Occidental Petroleum’s Balance Sheet Overhaul Fails to Soothe Investors

Occidental Petroleum cuts debt to $13.3B after $9.5B OxyChem sale, but Q1 earnings miss and hedging losses send stock down 8% despite production beat.

Occidental Petroleum has pulled off a financial feat that would make most corporate treasurers envious, slashing billions from its debt load in a single stroke. Yet the market’s response has been anything but celebratory, as operational headwinds overshadow the balance sheet progress.

The Houston-based oil giant offloaded its OxyChem chemicals division for roughly $9.5 billion, booking an after-tax gain of $3.1 billion. Management wasted little time deploying the proceeds, channeling about $6.7 billion toward debt repayment. That brought total borrowings down from $20.4 billion to $13.8 billion, while cash on hand swelled to $3.8 billion after the repayments.

A separate tally from the company shows an even more aggressive paydown, with $7.1 billion in liabilities retired by early May, pushing total debt to $13.3 billion. That puts Occidental within striking distance of its medium-term target of $10 billion in total debt, a milestone that once seemed distant.

The financial engineering has created a leaner profile, insulating the company from interest rate swings and freeing up capacity for future spending. Free cash flow generation hit $1.7 billion in the first quarter, offering further evidence that the restructuring is beginning to bear fruit.

Production Beats Guidance, Earnings Disappoint

On the operational front, the picture is more nuanced. Occidental pumped an average of 1.426 million barrels of oil equivalent per day during the first quarter, exceeding its own internal forecasts. The realized oil price climbed to $69.91 per barrel, a marked improvement from the prior quarter.

But the core business is showing strain. Earnings from continuing operations slumped to $236 million, down sharply from $830 million a year earlier. The culprit: lower commodity prices and a $339 million hit from hedging losses. Quarterly revenue of $5.23 billion fell short of the $5.44 billion analysts had penciled in, while a separate filing put the top line at $5.11 billion.

Adjusted earnings from continuing operations came in at $1.06 per share, comfortably beating the consensus estimate of $0.62. That divergence between headline weakness and adjusted strength highlights the distorting effect of one-time items and hedging volatility.

Market Punishes the Stock Despite Progress

Investors chose to focus on the negatives. The stock tumbled nearly 8% on Wednesday, sliding to around €47 — well below its 52-week high of €57.80. Over the past 30 days, the shares have shed more than 13% of their value.

Some analysts point to technical factors behind the selloff. The relative strength index had climbed to 76.7, signaling that the stock was heavily overbought following a rally that had pushed the year-to-date gain to roughly 30%. The current pullback may represent a healthy consolidation rather than a fundamental shift in sentiment.

Capital expenditure continues at an elevated pace, with $1.6 billion deployed in the first quarter, much of it directed toward oil and gas fields in the Permian Basin. The key question for the quarters ahead is how quickly the reduced interest burden translates into improved free cash flow. For now, the market seems to be taking a wait-and-see approach, weighing the structural improvements in the balance sheet against the volatility in commodity prices and the persistent revenue shortfall.