Oxy Earnings: Results Were as Expected; Capital Moves Favor Bondholders

What We Thought of Occidental Petroleum’s Earnings

• Fair Value Estimate: $58.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

Key Morningstar Metrics for Occidental Petroleum

Occidental Petroleum’s OXY total production of 1,400 mboe/d marginally exceeded our expectations but was in line with guidance. Higher second-quarter production represented a slight, though minimal, sequential uptick. Still, per-unit cash operating costs also rose, as did capital expenditure.

Why it matters: While drilling efficiencies and production improved in the Permian, Oxy guided higher operating expense unit costs for the third quarter, above our expectations. Still, we expect these to moderate lower long-term as the company absorbs CrownRock’s operations.

• Also, valuation headwinds were mostly offset by management reducing the midpoint of 2025 capital expenditure guidance by $100 million, as well as lower international operating expense costs of $50 million.

The bottom line: We slightly lowered our fair value estimate to $58 per share from $59 for the no-moat-rated firm. Improved capital and operating guidance mostly offset higher-than-expected costs for the third quarter. The stock trades at a 23% discount to underlying value.

• Oxy is the cheapest US shale producer we cover. Still, we prefer narrow-moat Devon because of its lower Uncertainty Rating of High (compared with Oxy’s Very High) and its better position on the cost curve. We see Devon as a more attractive takeover target and favor its share buyback catalyst.

Between the lines: Oxy reported year-to-date free cash flow before working capital impacts of $1.85 billion, but this number doesn’t tell the full story, as working capital has been a $535 million cash headwind. Bringing down debt has been a $3 billion call on capital year to date.

• Unlike Exemplary-rated peers, Standard-rated Oxy carries debt from the CrownRock acquisition, so capital allocation now prioritizes debt repayment over shareholder returns. Debt reduction has exceeded dividends by $1.5 billion so far in 2025.