OXY - Occidental Petroleum

[JRM]

Anyone looking at the debt here? Some of these things seem quite attractive given (among other things) that you're above Berkshire in the capital structure

 

What are you seeing that interests you in the bonds?  I'm seeing 2021 bonds trading above par.  Not too exciting.

[thepupil]

Anyone looking at the debt here? Some of these things seem quite attractive given (among other things) that you're above Berkshire in the capital structure

 

What are you seeing that interests you in the bonds?  I'm seeing 2021 bonds trading above par.  Not too exciting.

 

Not sure what bond you are looking at, the whole curve has been hit, with short bonds!in the $70’s/$80’s (15-25% yields) and the 4.4% of’49 are at $44

 

No position, I think the situations super interesting in that it’s a $10B Buffett investment that is way underwater given the yields on bonds. watching what he does with it will be fascinating.

[compoundvalue]

The Feb8 2021 floating rate were trading around 65 up until a week ago. Now at ~79. Tried to buy some but my broker failed to execute the trade

[JRM]

Anyone looking at the debt here? Some of these things seem quite attractive given (among other things) that you're above Berkshire in the capital structure

 

What are you seeing that interests you in the bonds?  I'm seeing 2021 bonds trading above par.  Not too exciting.

 

Not sure what bond you are looking at, the whole curve has been hit, with short bonds!in the $70’s/$80’s (15-25% yields) and the 4.4% of’49 are at $44

 

No position, I think the situations super interesting in that it’s a $10B Buffett investment that is way underwater given the yields on bonds. watching what he does with it will be fascinating.

 

haha, maybe I was looking at the wrong company.  those are definitely more attractive.

[sleepydragon]

maybe for a now junk bond like OXY's, buying its bond is not much different from buying its equity. Equity is more volatile but it's more liquid. you can get out faster if needed.

Any chance Buffett will buy entire of OXY?

At least for sure he is getting his dividend in stocks, so he would be a 10% equity owner soon.

[ugadawg_98]

maybe for a now junk bond like OXY's, buying its bond is not much different from buying its equity. Equity is more volatile but it's more liquid. you can get out faster if needed.

Any chance Buffett will buy entire of OXY?

At least for sure he is getting his dividend in stocks, so he would be a 10% equity owner soon.

 

It’s considerably different. By buying the bond at a discount, you’re buying OXY now at a much cheaper enterprise value than you would buy it by purchasing the equity.

 

I find the risk reward in OXY much better in the debt at half of par with circa 15% yields than I do the equity. In fact, I would not be surprised if both BRK and Icahn are not in the debt here.

 

Vicki Hollub has pulled off one of Big Oil’s worst deals, but OXY still has many levers to pull. From a debt standpoint, you don’t need success, you just need survival, and you’re being paid handsomely to wait for it.

[Foreign Tuffett]

Berkshire getting stock instead of cash for this preferred dividend payment.

 

 

https://finance.yahoo.com/news/berkshire-hathaway-accept-occidental-shares-142848646.html

[960v]

Yes, so far it is going as expected.  8) Even the Arabs and Russians settled on their big corona deal.  Now we just need to fast forward to normality. Post-vaccine time period 1-2 years from now will be interesting.  Hopefully, share repurchases in a few years from now will make up for the current dilution.

[Gregmal]

"Separately, Occidental discloses CEO Vicki Hollub received a 6.5% increase in base salary and grabbed a 106.5% bonus in 2019, with total compensation rising 13% to nearly $16M, even as the company's stock lost a third of its value."

 

Disgusting

[Guest roark33]

can you imagine what buffett is thinking when he is reading this. 

[RadMan24]

Operationally, OXY has some of the best well results. So nothing wrong with annual bonus and LTI value.

 

Whether the LTI will pay out at the target level is a different story, based on future performance. So, once again, nothing disgusting about it.

