Oxy’s stock falls on news of cuts
Company to slash capital spending by 40% next year
Occidental Petroleum’s stock plunged more than 5 percent Tuesday after the company said it will slash its 2020 capital spending by nearly 40 percent following a quarterly loss of almost $1 billion.
The Houston company’s stock continued the suffering that began when Oxy’s interest in taking over Anadarko Petroleum of The Woodlands went public. Analysts said the $912 million loss looked much worse than it was, nearly all of it attributable to costs related to the $38 billion acquisition of Anadarko that closed in the middle of the third quarter.
“The company is being extremely disciplined with its capital spending,” said energy analyst Pavel Molchanov, of Raymond James in Houston. “The size of the company has almost doubled, and its 2020 capital budget is not much more than what Oxy was spending all by itself.”
With Wall Street concerned that Oxy bit off more than it could chew with the Anadarko deal and its substantial debt load, the company’s stock has plunged 38 percent since April. The deal has spurred a proxy fight and lawsuit from shareholder and famed corporate raider Carl Icahn.
To counter doubters, Oxy has moved to aggressively cut its spending and debt load, while pledging to protect one of the highest dividend payouts to shareholders within the S&P 500. Oxy already has agreed to more than $10 billion in asset sales — including selling Anadarko’s Africa assets for $8.8 billion to the French energy major Total — with more on the way.
The concern, however, is that Oxy is banking on oil prices not falling below the $50 per barrel threshold, said Matt Portillo, managing director of exploration and production research at Tudor, Pickering, Holt & Co., a Houston investment bank. Investors re
main wary despite Oxy’s best efforts, he said.
Creative disposal
“They may end up needing to cut even more aggressively next year,” Portillo said, if oil prices fall in 2020 as many expect.
But it’s noteworthy that Oxy plans to increase its production by 2 percent next year even with the cutbacks, Portillo said, a sign of the company’s efficiency. And, in 2021, Oxy plans to increase spending and production. Oxy Chief Executive Vicki Hollub emphasized that debt reduction and sustaining the dividend payments are of the utmost importance. She reiterated her interest in selling a stake in Anadarko’s pipeline business, Western Midstream Partners, although Western’s market value has plunged by one-third this year. Hollub declined to speculate on other potential asset sales.
“There will be some creativity,” she said. “There will be some things you might not expect.”
As for the details, Oxy said it projects $5.4 billion in 2020 capital spending, down from the combined Oxy-Anadarko spending of about $8.6 billion this year. The deal to absorb Anadarko and its prime Permian Basin holdings in West Texas closed on Aug. 8.
Making progress
Oxy reported $969 million in merger-related transaction costs and fees from debt financing. Oxy also recorded $325 million in quarterly write downs, primarily on the loss of value in unproven acreage where Oxy no longer plans to explore.
Hollub said the company is making good progress on the Anadarko integration.
“We’re as excited today as we have anytime in the last two years about the opportunities in front of us,” Hollub said. “Now that we’ve had a chance to work together — the two teams — we’re coming up with more synergies.”
She described Oxy’s Permian acreage in New Mexico as its “1A” top production area. Anadarko’s Permian acreage in West Texas is “1B,” she added.