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OXY - Occidental Petroleum

woodstove

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thepupil Newbie

thepupil

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Maybe the board read buffett's letter on the power of retained earnings.  :)

 

well played.

 

this makes me a little more confident in potentially dipping toes in the credit. the long and low bonds are rallying as this is a credit positive move, but if those start falling again, I could be interested. there is certainly a chance that all bets are off in o&g and the industry needs to drastically shrink, but buying some unsec's at 60 cents that would create this assets at a sub $30 billion EV starts to look attractive if you agree that these assets have some economic value. being senior to WB helps too (though he could always prime you later).

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longterminvestor Newbie

longterminvestor

Posted
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The ongoing concern of OXY is still a question mark.  However the boys at Goldman/Cravath drafted the Securities Purchase Agreement for Berk's Preferred Shares.  Under the terms of the agreement, OXY still has pay Uncle Warren his $200MM per quarter (8% on $10B) before the common gets their reduced $0.11/share.  The preferred stock Berk owns is defined as "Cumulative Perpetual Preferred Stock" (what a term - financial art).  If OXY misses a payment to Berkshire, dividends shall begin to accrue and be cumulative from the original issue date, shall compound on each dividend payment date and shall be payable in arrears.  Oh, and the div goes from $200MM/Qrt (8%) to $225MM/Qrt (9%) if they miss. 

 

Next payment is due April 15 - hope the wire clears.

 

But I dont understand the part in bold.  Does this mean if the dividend is cut entirely, that the section is null/void and the preferred DOES NOT accrue?? Section below:

 

 

(a)            Rate.  Holders of Series A shall be entitled to receive, on each share of Series A, out of funds legally available for the payment of dividends under Delaware law, cumulative dividends with respect to each Dividend Period (as defined below) at a per annum rate of 8% (as such may be adjusted pursuant to this Section 4(a), the “Dividend Rate”) on (i) the amount of $100,000 per share of Series A and (ii) the amount of accrued and unpaid dividends on such share of Series A, if any (giving effect to (A) any dividends paid through the Dividend Payment Date (as defined below) that begins such Dividend Period (other than the initial Dividend Period) and (B) any dividends (including dividends thereon at a per annum rate equal to the Dividend Rate to the date of payment) paid during such Dividend Period); provided that if (x), on any Dividend Payment Date, the holder of record (for such Dividend Payment Date) of a share of Series A shall not have received the full amount of any dividend required to be paid on such share on such Dividend Payment Date pursuant to this Section 4(a), or (y) the Corporation shall not have paid in full the redemption price required to be paid by it pursuant to Section 6, then the Dividend Rate shall automatically be at a per annum rate of 9% (A) in the case of clause (x), with respect to the Dividend Period for which the full amount of any dividend required to be paid on such share on such Dividend Payment Date pursuant to this Section 4(a) was not made and for all Dividend Periods thereafter and (B), in the case of clause (y), from and after the required date of such payment.  Dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable in arrears (as provided below in this Section 4(a)), but only when, as and if declared by the Board of Directors (or a duly authorized committee of the Board of Directors) on each January 15, April 15, July 15 and October 15 (each, a “Dividend Payment Date”), commencing on [___], 20[__]; provided that if any such Dividend Payment Date would otherwise occur on a day that is not a Business Day, such Dividend Payment Date shall instead be (and any dividend payable on Series A on such Dividend Payment Date shall instead be payable on) the immediately succeeding Business Day.  Dividends payable on the Series A in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months.  The amount of dividends payable on the Series A on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

 

Link to doc on SEC:

 

https://www.sec.gov/Archives/edgar/data/797468/000095015719000529/ex10-1.htm

 

 

 

 

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960v Newbie

960v

Posted
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Bump on the question; language is odd.

 

Thanks for digging that up longterm. 

 

Also, for you veterans what is the deal with the [_____] spaces?  Confidental dates? or just filled in by hand on the date of closing?