 

Editing this to include actual information, rather than piece mail drama headlines Gregmal likes to spread around:

 

COMPENSATION DECISIONS

 

In the wake of these events and cost-cutting initiatives, the Executive Compensation Committee (the Compensation Committee) remains fully committed to Occidental’s pay-for-performance philosophy. With the unanimous support of the Board, the Compensation Committee approved the following commitments for 2020 executive compensation:

 

The Compensation Committee will not adjust the long-term incentive awards granted in February 2020. Awards were granted as part of our regular annual award cycle in February 2020, before the fall of crude oil prices, and the Compensation Committee subjected a meaningful portion of the awards to performance conditions intended to be more difficult to achieve than past programs. As a result, the awards have lost significant value in the last month, currently tracking at less than 8% of their original grant date fair values. The Compensation Committee has determined that it will not adjust the number of shares granted or the relevant performance targets as a result of our current macroeconomic climate. As of March 24, 2020:

 

● the time-based restricted stock unit (RSU) awards had decreased in value by over 74%, in line with Occidental’s stock price decline;

● the cash return on capital employed (CROCE) awards were tracking at a 0% payout level, based on current commodity prices and Occidental’s reduced capital budget;

● the relative total shareholder return (TSR) awards were tracking at a 0% payout level, based on Occidental’s current TSR performance against the performance of the peer group; and

● the stock option and stock appreciation right awards were significantly underwater.

 

The Compensation Committee significantly reduced the base salaries of the company’s executive officers. Due to cash conservation priorities, the Compensation Committee retracted planned 2020 salary increases and reduced Ms. Hollub’s base salary by 81%. The base salary of the other named executive officers was reduced by an average of 64%.

 

The Compensation Committee will continue to preserve strong alignment with shareholders in all aspects of the executive compensation program. As described in the Compensation Discussion and Analysis section of this Proxy Statement, in February 2020, the Compensation Committee awarded over 70% of Ms. Hollub’s earned 2019 annual cash incentive award in shares of forfeitable time-vesting RSUs in lieu of cash so that her ultimate annual incentive pay opportunity remained subject to Occidental’s stock price performance through early 2023. As of March 24, 2020, these RSUs had decreased in value by over 74%. The Compensation Committee will continue to monitor market conditions and Occidental’s performance and may take additional compensation actions as appropriate.

 

The Board voluntarily reduced its own compensation. The Board meaningfully reduced all components of non-employee director compensation by 15% for the 2020-2021 term. For the 2019-2020 term, all remaining payments were also reduced by 15%.

[Gregmal]

Yea, cool. I remember you continually rationalizing things like this at GM as well. Hopefully you dont still own that too.

[Gregmal]

Further, if you want to get more into specific issues to take issue with, theres a few.

 

First, any year in which your stock losses a third of its value or an amount that is negative, let alone double digit negative, nobody should be getting rewarded. This is bullshit and flies in the face of enduring hardship. Rather it rewards folks when the result(even if short term) does not merit it, and allows for a situation where some feast while the majority famine.

 

Second, in respect to one, this has only been enabled by bullshit firms like Korn Ferry whom are employed by firms like Occidental, to justify executive compensation. Right? Yes, you read that correctly. The firm pays an outside firm to tell them its ok to pay themselves what they want and even come up with presentations and peers groups so this can be rationalized to its shareholders or further pay increases can be implanted later on. Yup, your shareholder resources are being spent to hire consultants to justify paying your executives for -30% during a year the broader market just did +30%...

 

These firms cook up "relative performance" and "peer groups" as an excuse to squeeze this shit through. NO ONE, misses bonuses during years when the stock is up double digits whether warranted or not. They all always take credit. But when its down, having a peer group gives them fingers to point and say things like "it was tough for everyone" or "we did better than so and so"...its all a scam.

 

Third, lets not forget the disastrous APC acquisition, which should be a complete bonus torpedo in any world where real performance and decisions where judged fairly. That acquisition, the 106.5% bonus payout acquisition, could prove to be fatal for equity holders. But at least Radman is happy about the well results....those will be a boon for new equity holders I am sure.

[960v]

I hope everyone enjoyed yesterday! 8)

[Foreign Tuffett]

If this proves to be true, Buffett not bullish on OXY common

 

https://twitter.com/ChrisBloomstran/status/1289272384050966528

[960v]

That could be the case, or he found a better deal somewhere else.  After watching this year's annual meeting, I get the feeling that he is getting BRK ready for the transition and may be less aggressive than in previous eras; he certainly talked a lot about insurance obligations and taking care of people.  Per the meeting, OXY common is a bet on long term oil prices.  Given his $10bil illiquid preferred position and the warrants, BRK is spreading the risk and rolling proceeds into things like the Dominion acquisition and BRK share repurchases.

 

Buffett on Oil and OXY -

 

 

OXY did buy some more time by pushing back their debt. 2021 redemptions now at $2.4bi vs $4.4bi a few months ago.

 

 

Let's hope they nail this $4.5bi sale to Pertamina.

