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Occidental, TOTAL Cancel Deal for Remaining Africa Assets

Occidental Petroleum OXY and TOTAL S.A. TOT canceled the remaining part of the deal for Africa assets. Notably, the deal was signed between the two companies on May 5, 2019. TOTAL had entered into the deal with Occidental to acquire Anadarko’s assets in Africa (Algeria, Ghana, Mozambique, South Africa) for a total value of $8.8 billion.

TOTAL has already acquired Mozambique and South African assets from Occidental. However, Algerian authorities disapproved the sale of Occidental’s assets in the country to TOTAL. TOTAL has also decided not to acquire Occidental’s Ghana assets. The discontinuation of the said agreement will now allow Occidental to look for a third party to sell its Ghana assets. Nonetheless, Occidental has decided to retain and operate the Algerian assets. Due to the deal cancellation, Occidental will face difficulties but TOTAL will be able to preserve liquidity in these difficult times.

Deal Cancellation Will Hurt Occidental

Occidental had to borrow funds to complete the buyout of Anadarko and beat Chevron Corporation CVX in the acquisition race. As it has a huge debt in the balance sheet, Occidental has started selling less profitable assets and those that are not in line with long-term growth objectives, and utilizing proceeds to repay debts. Occidental has efficiently lowered debts since the acquisition of Anadarko. It exited the first quarter with a long-term debt of $36,826 million, down from $39,391 million at 2019-end.

In the 2021 to 2022 time period, Occidental will have to repay debt worth $11.1 billion. However, the current weak commodity price scenario, declining demand trends and lower probability of selling non-core assets will hinder Occidental’s debt reduction plan. Plus, the cancellation of the said deal will aggravate problems and lower its possibility of accumulating the necessary funds to repay debts that are due in the next couple of years.

Finding a new buyer for its Ghana assets could be tricky for Occidental at this moment, as major oil and gas companies across the globe have started to cut down on planned capital expenditure to preserve liquidity amid the unprecedented drop in oil prices and demand.

Steps Taken to Face COVID-19 Challenges

The outbreak of COVID-19 has lowered demand for hydrocarbon and substantially reduced its prices globally. Occidental has decided to shut non-economic production. To preserve liquidity, it reduced 2020 capital expenditure budget by more 50% to $2.4-$2.6 billion. In addition to achieving $1.1-BILLION overhead and operating expense synergy target one year ahead of schedule, the company also identified $1.2 billion in operating and overhead cost reductions to be realized in 2020.

Other oil and gas companies like Devon Energy DVN also lowered capital spending twice in recent times to preserve liquidity.

Zacks Rank

Currently, Occidental carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Occidental’s shares have underperformed the industry in the past 12 months.

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TOTAL S.A. (TOT): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
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Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
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