Occidental Petroleum NYSE: OXY reported second-quarter results that exceeded its production guidance and produced its highest quarterly free cash flow since the third quarter of 2022, while outlining a plan to add more than $4 billion in annual sustainable cash flow by 2030.
President and Chief Executive Officer Richard Jackson said the company is focused on increasing both returns on and returns of capital through the cycle. Its priorities include strengthening the balance sheet, improving resource recovery, reducing costs and generating differentiated cash flow.
“We see a clear pathway to add over $4 billion of annual sustainable cash flow by 2030,” Jackson said. He said the projected improvement would represent approximately 95% annualized growth from 2025 and would be driven by lower costs, lower sustaining capital requirements and a stronger balance sheet rather than production growth.
Second-Quarter Results and Operations
Chief Financial Officer Sunil Mathew said Occidental generated adjusted earnings of $2.40 per diluted share and reported earnings of $2.75 per diluted share in the second quarter. The difference was largely attributed to mark-to-market gains in marketing and crude hedges, as well as a dilution gain in equity investment income.
Free cash flow before working capital was approximately $3 billion, aided by operational performance, cost discipline and higher commodity prices. The company ended the quarter with about $4.2 billion of unrestricted cash.
Total production averaged 1.43 million barrels of oil equivalent per day, exceeding the midpoint of guidance by 23,000 BOE per day. Domestic production benefited from strong base and new-well performance in the Permian Basin and higher uptime in the Gulf of America. Those gains more than offset lower international volumes related to disruptions in the Middle East.
Domestic lease operating expense was $7.80 per BOE, 6% below guidance. Mathew said higher domestic production and maintenance schedule optimization in the Gulf of America supported the result.
Midstream and marketing adjusted earnings reached a quarterly record of about $960 million, more than double the midpoint of guidance. The segment benefited from gas marketing optimization, crude marketing margins related to cargo-sale timing and commodity-price movements, and higher sulfur prices at Al Hosn. Lower sulfur sales partially offset those factors.
Debt Reduction, Dividend and Capital Priorities
Occidental reduced principal debt by $1.5 billion during the period to $11.8 billion, its lowest level since the second quarter of 2019. The company said the reduction brings its go-forward annual interest expense run rate to approximately $760 million, about $630 million below 2025 interest payments.
Net principal debt was $7.6 billion at quarter-end, reflecting the company’s cash balance. Near-term maturities remain limited, with only $414 million due through the end of 2029, according to Mathew.
The board approved an 8% increase in the quarterly dividend to $0.28 per share. Management said its immediate financial priority remains reducing principal debt to $10 billion. After reaching that target, the company plans to focus on reducing net debt while balancing additional debt repayment with cash accumulation ahead of its preferred equity redemption in August 2029.
Share repurchases will remain opportunistic, Mathew said, and a continuous buyback program will be a lower priority until the preferred equity is redeemed.
- Occidental expects more than $1.2 billion in free-cash-flow improvement in 2026 before the effect of higher oil prices.
- Management expects roughly $700 million to $800 million of improvement in 2027 versus 2026.
- Approximately $700 million of the longer-term cash-flow improvement is tied to the preferred equity redemption in 2029.
- The company said about 85% of the targeted improvements can be achieved even at lower commodity prices.
Lower Costs and Sustaining Capital
The company expects a $900 million reduction in sustaining capital by 2030, supported by capital-efficiency gains and a lower base decline rate. Occidental expects its base decline rate to fall from roughly 25% to 20% by 2030 as advanced recovery projects mature.
Jackson said the company has delivered more than $2 billion in savings since 2023 and remains on track for its 2026 targets. Its initiatives include reducing U.S. onshore well costs, lowering domestic lease operating and transportation expenses, and improving workforce efficiency through simplification and technology deployment.
Management also highlighted lower spending in low-carbon ventures. As the Stratos direct air capture project moves from development toward operations, approximately $400 million of low-carbon ventures capital is expected to roll off beginning next year. Jackson said repairs and commissioning work on Stratos Trains 3 and 4 was progressing, with full plant commissioning expected to begin around year-end and operations expected in 2027.
For 2027, Occidental’s starting capital-spending level is expected to be $5.9 billion, including investments in mid-cycle projects intended to reduce future decline rates and sustaining capital. At that spending level, management expects production to be relatively flat with 2026. The company said sustaining capital could decline to about $4.5 billion by 2030 through lower declines and further well-cost improvements.
Guidance and Resource Development
For the third quarter, Occidental expects production of 1.4 million to 1.44 million BOE per day. Permian volumes are expected to increase after adjusting for a non-recurring second-quarter uplift, while Rockies output is expected to decline because of activity timing. Planned maintenance timing and a weather contingency are expected to affect Gulf of America production. International volumes are expected to normalize, though management said conditions in the Middle East remain fluid.
The company raised its full-year production guidance, citing stronger domestic new-well and base performance that is expected to offset marginally lower international volumes. It maintained full-year capital guidance of $5.5 billion to $5.9 billion and domestic lease operating expense guidance of $8.10 per BOE.
Occidental expects third-quarter domestic lease operating expense of $8.75 per BOE due to the Gulf of America maintenance shift and weather contingency. Midstream and marketing income is expected to decline in the third quarter as the Waha-to-Gulf Coast natural-gas spread narrows, though management expects stronger upstream gas realizations to largely offset that effect. The company increased full-year midstream and marketing guidance by $300 million following strong year-to-date performance.
Jackson said advanced recovery techniques, including waterflooding, enhanced oil recovery and unconventional CO2 applications, are central to lowering decline rates and increasing recovery. The company also cited stronger well productivity and lower costs in the Powder River Basin, where it is increasing activity as part of its U.S. oil development program.
About Occidental Petroleum (NYSE:OXY)
Occidental Petroleum Corporation (OXY) is an international energy company engaged primarily in the exploration, production and marketing of oil and natural gas. The company conducts upstream activities to discover and produce hydrocarbons and operates complementary midstream and marketing functions to transport and sell its production. Occidental also owns a chemicals business that manufactures and sells industrial chemicals and related products for a range of end markets.
Occidental's operations are concentrated in the United States, with a significant presence in the Permian Basin, and it maintains exploration and production activities in several international regions, including parts of the Middle East, Latin America and Africa.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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