Occidental to Divest Partial Stake in Shah Gas Project - Analyst Blog

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Occidental Petroleum Corporation ( OXY ) is progressing well on its strategic asset-divestment program. As per the market news, the company plans to sell a part of its stake, worth around $3 billion, at the Shah natural gas field in the United Arab Emirates to Abu Dhabi-owned Mubadala Development Co. (Mubadala).

The proposed transaction is a part of Occidental Petroleum's systematic asset-divestiture plan in the Middle East and North African (MENA) region, as announced in Oct 2013.

Though the latest divestment plan will likely impact Occidental Petroleum's future hydrocarbon production volume, curtailing exposure to the politically disturbed MENA region will bode well for the company's strategy of reducing international risk.


In Mar 2011, Abu Dhabi National Oil Company and Occidental Petroleum had formed a 60-40 joint venture, Abu Dhabi Gas Development Company Limited (Al Hosn Gas), for the Shah natural gas development. The project site is located 210 km south-west of the city of Abu Dhabi.

On the second-quarter 2014 earnings call, Occidental Petroleum announced that the Al Hosn gas project is expected to start its first production from fourth-quarter 2014. Once fully operational, the gas processing plant will likely produce 1,000 million standard cubic feet of sour gas.

Currently, Occidental Petroleum has plans to sell many of its assets in the Middle East after it failed to cut down its exposure in the region by 40% earlier this year. Occidental Petroleum also intends to divest a portion of its stake in Dolphin Energy, jointly owned by the company, Mubadala and Total SA ( TOT ).

Occidental Petroleum is consistently streamlining its assets by way of divestitures and spin-offs. In Apr 2014, Occidental Petroleum divested its Hugoton Field assets in Kansas, Oklahoma and Colorado and accumulated proceeds of $1.4 billion. The company has utilized a portion of the proceeds for the Bolton acquisition.

On Feb 14, 2014, the board of directors of Occidental Petroleum had provided its approval to separate the Californian oil and natural gas assets and form an independent traded company. Subject to customary approvals, the spin-off is expected to be completed by the end of 2014 or the beginning of 2015.

The aforesaid initiatives will enable Occidental Petroleum to focus more on low-risk profitable ventures that will subsequently improve its cash inflows. In particular, the divestments will allow the company to utilize the net proceeds to add new assets to its portfolio.

Occidental Petroleum currently holds a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include GeoPark Ltd. ( GPRK ) and Sanchez Energy Corp. ( SN ), each with a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: OXY , SN , TOT , GPRK

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