After exploring its options, Occidental Petroleum Corp. of LosAngeles agreed to sell for C$29.61/share its 29.2% stake inCanadian Occidental Petroleum Ltd. for gross proceeds of C$1.2billion Canadian. Of Occidental’s 40.2 million CanOxy shares, 20.2million will be sold to the Ontario Teachers Pension Plan Board.The remaining 20 million will be sold to CanOxy. Once the deal iscomplete, Occidental will no longer hold an equity interest inCanOxy.

Occidental expects after-tax net proceeds to be US$700 millionand to report a gain of US$300 million. The C$29.61/share purchaseprice is the average closing price of the shares on the TorontoStock Exchange over a 20-trading-day period ending Feb. 16. Theshares acquired by CanOxy will be cancelled, reducing sharesoutstanding to 118.3 million.

CanadianOxy intends to finance the repurchase of its sharesusing existing bank lines of credit. “A cash deal is easy forshareholders to evaluate and for us to execute,” said VicZaleschuk, CanOxy CEO. “All indications are that oil markets willremain quite strong for the next 12 to 24 months. Given our strongbalance sheet we are confident we can readily manage the additionalborrowing and we expect to repay it very quickly.

“This is an outstanding deal for our shareholders. It’s a clean,transparent transaction that increases cash flow per share. Itcomes at a very good time in our business cycle and allows us toaggressively pursue our growth strategy with the full support ofour shareholders. I expect that we will see a significantimprovement in the liquidity and performance of our shares over thecoming months.”

Occidental also agreed to exchange interests of equal value incertain oil and gas and chemicals operations with CanOxy.Occidental will receive CanOxy’s 15% interest in Occidental’s oiland gas operation in Ecuador, giving Occidental 100%. CanOxy willreceive Occidental’s 15% interest in CanOxy’s sodium chlorateoperations in Canada and Louisiana.

The transactions are subject to approval by CanOxy stockholdersand Canadian and U.S. regulators.

Occidental began reviewing its investment in CanOxy in July (see NGI Aug. 2). Occidental’s investment in the Calgary-based company dates back to 1971. CanadianOxy’s board formed an independent committee to consider proposals. “We think that trading in our stock has been very light in the last six months,” said Marvin Romanov, CanOxy CFO. “The removal of this uncertainty will significantly improve our liquidity and performance.”

An Occidental spokesman would not comment further on the sale.

In January 1999 CanadianOxy said it laid off 112 staffers in acorporate restructuring due to the sale of more than a billiondollars of non-core assets as well as reduced capital investment inresponse to low oil prices. The layoffs included 66 staff inCalgary. Over the previous two years, CanadianOxy had sold assetsworldwide, including significant dispositions in Canada.

Upon closing, two current members of CanadianOxy’s board ofdirectors, Ray R. Irani and Dale R. Laurance, who are also officersof Occidental, will resign from the CanOxy board. Occidental hasagreed not to acquire any CanOxy shares for a year following thedeal.

Last month, CanOxy announced record fourth quarter cash flow andthe second best annual performance in the company’s history. Thecompany reported cash flow of $270 million in the fourth quarter,62% higher than the $167 million reported in the fourth quarter of1998. This was the highest cash flow ever reported by the companyfor a single quarter and increased cash flow for the full year to$780 million, the second best year on record. Net income for thefourth quarter was $72 million compared to a loss of $72 million inthe fourth quarter of 1998. Net income for the year was $100million compared to a loss of $110 million in 1998. Totalproduction for the year averaged 229,000 Boe/d, composed of 193,000Boe and 278 MMcf of gas.

Joe Fisher, Houston

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