Occidental Petroleum (OXY -2.48%) has a multitude of potential upside catalysts. From higher oil prices to Warren Buffett's buying to its non-oil growth drivers, the oil company has a lot of positives.

However, I see one factor potentially playing a major role in driving up Occidental's stock price in the coming years -- deleveraging its balance sheet. Here's why I think it could give the oil stock the fuel to soar over the next five years.

Image source: Getty Images.

Debt has been an issue for Occidental Petroleum over the years. It borrowed a boatload of money in 2019 to buy Anadarko Petroleum, but that move backfired the next year when crude prices crashed.

The company has been steadily reducing debt since then to shore up its financial position. However, it couldn't resist the opportunity to buy CrownRock last year. It spent $12 billion on the oil producer, $10.3 billion of which it funded with debt.

Occidental has worked hard to reduce debt following that deal. It has repaid $6.8 billion since the third quarter of last year, exceeding its target of repaying $4.5 billion of debt principal within 12 months of closing the CrownRock deal well ahead of schedule.

The company's next debt target is to reduce its principal balance below $15 billion. It ended the first quarter with over $25 billion of debt.

Occidental plans to sell non-core assets and allocate excess free cash flow after funding capital projects and dividends to repay debt. This strategy will steadily shift value from creditors to equity holders.

The company has a market cap of around $45 billion and more than $75 billion enterprise value, so a $10 billion shift in value from debt holders to equity investors could boost its value by over 20%. On top of the value shift, the debt reduction would reduce Occidental's interest expenses, boosting its earnings and free cash flow.

Debt reduction is one of Occidental's many upside catalysts. I think it could be a key driver of the stock price in the coming year.