7.5 2020 looks ok
2021: CF $4.7 + Asset Sale $3bi = $7.7 Use Revolver
2022: CF $7.8 + Asset Sale $3bi = $10.8 Use Revolver
2023: CF $8.7 + Asset Sale $3bi = $11.7 Repay Revolver

Yet, if asset sales go better i.e. $4bi than the revolver goes unused; if OXY pays the preferred in stock and kills the dividend, things again get rosier; although not without a dilution.

So will oil recover? I doubt the Sauds and Russians can keep playing chicken for years; political pressure from the US, OPECs, and internal funding demands will be extreme.

Moreover, Buffett wants this afloat! 5bil of $62.5 warrants are worthless if they go bankrupt, and I doubt he prefers bankruptcy headaches to a secure annual 8% preferred and a chance to own ~9% of the company at $62.5. Given that and the fact that he already owns some ~2% common, I am sure he would provide a nice premium loan to the biggest, most efficient shale player in the Permian, which will, of course, be dilutive. I am interested to see if he loads up on common right now or waits for more bad news.

Vicki Hollub, as a CEO is solid; watch the interview below. They paid more than CVX because they can squeeze more out of the rock (see quarterly slides); CVX knew it and backed down. Black Swans (Corona+Oil War+USElections) are useful for assessing competence, and OXY was hedged and cut the dividend and capex, so they know what they are doing. The fact, that they kept some of the dividend shows that they expect their asset sales to work out.


Conclusion: I think income investors should stay away, value investors incrementally load up as income funds begin to sell their positions. Just be sure you are ready for a wild ride. High volatility, a dividend cut, and dilution are likely short term. However, in 5-10 years returns look superb, especially if Buffett gets his way with share buybacks, which will counteract the dilution over time. Its high risk put you are getting paid for the risk if it works out.
Maybe OXY can squeeze more out if rock, if it was there. OXY had to move rigs off their leases in SENM to Anadarko leases. The liquid is not there! At least not in the volumes thought or produced. I think Anadarko was not transparent on what they knew about the Delaware. This came down to OXY and CVX. I think CVX may have got wind because they did not make a counter to Anadarko. They dodged a big bullet. And made a billion to boot. They have some decent acreage in Hudspeth County CVX may wind up with when OXY starts selling the crown jewels.
And you can kiss the legacy production and CO2 production goodby. It doesn't fit Vicki's vision for OXY.
Good luck and bless your heart on OXY.
Even though CVX stock is down along with all the other oil and gas stocks, it is looking pretty smart now. CVX got a billion dollars to walk away from Anadarko and let OXY have it. XOM has not been the same since it overpaid for the big gas company (XTO??) several years ago.
11 Mar. 2020
My hat off to STEVEN FIORILLO, for a great story on his comments on Occidental Petroleum, On 03/10/2020. Thank you Steve, helped myself and Family for your thoughts, we are going to keep our shares in Occidental Petroleum.
I would take my hat off but I don't wear one.

aikoaiko profile picture
huh? OXY is a failed stock. I bot at 18 a number of years ago, many nice dividends..let it go at 12.50 yesterday...better fish to fry
11 Mar. 2020
I think when all is said and done with OXY things will work out for everyone, In the market everyday is a risk, Lets pray that everyone that bought OXY will come out ahead.
You better have a talk with MBS, but not in the Turkish Embassy @FSHOBART , if you want everyone to come out ahead in the oil space..
I am truly sorry for the timing of this dividend cut on the coat tails of this Article. It makes the Author (or anybody who has bought OXY prior to the cut) look rather awkward.

Personally, I just bought 4,000 shares of OXY at $12 and I look forward to making this a part of my Portfolio as I did in 2016 with COP. Exact same scenario by Management and what happened to the share price at the time based upon Market conditions, asset purchases, and OPEC. Trump got elected in and the Oil Patch took off. So shall it be with OXY and I look forward to making money on my OXY purchase at $12. Back when I was buying COP in 2016 at $34 and eventually sold at $60 (and traded in and out multiple times), I plan on trading in and out of OXY. This stock can be a personal ATM at $12 purchase price, if a person is willing to watch the share price closely on a daily basis. That is ME, and what I plan on doing with my OXY shares going forward.

Wishing Well To The Author And Shareholders!
I wouldn't be buying OXY or any other stock for that matter and counting on a Trump victory to turn it around.
Can OXY shareholders (of which I am one) wait out Saudi Arabia's latest assault on its oil-producing rivals? I suspect the Saudis have a dual objective: (1) Bring Russia to heel, and (2) bring the U.S. shale industry to ruin. The former will take time, the latter less time. Not a pretty picture going forward.
RickinMiami profile picture
I don't think they can do either since Saudi Arabia's Fiscal spending requires $80 oil to support. Russia requires $42 Oil.

On Monday Russia already had to intervene to prop up the Rubble by selling some of its limited currency reserves.
@RickinMiami You should've checked the spelling ;). But, otoh ... Ruble, rubble, what's the difference? There probably isn't any. :D
Problem is I did catch the falling knife and man it hurts and looks terrible and more important at 90 I am old enough and experienced enough NOT to try.
You are the same age as Warren Buffet. Probably worth a couple of dollars less. @2lazye
17 Mar. 2020
Wishing you all the best ! hope I see 90 ! but no one ever knows. I hope OXY comes back.
BMW7 profile picture
Freight car to hell ... no more oil for me ever ... TERP, AY and BEP
11 Mar. 2020
They cut the dividend. More will follow.
Dividend Pro profile picture
Dividend investors in OXY have now been "Oxy-cleaned" !
The word is oxidized @Dividend Pro .
Dividend Pro profile picture

Obviously you missed the word play on a well-known product called OxiClean. Google it.
Oh @Dividend Pro , that's different then.
11 Mar. 2020
Buffett over paid again. Track record not what it once was.
Oxy is a buy now...and hold. Easy up side of 100%
SURE...Put them ALL in....your chips, now !
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