Occidental Petroleum (OXY), a global energy leader with a strong portfolio of low-cost assets in the Permian Basin, recently announced an agreement to sell its OxyChem division to Berkshire Hathaway Inc. (BRK.B) in a transaction valued at $9.7 billion.
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I believe this deal will open new doors for Occidental to grow, while meeting its deleveraging targets ahead of schedule. However, the transaction is expected to be completed in the fourth quarter of this year. Despite being bullish on the OxyChem deal, I remain Neutral on Occidental stock due to valuation concerns at a time when the company is valued at a premium to many of its closest peers.
The OxyChem Deal Could Ultimately Become a Win For Shareholders
I believe the OxyChem deal could signify a big win, primarily for long-term shareholders, for two main reasons. First, the cash infusion stemming from this deal could be used to accelerate the company’s deleveraging mission, which has been a business priority since the acquisition of CrownRock, which was completed last year. According to company filings, Occidental’s principal debt stood at $21.4 billion at the end of Q2.
According to the company’s presentation following the OxyChem deal announcement, Occidental plans to allocate roughly $6.5 billion of the transaction’s cash proceeds toward debt reduction. This will lower its total principal debt to about $15 billion, aligning with the company’s original deleveraging target. The repayments are expected to generate approximately $350 million in annual interest savings, further strengthening Occidental’s financial position in a meaningful way.
Second, the OxyChem deal will enable the oiler to focus on its core oil and gas business, which is likely to create long-term shareholder value, as this is the most profitable business segment of the company. The OxyChem business is highly cyclical, as evidenced by its operating income declining from a high of $2.5 billion in 2022 to less than $1 billion over the past 12 months.
According to OPIS, demand for nearly all categories of petrochemical products in Europe remains weak and below historical norms—and the outlook for 2026 offers little sign of recovery. Amid this challenging backdrop, Saudi Aramco has already suspended parts of its petrochemical operations. By divesting its petrochemical assets, Occidental positions itself to concentrate on its core oil and gas business, which generates the majority of its operating income.
Occidental’s Onshore Investments Are Likely to See a Boost
In addition to the deleveraging benefits discussed earlier, I believe the OxyChem transaction will free up much-needed capital for Occidental to focus on its onshore developments within the U.S., including assets in the Permian Basin, the Rockies region, and the Powder River Basin.
For 2025, the company has already outlined $3.5 billion in CapEx to expand its operations in the Permian Basin and another ~$1 billion to focus on the Rockies region. Some of these capital investments will be allocated toward developing a new bench in the Delaware Basin, expanding the Barnett in the Midland Basin, and investing in subsurface characterization technology in the Powder River Basin. These investments are expected to enhance Occidental’s drilling operations in low-cost regions, ultimately leading to superior long-term investment returns.
If not for the cash infusion from the sale of the cyclical chemical business, Occidental might have had to tap into capital markets to fund these programs, potentially negating the positive impact of its deleveraging efforts and also diluting shareholder ownership.
Occidental’s Tech Investments Will Benefit From The OxyChem Sale
In addition to reallocating resources from the OxyChem segment to the traditional oil drilling business, Occidental is likely to allocate some funds to developing advanced technologies to commercialize its unconventional EOR business. Compared to drilling and pumping, the unconventional oil and gas industry requires advanced extraction technologies, including horizontal drilling and hydraulic fracturing, also known as fracking. Occidental has recently highlighted its investment in such technologies, including the successful completion of several pilot programs.
Looking to expand beyond its onshore unconventional portfolio, the company has announced new initiatives in the “Gulf of America,” including an advanced waterflood project, as well as a separate project in Oman. These enhanced oil and gas recovery efforts demand ongoing investment in advanced technology. With the proceeds from the OxyChem sale, Occidental will be able to internally fund a portion of these projects, as emphasized in the company’s recent presentation.
Is Occidental Petroleum a Buy or Sell?
Despite the potential advantages of the OxyChem sale, some Wall Street analysts have expressed caution following the announcement. TD Cowen analyst David Deckelbaum, for example, argued that the timing of the deal may not be ideal, as the petrochemical sector is currently in a cyclical downturn—making it difficult to secure premium valuation multiples. He also expects the transaction to reduce Occidental’s free cash flow yield by 2026, raising concerns about the company’s future financial performance.
Meanwhile, Roth MKM analyst Leo Mariani also pointed out how this transaction could negatively impact Occidental’s free cash flow generation in the longer term, as OxyChem was expected to contribute positively to free cash flows once the planned investments in the business were complete.
Based on the ratings of 19 Wall Street analysts, the average Occidental Petroleum stock price target is $49.79, which implies upside of ~10.5% from the current market price.
More than the impact of the OxyChem sale on free cash flows, I am concerned about the company’s current valuation. Occidental is valued at a forward P/E of 20.17x compared to just 14x for Suncor Energy (SU), which has a similar business model and operations.
Oil giant ExxonMobil (XOM) is also valued at a discount to Occidental, with a forward P/E of just 17x. Although Occidental operates low-cost oil assets, I do not believe that this valuation premium is justified given the company’s financial position.
OxyChem Sale Insufficient to Dislodge Neutral Outlook
Occidental Petroleum is divesting its OxyChem division to Berkshire Hathaway for $9.7 billion, freeing up valuable capital to strengthen its balance sheet and reinvest in its core oil and gas operations. The proceeds will enable the company to accelerate debt reduction while using internally generated cash to fund advanced technologies and onshore development projects, enhancing the long-term profitability of its high-margin energy business.
Although I view the OxyChem sale as a strategically positive move, valuation concerns at current levels lead me to maintain a neutral stance on Occidental stock.