By coinnews 
00:00 Speaker A
Occidental Petroleum topping first quarter profit expectations boosted by strong output and natural gas prices. Meantime ConocoPhillips also topping first quarter earnings estimates. As both oil and gas producers announce cuts to full year capital expenditures. During this, now we’ve got Fernando Valey, he is the hedge eye risk management’s energy analyst. Thank you for joining us this morning, Fernando. Talk to me about the through line between these two names. It seems both of them could be beneficiaries of commodity prices right now.
00:47 Fernando Valey
Yeah, absolutely. I think the big difference is Conoco’s overall exposure is more diversified. They have uh more assets outside of the US, more low decline assets like oil sands and LNG. Uh although they’ve increased their exposure to US shale with their acquisition of methane oil. This is the first quarter uh that that acquisition was under control for for Conoco, whereas Oxy, especially after the Anadarko deal has become much more of a US shale producer. Um the big difference to us though, it’s not just that higher corporate decline for Oxy, but it’s also the net debt. The net debt for Oxy is significantly higher. Uh and we are still in a scenario where we think oil prices are going to face headwinds. And as you mentioned, they did really well in the first quarter because natural gas prices went higher. Uh but when we look forward, that’s come down uh significantly in the second quarter, seasonality is hitting. Uh and so we think that it’s really time for some of these oil companies, not just to take down capex as they they’ve done, but to really focus on debt reduction.
03:05 Speaker A
You know, something that’s also interesting from Occidental’s perspective, Fernando, they essentially slimmed their midpoint for capex in 2025. I believe they brought that down by about $200 million. and then additionally some of the guidance on the domestic operating costs, that came down $150 million. I mean, is what is the significance of that considering how these oil companies and how the broader industry are prioritizing those capital expenditure efforts to really unlock the next legs of their business for 15, 10, maybe even 20 years.
04:26 Fernando Valey
Yeah, it’s it’s it’s a good question and one where we have less clarity on how that will factor in 15, 20 years. Because as you mentioned, $200 million cut for for Oxy, uh while Diamondback, which is about half their size is cut by $400 million. So yes, they’ve cut some. Uh but some of this could also be front loading of capex. You have more capex in the beginning of the year. Uh with WTI still under 60, um they should probably have been cutting even even uh sharper. You’d also consider that uh part of the reason you didn’t decrease as much is because tariffs are having a huge impact on steel and uh the casing that goes into the wells. So that’s increased about 15 to 20% depending on the uh type of well that you’re drilling. Uh which has a significant impact. Uh casing’s about 30, 35% of the cost of the well. So it’s very significant on the the overall cost. So they’ve cut down by $200 million, but the activity is probably down even sharper because of those tariff impacts.
06:54 Speaker A
And Fernando, I’m I’m wondering how you’re thinking about Warren Buffett’s retirement and the potential impact that could have on a company like Occidental, Berkshire having a 28% stake in the company. Is that a bullish or bearish signal for Oxy?
07:30 Fernando Valey
I think it’s uh it’s probably slightly bullish. Uh his successor uh ran Berkshire energy. Uh so he’s very intimate with uh with energy, not just oil and gas, but energy more broadly. Uh I’ll say that the Occidental deal that Berkshire got was very attractive. They got uh not just preferred but warrants as well. uh because Oxy was desperate to close the Anadarko deal uh and they needed to do so without a shareholders’ vote. Uh and so they they gave them a great, great deal at the time, which again goes into that capital discipline. It’s probably why we’d prefer Conoco over Oxy. They’ve proven themselves to be the disciplined player. We call them the poster child of capital discipline. uh because of not just their acquisitions, but also how slow they’ve been to develop some of their shale assets, a lot more pragmatic and a lot more focused on the overall returns.