Occidental Petroleum’s debt
As of September 30, 2015, Occidental Petroleum Corporation’s (OXY) total debt stood at approximately $8.3 billion. With about $2.5 billion in cash and cash equivalents, Occidental Petroleum’s net debt was almost $5.8 billion at the end of 3Q15.
Occidental Petroleum’s net debt-to-EBITDA
Net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) is a debt ratio that measures how many years it would take for a company to pay back its debt under current situations. As seen in the above chart, as of 3Q15, Occidental Petroleum’s net debt-to-EBITDA is quite low at about 1.0x. But when compared to its own net debt-to-EBITDA historical average of only ~0.3x, Occidental’s current net debt-to-EBITDA is much higher. This increase in its net debt-to-EBITDA ratio over the last three fiscal quarters can be attributed to the company’s falling EBITDA due to lower crude oil and natural gas prices.
In 4Q14 and 3Q15, Occidental Petroleum reported significant one-time impairment charges of approximately $6.9 billion and about $3.4 billion related to the impairment of its proved reserves. Excluding these one-time charges, the 4Q14 and 3Q15 adjusted EBITDA comes in around $2 billion and $1.3 billion, respectively. The green bars in the above chart show the net debt-to-EBITDA ratio calculated using these adjusted EBITDAs over trailing-twelve-month EBITDA calculations.
Occidental Petroleum’s leverage in 3Q15
Another metric to gauge a company’s indebtedness is the debt-to-equity ratio. As of 3Q15, Occidental Petroleum had a debt-to-equity ratio of only ~28%, which is very low compared to other upstream companies within the S&P 500 (SPY).
By comparison, Range Resources (RRC), EQT Corporation (EQT), Cimarex Energy (XEC), and Noble Energy (NBL) have debt-to-equity ratios of ~116%, ~43%, ~44%, and 65%, respectively. A higher debt-to-equity ratio usually indicates higher risk as it indicates that a company has been aggressively financing its growth through debt.
Now let’s look at Occidental Petroleum’s free cash flow.