HOUSTON — Occidental Petroleum Corp. Friday announced its plans to move the company to Houston and spin off another business that will be based in California.
Occidental is currently based in Los Angeles, though it has a large presence in Houston.
CEO Steve Chazen said the company’s corporate headquarters have less than 200 people, and the move would likely only result in a few dozen new jobs in Houston.
But strategically, it’s a significant move for Occidental, allowing the new business and the existing one to have a more narrowly tailored focus.
The existing company, which will be based in Houston, will include exploration and production operations in the Permian Basin and elsewhere in Texas, as well as the Middle East and Colombia. It also will include the firm’s midstream and marketing business, as well as its chemical subsidiary OxyChem.
The new company will have 8,000 employees in California and focus on its major operations in potential oil and gas basins in Los Angeles, San Joaquin, Ventura and Sacramento, the company announced.
The split, Chazen said, affects California much more than the existing company.
Founded in 1920, Occidental’s earliest assets were in the state, but today, the company is global. The move will allow the California work to proceed under a different set of metrics than the rest of the existing business. Chazen said the new California company will likely be able to invest more in the state than Occidental would have invested had it remained one company.
“We spent a lot of money and a lot of effort to make it so it could stand on its own,” Chazen said of the California business an interview with the Chronicle. “It’s now capable of standing on its own a separate business.”
Profit results: Occidental earnings rise as CEO pursues breakup
Company officials say the move will better position Occidental for growth and strong returns on its capital.
“Creating two separate energy companies will result in more focused businesses that will be competitive industry leaders,” Chazen said in a statement announcing the move. The company also Chazen will stay on until 2016 as CEO of the existing company.
The deal is pending the final approval of Occidental’s board of directors as well as federal regulators.
Occidental expects to announce management of the new California business in the third quarter and complete the separation by late this year or early 2015.
Gov. Rick Perry praised the move. “Occidental Petroleum is the largest oil producer in Texas and one of the largest in the nation, so it seems only fitting the company would locate its headquarters in Houston, the energy capital of the world,” he said in a statement.
A spokesman for Perry said there were no state incentives involved in Occidental’s move. Chazen said the company didn’t receive any economic incentives locally as part of the move either, and the company does not get a tax benefit by being based in Houston instead of Los Angeles.
According to a Chronicle survey conducted mid-2013, the company had about 1,850 employees in the Houston area.
Officials with the Greater Houston Partnership declined to discuss the company’s move but released a statement saying it advances the city’s position as the country’s energy capital. “Occidental, a major player in the energy industry, is solidifying its longstanding investment in Houston,” said Bob Harvey, president and CEO of the Greater Houston Partnership, in a statement.
Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston, said the move makes strategic sense. “Their suppliers are here. All the service companies are here. There’s a knowledge base in Houston that’s very difficult to tap into if you’re not inside Houston,” Gilmer said.
The company’s split is the latest in a series of high-profile spinoffs of major energy companies. In 2011, Marathon Oil Corp. split into two companies. ConocoPhillips split in 2012, and Valero Energy Corp. split in 2013.
Those cases were different from the Occidental move. Marathon and ConocoPhillips separated their exploration and production businesses from their refining operations. Valero separated its refining and retail divisions.
In the case of Occidental, the split is about geography — not business units.
Brian Youngberg, a senior energy analyst with Edward Jones & Co. in St. Louis, said Occidental’s operations in California have big potential but have gotten lost in the shuffle of the larger company.
Spinning it off into a standalone business will allow those projects to receive greater focus.
“The new company will be a pure play in California,” Youngberg said. “That’s very unique. There’s really no other company doing that.”
The move would allow the new company to carve out a niche in a market that Youngberg said is largely untapped and could have a potential as a major source of natural gas. “It’s kind of part of the country that’s ignored by other producers,” he said.
At the same time, the strategy allows the existing company to double down on its Permian focus in a move that’s likely to be attractive to investors. “We’ll focus more on the Permian than maybe we did historically,” Chazen told the Chronicle.
In an earnings report issued last month, the company said that last year, it increased domestic oil production by 11,000 barrels of oil per day to 266,000. This year, that total could climb as high as 295,000 barrels per day. The growth is split evenly between California and Permian operations. The company also says it intends to make about $400 million in capital investments in each of those two regions this year.
As part of that same strategy to more narrowly tailor its focus, the company announced Thursday it had sold off more than 1.4 million acres of assets in the Hugoton Gas Field in the Oklahoma panhandle and eastern Colorado for $1.4 billion. The company is also pursuing the sale of a minority stake in some of its Middle East operations. “Our goal is to become a somewhat smaller company with more manageable exposure to political risk,” Chazen said in a statement last year.
Also on FuelFix: