Full Dress Drill

On a hot June day, Todd Stevens enters the room in a black pinstripe suit that he calls “the uniform,” something he knows a lot about as a West Point graduate and former Army officer. Those days are long past, but as the first chief executive of California Resources Corp. his new uniform fits perfectly. The company was spun off from Occidental Petroleum Corp. last year when the L.A. company moved to Houston. After a search, CRC established its headquarters in Chatsworth, where it will take occupancy this week. The company stayed behind for good reason: It is the largest holder of mineral rights acreage and one of the largest oil producers in California. Properties stretch from north of Sacramento to Huntington Beach, with about 40 percent of its production coming from the Elk Hills field south of Bakersfield. Employment is roughly 1,900, mostly in Long Beach and Bakersfield. Stevens, 48, met with the Business Journal at the company’s offices in Valencia to talk about the challenges of running a spinoff, why he selected Chatsworth and his memories of negotiating deals at Oxy. This interview has been edited and condensed for space and clarity. Question: It’s nice to have you in the Valley, but why Chatsworth? Answer: When you look around, the attributes of the San Fernando Valley reflect our industry. We are industrial, a hard-working business, upper middle class. Also, our main operations are in Bakersfield and Long Beach, so proximity to both is easy. Title: CEO Company: California Resources Corp. Born: Whittier, 1967 Education: Bachelor’s in engineering, U.S. Military Academy at West Point; MBA, USC Career Turning Point: Leaving the U.S. Army to enter business Most Influential People: Steve Chazen, chief executive at Occidental Petroleum Corp.; Lt. Col. Bob Jordan, U.S. Army Personal: Lives in Santa Clarita with his wife, five children and a dog – a golden retriever poodle mix named Black Jack. How will the move affect the business? The Westside of L.A. just doesn’t work well. It’s not where an oil company should be. When we looked at resumes, you might get 10 to 20 in Bakersfield or slightly more in Long Beach, but in the San Fernando Valley you get hundreds. What were the issues in separating the companies? It was a lot of work because you’re trying to launch a public company from a subsidiary. It doesn’t have the employees or infrastructure in place for a public company. We had to fill some gaps, and there was back-and-forth in Occidental about where people wanted to land. Some people didn’t want to be in California and there were some on the other side of the house that raised their hand and wanted to be in California. Who are your shareholders? With Oxy, what underpins their shares is their dividends. They are a sizeable dividend payer. We pay a nominal dividend and focus on growth. So we had (shareholder) turnover with the spinoff. You’re trying to get the shares in the hand of people who want to own them. Did you foresee this? We prepared our investors and employees for this. We said there will be some turmoil for up to six months, and we just hit the six month mark. Right before the spinoff we spent five weeks talking to existing shareholders and potential shareholders. We averaged seven to nine meetings a day for five weeks. How did you learn you would be CEO? I knew I was a candidate to do this, or I could have been a candidate to stay at Occidental too. It was something the board and CEO decided. They told me internally, not for external use, that I would have this job in February 2014. It wasn’t announced until July 2014. Why did they select you? I was one of the principal proponents at Oxy for building the business in California. I believe in the untapped potential of the state. Why? Most people don’t realize it, because they take energy for granted, but there’s a chronic energy deficit in California. We import 90 percent of our natural gas and 55 percent of our crude oil. Of the 65 percent that we import, only about 12 percent comes from Alaska, the rest is from foreign sources. That’s what’s so ironic. If people paid attention to what the governor (Jerry Brown) says, he’s for producing oil and gas in the state. Not only it is needed for what we’re doing in the state, but the industry provides good-paying jobs. Our average pay is almost $100,000 a year. What about the environmental lobby? He (Brown) controls the regulatory environment. Of that 65 percent of crude that’s imported, what kind of regulatory environment is that produced under? I would argue he is being more of an environmentalist than not by encouraging local production. He lives in the real world where people use petroleum products every day for a variety of uses, not just transportation. We are trying to redefine the conversation about what we do. I hope people appreciate the affordable, reliable energy that we bring forward. What is your reaction to analysts who say your company’s future depends on hydraulic fracturing in the Monterey Shale formation? Not our only upside, but it’s one of our upsides. There is a lot of misinformation by opponents, not of fracking, but of our industry. Hydraulic fracturing, if you want to get into the science behind it, has been used for 50 or 60 years. It’s only been used recently in the United States in horizontal wells with multiple-stage fracks. It’s not used that much in California. I think less than 10 percent of what we do involves hydraulic fracturing. Mother Nature has already fractured much of the rock in California anyway. A lot of the production here is different and doesn’t require that kind of stimulation. How do you intend to change the conversation about fracking? To the state’s credit, they passed SB 4, the most stringent regulation for this stimulation treatment. (The legislation requires the State Water Resources Control Board to establish groundwater monitoring rules near oil- and gas-well stimulation sites.) You want people to feel it’s transparent and