Occidental cuts costs due to virus
After losing $965M in 2019, firm trims amid low oil prices
Occidental Petroleum said it will reduce production and further cut costs if oil prices continue to suffer amid the panic over the coronavirus epidemic.
“We don’t know how long this coronavirus will last,” Chief Executive Officer Vicki Hollub told analysts in a conference call Friday. “We are prepared to reduce our spending if the current environment does not improve.”
The Houston oil and gas producer on Friday said it plans to slash spending by $100 million this year after its $38 billion acquisition of The Woodlands
based Anadarko Petroleum that closed in August. The megadeal, which created the largest player in the Permian Basin of West Texas, represented a huge bet on oil prices rising amid the shale boom.
But prices plunged by 16 percent this week to their lowest level in more than a year, settling below $45 a barrel Friday afternoon amid fears that the coronavirus will slow the global economy and reduce demand for oil. Hollub said the company is preparing for scenarios in which oil prices are “lower for longer.”
Repercussions of the coronavirus outbreak come as Oxy on Friday said it lost $965 million, or $1.22 per share, in 2019, compared with a $4.1 billion profit, or $5.39 per share, during the previous year. Revenue grew by 12 percent to $21.2 billion from $18.9 billion in 2018.
In the fourth quarter, the company reported a loss of $1.3 billion, or $1.50 per share, compared with a profit of $706 million, or 93 cents per share, during the final three months of 2018. Revenue for the quarter rose 31 percent to $6.3 billion from $4.8 billion in the same period in 2018. The company missed Wall Street expectations on earnings but exceeded revenue estimates.
The company’s quarterly results were hurt by a $1 billion charge related to Occidental’s loss in equity from its investment in Western Midstream Partners, as well as $673 million in merger-related costs from its Anadarko acquisition. Oxy acquired Western Midstream, a pipeline company, in its Anadarko acquisition. Western’s market value plunged, however, by more than 50 percent since September, putting any possible sale on hold. Western’s market value is currently about $5.6 billion.
Oxy has been slashing costs, laying off workers and
selling assets to reduce its $38.5 billion debt and maintain healthy dividend payments to skeptical investors after the Anadarko acquisition. The company faces a proxy fight and litigation from activist investor Carl Icahn over the megadeal. Hollub said she doesn’t expect to increase debt to continue paying dividends.
The merger of the two companies has progressed more quickly than expected, Hollub said. She said it is expected to save the company $900 million in overhead costs this year.
Oxy said it repaid $7 billion, about 32 percent, of its debt raised for the acquisition within five months of the August closing on the Anadarko purchase. It sold off $10.2 billion in assets toward its goal of divesting $15 billion by the end of 2022.
Hollub said the timeline for closing some of its sales may be affected by the coronavirus, which has hobbled travel plans worldwide. Oxy is selling Anadarko’s African assets to French oil and gas
Q: The tech sector here is seeing growth in startups in the tentpole components of Houston’s economy — energy, medicine, aerospace. In a scenario such as this, where certain parts of the economy dominate, is there room for startups who don’t play in those spaces? Is there room for consumer-focused startups here?
A: A great founder can come from anywhere, and a great company can be built in any city that young folks want to live in.
Q: You have been around long enough that you’ve seen tech startups and investing go through different phases. How would you characterize the current phase?
A: Right now there are 100 times the number of startups being created as there were a decade ago company Total, and is soliciting bids for Anadarko oil and gas properties in Wyoming.
“Some of the interested parties can’t travel,” Hollub said, referring to restrictions in place due to the coronavirus. “There are some travel impacts that could delay some of our interactions with counterparties.”
The company on Thursday said it produced an average of more than 1.4 million barrels of oil per day during the fourth quarter, exceeding expectations.
Oxy estimates its 2020 oil and gas production will increase by 2 percent, a smaller projection than anticipated, as it spends $5.2 billion to $5.4 billion on production. The company expects production volume to jump by 5 percent as production spending rises to $6.6 billion in 2021.
Company shares rose almost 3 percent on Friday to close at $32.74.
paul.takahashi@chron.com twitter.com/paultakahashi
when I started angel investing, and on average they are higher quality because all the knowledge on starting a company can be found on blogs and in podcasts and books.
It’s an amazing time to be an early-stage investor, but there is a lot of noise, which makes it hard for talent to concentrate at the best companies.
Q: Have you invested in any Houston-based startups? Or seen any local companies that intrigue you?
A: Not yet, but I’m looking forward to meeting some founders. Three years ago I went to Florida and Sydney and explained what we do, and we now have four or five investments in each of those cities.
dwight.silverman @chron.com twitter.com/dsilverman