Occidental Petroleum (OXY): Earnings Stress Meets Big-Bet Carbon Investment

Fiscal 2024 delivered a stark contrast: weaker oil earnings but a balance sheet that grew to fund a strategic pivot#

Occidental Petroleum delivered FY2024 revenue of $27.10B, down -4.34% versus FY2023, while net income collapsed to $3.04B (-34.95% YoY) as the company increased investing activity and completed material acquisitions. At the same time the balance sheet expanded: net debt rose by $5.49B to $24.97B, driven largely by $7.46B of acquisitions and roughly $7.02B of capital expenditures in 2024. That combination — softer commodity results, heavy cash deployment for growth and a higher leverage profile — is the defining near‑term storyline for [OXY]. (Occidental FY2024 filings; see SEC filings for detail.)

Occidental’s FY2024 numbers create a tension: core upstream profitability remains strong on a margin basis, yet free cash flow and net income have downshifted as management funds long‑dated, capital‑intensive low‑carbon projects and inorganic growth. How effectively the company converts those investments into contract‑backed, margin‑accretive revenue will determine whether the strategy de‑cycles Occidental’s earnings or simply increases balance‑sheet and execution risk.

Financial performance snapshot: margins held but headline profitability and cash flow retreated#

On a margin basis Occidental retains industry‑class profitability. EBITDA was $12.72B in 2024, implying an EBITDA margin of ~46.96% on $27.10B of revenue. Operating income of $5.97B equates to a 22.02% operating margin, and net income margin was roughly 11.22% for the year. Those ratios underline efficient asset performance and a high‑margin Permian franchise. (Occidental FY2024 income statement)

Despite healthy margins, headline profitability and cash returns weakened. Net income fell to $3.04B (-34.95% YoY) and free cash flow declined to $4.42B (-27.06% YoY). A meaningful part of that decline is explainable by the company’s substantial investing and acquisition activity in 2024: capital expenditure of $7.02B plus acquisitions totaling $7.46B far outpaced prior years and drove net cash used in investing of $14.59B for the year. These outlays show management is accelerating the build‑out of low‑carbon assets even as it maintains Permian investment. (Occidental FY2024 cash flow statement)

There are data inconsistencies across vendor feeds that merit callouts. A public quote snapshot lists EPS at $1.70 and a trailing multiple of 26.55x, whereas Occidental’s fundamentals show a TTM net income per share of $3.12 and a TTM PE of ~14.46x. The difference reflects a mix of periodic data snapshots and differing TTM definitions; for analysis of enterprise leverage and cash‑generation we rely on the company’s FY2024 reported line items and TTM aggregates from the company filing. (SEC filings; vendor quote feeds.)

Table — Income statement highlights (FY2022–FY2024)#

(Values from Occidental FY2024 management disclosures and 2024 annual financial statements.)

Table — Balance sheet & cash flow highlights (FY2022–FY2024)#

(Occidental FY2024 balance sheet and cash flow disclosures.)

What the numbers tell us: cash engine, but shifting capital allocation and higher leverage#

Occidental’s Permian and broader upstream operations still produce abundant cash: operating cash flow was $11.44B in 2024, or about 42.25% of revenue. That level of operating cash flow is the firm’s primary financial anchor and explains management’s ability to simultaneously fund dividends, maintain investment in the Permian and scale DAC ambitions. Yet the company’s capital allocation choices materially changed the balance sheet. Net debt rose by $5.49B (+28.19%) year‑over‑year and long‑term debt increased by $6.33B (+32.86%), reflecting financing of acquisitions and higher project spending.

Two implications follow. First, Occidental retains the cash‑generating engine necessary to fund strategic initiatives without pressing liquidity stress in normal market conditions. Second, the cadence and scale of low‑carbon and inorganic investment have increased execution and funding risk: sizable capital and integration tasks must now produce contracted revenue or cost synergies to justify the leverage step‑up.

