Occidental Vows to Slash Spending
(Bloomberg) -- Occidental Petroleum Corp. pledged to slash spending by 40% next year after quarterly profit fell short of forecasts due in part to the oil explorer’s $37 billion takeover of Anadarko Petroleum Corp.
Shale drilling in the U.S. 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 in a slide presentation on Monday.
Cost synergies were a key facet of Chief Executive Officer Vicki Hollub’s rationale for the deal, which saw her outbid Chevron Corp. 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 skeptical, as evidenced 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 its website.
The combined Occidental-Anadarko entity will spend about $5.4 billion next year, down from the pro forma $9 billion the companies would have spent, according to the presentation. Expenditures in Occidental’s premier theater of operations, the Permian Basin, will drop by half to $2.2 billion.
The steep budget cut came after third-quarter earnings fell well short of forecasts. Per-share profit, excluding some one-time items, was 11 cents, compared with the 38-cent 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. The company’s earnings conference call is scheduled for Tuesday at 11 a.m. New York time.
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