Occidental (OXY) Q3 2026 earnings review
Occidental hits its $10 billion debt goal, while oil prices cool
Occidental, the Houston oil and gas producer, hit its debt goal early even as lower crude prices cut into its second-quarter windfall. Third-quarter profit and free cash flow nearly doubled from a year ago on $86 oil and lower interest costs, though both stepped down from last quarter. Chief executive Richard Jackson cut principal debt to the $10 billion target, while pipeline and sulfur earnings beat the company's own plan.
| Net sales | $6,567M +19% from a year ago; -19% from last quarter |
|---|---|
| Profit per share, excluding one-offs | $1.91 +275% from a year ago; -20% from last quarter |
| Principal debt | $10.0B Hit target after -$1.8B in Q3 |
| Midstream profit, excluding one-offs | $309M Beat the -$100M to $100M outlook |
⚖️ Verdict: 🟢 Bullish
The story got better because Occidental finished its main debt paydown and proved its pipeline unit can earn money when Texas gas price gaps narrow. Reaching $10 billion of debt locks in almost half of the interest savings needed for its 2030 cash-flow plan, and higher domestic gas prices offset lower pipeline margins. One caution: Gulf of America output dropped by almost a quarter on a pipeline outage, and beating the cautious midstream outlook does not mean trading gains will repeat.
The question now is what Occidental does with its free cash flow after hitting its $10 billion debt mark. Either management starts buying back common shares and paying down debt further, or it hoards cash until 2029 to pay off $8.3 billion of preferred stock and cover a potential $2.4 billion tax ruling. Management's fourth-quarter capital-return plan on the earnings call will tell.
🐂 Bull Case
Debt Hits $10 Billion Target and Cuts Interest in Half
Occidental reached its main balance-sheet goal this quarter. Chief executive Richard Jackson said the oil and gas producer cut its face-value debt by $1.8 billion during the period, "reducing principal debt to $10.0 billion after retiring $10.4 billion of debt since the beginning of this year". Most of this year's paydown came from selling the OxyChem chemical unit in January, but third-quarter cash flow funded this latest step.
The lower debt balance is already lifting profit. Corporate interest expense excluding one-offs dropped 48% from a year ago to $139 million, and reported net interest fell to $78 million. Jackson said the cleaner balance sheet helps the company work toward "advancing our plan to add more than $4.0 billion in annual sustainable cash flow by 2030, providing a pathway to accelerate capital returns".
What to watch: how management allocates fourth-quarter free cash flow now that principal debt sits at $10.0 billion. Moving cash toward share repurchases or a preferred-stock redemption fund would show the debt-paydown phase is complete.
Higher US Gas Prices Cushion the Midstream Drop
Occidental's pipeline and marketing unit, called midstream, earns money moving fuel from the Permian Basin in Texas to the Gulf Coast. When local Texas gas prices fall below zero because of full pipelines, the drilling unit loses money on gas, but the midstream unit profits from the wide price gap. In the third quarter, that gap narrowed.
- US natural gas selling price: $1.61 per thousand cubic feet (Mcf), up from negative $1.48 in the second quarter
- Midstream pre-tax profit excluding one-offs: $309 million, down from $961 million last quarter
- Nine-month midstream profit excluding one-offs: $1,861 million, or 33% above the middle of the full-year outlook by our math
The company blamed the quarterly midstream drop on the "narrowing of the Waha-to-Gulf-Coast gas spreads and lower crude margins related to the timing of crude sales". Even so, midstream beat the top of its -$100 million to $100 million quarterly outlook, proving the two segments offset each other.
What to watch: fourth-quarter midstream profit excluding one-offs. Any positive reading will push full-year segment earnings even further past the $1.3 billion to $1.5 billion full-year plan.
Al Hosn Output Rebounds 27% on Strong Sulfur Sales
Conflict in the Middle East has been a standing risk to Occidental's gas and oil fields in the United Arab Emirates, Qatar and Oman, as well as its sulfur shipments from the region. While investors worried about supply disruptions, the company's regional operations improved this quarter.
Production at the Al Hosn gas project in the United Arab Emirates jumped 27% from last quarter to 94 thousand barrels of oil equivalent per day (Mboed), lifting total international output by 9% to 224 Mboed. Occidental also noted that "higher sulfur volumes and prices at Al Hosn" helped midstream profit beat its outlook, while a $120 million legal deposit recovery lifted international income.
What to watch: fourth-quarter production volumes at Al Hosn, Dolphin and Oman. Steady output near 225 Mboed across two straight quarters would show that regional shipping and pipeline operations remain insulated from the conflict.
🐻 Bear Case
Lower Oil Prices Cut into the Second-Quarter Windfall
Jackson said Occidental is "advancing our plan to add more than $4.0 billion in annual sustainable cash flow by 2030, providing a pathway to accelerate capital returns". Yet the third quarter showed how much current earnings still depend on commodity prices and trading swings rather than internal cost cuts.
