Oil Crash Could Cost This Shale Giant Up To $9 Billion In Impairment Charges

• Occidental Petroleum expects to book after-tax impairments of up to US$9 billion of its oil and gas assets in the second quarter due to the collapse in oil prices earlier this year.
• Currently, Oxy estimates that this impairment will range between US$6 billion and US$9 billion after-tax in Q2, but warned that further write-offs could be considered if the current weak prices and macroeconomic conditions persist.

Occidental Petroleum expects to book after-tax impairments of up to US$9 billion of its oil and gas assets in the second quarter due to the collapse in oil prices earlier this year, the company said in an SEC filing on Thursday.

Like all other oil firms everywhere in the world, Occidental is struggling with the weak oil and gas prices, which impact the value of its proved and unproved oil and gas reserves.    

“The impairment estimate is primarily attributable to the expected prolonged period of lower commodity prices brought on by lower oil demand as a result of the impacts of the COVID-19 pandemic to the worldwide economy,” the company said.

Currently, Oxy estimates that this impairment will range between US$6 billion and US$9 billion after-tax in Q2, but warned that further write-offs could be considered if the current weak prices and macroeconomic conditions persist.

“If the macro-economic 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 non-cash asset impairments, and such impairments could be material to our financial statements,” Occidental said in its announcement.

Oxy warned that if current market conditions persist for an extended period of time, it might not be able to complete planned divestments “on favorable terms, in a timely manner or at all.”  

Earlier this month, Occidental was said to be considering a sale of oil and gas assets in Oman to reduce its debt burden.

Last month, Total backed out of buying Occidental’s assets in Ghana, after a snag in the sale of assets in Algeria as part of the Occidental-Anadarko deal last year.

The collapsed deal was another blow to Occidental, which was relying on the sale of Anadarko’s African assets to receive a total of US$8.8 billion that could partially reduce the huge debt it had accumulated to buy Anadarko in what analysts now see as an ill-timed decision to pursue such a huge and leveraged transaction. 

By Tsvetana Paraskova for Oilprice.com

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