Debt-Laden Occidental Opts to Pay Buffett’s Dividend in Shares

Occidental Petroleum Corp. has elected to pay a quarterly $200 million payment it owes Warren Buffett’s Berkshire Hathaway Inc. in shares, a sign of the financial strain the company is facing as the coronavirus erodes demand for oil.
The Houston oil company bought rival Anadarko Petroleum Corp. for $38 billion last year, outbidding Chevron Corp., thanks to financial assistance from Berkshire, which purchased $10 billion in preferred Occidental shares. But the financing came at the steep cost of an 8% dividend yield, or $800 million annually.
Occidental said in a regulatory filing Wednesday that it had opted to pay the $200 million it owes Berkshire in common stock at a 10% discount, rather than granting the payout in cash, an option spelled out under the original arrangement. Berkshire owned about a 2% stake in Occidental as of year-end, S&P Global Market Intelligence data show.
Occidental could choose to pay Berkshire differently in future quarters.
The move allows Occidental to preserve cash during an oil-price crash, as a huge demand drop due to the coronavirus places pressure on oil producers. But the company is using its shares to make the payments at a time when it is particularly expensive to do so.
Occidental’s share price stood at roughly $14.90 at Tuesday’s close, down from more than $60 just before the Anadarko deal was struck, partly due to doubts about the transaction and more recently because of oil-price wars and the market downturn. That has shrunk its market value to about $13 billion from more than $46 billion. The shares were down about 9% in Wednesday morning trading.
It also has a hefty debt load — about $40 billion at last count. While marketing the Anadarko deal to shareholders, Occidental Chief Executive Vicki Hollub had said she would aim to sell $15 billion of assets to raise cash and pay down debt. But the coronavirus pandemic is likely to frustrate those plans.
Occidental has been in turmoil lately as the hefty debt burden it took on to buy Anadarko has affected its ability to navigate a steep plunge in oil prices. Last month, the company brought former Chief Executive Stephen Chazen back as chairman and acquiesced to critic Carl Icahn, giving the billionaire activist seats on the board. It also recently parted ways with its head of business development and replaced its chief financial officer.
Occidental has sought to conserve cash by slashing capital spending nearly 50% and trimming the salaries of executives and employees. It also cut the dividend it pays common shareholders by 86%.