Midstream Spinoffs Aren’t for Everyone: Occidental Petroleum Corporation (OXY), Marathon Oil Corporation (MRO)

Also, we need to consider the exploration and production, or E&P, end of Occidental Petroleum’s operations. Occidental produces more oil and gas in the Permian than the next three largest producers (Kinder Morgan, Apache, and Pioneer Natural Resources) combined. Even if these assets were to be spun off into their own entity, it is very likely that it would still be receiving feedstock from Occidental itself. With a large concentration of production, transportation, and refining capabilities concentrated in this one area, the company is able to deliver much greater value for its Permian assets than many of its competitors in the region.

What a Fool believes
Overall, Chazen probably has it right. For the time being, the potential gain for shareholders just doesn’t seem to be there in comparison to some of the other spinoffs we have seen in the past couple years. It would also lower the company’s competitive advantage in one of the more productive oil basins in the U.S.

With over 90% of the company’s earnings coming from exploration and production, its almost more apt to consider the company a pure E&P play rather than a completely integrated oil and gas company. This isn’t the best place to be right now. Since the U.S. energy infrastructure is still behind domestic production, places like the Permian are not getting top dollar for product. This could really hurt Occidental’s margins, so it will need to rely on production increases to grow earnings.

The article Midstream Spinoffs Aren’t for Everyone originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe has no position in any stocks mentioned.You can follow him on Fool.com under TMFDirtyBird, Google +, or Twitter: @TylerCroweFool. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.