Occidental Shares Tumble on California City Drill Ban

Occidental Petroleum Corp., the oil producer planning to spin off its California business by early next year, fell the most in two months after a city in Los Angeles County imposed a moratorium on new drilling.

The city council of Carson, California, on March 18 unanimously voted to impose a 45-day hold on oil and natural gas activity and halt negotiations on development of about 200 wells until Occidental completes the spinoff. Carson is the third local government in the state since September to seek restrictions on drilling.

Occidental, based in Los Angeles, dropped 2.3 percent to $92.93 at the close in New York, the biggest decline since Jan. 13. It was the worst performing energy company on the Standard & Poor’s 500 Index.

“This is precisely why Occidental has made the decision to divest its California business,” Pavel Molchanov, an analyst with Raymond James & Associates Inc. in Houston, said today in a phone interview. “The regulatory complexity in California is definitely a source of frustration for them and this is the latest example.”

Occidental in 2011 filed applications to build a production facility that would consist of as many as 202 wells pinpointing oil reservoirs at depths of as much as 13,500 feet (4,100 meters), according to a March 18 report to the Carson city council.

‘Not Material’

The Carson drilling plan is “not material” to Occidental’s California operations and doesn’t affect plans to split the company, Melissa Schoeb, a spokeswoman, said in an e-mail today. The company will continue with a state environmental review on the development, which would create hundreds of jobs, she said.

Occidental assured city officials in a March 10 e-mail that it wouldn’t use hydraulic fracturing, known as fracking, in the project or any techniques commonly used to stimulate production in old wells. Occidental also said that establishing a broad moratorium would run afoul of state law.

“There are too many unknowns and too much of a chance of something bad happening if the city allows fracking or other similar techniques,” Albert Robles, the Carson council member who proposed the moratorium, said yesterday in a phone interview. “I don’t think these techniques have ever gotten enough scrutiny.”

Fracking Halts

California Governor Jerry Brown has introduced new regulations to govern the practice of fracking, in which water, sand and chemicals are shot underground to free gas or oil trapped in rock formations. The Democrat has stopped short of a statewide ban.

The Los Angeles City Council last month unanimously approved a motion to halt fracking that still requires a final vote to go into effect. Santa Cruz County approved a temporary moratorium on fracking in September.

Occidental last month announced plans to separate its California operations to create a company with 8,000 employees that produces almost a fifth of the state’s oil. The standalone entity will be valued at about $19 billion, according to analysts at Tudor Pickering Holt & Co. The rest of the company would move its headquarters to Houston.

The new company has been touted as a high-growth producer in the vast Monterey shale formation, which is estimated to hold more than double the combined resources of Texas and North Dakota, the country’s two largest oil producers.

Before it's here, it's on the Bloomberg Terminal.