Occidental's $9.7B Berkshire Deal: What the Numbers Actually Mean for Investors

Occidental’s $9.7 Billion Paradox: Why Selling to Buffett Tanked the Stock

On paper, the transaction looked like a masterstroke. Occidental Petroleum, saddled with debt from prior acquisitions, announces the sale of its chemical division, OxyChem, to none other than Berkshire Hathaway. The price tag: $9.7 billion in cash. The stated purpose: a $6.5 billion deleveraging event to fortify the balance sheet. The retail sentiment on platforms like Stocktwits surged into “extremely bullish” territory, as reflected in headlines like OXY Stock Rises As Warren Buffett’s Berkshire Hathaway Reaches Deal To Acquire OxyChem For $9.7 Billion. A deal with the Oracle of Omaha himself—what could possibly go wrong?

The market’s answer was swift and brutal. After the ink was dry, Occidental’s stock (NYSE:OXY) didn’t soar. It plunged. In fact, Shares Slides 7.3% to $44.23 After $9.7B OxyChem Sale to Berkshire, erasing nearly $3.5 billion of market capitalization in a single trading session. This is the kind of discrepancy that demands a closer look. It’s a classic case of a corporate narrative clashing with the cold, hard calculus of institutional investors. The press release sold a story of financial prudence and strategic focus. The market, however, read a very different story between the lines—one of increased risk and diminished stability.

The Anatomy of a Mismatched Reaction

To understand the sell-off, we have to dissect what Occidental gave up. OxyChem wasn’t just another division; it was the company’s anchor in a storm. Over the last twelve months, it generated roughly $5 billion in revenue. But more importantly, its earnings are not directly correlated with the wild price swings of WTI or Brent crude. It produces foundational chemicals used for everything from water disinfection to battery recycling—industries with inelastic demand. OxyChem was the portfolio hedge, the non-correlated asset that provided a steady stream of cash flow, buffering the company’s P&L during the inevitable downturns in the energy cycle.

Selling it is like a sailor jettisoning the ship's keel to lighten the load. The vessel might sit higher in the water and feel faster in calm seas, but it’s now dangerously exposed when the weather turns. Occidental’s management presented the deal as a pivot to a "pure play" exploration and production (E&P) company. They will use the proceeds to reduce their principal debt to below $15 billion (a long-standing target post-CrownRock acquisition) and restart share repurchases. This is the textbook move to please shareholders.

But sophisticated investors aren’t just looking at the debt-to-equity ratio, which stood at a heavy 0.84. To be more exact, some filings put it at 66.8% before the sale. They are modeling future cash flows. And by selling OxyChem, Occidental has voluntarily stripped out its most predictable and stable cash-generating engine. The result? The company's future earnings are now almost entirely yoked to the price of oil. The business is simpler, yes, but it’s also significantly more volatile. The market didn't panic; it simply repriced OXY for this new, higher-risk reality.

Deconstructing the Value Proposition

Let’s look at the numbers behind the sentiment. Wall Street analysts, despite the Buffett halo, remain deeply divided. Of the analysts covering the stock, seventeen rate it a “Hold,” versus only four with a “Buy” rating. That is not a roaring vote of confidence. The consensus price target sits around $51, but the range is enormous, from a low of $40 to a high of $65. Such a wide dispersion signals profound uncertainty about the company’s future earnings power.

And this is the part of the analysis that I find genuinely puzzling from a strategic standpoint. Management celebrated the debt reduction, which will save an estimated $350 million in annual interest costs. That’s a tangible benefit. But what is the cost? The loss of OxyChem’s earnings will create a hole in the income statement that higher oil prices will need to fill. Analysts project OXY’s 2025 EPS will fall to $2.36, a steep -31.7% decline from the prior year. That’s a massive headwind.

The most telling data point, however, comes from the derivatives market and short sellers. As of mid-September, short interest in OXY had surged to 36.9 million shares, or 5.83% of the public float. This isn’t retail speculation; this is hedge funds and institutional desks placing significant capital behind the thesis that the stock is overvalued after this strategic shift. They are betting that the loss of diversification outweighs the benefit of a cleaner balance sheet. While retail traders on Stocktwits were celebrating the Buffett association, the so-called "smart money" was quietly building a position against the company.

The transaction leaves Occidental as a purer, but far more vulnerable, energy producer. Its fortunes will now swing dramatically with geopolitical events in the Middle East, OPEC+ production decisions, and global economic demand—factors entirely outside its control. The company traded predictability for potential. In a bull market for oil, this leverage could pay off handsomely. But in a flat or declining price environment, the absence of OxyChem’s steady cash will be painfully obvious. Warren Buffett, meanwhile, did what he does best: he acquired a durable, cash-producing business with a wide moat at a fair price, effectively buying the most stable part of Occidental and leaving the rest to ride the waves of the commodity markets.

The Market Priced in the Risk

Let's be clear: the 7.3% drop wasn't irrational. It was a cold, logical reassessment of Occidental’s intrinsic value. The market looked past the headline of a multi-billion-dollar deal with a legendary investor and focused on the fundamental change to the business model. It concluded that a less-diversified Occidental is a riskier Occidental. The company improved its balance sheet, but it weakened its business. Warren Buffett walked away with a prize asset, and OXY shareholders were left with a more speculative, commodity-dependent enterprise. The market simply adjusted the price tag accordingly.