 

https://www.reuters.com/article/us-occidental-divestiture/occidental-in-talks-to-sell-4-5-billion-energy-asset-to-indonesias-pertamina-bloomberg-idUSKCN24U1YA

 

 

I am also curious to see what comes out of their Wyoming bids.  Multiple bidders and the announcement is due anytime now.

 

https://governor.wyo.gov/media/news-releases/2020-news-releases/faqs-for-occidental-land-purchase

 

 

It is a risky bet, especially with the dilutions, high leverage, and volatility in WTI; if it works out I'll be happy! ;D

[960v]

Sold!

 

Wyoming lost the bid to Orion Mine Finance with a bid of $1.33 billion.

 

https://www.oxy.com/News/Pages/Article.aspx?Article=6305.html

[5xEBITDA]

I think I've never seen crowded bookrunning-roster like in their latest bond-offering.... Sign of desperation?  ::)

 

 

It's not desperation. There are so many bookrunners because the bond offering is being used to fund their tender offer for eight different existing bond issues. It is customary to offer existing bondholders the right to participate in the new bond offering, so any bank who was involved in the eight bonds that are being tendered is being offered a slug of the new offering. That way, people who accept the tender have the option to reinvest back into the new bond offering (not required).

 

Of your list, there are only ten actual book-runners, four of which are the active book-runners. These are the four that are really doing all the work. The remaining names are all "co-managers" who don't really do anything besides initiate research coverage or write-up the deal in exchange for getting some bonds to sell.

[jondoug]

https://www.bloomberg.com/news/articles/2020-09-21/occidental-to-pay-buffett-dividend-in-cash-signaling-confidence

[960v]

Baby steps in the right direction.

[960v]

OXY to sell Colombia assets for $825 million

 

https://www.globenewswire.com/news-release/2020/10/01/2102266/0/en/Occidental-Announces-Sale-of-its-Onshore-Assets-in-Colombia-to-The-Carlyle-Group.html

 

https://www.houstonchronicle.com/business/energy/article/Oxy-to-sell-Colombia-assets-for-825M-15612523.php

[compoundvalue]

Issued on July 2020, exercisable through Aug 2027, exercise price $22.00. Most important factor in determining how this one turns out is obviously the price of oil but is it that unimaginable that sometime over the next 7 years oil trades at $60, $70 or $80? If oxy just keeps chugging along at current WTI prices and uses free cash flow to pay down debt this should work out just fine, if at some point oil price does go above that level it could end up very well. Downside scenario is OXY can't pay its debt or oil prices remain low for longer. Icahn has ~11% stake (including warrants) and 3 board members and has been buying the warrants on a daily basis lately. Exercise price on the Berkshire preferred is $62.50, yes it was made in a different WTI price environment and pre-COVID but gives you a sense of what Buffett thought the upside might look like here back then

[aryadhana]

Warrants seem pretty expensive compared to the stock.  Of long stock, long warrant, and long stock + short warrant, the last has the best return profile until share price exceeds $32 or so.  And even if appreciation beyond that level is reasonable, wouldn't the plausibility of a takeover offer somewhere much below that -- but at a significant premium to where the stock is trading now -- worry you? 

 

The fact that the Board has a duty to shareholders and not warrantholders especially when there is a conflict (dividends versus buybacks; sale; etc.) between the two is also presumably bound to have some effect. 

[Cigarbutt]

Thanks for the thread. As a result, i will put this in the if-things-get-wild-this-could-become-interesting watchlist.

 

i had looked at this in 2015-6 as part of a list of challenged. Interestingly then, up to shortly before, share price had tracked WTI fairly closely. With the oil price swoon, OXY held up relatively well so the trigger was not pulled. It looks definitely 'cheaper' now but it's become a different beast with the levered Anadarko acquisition.

 

You may want to look at the following for perspective (end 2015, especially pages 5-7) and they provided some kind of model to tie EBITDA (as a proxy of financial flexibility) to WTI although it was simply linked to their breakeven price overall.

 

The odds of oil prices (WTI) sustainably above 50 during the relevant window period are quite high but this idea reminds me of the risk for somebody measuring 6 feet who needs to go across a river with an average water level of 5 feet. The risk of requiring the 'kindness' of stranger(s) is too high for my taste.

https://www.alvarezandmarsal.com/sites/default/files/am_fias_collapse_of_oil_prices_part_1_final.pdf

[RadMan24]

The warrants, if they drop to $2, might be worth the risk/reward.  I don't see many parallels with BAC warrants that resulted in 5x gains. BAC didn't need capital at the time, OXY needs all the capital it can get.