Occidental Petroleum – Through the Eyes of a Value Investor

Disclaimer

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. One company that has been on my radar — and in my portfolio for years — is Occidental Petroleum Corporation (OXY).

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.

Financial Profile

Here’s a snapshot of Occidental’s recent financial metrics (data based on first QR of 2025 and before accessible here):

• Market Cap: $35.5 billion
• Enterprise Value: $66.9 billion
• Revenue (TTM): $27.1 billion
• Net Income (TTM): $1.7 billion
• P/E Ratio: 14.9×
• Price-to-Free Cash Flow: 8.0×
• Return on Equity: 6.9%
• Return on Invested Capital: 6.7%
• Debt-to-Equity: 0.044
• Dividend Yield: 2.38%

What I like here is the low leverage. With debt-to-equity 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 (data based on first QR of 2025 and before accessible under free stock data).

• 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.

Valuation Assessment

This is where things get interesting for a value investor. Different models give very different signals:

• Discounted Cash Flow (DCF): suggests undervaluation, with intrinsic value well above current market price.
• Graham & Lynch Models: paint a more cautious picture, flagging overvaluation.
• Buffett-style Earnings Valuation: shows OXY trading at a premium.

Why the divergence? Because oil companies are notoriously hard to value. A few dollars’ change in oil prices can swing earnings projections wildly. Personally, I put more weight on cash flow generation and the company’s ability to pay dividends consistently. On that front, OXY looks strong.

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.

Add to that a low-cost structure (breakeven below $30 per barrel), and OXY has the resilience to weather downturns better than many peers.

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

Here’s what I see as the most promising initiatives shaping OXY’s future:

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

Of course, no investment story is perfect. Here are the downsides I keep in mind:

• 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.

For me, these risks don’t eliminate OXY’s appeal, but they highlight why timing is so important when investing in cyclical businesses.

Long-Term Prospects

Despite the risks, I believe OXY has the ingredients for long-term value creation:

• Permian Basin longevity gives decades of oil production runway.
• Carbon capture leadership offers growth in ESG-conscious markets.
• Low-cost operations provide resilience in down cycles.
• Healthy balance sheet creates flexibility to return capital to shareholders.

This mix of old-world energy dominance and new-world carbon solutions makes OXY stand out in today’s oil patch.

Final Thoughts – A Value Investor’s Take

So where does this leave me? Personally, I view Occidental Petroleum as a moderate buy for long-term value investors — but only for those comfortable with oil price volatility.

The dividend, while not huge at ~2.4%, is sustainable and paid in U.S. dollars, which I see as a plus. The balance sheet strength, Permian dominance, and Buffett’s vote of confidence give me comfort. But the risks around oil demand and carbon capture execution mean this isn’t a stock to buy blindly.

As always: do your own due diligence. What works for my portfolio 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.