done appropriately. The problem is that as an industry, we are full of engineers and scientists who think the facts always win out. But as some politicians tell me, once a word like fracking becomes a political issue, facts don’t matter anymore. That’s why we as an industry, we have to step out and explain what we do. It’s safe and provides affordable and reliable energy. How has the slump in oil prices affected you? When you do spinoffs, you leverage them up with debt. So we were given debt appropriate for $100 a barrel oil. Clearly the amount of debt we have is not appropriate for the current environment. It’s about $6.1 billion. We are working through ways to deleverage, and it’s a work in progress. What’s interesting about your job? If you get into every geopolitical event in the world, it’s usually underpinned by energy. Why did Japan expand in World War II? They needed natural resources to fuel the engine of the empire. Why do we care if the Fifth Fleet is in Bahrain? Because of energy security. A lot of people don’t want America to be energy independent – they want us dependent on them. The energy industry is intertwined with everything you do every day. That’s interesting. How would you describe your management style? I went to the U.S. Military Academy and was an infantry officer. Most people will tell you I’m mission focused, just like in the military. You understand your mission, and I’m not here to tell you the intricate details of how to accomplish your mission, but I need it accomplished. My leadership skills are based on good communication and leading by example. Where did you grow up? A lot of places. To give you an idea, we moved from here to Northern Michigan, Southern Michigan, New Orleans, Houston, Norway, Houston, London, and I finished high school in Bakersfield. Why did you move around so much? My dad was a geologist for an oil company. Did that help prepare you for this job? I’m very familiar with the industry. I worked in high school as a roustabout. It goes back to my military experience, knowing what it’s like to be the private on the front lines. I never lose sight of that, no matter where I sit. How did you get into the oil business? I went to the Military Academy at West Point and became an infantry officer. I got out after the first Gulf War. I did some engineering consulting and then got an MBA at USC. I did some boutique investment banking and came to Occidental about 20 years ago. What was it like? (Occidental Founder Armand) Hammer had died a few years prior, and the company was in turmoil. A lot of chaos. It was exciting to be on the forefront of shaping what the company would look like and create a lot of value for company shareholders. Do you recall any stories from that time? The most formative one was buying the Altura assets from BP and Shell in the Permian Basin (in Texas). It turned into the backbone of what Occidental is today. It was almost a Harvard case study, with in excess of 70 days of negotiation in various cities. What happened? We got the request to sign a confidentiality agreement the day before Thanksgiving. My two girls were young, so I told Steve (Chazen, Oxy chief executive), “It doesn’t look like anything is going to happen, could I take my girls to Disneyland for a day?” He said, “Sure, but you better be ready.” So I took two cars to Disneyland, one all packed up. I was outside Mickey Mouse’s house when my cell phone rang. Steve said, “We’re leaving at five from Burbank. Where are you?” I said, “Outside the Mickey Mouse house.” He said, “Well, get your Mickey Mouse ass to Burbank by five.” That started this journey in excess of 70 days. Why did you negotiate in different cities? In Houston, all the other counterparties were going home at night, and information was leaking to the press. It was beating up our stock price, because we couldn’t respond under the confidentiality agreement. We were trying to work on the deal and there was all this speculation. So we shipped everyone to Scottsdale (Ariz.) and no one could go home, no one could do anything, so you worked round the clock until we got it done. Then we went back to Houston to finalize it. Eventually we got it across the finish line. How much money was the deal worth? $3.65 billion. And now, within Occidental, it’s probably worth $50 billion. Enormous value. What was the turning point of your career? It was a big deal for me to leave the Army. I miss the camaraderie. It only exists there. It’s rare in the civilian world, and you can’t replicate it. It’s almost like adrenalin. People watch movies about the military, but they don’t appreciate the bond you have with your brothers and sisters. It’s truly unique. How is running a public company different from working at one? Everyone told me that the No. 1 issue is time. You don’t have enough of it. And they’ve all been correct. The big difference between a private and public company is the interaction with investors. The issue with our company, frankly, is that there aren’t any public companies that do what we do in California. So there aren’t comparables. How are you adapting? We have to do a lot of education about what California is, the regulatory environment, and the oil and gas environment. The other big producers – Chevron Corp. and Aera Energy, a joint venture of Exxon Mobil and Shell – are buried in huge companies. No one really knows the details. The other companies are small. So we have to do a lot on market education and tell people what we do. Finally, what qualities in your personality make you good at this job? I go back to West Point. “Duty, Honor, Country.” You have to be uncompromising on honor and integrity. And we need to remember what we’re doing. We’re keeping our country a First World nation. That’s what makes America great – available, affordable, reliable energy. The rest of the world would love to have the power come on and stay on whenever they wanted. Trying to impart that passion for our business to others is important.