| DEBT | NOTE 5 DEBT
Debt as of September 30, 2017 and December 31, 2016 consisted of the following:
September 30,
December 31,
(in millions)
2014 Credit Facilities (Secured First Lien)
Revolving Credit Facility
$
$
Term Loan Facility
2016 Credit Agreement (Secured First Lien)
Second Lien Notes
8% Notes Due 2022
Senior Notes (Unsecured)
5% Notes Due 2020
5 ½% Notes Due 2021
6% Notes Due 2024
Total Debt - Principal Amount
Less Current Maturities of Long-Term Debt
Long-Term Debt - Principal Amount
$
$
At September 30, 2017, deferred gain and issuance costs were $356 million net, consisting of $434 million of deferred gains offset by $78 million of deferred issuance costs and original issue discounts. The December 31, 2016 deferred gain and issuance costs were $397 million net, consisting of $489 million of deferred gains offset by $92 million of deferred issuance costs and original issue discounts.
Credit Facilities
2014 Credit Facilities
Our credit facilities from 2014 (2014 Credit Facilities) comprise (i) a $559 million senior term loan facility (2014 Term Loan) and (ii) a $1.4 billion senior revolving loan facility (2014 Revolving Credit Facility). We are permitted to increase the size of our 2014 Revolving Credit Facility by up to $245 million if we obtain additional commitments from new or existing lenders. Our 2014 Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. Our credit limit under our 2014 Credit Facilities is approximately $2.0 billion. Borrowings under these facilities are also subject to a borrowing base, which was reaffirmed at $2.3 billion as of November 1, 2017.
Our 2014 Credit Facilities mature at the earlier of November 2019 and the 182 nd day prior to the maturity of our 2020 Notes or the 2021 Notes if the outstanding principal amount of either series exceeds $100 million prior to its respective maturity date.
In 2016 and through the nine months ended September 30, 2017, we made scheduled quarterly payments of $25 million on our 2014 Term Loan for an aggregate amount of $175 million. In August 2016, we made a $250 million prepayment on our 2014 Term Loan from the proceeds of our 2016 Credit Agreement. In February 2017, we made a $16 million prepayment on our 2014 Term Loan from the proceeds of non-core asset sales.
The lenders under our 2014 Credit Facilities have a first-priority lien on a substantial majority of our assets, including our Elk Hills power plant and midstream assets. We also granted a lien on the same assets to the lenders under our 2016 Credit Agreement and the holders of our Second Lien Notes.
Borrowings under our 2014 Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the highest of (i) the federal funds effective rate plus 0.50%, (ii) the administrative agent’s prime rate and (iii) the one-month LIBOR rate plus 1.00%), in each case plus an applicable margin. This applicable margin is based, while our total leverage ratio exceeds 3.00 to 1.00, on our borrowing base utilization and will vary from (i) in the case of LIBOR loans, 2.50% to 3.50% and (ii) in the case of ABR loans, 1.50% to 2.50%. The unused portion of our 2014 Revolving Credit Facility commitments is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under our 2014 Credit Facilities. Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.
As of September 30, 2017, the financial performance covenants under our 2014 Credit Facilities were as follows:
2017
2018 and beyond
9/30
12/31
3/31
6/30
9/30
12/31
Maximum leverage ratio (a)
3.25 to 1.00
3.25 to 1.00
2.25 to 1.00
2.25 to 1.00
2.25 to 1.00
2.25 to 1.00
Minimum interest coverage ratio (b)
1.20 to 1.00
1.20 to 1.00
2.00 to 1.00
2.00 to 1.00
2.00 to 1.00
2.00 to 1.00
Minimum asset coverage ratio (c)
N/A
1.20 to 1.00
N/A
1.20 to 1.00
N/A
1.20 to 1.00
Minimum monthly liquidity (d)
$250 million
(a) The ratio of indebtedness under our 2014 Credit Facilities to trailing four-quarter Adjusted EBITDAX
(b) The ratio of Adjusted EBITDAX to consolidated interest charges, adjusted for deferred gain amortization
(c) The ratio of PV-10 to total indebtedness under our 2014 Credit Facilities and our 2016 Credit Agreement
(d) Measured as of the last day of each calendar month
The required ratios for 2018 and beyond were last amended in February 2016 and were not changed in subsequent modifications when the ratios through the end of 2017 were amended. As of September 30, 2017, we had approximately $431 million of available borrowing capacity under our 2014 Revolving Credit Facility, subject to the month-end minimum liquidity requirement.
