Occidental Petroleum (OXY) , a traditionally conservative deal maker, has joined the rest of the U.S. oil and gas industry in bolstering its operations in West Texas' lucrative Permian Basin ahead of a commodity upturn that many hope is on the horizon.
The Houston based oil and gas explorer and producer, which has substantial assets in the Delaware Basin, a sub-basin of the Permian, said Monday, Oct. 31, after the markets closed that it will acquire a package of assets in the Permian through two separate transactions worth a total of $2 billion.
But the deal has company followers and investors questioning whether or not Occidental may need to put some assets on the block in the near future to better swallow this pricey Permian pill.
"Although we do not believe the market will frown upon the idea behind the investment, the costs for the resources seem high at first glance," wrote Jim Cramer and Jack Mohr, co-managers of the Action Alerts PLUS portfolio, which owns Occidental. "OXY has always boasted the most pristine balance sheet among its peers, but a transaction of this magnitude does raise questions as to where the balance sheet will sit moving forward and whether the company has plans to announce any additional non-core asset sales to support the purchase."
OXY shares were trading down about 4.7%, however, around 1 p.m. Tuesday, as the company posted earnings results that morning that were short of analysts' expectations.
The company posted an adjusted loss of 15 cents per share on $2.73 billion in sales, versus the Street's expected 12 cents per share loss on $2.65 billion in revenues.