Occidental's Q3 2025 Earnings Call: Contradictions in CapEx and Production Levels, Legacy Liability Costs, Permian Rig Activity, and Gulf of Mexico Production

Date of Call: November 11, 2025

Financials Results

• EPS: $0.65 per diluted share

Guidance:

• Q4 total company production guidance raised to a midpoint of 1.46 million BOE/day.
• OxyChem to be classified as discontinued operations beginning in Q4; OxyChem next quarter pre-tax income guided to $140M (Q3 was $197M).
• Midstream & marketing full‑year pre‑tax income expected ~ $400M above original guidance driven by gas marketing and sulfur pricing.
• 2026 CapEx framework $6.3B–$6.7B; ~ $250M reallocated to Gulf/Oman and up to $400M optional to U.S. onshore (Permian).
• Planning case WTI $55–$60 with capital flexibility to scale activity; use ~ $6.5B of proceeds to cut debt toward < $15B, lowering interest expense > $350M annually.

Business Commentary:

• Transformational Sale and Financial Strengthening:
• Occidental Petroleum announced the sale of OxyChem for $8 billion, aimed to strengthen their balance sheet by significantly deleveraging.

• This transaction will enable the company to achieve a principal debt target of less than $15 billion, reinforcing financial resilience and agility.

• Portfolio and Operational Performance:

• The company reported operating cash flow of $3.2 billion and free cash flow before working capital of $1.5 billion in Q3.

• The operational performance exceeded last year's third-quarter results despite lower WTI prices, highlighting cost management and efficiency improvements.

• Resource Expansion and Efficiency:

• 
• Occidental increased its total resource potential to 16.5 billion barrels of oil equivalent, more than doubling since 2015, with production rising to over 1.4 million BOE per day.

• The expansion is attributed to organic resource improvement through subsurface characterization and advanced recovery technologies, particularly in the Permian Basin.

• Capital Allocation and Strategic Focus:

• The company plans to invest an additional $250 million in the Gulf of Mexico water flood projects and Oman, with potentially $400 million for short-cycle high-return projects in the
• This strategic capital allocation aims to enhance returns and accelerate the development of their high-quality oil and gas portfolio.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted $3.2B operating cash flow and $1.5B free cash flow before working capital, exceeded guidance across domestic assets (Permian record 800k BOE/d), repaid $1.3B debt in the quarter (YTD $3.6B) and plans to use ~ $6.5B of OxyChem proceeds to reduce principal debt to < $15B, improve interest expense and accelerate returns.

Q&A:

• Question from Doug Legate (Wolf Research): By your math, is 2026 capex likely in the $6.3B–$6.7B range after removing chemicals and rolling off LCV, and roughly down ~$700M versus prior?
  Response: Yes — CapEx midpoint target is ~$6.3B–$6.7B: remove $900M chemicals, add ~$250M Gulf/Oman (offset by LCV roll‑off), and up to $400M can be reallocated to U.S. onshore depending on macro; more U.S. onshore raises flexibility.

• Question from Doug Legate (Wolf Research): You added ~2.5B BOE in the Permian — where does that leave drilling inventory and what is the sustaining‑capex breakeven for the portfolio?
  Response: Most of the 2.5B BOE is unconventional (secondary benches, Barnett) and maps into our disclosed drilling inventory; annual program breakevens are under $40/bbl and project economics are improving as well costs decline.

• Question from Hansel Maroon Jr. (JP Morgan): On the CO2 pilot (slide 16), can you explain applicability to older wells and the math behind the $2B BOE unconventional EOR opportunity?
  Response: Pilots on mid‑2015 wells showed ~45% uplift after five injection cycles; continued cycles could reach 60–100% uplift, raising recovery to ~15–20% and underpinning the ~2B BOE unconventional EOR opportunity across de‑risked acreage.

• Question from Hansel Maroon Jr. (JP Morgan): What can the Gulf of Mexico water‑flood projects do to productive capacity in 2026 and beyond?
  Response: Two FID projects (Kingfield, Horn Mountain) will materially improve recovery (~150M BOE potential), lower GOA decline rates (20%→~10% by 2030, 7% by 2035), with Kingfield online ~Q2 next year and Horn Mountain injection targeted 2027; returns ~40–50%.

• Question from Neil Mehta (Goldman Sachs): What are the gating items and timings for Stratos start‑up?
  Response: Commissioning is progressing; process compression and CPCU commissioned, remaining major units are centrifuges and the calciner; expect KOH circulation this quarter and CO2 injection in Q1.

• Question from Neil Mehta (Goldman Sachs): Post‑OxyChem, will you opportunistically repurchase shares to address legacy liabilities and improve returns before preferreds are callable in 2029?
  Response: Priority is using ~ $6.5B of proceeds to reduce debt toward < $15B, then opportunistic buybacks based on valuation, cash on hand and macro; maintain ~$3–$4B cash; legacy liabilities are small (~$20M/year) and long‑dated.

• Question from Paul Chang (Scotiabank): Redirecting ~$250M from LCV to Gulf/Oman — does LCV get zero spend? And what is the expected production impact from the optional $400M onshore allocation and exploration focus?
  Response: LCV CapEx is not zero — expected ~ $100M as Stratos rolls off; the optional $400M to U.S. onshore is discretionary to chase quick‑payback projects (flat to modest growth at $55–$60 WTI); EOR spend next year is light (~$100M) and exploration will be limited to step‑outs near existing facilities.

• Question from James West (Melius Research): With the OxyChem sale, are you entering a quieter, harvesting period?
  Response: Yes — strategic transformation effectively complete; focus shifts to harvesting value from a high‑quality, predominantly U.S. portfolio (mix of unconventional and conventional/EOR) and no expectation of major acquisitions.

