Occidental Pays Berkshire Dividend in Shares Rather Than Cash

Plunging oil demand thanks to the coronavirus and a price war have strained Occidental's finances.
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Occidental Petroleum  (OXY) - Get Report said it was paying a dividend it owes to Warren Buffett’s Berkshire Hathaway  (BRK.B) - Get Report in shares rather than cash.

The company needs to conserve cash because the coronavirus pandemic has sapped demand for oil and until last weekend Saudi Arabia and Russia were engaged in a price war.

Occidental already slashed its dividend to common shareholders by 86%.

Berkshire Hathaway helped finance Occidental’s $38 billion purchase of Anadarko Petroleum last year, giving it a $10 billion position in preferred stock with an 8% dividend.

But the $200 million quarterly payment isn’t something Occidental feels it can cough up at this point.

Adding insult to injury, the shares issued to Berkshire Hathaway were worth about $257 million as of Tuesday’s close. The $57 million premium over what the cash payout would have been stemming from the 10% discount Berkshire gets on dividends paid in shares and the formula for calculating dividends if paid in stock.

Berkshire Hathaway owned 2% of Occidental as of Dec. 31.

Analysts and investors had doubts about Occidental’s acquisition of Anadarko from the beginning because of the large debt burden resulting from Occidental, now about $40 billion.

Occidental shares traded at $60.21 on May 8, 2019, the day before the deal was announced. The stock traded at $13.25 Wednesday, down 78% from that level and 11% from Tuesday.

Morningstar analyst Dave Meats views Occidental shares as undervalued based on his net asset value forecast, though he sees plenty of uncertainty given Occidental’s hefty debt load and the weak oil market.

He puts the fair value at $37. 

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