Occidental Petroleum (OXY -0.20%) recently reported impressive second quarter results. The oil company reported robust oil and gas production during the period and exceeded expectations in the midstream and marketing segments. It also reported strong Income and cash flow.

The Oil stocks Robust results must be music to Warren Buffett’s ears. Occidental’s largest shareholderBuffett’s company, Berkshire-Hathawayhas contributed to Occidental’s success, which is expected to continue.

A look 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 quarter. This exceeded the forecast midpoint by 6,000 BOE/d.

Better-than-expected production in the Permian Basin and Gulf of Mexico contributed to this better-than-forecast result. This strong production and higher realized oil prices (5% higher on average than in the first quarter) helped Occidental deliver solid results in its Oil & Gas segment ($1.6 billion versus $1.2 billion in the first quarter).

The energy company also reported better-than-expected earnings in the midstream and marketing segment, which exceeded the forecast by over $180 million. The company benefited from its investment in Master Limited Partnership (MLP) Western Midstream Partnerswhich contributed $163 million to sales.

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

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

Even better days seem lie in advance

Occidental Petroleum’s strong momentum is expected to continue. The company completed its landmark acquisition of CrownRock earlier this month. The $12 billion deal will significantly strengthen its top position in the Permian Basin and increase high-margin production by 170,000 BOE/d. ​​The company expects CrownRock to increase its free cash flow by $1 billion in the first year of its acquisition, assuming oil prices average around $70 per barrel (recently it was above $75).

In the short term, the company will focus on the use This free cash flow and asset disposal was used to pay down some of the debt taken on to make the acquisition. (Occidental took on $9.1 billion of new debt and assumed $1.2 billion of CrownRock’s existing debt.) The company intends to sell between $4.5 billion and $6 billion of assets over the next few years to meet its goal of paying down at least $4.5 billion of debt over the next 12 months.

Occidental has the prospect of paying off $2.3 billion in debt by the end of August. Recently agreed to sell non-core assets valued at $970 million to boost its 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, the company needs to sell more assets to meet its divestment goal.

CrownRock is not the only catalyst for the oil company. Occidental is investing heavily in the expansion of OxyChem, which should lead to significant earnings growth in the coming years. At the same time, the company expects further improvements in its midstream segment, including cash distributions from its investment in Western Midstream.

In addition, the repayment of debt should reduce interest costs. After all, Occidental Petroleum is building out of a low-carbon solutions company, including Carbon capture and storage projects. The Company estimates that these factors will generate over $1 billion in additional annual free cash flow by the second half of 2026. These sources will provide more stable cash flow and help reduce the overall volatility of the earnings profile.

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

A first-class oil share

Occidental Petroleum is currently on a roll. The company reported strong second-quarter results driven by its diversified portfolio of energy companies, and even better days are on the horizon. to be given the near-term boost from CrownRock and the growth in non-oil cash flows. These factors make Occidental an attractive energy stock to buy for the long term. Is Exactly What Warren Buffett did the following: