Occidental Petroleum (OXY) is an international energy company operating primarily operating in the USA, Middle East and North Africa. It is a leading oil & gas producer in the USA, including Permian and DJ Basins and offshore Gulf of Mexico. In 2023, oil & gas made up 73% of revenues, chemicals 18% and midstream & marketing 9%. As of 2Q24, OXY’s total production stands at 1.258mmboepd, comprising 52% oil, 23% NGLs and 25% natural gas.

Investment Overview

Focus on operational excellence and capex optimisation. OXY’s quality asset portfolio, having one of the largest acreages in the US, combined with its efficient cost strategy, are expected to remain core advantages in the future. In 2023, Oil & Gas proved reserves increased to 4.0bboe (2022: 3.8bboe), representing around 9years of reserve life. OXY maximises efficiencies to lower breakeven costs (all-in cost at USD33/boe currently) and generate excess free cash flow, supporting growth through optimised capital intensity in Permian Basin, DJ Basin, Gulf of Mexico, UAE, Oman and Algeria. Permian Basin operations remain OXY's crown jewel, and accounts for about half of overall production. OXY has a 2024 capex target of USD6.8-7.0bn, of which USD600mn is earmarked for low carbon businesses like the Stratos carbon capture project based on direct air capture technology, which is expected to complete by mid-2025.

CrownRock acquisition is a key growth driver. Keeping pace with consolidation trends in the US shale space, OXY has recently closed the USD12bn CrownRock acquisition, which is expected to deliver immediate and significant free cash flow accretion, improve scale in the Midland Basin (Permian) and enhance OXY’s high-grade Permian asset portfolio. CrownRock is expected to contribute around 153-159 kboepd to production from Aug-2024. This implies around 27% accretion to OXY's Permian production and 12.5% accretion to overall production on full-year basis, driving growth in 2024/25 volumes.

Focusing on both shareholder value creation and deleveraging. Growth in the US shale business will need to be balanced by the need to reduce long-term financial leverage and investing in chemical and low-carbon businesses. With the CrownRock acquisition, gearing will increase from current 0.9x to well above 1x. Thus, OXY will need to ensure gearing levels stay within control and prevent a repeat of previous instances of balance sheet stress and restructuring that it had endured following the Anadarko acquisition in 2019. OXY aims to achieve over USD4.5bn in near-term debt reduction and execute a USD4.5-6.0bn divestiture plan within 18 months of closing CrownRock transaction. With USD2.3bn debt retirement planned by August 2024 and proceeds from USD0.8bn Barilla Draw Delaware divestiture expected to close by 3Q24, that will then cover about 70% of the near term debt repayment target.

OXY is exposed to significant macroeconomic risks, as earnings are closely tied to price volatility of oil, NGLs, natural gas and other chemical products. OXY is also subject to new or amended laws and regulations, catastrophic events, and cyber-related risks, given the increasing reliance of its oil & gas segment on IT and industrial control systems for exploration, development and production activities.

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