Occidental plans to slash US$7.8b debt with pipeline split

[HOUSTON] Occidental Petroleum Corp plans to make the pipeline business it acquired as part of last year's takeover of Anadarko Petroleum Corp a stand-alone company, removing about US$7.8 billion of debt from its balance sheet.

Occidental pledged to reduce its holdings in Western Midstream Partners to less than 50 per cent by the end of this year but "expects to maintain a significant economic interest" in the company, the Houston-based oil explorer said in a statement on Monday. The amount of debt taken off the balance sheet amounts to about 15 per cent of Occidental's total borrowings, according to data compiled by Bloomberg.

Western Midstream is among the crown jewel assets that Occidental has sought to sell to reduce leverage incurred in the purchase of Anadarko, the biggest oil merger of the past four years. Monday's announcement may signal Occidental hasn't been able to attract a high enough price, or that potential suitors found the entangled management structure burdensome.

Blackstone Group, Apollo Global Management, Global Infrastructure Partners and KKR & Co were all said to be interested in bidding for Western as recently as late 2019.

But it's been a challenging environment for pipeline companies. In November, Western's chief executive officer Michael Ure said the company was seeking new customers in the Rockies and the western edge of the Permian Basin to reduce reliance on Occidental. Western fell 29 per cent last year - its worst performance since 2015 - amid a slowdown in drilling and plunging prices for natural gas byproducts.

MARKET REACTS

Occidental shares surged more than 4 per cent to vie with EOG Resources for the top spot in the S&P 500's Energy Index. Western units rose 3.6 per cent at 2.20pm on Monday in New York trading.

Western's management team will transfer out of Occidental to ensure "independent managerial control", the pipeline company said. Occidental said the move is part of a broader initiative to "maximise shareholder value" following last year's at-times bruising Anadarko transaction.

Bloomberg Intelligence analyst Michael Kay said: "Western Midstream's future is uncertain, as options for new sponsor Occidental include a full disposal of the 56 per cent stake in Western that it inherited. Western is undertaking its largest growth plan as it seeks new third-party volume, though spending is set for a 20-30 per cent drop this year."

The arrangement expands Western unitholders' rights to replace Occidental as the pipeline operator's general partner. Western is structured as a master limited partnership, which allows the company to avoid corporate taxes but typically comes with fewer rights for common investors.

Separately, Occidental increased the amount of 2020 hedged production by about 50,000 barrels, or 16 per cent. The recent spike in crude due to tensions in the Middle East provided an opportunity for US drillers to hedge more production.

BLOOMBERG