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Petroleum

Occidental Petroleum's Strategic Divestiture Boosts Credit Ratings

Strategic Insights

— 1 min read

Occidental Petroleum's (OXY) decision to sell its high-density polyethylene plant and other noncore assets in Canada and Pakistan has been viewed favorably by Duff & Phelps Credit Rating Co. The sale is expected to generate approximately $450 million in after-tax proceeds, which will be used to reduce financial leverage and allocate resources to more profitable areas of the business. This strategic move is consistent with management's efforts to shed underperforming assets and build its core businesses. As a result, OXY's credit ratings have been maintained at "BBB+" for senior debt and medium-term notes, "BBB-" for convertible preferred stock, and "D-2" for commercial paper.

Key Takeaways:

  • Duff & Phelps Credit Rating Co. views favorably Occidental Petroleum's sale of its high-density polyethylene plant and other noncore assets in Canada and Pakistan, which is expected to generate approximately $450 million in after-tax proceeds.
  • The sale is consistent with management's commitment to reduce financial leverage, and OXY plans to use the proceeds to lower its debt ratio to the mid-40 percent range from current levels.
  • The sale of the HDPE plant will enable OXY to reallocate available ethylene feedstocks to its more profitable vinyls business, potentially increasing demand and revenue.
  • An estimated $300-400 million in capital expenditures planned for the construction of a new ethylene plant have been eliminated.
  • The sale of portions of OXY's oil and gas properties in Pakistan and Canada represent management's efforts to shed underperforming assets and pursue strategies to build and strengthen its core businesses.
  • Thomas P. Vaiana, a representative of Duff & Phelps Credit Rating Co., has expressed confidence in OXY's ability to manage its debt levels and maintain moderate leverage in the next few years.

Statistics:

  • Approximate investment: $450 million (after-tax proceeds from asset sale)
  • Desired debt ratio: mid-40 percent range
  • Current debt-to-capital ratio: approximately 60 percent
  • Estimated capital expenditures: $300-400 million (new ethylene plant construction)
  • Date: April 17, 1995
  • Year-end 1994 debt-to-capital ratio: 60 percent

Sources:

  • Duff & Phelps Credit Rating Co. press release
  • Occidental Petroleum (OXY) News Announcement

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