Occidental Petroleum Spinning-off California Assets, Shell Sells North Sea Holdings

Occidental Petroleum Spinning-off California Assets, Shell Sells North Sea Holdings


BP, Marathon, Devon and ConocoPhillips are doing the same. What's that all about?
by John Pendleton  |   Thursday, February 20, 2014
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Since 2010, British Petroleum has unloaded a staggering $40 billion worth of assets. That same year saw Devon Energy sell off all its holdings in Brazil and the deepwater Gulf of Mexico (primarily to BP) for more than $8 billion. 2011 was the year Marathon decided to spin off Marathon Petroleum. In 2012 ConocoPhillips separated its refineries, pipelines and chemicals division into new company called Phillips 66. Others marching down the divestment path include lesser-known names like Apache and Chesapeake Energy.

Occidental Petroleum (Oxy) announced last Friday that it will be abandoning its 300,000 sq. ft. headquarters and moving to Houston. At the same time the company's California assets will be spun off to create a separate, publicly-traded company. That new company will be the largest oil and gas mineral holder in California with more than two million acres and 160,000 barrels per day of oil/natural gas equivalent production.

Shell has a new CEO who is dramatically shifting the company's focus by selling $15bn of assets to offset their first profit warning in a decade. Those holding include the Anasuria, Nelson and Sean assets in the North Sea.

What's driving all this divestment? The two primary factors are a shift in the nature of oil exploration and the new dynamics of the oil and gas industry.

Tim Dodson, the exploration chief of Norway's Statoil, has stated that 2013 may have been the industry's worst year for oil exploration since 1995. It is becoming increasingly difficult to find new oil and gas, and in particular new oil. The discoveries tend to be somewhat smaller, more complex, more remote, so it is very difficult to see a reversal of that trend. The industry at large will probably struggle going forward with reserve replacement."

For the oil majors, chasing the promise of huge reserves in distant locations ranging from the coast of Africa to Arctic waters has become increasingly risky, especially compared to proven earners like the GOM, the Bakken or Texas (onshore).

The very nature of what it means to be an oil or gas company has also changed. It is becoming clear that in the current environment, bigger is not always better. One former Shell executive bluntly stated that the company’s "suffocating bureaucracy" prevented it from making the quick decisions necessary for flexible response to market conditions and is a barrier to cost controls that are critical in onshore unconventional drilling campaigns.

The big boys in oil and gas are looking to get leaner and more agile to better react to the future. That's good news for investors AND the men and women in the patch.

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