Occidental Petroleum Corp. said profit from the California oil producer it’s spinning off to shareholders next month fell in the third quarter as crude prices slid and production costs increased.
California Resources Corp., as the unit will be known when it becomes a stand-alone company, had net income of $188 million in the July-to-September period, down from $235 million a year earlier, Houston-based Occidental said in a statement today.
Occidental Chief Executive Officer Stephen Chazen is spinning off the unit as part of a wider plan to improve returns to investors by dismantling much of the international oil and natural gas empire cobbled together by his predecessor and mentor, Ray Irani.
Oil wells in California accounted for about one-fifth of Occidental’s output last year and 17 percent of its capital budget, according to regulatory filings. The company is also seeking buyers for assets or stakes in projects from the U.S. Great Plains to the Persian Gulf.
Oil and gas output from California Resources rose to 160,000 barrels a day in the third quarter, from 153,000 barrels a day a year earlier. The unit’s crude production reached 100,000 barrels a day, an increase of 11,000 barrels a day from a year earlier.
Higher natural gas prices, which California Resources uses to power equipment at wells, boosted costs by about $1 per barrel of production, while falling oil prices chewed into earnings.
Main Draw
The spinoff’s main draw for investors will be its focus on California, which has long played second fiddle to Occidental’s Texas holdings that drew most company spending in recent years, said Brian Youngberg, an analyst for Edward Jones in St. Louis, in an interview before the earnings release.
The unit’s 2.3 million net acres of drilling rights in California encompass a cumulative area larger than the state of Delaware. With California production mostly sold to in-state refineries, the company has a strong demand base to serve, he said.
“They pretty much have a dominant market position, and historically they’ve gotten premium prices because of that.” Youngberg said. “That’s where the value is.”
Although California Resources plans to boost production from conventional wells that decline more slowly than shale wells, it says it has identified about 4,500 unconventional drilling opportunities in its San Joaquin basin holdings. The company plans to spend $2.1 billion on exploration and production this year, according to filings.
Crude Price
Benchmark U.S crude futures averaged $97.25 a barrel during the quarter, an 8.1 percent decline from the year-earlier average of $105.81, according to data compiled by Bloomberg.
Oil continued to fall as the current quarter began amid concern over a glut of domestic supply and sluggish fuel demand growth. The slump portends weaker earnings for oil producers and restrained spending on new drilling as explorers adjust to shrinking cash flows.
Occidental is scheduled to report full-company results for the third quarter tomorrow.
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