Operating profit rose 14.9 percentage points as a share of sales from a year ago, because depreciation, depletion and amortization (the non-cash cost of drilling wells) fell 8.1 percentage points of sales and lease operating expenses (the daily cost of running wells) fell 3.1 percentage points. That improvement came from oil at $85.91 a barrel versus $64.78 a year ago. Compared with the second quarter's $96.78 oil price, profit per share excluding one-offs fell 20% to $1.91, and $441 million of pre-tax derivative losses hit reported results.
What to watch: the year-end update on 2026 cash flow gains excluding oil price changes. Management promised more than $1.2 billion of non-price cash gains this year, and missing that mark would show oil prices did the work.
Pipeline Limits Cut Gulf Output While Capital Spending Drops
Occidental plans to lower the natural production drop at its existing fields by pumping water and carbon dioxide into older wells. That long-term effort aims to hold company production steady on lower capital spending, though field disruptions still cause quarterly swings.
Total output beat the middle of the third-quarter outlook at 1,427 Mboed, but fell 2.6% from a year ago. Permian Basin output rose 1.5% from a year ago to 812 Mboed, offsetting "a temporary curtailment of production at certain Gulf of America facilities due to a third-party gas pipeline constraint and maintenance activities" that cut Gulf output 24% from last quarter to 110 Mboed.
What to watch: fourth-quarter Gulf of America output and Permian rig reductions. By our math, the prior full-year outlook requires total production to rebound to about 1,466 Mboed in the fourth quarter.
Risks this quarter didn't answer
Four standing balance-sheet and project risks received no new detail in the third-quarter earnings release and await the quarterly filing or conference call.
- Share buybacks vs preferred stock: Occidental spent just $90 million on treasury stock in the quarter while $8.3 billion of preferred stock stays on the balance sheet; the fourth-quarter call will show whether buybacks remain paused until 2029.
- STRATOS carbon-capture plant: the release gave no commissioning update on the Texas facility; the year-end call will test whether commercial operations still start in 2027.
- Tronox tax dispute: the release had no update on the Tax Court case that could require a $2.4 billion cash payment; the quarterly filing's tax footnote will show any status change.
- Retained OxyChem environmental liabilities: discontinued operations used $456 million of operating cash flow in the third quarter and $1.38 billion over nine months; the filing's footnotes will separate tax payments on the sale from environmental payouts.
💲 Other KPIs
Free cash flow before working capital — cash from operations before short-term bill timing, minus capital spending — jumped 88.3% from a year ago on higher oil prices. It slipped 8.0% from last quarter's $3,021 million as crude prices cooled, but still equalled 42.3% of net sales and funded $1.8 billion of debt paydown.
Capital spending on wells and facilities dropped 10.3% from a year ago and 16.8% from last quarter, taking 20.1% of net sales. The US producer front-loaded its drilling budget into the first half of 2026, so lower third-quarter spending directly lifted free cash flow.
Trade receivables — money customers owe for delivered oil and gas — rose 39.5% from a year ago and 10.5% from last quarter, even though net sales fell 18.6% from the second quarter. The $332 million quarterly build tied up working capital, though a $307 million timing shift in current income taxes offset the cash drag.
🔮 Guidance
Unchanged and achieved. Occidental hit its $10.0 billion principal debt target in the third quarter after paying down $1.8 billion of face-value debt, down from $11.8 billion at the end of June. Management did not issue a new debt target in the release.
Unchanged. The energy group still plans to add more than $4.0 billion in annual cash flow by 2030 compared with 2025 through lower interest costs, lower capital spending on carbon projects, preferred stock redemptions and well cost savings. In the release, the company did not update its fourth-quarter production or capital spending ranges; by our math, the prior full-year capital plan leaves $1,285 million for the fourth quarter.
❓ Key Questions
Where are the fourth-quarter production and cost targets?
The earnings release did not include fourth-quarter production, capital spending or per-barrel operating cost ranges, and Schedule 9's unit-cost table was cut off. Investors need the fourth-quarter targets to see if Gulf of America output has recovered from the pipeline outage.
What happens to excess cash after the $10 billion debt mark?
With principal debt now at the $10.0 billion target, Occidental generated $2.8 billion of quarterly free cash flow before working capital and spent only $90 million on treasury stock. Will management start buying back shares or build cash for the 2029 preferred redemption?
Why did discontinued operations use $1.38 billion of operating cash?
Discontinued operations consumed $456 million of operating cash flow in the third quarter and $1,382 million over nine months. Management needs to clarify how much of that outflow paid taxes on the OxyChem sale versus retained environmental liabilities.
Where will full-year midstream profit land after beating the plan?
Nine-month midstream profit excluding one-offs reached $1,861 million, already $361 million above the top of the $1.3 billion to $1.5 billion full-year plan set last quarter. Management needs to state whether fourth-quarter midstream operations will make or lose money.