Occidental to Slash Spending, Payout Amid Lower Oil Prices -- 3rd Update
March 10 2020 - 6:25PM
Dow Jones News
By Rebecca Elliott and Christopher M. Matthews
Occidental Petroleum Corp., laden with debt following its $38
billion purchase of rival Anadarko Petroleum Corp. last year, is
slashing spending and dividends as it responds to a crash in oil
prices.
The Houston-based producer plans to cut its quarterly dividend
to 11 cents a share effective July, from 79 cents, the company said
Tuesday. It also said it plans to slash spending this year by
roughly 32%, to about $3.6 billion.
"Due to the sharp decline in global commodity prices, we are
taking actions that will strengthen our balance sheet and continue
to reduce debt," Occidental Chief Executive Vicki Hollub said. She
added that the company can break even with U.S. benchmark oil
prices in the low $30s a barrel, though that metric typically
excludes several costs.
Occidental, one of the largest U.S. shale producers, is an acute
example of the threat that the collapse in oil prices poses for the
industry. Many of these companies were struggling to turn a profit
even before the novel coronavirus blunted global demand. Companies
with high debt levels are particularly vulnerable because Wall
Street, burned by years of poor returns, isn't inclined to rescue
them.
Shares in Occidental gained about 15% Tuesday following the
announcement, as U.S. benchmark oil prices rose roughly 10%. The
company's shares plunged roughly 53% on Monday as oil prices fell
25% to about $31 a barrel. That left it with a market
capitalization of about $11 billion, down from more than $46
billion at the time of its offer for Anadarko, according S&P
Global Market Intelligence.
Occidental topped Chevron Corp. in a bidding war for Anadarko
last year, winning prized assets in the heart of the U.S. oil boom:
the Permian Basin of West Texas. Occidental's acquisition of
Anadarko, a company nearly its own size, has come under intense
criticism for loading up the company with debt, with activist
investor Carl Icahn calling for changes to the board following what
he called a "fundamentally misguided" deal.
Occidental's aggressive efforts to win Anadarko included lining
up $10 billion in financial backing from Warren Buffett's Berkshire
Hathaway Inc., via the sale of preferred stock -- and included a
deal to sell Anadarko's Africa assets for $8.8 billion to French
oil giant Total SA.
As of year-end, Occidental's total debt of about $41 billion was
more than four times its earnings, excluding interest, taxes and
other accounting items, up from about one times earnings a year
earlier, S&P Global Market Intelligence data show.
Houston-based investment bank Tudor, Pickering, Holt & Co.
suggested Monday that Occidental should cut its dividend, which
many large oil companies use to entice investors. Following the oil
market rout Monday, Occidental would have been unable to pay out
its planned $2.8 billion in dividend payments and invest in
maintaining existing oil production without taking on additional
debt, according to the bank.
"Collapse in crude only further stresses the company's balance
sheet," the bank said in a note to investors.
Occidental has increased its dividend every year since 2002, and
Ms. Hollub has called the policy a hallmark of the company. In
February, she told investors the company planned to continue the
dividend despite declining oil prices as the coronavirus took hold
globally but said it wouldn't take on additional debt to pay
it.
"Returning cash to shareholders through our sector-leading
dividend is an integral part of our philosophy," Ms. Hollub said on
a call with investors.
Occidental's dividend yield surpassed 9% recently as its share
price declined, topping the yields of rivals Exxon Mobil Corp. and
Chevron.
Write to Rebecca Elliott at rebecca.elliott@wsj.com and
Christopher M. Matthews at christopher.matthews@wsj.com
(END) Dow Jones Newswires
March 10, 2020 18:10 ET (22:10 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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