Occidental puts plans to divest Western Midstream on ice: sources

[NEW YORK] Occidental Petroleum has put plans to divest part of its ownership in pipeline operator Western Midstream Partners on hold until next year, after failing to attract an offer it deemed attractive, people familiar with the matter said on Friday.

The Houston-based oil and gas exploration and production company inherited Western Midstream earlier this year as part of its USUS$38 billion acquisition of Anadarko Petroleum, a move which gave it substantial Permian Basin acreage but also assets in areas it had previously exited or had little interest in.

Occidental has moved to offload some of these superfluous positions. It signed an US$8.8 billion agreement with Total SA for Anadarko's African assets in May and held talks in recent weeks with possible buyers, including private equity firms and infrastructure funds, about selling some of Western Midstream.

However, a decline in pipeline stocks since the end of July impacted Western Midstream's value. Its market value is down nearly 18 per cent since July 30. Occidental was unwilling to sell at a price it deemed too low, according to four sources familiar with the matter.

A spokesman for Occidental declined to comment.

Western Midstream is structured as a master limited partnership, a tax-efficient vehicle used by a number of US pipeline firms. Occidental fully owns the general partner stake, which effectively controls Western Midstream, and around 55 per cent of Western Midstream's limited partner (LP) units.

The LP units were trading at US$25.21 on Friday, giving Western Midstream a value of around US$11.3 billion.

Occidental wanted to so it could retain control of Western Midstream but reduce its holding enough so that it didn't have to count Western Midstream's US$7.5 billion debt load on Occidental's books, according to two of the sources.

Some investors, including activist Carl Icahn, raised concerns about how much Occidental was stretching itself financially to buy Anadarko. Occidental hedged around 40 per cent of its 2020 production to safeguard its cash flows and dividend and said it would raise billions from asset sales to pay down debt.

Earlier this week, Occidental said it remains on track to deliver US$10 billion to US$15 billion of planned asset sales and remains confident in its deleveraging strategy.

As well as Anadarko's legacy Africa assets, Occidental has sold its stake in Plains All American Pipeline for US$650 million and signed a partnership with Colombia's Ecopetrol to develop some Texas acreage worth up to US$1.5 billion.

REUTERS