Approximately $38 billion of rated debt affected
New York, June 25, 2020 -- Moody's Investors Service (Moody's) downgraded Occidental Petroleum Corporation's
(OXY) Corporate Family Rating (CFR) to Ba2 from Ba1, its Probability
of Default Rating to Ba2-PD from Ba1-PD, its senior
unsecured notes rating to Ba2 from Ba1 and its senior unsecured shelf
rating to (P)Ba2 from (P)Ba1. Moody's has also assigned a
Ba2 rating to OXY's proposed new issuance of senior unsecured notes.
Its commercial paper program rating was confirmed at Not Prime.
The Speculative Grade Liquidity rating is unchanged at SGL-3.
The outlook is negative. This rating action concludes the review
initiated on March 18, 2020 following OXY's downgrade to Ba1
The Ba2 rating assigned to OXY's proposed unsecured notes issue
is the same as OXY's Ba2 CFR, reflecting the company's unsecured
capital structure.
"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, compromising its financial flexibility to confront the collapse
in oil prices," commented Andrew Brooks, Moody's Vice President.
"While OXY has made substantial progress capturing acquisition synergies,
and is itself a low-cost operator with attractive Permian Basin
acreage, asset sales initially projected to raise cash for debt
reduction have been insufficient to meaningfully address sizable upcoming
debt maturities, leaving OXY with a significantly weakened credit
profile whose prospects for near-term improvement remain uncertain."
Downgrades:
..Issuer: Maryland Industrial Development Financ.
Auth.
....Senior Unsecured Revenue Bonds,
Downgraded to Ba2 from Ba1
..Issuer: Occidental Petroleum Corporation
.... Probability of Default Rating,
Downgraded to Ba2-PD from Ba1-PD
.... Corporate Family Rating, Downgraded
to Ba2 from Ba1
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Ba1
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba2 from (P)Ba1
....Senior Unsecured Notes, Downgraded
to Ba2 (LGD4) from Ba1
Assignments:
..Issuer: Occidental Petroleum Corporation
....Senior Unsecured Notes, Assigned
Ba2 (LGD4)
Confirmations:
..Issuer: Maryland Industrial Development Financ.
Auth.
....Senior Unsecured Revenue Bonds,
Confirmed at S.G.
..Issuer: Occidental Petroleum Corporation
.... Commercial Paper (Local Currency),
Confirmed at NP
Outlook Actions:
..Issuer: Occidental Petroleum Corporation
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
While OXY's acquisition of Anadarko afforded it strategic and cost
benefits, it came at an excessive price which was largely debt-financed,
and at the very high cost of a significantly eroded credit profile.
The addition of Anadarko's sizable position in the Delaware Basin added
meaningful production and proved reserves to OXY's core Permian
Basin asset, with further development opportunities across an enlarged
asset footprint. However, the full value of this significant
acquisition has been compromised by 2020's collapse in crude oil
prices.
The value accorded OXY's $100 billion asset base, its operating
footprint that extends beyond North America and considerable EBITDA generated
from non-E&P assets has been compromised by the drop in commodity
prices and global demand stress. The stress imposed on OXY's credit
metrics by approximately $40 billion of acquisition-related
debt (OXY's September new issue notes and term loan, Anadarko's
legacy debt which was exchanged into new OXY debt, proportionately
consolidated Western Midstream debt and $10 billion preferred)
has materially weakened OXY's leverage metrics. The challenges
posed by its over-levered balance sheet have 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 the virtual elimination
of its cash dividend, a reduction in 2020's capital spending
of over 50%, operating cost reductions and the payment of
its preferred stock dividend in OXY common shares, which together
will reduce its annual cash outflow by almost $8 billion.
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 barrel of oil equivalent (Boe),
both measures weak for the company's rating.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, weak energy 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 exposed 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.
From a governance perspective, the composition of OXY's 11-member
Board of Directors was materially reconstituted in 2020 with the addition
of six new Board members including a new Chairman. Moody's
understands that the Board is highly focused on restoring OXY's
financial strength through debt reduction. The Board has also adopted
certain corporate governance-enhancing amendments to its a by-laws,
and has created a new Oversight Committee that will work closely with
company management to provide regular Board input.
Moody's regards OXY's near-term liquidity as adequate, comprised
of $1 billion of balance sheet cash as of April 30 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 cuts will relieve stress
on cash flow, enabling OXY to operate in a modestly free cash flow
mode. While Moody's expects that OXY will continue to prioritize
debt reduction, that effort faces difficult headwinds. With
the market for commodity-exposed and related asset sales compromised
by weak commodity prices, OXY's weakened financial condition
leaves the company with limited options for further debt reduction as
it confronts sizable near-term debt maturities, which in
the aggregate total $12.1 billion through 2022, including
its zero coupon notes which are puttable for $992 million in October
2020. OXY intends to use proceeds from its proposed notes issue,
limited asset sale proceeds and free cash flow to address near-term
debt maturities of up to $7.4 billion into 2021.
The outlook is negative reflecting the challenges OXY confronts as it
addresses its over-levered balance sheet in a weak oil and gas
market.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Prospects for a ratings upgrade over the near-term are limited
by OXY's weak balance sheet. Debt reduction exceeding $10
billion, debt on production approaching $20,000 per
Boe and RCF/debt over 25% could support a rating upgrade.
An inability to maintain RCF/debt above 15% or a failure to achieve
further debt reduction could lead to a rating downgrade, as would
the resumption of a meaningful cash dividend or share buybacks.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808.
Alternatively, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
