Occidental to favor buybacks over funding direct air capture plants

6:53 pm Wednesday, May 10th, 2023

By Sabrina Valle

HOUSTON (Reuters) -Occidental Petroleum Corp on Wednesday said it will distribute any excess cash from high oil prices to shareholders instead of funding direct air capture (DAC) plants.

The U.S. oil producer has the most ambitious plan in the industry to bring to scale a decarbonization technology that removes carbon dioxide from the air and buries it underground. It is building its first large scale DAC plant in Texas.

It is, however, lacking external funding to fulfill its plan to build more than 100 DAC units, starting with the second plant.

“We intend to continue allocating excess free cash flow towards share repurchases,” CEO Vicki Hollub said in a webcast to discuss the company’s first-quarter results.

The pace of the buyback program, including payments to Warren Buffett’s Berkshire Hathaway Inc, a key stockholder, could be accelerated if annualized oil prices stay above $75 per barrel, the company said.

Occidental will limit capital spending in low carbon initiatives this year to $600 million, the CEO said, and is in talks with a potential partner to fund DAC plants.

“We are having some really good conversations with a preferred partner that could materialize maybe sometime this year” or next year, Hollub said. “So we do expect to get some funding”.

In the first quarter, Occidental began retiring some of the $10 billion of preferred stock it sold Berkshire to help fund the acquisition of Anadarko operations four years ago.  

The move saves Occidental some of the $800 million of annual dividends it had been paying Berkshire. Buffett’s company also owns 23.7% of Occidental’s common stock. The billionaire said on Saturday that Berkshire was not planning to seek control of Occidental.

Oxy shares fell more than 3.6% on Wednesday to $56.65, trading close to a 52-week low, with the company anticipating that production should reach the lowest point for the year in the second quarter due to scheduled maintenances stoppages.

Occidental on Tuesday reported adjusted income of $1.1 billion, missing analysts estimates amid a 20% decline in oil prices from a year ago. Results were primarily impacted by the timing of crude oil sales in the quarter, the company said.

(Reporting by Sabrina Valle; additional reporting by Jonathan StempelEditing by Marguerita Choy and Lisa Shumaker)