Jerry Brown, the Democratic Governor of California, signed a bill on September 11, 2013, enacting strict measures on hydraulic fracturing in the state.

The bill, which he describes as “the most comprehensive of any in the country,” requires drilling companies to extensively disclosure fracing materials and processes. Known as SB 4, requirements will go into effect on January 1, 2015.

A recent report from Bloomberg, however, reveals Brown would like to give science a chance before completely banning fracing in the state. According to Bloomberg, the state will conduct an environmental review to determine the environmental effects of fracing. Brown said results could take up to 18 months to complete.

“I think we ought to give science a chance before deciding on a ban on fracking,” Brown told Bloomberg on October 28, 2013. “This is a very complicated equation. You can be sure that California is doing everything it can to reduce greenhouse gases and support a sustainable economy.”

The industry’s main target for hydraulic fracturing in the state of California is the Monterey Shale. The Shale is believed to hold more than 400 billion BOE, according to IHS Cambridge Energy Research Associates. The U.S. Energy Information Agency (EIA) estimates more than 15 billion BOE can be recovered from the Monterey using today’s technology. The majority are unable to be recovered due to the current regulations. Studies by the EIA estimated the state’s economic activity would increase by as much as 14.3%, and add as many as 500,000 new jobs by 2015. In addition, the state could collect an estimated $4.5 billion in oil-related tax revenue by 2015. Governor Brown encourages fracing but has been met with stiff opposition by state residents and conversationalist groups.

OXY’s Plan of Action

Occidental Petroleum (ticker: OXY),California’s largest oil natural gas producer and the most active company in the Monterey Shale, has disclosed few details on its future operations in the state. OXY owns the rights to 2.1 million acres and reported approximately 135 MBOEPD of production in its Q3’13 release. The international oil company currently operates in seven different companies and announced plans on October 18, 2013 to streamline and focus operations.

The possibility of spinning off its California operations was a major topic for investors in OXY’s conference call on October 29, 2013.

Stephen Chazen, President and Chief Executive Officer of Occidental Petroleum, divulged little on the topic. “The fundamental question is, can it operate better as a stand-alone business with a different model? If the different model is going to operate just like it does now, than it might be better off staying the way it is. But if it can operate better with a different model, that is a higher capital model of, basically, little or no dividends, and with a more entrepreneurial background, then I think that it would be better separated from the company. More to the point, I think, is that separating California from the rest could enhance the visibility and the attractiveness of the remaining business, and I think that is clear enough for now. Once we get some slightly better numbers on the proceeds of these two areas we are working on now, then we can size California, if we are going to do it, appropriately.”

Vicki Hollub, the newly-elected vice president of OXY, said the company is adjusting to the new law. “I would say that the division of Oil and Gas in geothermal resources for the state of California has been trying diligently to ensure that there is more R&D around the permitting process. And so, they have been processing permit applications as quickly as they can. Granted, it still takes a while within the state because of their personnel resources. But, just recently we’ve also been trying to anticipate the application of details from Senate Bill Ford that was just passed and we are trying to ensure that we stay ahead of the Anticipated Pacific requirements of that bill to ensure that we are not negatively impacted by that.”

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