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Rating Action:

Moody's downgrades Occidental Petroleum to Ba1; on review for downgrade

18 Mar 2020

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

No Related Data.
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