Occidental Petroleum started reaching out to debt and equity investors about how to ease its $39 billion debt load after collapsing oil prices cast doubt on plans to raise cash via asset sales.
The oil giant hosted calls this week about ways to meet upcoming maturities, with participants that included investors who typically buy lower-rated debt, said people familiar with the matter. The talks, which were held after Occidental’s downgrade to junk this week, also covered plans to cut spending and conserve cash, said the people, who asked not to be named because the talks were private.
Occidental management believes it has enough access to capital to pay obligations through the immediate future, but some proposed asset sales may be put on hold given the recent slide in oil prices, they said. A spokeswoman for Occidental didn’t respond to a request for comment.
Some of Occidental’s $39 billion debt load trades at nearly half its face value amid a vicious shakeout in crude markets. The company’s bonds continued their rally Friday after news of the talks. Its 2.95% notes due in 2024 traded up more than 6 cents on the dollar to 60.8 cents, according to Trace bond trading data.
Occidental became one of the biggest issuers of distressed debt after its downgrade into junk territory. It was lowered below investment grade by Fitch Ratings on Friday after a similar move by Moody’s Investors Service earlier in the week.
The key pillar of Chief Executive Officer Vicki Hollub’s debt reduction plan — selling assets from Wyoming to East Africa — is now in tatters. While Total SA agreed to buy some African operations last year, government intervention held up the sales, and the recent crash in oil prices depressed valuations. The state of Wyoming had expressed interest in buying land from Occidental, but like the rest of the country is now busy tackling the coronavirus.
U.S. oil prices have tumbled more than 60% this year and capital markets for risky borrowers remain all but closed. Oil and gas producers meet with their bankers at least twice a year to determine the value of oil reserves that back bank loans, and painful revision are widely expected.
When oil crashed in 2015 and early 2016, many companies were able to get unsecured bondholders to swap debt for new, longer-dated securities in order to stay afloat. But many of those securities started defaulting last year, leading to a surge in bankruptcies.
U.S. shale producers are under extreme pressure from the double hit of the coronavirus suppressing demand and the Saudi-Russia price war, but Occidental is feeling the strain more than most because of the massive debt it took on buying rival Anadarko Petroleum Corp. for $37 billion last year. The company is also under pressure from activist investor Carl Icahn, who wants to replace the board.
Occidental plans to appoint former Chief Executive Officer Steve Chazen as its chairman in the coming days in an attempt to ease relations with investors, according to a person familiar with the matter. The appointment was reported earlier by the Wall Street Journal.