Occidental Petroleum – Through the Eyes of a Value Investor

When it comes to value investing, the energy sector often sparks heated debate. Some investors shy away, fearing the cyclical swings of oil prices, while others see unmatched opportunity when the cycle works in their favor. To understand the valuation of such companies, you can use our DCF Valuation Calculator or other free investing tools including the Peter Lynch Fair Value Calculator.

One company that has been on my radar — and in my portfolio for years — is Occidental Petroleum Corporation (OXY). You can check Occidental's current stock analysis for a deeper fundamental view.

This article isn't investment advice. Instead, it's a personal breakdown of why I've studied Occidental deeply, why I've found it interesting from a value investor's point of view, and what risks I see on the horizon. If you're curious about dividend-paying oil and gas companies with strong balance sheets and a focus on future energy solutions, then OXY is worth a closer look.

Business Overview

Occidental Petroleum is no newcomer. Founded in 1920 and headquartered in Houston, Texas, it has grown into one of the largest American energy companies. Today, it operates across three core segments:

1. Oil & Gas – Exploration and production, with a dominant position in the Permian Basin, one of the most prolific oil-producing regions in the world.
2. Chemical (OxyChem) – A highly profitable petrochemicals business that provides stability when oil prices swing.
3. Midstream & Marketing – Handling transportation, storage, and marketing of hydrocarbons, giving OXY control over logistics and additional cash flow.

With production averaging 1.33 million barrels of oil equivalent per day, OXY sits comfortably among the top U.S. energy companies. What stands out to me is the company’s integrated model, which spreads risk across multiple streams of income.

The CrownRock Acquisition: Doubling Down on the Permian

In a major move to solidify its Permian dominance, Occidental recently closed the $12 billion acquisition of CrownRock. This adds significant inventory in the Midland Basin, which OXY expects to be immediately accretive to free cash flow. For a value investor, this signals that management is focused on high-margin, low-breakeven production that can sustain the dividend even if oil prices soften.

Financial Profile

Here’s a snapshot of Occidental’s recent financial metrics based on those recent filings. For a full breakdown, explore OXY's key financial metrics.

• Market Cap: $35.5 billion (as of valuation date, assuming price level ~$40-45)
• Enterprise Value: $66.9 billion (reflects debt assumed from CrownRock and recent paydowns)
• Revenue: $27.1 billion (TTM as of Q4 2024/Q1 2025)
• Net Income: $1.7 billion (TTM as of quarter end)
• P/E Ratio: 14.9×
• Price-to-Free Cash Flow: 8.0×
• Return on Equity: 6.9%
• Return on Invested Capital: 6.7% (See our ROIC Guide to understand why this matters)
• Debt-to-Equity: 0.044 (Long term debt significantly reduced from 2020 peaks)
• Dividend Yield: 2.38% (Forward yield based on latest quarterly declaration)

What I like here is the low leverage curve over the long term. With debt-to-equity returning near zero and interest coverage extremely healthy, Occidental has done the hard work of repairing its balance sheet after the debt-heavy Anadarko acquisition years back. For me, this balance sheet strength is one of the biggest safety nets in a cyclical business like oil.

Historical Performance & Growth Trends

Looking back over the last decade, the numbers tell a story of survival, recovery, and resilience.

• Revenue CAGR (10 years): ~12%
• Net Income CAGR (10 years): ~277%
• Operating Income: volatile due to the 2020 oil crash and massive write-downs

Like most oil companies, Occidental had its toughest years during the pandemic. But what has impressed me is the rebound since 2021. As oil prices normalized, the company turned into a cash machine, using profits not only to pay dividends but to aggressively reduce debt.

How I Valued OXY Using the CheckYourStocks Tools

Valuing cyclical commodity companies is notoriously difficult because earnings ride the underlying commodity price. To triangulate value, I used our Free Investing Tools hub.

