Oxy Selling CanOxy Stake For C$1.2 Billion
After exploring its options, Occidental Petroleum Corp. of Los
Angeles agreed to sell for C$29.61/share its 29.2% stake in
Canadian Occidental Petroleum Ltd. for gross proceeds of C$1.2
billion Canadian. Of Occidental's 40.2 million CanOxy shares, 20.2
million will be sold to the Ontario Teachers Pension Plan Board.
The remaining 20 million will be sold to CanOxy. Once the deal is
complete, Occidental will no longer hold an equity interest in
Occidental expects after-tax net proceeds to be US$700 million
and to report a gain of US$300 million. The C$29.61/share purchase
price is the average closing price of the shares on the Toronto
Stock Exchange over a 20-trading-day period ending Feb. 16. The
shares acquired by CanOxy will be cancelled, reducing shares
outstanding to 118.3 million.
CanadianOxy intends to finance the repurchase of its shares
using existing bank lines of credit. "A cash deal is easy for
shareholders to evaluate and for us to execute," said Vic
Zaleschuk, CanOxy CEO. "All indications are that oil markets will
remain quite strong for the next 12 to 24 months. Given our strong
balance sheet we are confident we can readily manage the additional
borrowing and we expect to repay it very quickly.
"This is an outstanding deal for our shareholders. It's a clean,
transparent transaction that increases cash flow per share. It
comes at a very good time in our business cycle and allows us to
aggressively pursue our growth strategy with the full support of
our shareholders. I expect that we will see a significant
improvement in the liquidity and performance of our shares over the
Occidental also agreed to exchange interests of equal value in
certain oil and gas and chemicals operations with CanOxy.
Occidental will receive CanOxy's 15% interest in Occidental's oil
and gas operation in Ecuador, giving Occidental 100%. CanOxy will
receive Occidental's 15% interest in CanOxy's sodium chlorate
operations in Canada and Louisiana.
The transactions are subject to approval by CanOxy stockholders
and Canadian and U.S. regulators.
Occidental began reviewing its investment in CanOxy in July (see NGI Aug.
2). Occidental's investment in the Calgary-based company dates back to
1971. CanadianOxy's board formed an independent committee to consider proposals.
"We think that trading in our stock has been very light in the last six months,"
said Marvin Romanov, CanOxy CFO. "The removal of this uncertainty will significantly
improve our liquidity and performance."
An Occidental spokesman would not comment further on the sale.
In January 1999 CanadianOxy said it laid off 112 staffers in a
corporate restructuring due to the sale of more than a billion
dollars of non-core assets as well as reduced capital investment in
response to low oil prices. The layoffs included 66 staff in
Calgary. Over the previous two years, CanadianOxy had sold assets
worldwide, including significant dispositions in Canada.
Upon closing, two current members of CanadianOxy's board of
directors, Ray R. Irani and Dale R. Laurance, who are also officers
of Occidental, will resign from the CanOxy board. Occidental has
agreed not to acquire any CanOxy shares for a year following the
Last month, CanOxy announced record fourth quarter cash flow and
the second best annual performance in the company's history. The
company reported cash flow of $270 million in the fourth quarter,
62% higher than the $167 million reported in the fourth quarter of
1998. This was the highest cash flow ever reported by the company
for a single quarter and increased cash flow for the full year to
$780 million, the second best year on record. Net income for the
fourth quarter was $72 million compared to a loss of $72 million in
the fourth quarter of 1998. Net income for the year was $100
million compared to a loss of $110 million in 1998. Total
production for the year averaged 229,000 Boe/d, composed of 193,000
Boe and 278 MMcf of gas.
Joe Fisher, Houston