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U.S. Shale Is Living Beyond Its Means

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Shale Giant Posts $2.2 Billion Loss In Dismal Earnings Report

Occidental Petroleum booked a net loss of $2.2 billion for the first quarter of the year, attributing most of it to goodwill impairment charges of $1.4 billion and equity investment losses from Western Midstream Partners.

The company said it had reduced its capital spending program for the year by more than 50 percent, to $2.4-2.6 billion, and had identified spending cuts worth some $1.2 billion to be realized this year.

The oil price crash and oversupply crisis battered Occidental just months after it completed the acquisition of Anadarko, which has arguably become the most ill-timed acquisition in the industry. It cost Oxy $55 billion and expanded its presence in U.S. shale, which is now also being beaten into the ground by low oil prices, much below breakeven points.

Following the acquisition, Oxy was saddled with a total debt load of some $40 billion that it is now looking to reduce, the Wall Street Journal reported. The company has hired investment bank Moelis & Co. to help it with this.

Occidental has about $11 billion in debt maturing by 2022, Bloomberg reported last month and is desperately trying to conserve cash. To this end, it issued $257 million worth of new shares in mid-April—at prices at the time—to pay a dividend to Warren Buffett’s Berkshire Hathaway, which lent the oil company $10 billion to buy Anadarko.

Because of the unfortunate timing of its acquisition of Anadarko, Oxy has become one of the worst-affected oil players in the United States. Asset sales, one of the usual means of reducing significant debt loads, will fetch a lot less than before the crisis if they go through at all.

French Total, for example, told Oxy that it wouldn’t be able to buy its business in Algeria as it had planned because of objections from the country’s government. Other deals will be hard to come by amid spending budget cuts, which puts Oxy in a rather difficult position where it has no other hope than a fast recovery in prices. For now, this remains highly unlikely.

By Irina Slav for Oilprice.com

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