Occidental Petroleum: Expected Midstream Savings Drive an Incremental 7% Valuation Increase

After reassessing our valuation of no-moat Occidental Petroleum, we lift our fair value estimate by 7% to $62. We previously did not incorporate the impact from Oxy’s midstream business benefiting from a reduction in crude oil and transportation rates from the Permian to the Gulf Coast. Management expects these lower rates will hit financials by the end of the of the third quarter of 2025. The company expects annualized savings from these rate reductions of $300 million to $400 million, with 40% of savings starting in 2025, and the full savings realized in 2026. We have no reason to disagree with this assertion and model the midpoint of this expectation.