Occidental Petroleum Corp., the largest oil producer in the contiguous U.S., plans to sell minority holdings in certain overseas and domestic assets and reduce its stake in a pipeline partnership as the 93-year-old company seeks to shrink itself to boost value.
Occidental is seeking a buyer for Middle East and North Africa assets and “pursuing strategic alternatives” for more than 4.5 million acres in North Dakota, Kansas and the Rocky Mountains, the Los Angeles-based company said today in a statement. Occidental also will sell a portion of its 35 percent stake in the general partner of Plains All-American Pipeline LP for an estimated pretax gain of $1.3 billion.
Chief Executive Officer Stephen Chazen said in July the company was seeking to sell overseas stakes and potentially separate its California business to boost the stock price. Shareholders may question why today’s announcement didn’t include details about a California spinoff, Roger Read, an analyst at Wells Fargo & Co. in Houston, said in a note to clients.
“We see this announcement as confirmation of what we already knew,” he wrote. The stock will “likely be flat or weaker based on the fact that several important questions” remain unanswered.
Read estimated last month that a breakup of Occidental, including the California spinoff, may boost the share price to as much as $121. Occidental, which yesterday reached the highest in 18 months, rose 21 cents to $98.29 at the close in New York.
Investor unrest over lackluster returns has prompted Occidental, Hess Corp., Apache Corp. and other energy companies to pursue breakup plans and asset sales.
Melissa Schoeb, an Occidental spokeswoman, declined to comment on the California separation. Total proceeds from the asset sales will be “significant,” according to today’s statement.
“These are the first formal steps in our effort to streamline the business, concentrate in areas where we have depth and scale and improve overall profitability,” Chazen said in the statement today. “Our goal is to become a somewhat smaller company with more manageable exposure to political risk.”
The international assets for sale hold the equivalent of 929 million barrels of oil and include stakes in projects in Libya, Iraq, Yemen, Qatar, Oman and the United Arab Emirates. Occidental, which has operated in Libya since 1965, has seen its production in the Middle East and North Africa fall since 2011, when uprisings began in the region.
Chazen has held talks with sovereign wealth funds and possible strategic partners for the the Middle East and North African stakes, which he has estimated were worth $20 billion, two people with knowledge of the matter said in September. Some suitors are valuing the assets at about $15 billion, one person said.
The U.S. assets under review for trade or sale include oil-bearing acreage in the Bakken Shale of North Dakota as well as in the Hugoton natural gas field in Kansas and the Piceance gas fields in the Rocky Mountains. The areas hold reserves equivalent to 211 million barrels of oil.
The sale of the pipeline stake comes two days after Plains GP Holdings LP began trading on the New York Stock Exchange. Occidental said it will retain a $3.4 billion stake in Plains, based on the initial public offering price.
Occidental, which produced the equivalent of more than 300,000 barrels a day of oil and gas outside the U.S. in the second quarter, saw its value fall for two consecutive years in 2011 and 2012, the worst performance in more than two decades.
Shareholders ousted longtime Chairman Ray Irani in May after the board announced it would seek a replacement for Chazen, who has said he will exit at the end of next year.