Occidental tightens the balance sheet as chemicals exit ushers in a “pure play” oil era

Portfolio reset and balance sheet discipline

Occidental has emerged from 2025 with a markedly different profile: a chemicals business sold, a balance sheet lighter by almost half, and an upstream portfolio that chief executive Vicki Hollub now calls “the strongest Oxy’s ever had.”

The defining move was the sale of OxyChem, a deliberate divestment that freed capital to pay down debt and consolidate Occidental’s bet on oil and gas. Principal debt stands at about $15 billion, roughly $3 billion below the pre‑CrownRock level, and the company has already launched a $700 million tender intended to take that figure to $14.3 billion, the target set when the chemicals sale was announced. Over the past 20 months, $13.9 billion of debt has been retired, leaving just $450 million maturing in the next four years.

At the same time, the company has begun to tilt its capital return profile. An 8% increase in the quarterly dividend reflects confidence in a lower “sustaining capital” requirement, which management now pegs at $4.1 billion at $40 oil, covering a slightly higher production base than in 2025. Yet buybacks will remain opportunistic rather than formulaic as the company eyes a longer‑term objective of trimming principal debt toward $10 billion and, crucially, building cash ahead of the 2029 window to redeem its preferred equity on more favourable terms.

Robust cash generation in a softer price environment

The headline numbers from 2025 speak to a business that has become more resilient to price swings. Even with average oil prices down roughly 14% versus 2024, Occidental generated $4.3 billion in free cash flow before working capital. On a normalized basis, excluding OxyChem, cash flow from operations rose 27% year on year.

In the fourth quarter, the company reported an adjusted profit of $0.31 per diluted share, with a small reported loss of $0.07 driven by transaction charges tied to the OxyChem divestiture. Free cash flow was about $1 billion in the quarter, supported by better‑than‑expected production and a striking improvement in domestic operating costs: U.S. operating expense fell to $7.77 per BOE, the lowest quarterly level since 2021.

Midstream operations also surprised positively. Adjusted pretax income for the year came in more than $500 million above guidance midpoint, and in the fourth quarter alone beat guidance by $172 million, helped by gas marketing optimisation around unplanned Permian pipeline maintenance and higher sulfur prices at the Al Hosn project in the UAE. Management cautions, however, that midstream earnings will moderate in 2026 as Permian gas takeaway capacity improves, squeezing arbitrage opportunities; lower crude transportation costs will offset only part of that downdraft.

Production growth on less capital

Against this financial backdrop, operational execution in 2025 was the other pillar of Occidental’s narrative. The company set a new annual production record of 1.434 million barrels of oil equivalent per day, topping the high end of guidance while spending $300 million less on oil and gas capex than originally planned and trimming total spending by $575 million.

The 2026 plan builds explicitly on this performance. Total capital spending is forecast between $5.5 billion and $5.9 billion, an 8% reduction from 2025 once OxyChem is stripped out. Yet production is expected to nudge higher, averaging approximately 1.45 million BOE per day, around 1% growth.

The core of that efficiency story is in U.S. onshore. New well capital costs were down 15% in 2025 versus 2024, with even sharper declines in the Permian unconventional portfolio (‑16%) and Rockies (‑13%). Across all U.S. onshore basins, new wells outperformed the industry by more than 10% on six‑month cumulative oil per foot. Since 2023, the company estimates it has captured roughly $2 billion in annual oil and gas cost savings, a combination of capital and operating efficiencies.

For 2026, Occidental is targeting another $500 million of structural savings from oil and gas: $300 million from capital, $200 million from operating and transportation costs. Management outlines 7% lower well costs, 5% lower facilities costs and a 4% reduction in domestic operating expenses, achieved through more wells per pad, longer laterals, and greater use of simul‑frac completions, rather than deferring work. U.S. unconventional capital will decline by $400 million versus 2025, even as Permian volumes grow around 4% and total U.S. onshore production edges higher.

