Tuesday, August 11, 2020

Occidental Petroleum Burns in Q2, Shares Plummet

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News shaping
the markets today

     

What’s happening: Shares of Occidental Petroleum Corp slid in extended trading on Monday after the oil giant reported a massive loss for its second quarter.

What happened: Occidental Petroleum recorded $6.6 billion in write-downs during the second quarter.

Travel restrictions and supply chain disruptions due to the pandemic has crushed the demand for oil globally. Although Occidental is not the only company recording mammoth impairment charges, its write-downs in the second quarter were high relative to its market value.

How were the results: The oil producer swung to a significant loss in the second quarter, wider than market expectations.

  • Net loss came in at $8.35 billion, or $9.12 per share, versus earnings of $635 million, or 84 cents per share, in the same quarter last year.
  • Excluding onetime items, adjusted losses stood at $1.76 per share, higher than the consensus view of a loss of $1.68 per share.

Why it matters: Occidental Petroleum borrowed a huge amount last year for its $38 billion acquisition of Anadarko Petroleum and is now trying desperately to lower its debt amid the pandemic, which has crushed both demand and prices for oil. The oil giant has about $4 billion of debt maturing next year.

The company joined rivals Chevron and BP in lowering the value of its oil and gas properties by $6.6 billion, which is equivalent to more than 40% of its market valuation, with experts projecting oil prices to remain low for years.

Occidental Petroleum said its oil and gas production is expected to decline 13% in the current quarter and by another 5% in the fourth quarter.

Ironically, the company had struggled hard to increase its production to a capacity to 36,000 BOE (barrels of oil equivalent) per day. The strong production, however, came at a time when there was no demand for it and oil prices had plummeted from more than $67 per barrel to around $30 in less than six months. Occidental realized merely $23.17 per barrel in the second quarter, a whopping 51% lower than the year-ago quarter.

How shares responded: Shares of Occidental Petroleum dropped 5.6% to $15.55 in after-hours trading after climbing 6.7% during the regular session. Although the company’s stock has gained around 10% over the past three months, it has lost 60% year to date.

What to watch: With the turbulence in the oil industry putting massive pressure on the company’s balance sheet and the huge debt related to the Anadarko purchase, investors understand that Occidental has a herculean task ahead of it. The market will closely monitor the reopening of economies, which will boost oil demand and prices.

The Markets Today

     

Crude oil will be in focus today, ahead of the API’s (American Petroleum Institute) report on crude oil stockpiles.

Context: Oil prices closed higher on Monday, driven by bullish comments from the CEO of the world’s biggest oil company. Positive economic data from China also boosted market sentiment.

Details: Over the weekend, Saudi Aramco CEO Amin Nasser said he expects crude demand to make a strong rebound in major markets.

China also reported positive economic data, with the country’s consumer-price index rising 2.7% in July, versus a 2.5% increase in June. Meanwhile, producer prices fell 2.4% in July, following a 3% decline in June.

With US lawmakers failing to announce a new coronavirus aid program, President Trump signed executive orders to extend offer unemployment benefits of up to $400 per American worker.

WTI (West Texas Intermediate) crude for September delivery gained 1.8% to settle at $41.94 per barrel on the NYMEX (New York Mercantile Exchange).

The global benchmark, Brent crude for October climbed 1.3% to close at $44.99 per barrel on ICE Futures Europe.

In other energy commodities, natural gas for September delivery declined 3.8% to end at $2.1530 per million British thermal units.

What to watch: Investors await the API’s report on crude oil stockpiles. Stocks of crude oil in the US declined 8.6 million barrels during the week ending July 31.

Investors will also keep a close eye on the covid-19 figures, with the total number of cases surpassing 20 million globally.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 1%, 1.1% and 1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa's industrial production, Mexico's industrial production, Canada’s housing starts, Russia's economic growth and balance of trade, China’s total vehicle sales as well as the US NFIB business optimism index, producer prices and Redbook index.