 

Other interesting stuff to note from this:

 

1)Prior to the five year anniversary of the Closing Date, without the prior written consent of the Company, the Investor and its Permitted Transferees shall not (i) directly or indirectly transfer, sell, assign, pledge, convey, hypothecate or otherwise encumber or dispose of any of the Purchased Securities 

 

2)The Investor and the Permitted Transferees (individually or collectively) may not Transfer any Warrant Shares other than (i) in a transaction that has been specifically approved by the Company in writing

 

3)Without the prior written consent of the Company, the Investor and its Permitted Transferees may not engage in any Hedging Transaction with respect to any of the Purchased Securities or Warrant Shares

 

4) Optional Redemption.  The Corporation may not redeem at its option the Series A prior to [________].1  On or after [_____], the Corporation, at its option, may redeem, in whole at any time or in part from time to time, the shares of Series A at the time outstanding, upon notice given as provided in Section 6(d) below, at a redemption price equal to the sum of (i) $105,000 per share ...

 

5) Holders of Series A shares shall have no right to exchange or convert such shares into any other securities, except in connection with the surrender to the Corporation of shares of the Series A to satisfy any portion of the applicable exercise price with respect to an exercise, in whole or in part, of any warrant to purchase Common Stock of the Corporation issued in connection with the original issuance of the Series A by the Corporation.

 

6)Warrants “Exercise Price” means $62.50 for up to an aggregate of 80,000,000 fully paid and nonassessable shares of Common Stock ($5bill)

 

 

So it appears BRK is locked in for the next ~4yrs, they can't sell or hedge away the investment, the preferred is redeemable at some point, and the preferred can be used to buy warrants. Was BRKs original plan to roll some of the preferred into the common once it rose above $62.5?  All of this does appear to give the firm some leverage if they wanted another loan from Uncle Warren, perhaps at a reasonable rate this time.  I doubt BRK wants to deal with a messy bankruptcy roll up when then can just provide a reasonable loan.  In some ways it appears as if the fox was outsmarted, OXY got the deal done and can call for help for the next 4yrs.   

 

Thoughts? 

 

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gfp Newbie

gfp

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Next payment is due April 15 - hope the wire clears.

 

Just glancing at this so apologies if this is well covered already here, but my understanding was that OXY can pay the preferred dividends to BRK in the form of OXY common stock.  They don't have to pay Berkshire cash unless they want to.

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rb Newbie

rb

Posted
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The language is not odd. It's pretty standard.

 

What is says is that they have to pay dividends on the preferred of if they declare dividends. If they don't declare dividends, then the dividend on the preferred continues to accrue.

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960v Newbie

960v

Posted
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rb - Thank you for the clarification. 

 

gfp -  It appears so, it was buried deep.  So if they can't pay the $800mil cash div, a stock dividend is in order for Mr.Buffet and a dilution for the shareholder. 

 

Dividends payable on the Series A are payable in cash; provided that regular dividends paid on a Dividend Payment Date may be paid in shares of Common Stock or a combination of cash and shares of Common Stock if (i) at the time of the declaration of such dividend, the Corporation shall determine the extent to which such dividend will be paid in shares of Common Stock (and shall not have later revoked or revised such determination); and (ii) the Corporation first (A) delivers written notice to each record holder of shares of Series A prior to the record date for such dividend of the amount of the dividend that the Corporation intends to pay in shares of Common Stock, and (B) shall have received written confirmation from each holder of shares of Series A that either (1) all applicable Regulatory Approvals required in connection with such holder’s acquisition of such shares of Common Stock upon payment of the dividend amount proposed to be paid in shares of Common Stock have been obtained, or (2) such holder is acquiring such shares of Common Stock in reliance upon an application exemption of the rules promulgated under the HSR Act; provided that if any shares of Common Stock to be paid by the Corporation would at the time of such payment be “restricted securities” within the meaning of Rule 144(a)(3) of the U.S. Securities Act of 1933, as amended, then the Corporation will make such dividend payment in shares of Common Stock only if resales thereof in the United States are covered by an effective registration statement and such shares of Common Stock are listed on the New York Stock Exchange or, if the principal stock exchange on which the Common Stock is then listed is the Nasdaq Stock Market, the Nasdaq Stock Market (or, if the Common Stock is then listed on both the New York Stock Exchange and the Nasdaq Stock Market (and such listings were done with the cooperation of the Corporation), both such exchanges). Any shares of Common Stock so issued shall be valued for purposes of this Section 4(a) at 90% of the average of the VWAP per Common Share over each of the ten (10) consecutive Trading Days commencing on the Trading Day immediately following the date on which the applicable dividend is declared.

