Occidental Petroleum Corporation: Diversified energy group with a focus on oil, gas, and chemicals

Brief summary for investors: Occidental Petroleum is an established US energy group with activities in oil and gas production, chemicals, midstream, and marketing. Its historical share price performance shows a strong dependence on oil prices.

Development The share price has historically closely followed oil price cycles, with a sharp increase from the end of 2020 to a peak in mid-2022 (~€69), driven by the global energy crisis. Since then, the share price has corrected and has shown a significant downward trend since mid-2024 (from ~€62 to ~€37), due to falling commodity prices and market expectations. Financial performance is volatile and reflects these cycles: record earnings in 2022 (EPS: 14.36) were followed by a normalization in 2023 (EPS: 5.28). The most recent quarter (Q1 2025) shows solid, albeit significantly weaker, profitability compared to the peak period with EPS of 0.99.

Opportunities:

• Strong free cash flow generation: The company continues to generate robust operating cash flows (free cash flow per share Q1 2025: USD 4.31), which provides scope for debt reduction and dividend payments.
• Diversification: The chemicals business offers some counterweight to the volatility of exploration and production activities.
• Regained investor confidence: Recent purchases by politicians (e.g., Gilbert Cisneros), albeit in small volumes, can be viewed as a positive signal.

Risks:

• High Debt: The debt-to-equity ratio (debt-to-equity: 1.42) remains significantly elevated despite strong cash flows and represents a financial risk, especially in a low-cost environment.
• Dependence on Commodity Prices: Profitability continues to depend primarily on oil prices, making results unpredictable.
• Energy Transition: In the longer term, there is a structural risk of the transition to low-carbon energy sources, which could dampen demand for fossil fuels.

Additional Notes: Liquidity ratios (current ratio: 1.01, quick ratio: 0.79) are tight, underscoring the importance of consistent cash flow generation. Profitability ratios (ROE: 2.67%, ROA: 1.10%) in the most recent quarter are low.

Conclusion: Occidental Petroleum is a financially sound company that is benefiting from the current energy price environment, but not to the same extent as during the 2022 peak. Its high debt and continued dependence on oil prices make it a rather cyclical and speculative investment. The current price decline reflects the dampened market expectations for the commodity markets. For investors who expect stable or rising oil prices, the current price could represent an entry opportunity, albeit with the acceptance of the inherent risk.

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