Occidental Petroleum forecasts flat production, lower spending in 2026
News Summary
Occidental Petroleum (OXY.N) projects flat to 2% production growth in 2026, predominantly driven by its Permian unconventional operations. This outlook comes amidst a global oil slump, with crude prices hovering in the low $60-per-barrel range due to increased OPEC+ output and softening global demand. The company forecasts 2026 capital expenditure to decrease to between $6.3 billion and $6.7 billion, down from its 2025 projection of $7.1 billion to $7.3 billion. Occidental plans to strategically allocate up to $400 million to U.S. onshore projects in the Permian Basin and Rockies, and an additional $250 million to the Gulf of Mexico and Oman, while scaling back investments in its low-carbon portfolio. CFO Sunil Mathew emphasized a continued focus on debt reduction, incurred from the Anadarko Petroleum and CrownRock acquisitions, and enhancing shareholder returns through opportunistic share repurchases, with preferred share redemption slated to resume in August 2029.
Background
Occidental Petroleum is one of the major U.S. oil and gas producers, with significant assets particularly in the Permian Basin. Under President Donald Trump's administration, U.S. energy policies have generally favored domestic oil and gas production and eased regulatory burdens, providing a relatively conducive operating environment for companies like Occidental Petroleum. The current global crude oil market faces multiple challenges, with OPEC+'s output policies and slowing global economic growth exerting downward pressure on oil prices, keeping international crude prices in the low $60s per barrel. Against this macroeconomic backdrop, energy companies are generally under pressure to balance production growth, capital expenditure, and shareholder returns.
In-Depth AI Insights
What are the true motivations behind Occidental Petroleum's reduction in its low-carbon portfolio investments? - Cutting low-carbon investments is a pragmatic financial decision amidst low oil prices and the company's focus on debt reduction and enhancing shareholder returns. - This might also reflect reduced policy support for climate change agendas under the Trump administration, allowing the company to concentrate resources on higher-return conventional fossil fuel projects. - This strategic pivot signals a prioritization of short-term profitability and capital efficiency over long-term ESG goals, especially during periods of increased uncertainty regarding the energy transition pathway. What is the strategic significance of allocating more capital to U.S. onshore operations (Permian, Rockies) and the Gulf of Mexico? - Concentrating capital in established regions like the U.S. onshore and Gulf of Mexico offers greater operational flexibility and control should macroeconomic conditions worsen. - This could be a defensive strategy to mitigate international risks amid rising geopolitical uncertainties, leveraging the U.S. as a relatively stable producing region. - The Permian Basin remains one of the most cost-effective producing regions in the U.S., and continued investment ensures the company can quickly scale production and capitalize on market opportunities when oil prices recover. How is Occidental Petroleum balancing its commitment to debt reduction with boosting shareholder returns in the current oil price environment? - The company's plan to resume preferred share redemption in August 2029 and engage in opportunistic share repurchases suggests management confidence in future cash flow generation, even with current weak oil prices. - Preferred share redemption typically signals improving financial health and reduces fixed dividend burdens, thereby unlocking more value for common shareholders. - This balancing act likely relies on strict capital expenditure discipline (as seen in the 2026 cuts) and improving operational efficiency from existing assets, allowing for gradual financial deleveraging and enhanced shareholder value without incurring additional debt.