Occidental Petroleum Corp. (OXY), the largest oil producer in the continental U.S., will split its operations in California into a separate publicly traded company in one of the final steps of a breakup plan.
The new California company will be the biggest oil and natural gas acreage holder in the state with about 2.3 million net acres, Los Angeles-based Occidental said today in a statement. It will have 8,000 employees and contractors and will establish its headquarters in the state.
“Creating two separate energy companies will result in more focused businesses that will be competitive industry leaders,” Chief Executive Officer Stephen Chazen said in the statement.
Chazen is targeting asset sales from North Dakota to the Persian Gulf to focus on Occidental’s most profitable operations after lackluster returns in 2011 and 2012. The California company could be worth as much as $19 billion and carry as much as $5 billion of debt, Tudor Pickering Holt & Co. analysts wrote today in a note to clients. The assets being spun off represent about 20 percent of total production.
“Spinning off California assets is a step in the right direction,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. Shareholders would be better served if Occidental uses a spinoff for its overseas operations rather than sell a stake in the business as is currently planned, he said.
Occidental rose 3.8 percent to $95.76 at the close in New York. The stock has advanced 10 percent in the past year.
Occidental will become the leading exploration and production company in a state whose history in the oil business goes back more than a century.
The new company will be at the forefront of efforts to harvest the Monterey shale, a vast rock formation that spans much of the state and is estimated by U.S. energy officials to hold as much as 15 billion barrels of oil, or two-thirds of the nation’s potential shale-oil resources.
The company produces the equivalent of 154,000 barrels of oil and natural gas a day in the state and its operations there generated revenue of $4.3 billion last year with $1.7 billion of capital expenditure. Occidental plans to boost spending and debt at the California company, operating more as a traditional high-growth explorer, Leo Mariani, an analyst with RBC Capital Markets in Austin, Texas, wrote today in a note to clients.
“Historically, California has been a ‘hard to grow’ asset and suffers from severe regulatory constraints,” a factor that could weigh on how investors value the new company, Mariani said. The potential of the Monterey has been questioned by executives including Chevron Corp.’s John Watson and Continental Resources Inc.’s Harold Hamm.
Occidental also announced plans to scale back its trading exposure, a step that could raise doubts about the future of Phibro LLC, the trading unit run by Andrew J. Hall, whose hedge fund Astenbeck Capital Management LLC posted its biggest annual loss last year.
The final steps in the company’s breakup, sealed after a boardroom drama that secured Chazen’s position at the top in May, include asset sales of additional North American properties and a sale of as much as 40 percent of Occidental’s operations in the Middle East and North Africa.
Yesterday, the company agreed to sell 1.4 million acres in a Midwestern natural gas field to an undisclosed buyer for $1.4 billion.
Chazen has been asked to remain CEO of Occidental Petroleum Corp. which will now be based in Houston. He has agreed to do so through the 2016 annual meeting of stockholders, according to today’s statement.
The separation is planned by the end of 2014 or the early part of 2015, according to the statement. Occidental would be left with operations in the Permian Basin and other parts of Texas, the Middle East and Colombia.
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