Occidental Petroleum announced on Thursday that it will sell its chemicals division, OxyChem, to Warren Buffett’s Berkshire Hathaway for $9.7 billion. This divestment represents Occidental’s largest effort to reduce its substantial debt load, which stood at $23.34 billion as of June. The sale comes after a series of costly acquisitions, including the $55 billion purchase of Anadarko Petroleum and a $12 billion acquisition of CrownRock.
Following the announcement, Occidental’s shares fell by more than 6% during morning trading. Analysts from Roth MKM expressed concerns that the sale could negatively impact the company’s free cash flow growth in the coming years, citing OxyChem's anticipated contributions to expansion. Additionally, Scotiabank analyst Paul Cheng noted that the deal’s valuation appeared low compared to his previous estimate of $12 billion for the division.
OxyChem, which produces chemicals utilized in pool treatments and medical supplies, generated revenue of $2.42 billion in the first half of 2023. If the acquisition proceeds as planned, it would mark Berkshire Hathaway’s largest purchase since its $11.6 billion acquisition of insurance firm Alleghany Corporation in 2022 and would enhance its chemical portfolio beyond its existing holdings, such as Lubrizol.
The transaction highlights the longstanding relationship between Occidental and Berkshire Hathaway, as Buffett’s firm has been Occidental's largest shareholder since February 2022. The proceeds from the sale will be directed primarily toward debt reduction, with Occidental planning to allocate $6.5 billion for this purpose. The deal is expected to close in the fourth quarter of this year and reflects Occidental's strategic shift back towards its core oil and gas business, which constituted 75% of its earnings last year.