 

Also of note is that half of the $8.8bi Total deal is still delayed due to a tax claim in Ghana.  Although once it is done ~$4bi are freed up. 

 

https://www.worldoil.com/news/2020/3/2/total-occidental-s-ghana-deal-delayed-by-500m-tax-claim

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960v Newbie

960v

Posted
Posted

The highly discounted assets are the magic.

 

Is WTI 12-20 sustainable for more than 3-6 months? The political and internal OPEC pressure aside, the logistics to carry it all are not there (Rates on oil shipping are up 150% per FT). I spoke with some refiners who said they couldnt even get all the orders they asked for. A supply shortage during a supply flood of the market?? Interesting times! 

 

Also remember OXY is partially hedged in 2020 so anything under Brent 45 is +10 for the underlying for 350 of 1360 MBOED.  Per Q4 Presentation:

 

https://www.oxy.com/investors/Documents/Earnings/OXY4Q19ConferenceCallSlides.pdf

 

Its a speculative play but high return if it works out.

 

 

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960v Newbie

960v

Posted
Posted

Per FT Article: Russia says it can deal with pain of a Saudi oil price war and Why Saudi Arabia’s Opec allies will be worst hit by oil crash

 

Foreign Reserves:

 

Russia $570, budget balanced at ~$42 Brent;  MMBOED 11.3

Saudis $502, budget balanced at ~$84 Brent;    MMBOED  9.8

 

Russia's $150bn wealth fund; can "sustain" them at Brent $25-30 for 6-10 years.

 

 

Now that all briefs well, but is it realistic and does it leave room for error? 

 

Anyone can hold their breath underwater while they are sitting still; now try it when you are sitting in boiling hot water with piranhas nipping at you.

 

 

Putin is dealing with record low approval ratings due to falling living standards, trying to extend his reign, and does not want to go to zero reserves in case of future sanctions. 

 

The Prince is still not a king and needs good approval ratings, is trying to move the Saudi economy into the future, and wants to keep the cartel together.  Moreover, Aramco is now public and owned by lots of royal family members.  Then let's consider the political pressure of its neighbors, OPEC, USA, etc. who are all currently dealing with a virus outbreak.  The FT wittily calls it a 'time bomb' underneath Saudis neighbors. 

 

So while 2-3 years of $12-20 is certainly possible, I'd say it is very unlikely.  My guess is the Saudis want the Russians to cool their production and come on par with them.

 

Given that the prince is less secure in his position, I'd say the Saudis are probably going to blink first; although I am sure they will do it with much bravado per local custom.  Or perhaps they work out a big macho deal in the spirit of global unity against the virus.

 

So the main point of all this if you go into OXY don't use leverage.  The volatility, time frame, events are totally unpredictable in the short term.  i.e. Who knew Trump would lock down all travel to Europe?!?

 

For now OXY has a little breathing room with no debt due this year.  2021-22 will be the telling years as debt comes due.  Icahn's move is interesting; it almost dares the board to dilute shares by paying Buffett his preferred 8% in stock; although if the proxy vote is spring/summer, it is too late for that.   

 

It will make for a hell of an annual meeting, I am going; best fun in years! 

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960v Newbie

960v

Posted
Posted

Deal reached with Icahan, OXY pay cuts, and Russians are beginning to feel the pain  ;D.

 

*Occidental Petroleum reaches deal with activist investor Carl Icahn

 

*Two Icahn lieutenants to get board seats and third independent director appointed

 

*Icahn agrees to withdraw its slate of directors for annual meeting

 

*Icahn Group owns 9.9% of outstanding Occidental shares

 

https://www.wsj.com/articles/occidental-petroleum-cuts-pay-for-staff-executives-11585100973?mod=hp_lead_pos7

 

https://www.wsj.com/articles/coronavirus-complicates-kremlin-plan-to-boost-oil-output-11585128602?mod=searchresults&page=1&pos=2

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