Occidental to Slash Spending, Payout Amid Lower Oil Prices -- 3rd Update

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 [e-mail] and Christopher M. Matthews at [e-mail]

(END) Dow Jones Newswires

March 10, 2020 18:10 ET (22:10 GMT)

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