Occidental and Ardmore emerge as undervalued energy plays amid debt reduction and rate surges
With Occidental targeting a $10 billion debt ceiling and Ardmore capitalising on geopolitical shipping disruptions, both companies are prioritising shareholder returns despite differing risk profiles.
A report published on 16 May 2026 by Motley Fool identifies Occidental Petroleum and Ardmore Shipping as overlooked energy stocks benefiting from elevated oil prices and shifting market dynamics. Both companies have seen significant stock price increases this year, with Occidental rising more than 36 per cent and Ardmore surging over 75 per cent. Despite these gains, the analysis suggests both remain undervalued relative to their guidance and current market conditions.
Occidental, a major upstream producer, has focused heavily on deleveraging following the sale of its OxyChem division to Berkshire Hathaway for $9.7 billion in January. This transaction allowed the Houston-based company to reduce its principal debt to $13.3 billion, down from more than $20 billion six months prior. Management is now targeting a debt level of $10 billion, a threshold that would trigger a significant shift in capital allocation towards increased dividends and share buybacks.
The rapid reduction in debt has saved the company approximately $830 million in annual interest expenses, directly boosting free cash flow. In the first quarter, Occidental generated $1.7 billion in free cash flow, a 52 per cent increase year-on-year, driven by record production in the Permian Basin and higher realised crude oil prices. The company has also trimmed capital spending to roughly $5.7 billion for 2026, an 8 per cent reduction from the previous year, while maintaining a break-even price of approximately $38 per barrel.
Ardmore Shipping, an Ireland-based operator of midsize tankers, has reported strong first-quarter earnings driven by soaring shipping rates and extended voyage lengths due to geopolitical disruptions in the Middle East. The company reported first-quarter earnings per share of $0.58, up 314 per cent year-on-year, supported by Time Charter Equivalent rates that have tracked significantly higher in the second quarter. Ardmore’s strategy focuses on clean petroleum products and chemicals, avoiding the volatility associated with very large crude carriers.
Both companies are prioritising shareholder returns, yet Ardmore appears to offer a more attractive valuation at less than five times forward earnings, compared to less than 11 times for Occidental. Ardmore recently doubled its dividend payout ratio to two-thirds of adjusted earnings, resulting in a quarterly dividend of $0.39 per share. Meanwhile, Occidental’s dividend has increased for five consecutive years, bolstered by Berkshire Hathaway’s substantial ownership stake which provides downside protection.
Despite the positive outlook, the report notes that both stocks carry risks. Occidental’s performance remains tied to global crude benchmarks, while Ardmore is susceptible to fluctuations in global shipping rates. Nevertheless, both firms are paying down debt and improving their operational efficiency, positioning them as potential long-term purchases for investors seeking exposure to the energy sector.
