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Occidental Petroleum Divests Non-Core Assets to Lower Debt

Zacks Equity Research

Occidental Petroleum Corporation OXY announced that it has completed the divestiture of Anadarko Petroleum’s Mozambique LNG stake to TOTAL S.A. TOT for $3.9 billion. This deal is part of Occidental Petroleum’s binding agreement to sell Anadarko’s African assets to TOTAL for $8.8 billion.

In addition to Mozambique, Anadarko’s assets located in Algeria, Ghana and South Africa will be sold to TOTAL, per the agreement entered into between the companies in August 2019. Occidental Petroleum also completed the sale of its holdings in Plains All American Pipeline, L.P. PAA and Plains GP Holdings, L.P. PAGP for $650 million.

Thanks to the divestiture of these non-core assets, the company is on track to achieve its asset divestiture target in the range of $10-$15 billion. In addition to divesting non-core assets, Occidental Petroleum expanded operations in the Midland Basin via a partnership with Ecopetrol.

The company utilized the net proceeds from the sale of these assets to de-lever its balance sheet, and focus on investment in higher-margin and high-return production from Permian resources.

Occidental Petroleum Poised to Gain
Occidental Petroleum had to resort to high-cost debt from Warren Buffett's Berkshire Hathaway to complete the acquisition of Anadarko. Although this acquisition added more debt to Occidental Petroleum’s balance sheet, the contribution from high-quality acquired assets will assist the company to carry on strong performance.

The combined company will have a production capacity of 1.3 million barrels of oil equivalent per day and is expected to be accretive to free cash flow within a year of the acquisition. The combined company will generate $3.5 billion in free cash flow through $2.0 billion of annual cost synergies and $1.5 billion of annual capital reductions.

Price Performance

Shares of Occidental Petroleum have underperformed the industry in the past three months.

Zacks Rank

Occidental Petroleum currently carries a Zacks Rank #3 (Hold). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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