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Rating Action:

Moody's upgrades Occidental Petroleum Issuer Rating to A1

Global Credit Research - 19 Apr 2012

Approximately $5.9 billion of debt affected

New York, April 19, 2012 -- Moody's Investors Service upgraded Occidental Petroleum Corporation's (Occidental) Long-Term Issuer Rating to A1 from A2. The senior unsecured debt rating was also upgraded to A1 from A2 and the P-1 commercial paper rating was affirmed. The rating outlook is stable.

Moody's current ratings for Occidental Petroleum Corporation are:

Long-Term Issuer Rating of A1

Senior Unsecured (domestic currency) Rating of A1

Senior Unsecured MTN (domestic currency) Rating of (P) A1

Senior Unsecured Shelf (domestic currency) Rating of (P)A1

Subordinated Shelf (domestic currency) Rating of (P)A2

Preferred Shelf (domestic currency) Rating of (P)A3

Commercial Paper (domestic currency) Rating of P-1

Backed LT IRB/PC (domestic currency) Rating of A1

RATINGS RATIONALE

The rating upgrade reflects Occidental's position as one of the largest independent exploration and production (E&P) companies in North America, with strong cash flow coverage margins and significant free cash flow, a conservative approach to leverage, and a large reserve base with good visibility for future growth.

"Occidental has a conservative financial profile along with an asset base that positions the company for sustained growth in the future throughout the cycles of the oil and gas industry," said Stuart Miller, Moody's Vice President -- Senior Analyst. "The upgrade recognizes the strength of Occidental's overall credit metrics compared to other A-rated energy and industrial companies."

With 3.2 billion barrels of oil equivalent (Boe) of proved reserves, Occidental will be the second largest US-based E&P company once ConocoPhillips (A1 RURD) completes its spin-off of its down-stream operations. Approximately 60% of the company's production is sourced in the US, primarily from California and the Permian Basin of West Texas and New Mexico. This production is predominately oil and mostly from older fields with well--defined production decline curves. By employing enhanced recovery techniques and new drilling technology, field production declines rates have been slowed, and in some cases temporarily reversed. As a result, the US reserve base provides a stable, low-risk source of cash flow with modest upside potential. Historically, Occidental has made selective property acquisitions in its core operating areas to grow the US reserve position.

Occidental also invests in international projects in the Middle East and Latin America that have longer lead times, but ultimately result in larger incremental production and reserves additions. Long term joint venture arrangements and production sharing contracts in Qatar (including the Dolphin project), Oman, and Bahrain accounted for nearly one-third of the company's 2011 production. The Al Hosn gas project in United Arab Emirates is expected to result in meaningful additions to production and reserves over the next three years. This balance of low-risk domestic US production, selective property acquisitions, and exposure to more significant production increases in the Middle East, albeit with higher political risk, provides Occidental with an asset base that is expected to be sustainable well into the future.

Occidental mitigates its commodity price risk, reserve replacement risk, and political risk by maintaining a conservative financial profile. The company is conservatively capitalized with the highest cash flow coverage ratios (retained cash flow to total debt) among its North American peers and the lowest reserve-based leverage levels. Debt to average daily production was $7,700 per Boe at year-end 2011 and debt to proved developed reserves was under $2.40 per Boe. These ratios ignore the cash balance at year-end of almost $3.8 billion, an amount that is roughly half of the company's outstanding debt balance.

Occidental has excellent liquidity. In addition to $3.8 billion of cash on hand, the company is expected to generate free cash flow after capital expenditures and dividends. Occidental also has a $2 billion credit facility that is unused and will not expire until 2016. The credit facility backs up the company's $1.5 billion commercial paper program and does not have a material adverse change clause or a ratings trigger. The one financial covenant allows for substantial additional senior unsecured debt. Secondary liquidity, or the ability to sell and monetize assets to fund general corporate purposes, is also excellent with very limited restrictions on asset sales.

Occidental's A1 rating is the highest rating assigned to any North American E&P company. Given the need to continuously replace its depleting resource base, its exposure to volatile commodity prices, and with roughly one-third of its production in regions that are subject to political risk considerations, an upgrade above A1 is unlikely. An increase in leverage with debt to average daily production sustained above $10,000 per Boe or debt to proved developed reserves above $4.00 per Boe would be triggers to consider a downgrade. In addition, negative free cash flow over an extended time period or share repurchases that are not funded out of free cash flow, could lead to a downgrade.

The principal methodology used in rating Occidental Petroleum Corporation was the Global Independent Exploration and Production Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Occidental Petroleum Corporation, headquartered in Los Angeles, California, is an international oil and gas company with primary operations in the U.S., the Middle East and Latin America. Occidental also manufactures and markets industrial chemicals.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Stuart Miller
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Occidental Petroleum Issuer Rating to A1
No Related Data.

 

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