Occidental Petroleum Corp. (OXY:US), the largest oil producer in the continental U.S., has begun looking for suitors to take a minority stake in its Middle East unit for as much as $8 billion, said people with knowledge of the matter.
Chief Executive Officer Stephen Chazen has held talks with sovereign wealth funds and possible strategic partners for a 40 percent stake in the Mideast business, whose value he pegs at $20 billion, said two of the people, who asked not to be named as the discussions are private. The CEO is handling the talks himself and isn’t working with bankers now, the people said.
Chazen, a former investment banker, aims to lessen dependence on the Middle East while keeping funds available for capital-intensive projects, one of the people said. No buyer has emerged and any deal may take several months, said that person, citing the challenge of transactions in the region.
Some suitors are valuing the asset at about $15 billion, 25 percent less than Chazen, which may further slow the process, said this person. Melissa Schoeb, a spokeswoman for Occidental, didn’t return calls seeking comment.
Occidental jumped (OXY:US) 1.4 percent to $92.30 as of 10:14 a.m. in New York. The shares had advanced 19 percent this year through yesterday.
Investor unrest over lackluster returns has prompted Occidental, Hess Corp. (HES:US), Apache Corp. (APA:US), and other energy companies to pursue breakup plans and asset sales. Chazen said in July that Occidental’s board would consider splitting off its business in California. Deutsche Bank AG analyst Paul Sankey said after a meeting with Chazen in May that Occidental would also consider selling a 25 percent stake in its Middle East and North Africa operations.
The Los Angeles-based company, which produced the equivalent of more than 300,000 barrels a day of oil and natural gas outside the U.S. in the second quarter, saw its value fall for two consecutive years in 2011 and 2012, the worst performance in more than two decades.
Occidental has operations in countries including Oman, Qatar, Iraq and Libya. The diverse array of contracts and political systems would make an outright sale challenging, said Fadel Gheit, an analyst with Oppenheimer & Co. in New York who rates Occidental a buy and doesn’t own shares.
“It’s difficult to sell assets in six countries” amid so much turmoil, Gheit said in a telephone interview. “The whole area is almost radioactive.”
Chazen gained more control over the company after shareholders ousted longtime Chairman Ray Irani in May. The restructuring plan, including a California spinoff and share buybacks with the proceeds of the Middle East sale, could create value of as much as $115 a share, Deutsche’s Sankey said. That’s 26 percent more than yesterday’s closing price in New York of $91.01.
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