Fitch Revises Occidental Petroleum's Outlook to Positive

Fitch Ratings has revised Occidental Petroleum's (OXY) Outlook to Positive. Currently, Fitch rates OXY's senior unsecured debt and bank revolver 'BBB+' and its commercial paper 'F2'. The change in Outlook affects approximately $4 billion in publicly traded debt securities.

The revision reflects OXY's growing production and reserves coupled with continued debt reduction that has occurred over the past year. The company increased production 6.2% in 2003 to 547,000 barrels of oil equivalent/day (boe/d) from 515,000 boe/d in 2002, and it is likely to increase it again by slightly over 5% in 2004 to approximately 575,000 boe/d. Expectations are for continued growth in production and reserves that is currently being funded by relatively modest capital spending levels. Operationally, the company has replaced reserves at economic costs over the past few years. Organic reserve replacement has averaged 124% over the past three-year period at a finding and development cost of $4.78/barrel of oil equivalent (boe) while the company's all-in reserve replacement over the same time period averaged 156% at a finding, development, and acquisition cost of $4.54/boe. Also, over the past several months, the company has reduced debt by another $400 million-$500 million.

Over the past four years, OXY has been significantly free cash flow positive after dividends allowing it to reduce balance sheet debt to $4 billion. This debt reduction, combined with the buildup in retained earnings has lowered OXY's adjusted debt to capital to approximately 38% as of March 31, 2004. For the latest twelve months ending March 31, 2004, OXY's interest coverage, as measured by EBITDA/interest, stood at approximately 15 times (x) with debt/EBITDA of slightly under 1x. Certainly, high oil prices have had a large part to do with the robust credit metrics. However, even in a much lower hydrocarbon price environment OXY's credit statistics should be relatively strong. In a price deck of $21 per barrel (West Texas Intermediate) and $3.50 per thousand cubic feet (Henry Hub) OXY's interest coverages should still be above 8x with debt/EBITDA of between 1.5x-2.0x. The company should also be slightly free cash flow positive after dividends in such a price environment while still being able, at the same time, to maintain reserve and production levels.

Occidental Petroleum is one of the largest independent oil and gas exploration and production companies in the world. The company's proven reserves are approximately 2.5 billion boe of which approximately 80% are developed. Presently, crude oil and liquids represent approximately 80% of the company's production stream. Through its Occidental Chemical Corporation subsidiary, OXY is also a leading North American manufacturer and marketer of basic chemicals such as chlorine and co-product caustic soda, polyvinyl chloride (PVC), and certain performance chemicals.

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