To The Moon

$Occidental(OXY)$ is scheduled to release its fourth-quarter (Q4 2024) results on 18 February after the market close.

Market is expecting OXY to report a year-over-year decline in its top and bottom lines with the consensus estimate for OXY’s fourth-quarter revenues is pegged at $7.14 billion, indicating a decline of 5.2% from the year-ago reported figure.

Earnings per share is expected to come in at around 68 cents. Investors are keen to assess how the oil giant balances its traditional hydrocarbon business with its ambitious carbon capture initiatives. Under CEO Vicki Hollub, OXY has positioned itself as a leader in the energy transition, leveraging high-margin oil production and pioneering direct air capture (DAC) technology.

Occidental (OXY) Last Positive Earnings Call Saw OXY Lost 4% Since

OXY has a positive earnings call on the 12 Nov 2024 but the share price have seen a negative change of 4% since. The earnings call reflected strong operational performance and strategic progress, particularly in production achievements, successful asset integration, and significant debt reduction.

However, challenges related to weather impacts, commodity price volatility, and changes in oil mix were noted as concerns.

Occidental (OXY) Guidance To Look At The Debt Reduction Efforts

During Occidental's third-quarter 2024 earnings call, the company reported remarkable performance, achieving $1.5 billion in free cash flow before working capital, surpassing guidance across all segments. The Oil & Gas segment set a new record for the highest quarterly U.S. production in the company's history, driven by strong well performance and higher uptime, particularly in the Permian Basin.

The integration of CrownRock contributed to exceeding production guidance. Vicki Hollub highlighted a 20% reduction in Permian unconventional drilling cycle times and a 10% improvement in well costs in the DJ Basin. The Chemicals segment, OxyChem, exceeded guidance despite adverse Gulf weather, while the midstream segment capitalized on natural gas price opportunities.

Additionally, the company is advancing its Direct Air Capture project, STRATOS, with a phased approach, expecting the first 250,000-ton capacity online by mid-2025. Debt reduction efforts saw a $4 billion repayment in the third quarter, with a commitment to a medium-term debt target of $15 billion.

Oil and Gas Performance: The Permian Basin and Price Volatility

OXY’s upstream segment, anchored by its dominance in the Permian Basin, remains its cash cow. Key metrics to watch:

Production Volumes: OXY aims to maintain Permian output of ~1.2 million barrels of oil equivalent per day (boe/d). The Q4 2024 report will reflect impacts from its $12 billion CrownRock acquisition (closed in early 2024), which added 170,000 boe/d in premium Permian assets.

Oil Prices: Brent crude averaged ~$85/barrel in late 2024, supported by OPEC+ supply discipline and geopolitical risks. Higher prices could boost OXY’s realized prices and cash flow.

Cost Management: Inflation in labor and equipment has pressured margins industry-wide. OXY’s focus on operational efficiency will be critical to offsetting these headwinds.

Occidental (OXY) Debt Reduction Progress

OXY has prioritized reducing its debt burden, which ballooned to 40 billion after the Anadarko acquisition in 2019.

By Q3 2024, debt stood at 40billion after the Anadarko acquisition in 2019. By Q32024, debt stood at 18.5 billion, down 55% from its peak.

For the fourth-quarter earnings we will see investors scrutinize:

Free Cash Flow (FCF): High oil prices could drive FCF above $2 billion for Q4, accelerating deleveraging.

Shareholder Returns: With debt nearing its target of $15 billion, OXY may hint at increased buybacks or dividends in 2025.

Carbon Capture: The DAC Catalyst

OXY’s $1.3 billion Stratos DAC facility in Texas which has been operational since mid-2024. This is a cornerstone of its energy transition strategy. Key updates to watch:

• Carbon Removal Credits: Stratos aims to capture 500,000 tons of CO₂ annually. Sales of carbon removal credits (priced at 400–600/ton in 2024)couldcontribute400–600/tonin2024)couldcontribute200+ million annually once fully operational.

