Edgen Stock·Sep 17 2025, 00:50
Occidental Petroleum (OXY) has received an upgrade to a 'Strong Buy' rating, driven by robust fundamentals, operational excellence, significant debt reduction, and long-term growth catalysts. The company's strategic focus on financial health and pioneering carbon capture technologies positions it for sustained performance in the energy sector.
Occidental Petroleum Upgraded to 'Strong Buy' Amidst Robust Fundamentals and Strategic Deleveraging
Occidental Petroleum (NYSE: OXY) has been upgraded to a 'Strong Buy' rating, a move driven by the company's robust financial fundamentals, demonstrated operational excellence, significant advancements in debt reduction, and strategic positioning for long-term growth. This upgrade reflects a bullish sentiment regarding OXY's capacity to navigate market volatility and capitalize on emerging opportunities within the energy sector.
The Upgrade in Detail: Financial and Operational Strengths
The upgrade to a 'Strong Buy' rating for Occidental Petroleum is predicated on several key factors. The company has made substantial progress in strengthening its balance sheet and enhancing operational efficiencies. Over the past 13 months, Occidental Petroleum has aggressively repaid $7.5 billion worth of debt and announced an additional $950 million in divestitures. These actions have not only significantly improved the company's financial health but have also resulted in an estimated $410 million in annual interest cost savings. The company's net financial debt was reduced, contributing to an improved gearing (net debt/equity) of 66.8% and a leverage ratio (net debt/EBITDA) of 2.56, a notable reduction from the previous year.
Operationally, Occidental Petroleum has focused on cost discipline, targeting an additional $150 million in CAPEX and OPEX reductions, contributing to a cumulative cost reduction of $500 million by 2025. These efforts have yielded tangible results, with average Permian Unconventional well costs decreasing by 13% in the first half of 2025. Despite oil market volatility and weakness during 2025, the company generated a solid $2.6 billion in cash flow from operations (CFFO) before working capital changes.
Looking ahead, Occidental Petroleum's free cash flow (FCF) is projected at $3 billion in 2025, with further growth anticipated by an additional $1 billion in 2026 and $500 million in 2027. This FCF is expected to maintain a base 4.5% Compound Annual Growth Rate (CAGR) for the first five years, continuing at a 3% CAGR until 2034, underscoring the sustainability of its financial improvements and operational efficiencies.
Broader Context and Strategic Differentiation
Occidental Petroleum's strategic direction sets it apart from many traditional oil majors, particularly through its ambitious carbon capture strategy. The company views Carbon Capture and Direct Air Capture (DAC) as a pivotal growth catalyst, integrating it into its core business model. Key initiatives include the Stratos DAC plant, expected to be online by mid-2025, with a capacity of 500,000 metric tons of CO2 per year and supported by up to $650 million in Department of Energy grants. Additionally, the South Texas DAC Hub is part of this strategy to capture millions of tons of CO2 annually.
This early-mover advantage in the burgeoning global Carbon Capture and Storage (CCS) market, projected to exceed $3 trillion by 2050, positions Occidental Petroleum competitively. While the capital-intensive nature of these initiatives is acknowledged (e.g., an estimated $1 billion for the Stratos plant), the company's solid cash flow, largely from its Permian Basin operations which generated $26.73 billion in revenue and $4.42 billion in free cash flow in 2024, provides a buffer against operational costs.
From a valuation perspective, the intrinsic value per share for OXY is estimated at $88.85, suggesting a nearly two-fold upside from its current stock price. The company trades at 17.0x forward earnings, reflecting a market willingness to pay a premium for its faster debt reduction and strong U.S. asset profile, especially when compared to some peers. Its profit margin of 9% also highlights superior operational efficiency relative to its size.
Looking Ahead: Resilience and Long-Term Potential
The 'Strong Buy' rating underscores the market's confidence in Occidental Petroleum's ability to sustain its financial momentum and realize the long-term benefits of its strategic investments. The company's focus on continued debt reduction, operational efficiencies, and pioneering carbon capture technologies positions it as a resilient player in the evolving energy landscape.
Key factors to watch in the coming periods include the successful commissioning and ramp-up of the Stratos DAC plant, further progress in debt deleveraging, and the continued optimization of its Permian operations. With a clear path to enhanced financial strength and a differentiated growth strategy, Occidental Petroleum appears well-positioned for sustained capital appreciation and leadership in both traditional energy production and innovative decarbonization efforts.
