Occidental Petroleum (OXY -0.84%) has done an abysmal job creating value for its shareholders over the past decade. While volatile oil prices are partially to blame, the oil giant didn't do itself any favors this year by getting into a bidding war to acquire rival Anadarko Petroleum (APC). That decision alone caused its stock to plunge 20% this year.

That sell-off helped push Occidental's stock down even further over the last decade, so it's now fallen more than 25% during that timeframe. With shares now at a 10-year low, Occidental Petroleum is either in deep value territory...or a value trap. Here's a look at the bull and bear cases for the oil giant.

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The bull case for Occidental Petroleum

Occidental Petroleum spent the past few years focused on reshaping its portfolio and cost structure so that it could thrive at lower oil prices. The oil company sold several higher-cost assets and used the cash to strengthen its balance sheet and bulk up its position in the low-cost Permian Basin.

As a result of these efforts, Occidental only needs oil to average $40 per barrel: That will give it the cash flow to fund enough new wells to maintain its production rate and pay its high-yielding dividend. And it sets the oil company up to prosper at higher oil prices.

The company will soon enhance its low-cost operations by acquiring Anadarko; that will not only bolster its position in the fast-growing Permian Basin, but diversify its asset base in the U.S. by adding two more high-upside shale plays, as well as a strong business in the Gulf of Mexico. In addition to those strategic benefits, the transaction should be highly accretive to earnings and cash flow, driven in part by Occidental's view that it can capture $3.5 billion of future cost savings. That positions the company to grow its earnings at an accelerated rate over the next few years, as long as oil prices cooperate.

The bear case for Occidental Petroleum

While the Anadarko deal makes sense on paper, Occidental paid a high price to win the battle for the company. Chevron (CVX -0.49%) initially agreed to pay nearly a 40% premium for Anadarko. However, Occidental then outbid it by offering $5 billion more. As a result, Anadarko had to pay Chevron $1 billion for breaking its deal. That high price is a big hurdle for Occidental to overcome as it attempts to create value from the acquisition.

On top of that, the company is paying a high cost to finance the deal. To ensure it had funding, Occidental Petroleum reached an agreement with Warren Buffett's Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%) for $10 billion in financing. The preferred stock will pay an 8% annual dividend, well above the 6% rate that analysts thought the company could have gotten in the public market. On top of that, Berkshire will receive warrants to buy up to 80 million shares of Occidental's stock at $62.50 apiece, which implies up to $5 billion in potential future dilution of existing investors.

Occidental also completed a side deal with French oil giant Total (TTE 0.58%), which will take Anadarko's African assets off its hands for $8.8 billion. That's part of $15 billion in assets Occidental intends on selling to help pay for the deal. Given the speed at which it made a deal with Total, Occidental likely isn't getting full value for those assets. Likewise, it might not get that great of a price for the ones it still needs to sell, since the market knows it needs to quickly pay off the debt it's taking on to complete this deal.

That debt will push up the company's leverage ratio from its currently low level of less than 1.0 times its EBITDA (earnings before interest, taxes, depreciation, and amortization) to an elevated 2.4 next year. That much higher leverage could weigh the company's stock down even further if oil prices continue slumping.

Too much risk for the reward

Occidental Petroleum's stock price has been under lots of pressure in recent years due to weaker oil prices. While the company did an excellent job repositioning its business so that it could thrive at lower oil prices, the oil giant has since muddied the waters by making a bold bet to acquire rival Anadarko Petroleum. While that deal could pay off if oil prices stabilize, it could come back to burn the company if they weaken.

That's why I don't think Occidental's stock is a screaming buy right now, even if it is near a 10-year low. While Warren Buffett sees the upside of the Anadarko deal, he made a low-risk bet by investing in preferred shares and asking for warrants instead of buying the stock outright. That speaks volumes. And it's why I think investors are better off watching Occidental for now, and waiting to see if it the Anadarko deal delivers as promised.