#5 - Occidental Petroleum (NYSE:OXY)
Oil stocks, particularly drilling stocks are always a gamble. However, when Occidental Petroleum (NYSE:OXY)made its big bet on buying Anadarko Petroleum, critics were already saying the company paid too much. Occidental got into a bidding war for Anadarko and wound up funding the deal by selling $10 billion of preferred stock to Warren Buffett.
Investors’ worst fears were realized on March 9, 2020. The price of oil dropped nearly 30% before the markets opened. And just like that Occidental’s short-term fate was sealed. Not only did the company cut its quarterly dividend over 80% (from 79 cents to just 11 cents), it also announced it was cutting capital spending by 32%.
For investors, this is a tough pill to swallow. OXY’s share price is down 80% in the last 12 months, the bulk of that happening since the beginning of 2020.
The company’s CEO, Vicki Hollub was optimistic the company could break even with U.S. benchmark oil prices in the low $30s. But that price level is long gone, and with it a lot of hope for Occidental stock.
Like other shale producers, OXY relies on oil to be selling at a high price per barrel to fund its oil drilling and exploration initiatives. In 2016, a number of shale-reliant companies entered bankruptcy as oil prices dropped.
About Occidental Petroleum
Occidental Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, and North Africa. It operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing. The company's Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas.
Read More - Current Price
- $50.29
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $64.55 (28.4% Upside)
Financially, oil companies simply are not structured to handle extremely low oil prices long term. Some of the companies in this presentation have lost over two-thirds of their value just in 2020. For many companies in other sectors, a potential solution is to raise capital, perhaps through the bond market. That is not an option for many of the oil companies in this presentation as the bond markets are closed off to troubled companies.
Many of the companies in this presentation are shale producing companies. Many shale companies were struggling to achieve profitability before the coronavirus outbreak torpedoed short-term demand for oil. Companies with high debt levels are more likely to be affected.
Prior to the recent crash in oil prices, some analysts were saying that 2020 could bring another wave of bankruptcies, particularly for shale companies.
That prediction appears to be coming to fruition. In an interview with Houston media, Buddy Clark, co-chair of the energy practice at Houston law firm Haynes and Boone, said his firm is “extremely busy” and that he is hopeful there will only be 100 oil bankruptcies in 2020.
“It’s hard to believe that 100 bankruptcies is the optimistic view. That just shows you where we are,” said Clark.
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