Introduction
Occidental Petroleum (NYSE: OXY) has emerged as a distinctive player in the oil industry, setting itself apart from fully integrated energy giants like Exxon and Chevron. The company’s strategic diversification across chemicals, midstream, and lower carbon segments is proving to be a game-changer, with the recent success of its chemicals segment paving the way for substantial growth in the coming years.
A Strong Finish in 2023
Despite market turbulence, Occidental Petroleum concluded 2023 on a high note, showcasing a robust operational performance. The company reported production averaging over 1.2 million barrels of oil equivalent per day (BOE/d), surpassing guidance despite challenges in the Gulf of Mexico. This success translated into a solid operating cash flow of $3.2 billion and $1.1 billion in free cash flow, marking its highest quarterly total in over three years.
While the oil and gas segment remains a key contributor, accounting for 80% of total segment earnings, the diversification strategy softened the impact of lower commodity prices. The chemicals segment, in particular, reported over $1.5 billion in income, positioning itself as a significant contributor to Occidental’s earnings diversification.
Diversification Amid Volatility
Despite a dip in the oil and gas segment earnings due to lower prices, Occidental’s chemicals segment had an outstanding year, almost tying its second-best performance. This diversification shields the company from the inherent volatility of commodity prices, providing a more stable revenue stream and enhancing its overall growth profile.
Future Growth Catalysts
Occidental Petroleum is not merely relying on its traditional strengths. The company’s recent acquisition of CrownRock for $12 billion signals a strategic move to boost production and increase free cash flow, especially with a projected annual uplift of $1 billion in the first year.
However, Occidental is not stopping at traditional oil and gas investments. The company is heavily investing in expanding its chemicals operations, expecting an annual earnings uplift of $300 million to $400 million starting in 2026. These investments aim to modernize and expand plants, improving margins and increasing product volumes.
Building a Sustainable Future
In addition to chemicals, Occidental is actively building a low-carbon energy platform. The Stratos direct air capture (DAC) project in the Permian Basin, set to commence operations next year, is a key part of this initiative. The company secured BlackRock as a joint venture partner, highlighting the significance of this move in the transition towards a more sustainable energy future.
The recent acquisition of Carbon Engineering further solidifies Occidental’s commitment to decarbonization. With plans to develop additional DAC facilities, the company envisions earning as much from providing decarbonization services as it currently does from oil and gas production.
Conclusion: A Compelling Investment Opportunity
Occidental Petroleum is redefining itself as more than just an oil stock. While oil and gas production remain primary revenue streams, the company’s investments in chemicals and low-carbon energy present exciting growth prospects. As Occidental continues to diversify and innovate, it positions itself as a compelling investment opportunity with the potential to create substantial value for investors in the evolving energy landscape.
