Occidental Sells North Sea Fields for $1.35 Billion : Energy: The action will put the oil company ahead of schedule on its goal of cutting $3 billion in long-term debt.
In its second major sale in a week, Occidental Petroleum Corp. said Wednesday that it will sell its North Sea oil and gas holdings to France’s Societe Nationale Elf Aquitaine for $1.35 billion in cash.
The sale, applauded by analysts and Wall Street investors, will put the company ahead of schedule in meeting its goal of cutting $3 billion of long-term debt under an ambitious restructuring instituted after the death of company patriarch Armand Hammer last December.
“We consider it an excellent sale,” Occidental Chairman Ray R. Irani said Wednesday.
The proposed sale is the largest by far under Occidental’s restructuring. Other sales have come with surprising swiftness since January, when Irani set the goal of cutting debt by $1.5 billion in each of the next two years.
The sale comes on the heels of an announcement Monday that Occidental will sell a half interest in its natural gas liquids business to Dallas investment firm Hicks, Muse & Co. in a $700-million deal.
All told, Occidental has sold a total of $2.2 billion worth of assets for an after-tax benefit of $1.8 billion, Irani expects to tell shareholders at the company’s annual meeting today. Further sales, especially of meatpacking subsidiary IBP Inc., are expected.
Wall Street responded favorably to word of the sale, which had been rumored for about a month. Occidental’s stock closed up $1.25 at $20.25 a share in trading Wednesday, topping the list of most heavily traded issues on the New York Stock Exchange.
Still, the sale calls into question how far Occidental is willing to go to reach its debt-reduction goal. Occidental’s interests in North Sea oil fields were among the company’s crown jewels, and the sale of them would reduce Occidental’s oil and gas reserves by about 19%.
But Irani denied that the sales indicated a withdrawal from the energy business. “Oil and gas are definitely a very important part of Oxy,” he said in a telephone press conference. “It’s our most important business, and the capital spending that we’re doing continues to emphasize oil and gas.”
Irani said the company planned to boost oil and gas exploration spending by 10% over 1990’s $200 million.
As a sign of the company’s continuing search for new oil, Irani revealed Wednesday that the company was in “advanced negotiations” with Albania and Angola on rights to “high potential blocks” in those countries. Occidental is already exploring for or developing oil resources in Latin America, Indonesia, Malaysia, Oman, Pakistan, the Philippines, Syria and Yemen.
Analysts generally praised the North Sea deal, saying that Occidental managed to win a price higher than that traditionally paid for oil reserves in that area. Occidental won between $6 and $9 a barrel, compared to an average $4 a barrel for North Sea reserves in the last three years, analysts said.
“They’re extracting some very significant value from this sale,” said Eugene Nowak, an industry analyst with Dean Witter Reynolds in New York.
Under terms of the deal, which is subject to government approvals, the Los Angeles-based company’s British subsidiary will be sold to Elf Aquitaine for $1.35 billion in cash. Elf will also assume about $150 million in debt and repay intercompany loan balances owed by the subsidiary to Occidental, an amount Irani called “minimal.” The sale is expected to be completed in 60 days.
In a separate announcement, Elf announced that it will form a joint company with Enterprise Oil PLC of Britain, to be called Elf Enterprise Petroleum Ltd., which will own the Occidental properties. Elf will own two-thirds of the venture and Enterprise one-third.
Occidental’s British unit, Occidental Petroleum (Great Britain) Inc., includes interests in the Piper, Saltire, Scapa, Chanter and Claymore oil fields in the North Sea.
Occidental estimates that its proved oil and gas reserves in the North Sea amounted to 142 million barrels in 1990. Elf estimates that the proved and probable reserves are closer to 217 million barrels.
Occidental’s share of daily oil and gas production from the holdings averaged 25,000 barrels per day, Elf reported. The Scapa and Claymore fields are the only ones in production; the other fields are under development.
The Piper oil field was the site of a devastating 1988 explosion on Occidental’s Piper Alpha platform that killed 167 workers in the world’s worst platform accident.
The properties also include 36.5% of the Flotta oil pipeline and terminal in the Orkney Islands.
Occidental has long been a major player in the North Sea. The North Sea holdings and the natural gas liquids business together account for about 13.5% of Occidental’s total oil and gas production, Irani said.
“They did sell off a substantial portion of their future oil production volumes and, therefore, they have become much more of an exploration-oriented company,” said Michael Young, an oil analyst at Smith Barney, Harris Upham & Co. in New York.
But he added: “The important point here is that Occidental would have had to make significant capital expenditures to develop these assets over the next several years, and I don’t know if the company was really interested in spending a large amount of money in this single area, given its present constraints.”
Oxy Slims Down
In less than four months, Occidental Petroleum says it has sold $2.2 billion in assets, for an after-tax gain of $1.8 billion, which is available to reduce its long-term debt:
Dec. 10, 1990: Armand Hammer dies.
Jan. 14, 1991: Occidental, under new Chairman Ray R. Irani, announces a $2-billion restructuring that will include layoffs, writedowns and the sale of major assets.
Jan. 28: Occidental sells 5.4% interest in Church & Dwight, makers of Arm & Hammer baking soda, for $19 million.
Feb. 7: Occidental sells half-interest in Antwerp NGL terminal in Belgium for $38 million
April 29: Sale of industrial phosphate and phosphoric acid business to FMC Corp.; price not disclosed but estimated at $100 million.
May 6: Occidental sells half-interest in natural gas liquids business to Hicks, Muse & Co. for $700 million.
May 8: Occidental sells North Sea oil fields and other holdings to French-British partnership for $1.35 billion.
