Oil and gas giant Occidental Petroleum (OXY +4.94%) recently reported better-than-expected fourth-quarter financial results. Its adjusted earnings of $0.31 per share blew past the analysts' consensus estimate of $0.17 per share. That was an impressive earnings beat, given that oil and gas prices slumped during the quarter.
The key factor fueling the oil company's outperformance in the quarter was its operational excellence. While operational excellence is a buzzword many companies like to throw around, it's Occidental Petroleum's action plan.
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Fueled by operational excellence
Occidental Petroleum produced an average of nearly 1.5 million barrels of oil equivalent per day (BOE/d) during the fourth quarter. That exceeded the high end of its guidance range due to strong performance from newly drilled wells in the Permian Basin and Rockies. The company's wells in those regions delivered initial production results that were more than 10% higher than the industry average.
"Our emphasis on operational excellence and cost efficiency drove meaningful production and operating expense outperformance during the fourth quarter," commented CEO Vicki Hollub in the earnings press release. She further stated, "The quality of our assets and the exceptional execution by our teams enabled us to surpass full‑year guidance across our oil and gas and midstream businesses."
NYSE: OXY
Key Data Points
The company's ability to deliver higher production from newly drilled wells helped offset some of the impact of lower commodity prices. Its average worldwide realized crude price was down 9%, while it captured 24% less for the gas it sold in the U.S. during the period. Despite those lower prices, Occidental generated $1 billion in free cash flow after capital spending during the quarter.
Producing more with less in 2026
The company expects its operational excellence to carry over into 2026. Occidental expects to deliver $500 million in additional sustainable cost savings this year, driven by capital efficiency, operational cost reductions, technology integration, and midstream optimization. As a result, it anticipates investing $5.5 billion to $5.9 billion into capital expenditures this year, down from $6.2 billion last year. Despite that $550 million reduction (at the midpoint), the company expects to deliver 1% production growth.
This capital efficiency will enable Occidental Petroleum to produce more free cash flow this year without any improvement in oil prices. Overall, it expects to generate over $1.2 billion in incremental free cash flow compared to last year's total. That's due to the capital and operating cost savings within its oil and gas operations, improvements in its midstream operations, and interest rate savings from its continued debt reduction.
This free cash flow boost will enable Occidental to return more money to investors in 2026. It's raising its dividend by 8%, making it a more appealing oil dividend stock investment. Meanwhile, it has the flexibility to opportunistically repurchase shares or to continue strengthening its balance sheet by repaying more debt.
A well-oiled machine
Occidental Petroleum's pursuit of operational excellence is paying dividends. The company is producing more oil and gas with less capital, enabling it to make more money at lower oil prices. It expects to deliver more of the same in 2026, enhancing its appeal as a top oil stock to buy.
