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 the exploration and production of oil and gas (upstream), chemicals (OxyChem), midstream, and marketing. The company benefits from an integrated business structure but is highly dependent on the volatility of commodity prices.

Development The historical share price performance has been significantly influenced by oil price fluctuations in recent years. The heavy losses in the pandemic-affected year of 2020 (sales: $17.8 billion, net income: -$14.8 billion) gave way to an extraordinary recovery in 2022 (sales: $36.6 billion, net income: $13.3 billion), driven by the global energy market following the war in Ukraine. The latest quarterly figures show a normalization to a lower, but profitable, level with stable free cash flows of over $4 billion per quarter. The high debt ratio (debt-to-equity: 1.42) remains a legacy of the Anadarko acquisition, but has been significantly reduced through strong cash generation.

Opportunities:

• Strong free cash flow generation: The current quarterly figures show consistently high operating cash flows, which can be used for further debt reduction, dividend payments, and investments.
• Value creation through diversification: The stable chemicals business (OxyChem) offers some protection against commodity price volatility and ensures reliable cash flows.
• Leading position in the Permian Basin: The commitment to the most productive US shale oil region secures long-term competitive advantages in exploration.

Risks:

• Oil Price Volatility: Profitability remains directly linked to the oil price, as demonstrated by the fluctuating results of recent quarters. A significant price decline would immediately impact financial results.
• High Debt: Despite progress, debt remains elevated relative to equity, which could limit financial flexibility in a persistently low-price environment.
• Energy Transition and Regulatory Pressure: Long-term risks arise from the global trend toward renewable energy and potentially tighter environmental regulations.

Additional Notes: The company is pursuing a strategy of debt reduction and shareholder compensation, as reflected in its high free cash flow conversion. The recent quarterly volatility in EPS (from negative in Q4/24 to positive in Q1/25) underscores the cyclical nature of the business.

Conclusion: Occidental Petroleum is a financially sound company that benefits from the current energy price environment. Its strong cash generation and diversified corporate structure are positive factors. However, the investment is a bet on stable to positive oil price trends and management's ability to further control its debt burden. For investors seeking exposure to the energy sector, Ocy offers a solid, albeit cyclical, investment opportunity.

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