Occidental outlines $500M in 2025 cost reductions and targets $7.5B debt repayment ahead of schedule

Earnings Call Insights: Occidental Petroleum Corporation (OXY) Q2 2025

Management View

• Vicki A. Hollub, President and CEO, reported “$2.6 billion of operating cash flow in the second quarter” and stated that the company generated more operating cash flow in the first half of 2025 than in the first half of 2024, despite a much lower oil price environment. She cited WTI averaging “$11 per barrel lower in the first half of 2025.”
• Hollub highlighted that the company repaid “$7.5 billion of debt in less than a year from closing the CrownRock acquisition, that’s well ahead of target,” amounting to nearly a 70% reduction of the debt raised for the acquisition.
• She announced, “STRATOS has achieved a significant milestone, and we’re on track to start capturing CO2 this year.” The CEO emphasized momentum behind Direct Air Capture and the growing market for Carbon Dioxide Removal credits, noting new commercial agreements and a potential joint venture with XRG for a facility in South Texas.
• Hollub underscored operational improvements, stating that oil and gas production reached “1.4 million BOE per day, exceeding the midpoint of our production guidance,” and that per barrel operating cost fell to “$8.55.” She noted, “By integrating automation, field sensors and artificial intelligence… we have transitioned approximately 40% of our onshore production to ruthless operations.”
• She discussed $950 million of additional divestitures since Q1, bringing announced divestitures to nearly $4 billion since January 2024. She said, “We expect value creation to expand as we continue to harness cross operational synergies throughout our Permian operations.”
• Sunil Mathew, Senior VP & CFO, stated, “In the second quarter, we generated an adjusted profit of $0.39 per diluted share and a reported profit of $0.26 per share.” Mathew cited approximately “$700 million in free cash flow before working capital” and disclosed an effective tax rate increase due to a shift in the jurisdictional mix of income.

Outlook

• Mathew indicated, “In the third quarter, we expect our total company production range to increase to 1.42 million to 1.46 million BOE per day as we sustain operational momentum and anticipate higher volumes in all of our main operating areas.”
• He confirmed that total company production guidance for the year is being maintained, with a stronger outlook on U.S. onshore assets and increased Oman production offsetting lower Gulf of America volumes.
• Mathew revised Midstream & Marketing full year guidance upwards by $85 million, based on strong Q2 performance.
• OxyChem’s full-year guidance was lowered to a range of $800 million to $900 million due to excess supply and margin compression in caustic and PVC.
• The company expects “$500 million in total reductions relative to the original plan” for 2025 capital and operating costs.
• Mathew projected a potential $700 million to $800 million reduction in cash taxes, with “roughly 35% expected to be realized in 2025 and the remainder in 2026,” due to the recent One Big Beautiful Bill.

Financial Results

• Adjusted profit was $0.39 per diluted share and reported profit was $0.26 per share in Q2.
• Operating cash flow reached $2.6 billion in Q2, and free cash flow before working capital was approximately $700 million, despite lower realized oil prices.
• The company ended the quarter with $2.3 billion of unrestricted cash on the balance sheet.
• Domestic lease operating expense was reported at $8.55 per barrel.
• Midstream & Marketing segment generated positive adjusted earnings of approximately $206 million.
• OxyChem pre-tax income came in below guidance due to weak pricing.

Q&A

• Arun Jayaram, JPMorgan: Asked about the $700 million to $800 million cash tax tailwind from legislative changes and how it impacts cash tax rates in 2026. Sunil Mathew confirmed the timing and explained, “the adjusted income effective tax rate will not be impacted by the cash tax benefit, but what you’re going to see is an increased deferred tax expense…”
• Doug Leggate, Wolfe Research: Queried on Oman contract implications and non-core asset sales. Hollub described the Oman extension as win-win and said, “we have a lot of acreage… needs to be cleaned up, accumulated and sold. Those would not be big dollars.”
• Wei Jiang, Barclays: Asked if policy changes would shift focus to point-source carbon capture. Hollub stated, “We’ve always been interested in point source capture… we’ll continue looking for point source.”
• Nitin Kumar, Mizuho: Sought clarification on how cost savings will affect Lower 48 spending in 2026. Hollub replied, “next year, we will have a reduction in our OxyChem spend by about $300 million, reduction in LCV by $250 million.”
• Neil Mehta, Goldman Sachs: Asked about digital applications in oil fields. Hollub said, “We are so excited about what we’ve been able to do internally… building our AI capabilities.”
• Scott Gruber, Citigroup: Asked about economic viability of shale EOR. Hollub responded, “it’s really more about the availability of the CO2…we have modeled it enough…we know that it will work.”

Sentiment Analysis

• Analysts pressed management on cash flows, capital allocation, and long-term project viability, with a generally neutral to slightly constructive tone, seeking clarification on tax benefits, Oman, and asset sales.
• Management reflected confidence in operational efficiency, debt repayment, and strategic direction. Hollub used assertive language: “We are confident in the sustainability of these cost reductions as the majority are structural in nature.” Mathew’s tone remained upbeat: “Our strong operational and financial performance can largely be attributed to higher volumes…”
• Compared to Q1, analysts maintained a similar tone, focusing on cash flow and capital discipline. Management’s confidence appeared higher, especially regarding debt reduction and new project milestones.

Quarter-over-Quarter Comparison

• Guidance for full-year production was reaffirmed; Midstream & Marketing guidance increased by $85 million, while OxyChem guidance was reduced from the previous quarter’s $900 million-$1 billion to $800 million-$900 million.
• Operating cash flow in Q2 was lower than Q1, but management emphasized that first-half 2025 cash flow surpassed prior-year levels despite lower oil prices.
• Debt repayment accelerated, reaching $7.5 billion since the CrownRock acquisition—an increase from $6.8 billion at Q1.
• Management tone was more optimistic on debt reduction and cost efficiencies, while analysts’ focus shifted more toward tax legislation impacts and divestiture strategy.
• Strategic priorities remained on operational excellence, deleveraging, and leveraging new carbon management technologies, with added emphasis on digital innovations and AI.

Risks and Concerns

• Management cited continued weak pricing and oversupply in OxyChem’s caustic and PVC markets as a challenge.
• Gulf of America production remains subject to turnaround timing and third-party constraints.
• Hollub noted, “the main restriction for us in terms of capital and for the industry itself is right now, we have an oversupplied market,” and affirmed commitment to debt reduction over aggressive growth.
• Analyst concerns included sustainability of cost reductions, future of OxyChem margins, and timing of Gulf of America production ramp-up.

Final Takeaway

Occidental’s Q2 2025 call highlighted accelerated debt reduction, structural cost savings, and operational efficiency advancements that allowed strong cash flow performance despite lower oil prices. The company reaffirmed production guidance, increased Midstream & Marketing expectations, and lowered OxyChem outlook due to market headwinds. Management emphasized progress in digital innovation and carbon management, while analysts focused on capital allocation and future tax benefits. The company sees its current portfolio and operational improvements as a foundation for long-term value creation.

Read the full Earnings Call Transcript