DBRS Confirms Occidental Petroleum Corporation at “A” and R-1 (low), Stable Trends

DBRS Limited (DBRS) has confirmed the Issuer Rating of Occidental Petroleum Corporation’s (Oxy or the Company) at “A” and the ratings of its Senior Notes, Senior Debentures & MTNs and Commercial Paper at “A” and R-1 (low), respectively. All trends are Stable. The confirmations reflect DBRS’s expectation that Oxy will maintain its production profile and key credit metrics at levels that support the current ratings following the spin-off of its California operations, the potential sale of a minority interest in its Middle East and North Africa (MENA) operations and its ongoing aggressive share repurchase program. DBRS notes that the Company’s current “A” rating is based on Oxy maintaining a strong financial risk profile, which warrants a one-notch lift above the implied A (low) business risk rating. Oxy’s business risk profile is expected to remain reflective of an A (low) rating, supported by a geographically diversified production profile that is expected to remain at or near 500 thousand barrels of oil equivalent per day (mboe/d) on a DBRS pro forma basis. The financial risk profile will be viewed as supportive by DBRS if the adjusted debt-to-cash flow and adjusted debt-to-capital remain below 1.25 times (x) and 30%, respectively, and if the EBIT interest coverage remains above 15.00x. Should Oxy’s production profile or key credit metrics deteriorate and no longer remain supportive of the current ratings, this could result in a negative rating action.

Oxy is currently continuing with its strategic review, which includes: (1) the sale of its Hugoton Field (18 mboe/d in 2013) in April 2014; (2) the spin-off of its California operations (157 mboe/d for the nine months ended September 30, 2014 (9M 2014)), which is expected to be completed by November 2014; (3) the potential sale of a minority interest in its MENA operations; (4) the potential sale of its remaining 25% interest in the general partner of Plains All American Pipeline, L.P.; and (5) the sale of its interest in the BridgeTex Pipeline Company LLC announced in November 2014. Oxy is expected to use the proceeds from its divestitures to fund its aggressive share repurchase program, ramp up production in its core area of the Permian Basin and/or fund some debt reduction. Overall, these transactions are expected to have a negative impact on the Company’s credit profile; however, the Company’s production profile and key credit metrics are expected to remain reasonable for the current rating.

In 9M 2014, Oxy’s key credit metrics remained supportive, despite modestly lower operating cash flows and higher leverage. The Company’s financial profile was negatively affected by weaker crude prices and approximately $2 billion in share repurchases. As Oxy has minimal hedging activity, it is expected to remain exposed to the volatility in crude prices. Should the pricing environment continue to weaken, DBRS expects Oxy to curtail capex to minimize the pressure on its balance sheet.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

The applicable methodologies are DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014) and Rating Companies in the Oil and Gas Industry (October 2014), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related
Research at the right of the screen or by contacting us at info@dbrs.com.