Occidental Petroleum Corp. has been sued by investors who claim they suffered billions of dollars of losses because the heavily indebted company concealed its inability to weather plunging oil prices, after paying $35.7 billion to acquire Anadarko Petroleum Corp.
The proposed securities class action was filed late on May 26 in a New York state court in Manhattan on behalf of former Anadarko shareholders who swapped their stock for Occidental shares, and investors who acquired $24.5 billion of Occidental bonds that helped fund the August 2019 merger.
Investors said Occidental should have disclosed in its stock and bond registration statements how quadrupling its debt load to $40 billion would leave it "precariously exposed" to falling oil prices, and undermine its ability to boost shale oil production and its common stock dividend.
The investors also said Houston-based Occidental's issuance of $10 billion of preferred stock to Warren Buffett's Berkshire Hathaway Inc. compounded the overleveraging.
As of May 26, Occidental's market value had dropped to $13 billion from about $44 billion when the merger closed. Some of Occidental's new bonds traded at between 60 and 90.5 cents on the dollar.
"Investors have suffered severe losses," the complaint said.
Occidental spokeswoman Melissa Schoeb declined to comment.
Other defendants include CEO Vicki Hollub, former CFO Cedric Burgher and several Occidental directors.
Bank of America, Citigroup, JPMorgan and Wells Fargo, which helped underwrite Occidental's bonds, were also sued for alleged inadequate due diligence.
Occidental has since early March slashed capital spending and salaries and lowered its dividend 86%, as reduced travel stemming from the coronavirus pandemic as well as a price war caused oil prices to tumble.
The company lost $2.23 billion in the first quarter, and Hollub said Occidental may sell assets to raise money. She recently survived a proxy battle with activist investor Carl Icahn.
The case is City of Sterling Heights General Employees' Retirement System et al versus Occidental Petroleum Corp et al, New York State Supreme Court, New York County.
The company put proven reserves at between 3 and 10 million standard cubic meters of recoverable oil equivalent based on preliminary estimates.
The Anadarko Basin’s Simpson shale formation is being called “one of the biggest yet-to-be-developed shale plays in the United States.”
EQT, one of the biggest natural gas producers in the U.S. with a large footprint in the Appalachian region, plans to run six frack crews and seven rigs this year.