An Occidental plant in Hobbs, New Mexico, the US. Picture: REUTERS/ERNEST SCHEYDER
An Occidental plant in Hobbs, New Mexico, the US. Picture: REUTERS/ERNEST SCHEYDER

Houston  —  Occidental Petroleum cut its dividend for the first time in 30 years as the oil explorer and producer opts to conserve cash to cover debt incurred in its $37bn takeover of Anadarko Petroleum.

The company trimmed its quarterly payout to 11c from 79c, according to a statement on Tuesday. Occidental also reduced capital spending for the year by 32% to about $3.6bn.

“Due to the sharp decline in global commodity prices, we are taking actions that will strengthen our balance sheet and continue to reduce debt,” CEO Vicki Hollub said in the statement.

The decision comes less than two weeks after Hollub said the payout was “one of the defining characteristic of our company” and vowed to protect it. The last time Occidental reduced payouts was 1990, after then Iraqi leader Saddam Hussein’s invasion of Kuwait sent oil markets tumbling.

Occidental’s dividend and spending cuts will enable it to break even on a cash basis with benchmark US crude trading in the low $30-a-barrel range, according to the statement. Oil futures sold at $33.63 on Tuesday after dipping to $27.34 a day earlier.

Investor warning

Activist investor Carl Icahn, who owned a 2.5% stake in Occidental as of December 31, has been a fierce critic of the Anadarko purchase. In a prescient letter to fellow shareholders just four weeks ago, the billionaire warned that if oil prices continued their decline, the dividend would be in jeopardy.

Occidental is one of the most-exposed major oil explorers to declining crude prices because of the large debts it took on to outbid Chevron for Anadarko in 2019. The company had planned to sell $15bn worth of assets by the middle of 2020 to help reduce borrowings. But that is looking more difficult now, given collapsing valuations in energy markets.

Warren Buffett’s Berkshire Hathaway helped finance Occidental’s purchase of Anadarko with a $10bn preferred stock investment. That stock generates dividends of 8% annually for Berkshire, which Occidental can pay in cash or shares. That arrangement is not affected by Tuesday’s dividend cut.

“The massive 86% cut of Occidental’s once-fortress-like dividend to a paltry 11c may not go over well with income-focused shareholders especially those alienated by management’s steps to acquire Anadarko,” analysts Vincent  Piazza and Evan Lee said.

Occidental rose 8.9% at $13.63 at 12:39pm. New York time, trimming some of Monday’s 53% collapse.

Other US shale producers have announced cost cuts this week following the slump in oil prices, including Diamondback Energy Inc. and California Resources Corp. Oil giants ExxonMobil Corp. and Chevron Corp. said Tuesday they’re reviewing plans to reduce their spending.

Bloomberg