NOTE 5DEBT

Debt as of March 31, 2017 and December 31, 2016 consisted of the following:

	March 31, 2017			December 31, 2016
	(in millions)
2014 First-Out Credit Facilities (Secured First Lien)
Revolving Credit Facility	$	769		$	847
Term Loan Facility	609			650
2016 Second-Out Credit Agreement (Secured First Lien)	1,000			1,000
Senior Notes (Secured Second Lien)
8% Notes Due 2022	2,250			2,250
Senior Unsecured Notes
5% Notes Due 2020	165			193
5 ½% Notes Due 2021	135			135
6% Notes Due 2024	193			193

Total Debt - Principal Amount	5,121			5,268
Less Current Maturities of Long-Term Debt	(100		)	(100		)

Long-Term Debt - Principal Amount	$	5,021		$	5,168

At March 31, 2017, deferred gain and issuance costs were $382 million net, consisting of $471 million of deferred gains offset by $89 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 First-Out Credit Facilities

Our first-lien, first-out credit facilities (2014 First-Out Credit Facilities) comprise (i) a $609 million senior term loan facility (the Term Loan Facility) and (ii) a $1.4 billion senior revolving loan facility (the Revolving Credit Facility). We are permitted to increase the size of the Revolving Credit Facility by up to $250 million if we obtain additional commitments from new or existing lenders. The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. Our credit limit under the 2014 First-Out Credit Facilities is $2.01 billion. Borrowings under these facilities are also subject to a borrowing base, which was reaffirmed at $2.3 billion as of May 1, 2017.

The 2014 First—Out Credit Facilities mature at the earlier of November 2019 and the 182nd day prior to the maturity of our 5% senior unsecured notes due January 15, 2020 (the 2020 notes) to the extent that more than $100 million of such notes remain outstanding at such date.

As of March 31, 2017 and December 31, 2016, we had outstanding borrowings of $769 million and $847 million under our Revolving Credit Facility, and $609 million and $650 million under the Term Loan Facility, respectively. In each of the quarters ended March 31, 2017 and 2016, we made a $25 million scheduled quarterly payment on the Term Loan Facility. Additionally, in February 2017, we made a $16 million Term Loan Facility prepayment from the proceeds of non-core asset sales.

In February 2017, we amended the 2014 First-Out Credit Facilities to facilitate additional joint venture transactions and note repurchases, eliminate our capital expenditure restriction and adopt a minimum liquidity covenant.

We have granted the lenders under the 2014 First-Out Credit Facilities a first-priority lien in a substantial majority of our assets, including our Elk Hills power plant and midstream assets. We also granted a lien in the same assets to the lenders under our first-lien, second-out term loan credit facility (2016 Second-Out Credit Agreement) and the holders of our 8% senior secured second-lien notes due December 15, 2022 (2022 notes).

Borrowings under the 2014 First-Out 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 3.00:1.00, on our borrowing base utilization and will vary from (a) in the case of LIBOR loans, 2.50% to 3.50% and (b) in the case of ABR loans, 1.50% to 2.50%. The unused portion of the Revolving Credit Facility commitments is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the 2014 First-Out 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.

Our financial performance covenants under the 2014 First-Out Credit Facilities require that (i) the ratio of our first-lien, first-out secured debt to trailing four quarter EBITDAX (the First-Lien First-Out Leverage Ratio) not exceed 3.50 to 1.00 at March 31 and June 30, 2017 and 3.25 to 1.00 at September 30 and December 31, 2017 and (ii) the total interest expense coverage ratio at each quarter end not be less than 1.20 to 1.00 through the quarter ending December 31, 2017. Beginning with the end of the first quarter of 2018, the First-Lien First-Out Leverage Ratio may not exceed 2.25 to 1.00 and the total interest expense coverage ratio may not be less than 2.00 to 1.00. The covenants also include a requirement that our first-lien asset coverage ratio must be at least 1.20 to 1.00 as of each June 30 and December 31 and a requirement that minimum monthly liquidity be not less than $250 million as of the last day of any calendar month. As of March 31, 2017, we had approximately $500 million of available borrowing capacity, subject to the minimum liquidity requirement.

We must generally apply 100% of the net cash proceeds from asset sales (other than permitted development joint ventures) to repay loans outstanding under the 2014 First-Out 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 notes to the extent available at a significant minimum discount to par, as specified in the facilities, (ii) to purchase up to $140 million of certain of our unsecured notes at a discount, (iii) for general corporate purposes or (iv) for oil and gas expenditures. 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. The 2014 First-Out 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 and indentures, the proceeds of which must be applied to repay the Term Loan Facility. We must apply cash on hand in excess of $150 million daily to repay amounts outstanding under our Revolving Credit Facility. Further, we are restricted from paying dividends or making other distributions to common stockholders.

Our borrowing base under the 2014 First-Out Credit Facilities is redetermined each May 1 and November 1. The borrowing base is based upon a number of factors, including commodity prices and reserves. 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.

