Oxy CA energy spinoff has bumpy launch

11 Jan, 2015 by Chris Reed

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When energy giant Occidental launched a spinoff to focus on California energy exploration on Dec. 1, the circumstances facing California Resources Corp. were daunting. The plunging price of oil made unconventional energy extraction methods, which cost more, less attractive. And California greens were gearing up local efforts to ban hydraulic fracturing, one county at a time, to show their displeasure over Gov. Jerry Brown’s distancing himself from the loudest critics of fracking’s safety.

Occidental has long been upbeat about fracking’s potential on lands it already owns or controls in California. This is from a piece I wrote in 2012:

Oxy estimates the shale reserves on California land it already controls to have over 20 billion barrels of potential oil –- a claim that the company says is made in accordance with the Securities and Exchange Commission’s rule that only “economically producible” reserves can be cited in SEC filings.

So where have professional investors and energy speculators come down? So far, as the stock chart at right shows, they’re skeptics.

But it appears to be due to market conditions — the plunging cost of oil — not because California Resources is considered poorly managed or to be facing political opposition.

In The Street’s Real Money Pro column of Nov. 14, analyst David Katz predicted CRC’s early plunge — and said it would then be an attractive investment:

At the end of November, Occidental Petroleum (OXY) will distribute the majority (at least 80.1%) of its stake in California Resources (CRC) to OXY shareholders. It’s not uncommon for a new spinoff’s share price to decline in the weeks after distribution as the company’s ownership base changes. And unless the price of oil rallies in the next month, CRC shares are likely to be under even more than the usual selling pressure. However, we think California Resources is an interesting energy production growth story and if you have a 12-18 month time horizon, you may be richly rewarded for picking up the shares from distressed sellers.