DBRS Has Updated Its Report on Occidental Petroleum Corporation

DBRS has today updated its report on Occidental Petroleum Corporation (Oxy or the Company). Based on DBRS’s review of Oxy’s planned restructuring announced in October 2013, and its impact on the Company’s overall risk profile, Oxy’s credit quality post-restructuring is expected to remain in line with the current “A” rating range. Post-restructuring, Oxy is expected to still maintain a relatively strong production profile (DBRS expects production to remain above 500 thousand barrels of oil equivalent per day (mboe/d)), remain geographically diversified and keep its leverage in line with the current rating category. Although the Company intends to repurchase a significant amount of shares outstanding with proceeds from the planned asset divestitures and its cash on hand ($3.8 billion as of September 30, 2013), Oxy is expected to reduce a proportionate amount of debt, minimizing the pressure on its balance sheet. However, a negative rating action could result if Oxy’s key credit metrics deteriorate significantly and are no longer in line with the current rating because of the planned divestitures, share repurchases and/or any significant unforeseen cash shortfalls.

The actions resulting from Oxy’s strategic review included the following: (1) the sale of a portion of its 35% investment in the general partner of Plains All American Pipeline, L.P. (Plains) in an initial public offering for $1.4 billion of pre-tax proceeds, with an intention to divest the remaining interest in the future; (2) the potential sale of a minority interest in its Middle East and North Africa (MENA) operations (261 mboe/d of net production for the nine months ended September 30, 2013 (9M 2013)), reducing Oxy’s exposure to relatively higher geopolitical risk operations; and (3) the potential strategic alternatives for select, non-core Midcontinent assets (approximately 66 mboe/d of net production for the first six months of 2013). In addition to the announced actions, the Company may consider spinning off its California operations (153 mboe/d of net production in 9M 2013). The planned divestitures will allow the Company to focus on ramping up production in core producing regions such as the Permian Basin.

Oxy’s financial profile remained strong in 9M 2013, and key credit metrics were in line with the current rating despite modestly lower earnings for the period compared with 9M 2012. Earnings decreased modestly primarily because of lower earnings in the Exploration and Production (E&P) segment (87% of EBIT in 9M 2013), which was driven by lower production volumes and oil prices in MENA, lower U.S. natural gas liquids (NGL) prices and higher depreciation, depletion and amortization rates (DD&A). However, this was partially offset by lower operating expenses, moderately higher liquids production and realized pricing in the U.S.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.