Approximately $37 billion of rated debt affected
New York, March 18, 2020 -- Moody's Investors Service (Moody's) downgraded Occidental Petroleum Corporation's
(OXY) senior unsecured rating to Ba1 from Baa3, its senior unsecured
shelf rating to (P)Ba1 from (P)Baa3 and its commercial paper program rating
to Not Prime from Prime-3. Moody's also assigned OXY
a Corporate Family Rating (CFR) of Ba1, a Probability of Default
Rating of Ba1-PD and a Speculative Grade Liquidity rating of SGL-3.
Ratings were placed on review for downgrade.
"Occidental Petroleum's August 2019 acquisition of Anadarko
Petroleum Corporation (Anadarko) continues to burden the company's
balance sheet with over $35 billion of debt and $10 billion
of preferred stock, significantly compromising its financial flexibility
to confront the collapse in oil prices," commented Andrew
Brooks, Moody's Vice President. "While OXY 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 OXY
with a significantly weakened credit profile whose prospects for near-term
improvement are uncertain."
The following ratings were downgraded.
Assignments:
..Issuer: Occidental Petroleum Corporation
.... Probability of Default Rating,
Assigned Ba1-PD; Placed Under Review for further Downgrade
.... Speculative Grade Liquidity Rating,
Assigned SGL-3
.... Corporate Family Rating, Assigned
Ba1; Placed Under Review for further Downgrade
Downgrades:
..Issuer: Occidental Petroleum Corporation
.... Commercial Paper, Downgraded to
NP from P-3; Placed Under Review for Downgrade
....Senior Unsecured Shelf, Downgraded
to (P)Ba1 from (P)Baa3; Placed Under Review for Downgrade
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba1 from (P)Baa3; Placed Under Review
for Downgrade
....Senior Unsecured Notes, Downgraded
to Ba1 from Baa3; Placed Under Review for Downgrade
..Issuer: Maryland Industrial Development Financ.
Auth.
....Senior Unsecured Revenue Bonds,
Downgraded to Ba1 from Baa3; Placed Under Review for Downgrade
....Senior Unsecured Revenue Bonds,
Downgraded to S.G. from VMIG 3; Placed Under Review
for Downgrade
Outlook Actions:
..Issuer: Occidental Petroleum Corporation
....Outlook, Changed To Rating Under
Review From Stable
Withdrawals:
..Issuer: Occidental Petroleum Corporation
.... Issuer Rating, Withdrawn ,
previously rated Baa3
RATINGS RATIONALE
OXY's Ba1 CFR takes into consideration that its acquisition of Anadarko
added meaningful production and proved reserves with further development
opportunities in its core Permian Basin asset, reflecting the addition
of Anadarko's sizable position in the Delaware Basin. While the
acquisition afforded strategic and cost benefits to OXY, it came
at an excessive price and at the very high cost of a significantly eroded
credit profile.
The stress imposed on OXY's credit metrics by approximately $40
billion of acquisition-related debt (the new OXY notes and term
loan, Anadarko's surviving debt which was exchanged into new OXY
debt, proportionately consolidated Western Midstream debt and the
50% debt equivalent allocated to the $10 billion preferred)
has materially weakened OXY's leverage metrics. The unsuitability
of OXY's over-levered balance sheet has been further exacerbated
by the sharp drop in crude oil prices and commensurate reduction in cash
flow. OXY has reacted to the currently challenged oil price environment
with several recent defensive measures including a long overdue cut in
its dividend of 86% and a reduction in planned capital spending
of about one-third, which together will reduce its cash outflow
by about $4 billion. The company has further noted that
additional planned cost reductions will lower its company-wide
cash flow breakeven into the low $30 per WTI barrel area.
However, without significant and immediate debt reduction beyond
the $7 billion achieved in the latter half of 2019, on a
run-rate basis Moody's estimates that OXY's retained
cash flow (RCF) to debt metric will remain well under 15% and E&P
debt on production over $30,000 per Boe, neither measure
supportive of an investment grade rating. The value accorded OXY's
$109 billion asset base (at December 31), its operating footprint
that extends beyond North America and considerable EBITDA generated from
non-E&P assets has likely been compromised by the drop in commodity
prices and global demand stress. While Moody's expects that OXY
will continue to prioritize debt reduction through asset sales,
that effort now faces increasingly difficult headwinds.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The oil and gas sector
has been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in OXY's credit profile has left it vulnerable to
shifts in market sentiment in these unprecedented operating conditions
and OXY remains vulnerable to the outbreak continuing to spread.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Today's action reflects the impact on OXY of the breadth and severity
of the shock, and the broad deterioration in credit quality it has
triggered.
Moody's regards OXY's near-term liquidity as adequate,
comprised of $3 billion of year-end balance sheet cash and
an undrawn $5 billion revolving credit facility having a January
2023 scheduled maturity date. The company should retain full access
to its revolver, which does not have a MAC clause, nor stringent
covenant limitations. Moreover, the dividend and capital
spending cut will relieve stress on cash flow, and may enable OXY
to operate in a modestly free cash flow mode. OXY has no debt maturities
coming due in 2020, but will confront the high hurdle of $6.4
billion of debt maturities in 2021.
The review for downgrade will focus on OXY's near-term ability
to meaningfully improve its credit profile, deploying asset sale
proceeds to repay debt, with a continuing focus on further debt
reduction as well as its ability to generate positive free cash flow in
a stressed oil price environment. The review will also consider
the company's financial policies in the context of addressing its significant
debt levels and upcoming debt maturities, as well as its scale,
capital structure, operating performance and the execution risk
of integrating the large-scale asset base and operations of Anadarko.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Occidental Petroleum Corporation is a large, publicly traded independent
exploration and production (E&P) with operations focused in the Permian
Basin, Colorado's DJ Basin, the Middle East in Oman,
Qatar and the UAE, Algeria and Ghana, and Colombia.
It also has significant Midstream and Chemicals businesses. The
company is headquartered in Houston, Texas.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
With reference to the withdrawal of the rating of Occidental Petroleum
Corporation. The rating has been disclosed to the rated entity
or its designated agent(s) and issued with no amendment resulting from
that disclosure.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrew Brooks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
