Can OXY Stock Continue to Benefit From its Permian Basin Focus?

Globe and Mail

4 hours ago

Occidental Petroleum Corporation OXY is among the largest operators in the Permian Basin, a major hub for U.S. oil and gas production. The company has strengthened its footprint in the region with the acquisition of CrownRock L.P. In 2025, the Permian is expected to contribute about 55% of Occidental's total output. Due to improved drilling efficiency and infrastructure optimization, Occidental has reduced its Permian capital spending by $100 million for the year.
Despite the spending reduction, Occidental plans to invest $3.5 billion to $3.7 billion in the Permian throughout 2025 to upgrade and expand operations. In the first quarter alone, 125 wells were brought online and the company aims to drill 515 to 565 wells by year-end. Occidental controls 1.5 million acres in unconventional areas and 1.4 million acres in conventional zones, underscoring its strong regional presence.
Operational efficiency remains a key focus. The company projects a 15% reduction in drilling time per well and an 11% drop in average well costs in 2025 compared with 2024. These improvements stem from enhanced well designs, consistent scheduling and technology upgrades that streamline development.
Occidental holds a decade's worth of high-return inventory in the Permian under current economic and technical conditions. Ongoing advances in drilling technology are improving output, reducing environmental impact and enabling access to previously untapped resources. This positions Occidental for long-term value creation from its Permian-focused strategy.
Other Operators in the Permian Basin
The Permian Basin, due to its richness in reserves, draws big oil and gas operators and makes it highly competitive. The operators compete to increase acreage in this region.
EOG Resources EOG and ConocoPhillips COP are among the top producers in the Permian region. Both EOG Resources and ConocoPhillips hold substantial volumes of assets in the Permian region and are going to benefit from high-return, low-carbon and capital-flexible assets.
Strong production volumes from the Permian Basin act as a tailwind for EOG Resources and ConocoPhillips. A substantial volume of cash flow of these companies comes from the Permian.
OXY Stock's Price Performance
Occidental's shares have lost 11.4% in the past three months compared with the Zacks Oil and Gas- Integrated- United States industry's 8.8% decline.
OXY Stock Trading at a Premium
Occidental Petroleum's shares are currently trading at a premium compared with the industry. OXY's current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 4.96X compared with the industry average of 4.65X. It indicates that the company is presently marginally overvalued compared with its industry.
Occidental's ROE Lower Than the Industry
Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders' funds to generate income. The trailing 12-month ROE of OXY is 16.6%, a tad lower than its industry's 16.89%.
OXY's Zacks Rank
Occidental currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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