February 28, 2020 / 5:21 PM / 3 months ago

Occidental Petroleum could cut 2020 spending on coronavirus impact

(Reuters) - After already slashing spending on new projects by 40%, Occidental Petroleum Corp is ready to cut deeper this year if oil markets continue to be roiled by global coronavirus fears, Chief Executive Vicki Hollub said on Friday.

FILE PHOTO: The logo for Occidental Petroleum is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., April 30, 2019. REUTERS/Brendan McDermid

The U.S. oil and gas producer is under pressure to generate enough cash to cover its capital spending and a nearly 10% shareholder dividend after completing a widely panned, $38 billion acquisition of a rival. Investor Carl Icahn criticized the deal as overpriced and is leading a fight to replace the board over the deal.

U.S. crude prices have fallen about 27% this year and Occidental’s share price is down nearly 52% since the day before its interest in Anadarko Petroleum first became known last year.

“As global commodity prices have declined sharply in recent days, we are prepared to reduce our spending if the current environment does not improve,” Hollub said on a call with analysts. “We are monitoring the situation closely and retain the flexibility to adjust our budget if needed.”

Occidental plans to spend between $5.2 billion and $5.4 billion this year.

Calling dividends “one of the defining characteristics” of the company, Hollub said it has hedged a large part of its production and would not take on additional debt.

If oil prices remain in the mid-to-high $40 a barrel range, management would need to cut Occidental’s budget by more than $1 billion to live within cash flow after paying dividends, Tudor, Pickering, Holt & Co analysts said.

“The more prudent move would be to cut the dividend to give the company breathing room given the leverage profile,” the brokerage said.

Occidental said it has built scenarios to deal with the coronavirus outbreak and could even allow production to fall “a little bit” if crude prices stayed low.

The company has been aggressively cutting costs by laying off staff and selling assets to pay down its $38.54 billion debt pile following its acquisition of Anadarko.

On an adjusted basis, the company posted a fourth-quarter loss of 30 cents per share, much larger than the 19 cent loss analysts had expected, partly due to higher interest expense.

It also took more than $1.7 billion in impairment and other charges in the quarter.

Shares of the company fell as much as 6.8% on Friday morning, amid a broader drop in energy stocks, but rose 1.5% to $32.32 in the afternoon.

Reporting by Jennifer Hiller; Editing by Arun Koyyur and Steve Orlofsky

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