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McClatchy-Tribune  08/02/2014 9:06 PM ET
Oxy prepares to cut loose its California operations [The Bakersfield Californian :: ]

Aug. 02--One of the biggest names in Kern County petroleum production is moving swiftly to spin off its California operations in a move expected to boost investment in -- and in some cases modernize -- local oil fields.

Since announcing spinoff plans in February, Occidental Petroleum Corp. has named three top executives to the newly formed subsidiary, California Resources Corp. It has also begun a search for several billion dollars in financing and formally laid out a strategy for the new company's short- and long-term growth.

CRC is on track to emerge by the end of this year as an independent company composed of Oxy's California assets and staffed by 8,000 employees and contractors. Its stock is expected to trade on the New York Stock Exchange under the symbol CRC.

The spinoff was intended, in large part, to address investor concerns that Oxy's California operations cost the rest of the company too much money without producing enough return on that investment.

CRC made no apologies for its hefty California investments in a 219-page document it filed June 5 with the U.S. Securities and Exchange Commission.

The filing described plans to focus near-term spending on "high-return, low-risk" conventional assets such as Oxy's oil production operations in Lost Hills in eastern Kern County.

But over the longer term, it said, CRC will look to unconventional, technology-driven areas such as the Central Valley portion of the vast Monterey Shale formation.

The idea is to spend more money in California than Oxy has been willing or able to do in recent years.

"We intend to accelerate our production growth by significantly increasing our capital investments and focusing on higher-growth opportunities in our extensive drilling inventory," the company said in the SEC filing.

Oxy has long been a towering presence in California oil and gas. It is among the state's most prolific petroleum producers, and the owner of more California mineral acreage than any other private entity.

It has more than 17,500 drilling locations across the state, including operations in four of the 12 largest oil fields in the continental United States.

In Kern County, Oxy is the main operator at the Elk Hills oil field, one of California's largest. And no other company has invested as heavily in Kern's portion of the Monterey Shale, which some consider a potential bonanza waiting to be properly exploited.

In recent years, Oxy's heavy spending in California has become a point of contention. Analysts criticized the company's expenses in the state, leading the company to scale back sharply. Oxy successfully reduced its cost per barrel of production in California by 18 percent from 2012 to 2013.

Even so, in a February earnings call, a question arose whether the company's California operations might fare better on their own -- in other words, whether Oxy might do well without its work in the Golden State.

That's when Oxy CEO Steve Chazen confirmed what had been rumored for months: The company was making plans to spin off its California assets. As he put it, Oxy would create a company offering little or no dividends but have "a more entrepreneurial background."

As part of that move, Oxy has relocated its corporate headquarters from Los Angeles to Houston. There is no word what city CRC will be based in, though some speculation has centered on it being L.A. or Long Beach.

Last month, Todd A. Stevens, the 47-year-old former vice president of Oxy's California operations was named CRC's president and CEO.

Oxy also announced the new company's executive chairman: William E. Albrecht, 62, another former vice president of Occidental's California operations. Mark Smith, former chief financial officer at Houston-based Ultra Petroleum, is CRC's CFO.

Meanwhile, Occidental's leadership has voiced great optimism in CRC's prospects as it renews investment in California.

Oxy reported $491 million in capital expenditures in California in the second quarter of this year, a 36 percent increase from the same period a year before.

It also said the company's oil production in the state hit an average of 97,000 barrels a day in the three months ended June 30. That's a 10 percent jump from the second quarter of 2013.

"The California business continues to perform well and is executing on its oil and gas production growth strategy," CEO Chazen said in a earnings call Thursday.

 

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