Challenges in Occidental Petroleum Acquisition

Occidental Petroleum (OXY) experienced a significant drop in its stock value following Chevron's announcement that it would acquire Hess. As one of the major oil and gas companies in the United States, Occidental Petroleum saw its shares decline by 3.5% to $62.88, while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) also decreased by 1% to $148.58.

Chevron was initially considered a potential buyer for Occidental Petroleum due to the companies' strong presence in the Permian basin. However, Chevron confirmed that it already has substantial exposure to the region and will not pursue the acquisition.

Notably, Chevron had previously attempted to acquire Anadarko Petroleum in 2019, but Occidental outbid them with the assistance of Berkshire Hathaway. Berkshire Hathaway provided Occidental with $10 billion of 8% preferred financing for the deal. This history of competition between Chevron and Occidental may make it unlikely for Chevron to seek the acquisition of Occidental.

The two largest energy companies in the United States, Exxon Mobil (XOM) and Chevron, have recently completed major deals worth approximately $60 billion with independent energy companies. As a result, it is unlikely that they will pursue another acquisition, particularly of a company like Occidental with a market value of $55 billion.

ConocoPhillips (COP), the third-largest energy company in the United States, has a market value significantly lower than that of Chevron, at $150 billion. Acquiring Occidental would be a substantial undertaking for ConocoPhillips.

On the other hand, major European energy companies such as Shell (SHEL), BP (BP), and TotalEnergies (TTE) face significant pressure from climate activists who oppose further expansion in the oil and gas sector. These European companies have been divesting their U.S. assets in recent years, and the pressure from climate activists is notably stronger in Europe compared to the United States. Consequently, a major U.S. acquisition from these European majors seems unlikely.

Berkshire Hathaway currently owns a 25% stake in Occidental Petroleum, leading to speculation that it may consider acquiring the entire company. However, Warren Buffett, CEO of Berkshire Hathaway, clarified during the company's annual meeting in May that they do not intend to take control of Occidental.

This implies that Occidental may have to navigate its future independently. Nevertheless, the company possesses a robust asset base primarily concentrated in the United States and holds a prominent position in the emerging carbon capture industry. In addition, Warren Buffett expressed his admiration for Occidental CEO Vicki Hollub during the annual meeting, referring to her as an extraordinary manager.