Occidental Petroleum Corp (NYSE:OXY) has indicated that it will incur a $9 billion impairment in its gas and oil properties this quarter and restructure some of its debts to avoid a potential default.
Anadarko acquisition impacted prospects of Occidental
The oil company is seeking to shed almost $40 billion in debt from the acquisition of Anadarko Petroleum in 2019. This was an ill-timed gamble on an increase in oil prices ahead of this year’s historic market collapse. The expected write-down is a result of the drop in oil demand amid the coronavirus pandemic and global oversupply. That has resulted in 38% down from January prices. Occidental and other energy companies have cut their budgets by billions and laid-off workers due to the crash of energy markets.
The company plans to replace notes worth $9.12 billion due in 2021 and 20211 with new notes. This will do away with provisions that would have pushed the US oil producer into default. Occidental indicated that Berkshire Hathaway Inc. (NYSE:BRK.A) will receive the June 30 dividend in the form of shares to help save cash. Last year Berkshire bought the company’s preferred shares worth $10 billion, which helped it in financing the Anadarko deal.
Berkshire to gain more interest in Occidental with the dividend payment
Considering the stocks have dropped 57% since the beginning of the year, Occidental will likely pay the dividend with more shares. This will give Berkshire a growing interest in the oil company. It seems Buffett’s Berkshire will get more value under this arrangement.
Anadarko’s acquisition left the company with a debt of more than $35 billion and $10 billion in preferred shares. This compromised the financial flexibility of the company amid falling oil prices. Occidental will take a third sequential quarter write-down, which will bring total write-downs in the past nine months to $12 billion. Recently the company set a deadline of July 1 for accepting bids for its properties in Colorado and Wyoming, which could generate up to 700 million.