California Resources is pulling back on spending amid oil price plunge
With global oil prices in free fall, December probably wasn’t the best time for a new oil and natural gas company to ring the opening bell on the New York Stock Exchange.
But California Resources Corp., although new to public markets, traces a long history through the ups and downs of the energy business.
California Resources took shape as a separate firm in 2013 and 2014 as parent Occidental Petroleum Corp. ended nearly a century in Los Angeles.
What was then the nation’s fourth-largest oil company moved its headquarters to Houston as part of a major corporate overhaul and spun off California Resources. The spinoff was completed Dec. 1.
Shareholders irate over Occidental’s lackluster stock performance drove the breakup of the firm that had been founded in 1920 and had been led for many years by oil industry legend Armand Hammer.
As the name suggests, California Resources is focused solely on oil and natural gas exploration and drilling inside the state.
No one in the oil patch has been spared by the sharp petroleum price drop from 2014 highs above $100 a barrel to close to $50 a barrel at the end of the year.
FactSet Research Systems said that the world’s 24 largest energy companies collectively lost more than $260 billion in market value during the price plunge.
That’s why energy companies from the smallest on up to Exxon Mobil Corp. have slashed capital spending plans and are cutting back on the number of wells they plan to operate.
California Resources is doing the same, according to Chief Executive Todd A. Stevens.
“We plan our capital program in 2015 to be in the range of $400 million to $450 million, which represents an approximate 75% reduction from our 2014 capital investment of $2.1 billion,” Stevens recently told an investors conference.
Although the corporation is new, “we have a group of managers and employees who have been there and done that,” Stevens said, later adding “the operational responsiveness and the assets have already been tested a number of times over.”
Occidental named Stevens president and chief executive of the new company in July. Stevens had been with Occidental for 19 years, most recently as vice president of corporate development.
William E. Albrecht, an Occidental vice president since 2008 and president of Occidental Oil and Gas Americas since 2011, was named California Resources’ executive chairman of the board.
The latest
California Resources still occupies the old Oxy headquarters building in Westwood, which is due to be sold this year. On Monday, the company will announce plans to move to Chatsworth.
“We’re going to be staying in Los Angeles,” Stevens said in an interview. “When you are deciding on where you should place a corporate headquarters, you want a place where there is a lot of talent, and Mayor Garcetti has been very welcoming. This is a good place for us.”
Late last month, California Resources’ board approved the company’s first quarterly dividend of 1 cent a share. The company also increased the size of its board to 10, adding Catherine A. Kehr, who has been a director of Southwestern Energy Co. since 2011.
Accomplishments
It might not be considered very big on a global scale, but the California company will remain the state’s biggest natural gas producer.
California Resource’s assets are substantial. They include about 2.3 million acres in the state, including oil and natural gas basins in the Los Angeles area and the San Joaquin Valley.
Challenges
Oil prices have fallen more than 50% from 2014 highs and may not have bottomed out yet.
Only 14 drilling rigs are active on land in California, down from 48 in June, according to oil field services company Baker Hughes.
Even with widespread oil industry cutbacks in capital spending, which will lead to tighter supplies, it may be months before that begins to push prices higher.
U.S. supplies of commercial crude oil recently hit a record 407 million barrels. That’s the biggest glut of oil since the U.S. Energy Information Administration began keeping track of such numbers 33 years ago.
Analysts
Wall Street analysts have not yet begun regular coverage of the new firm.
Twitter: @RonWLATimes
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