Occidental Petroleum Corporation (NYSE: OXY)

Occidental's Q1 2025 financial performance demonstrated resilience and operational strength despite fluctuating commodity prices. The company reported net income attributable to common stockholders of $766 million, a 7% increase from the $718 million reported in Q1 2024. Diluted earnings per share increased to $0.77 from $0.75 in the prior year period.

On an adjusted basis, which provides a clearer view of the company's underlying operational performance by excluding items affecting comparability, adjusted income increased by 42% to $860 million compared to $604 million in Q1 2024. Adjusted earnings per diluted share grew to $0.87 from $0.63 in the same period last year, representing a 38% increase. The effective tax rate on adjusted income remained stable at 28%.

Operating cash flow for the quarter was $2.1 billion, a 7% increase from $2.0 billion in Q1 2024. More notably, operating cash flow before working capital was $3.0 billion, up 23% from $2.4 billion in the first quarter of the previous year. This improvement was primarily driven by higher domestic realized commodity prices, with oil prices up 2%, natural gas liquids (NGL) prices up 19%, and domestic gas prices up by an impressive 92% compared to the fourth quarter of 2024.

Capital expenditures for the quarter totaled $1.9 billion, while contributions from noncontrolling interest were $63 million. This resulted in quarterly free cash flow before working capital of $1.2 billion, representing a significant 60% increase from $720 million in Q1 2024. This substantial improvement in free cash flow underscores Occidental's success in optimizing operations and enhancing capital efficiency.

The company continued its progress on debt reduction, repaying $2.3 billion of debt to date in 2025, supported by $1.3 billion in asset sales during the first quarter. Additionally, Occidental announced a reduction in its 2025 capital guidance midpoint by $200 million and domestic operating costs by $150 million, driven by continued operational efficiency gains and schedule optimization in the Permian and Gulf of America regions.

Oil and Gas segment delivered strong performance with pre-tax income of $1.7 billion, a 37% increase from $1.2 billion in Q1 2024 and a 45% improvement from $1.2 billion in Q4 2024. This growth was primarily driven by higher domestic realized commodity prices, with average worldwide realized crude oil prices rising 2% quarter-over-quarter to $71.07 per barrel, average natural gas liquids prices increasing 19% to $25.94 per barrel, and average domestic realized gas prices surging 92% to $2.42 per thousand cubic feet. These price improvements were partially offset by slightly lower sales volumes.

Total average global production for Q1 2025 was 1,391 thousand barrels of oil equivalent per day (Mboed), representing strong operational performance. The production breakdown by region was as follows:

• Permian: 754 Mboed
• Rockies & Other Domestic: 292 Mboed
• Gulf of America: 121 Mboed
• International: 224 Mboed

OxyChem contributed pre-tax income of $185 million for the first quarter, a 27% decrease from $254 million in Q1 2024 and a 31% decline from $270 million in Q4 2024. Excluding items affecting comparability, OxyChem still exceeded guidance by $15 million. The year-over-year and sequential decreases were primarily attributable to lower realized caustic soda and polyvinyl chloride (PVC) prices, along with higher ethylene and natural gas costs, which compressed margins in the chemical business.

Midstream and Marketing segment reported a pre-tax loss of $77 million for Q1 2025, compared to a loss of $33 million in Q1 2024 but an improvement from a loss of $134 million in Q4 2024. The results included net derivative losses of $84 million. Excluding items affecting comparability, the first quarter midstream and marketing results exceeded mid-point guidance by $127 million. The sequential improvement was primarily due to favorable timing of crude oil sales and higher sulfur prices at Al Hosn. The company's WES equity method investment contributed income of $147 million for the quarter.

Overall, the segment performance demonstrates Occidental's operational resilience and ability to capitalize on higher commodity prices in its core Oil and Gas business, while navigating challenging market conditions in the Chemical and Midstream segments. The company's diversified portfolio continues to provide stability, with strong Oil and Gas results helping to offset weakness in other segments.

Occidental delivered strong production results in Q1 2025, with total worldwide production averaging 1,391 Mboed, an increase of 19% from 1,172 Mboed in Q1 2024. U.S. production grew significantly to 1,167 Mboed, up 24% from 943 Mboed in the prior year period, while international production remained relatively stable at 224 Mboed compared to 229 Mboed in Q1 2024.

By region, Permian production showed exceptional growth, reaching 754 Mboed in Q1 2025, a 33% increase from 567 Mboed in Q1 2024. Rockies & Other Domestic production grew to 292 Mboed from 286 Mboed, while Gulf of America production increased to 121 Mboed from 90 Mboed in the prior year period. The international portfolio maintained stable production levels, with Algeria & Other International at 33 Mboed, Al Hosn at 90 Mboed, Dolphin at 36 Mboed, and Oman at 65 Mboed.

By commodity, Occidental's U.S. oil production increased to 601 Mbbl/d in Q1 2025, up 23% from 487 Mbbl/d in Q1 2024. The growth was particularly strong in the Permian, where oil production reached 404 Mbbl/d, up 25% from 323 Mbbl/d in the prior year period. Natural gas production in the U.S. also saw significant growth, increasing to 1,756 MMcf/d from 1,284 MMcf/d in Q1 2024, representing a 37% increase.

