OXY stock: Debt reduction over 1 billion in 2021 | 20 minutes study

Oct. 19, 2021

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Zacks Equity Research

Mon, October 18, 2021, 8:03 AM

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Occidental Petroleum OXY announced that it has entered into a definitive agreement to sell its shares in two non-core offshore assets in Ghana. The agreement includes Occidental’s interests in both Jubilee and TEN fields. These fields had combined second-quarter 2021 net production of 22 thousand barrels of oil equivalent per day.

Occidental decided to sell an 18% interest in Jubilees Field and 11% interest in TEN fields to Kosmos Energy KOS for $550 million and the remaining interest in these fields to Ghana National Petroleum Corporation for $200 million. Subject to necessary approval, the agreement is expected to close by fourth-quarter 2021. Proceeds from the asset sale will be utilized to lower the outstanding debt level.

Occidental held Ghana operations for sale on Jun 30, 2021, so when the deal was announced on Oct 14, it did not come as a surprise for investors. Hence, hardly any movement has been noticed in Occidental’s share prices.

Occidental’s Debts and Divestment Goal

Occidental has taken a substantial debt from the market to fund the Anadarko Petroleum acquisition. It outplayed Chevron Corporation CVX in the acquisition battle. This deal expanded Occidental’s presence in the Permian Basin but funding the same increased the company’s debt level. Since the Anadarko acquisition, Occidental has been working relentlessly and selling non-core assets on appropriate occasions.

With the announcement of the divestment of two offshore Ghana assets, the company touched its $10-billion non-core assets divestiture goal. A substantial portion of the net proceeds from assets divestiture has been utilized to lower debt levels. Year to date, the company has lowered the debt level by $4.5 billion from free cash flow and asset sales proceeds.

As of Jun 30, 2021, Occidental had long-term debt (net of current portion) of $35,352 million compared with $36,034 million on Dec 31, 2020. The debt level decrease was due to effective management of debt since the Anadarko acquisition. It is working consistently to strengthen the balance sheet and has been successful in extending near-term $7-billion debt maturity beyond 2025.

Price Performance

In the past 12 months, shares of Occidental have outperformed the industry.