Balance Sheet Improvement And Cash Returns Will Shape Future Resilience

Key Takeaways

• Strong oil and gas demand, efficiency gains, and deleveraging drive robust, resilient cash flows and improved profitability, supporting long-term growth and shareholder returns.
  
• Strategic investment in carbon capture and U.S.-based operations positions the company to benefit from policy tailwinds and capitalize on evolving market dynamics.
  
• Heavy reliance on oil exposes Occidental to industry shifts, financial strains, chemical oversupply, uncertain carbon strategies, and long-term operational risks from workforce and technology challenges.

Catalysts

Engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally.

• Persistent global demand for oil and gas-supported by population growth and increased middle-class consumption in emerging markets-continues to underpin Occidental's robust production outlook, as evidenced by strong, resilient cash flows even in a lower price environment and contract extensions unlocking additional long-life reserves, boding well for long-term revenues and earnings.
  
• The company's accelerated expansion and commercialization of carbon capture, including imminent operational start of the STRATOS Direct Air Capture facility and newly contracted CDR volumes through 2030, positions Occidental to monetize carbon management via government incentives (e.g., 45Q credits) and growing CDR demand, supporting incremental, high-margin revenue and improved net margins.
  
• Ongoing structural cost reductions and efficiency gains-driven by automation, AI integration, and drilling improvements in core assets like the Permian and Oman-have structurally lowered per-barrel operating and capital costs, allowing production to grow without a rise in absolute costs, supporting higher free cash flow, earnings, and sustainable margin expansion.
  
• Strategic deleveraging, including accelerated $7.5 billion debt repayment through asset divestitures and cash flow, has substantially reduced annual interest expense and improved Occidental's balance sheet flexibility, enhancing net earnings and enabling greater future capital returns to shareholders.
  
• Enhanced focus on U.S.-dominated energy production and proven EOR capabilities-combined with government support for domestic energy security and expanded carbon utilization policies-positions Occidental to capitalize on the slow transition away from fossil fuels, translating into resilient long-term revenue and stable or increasing net margins.

Occidental Petroleum Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Occidental Petroleum's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 12.7% in 3 years time.
• Analysts expect earnings to reach $3.7 billion (and earnings per share of $3.29) by about September 2028, up from $1.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $5.7 billion in earnings, and the most bearish expecting $2.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, down from 25.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 4.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.71%, as per the Simply Wall St company report.

Occidental Petroleum Future Earnings Per Share Growth

Risks

• Significant exposure to oil price volatility remains a core risk given Occidental's business is predominantly oil and gas; any secular decline in oil demand (e.g., via global energy transition, electric vehicle adoption, or aggressive net zero policies) could pressure long-term revenues and make sustained cost reduction insufficient to protect margins.
  
• Despite impressive progress on debt reduction, Occidental's high leverage following acquisitions like CrownRock and capital-intensive projects such as STRATOS could threaten balance sheet strength; increased interest costs or restricted access to capital markets due to future ESG-driven investor pressures may limit financial flexibility and negatively impact net earnings.
  
• OxyChem earnings have proven highly sensitive to global overcapacity-particularly from Chinese PVC and caustic exports-and a prolonged period of oversupply could continue to compress margins, weakening this diversification benefit and reducing consolidated net margins.
  
• The company's optimism about Direct Air Capture (DAC) and carbon management is contingent on successful commercialization, scalability, and supportive policy environments; delays in technological cost reduction, regulatory uncertainty, or insufficient market demand for carbon credits could mean anticipated high-margin revenue streams from CCUS and DAC may not offset operating or capital expenditures, thereby diluting net margins.
  
• Structural labor shortages and aging workforce trends in oil and gas, highlighted alongside the need for new technology adoption (AI, automation), may elevate costs and execution risk; if labor constraints outpace efficiency gains, Occidental could face rising operating expenses, increased project delays, and pressured net income over the long term.

Valuation

• The analysts have a consensus price target of $50.652 for Occidental Petroleum based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.0 billion, earnings will come to $3.7 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of $45.14, the analyst price target of $50.65 is 10.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.