Executive Summary / Key Takeaways

• Occidental Petroleum is executing a multi-faceted strategy centered on strengthening its balance sheet through aggressive debt reduction, leveraging its high-quality, short-cycle U.S. onshore assets, and diversifying future cash flow via its chemical and low-carbon ventures segments.
• Recent performance, particularly in Q1 2025, demonstrates operational efficiency gains in the Permian, outperformance in the midstream segment, and progress on debt reduction, including retiring all 2025 maturities ahead of schedule.
• The CrownRock acquisition significantly enhances OXY's Permian footprint and is expected to drive mid-single-digit production growth from those assets in 2025, contributing to overall portfolio resilience and efficiency gains.
• Strategic investments in the OxyChem Battleground expansion and the STRATOS Direct Air Capture (DAC) facility are progressing, expected to provide substantial incremental pre-tax free cash flow from non-oil and gas sources starting in 2026, offering diversification beyond commodity price volatility.
• While exposed to commodity price volatility and environmental liabilities, OXY's focus on cost management, portfolio flexibility, and advancing pioneering carbon management technologies positions it to preserve value and potentially unlock long-term growth opportunities.

A Century of Evolution: Forging a Resilient Energy Portfolio

Occidental Petroleum Corporation, a company with a century-long history in the energy and chemical sectors, operates through three core segments: Oil and Gas, Chemical (OxyChem), and Midstream and Marketing. Over the past decade, OXY has undergone a significant strategic transformation, shifting its production mix to be predominantly U.S. onshore focused, particularly expanding its footprint in high-return shale resources. This pivot, marked by key acquisitions like Anadarko and more recently CrownRock, has reshaped its portfolio and positioned it as a major player in the U.S. energy landscape.

The company's overarching strategy is built on a unique value proposition that balances maintaining its production base, delivering a sustainable dividend, prioritizing debt reduction, enhancing its asset base through targeted investments, and advancing technologies for a lower-carbon future. This approach aims to deliver strong results across commodity cycles, leveraging the inherent flexibility of its short-cycle U.S. onshore assets while building long-term resilience through diversified cash flows.

In the competitive landscape, OXY operates alongside major integrated oil companies and large independent E&P firms like Apa Corporation (APA), Devon Energy Corp (DVN), and Eog Resources Inc (EOG). While OXY boasts scale and diversification across its three segments, offering a broader value chain than pure-play E&P competitors, it faces challenges in matching the profitability margins and operational efficiencies demonstrated by some peers. For instance, OXY's TTM Net Profit Margin of 11.27% trails behind DVN's 18% and EOG's 27%. However, OXY's integrated midstream and marketing capabilities provide a competitive advantage in ensuring flow assurance and optimizing product value, potentially yielding better margins in specific markets. Its dominant position in the Permian Basin, enhanced by the CrownRock acquisition, provides a deep inventory of low-breakeven locations, a critical asset in a competitive environment.

A key differentiator for Occidental lies in its commitment to technological innovation, particularly in carbon management and enhanced oil recovery (EOR). The company is at the forefront of developing Direct Air Capture (DAC) technology through its subsidiary 1PointFive, exemplified by the STRATOS facility under construction in West Texas. This technology aims to capture CO2 directly from the atmosphere. While specific quantifiable benefits like cost per ton or efficiency metrics compared to alternatives are still emerging as the technology scales, the strategic intent is clear: to provide a large-scale solution for carbon removal. This captured CO2 is crucial for OXY's long-term strategy, enabling enhanced oil recovery in existing reservoirs. Management believes CO2 EOR can unlock 50 to 70 billion barrels of additional reserves in the U.S., extending energy independence by over a decade. This process requires significant volumes of CO2, which organic sources cannot fully supply, making DAC a necessary technological complement. The company is also exploring other low-carbon technologies, including Direct Lithium Extraction (DLE) and equity investments in NET Power, which offers an emission-free method of generating electricity while capturing CO2. These technological pursuits are not just about environmental goals; they are strategically positioned to create new revenue streams, enhance resource recovery, and provide solutions for industries seeking to decarbonize, contributing to OXY's competitive moat and long-term value proposition.

Performance and Financial Fortitude

Occidental's recent financial performance reflects the interplay of commodity prices, operational execution, and strategic actions. In the first quarter of 2025, the company reported Net Income attributable to common stockholders of $766 million, or $0.77 per diluted share, an increase from $718 million, or $0.75 per diluted share, in Q1 2024. Excluding items affecting comparability, net income increased compared to both Q4 2024 and Q1 2024, driven by higher domestic prices and sales volumes in the oil and gas segment, partially offset by pressures in the chemical segment from lower prices and higher raw material costs.

The Oil and Gas segment saw a significant increase in income before income taxes, reaching $1,697 million in Q1 2025 compared to $1,238 million in Q1 2024. This was primarily fueled by higher domestic sales volumes, notably from the CrownRock acquisition, and improved natural gas and NGL prices, despite lower domestic crude oil prices. Operational efficiencies contributed to this performance, with domestic oil and gas lease operating costs coming in substantially below initial expectations in Q1 2025 at $9.05 per BOE. The Chemical segment, while facing headwinds from pricing and costs, delivered $185 million in income before income taxes in Q1 2025. The Midstream and Marketing segment saw a reduction in losses before income taxes, improving to a loss of $77 million in Q1 2025 from a loss of $33 million in Q1 2024, driven by strong gas marketing optimization and higher sulfur prices.

