When evaluating energy stocks, we look for companies with assets that are on the low end of the global cost curve, management teams that have deployed capital prudently through the cycle, and low-to- reasonable valuations. We continue to find long -term opportunities in selected upstream and oilfield services companies with these characteristics. On a bottom-up basis, we recently added to the portfolio’s energy holdings, notably Occidental Petroleum (NYSE:OXY) following its agreement to acquire Anadarko Petroleum, which is also held in the Fund.
In June, one of our global industry analysts met with Occidental’s management team at their headquarters in Houston, Texas to conduct due diligence on the company’s pending acquisition. While there are concerns about integration risk and the high cost of financing, we believe Occidental’s risk-reward profile is compelling due to its attractive valuation, strong operational capabilities, and diversified, free-cash-flow generative upstream portfolio that is supplemented by its midstream and chemicals businesses. From our previous research on Anadarko, we know that Anadarko’s asset portfolio has been meaningfully streamlined in recent years and the remaining assets are world class with large reserves and low break-even oil prices. In addition, Occidental aims to achieve $2 billion in cost synergies, and we believe there is a high probability these savings will be realized long term. On June 30, Occidental and Anadarko were 2.0% and 0.9% positions, respectively, in the Fund.
From Dodge & Cox Global Fund's second-quarter 2019 shareholder letter.
