Occidental Petroleum (OXY) closed down 0.07% at $59 in regular trading on Thursday, May 21. The stock had accumulated a gain of approximately 10% over the eight trading days from May 11 to May 19, and Thursday’s slight pullback appears more as a natural digestion of the prior gains. On the same day, Goldman Sachs analyst Neil Mehta upgraded Occidental Petroleum directly from “Sell” to “Neutral,” raising the price target from $57 to $64. The leap from “Sell” to “Neutral” signifies a substantive shift in Goldman Sachs’ view of the stock. The core logic driving this shift is not a surge in oil prices or a major oil and gas discovery, but rather a strategic contraction—the company shifting its focus toward cash flow.
The rationale for Goldman Sachs’ upgrade is concentrated in a core judgment within Mehta’s report: for energy stocks, resource reserves are certainly important, but what is even more critical is how efficiently these resources can be converted into sustainable free cash flow throughout the cycle. This judgment strikes at the heart of the long-standing valuation dilemma in the energy sector. Occidental Petroleum has significantly reduced its leverage ratio, benefiting from the sale of non-core assets and the divestiture of OxyChem. Mehta notes that given the recent high crude oil prices, ongoing supply disruptions in the Middle East, and the company’s overall reduced capital intensity, the company’s goal of improving its balance sheet and achieving a long-term net debt target below $10 billion has gained strong support. The company has shifted from primarily acquiring resources through mergers and acquisitions to an organic growth focus centered on operational execution based on its existing asset base.
The landmark event of this strategic shift was a blockbuster transaction completed on January 2, 2026: Occidental Petroleum sold its chemical business, OxyChem, to Berkshire Hathaway for $9.7 billion in cash consideration. Management chose to “cut off the arm” — approximately $6.5 billion of the sale proceeds were immediately used to repay high-interest long-term debt, reducing the company’s total principal debt to approximately $15 billion. Subsequently, the company further accelerated deleveraging, launching a $700 million debt repurchase tender in February. By early May, it had repaid a cumulative total of $7.1 billion in principal debt, reducing total principal debt to $13.3 billion and steadily advancing toward the ultimate goal of $10 billion. The deeper change lies in a fundamental shift in operating philosophy. In its 2026 operational outlook released in February, Occidental Petroleum set full-year capital expenditures between $5.5 billion and $5.9 billion, a reduction of about 10% from 2025 and nearly $800 million below market expectations, while maintaining an average daily production target of approximately 1.45 million barrels of oil equivalent despite the significant reduction in spending.
Occidental Petroleum’s transformation coincides with a period of historic turmoil in the global oil market. The company’s first-quarter earnings released on May 6 showed adjusted earnings per share of $1.06, far exceeding market expectations of $0.59, with total production reaching 1.426 million barrels of oil equivalent per day, exceeding the high end of guidance. Mehta stated that the company gained greater confidence from its first-quarter results and is confident in its ability to achieve incremental capital efficiency for 2027 and beyond.
