Occidental to cut Western Midstream stake to reduce debt

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By Shariq Khan and Arunima Kumar

(Reuters) – Occidental Petroleum Corp (N:) said on Monday it would cut its majority stake in pipeline operator Western Midstream Partners LP (N:) to less than 50% in 2020, to reduce its debt that grew significantly with the Anadarko Petroleum Corp (NYSE:) deal.

Occidental’s shares rose about 4% on the news, having lost over 30% in value since the $38-billion offer for Anadarko was made public on April 24, 2019.

Occidental is working to pare $40 billion of debt it took on with the Anadarko deal, and changes to ownership would ease a sale or spin-off of Western Midstream.

The restructuring would also allow Occidental to no longer show the gas pipeline and processing business’s debt as its own.

The net long-term debt for Occidental was $47.6 billion as of Sept. 31, 2019.

The deal, which has been called “hugely overpriced” by activist investor Carl Icahn, continues to weigh on Occidental’s shares, which still trade at levels it touched during the financial downturn of 2008.

Inherited as part of the Anadarko takeover, the sale of the Western Midstream stake is a key part of Occidental’s target to raise a total of $15 billion from asset sales by mid-2020.

Occidental has raised about $10.5 billion through sales of properties, including a liquefied project in Mozambique and oil production elsewhere in Africa.

Western Midstream currently trades at a market value of over $9 billion.

The restructuring of the Western Midstream agreements will put Occidental back on track to hive off the business, something it tried to do unsuccessfully last year.

“I don’t view the plans to reduce its ownership level to below 50% in 2020 as surprising. It’s likely just a first step towards monetizing more of its ownership position over time,” said Jennifer Rowland, an analyst with Edward Jones.

Occidental on Sunday gave up over 9 million shares, or a 2% stake in Western Midstream’s general partner, and allowed limited partners to remove Occidental and appoint a new general partner. Occidental fully owns the general partner stake, which effectively controls Western Midstream, a master limited partnership, and around 55% of the pipeline operator’s limited partner units.

Western Midstream’s limited partner units rose 3.6% to $21.54 on Monday.

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