CNBC’s “Money Movers” team discusses Berkshire Hathaway's decision to buy Occidental Petroleum's petrochemical unit, OxyChem, for $9.7 billion in cash with Leo Mariani, senior research analyst at Roth Capital Partners. The deal marks Berkshire’s largest since 2022.

Berkshire Hathaway has announced a $9.7 billion deal to acquire OxyChem, the chemicals division of Occidental Petroleum. The proceeds from the sale will be used by Occidental to pay down its debt, with the company aiming to reduce its total debt below $15 billion by the time the transaction closes.

This move transitions Occidental into a more focused exploration and production (E&P) company, making its operations more capital intensive over time. The deal comes amid a period of volatile trading for Occidental's stock, influenced by fluctuating oil prices and broader market conditions. Analysts note that the reduction in leverage lowers business risk, prompting a modest increase in Occidental's price target.

What to know about Berkshire's $9.7 billion deal to buy OxyChem

Joining us this morning to break it all down is Roth Capital Partners Senior Research Analyst Leo Mariani. He has a neutral rating and a 46 target on Oxy. Lou, good to have you. Been in the works for, it seems, a while here. We've been learning about it via reports for the past several days. Implications for Oxy and overall concerns about deadload? Yeah, so I think that was one of the key reasons they pulled the trigger on the transaction here is that amongst the larger E&P companies in the sector, it definitely had one of the highest debt levels. The proceeds here from the asset sale are immediately going to go to pay down debt. They have a target out there. They wanted to get debt below $15 billion. This deal does that by the time it closes at the end of the year. So no doubt, I think that was a critical driving factor for the company. However, I would say the implications are that it does make the business a little bit more capital intensive over time, because it turns it into a little bit more of a pure play E&P company. Now they're getting rid of the chemicals business, which means you're going to have to put, you know, kind of more capital into it over time, kind of per unit of growth EBITDA. Right. And so does that explain the price action in a moment where we got WTI at 60 and an OPEC meeting that looks like we're going to get even more production? Yeah. Yeah, look, I think the stock's been caught all over the map this week. E&Ps have had some pretty wonky trading here, you know, week to day. Initially, Oxy was a big out performer on Monday on basically the news was originally reported by the Financial Times. They're going to sell the business unit here. And I think, look, that the terms probably came in a little bit softer when it was officially announced, you know, this morning by Berkshire, you know, and Oxy and then the tax leakage on the deal as well was maybe a little bit higher, you know, as well. So I guess probably causing a little bit more of relative underperformance today because you actually did have some outperformance on the stock earlier in the week. But, you know, look, to your point on oil, it certainly doesn't seem like we're in a great place. Oil prices have been trending south all year. And as you pointed out, the OPEC meeting on Sunday, certainly expectations are for another increase. I certainly expect that. So it certainly looks like we're poised for a bit of an oversupplied market in the near term, really caused by OPEC ramping production every month. But despite the direction of the stock today here, I understand you're raising your price target by 2 percent to $46. That's above where we are right now. Why is that? Yeah, look, I think it's primarily because of the leverage reduction. So prior to doing this, you know, their leverage was around 1.4 times net debt to EBITDA, kind of current oil prices. And that's coming down almost a half a turn to around 0.8-ish times net debt to EBITDA. So I think that does reduce the risk of the business ultimately. So you know, we did bump up our target, you know, a small amount as a result of that.

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