Occidental reduces debt by selling Berkshire's chemicals unit for $9.7 billion
Occidental Petroleum announced on Thursday that it will sell OxyChem, its chemicals division, to Warren Buffett’s Berkshire Hathaway, for $9.7 Billion. This is the largest divestment to date to reduce debt following years of expensive acquisitions.
The deal would be Berkshire's largest since the $11.6 billion acquisition of Alleghany Corporation by Berkshire in 2022. It would also expand the chemical portfolio of Berkshire beyond Lubrizol.
Berkshire, Occidental’s largest shareholder, began acquiring stakes in the U.S. producer of oil and gas in February 2022. This was around the time that Russia invaded Ukraine.
The divestment shows the close relationship between the two. In a meeting with Buffett in 2019, Occidental CEO Vicki Holub secured a 10 billion dollar investment, which allowed her to make a bid for oil producer Anadarko Petroleum. She outbid rival Chevron, securing some of the richest shale fields in Texas.
But the $55 Billion purchase of Anadarko has left Occidental with a debt. After the $12 billion purchase of CrownRock, a privately owned U.S. shale producer last year, Occidental's debt burden increased.
Occidental has been gradually divesting assets to reduce its massive debt, which stood at $23.34billion by the end June.
In August, the company announced that it had made additional divestitures of $950 million since the beginning of the second quarter. Of this amount, $370 million was already completed and the company has repaid over $3 billion in debt.
Occidental announced on Thursday that it would use the $6.5 billion proceeds to reduce its debt. This will bring the total principal amount below the target of $15 billion set after the CrownRock transaction.
TPH analyst Matt Portillo stated that the debt repayment could lead to increased shareholder returns through share repurchases.
Occidental shares rose 1% on premarket trading.
Hollub, the CEO of Occidental, said that OxyChem's sale, which makes chemicals for swimming pools, vinyl products for water supply piping, and medical supplies would "unlock a 20-plus-year runway of low-cost resources" in oil.
In the first two months of this year, the unit generated combined revenues of $2.42 Billion.
The deal is expected to close by the end of the fourth quarter. It also shows that Occidental has refocused on its oil-and-gas business, which accounted for 75% its total earnings in 2017. (Reporting from Pooja in Bengaluru, Sheila in Houston and Nathan Crooks and Nia Williams in Shilpa Majumdar; editing by Nathan Crooks and Nia Williams)
(source: Reuters)
