Occidental Outlines $20 Billion Restructuring Options

A recent trip to the Middle East yielded positive results in Occidental Petroleum Corp.’s efforts to unlock as much as $20 billion through international asset sales and a potential spinoff of California operations, Chief Executive Officer Stephen I. Chazen told investors yesterday.

“They were very pleased with our people and our operations, and they want us to stay in the region and want to do things to help us to stay in the region,” he said in a conference call. Chazen met with “oil ministers and dignitaries” in Oman, the United Arab Emirates and Bahrain, Occidental spokeswoman Melissa Schoeb said in an e-mail yesterday. She didn’t respond to a question about when the meeting took place.

Occidental is among energy companies including Hess Corp. and Apache Corp. that have embraced breakup plans or asset sales amid investor unrest over lackluster returns despite a U.S. drilling renaissance. In 2012, Occidental’s stock fell for a second consecutive year, the worst performance in more than two decades even as U.S. crude output grew the most since the first commercial oil well was drilled in 1859.

Separating its business in California, where Occidental produces the equivalent of 152,000 barrels of oil a day, is one of a few options the board is considering, Chazen said. A strategic review of how to unlock value is “not yet complete” and Los Angeles-based Occidental will release more information about its plans by year-end, he said.

Joint Venture

Chazen said April 25 he was exploring a breakup that would “move the needle” of the company’s shares.

Occidental is weighing a joint venture that would involve selling a 25 percent stake in its operations in the Middle East and North Africa, Deutsche Bank AG analyst Paul Sankey said after a meeting with Chazen in May. The CEO gained more autonomy at the company after shareholders voted to oust longtime Chairman Ray Irani at Occidental’s annual meeting May 3.

Combined with a spinoff of the company’s California business, the restructuring plan could create value of as much as $115 a share, Sankey said. That would represent more than $20 billion over the company’s current market capitalization, according to data compiled by Bloomberg.

Caustic Soda

The move would leave Occidental with partial ownership of its Middle East operations as well as U.S. assets including oil and gas producing properties in Texas, North Dakota and elsewhere, its Phibro Trading LLC unit, a pipeline company and a chemicals business that is among the largest producers of chlorine and caustic soda.

Potential buyers of a portion of Occidental’s Middle East operations include sovereign wealth funds in Abu Dhabi or Qatar, where Occidental operates several oil and natural gas projects, Fadel Gheit, an analyst with Oppenheimer & Co. in New York, said in an interview yesterday.

A detailed presentation in the call appeared geared toward outlining the prospects for an initial public offering of company operations in California, said Gheit, who rates Occidental the equivalent of buy and doesn’t own shares.

“They are dressing California up for the big dance,” he said.

The company will generate $1 billion in cash flow after spending $1.5 billion this year in the state and can boost production by as much as 8 percent, Vicki Hollub, Occidental’s executive vice president of California operations, said yesterday on the call.

California’s Biggest

Occidental is the largest oil and gas mineral acreage holder in California and has drilled more than 1,300 wells since 1998 using new techniques, including in the Monterey shale, a formation that holds more than 15 billion barrels of oil, according to the U.S. Energy Information Administration.

Occidental fell 2.4 percent to $88.32 yesterday in New York after reporting second-quarter net income of $1.32 billion, or $1.64 a share, compared with earnings of $1.33 billion, or $1.64, a year earlier. Per-share profit excluding one-time items missed the $1.60 average of 23 analysts’ estimates compiled by Bloomberg. Sales rose 3.4 percent to $5.96 billion.

Investors are disappointed that the company didn’t release more information about its breakup plans, said Oppenheimer’s Gheit.

“The lack of information in this situation is like cardiac arrest,” he said. “Investors want action, they want to see something happening.”

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