
Moody’s cited the stress imposed on Occidental’s credit metrics by its purchase of Anadarko Petroleum to be approximately $40 billion in acquisition-related debt. (Source: Hart Energy; Shutterstock.com)
Occidental Petroleum Corp. had its debt rating downgraded on March 18 to “junk” status by Moody’s Investors Service, as the Houston-based oil and gas producer deals with fallout over its 2019 acquisition of rival Anadarko Petroleum and the oil market collapse.
Moody’s lowered its rating of Occidental senior unsecured debt to “Ba1” from “Baa3” and also assigned Occidental an increased “probability of default rating,” according to a March 18 news release from the New York-based bond credit rating company.
The acquisition of Anadarko Petroleum completed last August continues to burden Occidental’s balance sheet, “significantly compromising its financial flexibility to confront the collapse in oil prices,” said Andrew Brooks, Moody’s vice president, in a statement on March 18.
Despite being the largest oil and gas deal in the U.S. of the past decade, Moody’s cited the stress imposed on Occidental’s credit metrics by its purchase of Anadarko Petroleum to be approximately $40 billion in acquisition-related debt. The plunge in oil prices has also added to the company’s woes, with Occidental last week announcing plans to slash its dividend and implement further cost cutting measures.
“While [Occidental] has made progress capturing acquisition synergies, and is itself a low-cost operator with attractive Permian Basin acreage, projected asset sales required for debt reduction have slowed and face considerable headwinds in a challenged oil and natural gas price environment, leaving [Occidental] with a significantly weakened credit profile whose prospects for near-term improvement are uncertain,” Brooks added in his statement.
Occidental had projected $2 billion of annual cost synergies and $1.5 billion of annual capital reductions from its combination with Anadarko. The company also had plans to reduce debt by between $10 billion and $15 billion through divestitures in conjunction with the transaction including its $8.8 billion sale of Anadarko’s African assets to Total SA.
Additionally, Occidental is in the process of selling millions of acres of land in Wyoming to the state with prices ranging between $1 billion and $3 billion, according to a Financial Times report citing unnamed sources.
“Given cash on hand, and assuming the company is able to execute its mineral and surface acreage sale in Wyoming, we think [Occidental] will retire its 2021 bonds coming due of $4.4 billion; however, from 2022-2025 the company has another $10.5 billion maturing with an average stated coupon of 4%,” analysts with Tudor, Picking, Holt & Co. (TPH) wrote in a March 19 research note. “Refinancing, assuming the high yield market is open, would materially add to the corporate interest burden over time. That being said, the company does have an undrawn $5 billion credit facility that may be used to address debt as it comes due.”
The TPH analysts added the company should also consider suspending its dividend entirely, which would save roughly $400 million of additional annual cash. The move would increase Occidental’s “operational flexibility while the market will continue to monitor disposal plans which may be strained in this depressed commodity tape,” according to the analysts.
Recommended Reading
BlackRock’s Fink Calls for Reliable US Power Grid—Now
2025-03-31 - “That starts with fixing the slow, broken permitting processes in the U.S. and Europe,” Larry Fink, the co-founder, chairman and CEO of $12 trillion investment-management firm BlackRock Inc., told shareholders March 31.
E&P Highlights: Feb. 10, 2025
2025-02-10 - Here’s a roundup of the latest E&P headlines, from a Beetaloo well stimulated in Australia to new oil production in China.
Analysts’ Oilfield Services Forecast: Muddling Through 2025
2025-01-21 - Industry analysts see flat spending and production affecting key OFS players in the year ahead.
Sabine Oil & Gas to Add 4th Haynesville Rig as Gas Prices Rise
2025-03-19 - Sabine, owned by Japanese firm Osaka Oil & Gas, will add a fourth rig on its East Texas leasehold next month, President and CEO Carl Isaac said.
E&P Highlights: Feb. 24, 2025
2025-02-24 - Here’s a roundup of the latest E&P headlines, from a sale of assets in the Gulf of Mexico to new production in the Bohai Sea.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.