Occidental Petroleum (OXY +5.22%) is a popular oil stock. That's due in part because Warren Buffett's company, Berkshire Hathaway, owns a sizable stake. The conglomerate owns nearly 265 million shares (27% of its outstanding shares) worth $10.5 billion (its seventh-largest position at 3.4% of its investment portfolio).
While Occidental Petroleum is a great company, I think investors should take a closer look at ConocoPhillips (COP +2.76%). Here's why.
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Held back by debt
Occidental Petroleum is a leading international energy company. It produces oil and gas in the U.S., the Middle East, and North Africa. It also has midstream and marketing assets, a chemicals business (OxyChem), and a lower-carbon energy platform. The company has significantly expanded its operations in recent years by making a couple of notable acquisitions (Anadarko Petroleum in 2019 and CrownRock in 2024). These deals have saddled it with a substantial amount of debt, which Occidental has been repaying with free cash flow and the sale of non-core assets. That debt has weighed on its balance sheet and ability to grow shareholder value in recent years.
The oil company recently made a major move to repay debt by agreeing to sell OxyChem to Berkshire Hathaway for $9.7 billion in cash. The deal will enable Occidental to achieve its target of reducing its principal debt balance below $15 billion. That will free the company up to focus on creating shareholder value by developing the large inventory of drilling locations it has built up over the years.
NYSE: OXY
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A visible plan to grow its free cash flow
While Occidental Petroleum believes the sale of OxyChem will put the company in a stronger position to grow shareholder value in the future, it doesn't have a firm action plan. ConocoPhillips, on the other hand, has a very visible growth strategy.
The company has also invested heavily to expand its operations in recent years through a series of acquisitions, including Concho Resources in 2020 and Marathon Oil last year. However, it funded most of its acquisitions with equity instead of debt. As a result, it has a fortress balance sheet.
NYSE: COP
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That has given it the financial flexibility to invest heavily in growing its operations. ConocoPhillips is investing $3.4 billion across three liquified natural gas (LNG) projects in the U.S. and Qatar and $8.5 billion to $9 billion on the Willow oil project in Alaska. The company estimates that these investments will deliver an incremental $6 billion of annual free cash flow by 2029 when Willow is online (assuming oil averages $60 a barrel, which is near the current price point). That's a meaningful increase for a company that produced $6.1 billion of free cash flow through the third quarter of this year. This growing cash flow will enable the company to deliver dividend growth within the top 25% of companies in the S&P 500, while also repurchasing shares each year.
In a better position to grow shareholder value
Whereas Occidental Petroleum's plan is a bit vague, ConocoPhillips has a clear strategy to grow shareholder value. It's investing heavily in projects that will produce significant incremental free cash flow in the coming years. This will enable the company to continue growing its dividend and repurchasing shares, which could provide it with the fuel to produce robust total returns.
