Oxy Separates Western Midstream in Debt-Reduction Move

(P&GJ) — Occidental Petroleum said it will make its Western Midstream (WES) business a standalone company, shedding $7.8 billion in debt through its separation of the former Anadarko pipeline business.

Oxy's announcement today capped months of expectation that it may sell the midstream business, and its decision may indicate that it failed to attract a suitable offer during a challenging period for the industry.

"Over the last few months, Occidental and WES have worked to finalize agreements beneficial to both companies that establish WES as an independent midstream company capable of successfully competing for third-party business in its core areas of operation," said President and Chief Executive Officer Vicki Hollub. "We believe that our shareholders and WES’s unitholders are positioned to benefit from these new agreements."

Oxy said the transition was accomplished through a series of agreements that enable Western Midstream to "operate as an independent midstream company to support its ongoing pursuit of third-party growth opportunities."

Those changes include amendments to the limited partnership agreement that significantly expand unitholders’ rights, including the right to remove and replace Occidental as the general partner. Oxy said it will reduce its holdings in Western Midstream Partners to less than 50% by the end of this year but “expects to maintain a significant economic interest” in the company.

Western's management team will transfer employment from Oxy to Western to ensure “independent managerial control,” the company said.

Key terms of the newly executed agreements include:

  • Effective December 2019, employment of WES’s management team was transferred from Occidental to WES to ensure independent managerial control of WES’s strategic initiatives and day-to-day operations.
  • Occidental employees who were fully dedicated and seconded to WES in December 2019 will be transferred to WES in 2020.
  • Occidental will provide limited administrative services to WES for up to two years.
  • The rights of WES unitholders to replace WES’s general partner under an amended limited partnership agreement were significantly expanded.
  • New long-term oil and gas gathering acreage dedications covering approximately 21,000 acres in Weld County, Colorado, supported by minimum volume commitments and complemented by previously executed DJ Basin gas-processing dedications, will be put in place.

Occidental said it will no longer consolidate WES’ statement of operations, balance sheet, and statement of cash flows in its financial reporting.

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