Occidental Petroleum’s CEO Chazen Hints At Future Spinoff

After shaking up its leadership earlier this year, Occidental Petroleum (OXY) is undergoing a strategic review to ‘streamline and focus’ its operations. The first steps of that process authorized by its board include:

Pursue the sale of a minority interest in the Middle East/North Africa operations in a financially efficient manner. 
Pursue strategic alternatives for select Midcontinent assets, including oil and gas interests in the Williston Basin, Hugoton Field, Piceance Basin and other Rocky Mountain assets. 
Sale of a portion of the Company’s 35-percent investment in the General Partner of Plains All-American Pipeline, L.P., resulting in pre-tax proceeds of $1.3 billion. Occidental’s remaining interest in Plains All-American Pipeline, based on the IPO price, is worth approximately $3.4 billion.

No small list, but the company isn’t done reorganizing itself and one of the assets up for review is the company’s $16b California Oil & Gas Operations. The company is apparently the largest holder of oil & gas acreage in the state and it currently gets roughly 1/3 of its production from California. During the company’s recent Q3 quarterly conference call, CEO Steve Chazen had this interesting exchange with Deutsche Bank’s Paul Sankey about the future of those assets:

Paul Sankey – Deutsche Bank

Yes. I understand and the options of California, is that a spin IPO what are you thinking there? Thanks.

Steve Chazen – President and CEO

We really haven’t decided what the options are. Generally, simpler is better. Increased complexity is probably not something I must up for at this point.

Paul Sankey – Deutsche Bank

So would that imply a spin then?

Steve Chazen – President and CEO

What’s the simplest thing to do. There are two simple things to do. And only two simple — everything else requires lot of brainpower and we’re perhaps short of that right now.

Paul Sankey – Deutsche Bank

Fair enough. I think I’ll leave it there. Thanks Steve.

Obviously nothing concrete, but the preference does seem to be for a spinoff of those operations…at least when compared to a possible IPO. Of course, it has a nice long list of other priorities ahead of it.

Unlike most situations, the reaction from shareholders seems to be somewhat negative on this development. Many are concerned about the timing, preferring that the company take more time to fully develop these assets before spinning them off into an independent entity. Additionally, others noted that California focused energy companies typically trade at low multiples and discounts given the state’s ‘complex geology, the state’s strict environmental scrutiny and a slow permitting process for wells.’

Overall, it is good to see OXY focusing on improving its operations.

Disclosure: Author holds no position in any stock mentioned.