OXY's OxyChem Sale Advances Deleveraging, But Execution and Oil Risks Persist

What happened

The DeepValue report positions Occidental Petroleum as a potential buy, highlighting its leveraged exposure to oil-rich assets and a deleveraging plan centered on the $9.7 billion OxyChem sale. Success depends on applying over $6.5 billion in proceeds to debt reduction, aiming to cut principal debt below $15 billion and improve financial flexibility. A new Seeking Alpha article reiterates a Strong Buy rating, confirming the strategic use of $6.5 billion from the sale for accelerated debt repayment and cost efficiencies. However, the report cautions that OXY faces substantial headwinds, including oil price volatility linked to EIA's low-$50s Brent forecast, high long-term liabilities, and unproven carbon capture projects. Thus, while the inflection point appears nearer, the path remains fraught with operational and market uncertainties that demand careful scrutiny.

Implication

The confirmed OxyChem sale and debt repayment plan reduce balance sheet uncertainty, potentially supporting credit upgrades and lower interest costs over time. Divesting the chemical segment concentrates earnings in upstream operations, amplifying exposure to oil price swings and Midland-to-Gulf spreads. Current low valuations at ~3.4x EV/EBITDA offer upside if deleveraging proceeds smoothly and commodity prices stabilize above pessimistic forecasts. However, the capital-intensive DAC/CCUS strategy remains unproven, with execution risks that could strain cash flows and delay shareholder returns. Therefore, a measured investment approach is prudent, aligning position size with the high sensitivity to external factors and internal execution challenges.

Thesis delta

The Seeking Alpha article reinforces the existing DeepValue thesis by providing updated confirmation of the OxyChem sale's debt reduction plans, but it does not materially shift the risk assessment. The stance remains a potential buy, as execution on deleveraging is progressing, yet oil price sensitivity and carbon project outcomes continue to warrant caution without further de-risking.