Executive Summary / Key Takeaways

• Occidental Petroleum has fundamentally transformed its portfolio over the past decade, shifting focus to high-return U.S. onshore assets, particularly the Permian Basin, while strategically managing international exposure.
• The recent CrownRock acquisition significantly enhances Permian scale and inventory quality, driving operational efficiencies and contributing to near-term production growth and cash flow.
• Aggressive debt reduction is a core priority, with substantial progress made through organic cash flow and strategic divestitures, strengthening the balance sheet and paving the way for increased shareholder returns.
• Occidental is pioneering large-scale carbon management solutions, including Direct Air Capture (DAC) technology, which offers a unique long-term value catalyst through carbon removal credits and enhanced oil recovery potential.
• Despite macro volatility and specific operational risks, the company's diversified portfolio, operational excellence, and strategic investments position it for resilient cash flow generation and value creation across cycles.

Setting the Stage: A Transformed Energy Leader

Occidental Petroleum Corporation, a company with a century-long history in the energy sector, has undergone a significant strategic transformation over the past decade. Once a more globally diversified producer with a substantial international footprint, the company has strategically pivoted to concentrate its operations on high-return, short-cycle assets, primarily within the United States. This shift has fundamentally reshaped its portfolio, increasing its exposure to prolific unconventional basins while maintaining a focused presence in select international regions and its integrated chemical and midstream businesses.

Within the competitive landscape of the global energy industry, Occidental operates across distinct segments: Oil and Gas, Chemical (OxyChem), and Midstream and Marketing. The Oil and Gas segment, its largest contributor, competes directly with major integrated oil companies like Exxon Mobil Corporation (XOM), large independent exploration and production (E&P) companies such as EOG Resources Inc. (EOG) and Devon Energy Corp. (DVN), and other international players like APA Corporation (APA). Competition is fierce, driven by factors including access to prime acreage, operational efficiency, technological innovation, cost structure, and financial strength.

Occidental's strategic positioning is built upon leveraging its technical expertise, operational excellence, and a growing focus on differentiated technologies, particularly in carbon management. While major peers like XOM possess superior scale and integrated value chains, and EOG often leads in certain aspects of shale operational efficiency and profitability (EOG's TTM Net Profit Margin is 27.10% vs. OXY's 11.27%), Occidental aims to carve out a competitive advantage through targeted acquisitions, cost discipline, and pioneering new markets like carbon capture. Its chemical and midstream segments provide diversification and cash flow stability, offering a degree of resilience not always present in pure-play E&P companies.

The company's journey to its current state is marked by significant strategic moves. Around 2015, Occidental's production stood at approximately 650 Mboed, with half from international sources and shale representing a smaller portion of its reserves. By the first quarter of 2025, total production had nearly doubled to 1.39 MMboed, with 83% originating from the U.S., and shale assets now constituting 60% of proved reserves. This transformation involved exiting several countries and focusing on core, high-potential areas, culminating most recently in the strategic acquisition of CrownRock in the Permian Basin, a move designed to enhance its position in one of the world's most attractive oil-producing regions.

The Technological Edge: Pioneering Carbon Management

A critical differentiator for Occidental, and a cornerstone of its long-term strategy, lies in its leadership in carbon management technologies, particularly Direct Air Capture (DAC) and its application in Enhanced Oil Recovery (EOR). Leveraging decades of experience utilizing CO2 for EOR, the company is now developing technologies to capture CO2 directly from the atmosphere.

The flagship project in this endeavor is STRATOS, the world's largest DAC facility under construction in West Texas. This facility is designed to capture 516,000 metric tons of CO2 annually. While specific, publicly disclosed quantifiable performance metrics for the operational DAC technology itself (e.g., energy efficiency per ton captured) are not detailed, management highlights significant advancements driven by the integration of Occidental and Carbon Engineering teams. These innovations are being incorporated into the ongoing build-out of STRATOS, resulting in a new design featuring fewer air contactors and pellet reactors. This is expected to reduce operating expenses and increase reliability, with potential cost savings of 10-15% on future builds, potentially exceeding 20%, and halving the build time for air contactors using modular construction.