• Question from Matt Portillo (TPH): In the Rockies, what drove the outperformance — changes to completion/spacing or other factors?
  Response: Outperformance mainly from base production improvements (artificial lift upgrades and analytics), incremental new‑well performance gains and better facility uptime rather than major completion redesigns.

• Question from Matt Portillo (TPH): How flexible is DJ inventory and how will you flex capital between DJ and Permian in a lower price environment?
  Response: DJ is being run with an optimized activity set (limited rigs/fracs); Powder River progress gives optionality; capital can be flexed toward Permian without raising total company capex — activity levels are the primary lever.

• Question from Neil Dignan (William Blair): What drove the exceptionally low Permian well costs and what returns do incremental EOR gains deliver?
  Response: Lower well costs are driven by scale (Midland + CrownRock integration), contract/service optimization and operational improvements; current EOR project returns are ~25–35% and should improve as uplift increases.

• Question from Leo Mariani (Roth): With the $6.3B–$6.7B capex range for 2026, what production change should investors expect?
  Response: Expect roughly flat to up ~2% production in 2026 (higher end driven by unconventional Permian); capital flexibility exists to cut activity if macro deteriorates.

Contradiction Point 1

Capital Expenditure (CapEx) Guidance

It involves changes in financial forecasts regarding CapEx guidance, which are critical for understanding the company's investment strategy and financial health.

Would adding the $650 million to next year's $6.3 billion CapEx forecast mean spending would be $700 million less than this year's? - Doug Legate (Wolf Research)

2025Q3: Next year's CapEx guidance will be somewhere between $6.3 billion and $6.7 billion. - Vicki Holub(CEO)

What cash tax rate would the $700 million to $800 million benefit from the One Big Beautiful Bill represent in 2026? - Arun Jayaram (JPMorgan)

2025Q2: 2025 CapEx is expected to be around $6 billion. - Vicki Hollub(CEO)

Contradiction Point 2

Legacy Liability Costs

It involves statements regarding the cost of legacy liabilities, which can impact the company's financial performance and strategic decisions.

How will you manage legacy liabilities following the OxyChem sale, and is there an opportunity to repurchase shares by August 2029? - Neil Mehta (Goldman Sachs)

2025Q3: Legacy liabilities are minimal and outside operating areas, costing $20 million annually. - Vicki Holub(CEO)

What is the size of noncore asset sales excluding the $1 billion Enterprise deal, and what is the long-term potential for these sales? - Douglas George Blyth Leggate (Wolfe Research)

2025Q2: We have identified additional liability costs to $350 million for post-closing liabilities. - Richard Jackson(COO)

Contradiction Point 3

Capital Expenditure and Production Levels

It involves expectations regarding capital expenditure and its impact on production levels, which are crucial for understanding the company's growth and financial performance.

Given the recent capital gains, adding $650 million to next year's $6.3 billion CapEx forecast—would that imply next year's spending would be about $700 million less than this year's? - Doug Legate (Wolf Research)

2025Q3: Next year's CapEx guidance will be somewhere between $6.3 billion and $6.7 billion. This includes an increase in investment in the Gulf of Mexico water flood projects and Oman, offset by roll-off capital in the low-carbon venture portfolio. U.S. onshore capital will have a greater proportion of the total CapEx, providing flexibility if the macro environment deteriorates. - Vicki Holub(CEO)

Will capital spending return to a normalized level after major projects are completed? - Doug Leggett (Wolfe Research)

2025Q1: We expect lower capital spending levels next year as major projects like Battleground are completed. This will not be replaced with additional capital. - Vicki Hollub(CEO)

Contradiction Point 4

Permian Rig Activity and Production Impact

It involves the company's commitments to maintain production levels despite changes in rig activity, which are key for operational and financial planning.

Can you clarify the drilling inventory and sustaining capital break-even for the portfolio after adding $2.5 billion in Permian resources? - Doug Legate (Wolf Research)

2025Q3: We have achieved this through subsurface characterization and technology advancements, especially in secondary benches. This includes conventional EOR reserves like Barnett, which increases our drilling inventory. Our current annual program projects are all less than $40 break-even, and we expect this trend to continue with improving resource efficiency. - Richard Jackson(COO)

Can you discuss the Permian rig cuts and how other CapEx and OpEx reductions impact 2025 capital spending and production? - Devin McDermott (Morgan Stanley)

2025Q1: We're optimizing infrastructure and reducing costs, which allows us to remove 2 rigs from our Delaware Basin program without impacting production due to improved drilling efficiencies, achieving a 15% reduction in drilling duration per well. - Richard Jackson(COO)

Contradiction Point 5

Gulf of Mexico Production and Maintenance

It involves expectations and plans for production and maintenance in the Gulf of Mexico, which could impact regional operations and energy output.

How will waterflood projects in the Gulf of Mexico affect production capacity, and what is the expected Gulf output for 2026? - Hansel Maroon Jr. (JP Morgan)

2025Q3: The Gulf of Mexico is going to be busy, as always, through Q1, Q2 and Q3. We'll have a number of platforms that will be undergoing maintenance, and we'll schedule about 16,000 barrels a day of increase and we'll -- we'll also have drilling activity. - Kenneth Dillon(COO)

What is the 2025 outlook for the Gulf of Mexico, including scheduled maintenance, and its impact on quarterly performance? - Arun Jayaram (JPMorgan)

2024Q4: The Gulf of Mexico will have busy activity with platforms undergoing maintenance, scheduled to add 16,000 barrels a day, and drilling activities adding 18,000-22,000 barrels a day. - Kenneth Dillon(COO)