Occidental Petroleum Corporation (NYSE: OXY) has been battered in the market for the past month, with shares dropping nearly 20%. This steep drop is part of broader weakness in the oil and energy space, which dropped 11.9% as a group. To place this in context, similar industry counterparts like ConocoPhillips and Hess Corporation also dropped, down 13% and 15% respectively. But OXY’s decline stands out. So what’s fueling this slip, and is this a buying point or a sign of danger?
Lack of Hedges and Commodity Price Pressure
Perhaps the biggest concern for Occidental investors is that the company has been fully exposed to volatile commodity prices. Throughout the period up to December 31, 2024, there were no commodity hedges in place, and this exposure to the volatility in crude oil prices hurt the company. As oil prices dropped during worries over world trade, such a lack of cover pummeled the company’s near-term performance.
When energy prices drop, uncovered producers like OXY get hurt. And this time it was a doozy, a scorcher that explained most of the stock’s double-digit decline during one month.
Strength in Production in the Permian and Internationally
Despite the current headwinds, Occidental is still to display operational strength, particularly in the Permian Basin that is one of America’s most oil-rich regions. The company looks to produce between 1,385-1,445 thousand barrels of oil equivalent per day (Mboe/d) in 2025, where the Permian alone will deliver 754-786 Mboe/d. Overseas business is also set to be solid, with the projected output sitting at 226-236 Mboe/d.
Furthermore, OXY is using sophisticated seismic technology to find new oil and gas reserves more effectively. These innovations can fuel future growth, but the gains will be a while in the way of financials.
Financial Discipline: Cash Flow and Debt Reduction
One of the strengths of Occidental is the focus on paying down debt and strengthening finances. In 2024, the company reached its debt-reduction goal of $4.5 billion seven months ahead of schedule. It will continue to aggressively pay down debt with free cash flow and asset sales through 2027.
This financial discipline improves investor confidence, strengthens margins, and saves on capital servicing cost, fors that should positively impact the stock in the long run.
Capital Spending and Strategic Expansion
OXY’s 2025 capital spending guidance is $7.4–$7.6 billion, following a $7 billion outlay in 2024. That is invested in extending existing operations and building new high-return opportunities. That is consistent with peers, putting Occidental firmly in the middle between Hess’s $4.5 billion and ConocoPhillips’s $12.5 billion.
Strategic investment in infrastructure and exploration can create long-term value if commodity prices stabilize.
Conflicting Indicators from Valuation and Profitability
However, some financial metrics give conflicting signals. OXY is trading on a trailing 12-month EV/EBITDA multiple of 4.93x slightly above the industry median of 4.75x. While not greatly overvalued, it suggests minimal upside on a strictly valuation basis.
Moreover, Occidental’s 16.33% return on equity (ROE) trails the industry median, suggesting slightly less effective utilization of shareholder capital.
Contributing to investor worry, direction in earnings estimates is in the negative. Consensus EPS forecasts for 2025 and 2026 dropped in the last 60 days by 11.8% and 3.66%, respectively.
Conclusion:
Occidental’s last 20% drop may seem daunting, but it’s not without reason. Commodity exposure, weak earnings prospects, and competitive landscape all weigh on the stock. Nevertheless, the company’s strong production base, firm free cash flow, debt repayment, and responsible capital expenditures form a strong case for long-term promise.
Currently Zacks Rank #3 (Hold), OXY may not be the best short-term bet, but long-term investors can gain by hanging in there particularly if oil prices stabilize or recover. With its Permian Basin exposure and fiscal responsibility, OXY should be on a watchlist, if not already in your portfolio.
As uncertainty hangs in the balance, the foundation Occidental has established might turn out to be fruitful in the long run. In the meantime, best to remain calm, hold tight, and watch those oil prices.
