Why Oxy is a 'wait and see' stock coming off CrownRock deal

Occidental Petroleum (OXY) acquired oil producer CrownRock for $12 billion in December 2023. Portfolio Wealth Advisors President and CIO Lee Munson joins Yahoo Finance following Julie Hyman's interview with Occidental Petroleum CEO Vicki Hollub at CERAWeek by S&P Global, reacting to Oxy's acquisition and the outlook on Berkshire Hathaway's (BRK-A, BRK-B) investments into the energy giant.

"If the business was strong, if their setup was good, I don't think they'd have to make this acquisition. I would've preferred that Vicki said something like 'we weren't planning on doing this at all, but we got this incredible deal. We couldn't resist the price. the price was why we did it,'" Munson elaborates. "But it comes off like this was always the strategy. And that's, to me, that's a tell that tells me I just want to take a break from the stock for a little while."

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: Joining us now with more on what Occidental Petroleum shareholders may face in 2024. Let's bring in Portfolio Wealth Advisors President and CEO Lee Munson. Lee, it is good to see you here.

So Occidental CEO Vicki Hollub talked about this acquisition of crown Rock, Lee. Hollub saying, listen this was about scale, it was about efficiency, it was about improving inventory. What do you think, Lee, of that acquisition? You believe it was is a smart move to make strategically and financially?

LEE MUNSON: Well, the strategy there makes me shake my head a little bit. When you look at the timing of early December when they made this acquisition, just 30 to 32 days prior when they had quarterly reports. Management said that they weren't looking for any acquisitions that the Anadarko was fine, and that they had two billion of synergies.

And so it's funny that 30 days later, they bust out and say, oh, we're going to have to stop buybacks. We're now a dividend growth story. We just paid billions and billions of dollars for this new company.

And the narrative is fine. They want to do what they've done the Permian. I get that. But I kind of wonder if why is it that they said they weren't going to do it and now they are.

Secondly, all this direct air capture and the carbon capture stuff, she's not able to answer the question of when it's going to be profitable. There's this thing in aviation. It's called Corsica.

And it's going to be in 2027 where they're going to be buying carbon offsets and stuff. This is just a couple of years away. So I think the fact that we were on schedule having 60% of a $3 billion buyback get done, shareholders were told, hey, listen, we're going to be buying back. We're going to be paying down debt. We're not going to do any other acquisitions.

In fact, we're going to look in the Permian Basin to sell some gas properties that aren't really key to what we want to do to fund buybacks. And now, that's just off the table 30 days after they said that was the plan a few months ago. So for me, this stock is a real wait and see.

I understand that the CEO thinks it's very undervalued. And it may remain undervalued. I'd rather wait to see what happens with the price of oil. We presume that it's just going to be here or go higher.

I'd rather see the price of oil decline. If we're going to have a slowing growth this year, I want to see what the effects are. So right now, I'm out of the stock right now. I love to watch it. I think Vicki's a great CEO. But it's a wait and see.

MADISON MILLS: Well, it's interesting because I hear you really honing in on this change after 30 days. And that's something that you can get a lot of clarity on when you get the opportunity to speak with a leader. What was the change in thinking? Was there anything from her comments that you just heard that gave you a little more clarity on that shift in movement?

LEE MUNSON: Yeah. I mean, I understand what they're trying to do now. They're trying to increase the reserves. What they're trying to do is-- here's what they're trying to do.

They're trying to acquire stuff that they can finance with some debt and immediately say we can improve shareholder value by increasing dividends. That's not what I want to hear. I understand what she's saying.

I think it sounds like a good strategy. But that's not why I own the stock. And that's not what I think is going to make things good move forward.

If the business was strong, if their setup was good, I don't think they would have to make this acquisition. I would have preferred that Vicki said something like we weren't planning on doing this at all. But we got this incredible deal.

We couldn't resist the price. The price was what did it. But it comes off like this was always the strategy. And to me, that's a tell that tells me I just want to take a break from the stock for a little while.

JOSH LIPTON: Hey, I'll get you out here on this. What about the fact that you got Warren Buffett carving out a stake in this one? The Oracle himself, Lee, greatest value investor of all time. How does that, if at all, play into your assessment of this company?

LEE MUNSON: Oh, it was one of the main reasons why I identified the stock, was one of the main reasons why I bought it. Last year, I think I might have bought some in '22, '23, I forgot exactly the day I first started purchasing it. But you know. Warren Buffett's a great idea generator.

And I think that there was the thought over a year ago that he represented a floor on the price. But the problem is that the stock isn't moving. It's not making much money.

They've suddenly changed directions. Of course, it all sounds very good. But I don't see the energy.

And so, you know, Warren Buffett is a very, very long term investor. Again, I would rather wait for the price of the stock to start moving up. I'd rather like to see when the share buybacks start coming back.

I'd like to see how much money we're wasting on direct air, capture, and to see if that's even something that's going to grow and move the needle. If not, it's just wasting my time I would rather have a more pure play. So at this point, I understand why Buffett was interested. Today, I'm on my own. And that has less bearing.