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Occidental (OXY) Notes Exchanged for Western Midstream Units

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Occidental Petroleum Corporation (OXY - Free Report) and Western Midstream Partners, LP (WES - Free Report) have entered into an agreement to maximize the value of shareholders and unitholders. Per the agreement, the firm will exchange 98% interest in the $260 million 6.50% fixed-rate note receivable due 2038 from Occidental for 27.855 million Western Midstream common units owned by the former. The units will be canceled following the exchange.

This deal will be beneficial for both the entities. Further, the deal will aid Occidental in achieving its debt reduction goal, strengthening the balance sheet and lowering annual interest expenses by $16.9 million. Also, this transaction will increase the firm’s per-annum free cash flow after distributions by nearly $18.1 million, based on current per-unit annualized distributions.

The above exchange will allow Occidental to further lower debt burden.

Occidental’s Huge Debt

Occidental had to borrow funds to complete the buyout of Anadarko and beat Chevron Corporation (CVX - Free Report) in the acquisition race. Occidental has been efficiently lowering debt since the acquisition of Anadarko. It exited the second quarter with a long-term debt of $36,774 million, down from $39,391 million at 2019-end.

In the 2021-2022 time period, Occidental will have to repay debt worth $11.1 billion. The unprecedented economic crisis caused by the outbreak of COVID-19 is making it difficult for the company to sell non-core assets at proper value and lower debts. Occidental has decided to sell more non-core assets to lower debt burden and plans to divest another $2-$3 billion in first-half 2021. The company prefers to wait for serious buyers who will ensure that it gets the full value of its assets, rather than settling for those that are willing to purchase them at a discount.

Price Performance

Occidental’s shares have underperformed the industry in the past six months.

Zacks Rank & Key Pick

Currently, Occidental carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Cactus Inc. (WHD - Free Report) , having a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cactus delivered an average surprise of 12.21% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved 45.4% upward in the past 60 days to 48 cents per share.

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