We must generally apply 100% of the net cash proceeds from asset sales (other than de minimis sales and sales to permitted development joint ventures) to repay loans outstanding under our 2014 Credit Facilities, except that we are permitted to use up to 50% of net cash proceeds from non-borrowing base asset sales or monetizations (i) to repurchase our Senior Notes to the extent available at a significant minimum discount to par, (ii) to purchase up to $140 million of certain of our Senior Notes at a discount to par, (iii) for general corporate purposes or (iv) for oil and gas expenditures, including expenditures for the maintenance, repair or improvement of existing properties and assets, and the acquisition of leasehold, seismic or other assets used in an oil and gas business. At least 75% of asset sale proceeds must be in cash (50% for sales of non-borrowing base assets unless our leverage ratio is less than 4:00 to 1:00 at which time the requirement falls to 40%), other than permitted development joint ventures and certain other transactions. Our 2014 Credit Facilities also permit us to incur up to an additional $50 million of non-facility indebtedness, which may be secured by non-borrowing base assets, subject to compliance with our financial covenants, the proceeds of which must be applied to repay our 2014 Term Loan. We must apply cash on hand in excess of $150 million daily to repay amounts outstanding under our 2014 Revolving Credit Facility. Further, we are restricted from paying dividends or making other distributions to common stockholders.
Our borrowing base under our 2014 Credit Facilities is redetermined each May 1 and November 1. Our borrowing base is based upon a number of factors, including commodity prices and reserves, declines in which could cause our borrowing base to be reduced. Increases in our borrowing base require approval of at least 80% of our revolving lenders, as measured by exposure, while decreases or affirmations require a two-thirds approval. We and the lenders (requiring a request from the lenders holding two-thirds of the revolving commitments and outstanding loans) each may request a special redetermination once in any period between three consecutive scheduled redeterminations. We will be permitted to have collateral released when both (i) our credit ratings are at least Baa3 from Moody’s and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.
We are working with our lender group to amend our 2014 Credit Facilities. The proposed amendment has received approval from each member of the lender group, subject to federally mandated flood insurance review. The proposed amendment, if completed, will become effective upon the satisfaction of certain conditions, including the closing of a new term loan with minimum proceeds of at least $900 million and minimum liquidity at closing of $500 million. The proceeds of the new term loan would be used to repay a portion of the borrowings under our 2014 Credit Facilities. If the proposed amendment is completed and becomes effective, our 2014 Credit Facilities would be amended to:
·
extend the maturity date until June 30, 2021, subject to a springing maturity of (i) 273 days prior to the maturity of our 2020 Notes to the extent that more than $100 million of such notes remain outstanding at such date and (ii) 273 days prior to the maturity of our 2021 Notes, to the extent that more than $100 million of such notes remain outstanding on such date;
·
reset the financial performance covenants as follows:
o
maximum leverage ratio of indebtedness under our 2014 Credit Facilities and the new term loan to EBITDAX to be less than 1.90 to 1.00 through 2019 and less than 1.50 to 1.00 thereafter and
o
minimum interest coverage ratio to be greater than 1.20 to 1.00;
·
defer quarterly payments on our 2014 Term Loan until September 30, 2019, which would be reduced to $12.5 million per quarter thereafter;
·
reduce our 2014 Revolving Credit Facility commitment to $1 billion and reduce our minimum liquidity requirement to $150 million;
·
increase the applicable margin on LIBOR-based loans to a range of 3.25% to 4.00% and on ABR-based loans to a range of 2.25% to 3.00%;
·
permit us to use 50% of the proceeds from an Elk Hills power plant monetization to prepay our 2016 Credit Agreement, Second Lien Notes and Senior Notes;
·
permit us to use the proceeds from other non-borrowing base asset sales to prepay our 2016 Credit Agreement, Second Lien Notes and Senior Notes as follows:
o
75% of such proceeds for all aggregate proceeds received up to $500 million
o
50% of such proceeds for all aggregate proceeds received between $500 million and $1 billion
o
25% of such proceeds for all aggregate proceeds received in excess of $1 billion
·
permit us to incur certain other first-lien indebtedness for deleveraging activities.
2016 Credit Agreement
In August 2016, we entered into a $1 billion first-lien term loan (2016 Credit Agreement), the net proceeds of which were used to (i) prepay $250 million of our 2014 Term Loan and (ii) reduce our 2014 Revolving Credit Facility by $740 million. The proceeds received were net of a $10 million original issue discount. The loan under our 2016 Credit Agreement bears interest at a floating rate per annum equal to LIBOR plus 10.375%, subject to a 1.00% LIBOR floor, determined for the applicable interest period (or ABR rates plus 9.375% in certain circumstances). Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly. Interest on ABR loans is payable quarterly in arrears.
Our 2016 Credit Agreement matures at the earlier of December 2021 and the 91 st day prior to maturity of our 2020 Notes or our 2021 Notes if the outstanding principal amount of either series exceeds $100 million prior to its respective maturity date. As of September 30, 2017, we had $165 million and $135 million in aggregate principal amount of outstanding 2020 Notes and 2021 Notes, respectively.
Our 2016 Credit Agreement is secured by the same collateral used to secure our 2014 Credit Facilities but is second in collateral recovery to the lenders under our 2014 Credit Facilities. Prepayment of our 2016 Credit Agreement is subject to an adjustable make-whole amount prior to the fourth anniversary. Following the fourth anniversary, we may redeem at par. At both September 30, 2017 and December 31, 2016, we had $1 billion outstanding under our 2016 Credit Agreement.