• Government Incentives: The U.S. Inflation Reduction Act’s 45Q tax credit ($130/ton for DAC) may boost profitability.

• Partnerships: OXY’s joint ventures with Amazon, Airbus, and others for carbon credit offtakes could signal long-term revenue stability.

What To Look Out In Q4 2024

In the third-quarter, OXY has achieved the highest operating cash flow so far this year, with $1.5 billion in free cash flow before working capital, exceeding guidance in all 3 segments.

Oil & Gas Production Achievements

At the same time, in the third-quarter, OXY also exceeded the high end of production guidance, setting a new company record for the highest quarterly U.S. production in history, despite weather disruptions.

The only thing that might stop this would be Production in the Gulf of Mexico was below third quarter guidance due to unplanned downtime from hurricane-related activity.

Decline in oil mix percentage in the Permian Basin due to increased secondary bench production.

CrownRock Integration Success

Successfully integrated CrownRock assets, leading to a 9,000 BOE per day increase in the fourth quarter exit rate.

Debt Reduction Progress

Repaid $4 billion of debt, achieving 90% of near-term commitments within just 2 months of the CrownRock closing.

Ongoing concerns about commodity price volatility impacting future growth and decision-making for capital programs.

Direct Air Capture (DAC) Project Progress

Construction of STRATOS progressing smoothly with technological breakthroughs; expected to bring initial capacity online in mid-2025.

Chemical and Midstream Segment Performance

OxyChem modestly exceeded guidance, and midstream segment captured value through gas marketing optimization.

Risks and Challenges

Oil Price Volatility: A drop below $75/barrel would strain cash flow.

DAC Execution: Scaling DAC technology remains unproven at commercial levels. Delays or cost overruns could dampen investor sentiment.

Regulatory Shifts: Changes to U.S. climate policies post-2024 election may impact tax credits.

Occidental (OXY) Market Sentiment and Valuation

As of late 2024, OXY trades at ~12x forward P/E, a discount to peers like Exxon (14x) and Chevron (13x). Its valuation hinges on:

• Energy Transition Credibility: Successful DAC deployment could justify a premium.

• Balanced Capital Allocation: Investors want clarity on how OXY divides spending between oil growth, debt reduction, and low-carbon projects.

Occidental (OXY) Price Target

Based on 16 Wall Street analysts offering 12 month price targets for Occidental Petroleum in the last 3 months. The average price target is $58.69 with a high forecast of $81.00 and a low forecast of $45.00. The average price target represents a 22.12% change from the last price of $48.06.

We could see investors sentiment coming back as Trump have preferred the local American oil producers and drillers, so I am expecting OXY to show his strategy on how they are going to increase their output volume.

This should benefit its share price as well.

Technical Analysis - Exponential Moving Average (EMA)

From the technicals, we are not seeing very positive signal from OXY, as OXY struggle to breakout the 26-EMA, and we can see that RSI does not signal much strong momentum on the buying sentiment.

Hence, I am expecting some volatility move before OXY earnings, and we might see some selling as investors might be worried about how the energy sector would be moving.

I will be watching but might not add cyclical stocks like OXY into my portfolio yet.

Summary

Occidental’s Q4 2024 earnings will highlight its ability to thrive in both the traditional energy sector and the emerging carbon economy.

Strong Permian production and disciplined debt reduction should deliver solid near-term results, while progress on DAC technology could unlock long-term growth.

For investors, OXY offers a unique proposition: exposure to oil’s cyclical upside paired with a potential first-mover advantage in carbon capture.

I will be looking forward to look at the updates on Stratos DAC operational milestones, guidance for 2025 oil production and capital expenditures and commentary on carbon credit pricing and demand.

While risks remain, OXY’s strategic bets on decarbonization together with its ability to fund them through high-margin oil, this will make it a compelling story in a sector grappling with existential change.

Appreciate if you could share your thoughts in the comment section whether you think OXY would provide an earnings surprise.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.