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Western Midstream's loss of strategic value prompts negative credit outlook

S&P Global Ratings assigned a negative outlook to Western Midstream Operating LP's BBB- corporate-level credit rating because the pipeline operator is no longer a "strategic" component of independent driller Occidental Petroleum Corp.'s business.

"This assessment reflects our view that [Occidental] is less likely to provide support to [Western Midstream] in a stress scenario," as well as the potential sale of Occidental's majority stake in the master limited partnership during the next one to two years, Ratings analysts wrote in an Oct. 17 note to clients. Western Midstream Operating is fully owned by Western Midstream Partners LP.

The analysts added that any eventual buyer will probably be "more inclined to use leverage or a lower-rated strategic player," both of which could lower Western Midstream's credit rating that is just one notch above speculative grade.

Occidental inherited Western Midstream as part of a $57 billion merger with Anadarko Petroleum Corp., but it has reportedly pushed back its plan to market a stake in the MLP even though an earlier report noted interest from investment firms like Blackstone Group Inc. and Apollo Global Management Inc.

Since Occidental and Anadarko entered into their definitive merger agreement on May 9, Western Midstream partners' stock price has dropped 19% to settle at $23.60 per unit on Oct. 16.

Investors have also penalized Occidental for the transaction, with units slipping nearly 11% since the deal's Aug. 8 close to settle at $40.34 on Oct. 16.

Analysts at Houston-based investment bank Tudor Pickering Holt & Co. recently said the producer's determination to acquire Anadarko has done enough damage to the company's balance sheet and reputation that it could take years to recover.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.