By Bradley Olson
Occidental Petroleum Corp. will decide by the end of the year whether to split its California operations into a separate company as the final step in a breakup plan.
Agreements on asset sales from the Middle East to North Dakota will come before Occidental can evaluate the prospects of a California separation, Chief Executive Officer Stephen I. Chazen said today on a conference call.
“Separating California from the rest could enhance the visibility and attractiveness of the remaining business,” he said. The rationale for a stand-alone oil producer in the state is that it would be “more entrepreneurial,” spending more on growth and less on dividends, Chazen said.
Occidental today provided investors with the most detail yet on its proposal to end a two-year slump by selling assets to reduce overseas exposure and focus on its most profitable U.S. businesses. The Los Angeles-based company is among energy producers weighing breakups and asset sales as activist investors such as Carl Icahn and Ralph Whitworth seek to reap more value from a U.S. crude renaissance.
“Investors have the right to hope and wish for more, and a bigger breakup would realize the most value for shareholders,” Fadel Gheit, an analyst with Oppenheimer & Co. in New York, said in a telephone interview today. Gheit rates Occidental the equivalent of a buy and doesn’t own the shares.
Most of the proceeds from the asset sales will be used to buy back stock, the CEO said. That could amount to as much as $7.7 billion, representing almost 10 percent of Occidental’s outstanding shares, Paul Sankey, an analyst with Deutsche Bank AG in New York, said in an Oct. 20 note to clients.
Third-quarter profit rose as U.S. crude and natural gas output gained 1.5 percent to the equivalent of 476,000 barrels a day, increasing in Texas, California and elsewhere. Net income increased to $1.58 billion, or $1.96 a share, from $1.38 billion, or $1.69, a year earlier, Occidental said in an earlier statement. Per-share profit excluding one-time items exceeded the $1.90 average of 24 analysts’ estimates compiled by Bloomberg. Sales rose 8 percent to $6.45 billion.
After selling a stake in its Middle East and North Africa business, Occidental plans to continue seeking out new projects in the region as well as in Colombia, Chazen said. The company also expects to begin building an ethylene plant next year in Texas that will cost as much as $1.6 billion, with Occidental paying half. The joint venture with Mexichem SAB will allow the company to gain higher prices for gas and other products it produces with oil, he said.
Occidental fell 0.5 percent to $97.05 at 1:15 p.m. in New York. The shares, which have 22 buy ratings and seven holds from analysts, have risen 27 percent this year.