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Oxy Plans Quick Debt Reduction After Anadarko Takeover

Shale rig

Occidental will reduce its US$40-billion debt load it used to acquire Anadarko as soon as possible, the company’s chief financial officer said at an industry event, as quoted by Reuters.

The acquisition, which wrapped up in May, sparked criticism from some shareholders because of its price tag. Famous activist investor Carl Icahn even tried to have Occidental’s charter amended to prevent other deals of this size from taking place in the future.

The takeover was the result of a bidding war in which Occidental first beat Chevron’s US$33-billion offer and then tweaked its own so that the cash portion of the price ended up at 80 percent. Icahn has argued that this is too high a price for such a deal, adding that it could jeopardize the future of Occidental in case oil prices fall substantially.

CFO Cedric Burgher, however, said at the EnerCom conference that the acquisition gave Oxy additional future oil production at a good value.

“When the smoke clears, people will start to see what we’ve done,” Burgher said, adding the acquisition will result in synergies and cost reductions to the tune of US$3.5 billion.

Related: The Revival Of A $53 Billion Megaproject

Divestitures will feature as one way of paying down debt quickly, Burgher also said, adding the company will be careful what it sells.

“We like the Gulf of Mexico (properties) we think it’s a keeper; great free cash flow, great assets,” the executive said.

Anadarko’s acquisition gave Occidental additional acreage in the Permian, cementing its position as the largest player in the play that has seen the fastest production growth in U.S. shale in the past couple of years.

Analysts and traders don’t seem to agree with Burgher, or maybe the smoke has not cleared yet. Following the announcement of the acquisition, Oxy’s share price fell while Chevron’s rose on the news it was leaving the race for Anadarko.

Since then, oil prices have fallen, which has not served Oxy well, either. Earlier this week, investment company Evercore ISI downgraded the company, saying “The purchase of Anadarko makes Occidental larger but significantly less valuable.” Oxy’s stock fell to its lowest in about ten years following the downgrade. 

By Irina Slav for Oilprice.com

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