Occidental Petroleum expects to see about $1 billion in free cash flow improvement in 2026 through capital roll-off from non- oil and gas projects, including from the Stratos direct air capture project set to come online this year, and incremental pre-tax earnings.
The capital spending reductions include a $300 million drop in peak spending for the Battleground project in the chemicals business, Occidental CFO Sunil Mathew told analysts May 8. OxyChem’s modernization and expansion project in La Porte, Texas will convert the plant’s chlor-alkali process from diaphragm to membrane technology to increase production capacity and lower carbon intensity. The project will have operating cash flow of about $160 million when it starts up in mid-2026.
(Source: Occidental Petroleum)
“For 2027, you get the benefit of the full $600 million capex reduction from the Battleground project,” Mathew said. “You get the uplift on operating cashflow once the project is fully online. And you have the interest payment productions for both ’26 and ’27.”
Two oil transportation contacts expiring at lower rates are expected to bring $400 million in benefits, plus another $250 million from the roll-off of Stratos spending—and about $135 million in improved cash flow from interest expenses, he said, referring to 2026 cash flow improvements.
Oxy said it expects the capital improvements to provide stable free cash flow streams to augment its ongoing oil and gas efficiency improvements. Oil and gas companies have continued to rein in spending and seek out efficiencies amid low prices and a wave of regulatory uncertainty and volatility in the energy sector.
(Source: Occidental Petroleum)
“Uncertainty around demand, policy and supply is creating headwinds for the sector and increasing commodity price volatility,” Occidental Petroleum CEO Vicki Hollub said. “From tech trade and tariffs to the return of OPEC+ volumes, oil markets are under pressure from multiple fronts. As operators, we cannot control the macro, but we can control how we respond.”
Improved drilling performance and efficiencies enabled Oxy to reduce its Permian Basin rig count. The action, along with “project scope and timing optimizations across the portfolio, including the Gulf of America,” led the company to lower capital guidance for the year by $200 million. “We’re also executing significant cost actions with $150 million in estimated 2025 opex savings,” Hollub said. “These steps will strengthen margins and enhance financial resilience with minimal impact on this year’s production.”
Carbon capture and storage projects aren’t immune to regulatory uncertainty in the U.S.
President Donald Trump’s proposed fiscal year 2026 budget submitted last week includes more than $160 billion in spending cuts, including cancellation of the Infrastructure Investment and Jobs Act. The budget request would eliminate more than $15 billion in what it called “Green New Scam funds committed to build unreliable renewable energy, removing carbon dioxide from the air, and other costly technologies burdensome to ratepayers and consumers,” as stated in a May 2 letter from the president’s Office of Management and Budget to the chair of the U.S. Senate Committee on Appropriations.
Despite the uncertainty, momentum continues to build for carbon capture and storage projects in the U.S.
“There’s such a strong voluntary compliance market and so many corporations that have committed to become carbon neutral that in the interim as we’re building our DAC business toward a business that will use CO2 for enhanced oil recovery to get more oil out of the existing reservoirs that we have here in the United States to help extend our energy independence here,” Hollub said. “As we’re building toward that, the voluntary compliance market for carbon reduction credits will continue, I believe, to help us build a bridge between now and making the EOR realizations happen over time.”
Just last month, 1PointFive secured Class VI permits from the EPA for Stratos. Stratos—which is being developed in phases on a 65-acre site in Ector County, Texas—is designed to capture and store up to 500,000 metric tons of CO2 annually. The project will have an initial capacity of 250,000 tonnes per annum as it ramps up throughout 2025.
(Source: Occidental Petroleum)
In April, the company also signed a “landmark” 25-year carbon offtake agreement with CF Industries and its partners for their planned $4 billion carbon low ammonia facility in Louisiana. As part of the agreement, Oxy’s 1PointFive will transport and sequester about 2.3 million metric tons of CO2 annually at its Pelican Sequestration Hub in Livingston Parish.
“Agreements like this highlight Oxy’s unique capabilities and demonstrate the growing demand for large-scale carbon management solutions to support major investments in American manufacturing and creation of jobs,” Hollub said. “Importantly, this contract does not require near-term capital expenditure, since it’s squarely within our disciplined growth strategy and low-carbon ventures.”
An analyst asked whether the winding down of spending for projects such as Battleground and Stratos could result in capital being steered to other projects.
“We expect that the capital will be lower next year,” Hollub said. “At what level, we haven’t determined that yet, but we wouldn’t replace … the cost of those projects that we’re completing with additional capital.”