2016 Second-Out Credit Agreement

In August 2016, we entered into a $1 billion 2016 Second-Out Credit Agreement. The net borrowings under the 2016 Second-Out Credit Agreement were used to (i) prepay $250 million of the Term Loan Facility and (ii) reduce our Revolving Credit Facility by $740 million. The proceeds received were net of a $10 million original issue discount. The loan under the 2016 Second-Out 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.

The 2016 Second–Out Credit Agreement matures at the earlier of December 2021 and the 91st day prior to maturity of the 2020 notes and 5 ½% senior unsecured notes due September 15, 2021 (2021 notes) if the outstanding principal amount of either series exceeds $100 million prior to its respective maturity date. As of March 31, 2017, we had $165 million and $135 million in aggregate principal amount of outstanding 2020 notes and 2021 notes, respectively.

The 2016 Second-Out Credit Agreement is secured by a security interest in the same collateral used to secure the 2014 First-Out Credit Facilities, but, under intercreditor arrangements with the 2014 First-Out Credit Facilities lenders, are second in collateral recovery behind such lenders. Prepayment of the 2016 Second-Out Credit Agreement is subject to a make-whole premium prior to the third anniversary of closing and a premium to par equal to 50% of coupon between the third anniversary and the fourth anniversary. Following the fourth anniversary, we may redeem at par. At both March 31, 2017 and December 31, 2016, we had $1 billion outstanding under the 2016 Second-Out Credit Agreement.

The 2016 Second-Out Credit Agreement provides for customary covenants and events of default consistent with, or generally less restrictive than, the covenants in the 2014 First-Out 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, the 2016 Second-Out Credit Agreement requires us to maintain a first-lien asset coverage ratio of 1.20 to 1.00 as of any June 30 and December 31, consistent with the 2014 First-Out Credit Facilities.

Senior Notes

In October 2014, we issued $5 billion in aggregate principal amount of our senior unsecured notes, including $1 billion of 2020 notes, $1.75 billion of 2021 notes and $2.25 billion of 6% senior unsecured notes due November 15, 2024 (2024 notes, and collectively, the unsecured notes). We used the net proceeds from the issuance of the unsecured notes to make a $4.95 billion cash distribution to Occidental in October 2014.

In December 2015, we issued $2.25 billion in aggregate principal amount of our 2022 notes which we exchanged for $2.8 billion of our outstanding unsecured 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 the 2022 notes. Our 2022 notes are secured on a second-priority basis, subject to the terms of an intercreditor agreement and collateral trust agreement, by a lien on the same collateral used to secure our obligations under the 2014 First-Out Credit Facilities and 2016 Second-Out Credit Agreement (collectively, the Credit Facilities).

In December 2015, we repurchased approximately $33 million in principal amount of the 2020 notes for $13 million in cash.

In 2016, we repurchased over $1.5 billion of our outstanding unsecured notes, primarily using drawings of $750 million on our Revolving Credit Facility and cash from operations. We also exchanged approximately 3.4 million shares of our common stock for unsecured notes in an aggregate principal amount of over $100 million.

In the first quarter of 2017, we repurchased $28 million in aggregate principal amount of our 2020 notes for $24 million, resulting in a $4 million pre-tax gain, net of related expenses. The first quarter of 2016 included an $89 million pre-tax gain resulting from the repurchase of notes in that quarter.

We will pay interest semiannually in cash in arrears on January 15 and July 15 for the 2020 notes, on March 15 and September 15 for the 2021 notes, on June 15 and December 15 for the 2022 notes and on May 15 and November 15 for the 2024 notes.

The indentures governing the unsecured notes and the 2022 notes each include covenants that, among other things, limit our and our subsidiaries’ ability to incur debt secured by liens. The indentures also 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 indentures) with respect to a series of notes, we will be required, unless we have exercised our right to redeem the notes of such series, to offer to purchase the notes of such series at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest. The indenture governing the 2022 notes also restricts our ability to sell certain assets and to release collateral from liens securing the 2022 notes, unless the collateral is released in compliance with the 2014 First-Out Credit Facilities.

We may redeem the unsecured 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.

We may redeem the 2022 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 initially 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 during 2018, 2019 and thereafter of 104%, 102% and 100% of the principal amount redeemed, respectively, plus accrued and unpaid interest.

Other

All obligations under the Credit Facilities and the notes are guaranteed both fully and unconditionally and jointly and severally by all of our material wholly owned subsidiaries. The assets and liabilities, results from operations and cash flows of our operating subsidiaries not guaranteeing the debt are de minimis. A joint venture that we entered into with Benefit Street Partners (BSP) was funded in mid-March 2017 and is not a subsidiary guarantor.

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.

At March 31, 2017, we were in compliance with all the financial and other covenants under our Credit Facilities.

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 March 31, 2017 and December 31, 2016, including the fair value of the variable rate portion, was approximately $4.6 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 March 31, 2017 would result in a $3 million change in annual interest expense.

As of March 31, 2017 and December 31, 2016, we had letters of credit of approximately $130 million under the Revolving Credit Facility. These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.