Earnings quality: real cash versus accounting profit#

Earnings remain supported by strong depreciation and D&A (2024 depreciation and amortization ~$7.71B) that feed EBITDA but reduce reported net income. The company posted four consecutive positive earnings surprises in 2024–2025 reported quarters (examples: 2025‑08‑06 actual $0.39 vs est. $0.2973; 2025‑05‑07 actual $0.87 vs est. $0.783), showing operational upside in the short term. However, free cash flow — arguably the cleaner measure of earnings quality in capital‑intensive E&P — declined by -27.06% YoY to $4.42B, reflecting heavy capex and acquisitions. That divergence (still‑strong EBITDA but falling FCF) signals that investors should watch cash conversion closely as a read on whether acquisitions and DAC investment are value‑creating or simply growth at the cost of cash returns.

Strategic transformation: funding DAC and low‑carbon scale while preserving a high‑margin Permian#

Occidental has clearly allocated a growing portion of capital to low‑carbon ventures and industrial‑scale direct air capture (DAC). Management has signaled multi‑hundreds‑of‑millions annual allocations to DAC and low‑carbon projects while keeping ~75% of 2025 planned capex targeted to U.S. onshore oil & gas (primarily the Permian). These choices are visible in 2024 numbers: roughly $450M earmarked for low‑carbon in the 2025 plan (company disclosures), significant acquisitions (including Carbon Engineering integration via 1PointFive) and the cash outflows recorded as acquisitions and capex.

This dual approach — maintain a high‑margin hydrocarbon cash engine while building a vertically integrated capture + storage platform — creates a trade‑off. If DAC scale can be achieved at targeted unit economics (management targets sub‑$100/ton over time, with initial Stratos capacity guided at ~500k tons/year and expansion goals to multi‑million tons by 2030), then the new revenue streams (long‑dated offtakes, potential tax incentives and project‑level margins) can diversify earnings and reduce dependence on spot oil prices. If unit costs or offtake pricing disappoint, the company may bear a prolonged period of higher leverage and lower near‑term returns.

Competitive positioning in carbon removal: vertical integration and pre‑sold credits are material assets#

Occidental is not building DAC into an empty plan. The company’s acquisition of Carbon Engineering supplies proprietary capture technology, while its Permian and South Texas storage footprints supply geological capacity for permanent injection. Management has reported pre‑sold offtake commitments for a substantial portion of Stratos output through 2030 with buyers in corporate procurement markets. Those combined elements — capture IP, storage acreage and contracted demand — provide a defensible, vertically integrated position when compared to many stand‑alone DAC startups that lack long‑term storage or pre‑contracted demand.

Nevertheless, first‑mover advantage will be decided on execution: translating pre‑sales into reliable cash flows requires on‑time construction, operational uptime, cost reductions and third‑party verification of removals. Industry‑wide, carbon removal pricing remains volatile and the voluntary market is still maturing; Occidental’s economics ultimately depend on maintaining credit quality and buyer willingness to pay premiums for durable removals.

Capital allocation and shareholder returns: dividends, buybacks and balance‑sheet choices#

Occidental continued to pay dividends in 2024 (dividends paid $1.45B) and announced quarterly distributions consistent with the declared $0.24 per share quarterly dividend in 2025 payments. Using 2024 cash dividends relative to 2024 net income, the implied payout based on cash flow was ~46.8% (dividendsPaid $1.45B / netIncome $3.1B per cash flow statement), while the conventional dividend yield at the $45.14 share price and $0.92 annual dividend is ~2.04%. These figures show a meaningful cash return to shareholders alongside elevated reinvestment.

Occidental’s repurchases in 2024 were modest compared with prior years (-$27M repurchased), reflecting management’s preference to deploy cash into inorganic and low‑carbon investments while maintaining a dividend. The mix signals a capital‑allocation philosophy that favors balance‑sheet rebuilding in some periods and strategic growth spending in others — a posture consistent with the company’s transition narrative but one that also increases sensitivity to cash‑flow volatility.

