Occidental Petroleum Explores $20 Billion-Plus Sale of Western Midstream Amid Debt Reduction Efforts

Occidental Petroleum (OXY), a major player in the energy industry, is reportedly considering a significant move: the potential sale of Western Midstream Partners (WES), a pipeline operator focused on natural gas in the United States.

Sources familiar with the matter suggest that this divestment could involve a transaction exceeding $20 billion, encompassing the company's debt and market value.

This potential sale comes as Occidental Petroleum, backed by Warren Buffett's Berkshire Hathaway (BRK), grapples with a substantial debt load, which currently stands at $18.5 billion. The company's recent acquisitions, including the $12 billion deal for oil and gas producer CrownRock in December, have contributed to this financial strain, following its $54 billion purchase of Anadarko Petroleum four years prior.

Occidental holds a 49% stake in Western Midstream and exercises operational control through its ownership of the company's general partner. JPMorgan Chase (JPM) is reportedly advising Occidental on strategies to maximize the value of its ownership in Western Midstream.

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Western Midstream Stock Breaks Consolidation Pattern Amid Sale Rumors

Amid rumors of a potential sale by Occidental Petroleum, Western Midstream Partners witnessed a surge in its stock price, closing 5.7% higher at $30.81. This marked the highest finish for the company's shares since July 2019. In contrast, Occidental's own shares experienced a slight dip of 1.6% to $59.56, reflecting broader declines across the energy sector.

The stock price of Western Midstream has been ensconced within an extended pennant consolidation pattern, oscillating between lows near $22 and highs below $30. However, today's trading session witnessed a notable development as the price surged above the pennant's upper boundary. This surge was fueled by rumors surrounding the potential sale of the company by Occidental Petroleum.

This breakout from the consolidation pattern could signify a significant shift in the trajectory of Western Midstream's stock. Market analysts speculate that if the breakout is confirmed, the price may rally further, potentially testing key resistance levels. These levels include $34.24, $37.12, $41.08, and $45.93, which are seen as crucial thresholds that the stock could target in the near term.

The market's response to the sale rumors has reignited interest in Western Midstream, with investors closely monitoring developments to ascertain the stock's future direction. Should a confirmed breakout from the consolidation pattern occur, it could spur additional bullish sentiment, potentially propelling the stock price higher in the coming sessions.

Image courtesy of TC2000.com

Industry Speculates on Potential Buyers as Occidental Receives Advisory Assistance

Industry experts suggest that potential buyers for Western Midstream could include major peers such as Enterprise Products Partners (EPD), Williams Companies (WMB), and Kinder Morgan (KMI), as well as private equity firms and infrastructure funds. However, sources caution that while interest may exist, no deal is certain at this stage.

In response to inquiries about the potential sale, Occidental and Western Midstream refrained from commenting directly. Occidental reiterated its commitment to reducing its debt to below $15 billion, while Western Midstream acknowledged Occidental's interest in divesting assets but clarified that it was not actively running a sale process.

Western Midstream, based in Houston, boasts an extensive network of approximately 16,000 miles of pipelines, along with processing and treatment facilities, primarily situated in the Permian basin and the Denver-Julesburg basin. These regions are of particular interest to companies seeking access to lucrative oil and gas producing areas and export facilities along the U.S. Gulf Coast.

The potential sale of Western Midstream aligns with a broader trend of consolidation and strategic realignment within the pipeline sector. Recent notable transactions include ONEOK's acquisition of Magellan Midstream for $18.8 billion and Energy Transfer's (ET) takeover of Crestwood Equity Partners for $7.1 billion, signaling ongoing activity in the industry.

Meanwhile, Occidental Petroleum has been making headlines beyond its potential asset sales. Last week, the company reported earnings that surpassed expectations, announcing a 22% increase in its quarterly dividend. Additionally, Berkshire Hathaway, under the leadership of Warren Buffett, has been steadily increasing its stake in Occidental Petroleum, further solidifying its position in the company.

Conclusion

Occidental Petroleum's exploration of selling Western Midstream Partners aligns with its strategy to manage debt and optimize its portfolio in the energy market. Recent positive earnings and increased dividends, coupled with Berkshire Hathaway's ongoing investment, underscore Occidental's resilience and shareholder focus. While the outcome of the potential sale remains uncertain amid industry dynamics, Occidental's proactive approach positions it for continued success.

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