OXY will have to go into Chapter 11 to protect itself from the Creditors. This is only a holding period that gives OXY a chance to prove to the Chapter 11 Judge that they can create a plan to become solvent and pay back creditors. (sometimes 10 cent to the 1.00 if the creditors approve). This, of course is all based on the price of oil. Should the price of oil not exceed $50, then OXY will go into Chapter 7 where the assets are sold off and proceeds go to the Creditors. Oh wait, Buffet has preferred stock, he may end up with the sales from the assets. Have I missed anything ? Oh yeah, Vicki Dear is toast....
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Oxy has so many levers to pull before they might have to file, they are definitely not at risk in the near future. Cash cost of oil production is less than $20/bbl. Oxychem and Midstream do add cash flow, too. If they need to free up some cash flow, they can just cut the rest of the dividend and even the preferred dividend anytime (though unlikely since it is cumulative). Oxy has access to a $5B revolver that they can tap if they need cash for the $6.4B that come due next year. They also could likely issue bonds at 7.5% or so, based on where current debt is trading. The hedges that are in place will raise over $2B, or they could just liquidate it now since it is so far in the money, no additional profit can be realized on them anyways. Much less, some of the longer date debt is now trading at a discount, so they could purchase and retire debt for less than par. And they do have assets that could be sold or just cut back even deeper on the capital budget. Lots of options going forward.
The big lost here is Oxy won't be able to capitalize on the coming consolidation that is likely to happen at discounted asset prices. They will just have to watch from the sidelines as the majors shows Oxy how it's done.
We’re not going to bankruptcy. Icahn wouldn’t have wasted $1 Billion more to lose it all in bankruptcy (where shareholders are the big losers). There are no debt maturities imminent to lead us into bankruptcy. A more likely event is that Icahn essentially takes control of the company, with Buffet as a constant landlord. What Icahn will do with us is anyone’s guess, but if history is to be repeated, he will break us up and sell us off to generate positive returns for the shareholders, especially himself.
No, but Bob stayed at a Holiday Inn Express last night!
Did you go to the American Samoa School of Law? (Go land crabs!)