Will Occidental's Weak Finances Impact The Land Sale Price?

Jun 26, 2020

Uinta, Carbon, and Sweetwater County Maps With Parcels Up For Sale Highlighted. Land grant map listed as well.
Credit Online GIS maps, Cooper McKim

On February 17, Gov. Mark Gordon announced the state was considering the purchase of about a million acres of surface land across southern Wyoming and 4 million acres of mineral rights from Occidental Petroleum. Now, the company has set a July 1 deadline for entities to make a bid. On May 6, Occidental confirmed it had 13 bidders.

Back in February, the value of the sale was either unknown or not made public, but has been estimated at over a billion dollars. Since February, though, Occidental has faced a litany of economic hits that could lead to the company needing to accept a lower price, according to several economists.

"This whole land sale: it needs to happen. It doesn't have to happen, it needs to happen," said Carl Larry, performance director at Refinitiv, a provider of financial market data.

Occidental's share price has fallen by more than half since February 17. Accordingly, a federal filing in May shows Occidental has reduced its capital budget by half. More recently, sale rumors have surfaced after changes to its severance plan, its long-term debt was downgraded, and has even taken a $9 billion write down on its assets.

"It's their stock price. It's the oil price. It's the gas price. Everything is snowballing here. Right now, there's nothing left ahead of them except panic, because there's nothing they can do," Larry said.

He added the solution to the panic is shoring up liquidity. In other words, get money on hand that can be used either to reinvest, if markets improve, or pay off debts. After all, the company has $11.1 billion in debt coming due in the next two years.

The Sale

Larry said all that translates to Occidental needing to rid itself of certain assets that have become liabilities in order to shore up that liquidity. For example, it's land in Wyoming.

"They need this to happen, so it could get to a point where it's gonna be an attractive price and somebody's gonna just jump at it and say, 'I'm gonna give you my best deal, at this price for this much,' and [Occidental is] gonna have to take that option. They're not there yet, but it's not gonna take long," said Larry.

Not everyone is quite so sure Occidental's land will fall into bargain bin prices.

"This whole land sale: it needs to happen. It doesn't have to happen, it needs to happen."

Rob Godby, energy economist at the University of Wyoming, said the current oil market certainly negatively affects the value of the land. But if there are other bidders, it may undermine the state's advantage.

Patrick Fleming, Chief Investment Officer in the State Treasurer's Office, said there's no reason the value of the land should have gone down. He said liquidity shouldn't be a sticking point for Occidental, given they still have access to capital markets. In other words, when that $11.1 billion comes due, it will have other sources, other than cash-on-hand, to pay for it.

"Sure enough, just today they issued a... financing deal that they'll raise money in the high yield junk bond market. They're not ostracized from the capital market so they can raise money. It's just at what rate they want to pay. It's not a distress situation," he said.

Carl Larry the performance director at Refinitiv disagreed. He said banks have not exactly been forthcoming with struggling oil and gas companies.

"[Banks are] being a lot tighter on who they lend money out to why. Obviously industry, first and foremost, they want to make sure that the people who are taking credit have the ability to pay back," he said. "Banks are shrinking their exposure to companies like this."

Value Of The Land

After the 2020 Budget Session, Gov. Gordon vetoed a combined lands bill put together by legislators to provide a path forward for the sale. The decision changed the pool of cash available to purchase the land.

The Governor's Office confirmed, if the state of Wyoming chose to bid and won, funds to pay for it would come from pre-existing investment funds in the Permanent Mineral Trust Fund. It would come down to a matter of the rate of return.

The Office of State Lands and Investment is expected to put out a public notice on a meeting to discuss the potential land sale. The Governor's Office does expect pushback on the potential sale given Gordon recently asked every department to shave off their beards.

But Fleming said, whatever the asking price may be, the final decision will come down to whether it's a prudent investment decision.

Have a question about this story? Contact the reporter, Cooper McKim, at cmckim5@uwyo.edu.