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Oxy to buy stakes in energy projects

The firm will invest $1.55 billion in domestic oil and gas operations.

December 18, 2007|Elizabeth Douglass | Times Staff Writer

On the heels of an expanded deal in Libya, Occidental Petroleum Corp. on Monday beefed up its holdings closer to home, agreeing to pay $1.55 billion for stakes in oil and natural gas projects in Colorado, New Mexico and West Texas.

The agreement with Plains Exploration & Production Co. adds heft to Occidental's domestic operations, which account for two-thirds of the Westwood-based company's daily production and more than 70% of its reserves. Houston-based Plains is one of California's biggest producers of oil and natural gas, although not as big as Occidental.

"For Oxy, it's a decent-sized deal . . . and it fits very well with their business model," said Ben Tsocanos, an analyst at Standard & Poor's debt-rating agency.

Under terms of the deal, Occidental would get 50% of Plains' oil and natural gas properties in the New Mexico and West Texas portions of the Permian Basin, along with 50% of Plains' oil and natural gas properties in Colorado's Piceance Basin.

"We do about 45 transactions a year, on average . . . most of them are asset purchases like this one," said Occidental Chief Financial Officer Stephen Chazen, who last week was given the additional title of president. Typically, the production purchases are in the $100-million range, "so this would be on the large side," he said

Plains Chief Executive James Flores told analysts Monday that the company had no immediate plans to sell its Los Angeles-area oil production, but that the deal with Occidental would give it a chance to buy the properties if Plains opted to sell.

Also on Monday, Plains sold $200 million of New Mexico and Texas assets to XTO Energy Inc. and launched a new stock-buyback program.

Occidental's planned purchase adds the equivalent of 13,500 barrels of oil a day in production, a relatively small up-tick for Occidental, which has U.S. output equal to 354,000 barrels a day. The deal, which is expected to close early next year, adds proved reserves equal to 92 million barrels of oil for Occidental, but CEO Ray Irani said he expected those reserves to more than double over time.

With its latest purchase, Occidental continues its steady growth in the Permian Basin, where a series of acquisitions has helped the company become that region's largest producer by far. Occidental also is one of California's largest producers, with major projects in the Elk Hills region near Bakersfield as well as in the Long Beach area.

Over the next five years, most of Occidental's growth will come from its operations in the Middle East, North Africa and Latin America, the company has said. Last month, Occidental reworked its production agreement with the Libyan National Oil Co., resulting in a cut in Occidental's share of production but improving profit.

Even with its growing focus on overseas projects, Occidental has not lost interest in North America, where risks are low and the company's experience with mature oil fields yields gives it an advantage. Occidental plans to continue acquiring U.S. properties to boost domestic output.

Occidental shares fell $2.12 to $68.88. Plains shares rose 87 cents to $55.17.

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