Average realized commodity prices in Q1 2025 were as follows:

• Worldwide oil: $71.07 per barrel, down 6.5% from $76.04 in Q1 2024
• Worldwide NGL: $25.94 per barrel, up 17.2% from $22.14 in Q1 2024
• Domestic gas: $2.42 per Mcf, up 50.3% from $1.61 in Q1 2024

The significant increase in natural gas prices provided a strong boost to Occidental's financial performance in the quarter, partially offsetting the slight year-over-year decline in oil prices. As a percentage of benchmark prices, Occidental's realized oil prices were 100% of WTI and 95% of Brent in Q1 2025, indicating effective marketing of its oil production. NGL prices were 36% of WTI, up from 29% in Q1 2024, while domestic natural gas prices were 67% of NYMEX, consistent with the same period last year.

The company's production mix continues to be weighted toward oil, which accounted for approximately 51% of total production in Q1 2025, providing stronger margins compared to natural gas and NGLs. The growth in U.S. production, particularly in the high-margin Permian region, has strengthened Occidental's overall production portfolio and enhanced its ability to generate cash flow.

Occidental demonstrated strong cash flow generation in Q1 2025, with operating cash flow of $2.1 billion, up 7% from $2.0 billion in Q1 2024. Operating cash flow before working capital, which excludes the impact of short-term fluctuations in working capital items, was even stronger at $3.0 billion, representing a 23% increase from $2.4 billion in the prior year period. This improvement was driven by higher realized commodity prices and increased production volumes, particularly in the Permian Basin.

Capital expenditures for the quarter totaled $1.9 billion, slightly higher than the $1.8 billion spent in Q1 2024. After accounting for contributions from noncontrolling interest of $63 million, net capital expenditures were $1.8 billion. This resulted in free cash flow before working capital of $1.2 billion, a significant improvement from $720 million in Q1 2024. The strong free cash flow generation demonstrates Occidental's ability to fund its capital program while maintaining financial flexibility.

The company made substantial progress on its debt reduction initiatives during the quarter. Occidental closed asset sales of $1.3 billion in Q1 2025 and used the proceeds to help repay $2.3 billion of debt year-to-date. As of March 31, 2025, Occidental's long-term debt stood at $24.0 billion, down from $25.0 billion at the end of 2024. The company's cash and cash equivalents increased to $2.6 billion from $2.1 billion at year-end 2024, providing enhanced liquidity.

Occidental's balance sheet continued to strengthen, with total assets of $85.0 billion and total equity of $35.1 billion as of March 31, 2025. The company maintained its dividend at $0.24 per common share for the quarter, reflecting its commitment to returning capital to shareholders while prioritizing debt reduction. Total cash dividends paid during the quarter amounted to $380 million.

Working capital saw a negative adjustment of $852 million during the quarter, primarily due to timing differences in accounts receivable, inventory, and accounts payable. Despite this temporary drag on reported operating cash flow, the company's underlying cash generation remained strong, as evidenced by the robust operating cash flow before working capital.

Looking ahead, Occidental announced a reduction in its 2025 capital guidance midpoint by $200 million and domestic operating costs by $150 million, driven by continued operational efficiency gains and schedule optimization in key production areas. These cost reduction initiatives are expected to further enhance free cash flow generation in the coming quarters, supporting the company's ongoing debt reduction efforts and potentially enabling increased returns to shareholders.

Occidental continued to execute on several key strategic initiatives in Q1 2025, with a primary focus on debt reduction, operational efficiency, and optimizing its asset portfolio:

Debt Reduction Progress

Debt reduction remains a top priority for Occidental, and the company made significant progress during the quarter. By closing asset sales of $1.3 billion and repaying $2.3 billion of debt to date in 2025, Occidental demonstrated its commitment to strengthening its balance sheet. The company's disciplined approach to capital allocation, with a focus on high-return investments and non-core asset divestiture, continues to support its deleveraging goals. Management reaffirmed its commitment to rapidly advancing toward debt reduction targets, positioning the company for greater financial flexibility in the future.

Operational Efficiency Initiatives

Occidental's "sustained focus on operational excellence" led to additional efficiency gains in Q1 2025, as highlighted by President and CEO Vicki Hollub. As a result, the company announced a reduction in the mid-point of its 2025 capital guidance by $200 million and domestic operating costs by $150 million. These improvements were primarily driven by continued operational efficiency gains and schedule optimization in the Permian and Gulf of America regions. Specific initiatives included:

• Enhanced drilling and completion techniques in the Permian Basin
• Optimized well spacing and development patterns
• Improved logistics and supply chain management
• Cost discipline across all operating regions

These efficiency gains have allowed Occidental to achieve and maintain strong production levels while reducing capital intensity, ultimately enhancing returns on invested capital and free cash flow generation.

Portfolio Optimization

Occidental continued to optimize its asset portfolio in Q1 2025, focusing on its core operations in the Permian Basin, Rockies, and Gulf of America. The $1.3 billion in asset sales during the quarter reflects the company's ongoing efforts to divest non-core assets and redeploy capital to higher-return opportunities. Management emphasized that the company's "deep, diverse portfolio of high-quality assets positions us for success in any market environment," highlighting the strategic value of Occidental's balanced asset mix across different geographic regions and commodity types.

Low Carbon Strategy

While not specifically detailed in the quarterly results, Occidental has been advancing its Low Carbon Ventures initiatives as part of its long-term strategy. The company's efforts in carbon capture, utilization, and storage (CCUS) continue to position it as a leader in the energy transition. These strategic initiatives complement Occidental's core oil and gas business while potentially opening new revenue streams and creating long-term value for shareholders.

Overall, Occidental's strategic focus on debt reduction, operational efficiency, and portfolio optimization is yielding tangible results, as evidenced by its strong financial performance in Q1 2025. The company's balanced approach to capital allocation, with investments in both traditional and low-carbon opportunities, positions it well for sustainable growth and value creation in a dynamic energy landscape.