Anyone who hasn’t had a chance to sit back and listen to Occidental Petroleum Corp.’s president and chief financial officer, Steve Chazen, is missing out.

This editor had the opportunity to enjoy Chazen’s musings as he addressed a packed house recently at the Houston Wildcatters reception hosted by the Texas Alliance of Energy Producers—an event held in his honor.

Attendees were keen to hear details of Oxy’s recent discovery of oil and gas reserves in Kern County, California, and Chazen did not disappoint.

“It’s very exciting,” said Chazen. “Some smart geologists did this. It wasn’t done by engineers, fancy tools or satellites from space. It looks a lot like a deepwater discovery, with a thick reservoir and a lot of pay zone. It needs no stimulation, so there is not a lot of money here for Halliburton.”

The play holds an estimated 150 million to 250 million gross barrels of oil equivalent within Oxy’s outlined area, where it has drilled six wells to date. This is believed to be the largest oil and gas discovery in the state in more than 35 years.

The producer will look for additional reserves outside of the defined area, and believes that other structures of this type exist elsewhere in its 1.1-million-net-acre position in California. The E&P has announced a drilling program to exploit such opportunities during the coming five to 10 years.

Although Chazen is fairly satisfied with today’s oil price, his take on gas is less optimistic. “We have a hierarchy of work groups at Oxy,” he said. “At the top is business. The next step down is activity. Then comes hobby. At the bottom is distraction. The gas operation is still in the business class, but at current prices it could be heading toward hobby.”

Meanwhile, much of Chazen’s commentary focused on the current “shrink-to-grow” philosophy many E&Ps are being forced to adopt due to the recession-driven fall in natural gas prices.

Despite Oxy’s stature as the fourth-largest U.S. oil and gas company (based on equity-market capitalization), the company has not been immune to the financial crisis. Thankfully, its shrink-to-grow philosophy is a long-standing tradition.

In fact, Chazen told the audience that the $60-billion-market-cap producer is “the poster boy” for shrinking to grow.

“In 1990, Oxy had 1 billion barrels of oil reserves,” said Chazen. “About 49% of that came from a hodgepodge of nearly every basin in the U.S., and the rest was spread throughout 25 other countries. It had $8 billion in debt and $4 billion in equity-market value.”

At the time, the company was also dabbling in coal, pipelines, beef packing, fertilizers and petrochemicals, said Chazen. “And I am sure I’ve forgotten the cattle-raising, book-publishing and the movie business, and who knows what else.”

Meanwhile, Chazen was working with Merrill Lynch when the then-president of Oxy called to ask his advice on a new strategy for the company.

“I suggested bankruptcy counseling,” said Chazen, to the amusement of the audience.

“Fortunately, he didn’t pay any attention to me. But thereafter the company went on a shrink-to-grow strategy and sold off a lot of non-U.S. holdings and other assets.

“Unfortunately, five years later, when Oxy expected to get down to the remaining assets, there weren’t any good parts. There was no pony. That’s the risk of shrinking to grow.”

At the time, Chazen’s wife wanted to move to Houston, so he suggested he switch careers to work with Oxy for a while. “In two or three years, they’ll go bankrupt, and we can move to Galveston,” he told her. Chazen joined Oxy in 1994.

After the shrink tactic, Chazen looked at Oxy’s remaining assets to determine how best to grow. One of the parts Oxy had kept, in the mid-1990s, was Idd El Shargi North Dome Field in Qatar, which produced “a few thousand barrels a day.” It is currently making more than 120,000 barrels per day.

Then, in 1998, Oxy acquired its Elk Hills play in California’s San Joaquin Valley, a former U.S. National Strategic Petroleum Reserve. Acquisitions of assets in the Permian Basin of West Texas from Shell Oil and Amoco followed; they are now central to the company’s success.

Chazen concluded with this advice: “Ignore Wall Street. When your stock underperforms for a year, that doesn’t mean it’s time to restructure. All that does is make money for greedy investment bankers.”