The math you laid out on those 29.56M shares issued at $59.38 is compeling. Buying those back at $42 would be an instant $514M gain for shareholders. With 10% FCF yield and a delevered balance sheet, there's realy no excuse for OXY to be this passive on buybacks. The market is basically beging them to shrink the share count aggresively while the stock is this cheap.
Part of it could be waiting for Q4 cash flows to then turn around and repurchase those shares, so we'll see. Looks like they paid off nearly $1.4B in debt in Q3 (term loan and a 2025 maturity) so cash was soaked up in Q3. Not sure why they didn't buy back the shares in Q3 instead of reducing the term loan, but could be a timing thing for when the Berkshire OXYChem deal finally came together. Still now would be an opportune time to do so. Thanks for the comment.
Absolutely agree that Hollub should understand shareholders' sensitivities, and have been more direct in speaking about capital returns.
Just speculation--do you suppose the current commodity pricing weakness put her into cautious mode and that, should pricing recover past $70++, that Hollub/management will aggressively buy back shares?
I think that's a fair assessment. In a higher oil environment they can certainly do both (save for the preferred redemption and perform stock buybacks), and if you look at their 2022/23 practice they've done that before, so it's a good indicator of how they think in a higher oil enviro. Having said that, I don't think it would've been a stretch to announce something, particularly since shareholders were already looking at the next step. You're happy to provide details about next year's capex budget, but not next year's capital allocation? It's all one and the same, it's capital decision-making. You could argue that the BoD probably haven't approved a plan yet, but mgmt does present that for approval, so really this lies with mgmt. Now we'll be pleasantly surprised if they didn't announce anything in Q3 because they didn't want to spike the shares before starting buybacks in Q4 (i.e., as Q4 cash flows can be used for that), but not entirely confident that was the 2nd level thinking here. Really it was "one step at a time," first close the OXYChem then "opportunistic share buyback," but again, the biggest knock on this company is mgmt.'s ability to allocate capital. Operationally execute? They're excellent, but after 2 acquisitions that were untimely (whether their fault or not), patient capital wears thin.
It's important to bear in mind that Hollub is an engineer, and not PR master.
Shareholders are restless, and understandably so.
However, I've inherently a long term type of mindset/character, and can appreciate the strategic positioning that Hollub is spearheading.
Once this period of (unsustainably) low commodity prices are behind us, OXY's results will shine and all past sins will be forgiven/forgotten.
CO2 EOR will boost OXY's reserve values/life..........good not only for shareholders, but for the nation in strategic sense (reduced dependency on foreign imports of dirtier & more expensive oil).
Too, when oil prices rise--reduces OxyChem (and other petrochem firms) margins, especially if there's also economic weakness that kills demands for petrochemicals---no?
Agree with you, she's an excellent operator so no quibbles there. While I don't disagree with her strategy to pivot, the capital costs to get there have been costly (preferred shares to Berkshire that hamstring return of capital, OXYChem sale, CR acquisition). 2022 oil prices were exceedingly high and you saw the Anadarko acquisition finally pay dividends, just want to be cognizant that if we're expecting oil prices to bounce here, then we need to see a redux of that in the near future, or at least a real concerted and aggressive effort to begin that pivot soon. Building up cash to redeem preferred nearly 4 years away won't excite anyone, so we've repositioned the company that supposedly earns great returns operationally, but it never translates to capital returns, that would be very problematic. Again, this isn't in any way a denigration of the mgmt team, but these are valid criticisms/concerns, and they should be addressed. As for OXYChem sale, the sector is most definitely in the doldrums, and it's cyclical, so she could be right (that it makes sense to sell now and de-lever, kick-starting capital return). Okay that's fine, but then it leads you right back to . . . where's the message on that and why was it not clearer. Think this company can do very well, but they really have their work cut out for them.
