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.
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this announcement provides relevant regulatory disclosures in relation
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this announcement provides relevant regulatory disclosures in relation
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this announcement provides relevant regulatory disclosures in relation
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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
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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
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Occidental Petroleum Issuer Rating to A1