Our 2016 Credit Agreement provides for customary covenants and events of default consistent with, or generally less restrictive than, the covenants in our 2014 Credit Facilities, including limitations on additional indebtedness, liens, asset dispositions, investments and restricted payments and other negative covenants, in each case subject to certain limitations and exceptions. Additionally, our 2016 Credit Agreement requires us to maintain a first-lien asset coverage ratio of not less than 1.20 to 1.00 as of any June 30 and December 31, consistent with our 2014 Credit Facilities.
Second Lien Notes
In December 2015, we issued $2.25 billion in aggregate principal amount of 8% senior secured second-lien notes due December 15, 2022 (Second Lien Notes), which we exchanged for $2.8 billion of our outstanding Senior Notes. We recorded a deferred gain of approximately $560 million on the debt exchange, which will be amortized using the effective interest rate method over the term of our Second Lien Notes. Our Second Lien Notes are secured on a lower-priority basis than the lenders of our 2014 Credit Facilities and 2016 Credit Agreement.
We pay interest on our Second Lien Notes semiannually in cash in arrears on June 15 and December 15.
The indenture governing our Second Lien Notes includes covenants that, among other things, limit our ability to incur debt secured by liens subject to certain exceptions and restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a “change of control triggering event” (as defined in the indenture), we will be required, unless we have exercised our right to redeem our Second Lien Notes, to offer to purchase our Second Lien Notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest. The indenture also restricts our ability to sell certain assets and to release collateral from liens securing our Second Lien Notes, unless the collateral is released in compliance with our 2014 Credit Facilities.
We may redeem our Second Lien Notes (i) prior to December 15, 2017 from the proceeds of certain equity offerings, in an amount up to 35% of the initial aggregate principal amount of the notes issued plus any additional notes issued, at a redemption price equal to 108% of the principal amount redeemed, plus accrued and unpaid interest, (ii) prior to December 15, 2018, in whole or in part at a redemption price equal to 100% of the principal amount redeemed plus a make-whole amount and accrued and unpaid interest and (iii) on or after December 15, 2018, in whole or in part at a fixed redemption price ranging from 104% to 102% of the principal amount redeemed plus accrued and unpaid interest prior to 2019 and 100% thereafter.
Senior Notes
In October 2014, we issued $5 billion in aggregate principal amount of our senior unsecured notes, including $1 billion of 5% notes due January 15, 2020 (2020 Notes), $1.75 billion of 5 ½% notes due September 15, 2021 (2021 Notes) and $2.25 billion of 6% notes due November 15, 2024 (2024 Notes and, collectively, Senior Notes). We used the net proceeds from the issuance of our Senior Notes to make a $4.95 billion cash distribution to Occidental in October 2014.
In 2015, we repurchased approximately $33 million in principal amount of our 2020 Notes for $13 million in cash. We also exchanged a substantial majority of our Senior Notes for our Second Lien Notes in December 2015 as described above. In 2016, we repurchased over $1.5 billion in principal amount of our outstanding Senior Notes, primarily using drawings of $750 million on our 2014 Revolving Credit Facility and cash from operations. We also exchanged approximately 3.4 million shares of our common stock for $100 million in aggregate principal amount of our Senior Notes. In the first quarter of 2017, we purchased $28 million in aggregate principal amount of our 2020 Notes for $24 million in cash.
The following table summarizes the material terms of our Senior Notes outstanding at September 30, 2017:
2020 Notes
2021 Notes
2024 Notes
Outstanding principal
$165 million
$135 million
$193 million
Interest rate
5%
5.5%
6%
Maturity date
January 15, 2020
September 15, 2021
November 15, 2024
Interest payment dates
January 15
July 15
March 15
September 15
May 15
November 15
The indenture governing our Senior Notes includes covenants that, among other things, limits our ability to grant liens securing borrowed money subject to certain exceptions and restricts our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a “change of control triggering event” (as defined in the indenture), we will be required, unless we have exercised our right to redeem our Senior Notes, to offer to purchase our Senior Notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest.
We may redeem our Senior Notes prior to their maturity dates, in whole or in part, at a redemption price equal to 100% of the principal amount redeemed plus a make-whole amount and accrued and unpaid interest.
Other
At September 30, 2017, we were in compliance with all financial and other debt covenants.
All obligations under our 2014 Credit Facilities and 2016 Credit Agreement (collectively, Credit Facilities) as well as our Second Lien Notes are guaranteed both fully and unconditionally and jointly and severally by all of our material wholly owned subsidiaries.
The terms and conditions of all of our indebtedness are subject to additional qualifications and limitations that are set forth in the relevant governing documents.
We estimate the fair value of fixed-rate debt, which is classified as Level 1, based on prices from known market transactions for our instruments. The estimated fair value of our debt at September 30, 2017 and December 31, 2016, including the fair value of the variable-rate portion, was approximately $4.1 billion and $4.9 billion, respectively, compared to a carrying value of approximately $5.1 billion and $5.3 billion. A one-eighth percent change in the variable interest rates on the borrowings under our Credit Facilities on September 30, 2017 would result in a $3 million change in annual interest expense.
As of September 30, 2017 and December 31, 2016, we had letters of credit of approximately $137 million and $130 million, respectively, under our 2014 Revolving Credit Facility. These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters. |