The math you laid out on those 29.56M shares issued at $59.38 is compeling. Buying those back at $42 would be an instant $514M gain for shareholders. With 10% FCF yield and a delevered balance sheet, there's realy no excuse for OXY to be this passive on buybacks. The market is basically beging them to shrink the share count aggresively while the stock is this cheap.
Part of it could be waiting for Q4 cash flows to then turn around and repurchase those shares, so we'll see. Looks like they paid off nearly $1.4B in debt in Q3 (term loan and a 2025 maturity) so cash was soaked up in Q3. Not sure why they didn't buy back the shares in Q3 instead of reducing the term loan, but could be a timing thing for when the Berkshire OXYChem deal finally came together. Still now would be an opportune time to do so. Thanks for the comment.
Thanks for your write up.
Absolutely agree that Hollub should understand shareholders' sensitivities, and have been more direct in speaking about capital returns.
Just speculation--do you suppose the current commodity pricing weakness put her into cautious mode and that, should pricing recover past $70++, that Hollub/management will aggressively buy back shares?
I think that's a fair assessment. In a higher oil environment they can certainly do both (save for the preferred redemption and perform stock buybacks), and if you look at their 2022/23 practice they've done that before, so it's a good indicator of how they think in a higher oil enviro. Having said that, I don't think it would've been a stretch to announce something, particularly since shareholders were already looking at the next step. You're happy to provide details about next year's capex budget, but not next year's capital allocation? It's all one and the same, it's capital decision-making. You could argue that the BoD probably haven't approved a plan yet, but mgmt does present that for approval, so really this lies with mgmt. Now we'll be pleasantly surprised if they didn't announce anything in Q3 because they didn't want to spike the shares before starting buybacks in Q4 (i.e., as Q4 cash flows can be used for that), but not entirely confident that was the 2nd level thinking here. Really it was "one step at a time," first close the OXYChem then "opportunistic share buyback," but again, the biggest knock on this company is mgmt.'s ability to allocate capital. Operationally execute? They're excellent, but after 2 acquisitions that were untimely (whether their fault or not), patient capital wears thin.
It's important to bear in mind that Hollub is an engineer, and not PR master.
Shareholders are restless, and understandably so.
However, I've inherently a long term type of mindset/character, and can appreciate the strategic positioning that Hollub is spearheading.
Once this period of (unsustainably) low commodity prices are behind us, OXY's results will shine and all past sins will be forgiven/forgotten.
CO2 EOR will boost OXY's reserve values/life..........good not only for shareholders, but for the nation in strategic sense (reduced dependency on foreign imports of dirtier & more expensive oil).
Too, when oil prices rise--reduces OxyChem (and other petrochem firms) margins, especially if there's also economic weakness that kills demands for petrochemicals---no?
Agree with you, she's an excellent operator so no quibbles there. While I don't disagree with her strategy to pivot, the capital costs to get there have been costly (preferred shares to Berkshire that hamstring return of capital, OXYChem sale, CR acquisition). 2022 oil prices were exceedingly high and you saw the Anadarko acquisition finally pay dividends, just want to be cognizant that if we're expecting oil prices to bounce here, then we need to see a redux of that in the near future, or at least a real concerted and aggressive effort to begin that pivot soon. Building up cash to redeem preferred nearly 4 years away won't excite anyone, so we've repositioned the company that supposedly earns great returns operationally, but it never translates to capital returns, that would be very problematic. Again, this isn't in any way a denigration of the mgmt team, but these are valid criticisms/concerns, and they should be addressed. As for OXYChem sale, the sector is most definitely in the doldrums, and it's cyclical, so she could be right (that it makes sense to sell now and de-lever, kick-starting capital return). Okay that's fine, but then it leads you right back to . . . where's the message on that and why was it not clearer. Think this company can do very well, but they really have their work cut out for them.
BTW—-the 2029 timeframe for retiring the preferred shares based on current commodity prices.
Could be sooner, depending on oil prices—yes?