The strategic "so what" for investors is multifaceted. First, DAC enables Occidental to generate Carbon Dioxide Removal (CDR) credits, tapping into a growing voluntary and potentially compliance-driven market. The landmark 25-year carbon offtake agreement with CF Industries (CF) for 2.3 million metric tons of CO2 annually at the Pelican hub, and the agreement with Microsoft (MSFT) for 500,000 metric tons of CDR credits from STRATOS over six years, underscore the emerging demand and Occidental's early-mover advantage. Second, and perhaps more significantly for its core business, the captured CO2 can be used for EOR in its extensive Permian and international reservoirs. Management believes this application could unlock 50-70 billion barrels of additional reserves in the U.S. alone, extending energy independence and providing a source of potentially "net-zero" oil. This directly enhances the value and longevity of Occidental's existing oil and gas assets.

Furthermore, Occidental is involved in other related technological initiatives, including an equity investment in NET Power (NPWR), which offers an emission-free method for generating electricity while capturing CO2, and exploring Direct Lithium Extraction (DLE) technology. The South Texas DAC hub project, awarded up to $500 million in DOE funding (with potential for $650 million), validates the technology's potential and government support, accelerating development at climate-relevant scale. These technological pursuits position Occidental uniquely among its peers, offering a long-term growth vector and a potential competitive moat beyond traditional hydrocarbon extraction, although the commercial viability and scale-up challenges of these emerging technologies remain factors to monitor.

Operational and Financial Performance

Occidental's recent operational and financial performance reflects the execution of its strategic priorities, particularly the focus on high-return U.S. onshore assets and cost discipline. The first quarter of 2025 saw strong results across all segments, generating $3 billion in operating cash flow before working capital. Net income attributable to common stockholders was $766 million ($0.77 per diluted share) for the quarter, compared to $718 million ($0.75 per diluted share) in the same period of 2024. Excluding items affecting comparability, net income increased year-over-year, driven by higher sales volumes and improved domestic natural gas and NGL prices, partially offset by lower oil prices and increased depreciation from the CrownRock acquisition.

The Oil and Gas segment is the primary earnings driver, contributing $1,697 million in segment income before taxes in Q1 2025, a significant increase from $1,238 million in Q1 2024. This growth was supported by an 18.4% increase in average daily sales volumes, reaching 1,391 Mboe/d, largely attributable to the CrownRock acquisition. Operational efficiency continues to be a key focus, with domestic oil and gas operating costs at $9.05 per BOE in Q1 2025, below initial expectations. Permian unconventional well costs were reduced by over 10% compared to the previous year, surpassing the 5-7% target. These efficiency gains allowed the company to drop two drilling rigs in the Delaware Basin while maintaining production expectations through accelerated cycle times.

The Chemical segment, OxyChem, delivered $185 million in segment income before taxes in Q1 2025 ($215 million adjusted), slightly below $254 million in Q1 2024, primarily due to lower realized prices for caustic soda and PVC and higher raw material costs, despite relatively flat net sales ($1,188 million vs. $1,186 million). Management anticipates modest domestic demand growth in Q2/Q3 2025 and potential capacity rationalization in H2 2025 to help rebalance the market.

The Midstream and Marketing segment significantly outperformed expectations in Q1 2025, reporting $77 million in segment income before taxes, up from $33 million in Q1 2024. This was driven by strong gas marketing optimization in the Permian and favorable sulfur prices. While gas marketing opportunities may narrow with increased takeaway capacity, benefits from revised crude transportation contracts are expected to provide a pretax cash flow uplift of $200 million in 2025 and $400 million annually starting in 2026.

Financially, a central theme is debt reduction. As of March 31, 2025, total debt and finance leases stood at $25.59 billion. Occidental has made significant progress, retiring $2.3 billion year-to-date (as of the Q1 2025 filing) and $6.8 billion over the preceding 10 months, reducing annual interest expense by $370 million. All 2025 debt maturities have been retired, providing a comfortable runway. The company's liquidity position is solid, with $2.60 billion in cash and equivalents and substantial borrowing capacity under its RCF. The strategic divestiture program, including $1.3 billion in non-core asset sales in Q1 2025, is a key enabler of this deleveraging effort.

Outlook and Strategic Initiatives

Occidental's outlook is shaped by its commitment to strengthening the balance sheet, enhancing its asset base, and advancing its low-carbon ventures, all while navigating commodity price volatility. The company is maintaining its total company production guidance for 2025, expecting growth from Q1 through the second half, driven by Permian activity, Middle East turnarounds, and Gulf of America projects, offsetting divestiture impacts. Full-year operating cost guidance has been reduced to $8.65 per BOE, reflecting ongoing efficiency gains.

