Houston independent Occidental Petroleum Corp., working to improve shareholder confidence after sharply increasing its debt load with the Anadarko Petroleum Corp. takeover, has executed several agreements to enable Western Midstream Partners LP (WES) to operate as an independent company.
The master limited partnership, majority owned by Anadarko, was formed to acquire, own, develop and operate midstream energy assets, particularly in the Rocky Mountains. It also has assets in Pennsylvania and Texas.
"Over the last few months, Occidental and WES have worked to finalize agreements beneficial to both companies that establish WES as an independent midstream company capable of successfully competing for third-party business in its core areas of operation," said CEO Vicki Hollub. "We believe that our shareholders and WES’s unitholders are positioned to benefit from these new agreements."
The new agreements also include amendments that expand WES unitholder rights, including the right to remove and replace Occidental as the general partner. WES corporate officer employment also would be transferred to the partnership.
Going forward, Occidental would no longer consolidate WES operations, balance sheet and cash flow statements into earnings, giving shareholders “increased clarity and transparency” into the financial performance of core businesses.
“Occidental intends to continue its operational relationship with WES and expects to maintain a significant economic interest in WES,” management said. Occidental plans to reduce its interest in WES to “below 50%” this year.
Among other things, the companies have executed new long-term acreage dedications covering 21,000 acres in Weld County, CO, which are supported by minimum volume commitments and complemented by previously executed Denver-Julesburg Basin gas processing dedications.
In December, Occidental said it separated the WES management team “to ensure independent managerial control” of the midstreamer’s strategic initiatives and day-to-day operations. For up to two years, Occidental also agreed to provide “limited administrative services” to the partnership.
As it works toward selling around $15 billion of assets, Occidental also received $565 million* from Howard Hughes Corp. for real estate properties in Houston and in The Woodlands, where Anadarko was headquartered. Occidental in 4Q2019 also retired $2 billion of 2021 bank term loans.
"The sale of office complexes in the Houston Energy Corridor and The Woodlands is part of our plan to divest noncore assets and continue to improve the strength of our balance sheet," Hollub said. "We repaid $7 billion of debt less than five months after closing our acquisition of Anadarko and will continue to reduce debt in 2020 with proceeds from asset divestitures and free cash flow."
The producer also has increased hedged oil production volumes for 2020 by 50,000 b/d to 350,000 b/d. The incremental oil hedges were structured as three-way costless collars, and for every $1/bbl increase in oil prices, free cash flow is expected to increase by $260 million/year.
*The amount Occidental received from selling real estate properties to Howard Hughes Corp. was incorrect in the original story. NGI regrets the error.