Occidental Petroleum (NYSE:OXY) generated approximately $2.8 billion in free cash flow during the third quarter of 2026 and reached its $10 billion principal debt milestone, prompting the oil producer to set a new target of $6 billion.
The company reported adjusted earnings of $1.91 per diluted share and reported earnings of $1.61 per diluted share. Chief Financial Officer Sunil Mathew said the difference was largely driven by mark-to-market losses in marketing and crude hedges.
Occidental repaid $1.8 billion of principal debt during the quarter, bringing year-to-date repayments to $10.4 billion. It ended the quarter with $3.9 billion in unrestricted cash.
Chief Executive Officer Richard Jackson said the company remains focused on adding more than $4 billion in annual sustainable cash flow by 2030 compared with 2025. The plan relies on operating efficiencies, lower production decline rates and reduced interest expense.
Debt Reduction and Shareholder Returns
Mathew said the $6 billion principal debt milestone is intended to support a debt-to-EBITDA ratio of about one at $50 per barrel West Texas Intermediate crude, a level the company would like to maintain over the long term. At the prior $10 billion milestone, that ratio was approximately one at $60 WTI, he said.
At mid-cycle or current strip prices, Occidental expects to make meaningful progress toward the new target in 2027. Mathew declined to specify when during the year the company might reach it, but said it could reach the milestone and potentially a net cash position in 2027.
After reaching $6 billion in principal debt, Occidental plans to balance further debt reduction with building cash ahead of its preferred equity redemption in August 2029. The company plans to evaluate opportunistic share repurchases once it reaches a net cash position.
Jackson described the dividend as the foundation of shareholder returns and said Occidental assesses its dividend capacity against sustainable cash flow at $50 WTI. Mathew said future increases would be measured and supported by balance-sheet strength and cash flow improvements. Occidental announced its second 8% increase to its quarterly dividend for 2026 last quarter.
Production and Spending Outlook
Third-quarter production averaged 1.43 million barrels of oil equivalent per day, exceeding the midpoint of guidance by 7,000 barrels. U.S. onshore production was 20,000 barrels per day above the midpoint of its guidance, offsetting lower-than-expected volumes in the Gulf of America and international operations.
Gulf production was curtailed by maintenance and a third-party gas pipeline constraint. Mathew said production was fully restored by late October. For the fourth quarter, Occidental expects companywide production of 1.43 million to 1.47 million barrels of oil equivalent per day, reflecting the extended pipeline constraint and the impact of an early October hurricane.
Domestic lease operating expense was $8.54 per barrel of oil equivalent in the third quarter, below guidance. Midstream and marketing generated $309 million in adjusted pretax income, helped by sulfur pricing and sales volumes at Al Hosn and higher crude marketing margins. Occidental expects full-year adjusted pretax income of $2 billion from the segment.
The company expects approximately $1.3 billion in capital spending in the fourth quarter, keeping full-year spending within its original guidance range. Its starting point for 2027 spending remains approximately $5.9 billion, with relatively flat total production compared with 2026. Mathew said oil production is expected to be flat to slightly higher.
Occidental expects $700 million to $800 million of sustainable cash flow improvement in 2027 versus 2026, including lower interest expense, the roll-off of STRATOS capital spending and oil and gas efficiencies. Combined with expected 2026 gains, that would bring the annual improvement to approximately $2 billion by year-end 2027, Mathew said.
Recovery Projects and STRATOS
Jackson highlighted enhanced oil recovery projects as part of Occidental’s effort to reduce its overall production decline rate from approximately 25% to 20% by 2030. The company’s conventional horizontal wells and EOR sidetrack program had added 10,000 barrels of oil equivalent per day as of the end of the third quarter, he said.
Occidental also signed offtake agreements with two developers for 2 million metric tons per year of carbon dioxide captured from third-party gas processing plants for use in Permian EOR operations. The projects remain subject to final investment decisions expected early next year.
At STRATOS, Occidental’s direct air capture project, Jackson said repairs involving structural supports for the calciner were progressing. The company remains on track to begin full plant startup around year-end and transition to operations in 2027. It has captured more than 2,000 metric tons of atmospheric carbon dioxide while building its pellet inventory.
Jackson said Occidental continues to expect STRATOS project EBITDA of $90 million to $130 million in 2028, following a ramp-up next year. Ken Dillon, president of international oil and gas operations, said spending on the project next year would be minimal.
About Occidental Petroleum (NYSE:OXY)
Occidental Petroleum Corporation is an energy and chemicals company headquartered in Houston, Texas. Its oil and gas business explores for and produces crude oil, natural gas liquids and natural gas, with operations in the United States and international markets, including the Middle East and North Africa. Through its OxyChem business, Occidental manufactures and markets basic chemicals and vinyl products used in applications such as water treatment, construction and consumer goods. The company also develops carbon management and lower-carbon technology projects, including carbon capture and storage.
