Why Occidental Petroleum (OXY) Is the Smart Play in the Bullish Oil Sector

The global energy landscape is undergoing a seismic shift. Geopolitical tensions, soaring demand for hydrocarbons, and the push for energy security have ignited a sustained rally in oil prices. Amid this environment, Occidental Petroleum (OXY) stands out as a strategic juggernaut, leveraging its Permian Basin dominance, Berkshire Hathaway's backing, and disciplined financial restructuring to outperform peers. For growth-oriented investors, OXY's combination of operational heft, low-cost production, and a clear path to deleveraging presents a compelling entry point.

Strategic Growth Initiatives: The Permian Play and Global Expansion

OXY's Permian Basin dominance is its crown jewel. In 2025, the company closed the $12.4 billion acquisition of CrownRock, a Permian operator with prime acreage, adding 44,000 net acres and 1,500 wells. This move solidified OXY's position as the second-largest producer in the basin, where its wells boast some of the lowest breakeven costs in the industry.

But OXY isn't just doubling down on shale—it's expanding globally. In Oman, the company secured a 15-year extension of its Block 53 exploration agreement, unlocking over 800 million barrels of recoverable reserves. Pair this with its partnership with Ecopetrol in the Midland Basin, where they plan to drill 91 wells by 2026, and OXY is positioning itself as a multi-continent energy powerhouse.

Leverage Improvement: A Debt Reduction Masterclass

OXY's financial turnaround has been nothing short of impressive. After years of high leverage due to past acquisitions, the company has aggressively slashed debt by $6.8 billion over the past 10 months, reducing its debt-to-equity ratio to 70.6%—down from 128.5% in 2020.

The results are clear:
- Interest expenses fell by $370 million annually as OXY retired all 2025 debt maturities.
- Free cash flow hit $1.2 billion in Q1 2025, fueled by operational efficiencies like a 10% drop in drilling costs and a 17% faster well completion time in the Permian.
- Equity has grown 8% sequentially, even as liabilities rose modestly—a sign of balance sheet stabilization.

While OXY's leverage ratio (1.56x) remains above its historical average, the trend is undeniably upward. Management's focus on asset sales ($1.3B in Q1) and capital discipline (cutting 2025 capex by $200 million) ensures this momentum continues.

Buffett's Endorsement: A Seal of Approval

Warren Buffett's Berkshire Hathaway holds a 20% stake in OXY via warrants, which were exercised at a $50 strike price—a 40% discount to current levels. Beyond capital, Berkshire's influence is strategic: OXY now has a Berkshire executive on its board, and the partnership includes joint ventures in carbon capture and nuclear energy.

This alliance isn't just about credibility—it's about financial firepower. With Berkshire's backing, OXY can pursue high-return projects without diluting shareholders, a critical edge in today's tight credit markets.

Risks? Yes—but the Upside Outweighs Them

Critics will point to oil price volatility and OXY's still-high leverage. A sharp drop in oil prices could strain margins, while geopolitical disruptions (e.g., Middle East conflicts) add uncertainty.

But consider this:
1. OXY's Permian wells have a breakeven cost of $35–$40/barrel—far below current prices.
2. Debt maturities are manageable, with only $284M due in the next 14 months.
3. Berkshire's warrants act as a backstop, incentivizing OXY to keep stock price growth on track.

Valuation: A Buying Opportunity in a Bull Market

At current prices (~$70/share), OXY trades at a forward P/E of 12x—a discount to its 5-year average of 15x and peers like Chevron (18x). Meanwhile, its EV/EBITDA of 4.2x is among the lowest in the sector, despite its premium assets and growth profile.

Conclusion: The Time to Act Is Now

OXY isn't just a play on rising oil prices—it's a strategic bet on energy resilience. Its Permian scale, global expansion, Berkshire-backed balance sheet, and disciplined capital allocation make it uniquely positioned to thrive in both bullish and volatile markets.

For investors seeking growth in energy, OXY's combination of operational excellence, financial discipline, and institutional backing offers a rare trifecta. With shares trading at a discount to its potential, the risk-reward here is skewed heavily toward the upside.

Investors who act now could be buying a multi-year winner at a discount. Don't miss the Permian's next chapter.