Occidental Petroleum Corporation (OXY) is a leading global energy, chemicals, and carbon management company with a diverse portfolio of assets and operations. The company's strong operational execution, strategic initiatives, and commitment to sustainability have positioned it as a formidable player in the industry.

Financials

Occidental reported robust financial results in 2023, with annual net income of $3.75 billion, annual revenue of $28.26 billion, annual operating cash flow of $12.31 billion, and annual free cash flow of $6.06 billion. These impressive figures underscore the company's ability to generate substantial value for its shareholders.

In the first quarter of 2024, Occidental delivered an adjusted profit of $0.63 per diluted share and a reported profit of $0.75 per diluted share. The difference between the two was primarily driven by a litigation settlement gain related to the Andes arbitration and gains on sales included in equity income, partially offset by derivative losses.

Operational Excellence

Occidental's operational excellence is a key driver of its success. During the first quarter of 2024, the company generated over $2.4 billion in operating cash flow before working capital, despite challenges posed by a third-party outage in the Eastern Gulf of Mexico. The company's teams delivered exceptional performance across its portfolio, including strong new well performance in the Permian Basin and the Rockies, as well as record gross daily production in Oman North.

Permian Basin Dominance

The Permian Basin is a crucial part of Occidental's portfolio, and the company continues to demonstrate its expertise in this prolific region. Occidental's teams are achieving impressive performance in its secondary benches by applying the same proprietary subsurface workflows that have generated remarkable success in the primary benches. This has resulted in first-year cumulative production from Occidental's 2023 secondary wells exceeding the Delaware industry average for all horizontal wells by more than 30%.

Diversified Asset Portfolio

Occidental's diversified asset portfolio, which includes its oil and gas, chemical, and midstream and marketing segments, provides significant cash flow resilience throughout the commodity price cycle. The company's Midstream business significantly outperformed in the first quarter, driven by gas marketing optimization and the ability to capture value in regional pricing disparities. Meanwhile, OxyChem, Occidental's chemicals business, remains a consistent cash flow diversifier, benefiting from improved demand and lower ethylene costs.

Low-Carbon Ventures

Occidental's low-carbon ventures businesses are also poised to contribute to the company's financial resilience. The construction of the first direct air capture plant, STRATOS, is advancing on schedule, and the company has announced multiple carbon dioxide removal credit agreements with customers across various sectors.

Shareholder Returns and Debt Reduction

Occidental is committed to increasing shareholder value through cash flow and earnings growth. The company expects to generate more than $1 billion in cash flow improvements that are independent of commodity cycles, including from OxyChem plant enhancements, Permian transportation rate reductions, and increased distributions from its ownership stake in Western Midstream.

Additionally, Occidental plans to repay debt as it matures, which is expected to result in approximately $180 million of annualized incremental cash flow from interest savings. The company has also announced a $4.5 billion to $6 billion divestiture program to be completed within 18 months of the CrownRock acquisition, with the proceeds to be used for deleveraging until Occidental reduces its principal debt to $15 billion or below.

Guidance and Outlook

Looking ahead, Occidental expects total company production to increase to a range of 1.23 million to 1.27 million BOE per day in the second quarter of 2024, compared to the first quarter annual low of 1.17 million BOE per day. This increase is mainly due to higher U.S. onshore activity levels, the completion of annual plant maintenance at Dolphin, and the return of production from the Gulf of Mexico outage.

The company's Midstream business is also expected to continue its strong performance, with Occidental raising its full-year guidance range by $110 million. Additionally, OxyChem is anticipated to benefit from modest price improvements and higher volumes as it exits the usual period of seasonal subdued demand.

Risks and Challenges

While Occidental's diversified portfolio and operational excellence provide significant advantages, the company is not without its risks and challenges. Fluctuations in commodity prices, particularly oil and natural gas, can impact the company's financial performance. Additionally, the highly competitive nature of the oil and gas industry may create challenges in adding new reserves and replenishing production volumes.

Conclusion

Occidental Petroleum is a well-positioned energy giant with a diverse portfolio of assets and a strong focus on operational excellence and sustainability. The company's strategic initiatives, including the CrownRock acquisition, divestiture program, and low-carbon ventures, are expected to generate significant value for shareholders. With its robust financial performance, resilient cash flows, and commitment to shareholder returns, Occidental Petroleum remains a compelling investment opportunity in the energy sector.