Occidental Petroleum Corp., which made a $57 billion bet last year to take over Anadarko Petroleum Corp. in part to secure its Permian Basin position, said Thursday it expects to write down the value of its oil and gas assets during the second quarter by $6-9 billion.
The Houston-based independent, better known as Oxy, in March slashed its dividend and capital expenditures in response to the coronavirus and tanking oil prices. The producer also attempted to prevent corporate raider Carl Icahn from gaining some control of the board, but that effort failed.
In a U.S. Securities and Exchange Form 8-K on Thursday, Oxy made it clear that its financial fortunes are dwindling because of the pandemic and the damaging impact of low commodity prices.
“We have in the past recorded impairments of our proved and unproved oil and gas properties resulting from prolonged declines in oil prices and may record such impairments in the future,” management said in the filing. “These past impairments include pre-tax impairment and related charges to both proved and unproved oil and gas properties, and a lower cost or net realizable value adjustment for crude inventory.
“For instance, Occidental anticipates that it will recognize an impairment to its oil and gas proved and unproved properties in the second quarter of 2020, and currently estimates that the range of the after-tax impairment of these assets is $6-9 billion.”
However, if the “macroeconomic conditions that exist as of the date of this prospectus supplement continue or worsen, our oil and gas properties may be subject to further testing for impairment, which could result in additional noncash asset impairments, and such impairments could be material to our financial statements.”
If reduced energy demand and low prices for crude, gas and natural gas liquids were to “continue for a prolonged period, our operations, financial condition, cash flows, level of expenditures and the quantity of estimated proved reserves that may be attributed to our properties may be materially and adversely affected.”
Covid-19 “has adversely affected our business, and the ultimate effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.”
Management noted that its business plan, including financing and liquidity, includes, among other things, planned asset sales. Those divestitures now could be in danger.
“If general economic conditions or conditions in the energy industry persist at current levels for an extended period of time, we may not be able to complete these transactions on favorable terms, in a timely manner or at all,” the filing noted.
“The extent to which the Covid-19 pandemic adversely affects our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.”
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