Capital expenditures for 2025 have been lowered by $200 million through operational optimizations, complementing $150 million in estimated OpEx savings for a total positive cash impact of $350 million. The 2025 capital plan balances investments in short-cycle, high-return oil and gas assets (over 75% allocated to U.S. onshore) with measured investments in major mid-cycle projects like the Battleground chemical expansion ($900 million in 2025, peak year) and STRATOS ($450 million net LCD spend).

Management projects a significant inflection point in cash flow generation from non-oil and gas sources, expecting approximately $1 billion in incremental pretax free cash flow in 2026, with further expansion in 2027. This uplift is driven by the completion of the Battleground project (expected mid-2026, adding ~$325 million uplift), the roll-off of STRATOS capital spending (contributing ~$250 million improvement in 2026), and reduced interest expense from debt reduction (contributing ~$135 million improvement in 2026 based on paying down maturities).

The CrownRock integration is progressing well, exceeding initial production expectations and identifying opportunities for operational improvements and cost efficiencies, including potential savings from water integration and leveraging combined scale in the Midland Basin. The company plans to maintain a steady 5-rig program on CrownRock acreage in 2025, targeting mid-single-digit production growth from these assets.

Internationally, Occidental is pursuing value enhancement opportunities, including advanced negotiations for a 15-year extension of the Block 53 contract in Oman, which could unlock over 800 million gross barrels of resources. A significant gas and condensate discovery in North Oman also presents future potential. In the Gulf of America, the GOA 2.0 project, focusing on water floods and artificial lift, is expected to add substantial low F&D cost reserves.

Risks and Challenges

Despite a clear strategy and operational momentum, Occidental faces significant risks. Commodity price volatility remains a primary concern, influenced by geopolitical events, global economic conditions, and OPEC+ actions. While the company has levers to adjust activity and costs in response to weaker prices, prolonged downturns could impact cash flow, debt reduction pace, and investment capacity.

Environmental liabilities, particularly the long-standing issues at the Diamond Alkali Superfund Site (DASS), pose ongoing financial obligations. While reserves are accrued, the ultimate liability may exceed current estimates, with a range of reasonably possible additional losses up to $1.90 billion as of March 31, 2025. Tax matters, including the potential requirement to repay approximately $1.40 billion in federal/state taxes and $805 million in accrued interest related to the Tronox dispute if the company does not prevail, also represent a material financial risk.

Regulatory and policy uncertainties, including potential changes to tax incentives (like 45Q for carbon capture) and the impact of tariffs, could affect the economics of both traditional and low-carbon businesses. While management expresses confidence in bipartisan support for 45Q and the business case for DAC, policy shifts could alter the trajectory of its low-carbon ventures.

Operational risks inherent in oil and gas exploration and production, such as drilling challenges, facility downtime, and weather events, can impact production volumes and costs. While Occidental emphasizes its operational excellence and efficiency gains, these risks cannot be entirely eliminated.

Conclusion

Occidental Petroleum has successfully navigated a transformative period, emerging as a more focused and operationally efficient energy company with a strengthened position in the prolific U.S. Permian Basin. The strategic acquisition of CrownRock, coupled with a relentless focus on debt reduction through organic cash flow and targeted divestitures, is enhancing its financial flexibility and paving the way for increased shareholder returns.

Beyond its core oil and gas operations, Occidental is making measured, strategic investments in its chemical and midstream segments, which provide valuable diversification and contribute to future cash flow growth. Crucially, the company is positioning itself at the forefront of carbon management technology, particularly with its pioneering work in Direct Air Capture. While still in early stages, this technological leadership offers a unique long-term value catalyst, creating potential new revenue streams through carbon removal credits and enhancing the value of its existing resource base through CO2 EOR.

The investment thesis for Occidental rests on its ability to continue executing its deleveraging strategy, integrate and optimize the CrownRock assets for sustained operational efficiency and production, and successfully scale and commercialize its carbon management technologies. While exposed to the inherent volatility of commodity markets and specific operational and financial risks, the company's transformed portfolio, cost discipline, and innovative ventures provide a compelling narrative for investors seeking exposure to an energy company actively shaping its future across traditional and emerging markets.