Oxy pursues ways to pay debt
Sale of assets hurt by pandemic after Anadarko takeover
Occidental Petroleum warned shareholders Wednesday that it may not be able to sell its assets quickly enough to pay back debt incurred after its high-profile takeover last year of rival Anadarko Petroleum.
The Houston oil and gas producer was planning to sell $15 billion of assets by late 2021 to quickly repay investors who funded its $38 billion Anadarko acquisition in August. But the value of Oxy’s oil assets have plummeted during the recent coronavirus-driven oil bust.
Oxy on Wednesday reported a loss of $2.2 billion in the first quarter since the merger during which it failed to sell any assets. Instead, the company was forced to write down the value of its holdings by $1.4 billion.
“Travel restrictions and the fall in commodity prices have severely disrupted the market for asset sales,” Chief Executive Vicki Hollub said in a call with shareholders and analysts Wednesday. “Given the market condition, we are no longer confident in raising sufficient funds from just divestitures to address all of our nearterm debt maturities.”
The admission was a stunning turnabout from less than three months ago, when Hollub repeatedly said she was confident Oxy could hit its $15 billion target for asset sales.
“We're still confident because, look, we've got over $100 billion of assets in our portfolio,” Hollub told investors in late February. “We've got a good team and a good track record of success.”
Oxy executives on Wednesday maintained the company has “numerous options available” outside of selling its assets to pay down its debt, including using free cash flow, refinancing and seeking extensions from from borrowers to manage its more than $39 billion debt.
Bill Selesky, a senior energy analyst at Argus Research, said Oxy could also offer preferred shares
to investors, offer more debt that could be converted into equity and seek investments from private equity companies, which usually demand a premium.
Oil majors with strong balance sheets are interested in buying assets from distressed companies at discounted prices during the downturn. Energy companies, however, will likely wait until oil prices stabilize in the $20 to $30 range before undertaking mergers and acquisitions, Selesky said.
“Oxy is dealing from a disadvantaged position,” Selesky said. “Any company that has to sell assets to pay off debt is in a precarious situation, but Oxy is trying to sell assets at a time when no one wants to buy. Any potential buyer will try to squeeze them as hard as they could to get the lowest price, and at some point, they’ll have to sell and take whatever they can get.”
Oxy made a big bet on oil prices rising when it acquired Anadarko to bolster its position in the Permian Basin of West Texas, the nation’s most prolific shale play.
Oxy argued the megadeal would allow the company, already the biggest Permian producer, to create the kind of scale needed to produce oil more cheaply and better compete with the oil majors, such as Chevron and Exxon Mobil\.
Making the deal to snatch Anadarko’s prime Permian assets hinged on selling off its other holdings and paying down acquisition-related debt as quickly as possible.
Oxy, which last year struck a deal to sell Anadarko’s African assets to French oil and gas company Total for $8.8 billion, has only paid about a third of its debt before oil prices crashed.
The company was forecasting growth of 5 percent annually after merging with Anadarko. Now its priority is make it to the other side of the bust.
“Rather than generate or have a growth target, our target is more to take free cash flow to lower debt,” Hollub said. “Lowering the debt will be our highest priority in the near-term, over the next couple of years.”
Oxy faces a $6 billion debt payment next year. The company on Tuesday said it had $1 billion in cash and an additional $5 billion under its revolving line of credit as of April 30.
Oxy is trying to sell its assets as fast as it can under the circumstances. The company is soliciting bids for Anadarko oil and gas properties in Wyoming, and hinted it is open to selling oil and gas projects in the North African country of Algeria.
Oxy may ultimately be forced to sell its most prized acreage in West Texas and Colorado, Selesky said.
“The Permian assets gather the most interest with potential buyers out there,” Selesky said. “I’m sure (Hollub) doesn’t want to sell them, but she may have to. Oxy is in survival mode unfortunately.”