Oil producer Occidental Petroleum (OXY) is getting close to an important debt target that could change how investors view the stock. The company has cut its principal debt to $11.8 billion after paying down another $1.5 billion in the second quarter. That is its lowest debt level since 2019. More importantly, management says getting debt down to $10 billion would reduce yearly interest costs by about $740 million compared with 2025. Therefore, investors now have a new reason to watch the stock that does not depend on a major jump in oil production.

Catalysts that May Push the Stock Higher

As already mentioned, the biggest near-term catalyst is debt reduction. As Occidental pays down debt, it spends less money on interest. That leaves more cash available for dividends and possible future share repurchases. Indeed, the company has already raised its quarterly dividend by another 8% to $0.28 per share.

For now, management has said large ongoing buybacks are not the main priority before the preferred-stock redemption that is scheduled for August 2029. Occidental has preferred stock that pays dividends and can eventually be redeemed by the company. By focusing first on that obligation, management can reduce a future financing burden and strengthen the balance sheet before committing significant cash to share repurchases. However, the company could still buy shares when management believes the price is attractive.

Meanwhile, STRATOS, the company's direct-air-capture plant that is designed to capture up to 500,000 metric tons of CO₂ every year, could become another important driver. Occidental expects the plant to be fully commissioned by the end of the year, with operations set to move into 2027. As construction costs come down, management expects about $400 million of Low Carbon Ventures capital spending needs to disappear.

That could help free cash flow and would give investors a better chance to judge whether carbon capture can turn from a costly development project into a real business. Looking further ahead, Occidental believes it can improve annual sustainable cash flow by more than $4 billion by 2030 compared with 2025. Importantly, much of that plan depends on lower costs, along with lower interest expense and lower capital needs rather than permanently high oil prices.

Risks to Watch Out For

However, a new legal issue has added some risk. On September 1, a federal judge allowed antitrust lawsuits against Occidental and other shale producers to move forward.

The lawsuits claim that producers worked together to limit oil output and raise petroleum prices. Unsurprisingly, Occidental and the other defendants deny those claims. In addition, the court decision does not mean Occidental has been found liable, but the case could still create legal costs and negative headlines.

Oil prices are another major risk. Recent geopolitical disruption pushed West Texas Intermediate crude above $90 per barrel, which helps Occidental generate more cash. Still, if oil prices fall sharply, the company could pay down debt more slowly and have less room to return cash to shareholders.

Is OXY Stock a Good Buy?

Turning to Wall Street, analysts have a Hold consensus rating on OXY stock based on six Buys, nine Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average OXY price target of $65.67 per share implies 7.4% upside potential. (See OXY Stock Forecast).