Occidental Petroleum (OXY 0.09%) took on a massive amount of debt to outbid Chevron for Anadarko Petroleum last year. That decision has since blown up in the company's face, evident by the 60% plunge in its stock in the last year and a significant upcoming asset writedown. The deal has had such an impact on Occidental's finances, some worry it might need to file for bankruptcy.
The oil company is trying hard to avoid that outcome. It's working on taking several more small steps to help make its large debt load -- which currently totals around $40 billion -- more manageable. While these moves will help, Occidental still has a long way to go.
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Taking actions to start climbing this $11.1 billion wall
Occidental Petroleum has paid off $7 billion of debt since it bought Anadarko, using a combination of free cash flow and the proceeds from asset sales. As a result, the company doesn't technically have any debt maturing this year, though holders of $992 million of notes maturing in 2036 can force the company to repurchase them this October depending on the stock's price.
Where things start becoming problematic is next year when Occidental has $6.4 billion of debt maturities. It also has another $4.7 billion of debt coming due in 2022. That's a massive maturity wall for a company that only has about $1 billion in cash and has had trouble selling assets.
Occidental is hoping to get out ahead of these maturities by starting to address them now. It recently took a step in that direction by offering to repurchase up to $1.5 billion of these notes, though it would only accept up to $250 million of those maturing next year. The company has offered holders the opportunity to tender their notes for between a slight premium to their par value and a roughly 6.5% discount. That could enable it to retire some debt at a discount if current holders tender those notes. If enough creditors agree to this offer, the company could reduce its 2021 maturities by more than 20%
Trying to get more flexibility
While Occidental Petroleum has roughly $1 billion in cash and another $5 billion in available credit, it doesn't plan to tap those sources to finance its debt tender offer. Instead, the company hopes to raise new debt via the high-yield bond market. It's aiming to issue bonds that mature in five, seven, and 10 years to fund the repurchase offer, as well as refinance other existing debt. The company will undoubtedly pay a high price for this debt to entice investors to provide it with credit now that it has lost its investment-grade credit rating due to its high debt level and all the turmoil in the oil market. This junk bond offering will be a huge test for the company, which is running low on options to address its upcoming maturities.
Occidental is also continuing to push forward with asset sales despite its recent hurdles in Africa. According to a recent Reuters report, the company has asked for bids on properties that it hopes to sell in Wyoming and Colorado by July 1. It has been negotiating with the state of Wyoming and others on this land sale, which includes surface land and underground mineral rights it acquired along with Anadarko. This sale could fetch as much as $700 million, which would give the company more cash to address its upcoming debt maturities.
A huge hill yet to climb
Assuming its junk bond offering and tender offer are successful, Occidental would still have a significant amount of debt to address over the next two years. It will be a challenging undertaking, especially if oil prices don't continue improving. As a result, Occidental remains an extremely risky oil stock.
