Occidental Petroleum Announces Ghana Asset Sale: What Investors Need To Know

Occidental Petroleum Corporation OXY announced on Wednesday afternoon a major asset sale analysts say has helped improve the company’s near-term financial outlook and has the stock positioned to be an outperformer in coming years.

What Happened? Occidental announced the sale of its Ghana assets for an aggregate of $750 million. Kosmos Energy Ltd KOS will be acquiring a portion of the assets for $550 million, while another $200 million in assets will go to the Ghana National Petroleum Corporation.

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Why It’s Important: On Thursday, Bank of America analyst Doug Leggate said the price of the deal is better than the $600 million in value for the Ghana assets Occidental has been carrying on its balance sheet. The Ghana assets have been for sale as discontinued operations since Occidental acquired Anadarko in 2019. In that sense, Leggate said the divestment will have no impact on Occidental’s cash flow or capital expenditures.

Proceeds from the asset sale will be allocated to debt reduction. Leggate estimates Occidental had more than $2 billion in cash on hand as of the end of the third quarter and will generate $2.3 billion in free cash flow in the fourth quarter. As a result, he said Thursday that Occidental is well-positioned to pay down another $4 billion in debt in the fourth quarter after the company paid down $4.3 billion in the third quarter.

Leggate estimates Occidental’s capital structure will shift from 38% equity at the end of 2020 to near 60% equity by the end of 2022.

“This is [the] outcome of largely unhedged exposure to oil and a portfolio capital intensity we rate lowest amongst peers, and thus we continue to view OXY as the most levered equity story to current commodity strength,” Leggate said.

Bank of America has a “buy” rating and a $50 price target for OXY stock.

Benzinga’s Stake: Some high-profile investors and analysts, including Carl Icahn, were initially extremely critical of Occidental's $38 billion takeover of Anadarko. However, the longer oil prices stay elevated and the more asset sales are completed, the more debt Occidental will be able to eliminate from its balance sheet and the acquisition looks smarter from a long-term perspective.

Image by Terry McGraw from Pixabay