1. Discounted Cash Flow (DCF) Modeling

I ran OXY through our DCF Valuation Calculator. Assuming conservative 2% free cash flow growth and a 9% WACC (to account for cyclical risk), the model suggests intrinsic value above current market prices. The strength of this model is that it focuses purely on OXY's cash-generation power, which remains robust even at moderate oil prices.

2. The Graham Formula

Running the Graham Intrinsic Value Calculator yields a more cautious picture. Graham's model punishes companies with slow long-term growth and high capital intensity. It flashed a warning that OXY might be fully valued. This is typical for energy—Graham’s formula expects consistent EPS growth, which cyclicals rarely provide.

3. Peter Lynch Fair Value

Using the Peter Lynch Fair Value Calculator, OXY sits in the "Cyclical" category. The valuation here tells us the dividend yield (2.38%) provides a nice floor, but because EPS growth is lumpy, the PEG ratio logic breaks down slightly. Lynch warned us: with cyclicals, a rising P/E often means the cycle is nearing a bottom, and a low P/E means earnings have peaked.

Competitive Advantages & Moat

Occidental doesn’t have the widest moat in the industry, but it has some clear strengths:

• Permian Basin Dominance – Holding one of the largest acreage positions in the region gives OXY decades of drilling runway.
• Enhanced Oil Recovery (EOR) Technology – Using CO₂ injection, OXY can squeeze more oil out of old wells at lower costs. This is a proven edge.
• OxyChem – The chemicals arm generates stable cash flows, helping smooth earnings when oil is down.
• Carbon Capture Leadership – Through its direct air capture (DAC) projects, OXY is positioning itself as a climate-conscious oil producer. This could become a major differentiator in the years to come.

Warren Buffett’s Endorsement

It’s hard to talk about Occidental without mentioning Warren Buffett. Berkshire Hathaway now owns more than 28% of the company, making it one of Buffett’s biggest energy bets.

Why does this matter? For me, it’s not about following Buffett blindly, but about recognizing that he sees long-term intrinsic value in OXY’s assets. Buffett has praised CEO Vicki Hollub for her focus on debt reduction and disciplined capital allocation. The fact that Buffett has no interest in a full takeover — instead treating OXY as a long-term equity investment — reinforces his belief in the company’s ability to compound shareholder value over time.

Strategic Initiatives & Future Outlook

1. Debt Reduction: Over $7.5 billion repaid since mid-2024, improving flexibility.
2. Carbon Capture Projects: The Stratos facility in the Permian could make OXY a global leader in DAC, opening up carbon credit revenues.
3. Operational Efficiency: Advanced drilling techniques, AI-driven optimization, and focus on secondary zones in the Permian keep costs low.
4. Dividend Stability: With a payout ratio under 33%, the dividend appears sustainable, even in weaker oil markets.

Risks & Challenges

• Oil Price Volatility: Brent crude could fall toward $50/barrel by 2026, which would pressure profits.
• Industry Headwinds: Slowing global demand growth and the energy transition to renewables will eventually cap long-term oil consumption.
• Execution Risk: Carbon capture is still an emerging technology. Success isn’t guaranteed.
• Regulatory Risks: Increasing climate regulations could impact operations and costs.

Final Thoughts – A Value Investor’s Take

So where does this leave me? I personally view OXY as attractive at valuations where the free cash flow yield approaches 10% and debt reduction targets are actively being met. However, this is absolutely not a recommendation to buy or sell.

The energy sector is highly cyclical. The dividend, while sustainable and paid in U.S. dollars, doesn't guarantee capital protection if commodity prices collapse. The balance sheet strength, Permian dominance, and Buffett’s long-term stake give me comfort, but the risks around global oil demand and carbon capture execution mean this isn’t a stock for every portfolio.

As always: do your own due diligence using our valuation framework. What fits my risk tolerance as a value investor may not work for yours. I’ve held OXY for years because I see both present cash flow strength and future optionality in carbon solutions. But the energy sector isn’t for everyone, and the timing of entry matters a lot.