Occidental will soon be able to reward its shareholders

Published: 2025-06-26 03:40:56 ET OXY

Published on 06/26/2025 at 03:40

By Kevin Smith

Under Vicki Hollub's leadership, the transformation of the major US oil company is entering its final phase.

The first objective was to trade geopolitical risk for a domestic repositioning. Mission accomplished: in 2015, half of Occidental's production came from high-risk countries, particularly in Africa; in 2025, 85% of its production will come from the US.

The second objective was to return to growth and increase both production and reserves. Here too, the mission has been accomplished: production has risen from 650,000 to 1.4 million boe per day, while reserves have increased from 8 to 14 billion barrels and equivalents.

It should be noted that this figure is not the result of the official audit, which reports 4.6 billion barrels and equivalents in proven reserves, but rather management's estimate of the total recoverable reserves and reserves from unconventional sources.

The third objective, which has not yet been achieved, will be to stabilize the group's financial position before it can actually start returning capital to shareholders. Occidental is still dealing with substantial debt inherited from the acquisitions of Anadarko and CrownRock—two transactions that together cost a whopping $70bn.

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Specializing in hydrocarbon production through the injection of carbon dioxide into shale rock, Occidental can now focus on exploiting the reserves added to its portfolio. Vicki Hollub estimates that with current technology, only one-fifth of the available resources are accessible, meaning that there is still huge potential for organic growth underground.

For the Occidental executive, who now enjoys a privileged relationship with her company's main shareholder, Berkshire Hathaway, it is this potential that sets her group apart from Chevron and Exxon. She believes that the latter two are too large to replace their production organically and, barring acquisitions, describes them as producers in decline.

While it is naturally advisable to apply a healthy dose of caution to all such promises and statements, it cannot be ignored that Occidental is trading at a significant discount to its peers. With WTI prices roughly equivalent, the group generated $5bn in free cash flow last year, compared with a current market capitalization of $43bn and an enterprise value of $75bn.

When asked about the risk of recession in the United States, Vicki Hollub said she did not see any particular signs of this. One factor that is usually reliable is a decline in demand for refined products, but this has not yet materialized.

Kevin Smith