Occidental Petroleum Beats Production Guidance and Lays Out $4B Cash-Flow Roadmap
Occidental Petroleum (NYSE: OXY) reported second-quarter production above the midpoint of its guidance and delivered its strongest quarterly free cash flow since the third quarter of 2022, while laying out a plan to add more than $4 billion in annual sustainable cash flow by 2030.
President and CEO Richard Jackson said management’s focus is on increasing both returns on capital and returns of capital through the cycle. The priorities, he said, are a stronger balance sheet, better resource recovery, lower costs and differentiated cash flow.
“We see a clear pathway to add over $4 billion of annual sustainable cash flow by 2030,” Jackson said. He framed the projected improvement as roughly 95% annualized growth from 2025 levels, driven mostly by lower costs and lower sustaining capital needs rather than production growth.
CFO Sunil Mathew said second-quarter adjusted earnings were $2.40 per diluted share, while reported earnings were $2.75 per diluted share. The difference was driven largely by mark-to-market gains on marketing and crude hedges, plus a dilution gain in equity investment income. Free cash flow before working capital came in at roughly $3 billion, helped by operational performance, cost discipline and stronger commodity prices. The company ended the period with about $4.2 billion of unrestricted cash.
Production averaged 1.43 million barrels of oil equivalent per day, beating the midpoint of guidance by 23,000 BOE/d. Strong base and new-well performance in the Permian Basin, along with higher uptime in the Gulf of America, more than offset lower international volumes tied to Middle East disruptions.
Domestic lease operating expense was $7.80 per BOE, about 6% below guidance. Mathew credited higher production and optimized maintenance scheduling in the Gulf of America for the better-than-expected result.
Midstream and marketing adjusted earnings rose to a quarterly record of roughly $960 million, more than double the segment guidance midpoint. Gas marketing optimization, crude marketing margins tied to cargo-sale timing and commodity-price moves, and higher sulfur prices at Al Hosn were the main drivers. Lower sulfur sales provided a partial offset.
Occidental reduced principal debt by $1.5 billion to $11.8 billion during the quarter, the lowest level since the second quarter of 2019. Net principal debt was $7.6 billion at quarter-end, including the company’s cash balance. With only $414 million due through 2029, near-term maturities remain limited. The company estimated its go-forward annual interest expense at about $760 million, roughly $630 million below 2025 interest payments.
The board raised the quarterly dividend by 8% to $0.28 per share. Management said the immediate priority is cutting principal debt to $10 billion. After that, Occidental plans to focus on lowering net debt while balancing additional repayment with cash accumulation ahead of its preferred equity redemption in August 2029. Share repurchases will remain opportunistic, Mathew said, with a continuous buyback program lower on the list until the preferred equity is redeemed.
The company expects sustaining capital to fall by $900 million by 2030, underpinned by capital-efficiency gains and a slower base decline rate. Occidental sees its base decline rate dropping from roughly 25% today to around 20% by 2030 as advanced recovery projects mature. That matters for the broader thesis: less capital required to hold output steady means more cash can be returned to shareholders or used for debt reduction.
Jackson said the company has delivered more than $2 billion in savings since 2023 and remains on track for its 2026 targets. The cost program includes lower U.S. onshore well costs, reduced domestic lease operating and transportation expenses, and better workforce efficiency through simplification and technology deployment.
Low-carbon spending is also expected to ease. About $400 million of capital in the low-carbon ventures segment should roll off beginning next year as the Stratos direct air capture project shifts from development toward operations. Jackson said repair and commissioning work on Stratos Trains 3 and 4 is progressing, with full plant commissioning expected around year-end and operations anticipated in 2027.
For 2027, Occidental’s starting capital-spending level is planned at $5.9 billion, including investment in mid-cycle projects designed to reduce future decline rates and sustaining capital. At that spending level, production is expected to be roughly flat with 2026. Sustaining capital could decline to about $4.5 billion by 2030, the company said.
For the third quarter, Occidental expects production of 1.4 million to 1.44 million BOE/d. Permian volumes should increase after adjusting for a non-recurring second-quarter uplift, while Rockies output is expected to decline because of activity timing. Planned maintenance and a weather contingency will affect Gulf of America production, and international volumes should normalize, though management said Middle East conditions remain fluid.
The company raised its full-year production guidance on stronger domestic new-well and base performance, which is expected to offset modestly lower international volumes. Full-year capital spending guidance remains at $5.5 billion to $5.9 billion, and domestic lease operating expense guidance stays at $8.10 per BOE.
Third-quarter domestic LOE is expected to be $8.75 per BOE because of the Gulf maintenance shift and weather contingency. Midstream and marketing income is expected to decline as the Waha-to-Gulf Coast natural-gas spread narrows, but management expects stronger upstream gas realizations to offset most of the impact. The company raised full-year midstream and marketing guidance by $300 million after a strong first half.
Jackson said advanced recovery techniques, including waterflooding, enhanced oil recovery and unconventional CO2 applications, are central to lowering decline rates and increasing recovery. The company also cited stronger well productivity and lower costs in the Powder River Basin, where it is expanding activity as part of its U.S. oil development program.
Occidental Petroleum is an international energy company with upstream, midstream and chemicals businesses. Its operations are concentrated in the United States, with a major presence in the Permian Basin and international exploration and production in parts of the Middle East, Latin America and Africa.