Citi: Occidental Petroleum Corporation (OXY.US) Q3 cash flow far exceeds expectations, accelerated debt repayment fails to mask Q4 production concerns.

Citi issued a research report maintaining a "Neutral" rating on Occidental Petroleum Corporation (OXY.US) with a target price of US$65. The bank noted in the report that Occidental Petroleum Corporation's Q3 cash flow per share (CFPS) beat expectations, thanks to operational and capital expenditure control, and the company repaid US$1.8 billion in debt. However, due to contractual factors and equipment maintenance, Q4 production guidance was weak, which may offset the positive factors. The bank said Occidental Petroleum Corporation's Q3 cash flow per share was US$4.06, 23% and 13% above Citi's forecast and LSEG market consensus, respectively. The report stated that this beat was mainly driven by lower-than-expected unit operating costs, while production was broadly in line with market consensus. Specifically, oil production was 697,000 barrels of oil equivalent per day, 3% below market consensus, but slightly better-than-expected NGLs and natural gas production offset this impact. Capital expenditure also performed relatively strongly, coming in 6% and 2% below Citi's forecast and market consensus, respectively. Excluding items affecting comparability, midstream and marketing pre-tax income exceeded the upper end of company guidance. Looking ahead to Q4, Citi noted that Occidental Petroleum Corporation's production guidance was 2% below market consensus, mainly dragged by weak oil production, driven by factors including production sharing contract (PSC) impacts and GOA maintenance. The report believes that although Q3 CFPS beat expectations, the weak Q4 oil production guidance may dampen this positive factor, and the stock price is expected to react neutrally at the open. On the debt front, Occidental Petroleum Corporation used strong cash flow in Q3 to repay approximately US$1.8 billion in principal debt. The report stated that the company has reached its US$10 billion principal debt target and proposed a new US$6 billion debt milestone. In addition, Occidental Petroleum Corporation announced that it has signed fixed-fee CO2 offtake agreements with multiple project developers, who will fund the construction of CCUS facilities and pipelines in the Permian Basin. The agreements cover offtake of approximately 2 million tonnes per annum of CO2 in aggregate, with potential expansion to approximately 4 million tonnes per annum; first deliveries are expected in 2029, and the unit cost of captured CO2 could be reduced by up to approximately 75%.