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Chilton exits position in Occidental Petroleum

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Chilton Investment Company and Occidental Petroleum

Chilton added new positions in Actavis Plc (ACT), Medtronic Inc. (MDT), Wynn Resorts Ltd. (WYNN), and Priceline Group Inc. (PCLN). It sold stakes in Occidental Petroleum (OXY). The fund increased positions in TransDigm Group Inc. (TDG), Home Depot Inc. (HD), and McDonald’s Corp. (MCD). The fund lowered its positions in Dollar General (DG) and Walmart (WMT).

Chilton Investment Company sold its position in OXY. It accounted for 0.67% of the fund’s second quarter US long portfolio.

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About Occidental Petroleum

OXY engages in oil and gas exploration and production in the US, Latin America, and the Middle East. The company operates through the following three business segments:

  1. Occidental Oil and Gas
  2. Midstream and Marketing
  3. OxyChem

Even though the company has operations in the Middle East and Latin America, most of its operations are in the US. OXY mainly focuses on crude oil.

Business segment performance

OXY’s reported income was $1.2 billion, or $1.55 per diluted share, for 3Q14—compared to $1.6 billion, or $1.96 per diluted share, for 3Q13.

The company’s domestic core earnings were $844 million for 3Q14—compared to $1.2 billion, before tax, for 3Q13. This was due to lower crude oil realized prices and higher operating costs. Domestic average daily oil production increased by 20,000 barrels. It increased to 282,000 barrels in 3Q14. The oil was mainly from Permian Resources and California.

Before tax, chemical core earnings for 3Q14 were $140 million—compared to $181 million in 3Q13. This reflected lower caustic soda prices. The lower prices were driven by new chlor-alkali capacity in the industry. The overall margins were lower—due to higher ethylene and natural gas costs.

Midstream core earnings were $125 million, before tax, for 3Q14—compared to $212 million for 3Q13. This was due to lower trading performance.

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OXY’s capital spending strategy

OXY stated that its capital investment in 2014 will be $10.2 billion—compared to $8.8 billion in 2013. The increase in capital includes $400–$450 million that OXY allocated to its California and Permian operations for additional drilling. The additional drilling is for production growth. Of OXY’s $10.2 billion spending, ~53% will focus on North American oil and gas operations.

According to an OXY presentation, the entire ~$450 million increase dedicated to the Permian region will go to the Permian Resources segment. This represents ~70% of OXY’s total capital spending in the basin.

OXY is also allocating ~$1.9 billion for California assets in 2014. 40% of the money will go to unconventional resources. 40% will go to water floods. 20% will go to steam floods.

OXY expects the current capital program to deliver ~11% oil production growth, even though it plans to separate its California business.

Projects in the pipeline

The following projects are in OXY’s pipeline:

  • The Al Hosn Gas project – In 2011, OXY acquired a 40% participating interest in the Al Hosn Gas project in Abu Dhabi. It joined the Abu Dhabi National Oil Company in a 30-year joint venture agreement. Once it comes online, OXY anticipates that the project will produce more than 500 million cubic feet per day of natural gas. OXY’s net share will be more than 200 million cubic feet per day. The total project cost is ~$10 billion. OXY’s share will be $4 billion. OXY expects the project’s production to begin in 4Q14.
  • OxyChem Ingleside Ethylene Cracker – OXY entered into a 50-50 joint venture agreement with Mexichem to build an ethylene cracker at the OxyChem plant in Ingleside, Texas. The ethane steam cracking unit is expected to begin operating in 2017. It will be capable of producing 1.2 billion pounds of ethylene per year.
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OXY’s California assets

On October 2, 2014, OXY’s board of directors approved the spin-off of its California oil and gas business into California Resources Corporation—an independent and separately-traded company.

The spin-off will take place through the distribution of ~80.1% of the outstanding California Resources to shareholders of OXY’s common stock. Subject to fulfilled conditions, the distribution will take place on November 30, 2014.

OXY sells interest in BridgeTex Pipeline

OXY announced that it will sell its 50% interest in BridgeTex Pipeline Company LLC. OXY will sell its interest to Plains All American Pipeline L.P. (PAA) for $1.075 billion. OXY’s CEO, Stephen Chazen, said, “This is in line with our previously announced strategic review to streamline our business, reinvest in areas where we have depth and scale, and maximize total return to shareholders.”

The next part in this series will discuss Chilton’s increased positions during the third quarter.

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