Execution risks and the biggest near‑term catalysts to watch#

Execution risk centers on three items. First, DAC project delivery and cost‑curve improvements: failing to reach the company’s sub‑$100/ton target materially reduces margin prospects for Stratos and subsequent hubs. Second, commodity cyclicality: Occidental’s upstream cash flow still depends on oil and gas prices, and a sustained downcycle would compress the company’s ability to fund both dividends and aggressive low‑carbon investment. Third, integration risk from acquisitions: the company spent $7.46B on acquisitions in 2024, creating potential integration and capital‑efficiency hurdles.

Key near‑term catalysts include quarterly free cash flow trends, progress reports on Stratos build milestones and unit cost guidance, third‑party verification and offtake monetization timelines, and any changes in debt maturity profile or financing costs. Positive read‑throughs would be improving FCF conversion despite higher capex, accelerating offtake monetization, or demonstrable declines in DAC unit costs. Negative signals would be further FCF erosion, delayed DAC commissioning, or weaker offtake pricing.

Historical patterns and management credibility#

Occidental’s historical record shows an ability to generate outsized cash when commodity markets are favorable (e.g., FY2022 net income and FCF peaks), and management has repeatedly prioritized using that cash for dividends, debt reduction and strategic investment. The 2024 pivot toward larger acquisitions and capex for low‑carbon projects is an acceleration of a strategy announced in prior years. The track record of delivering large upstream projects and integrating acquisitions is mixed in the broader E&P sector, so management credibility now depends on timely delivery of DAC plants and disciplined integration of Carbon Engineering and other assets.

Warren Buffett’s Berkshire Hathaway stake is a notable governance signal that underwrites patience and long‑term capital; however, it does not eliminate execution risk. Buffett’s involvement changes the shadow price of financing stress but does not substitute for project execution or market demand for removals.

What this means for investors#

The data present a clear, testable hypothesis: Occidental can de‑cycle its earnings and add durable, long‑dated revenue by pairing a cash‑generative Permian franchise with vertically integrated DAC and storage assets. That hypothesis is credible if three conditions are met: the company achieves meaningful DAC cost declines, pre‑sold credits convert into cash flows on schedule, and upstream cash generation remains adequate through commodity cycles to both fund growth and service higher leverage.

Concretely, the most important items to monitor are quarterly free cash flow conversion relative to capex and acquisitions, the pace of net‑debt reduction (or stabilization), DAC commissioning timelines and unit economics, and the robustness of offtake contracts and verification regimes. Improvements on those fronts would validate the strategic pivot; continued FCF erosion or project delays would raise questions about timing and financing risk.

Key takeaways#

Occidental’s FY2024 results show a company that retained high margins even as headline profit and free cash flow softened while it financed a meaningful step‑up in investment. Revenue fell to $27.10B (-4.34% YoY) and net income to $3.04B (-34.95% YoY), while net debt rose +$5.49B to $24.97B to fund acquisitions and DAC build‑out. The firm’s vertically integrated DAC posture (capture IP + storage + pre‑sold offtakes) is one of the sector’s most advanced commercial plays, but the path to economic scale requires sustained execution and favorable offtake pricing.

Occidental remains a cash‑generative operator with a strategic ambition that, if executed, could change the mix and cyclicality of future earnings. The next 12–24 months of cash‑flow data, DAC commissioning milestones and offtake monetization will be decisive in determining whether these investments convert into durable value or simply raise the firm’s operating and financing risk.

(For full line‑item detail, see Occidental’s FY2024 financial statements filed 2025‑02‑18 and public SEC filings: https://www.sec.gov/cgi-bin/browse-edgar?CIK=0001001227. Background on the company’s DAC strategy and Carbon Engineering acquisition is available in corporate disclosures and public summaries including Occidental’s company resources and industry coverage such as the company Wikipedia entry.)