AUS
NZ
UK
CA
USA
IND
Headlines
- Occidental Petroleum acquired CrownRock for $12 billion, enhancing its position in the Permian Basin and boosting annual free cash flow by $1 billion.
- To manage the debt from this acquisition, Occidental is selling assets, including interests in Western Midstream Partners, to repay at least $4.5 billion within a year.
- Despite setbacks, the company is making significant progress in debt reduction, with plans to continue leveraging asset sales to meet its financial goals.
Occidental Petroleum (NYSE:OXY) recently completed a significant acquisition of CrownRock, paying $12 billion for the oil company. This move is set to strengthen Occidental's presence in the prolific Permian Basin and is projected to increase its annual free cash flow by approximately $1 billion.
However, the acquisition has added substantial debt to Occidental's balance sheet. The company issued $9.1 billion in new debt and assumed $1.2 billion of CrownRock's existing debt. As a result, Occidental is now focused on reducing its debt as quickly as possible. A key part of this strategy includes selling some of its interests in Western Midstream Partners (NYSE:WES).
Occidental aims to repay at least $4.5 billion of debt within a year of closing the CrownRock deal, utilizing increased free cash flow and proceeds from asset sales. The goal is to raise between $4.5 billion and $6 billion from asset sales over the coming years. The company has already started this process, agreeing to sell non-core assets in the Delaware Basin to Permian Resources for $818 million and other assets for $152 million, totaling $970 million for debt repayment.
An even larger deal was in the works, with Occidental planning to sell a 30% stake in CrownRock to its joint-venture partner in the Permian, Ecopetrol, for $3.6 billion. This would have allowed Occidental to reach the low end of its target range ahead of schedule. However, Ecopetrol opted out of the deal.
Despite this setback, Occidental has made solid progress toward its debt-reduction target. The company has already retired $400 million in debt earlier this year and plans to make $1.9 billion in debt repayments by the end of the month, primarily funded by excess cash flow. The deal with Permian Resources, a significant player in energy stocks, will provide another $800 million, pushing total debt reduction to $3.1 billion, leaving $1.4 billion to reach its near-term goal.
With the Ecopetrol deal not proceeding, Occidental is turning to Western Midstream for additional cash. As the largest unitholder, Occidental owned 49.8% of the MLP's outstanding units and a 2% interest in its operating company. The relationship with Western Midstream has been beneficial, providing infrastructure support and a steady cash flow from distributions. Western Midstream increased its base distribution by 52% this year, raising its current yield to around 9.5%.
Occidental recently launched a secondary offering to sell 19 million units of Western Midstream, raising over $658 million in gross proceeds. This sale brings the company closer to its debt-reduction target. Occidental may continue to sell its stake in Western Midstream if additional cash is needed to pay down debt, potentially selling its entire interest to another midstream company or private equity fund, or launching more secondary offerings as required.
