Vicki Hollub, President and CEO, Occidental Petroleum Corporation, participates in a panel discussion during the annual Milken Institute Global Conference at The Beverly Hilton Hotel on April 29, 2019 in Beverly Hills, California.
Michael Kovac | Getty Images
As oil prices surge to the highest levels since 2008, Oxy CEO Vicki Hollub said U.S. producers cannot increase output.
“We’re in a really dire situation,” she said Tuesday at CERAWeek by S&P Global. “We’ve never faced a scenario where we need to grow production, when actually supply chains not only in our industry, but every industry in the world, is being impacted by the pandemic.”
U.S producers were largely expecting to keep production flat this year, and in the face of surging crude prices, output can’t just be ramped, Hollub said.
“Now, with supply chain challenges, it makes any kind of attempt to grow now — and at a rapid pace — very, very difficult,” she said.
Production in the oil-rich Permian Basin is back around its pre-pandemic peak, according to Hollub, who said the region faces significant challenges to grow output further. It’s also the only shale basin in the U.S. that can grow production, she said.
Part of the difficulty is due to the life stage of wells in the region and the need to offset declines from wells that are past their peak. But the industry is also facing challenges that are reverberating throughout the economy, including labor shortages and issues securing raw materials. While the industry had prepared for these hurdles, it had not prepared for the need to crank output rapidly.
“The call for incremental production in the United States, at this point, especially with the supply chain challenges can’t happen at the level that’s needed not only for our country, but for the world. We’re in a significantly challenging scenario today,” she said.
Energy companies have emerged from the pandemic as a wholly different industry. While in years prior, it was all about growth, now it’s all about capital discipline. In the wake of the pandemic, companies focused on paying down debt, returning cash to shareholders and reining in spending.
Hollub said investors view capital discipline as “essentially no growth.” But, she said Oxy has a “huge inventory of high-quality investments” that it could make around the world and especially in the U.S. shale basin, but for now it is focused on returning capital to shareholders. Last month, it announced plans to raise its quarterly dividend to 13 cents per share, up from 1 cent.
“I feel now that we do need to return cash to the shareholders in the form of dividends or buybacks, especially during the better cycles,” she said, adding Oxy is positioning itself so that it’s breakeven at $40 per barrel of oil.
West Texas Intermediate crude futures, the U.S. oil benchmark, traded around $126 per barrel on Tuesday.
A filing with the Securities and Exchange Commission Friday night showed that Warren Buffett’s Berkshire Hathaway took a stake in the oil company. Berkshire owns 91.2 million shares of Occidental, worth $5.1 billion at Friday’s closing price of $56.15.
Meanwhile, Carl Icahn has sold out of a 10% stake he had in the company, according to a report in The Wall Street Journal.