Occidental’s CEO Is a Favorite of Warren Buffett’s. She’s Been a Bust for Investors.

Vicki Hollub has been chief executive officer of Occidental Petroleum since 2016. (Stefan Wermuth/Bloomberg)

Key Points

• Occidental Petroleum’s stock has delivered a negative 20% total return since April 2016, underperforming the Energy Select Sector SPDR’s over 90% return.
• Occidental’s debt-financed acquisitions, including the $55 billion Anadarko deal, have burdened the company with significant debt.
• The recent $9.7 billion sale of its chemicals business to Berkshire Hathaway aims to reduce net debt below $15 billion, but investors reacted negatively.

One of Warren Buffett’s favorite CEOs, Occidental Petroleum’s Vicki Hollub, hasn’t delivered for investors.

Since Hollub, 65, became CEO in April 2016, Occidental stock has been in the bottom 10 stocks among the 50 in the S&P oil and gas exploration and production index.

Over that span, Occidental shares have had a negative 20% total return (including reinvested dividends) as the stock has fallen to $45 from $76. The Energy Select Sector SPDR (dominated by industry leaders Exxon Mobil and Chevron) has returned over 90% since then while Occidental rivals like Diamondback Energy and EOG Resources are up sharply with Diamondback returning over 100%.

Buffett has praised Hollub, calling her an “extraordinary manager” at the Berkshire 2023 annual meeting. Berkshire holds a 26% equity stake in the energy company that it began accumulating in 2022. That interest, now worth around $12 billion, hasn’t been a winner for Berkshire with Barron’s estimating its cost in the low $50s per share.

Hollub gets high marks for her operational skills, reflecting her background as a petroleum engineer. But her financial acumen hasn’t been as strong and that has hurt Occidental.

Occidental didn’t respond to a request for comment.

The company bought Anadarko Petroleum for $55 billion in a largely debt-financed deal and then added Crown Rock, a private oil and gas company, in 2024, in another deal paid for mostly with debt. Exxon Mobil and Chevron also did sizable deals around the same time as Crown Rock and issued stock to pay for them, reducing their financial risk.

Occidental also remains burdened by some $8.5 billion of preferred stock that it sold to Berkshire during the Anadarko takeover battle in 2019 with Chevron. That preferred carries an onerous 8% dividend yield and costs the company over $600 million in annual dividend payments.

Hollub’s aggressive financial strategy has hurt Occidental because it has saddled Occidental with too much debt. That burden almost sunk the company in early 2020 when oil prices collapsed and the stock traded under $10.

And the debt load prompted Occidental last week to sell its chemicals business for $9.7 billion to Berkshire.

The deal will enable Occidental to achieve a key corporate goal of reducing net debt to under $15 billion. It had been targeting 2027 for getting down to $15 billion of net debt prior to the asset sale.

But Occidental will give up an attractive, diversifying asset at a reasonable price at what could be the bottom of the chemicals cycle.

Investors weren’t thrilled with the chemicals deal with Occidental stock falling 7% on the news last week. Citi analyst Scott Gruber wrote that investors were disappointed about the price and the tax consequences with Occidental paying about $1.7 billion in taxes, reducing the net proceeds to $8 billion.

Hollub defended the deal and her strategy in a CNBC interview last Thursday. She said that since she became CEO, the company’s U.S. production has gone from about 50% of Occidental’s total output to over 80% and that its energy resources have nearly doubled to 14 billion barrels.

“The portfolio is best it has ever been,” she said, adding that the company now has “decades” of oil and gas production opportunities.

“The thing we needed to do was improve our balance sheet,” she said. “We’re off and running with value creation.” The company, she said, would resume stock buybacks.

It’s unclear, however, how much stock the company can repurchase. Occidental, like its peers, has been hurt by lower oil prices this year as earnings are expected to fall to about $2.20 a share in 2025 from $3.39 in 2024.

Buffett has always believed in the value of a strong balance sheet, both at Berkshire and in making key equity investments like Apple, Coca-Cola and American Express. He violated that rule with the Occidental equity purchase and is paying the price. So are Occidental’s other shareholders.

Write to Andrew Bary at andrew.bary@barrons.com