Debt-Laden Occidental Opts to Pay Buffett's Dividend in Shares -- Update
April 15 2020 - 5:37PM
Dow Jones News
By Rebecca Elliott and Cara Lombardo
Occidental Petroleum Corp. has elected to pay a quarterly $200
million payment it owes Warren Buffett's Berkshire Hathaway Inc. in
shares, a sign of the financial strain the company is facing as the
coronavirus erodes demand for oil.
The Houston oil company bought rival Anadarko Petroleum Corp.
for $38 billion last year, outbidding Chevron Corp., thanks to
financial assistance from Berkshire, which purchased $10 billion in
preferred Occidental shares. But the financing came at the steep
cost of an 8% dividend yield, or $800 million annually.
Occidental said in a regulatory filing Wednesday that it had
opted to pay the $200 million it owes Berkshire in common stock at
a 10% discount, rather than granting the payout in cash, an option
spelled out under the original arrangement. Berkshire owned about a
2% stake in Occidental as of year-end, S&P Global Market
Intelligence data show.
Occidental could choose to pay Berkshire differently in future
quarters. Berkshire didn't respond to a request for comment.
The move allows Occidental to preserve cash during an oil-price
crash, as a huge demand drop due to the coronavirus places pressure
on oil producers. But the company is using its shares to make the
payments at a time when it is particularly expensive to do so.
Occidental's share price fell nearly 9% Wednesday to $13.61,
down from more than $60 just before the Anadarko deal was struck,
partly due to doubts about the transaction and more recently
because of oil-price wars and the market downturn. That has shrunk
its market value to about $13 billion from more than $46
billion.
It also has a hefty debt load -- about $40 billion at last
count. While marketing the Anadarko deal to shareholders,
Occidental Chief Executive Vicki Hollub had said she would aim to
sell $15 billion of assets to raise cash and pay down debt. But the
coronavirus pandemic is likely to frustrate those plans.
Occidental has been in turmoil lately as the hefty debt burden
it took on to buy Anadarko has affected its ability to navigate a
steep plunge in oil prices. Last month, the company brought former
Chief Executive Stephen Chazen back as chairman and acquiesced to
critic Carl Icahn, giving the billionaire activist seats on the
board. It also recently parted ways with its head of business
development and replaced its chief financial officer.
Occidental has sought to conserve cash by slashing capital
spending nearly 50% and trimming the salaries of executives and
employees. It also cut the dividend it pays common shareholders by
86%.
Write to Rebecca Elliott at rebecca.elliott@wsj.com and Cara
Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
April 15, 2020 18:22 ET (22:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Occidental Petroleum (NYSE:OXY)
Historical Stock Chart
From Apr 2024 to May 2024
Occidental Petroleum (NYSE:OXY)
Historical Stock Chart
From May 2023 to May 2024