California Resources Corporation

In spite of low oil prices and rounds of layoffs in the last few months it’s been tough for smaller and mid-size operators to maintain positive cash flow while minimizing production decline rates. Several companies already went out of business and more to come in months ahead. Occidental Petroleum, one of top 10 US operators with more than 30,000 employees, has been actively “trimming fat” by first separating its California assets into California Resources Corporation (CRC) in December of last year and further by selling Argentina and Middle East assets. North Dakota asset that was purchased only 3 years ago in spite of shale drilling for a whopping $3.2 Billion was recently sold to private equity for mere $300 million. Those are scary numbers even for a company with $40 Billion in market cap (1). Sale of corporate jet and round of layoffs could either signal to stockholders that things are bad or that company taking downturn and adjusting its current model and processes to remain profitable. Either way, significant operating and production losses will be visible on company’s 10-K.

Meanwhile, ExonnMobile acquired XTO Energy, a primarily natural gas company, in 2009 where gas prices were at all-time high of $12 MCF that is $2.36 MCF today for $31 Billion (2)… Though, may not seem as a good deal for 2015 gas prices, I believe this acquisition will pay off in long run. Undervalued natural gas is in the stage where benefits of this much cleaner energy sources is not fully utilized by neither manufacturing nor transportation industries. Growing up in Europe, additional natural gas tank in the trunk of the car and gas powered public transportation was common. Optimizing use of available resources and pushing natural gas for potential power plants, cars, busses, and potentially private airplanes must be evaluated by management. Massive gas deposits in the United States currently being unused which primarily due to low oil prices. It is only matter of time until oil is back to $120, then $140, and possibly as high as $200 per barrel and not until then will natural gas will be considered as the best “alternative” source of fuel and energy. I can only hope these days approaching sooner than later.