Occidental vows to slash spending after profit falls short of forecasts
Houston — Occidental Petroleum pledged to cut spending by 40% in 2020 after quarterly profit fell short of forecasts due in part to the oil explorer’s $37bn takeover of Anadarko Petroleum.
Shale drilling in the US Permian Basin will account for the biggest chunk of cuts as the company merges duplicate operations. Still, overall output will increase by 2% in 2020, the Houston-based company said on Monday.
Cost synergies were a facet of CEO Vicki Hollub’s rationale for the deal, which saw her outbid Chevron in the biggest transaction of her tenure. Hollub is under pressure to show that the acquisition is working and will soon bear fruit. So far, investors are sceptical, as shown by the 34% slide in Occidental shares since news first broke of her pursuit of Anadarko in April.
Occidental expects to “fully execute on our value-capture initiatives”, Hollub said in a statement on the company’s website.
The combined Occidental-Anadarko entity will spend about $5.4bn in 2020, down from $9bn the companies would have spent, according to the presentation. Expenditures in Occidental’s premier region of operations, the Permian Basin, will drop by half to $2.2bn.
The steep budget cut came after third-quarter earnings fell short of forecasts. Per-share profit, excluding some one-time items, was 11c, compared with the 38c average of 24 analysts’ estimates. Among the contributing factors cited by Occidental were takeover costs, asset writedowns and proceeds from a pipeline sale.
Occidental was little changed in after-market trading after climbing 4.6% during the regular session.