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Giant Write-Down for Giant Shale Player

11 August 2020 by jbchevrel

Occidental Petroleum Corp. (OXY) reported a net loss of $8.4B for Q2, becoming the latest oil company to suffer the combined effect of low oil prices and low demand caused by the Saudi price war and the coronavirus pandemic. OXY 5-year CDS under-performed today. The spread is wider by +35bp while the rest of the market was little changed. Beyond the short-term strong performance in crude prices (today WTI and Brent consolidated above $42/bbl. and $45/bbl. respectively), OXY reported a $6.6B write-down in Q2, due to the Q2 collapse in energy. Of this, $5.2B impairments was booked on continuing operations and the remainder $1.4B on discontinued operations. More than two-thirds of the impairment was to account for the lower value of its domestic onshore acreage, with the remainder in the Gulf of Mexico and overseas.The write-down in itself doesn’t come as a surprise, in itself. Indeed, most other oil companies also booked impairment charges in Q2 on their Oil & Gas assets. But the size is big. Indeed, the write-down is about c40% of OXY market value. Going from here, OXY plans to continue cutting production to weather the crisis. It plans to produce -13% less Oil in Q3 vs Q2, and cut production by another -5% in Q4. In the Permian area, where OXY is now the largest player (thanks to the Anadarko acquisition), they will slash production by -37% this year vs 2019. OXY has a debt load of some $40B ($11B matures by 2022), most of which it took on last year when it bought Anadarko (cost $55B), a deal ironically closed just months before oil prices tanked...