(Bloomberg) -- Occidental Petroleum Corp.’s dividend is under threat after oil futures plummeted below some of the company’s hedging levels, meaning the producer no longer has protection at current prices.
“This plunge has not only collapsed below the company’s Brent short puts of $45/bbl (within three-way collars) but would cause the company to outspend cash flow by ~$2.6B post-dividend,” analysts at Tudor, Pickering, Holt & Co. said in a note.
The analyst’s conclusion was clear. “Occidental needs to cut its dividend,” read the note’s title. A representative for Occidental didn’t immediately respond to a request for comment.
Among large shale producers, Occidental is one of the more exposed to falling oil prices after the massive debts it took on to buy Anadarko Petroleum Corp. last year. The company now has a market value of about $15 billion, less than half the price it paid for its Houston-based rival. The bonds it issued to fund the acquisition plunged on Monday, with 4.4% ones maturing in 2048 down by the the most ever, according to Trace bond trading data.
Occidental’s hedge position isn’t worthless. The company made money as oil prices moved down and it will make about $900 million on the trade if Brent stays below $45 a barrel for the rest of the year, according to Bloomberg calculations.
Still, that’s not enough to appease investors, who sent the stock down as much as 48% to $14.09 in New York trading on Monday, a record low, amid a broad-based selloff in oil and equities.
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