The upgrade is the result of OXY's debt reduction efforts that have resulted in a permanently stronger balance sheet, as well as the company's continual efforts to grow and improve its reserve and production profile. Since the end of 2003, the company has reduced balance sheet debt by approximately $1.1 billion and increased cash balances by nearly $700 million. Furthermore, OXY has substantially reduced off-balance sheet financings during this time frame, as well. At the end of the first quarter of 2005, OXY's balance sheet debt stood at $3.391 billion, down from $4.495 billion as of Dec. 31, 2003, and cash balances rose to $1.362 billion as of March 31, 2005 from $683 million at the end of 2003. Fitch notes that much of this cash will be used to pay for OXY's recently announced acquisition of properties in the Permian Basin. The company's debt to capital is now approximately 23%, and Fitch expects the company to end 2005 with debt/EBITDAX of 1 times (x) or below. Currently, the company's debt to barrel of oil equivalent (after assigning a nominal amount of debt to OXY's chemical operations) was approximately $1.09 per barrel, and its debt to proved producing barrel is approximately $1.40.
Going forward, Fitch expects that OXY will continue to grow production and reserves while maintaining its current conservative financial posture. Expectations are for OXY to exit 2005 with production at a rate of 600,000 barrels of oil equivalent (boe) per day with 2005 averaging 588,000 boe/d. Overall, Fitch believes production growth should average 4% per annum over the next five years. While OXY's credit metrics are very robust in the current oil and gas price environment, Fitch believes they still would be reflective of an 'A-' credit profile in a much lower price environment, i.e. low-to-mid $20/bbl WTI and mid-$3/Mcf gas. At those levels, debt/EBITDAX should still be under 2x and interest coverage, as measured by EBITDAX/interest, should still be above 8x. Also important, OXY should be free cash flow positive after capital spending and dividends in such a price environment. Furthermore, OXY's lengthy reserve life of 12.6 years gives the company significant capital spending flexibility in instances of very low oil and gas pricing environments.
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 barrels of oil equivalent, of which approximately 78% are developed. Currently, crude oil represents approximately 80% of the company's production stream. Most of OXY's domestic oil and gas assets are located in California, the Permian Basin of Texas and New Mexico, and the Hugoton Basin of Kansas and Oklahoma. Internationally, the company has production in Qatar, Oman, Yemen, Pakistan, Russia, Colombia, and Ecuador. Through its Occidental Chemical Corporation subsidiary, OXY is also a leading North American manufacturer and marketer of basic chemicals such as chlorine and coproduct caustic soda, polyvinyl chloride (PVC), and certain performance chemicals.
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