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12 Nov 2004
MOODY'S AFFIRMS OCCIDENTAL'S LONG-TERM RATINGS (SR. UNSECURED Baa1); CHANGES OUTLOOK TO POSITIVE
Approximately $3.8 Billion of Debt Securities Affected
New York, November 12, 2004 -- Moody's Investors Service affirmed the long-term debt ratings of
Occidental Petroleum Corporation (Occidental or Oxy, Baa1 senior
unsecured) and changed the rating outlook to positive from stable.
The change in outlook reflects Oxy's consistent performance along
a number of operating and financial metrics, compared to other investment
grade exploration and production (E&P) companies. Occidental
has more than replaced its production, while growing reserves and
production volumes for the past four years. Oxy has accomplished
this at peer group leading finding and development (F&D) costs and
maintains one of the lowest full-cycle cost structures among the
investment grade E&Ps. As a result of its low cost structure
and higher cash margins, Occidental has the highest leveraged full-cycle
ratio in the peer group. Finally, Oxy is conservatively capitalized
with one of the lowest leverage levels, as measured by debt per
proved developed barrel of oil equivalent (debt per PD Boe). As
of September 30, 2004, Oxy's debt/PD Boe was $2.45,
before any allocation to its commodity chemicals business and without
giving any credit to its equity holdings Lyondell and Premcor.
Occidental has grown its total proved reserves from 2,171 MMBoe
at the end of 2000, after it acquired Altura Energy in the Permian
Basin of West Texas, to 2,470 MMBoe at year end 2003.
Over this period, the company's three-year all sources
reserves replacement was 156%, predominantly from organic
growth, with greater than 100% drilling only reserves replacement
in each of the past three years. Production has grown as well,
from 166 MMBoe in 2000 to 200 MMBoe in 2003 and 208 MMBoe for the twelve
months ending September 30. Oxy has maintained proved undeveloped
reserves (PUD) at a consistent 20% over this period and its proved
developed reserve life has been greater than nine years. Growth
is expected to continue, with increased international production
more than offsetting normal declines in the more mature US properties,
however this will need to be borne out in actual results.
Occidental's annual F&D costs have consistently been among the
lowest in the investment grade E&P peer group. Its three-year
all sources F&D through 2003 of $4.42 is the best in
the peer group, with only two other companies having three-year
F&D below $6. Oxy's full-cycle costs were
$15.10 per Boe at September 30, almost $3 better
than the median of the peer group and better than all but a few of the
comparable companies. This is tempered though by the most recent
quarters where operating costs have risen about $1 per Boe above
2003 levels. Occidental's realized price per equivalent barrel
produced is among the best generally leading to the strongest cash margin.
The combination of strong cash margins and low F&D results in a leveraged
full-cycle ratio, a measure of cash on cash return,
that was 5.1x for the twelve months ending September 30,
compared to a peer group median of about 2x.
Occidental's leverage has declined over the first nine months of
2004 as it has reduced balance sheet debt by over $600 million,
and adjusted debt, which includes off-balance sheet and other
obligations, has declined even further. Cash at September
30 was almost $1 billion, up over $300 million since
the beginning of the year. Adjusted debt per PD Boe, with
all debt supported by the E&P business, dropped from $3.07
at the end of 2003 to $2.45. Oxy also has a substantial
commodity chemicals business that has generated an average of about $400
million EBITDA over the past five years and over $250 million of
free cash flow average over this same period. In addition,
Oxy owns shares in Lyondell and Premcor that have a market value in excess
of $1.2 billion. Allocating a portion of its debt
to the chemicals business and giving benefit to the stock ownership would
drop leverage comfortably below $2 per PD Boe.
Occidental's Baa1 senior unsecured rating reflects its balanced
portfolio of relatively low risk assets with a long proved developed reserve
life, its consistent reserves replacement at peer group leading
F&D costs, the best leveraged full cycle ratio in the peer group
and the company's low leverage and strong liquidity. Oxy's
rating also considers its higher risk international assets that are expected
to be a larger proportion of the company going forward, its reserves
and production mix that are heavily weighted toward oil, exposure
to commodity chemical cycles and a high dividend payout. Occidental's
rating could move to A3 over the near term, potentially without
a review, if full year 2004 results are consistent with its historical
operating and financial metrics. The company's outlook could
move back to stable as a result of a material deterioration in these same
Ratings affected include those of Occidental Petroleum Corporation and
its rated subsidiaries.
Occidental Petroleum Corporation, headquartered in Los Angeles,
California, is an international oil and gas company with primary
operations in the US, the Middle East and Latin America.
Occidental also manufactures and markets commodity chemicals.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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