A deeper, lower‑cost resource base

Beneath the year‑on‑year metrics lies a longer‑term rebuilding of Occidental’s resource base. In 2015, the company counted around 8 billion BOE of resources and produced 668,000 BOE per day. A decade later, the resource base has swollen to 16.5 billion BOE, with production more than doubled to 1.43 million BOE per day. The portfolio has become more U.S.-centric, with domestic assets now accounting for 83% of production compared with 50% in 2015, while international positions in Algeria, Oman and the Gulf of America remain, in management’s telling, high quality and high margin.

Resource quality is as central to the pitch as quantity. In 2025, Occidental achieved a 107% organic reserves replacement ratio and a 98% all‑in replacement ratio, at a finding and development cost below its depletion, depreciation and amortisation rate. Management now estimates that 84% of its 16.5 billion BOE resource breaks even below $50 per barrel, with an average resource breakeven around $38. In that landscape, U.S. unconventional is roughly half the base, but conventional and international assets are said to be competitive on economics.

Enhanced oil recovery is a recurring theme. Occidental sees its CO2‑based EOR capabilities as both a competitive advantage and a lever to extend reservoir life and flatten declines, particularly as the industry at large struggles with reserve replacement. In the Gulf of America, the company is launching the Horn Mountain waterflood project, part of what executives describe as a “GOA 2.0” phase. That project, together with future waterfloods such as the King dump flood, is expected to shift field declines from around 20% to below 10% by 2030 and potentially toward the low single digits thereafter, while reducing operating cost per barrel.

The international business is undergoing its own quiet optimisation. In Algeria, drilling performance has improved enough to allow a rig to be dropped without sacrificing the planned programme. Across Al Hosn, Algeria and Gulf of America, Occidental recorded record uptimes in 2025, contributing to the production beat.

Cost, cash and cautious macro

The emphasis on structural savings carries into Occidental’s forward‑looking financial frame. Chief financial officer Sunil Mathew expects free cash flow to improve by more than $1.2 billion in 2026, driven by the $500 million in oil and gas efficiencies, $400 million in midstream savings — notably lower crude transportation costs — and some $365 million in lower interest expense following the recent debt reduction.

The capital programme is weighted to the first half of the year, with volumes expected to dip in the first quarter due to reduced fourth‑quarter activity, winter weather and planned Gulf of America turnarounds, before recovering in the second quarter as Permian activity ramps. Exploration spending has been trimmed by around $100 million, in part because there is no new Gulf of America programme starting this year. Low Carbon Ventures investment will fall by roughly $250 million year on year as STRATOS construction winds down.

With both phases of STRATOS — Occidental’s flagship direct air capture project — expected to be commissioned in the second quarter, the company will begin to pivot from capital deployment to operational ramp‑up. Management points investors to a levelised EBITDA contribution in the $90 million to $130 million range by the late 2020s, with an eye on debottlenecking and capacity upgrades akin to those achieved at Al Hosn, and hints that future low‑carbon projects will likely be structured with partners to moderate Occidental’s capital burden.

On the macro backdrop, Hollub’s tone is deliberately cautious. The company is not planning around today’s elevated oil prices, viewing recent spikes as geopolitically driven and potentially transient. Occidental’s own strategy is predicated on fundamentals that, in her telling, will tighten gradually through the decade as global reserve replacement lags consumption — the industry’s replacement ratio is “less than 25%,” she notes — and as many companies face shrinking resource bases or turn to acquisitions and international expansion.

Occidental’s argument is that it has already completed that strategic pivot. It has used M&A to bulk up in the Permian, retained and nurtured a select set of international assets, and built a large, diversified resource base that increasingly relies on enhanced recovery rather than exploration to sustain itself. The declared priority now is not another transformative deal, but continuous execution: more savings, better wells, steadier production, and a balance sheet resilient enough to weather a downturn while still funding a growing dividend.

For investors, the story is less about dramatic growth than about quiet, compounding improvements to margins and capital intensity. In a sector still struggling to convince markets that its newfound capital discipline is permanent, Occidental is positioning 2025–2026 as proof that its shift is not merely cyclical, but structural.