Financially, OXY maintains a solid liquidity position. As of March 31, 2025, the company held $2.6 billion in cash and cash equivalents and had substantial borrowing capacity under its revolving credit facility ($4.15 billion) and receivables securitization facility ($600 million), with no borrowings outstanding on either. Operating cash flow from continuing operations was robust at $2.1 billion in Q1 2025. Capital expenditures totaled $1.9 billion in the quarter, primarily allocated to the oil and gas segment.

A central theme in OXY's financial narrative is debt reduction. The company has made significant progress, retiring $2.3 billion in debt year-to-date as of the first quarter of 2025, sourced from divestitures, warrant exercises, and organic cash flow. Over the past 10 months, $6.8 billion in debt has been repaid, reducing annual interest expense by $370 million. Crucially, all 2025 debt maturities have been retired ahead of schedule, providing a comfortable runway. The company's target remains to reduce principal debt below $15 billion, a goal it is actively pursuing through continued divestitures and cash flow allocation.

Outlook, Strategic Momentum, and Future Catalysts

Occidental's outlook for 2025 reflects a focus on operational efficiency, strategic project execution, and continued balance sheet improvement. The company expects full-year production to average approximately 1.42 million BOE per day, representing relatively stable volumes compared to 2024 when accounting for a full year of CrownRock and recent divestitures, but with a projected nearly 3% increase in oil volumes and an overall oil cut increasing to 52%. Production is anticipated to increase from the Q1 low through the second half of the year, driven by Permian activity and international turnarounds.

Capital guidance for 2025 has been reduced by $200 million, reflecting realized efficiency gains in the Permian (over 10% reduction in unconventional well costs vs. last year) and optimization efforts, allowing for a reduction of 2 drilling rigs in the Delaware Basin while maintaining production targets. Estimated 2025 OpEx savings of $150 million further contribute to expected cash impact. The full year operating cost guidance has been lowered to $8.65 per BOE.

Strategic projects are poised to drive future cash flow growth. The OxyChem Battleground expansion, with peak capital spending of $900 million in 2025, is on track for completion in mid-2026 and is expected to provide a significant earnings uplift (around $325 million) and cash flow accretion. The Low Carbon Ventures segment's capital budget is set at approximately $450 million in 2025, primarily for the STRATOS DAC facility, which is advancing towards start-up in the second half of 2025. While STRATOS's initial contribution to earnings will be minimal, its completion and the ongoing development of the South Texas DAC hub (supported by DOE funding) are critical steps in commercializing DAC and positioning OXY in the emerging carbon management market.

Beyond these projects, OXY is pursuing other opportunities, including advanced negotiations for a 15-year extension of the Oman Block 53 contract, which could unlock over 800 million gross barrels of additional resources and enhance cash flow starting in 2025. A significant gas and condensate discovery in North Oman also presents future potential.

Management anticipates a significant inflection point in cash flow generation from non-oil and gas sources, expecting approximately $1 billion in incremental pre-tax free cash flow in 2026, with further expansion in 2027, driven by the Battleground project completion, STRATOS spending roll-off, and benefits from revised crude transportation contracts ($400 million annual benefit starting 2026). This diversification is key to providing cash flow stability across commodity cycles.

Risks and Challenges

Despite a clear strategy and operational momentum, Occidental faces inherent risks. Commodity price volatility remains a primary concern, influenced by geopolitical events, global economic conditions, and OPEC+ actions. Fluctuations in oil, NGL, and natural gas prices directly impact revenue and cash flow. Recent tariff actions and trade developments also introduce uncertainty, potentially increasing costs for suppliers and affecting chemical segment exports.

Operational risks, including weather disruptions, unplanned downtime, and the successful execution of complex projects like STRATOS and Battleground, could impact production volumes and costs. Environmental liabilities, particularly related to historical operations like the DASS, represent ongoing financial obligations and potential for additional costs, although reserves are accrued for probable and estimable amounts. Legal proceedings and tax disputes, such as the Tronox litigation, could result in material cash outflows if unfavorable outcomes occur.

Maintaining credit ratings is important for accessing capital markets, and any downgrade could increase borrowing costs. While debt reduction is a priority, the current debt level still represents a significant obligation.

OXY mitigates these risks through portfolio diversification, maintaining flexibility in its capital program to adjust activity levels in response to market conditions, focusing on operational efficiency and cost management, and actively managing its debt maturity profile. The development of its low-carbon businesses is also a long-term strategy to diversify revenue streams away from traditional commodity price exposure.

Conclusion

Occidental Petroleum is executing a compelling investment thesis centered on leveraging its transformed, high-quality asset base, aggressively reducing debt, and strategically investing in diversified growth platforms. The company's strong Permian position, enhanced by the CrownRock acquisition, provides a foundation of high-return, short-cycle inventory. Simultaneously, investments in the OxyChem Battleground expansion and pioneering carbon management technologies like DAC through STRATOS are designed to unlock substantial, less commodity-sensitive cash flow in the coming years.

While exposed to the inherent volatility of energy markets and facing significant environmental and legal liabilities, OXY's focus on operational efficiency, cost control, and balance sheet strengthening positions it to navigate these challenges. The progress on debt reduction, including the early retirement of 2025 maturities, underscores management's commitment and enhances financial flexibility. The potential for significant incremental free cash flow from non-oil and gas segments starting in 2026 represents a key catalyst for future shareholder returns and portfolio resilience. Investors should monitor the execution of strategic projects, continued debt reduction progress, and the commercialization trajectory of its low-carbon ventures as key indicators of OXY's ability to deliver on its differentiated energy story.