Oxy spinoff won’t drill in California areas where locals oppose, CEO says
LOS ANGELES (Bloomberg) -- Occidental Petroleum Corp. CEO Steve Chazen said the company’s new California spin off will have plenty of places to drill that won’t be hindered by a growing anti-fracing movement in the state.
The new company, which will be spun off to shareholders as California Resources Corp. by year end, won’t drill in communities that oppose oil and gas activity or hydraulic fracturing Chazen said in a call with investors. Occidental can avoid communities such as Beverly Hills, which have passed limits on fracing, he said.
“To the extent that towns don’t want us there, we won’t be there,” Chazen said, noting that some communities that oppose drilling have high unemployment rates. “Maybe the people in Beverly Hills should park their Rolls Royces and ride bicycles going forward. You can see why I’m not going to be part of the California company,” he said.
Management of the new company will be named in the third quarter; Chazen has said he’ll remain as CEO of Occidental.
The company will distribute at least 80% of the new shares in California Resources to Occidental shareholders, Chazen said. The California business will have 8,000 employees, generate $2.6 bn in cash from operations and seek to boost output by 5 to 8%.
Chazen is embracing a breakup to turn around an 18% decline in Occidental stock that began when he took over the top post in May 2011. That includes the sale of a 40% stake in the company’s operations in the Middle East and North Africa as well as a potential JV in the Piceance basin in Colorado.
Occidental, which is relocating its headquarters from Los Angeles to Houston, is betting that a potential oil revival in California will appeal to shareholders even as activists opposed to fracing are increasingly training their focus on the state. Los Angeles is weighing a ban on the practice, and Carson, where Occidental has planned an extensive drilling program, instituted a temporary moratorium that expired last week.
The uncertainty surrounding drilling in California is tempering the potential value of the new company, which analysts have said could be worth as much as $19 bn. The stand-alone producer will generate cash similar to Continental Resources Corp., which drills primarily in North Dakota’s Bakken shale and is worth about $25 bn, Chazen said on May 2 at the company’s annual meeting.
Occidental boosted California oil production by 8% in the first quarter, when profit rose slightly as global output slipped. Output fell to the equivalent of 745,000 bbl of oil and gas a day, a 2.4% decline from the same period a year earlier.
“Oil and gas production volumes were a little bit light for the quarter,” said Leo Mariani, an analyst with RBC Capital Markets in Austin, Texas. “It was slightly weaker than we expected.”
Net income rose to $1.39 bn, or $1.75 a share, from $1.36 bn, or $1.68, a year earlier, Los Angeles-based Occidental said in a statement. Per-share profit was 5 cents higher than the $1.70 average of 24 analysts’ estimates compiled by Bloomberg. Sales rose 3.7% to $6.09 bn.
Occidental rose 0.7% to $95.13 at 12:12 p.m. in New York.