This top Warren Buffett stock delivers impressive results

Occidental Petroleum (OXY -0.20%) recently reported impressive second quarter results. The oil company posted robust oil and gas production during the period and earnings that beat expectations in its midstream and marketing segments. Also reported strong earnings and cash flow.

The oil stocks robust results must be music to Warren Buffett’s ears. That The main shareholder of Occidentalbuffett’s company, Berkshire Hathawayparticipate in Occidental’s success, which looks set to continue.

Looking at Occidental Petroleum’s second quarter results

Occidental Petroleum produced an average of nearly 1.3 million barrels of oil equivalent per day (BOE/d) in the second trimester. This exceeded the midpoint of its guidance by 6,000 BOE/d.

Better-than-expected production in the Permian Basin and Gulf of Mexico helped fuel the guidance numbers. That strong production and higher oil prices (up 5% on average from the first quarter) helped Occidental post robust earnings in its oil and gas segment ($1.6 billion compared to $1.2 billion in first trimester).

The energy company also reported better-than-expected earnings in its midstream and marketing segment, which beat guidance by more than $180 million. The company benefited from its investment in master limited partnership (MLP) Western Midstream Partnerswhich contributed $163 million to revenue.

Meanwhile, revenue at the company’s OxyChem unit rose to $296 million as its chemicals business benefited from higher prices and volumes.

“The strength of our operating performance led to impressive financial results for the second quarter of 2024,” CEO Vicki Hollub commented in the earnings press release. The diversified energy company produced $3 billion in cash flow and approximately $1.3 billion in free cash flow during the period. Occidental Petroleum use its strong free cash flow to pay its growing dividend and strengthen its balance sheet.

Even better days seem lie before

Occidental Petroleum’s strong momentum should continue. The company completed its acquisition of CrownRock earlier this month. The $12 billion deal will significantly improve its leading position in the Permian Basin, adding 170,000 BOE/d of high-margin production. The company expects CrownRock to add $1 billion to its free cash flow in its first year of ownership, assuming oil averages around $70 a barrel (it was recently above $75).

In the short term, the company will focus on usage that free cash flow and asset sales to repay some of the debt used to close the acquisition. (Occidental issued $9.1 billion in new debt while assuming $1.2 billion of CrownRock’s existing debt.) The company aims to sell $4.5 billion in assets for up to $6 billion of dollars over the next few years to meet its goal of repaying at least $4.5 billion in debt over the next 12 months.

Occidental has a vision to repay $2.3 billion in debt by the end of August. Recent agreed to sell $970 million of non-core assets to start their debt reduction plan.

The company had a deal to sell a stake in CrownRock to an existing joint venture partner, but it fell through. Because of this, it will need to sell other assets to meet its divestiture target.

CrownRock is not the only catalyst for the oil company. Occidental is investing heavily in expanding OxyChem, which should deliver significant earnings growth in the coming years. Meanwhile, it expects continued improvements in its midstream segment, including cash distributions from its investments in Western Midstream.

In addition, debt repayment should reduce its interest costs. Finally, Occidental Petroleum is building outside a business with low-carbon solutions, incl carbon capture and sequestration projects. The company estimates that these factors will add more than $1 billion of incremental annual free cash flow through the second half of 2026. These sources will provide a more consistent cash flow, helping to reduce the overall volatility of its earnings profile .

With all these catalysts in mind, it’s easy to see why Warren Buffett is buying Occidental stock out of hand. In June, it went on another buying spree, buying 7.3 million shares in nine trading days. Berkshire owns more than 255 million shares, 28.8% of Occidental’s outstanding shares. At nearly $15 billion, it is Berkshire’s sixth-largest holding, accounting for 4.9 percent of its investment portfolio. Occidental’s growing cash flow should help increase value for shareholders like Buffett’s Berkshire.

A top oil stock

Occidental Petroleum is firing on all cylinders these days. It posted strong results in the second quarter, fueled by its diversified portfolio of energy businesses. Meanwhile, even better days are coming to be going forward, given the near-term boost it will get from CrownRock and the growth in its non-oil cash flows. These factors make Occidental look like a compelling energy stock to buy for the long term, which it is exact What Warren Buffett did it.