Occidental Petroleum cuts two Permian rigs as it targets flat shale production

(Bloomberg) – Occidental Petroleum Corp. will reduce spending on U.S. shale operations as it seeks to improve cash flow to repay debt, resulting in largely flat production this year.

Capital investment in shale and exploration will be trimmed by $320 million, and two rigs in the Permian will be idled this year, the Houston-based company said Wednesday. Spending will increase in the Gulf of Mexico, chemicals and the enhanced oil recovery business.

The drop in Permian spending is “due to efficiency and moderating activity,” Occidental said in a presentation.

The move is a reversal from years of increasing drilling activity in the Permian, where Occidental is one of the biggest producers. The extra cash flow generated from the slowdown will help pay off debt linked to its recent $10.8 billion acquisition of private Permian producer CrownRock LP.

Occidental is targeting production equivalent to 1.25 MMbpd this year, just 1.3% more than its output in the fourth quarter. Capital spending will be about $6.5 billion, less than the $7 billion estimated by analysts. 

The company’s fourth-quarter adjusted earnings were 74 cents a share, topping analysts’ 67-cent average estimate.

The stock was little changed at 4:51 p.m. in after-hours trading.