Investing.com -- On Tuesday, Fitch Ratings revised the rating outlook for Occidental Petroleum Corp. (NYSE: OXY ) from Stable to Positive, while affirming its Long-Term Issuer Default Rating (IDR) and senior unsecured ratings at 'BBB-'.

The revision of the outlook to Positive comes as a result of the company's accelerated debt repayment strategy and a clear plan for additional debt repayment, which includes $1.2 billion in divestitures announced for the first quarter of 2025.

Occidental's ratings reflect its large size, liquids-weighted profile, competitive netbacks, and a strong position in the Permian. The ratings also account for the company's higher than average diversification compared to its upstream peers, which includes chemicals and midstream. However, the ratings also reflect somewhat elevated interest costs and debt levels relative to peers, as well as higher near-term capital expenditure (capex) spending.

The company has achieved its near-term debt reduction targets ahead of schedule following the CrownRock acquisition. This acquisition, although expensive, has added around 160kboepd of high margin production in the core of the Midland Basin, contributing to strong performance in 2024 and expected savings of more than $1 million per well across its Midland Basin program in 2025.

Occidental, with a production of 1.46 million barrels of oil equivalent per day (boepd), is one of the largest and most diversified independent E&Ps. Its production is split between the U.S. and international locations. The CrownRock acquisition further shifted output towards the U.S. Proved reserves rose to 4.6 billion boe in 2024, driven by strong extensions and recoveries and favorable revisions of previous estimates.

The company's integrated business model provides modest earnings diversification through chemicals and midstream. An expansion of the Battleground, TX chlor-alkali plant in 2026 should add $325 million in recurring incremental EBITDA.

For the year ending Dec. 31, 2024, Occidental's leverage was 2.5x and free cash flow (FCF) was just over $2.8 billion. Fitch expects FCF after dividends will be dedicated to near-term debt repayment.

The company's low carbon initiatives are centered around creating carbon sequestration hubs. This includes the construction of the world's largest direct air capture (DAC) plant in TX, which is 94% complete and is expected to come online this year.

As of year-end 2024, Occidental's cash on hand was $2.13 billion, and the company had no draw on its committed senior unsecured revolver, providing a core liquidity of $6.28 billion.

The company's ratings could be further upgraded if it achieves midcycle FFO interest coverage approaching 7.5x, a material incremental reduction in interest expense or gross debt levels, and midcycle EBITDA leverage below 2.2x.

Conversely, factors that could lead to a downgrade include midcycle EBITDA leverage above 3.2x, midcycle FFO interest coverage approaching 5.0x, and a shift toward a less conservative financial policy.

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