Occidental Petroleum Corp. (NYSE: OXY) has become the poster child for pursuing a bad and expensive merger in oil and gas. In its defense, Occidental had no way to know that a new coronavirus would turn into the COVID-19 pandemic that killed global oil demand. Occidental also had no insight that Russia and Saudi Arabia would kick off a price war for oil market share. Regardless, Occidental’s future looks less than certain, despite a massive recovery in oil stocks over the past month.

This integrated oil and gas giant reported a quarterly $2.2 billion loss attributable to shareholders, or −$2.49 in earnings per share. Its operating loss was $467 million, or −$0.52 per share. Due to the impact of the pandemic’s economic pressure, Occidental has withdrawn virtually all 2020 guidance.

Many of Occidental’s problems would appear to be in special items. Those items included a $1.4 billion impairment charge on goodwill and losses on equity investments. Occidental also has a loss of $1.4 billion tied to swaps and hedges, as well as additional costs tied to its Anadarko acquisition, but these costs and charges were partially offset by $1 billion in gains from its hedges in crude oil prices.

Where things become extra difficult is in evaluating Occidental’s capital spending plans. The company has lowered its 2020 capital spending plans three times, and it is now looking to spend $2.4 billion to $2.6 billion. That is down by more than 50% from its original projections, but it is $300 million or so lower than its estimates offered at the end of March.

Occidental sees another $1.2 billion in cost savings. How this will measure up against $36 billion in long-term debt, up from just $10 billion a year earlier, remains to be seen. Occidental reportedly is looking for ways to trim that debt load. Unfortunately, it is doing this at a time when the markets are still in overproduction. Oil prices are still low, and the pool of buyers for what might end up being for sale as noncore assets is smaller and less healthy than in 2019.

There currently are almost too many moving parts in Occidental to justify whether the company will be successful in lowering its debt. Berkshire Hathaway Inc. (NYSE: BRK-B) is a creditor after loaning Occidental funds as part of its Anadarko deal, but Occidental recently repaid Warren Buffett in shares rather than in cash in an effort to conserve capital regardless of dilution.

CEO Vicki Hollub is still president and chief executive, but a management shuffle took place and former CEO Stephen Chazen has returned as board chair. Occidental also cut pay for staff and executives in late March, and it had been in a long-term squabble with activist investor Carl Icahn, even as Icahn increased his stake.

The good news about seeking debt alternatives is that it is believed that Occidental is not looking at any bankruptcy options. After cutting its dividend by 86%, there is even a question about the longer-term future of the dividend being paid at all until the oil price and demand issues have come back to normal (or normal-ish).

The real winner in the Occidental acquisition of Anadarko was actually Chevron Corp. (NYSE: CVX). Its earnings also showed a mixed bag, but Chevron did get to collect a deal breakup fee, and it did not take on an asset at expensive prices right before oil prices started falling from the bottom of the barrel.

Vicki Hollub said of the quarter:

As the world battles this pandemic, we are focused on preserving the health and safety of our employees and contractors while taking aggressive action to ensure our long-term financial stability. We have identified an additional $1.2 billion in operating and corporate cost savings and reduced our full-year capital budget to between $2.4 billion to $2.6 billion, while protecting the integrity of our assets. Our leadership as a low-cost operator, track record of operational excellence and portfolio of world-class assets are competitive advantages that position us for success when market conditions eventually improve.

Investors will have every right to determine exactly what a leadership role and what a low-cost operator really mean if and when that mountain of debt being refinanced or renegotiated comes into play here. This is a time when trust is low, but it is a time when expectations are low too.

Occidental Petroleum stock opened up more than 1% higher on Wednesday, at $15.51, and traded as high as $15.96 in the morning. Unfortunately, the shares quickly slid and were down about 8% at $14.08 in the noon hour. Occidental’s 52-week trading range is $9.00 to $60.73, and its Refinitiv consensus analyst price target was closer to $15.00.

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