Why Occidental Petroleum (OXY) Is a Smart Play as Rates Fall and Permian Power Rises

The confluence of declining interest rates, disciplined capital allocation, and operational excellence is positioning Occidental Petroleum (OXY) as a compelling investment opportunity. While the Zacks Investment Research assigns OXY a “Hold” rating, a closer look at the company's strategic moves, balance sheet resilience, and the macroeconomic backdrop suggests now is a prudent time to consider a “Buy” with a long-term horizon.

Debt Relief in a Falling Rate Environment

The Federal Reserve's gradual easing cycle—projected to reduce the federal funds rate to 3.9% by year-end—is a tailwind for OXY's balance sheet. The company has aggressively reduced debt over the past year, trimming $6.8 billion in obligations since early 2024, which slashed annual interest expenses by $370 million. Crucially, all 2025 debt maturities have been retired, leaving just $284 million due through mid-2026, per its Q1 2025 disclosures.

As rates fall further, OXY's remaining variable-rate debt—including bonds due in 2030—will see refinancing costs decline. Even a 100 basis-point cut (from 4.5% to 3.5%) could save millions annually, easing pressure on its $22.18 billion net debt burden. This flexibility is critical as the company prioritizes capital returns and growth.

Permian Power and Operational Efficiency

OXY's focus on its core Permian Basin assets is a key driver of value. The region accounts for 54% of production, and the recent CrownRock acquisition expanded its position in this high-margin oil province. Operational efficiencies are stark: in the Delaware Basin, drilling durations are 17% faster, and well costs have dropped by 18%, per Q1 2025 data. These gains reduce breakeven prices, making OXY's cash flows more resilient even at lower oil prices.

The Permian's scale and OXY's cost discipline also underpin its $9.05/BOE operating expenses, among the lowest in its peer group. This positions the company to capitalize on oil price recoveries, even as WTI hovers around $68/barrel—a level that still generates meaningful free cash flow for Permian-focused operators.

Low-Carbon Initiatives and Earnings Resilience

OXY's foray into low-carbon projects, such as its partnership with Berkshire Hathaway on carbon capture and storage (CCS), adds strategic value. These initiatives not only align with ESG trends but also open new revenue streams. For instance, its $1.155 billion in adjusted free cash flow (despite a reported $240 million dip in Q1 2025 due to accounting changes) reflects the durability of its core business.

Earnings surprises have been consistent: OXY has beaten analyst estimates in 7 of the past 10 quarters, signaling management's ability to navigate volatility. While near-term risks like oil price weakness or geopolitical tensions exist, the company's leverage to a U.S. shale recovery and energy transition plays offers asymmetric upside.

Addressing Valuation Concerns and the Zacks “Hold”

Critics point to OXY's elevated net debt and a Zacks rating of “Hold,” which cites valuation multiples. However, a deeper dive reveals price-to-book (P/B) of 0.8x—a discount to its historical average—and a forward EV/EBITDA of 4.2x, which is reasonable given its asset quality and cash flow profile.

Moreover, the “Hold” rating may underweight the benefits of Berkshire's $13 billion stake (28.2% ownership), which signals confidence in OXY's strategy. The stock's current price-to-earnings (P/E) ratio of 12x—versus an industry average of 15x—suggests it's undervalued relative to peers with less Permian exposure or growth potential.

Investment Thesis: Buy the Dip, Hold for the Cycle

The confluence of falling rates, Permian dominance, and ESG-aligned growth makes OXY a compelling buy. Investors should:
1. Focus on the macro backdrop: Further Fed rate cuts in H2 2025 will reduce debt servicing costs and improve OXY's financial flexibility.
2. Leverage the Permian advantage: High-return drilling and cost efficiencies will drive cash flow even at $60–$70/barrel oil.
3. Monitor ESG initiatives: CCS and partnerships like Berkshire's could unlock new value streams.

While short-term risks like oil price volatility exist, OXY's balance sheet strength and operational moat make it a “Buy” at current levels. Investors should consider a 12–18 month horizon, with a price target of $80–$90, reflecting a P/E expansion to industry norms and further deleveraging.

In conclusion, OXY's strategic capital allocation, the tailwind of falling rates, and its Permian-led growth narrative outweigh near-term valuation concerns. This is a stock to own as energy markets navigate the twin transitions of lower rates and a greener future.