U.S. Integrated Oil and E&P: Cash is King; Raising Oil Prices, Upgrade OXY to OW

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U.S. Integrated Oil and E&P: Cash is King; Raising Oil Prices, Upgrade OXY to OW

it October near ~3.85 Tcf and stay at

a rather full ~1.9–2.0 Tcf by March 2027, with potential downside risk from a warmer-than-

normal winter. While LNG and AI/power demand underpin a constructive multi-year outlook,

looser near-term balances push the tightening and the the long-term investment case further

out the curve.

OXY upgrade to Overweight. OXY has seen among the most multiple compression in our

coverage YTD due to a combination of strong operational execution and higher oil prices. At our

updated price deck, we see OXY reaching its debt target and prefunding the Berkshire preferred

by ~2H27, and generating cumulative FCF >55% of its enterprise value over 5 years. As leverage

concerns fade, focus should increasingly shift to OXY’s top-tier resource base, spanning

unconventional scale, EOR, and GoA. Improved capital efficiency and lower base decline

potentially support a structurally stronger free cash profile, which we do not believe is fully

reflected in consensus estimates. Given the asset quality, shares are attractive at unlevered FCF

yield of 11.7% vs. peer average of 12% at strip over 2026-2027E. We raise PT to $72.

EXE downgrade to Equal Weight. This moves reflects the tempered gas outlook and less

visible near-term catalyst path despite the discounted valuation. While we remain constructive

on the company’s upstream execution and long-term margin strategy (~$0.20/Mcf uplift), only a

portion of the benefit is near-term, with roughly half tied to longer-dated demand-linked

initiatives. Value creation is also increasingly driven by gas marketing/commercial optimization,

introducing greater dependence on market conditions and timing. We lower PT to $110.

Key stocks.