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Occidental Buy Other Half of Plains

Oil giant Occidental Petroleum Corp. have said it will buy out a partner's stakes in two jointly operated oil and gas fields

Oil giant Occidental Petroleum Corp. have said it will buy out a partner's stakes in two jointly operated oil and gas fields in U.S. Midwest for 1.25 billion U.S. dollars.

Occidental will take full ownership of several U.S. oil and natural gas properties, shoring up its domestic production at a time when the welcome mat is being withdrawn in more countries overseas.

Plains Exploration & Production Co. agreed to sell its 50% interest in oil and natural gas projects in western Texas, New Mexico and Colorado to the Westwood-based energy company. Occidental, which paid $1.55 billion for its existing 50% stake in those projects early this year, now is the sole owner.

The fields produce about 13,000 barrels of oil equivalent per day, and have about 92 million barrels in proved reserves, said the Los Angeles-based company in a statement.

Occidental currently operates the two fields jointly with Plains Exploration and Production Co.

"This is just buying the other half of what we bought earlier . . . so this wasn't exactly rocket science for us," said Stephen Chazen, Occidental's chief financial officer.

The move by Occidental reinforces its commitment to domestic operations in California, the Rockies and West Texas, areas where the oil company has strengthened its position through acquisitions.

"We have economies of scale . . . we have infrastructure there, and we can spread the costs over more properties," Chazen said. There are willing sellers in those regions, he added, "so we continue to grow in those areas and will continue to grow for a very long time."

The acquisition, which is expected to close later this year, follows deals last December in which Occidental paid 1.55 billion dollars for 50 percent stakes in the Permian Basin of West Texas and New Mexico and Piceance Basin of Colorado.

In the deal, Occidental gains 4,300 barrels a day of oil production and 52 million cubic feet of daily natural gas output - a total that's equivalent to 13,000 barrels of oil a day. The western Texas and New Mexico sites are within a geologic formation known as the Permian Basin; the Colorado site is within the Piceance Basin. Together they add the equivalent of about 92 million barrels of oil in proven reserves, with about 70% of that as natural gas.

Occidental is already a major player in both regions through some of its other properties. In the Piceance Basin, the company said, it produced more than 50 million cubic feet of natural gas a day for the first half of this year, a figure the company expects to increase to at least 200 million cubic feet a day by 2010. The deal is subject to government approvals and is expected to be completed in the fourth quarter.

The oil company's overseas operations are clustered in Latin America, the Middle East and North Africa. The international side of the business has landed deals in Libya, Qatar and other locales.

But in 2006, the company lost its investment in an Ecuadorean project when the government took it over in a still-contested seizure. As oil prices moved higher in recent years, other oil companies have struggled to find their footing in countries that want to renegotiate existing deals or take back ownership of their oil and natural gas resources.

Fadel Gheit, an oil analyst at Oppenheimer & Co., said in a note that Occidental's latest acquisition "will add scale and improve operating efficiency and investment returns."

Gheit rates Occidental "outperform," with a price target of $96. The company's shares, which traded above $100 this year, rose $1.23 to $77.88.

The sale will reduce Plains' corporate debt by at least 1 billion dollars and allow it to cut next year's capital spending to 1.35 billion dollars, according to Houston-based Plains Exploration.

Author: Jo Amey