In recent years, Occidental Petroleum Corporation's (OXY -0.02%) inability to rein in spending at its core U.S. operations weighed heavily on the company's returns, resulting in significant underperformance for much of 2012 and 2013.

But the company is now looking to restructure its operations and improve returns through various asset sales and through an aggressive focus on boosting domestic oil production, slashing operating costs, and improving capital efficiency.

California spin-off and Hugoton asset sale
The latest big move regarding the company's ongoing restructuring came last week, when it announced that it will spin off its California operations into a separate publicly traded company and shift its headquarters from Los Angeles to Houston, as it aims to further streamline its operations and improve shareholder returns.

Though Occidental had previously hinted at a spinoff of its California assets, the decision and its timing were uncertain. The company's California unit, which generated a pre-tax profit of $1.5 billion last year, could be worth between $19 billion and $22 billion, according to analysts. Oxy said it expects to complete the spinoff by the end of 2014 or early 2015.

The announcement came just a day after the company said it will sell its assets in the Hugoton Field -- a vast natural gas field that stretches across southwestern Kansas and parts of Oklahoma and Colorado -- to an undisclosed buyer for $1.4 billion. Oxy will use the proceeds from the sale to increase its share repurchase authorization by 30 million shares.

Further, given that production from the Hugoton assets consisted of only 30% oil, the sale will also result in an even more oily production and reserve base for the company, which is already one of the most liquids-levered energy producers out there, with 72% of its reserve base consisting of liquids.

By comparison, ConocoPhillips (COP -0.34%) and Devon Energy (DVN -0.17%) have 62% and 47% of their respective reserve bases in liquids. Hess (HES 0.74%), whose reserve base is 79% liquids, is one of the only large energy producers more levered to liquids than Oxy.

Other steps taken by Occidental to streamline its operations include the planned sale of a minority interest in its Middle East and North Africa, or MENA, assets and the sale of a portion of its 35% investment in the general partner of Plains All-American Pipeline (PAA -0.23%).

Improving efficiency and cutting costs
Taken together, I think these moves are hugely positive for the company and should unlock a great deal of shareholder value over the years. Not only will they allow Oxy to further ramp up its repurchase program and increase its dividend, but they will also allow it to focus on its most profitable asset -- West Texas' Permian Basin.

Thanks to major frac design improvement initiatives in the Permian, the company's drilling costs last year plunged by 24% year over year, while domestic operating costs fell 17%. As a result, Oxy's returns have improved dramatically. At one of its core areas in the Permian, for instance, a typical well is now earning a 48% internal rate of return, twice the return from a year ago. Not surprisingly, the company's return on capital employed has improved from 10.3% in 2012 to 12.2% last year.  

What's next for Oxy?
I think the next catalyst for a pop in Occidental's share price will be when it completes the sale of a minority stake in its MENA unit. According to sources with knowledge of the matter, three state-owned Gulf firms -- Abu Dhabi's Mubadala Development Co., Qatar Petroleum, and Oman Oil Co. -- are looking to acquire a 40% stake in Occidental's Middle East and North Africa assets, a deal that could bring in as much as $10 billion.

All told, Oxy's restructuring process is well under way and is already delivering dramatic improvements at its core operations in the Permian. With Permian production set to grow at 5%-8% annually and with three major global projects set to come online in 2014-2015, Oxy should see a substantial increase in earnings and cash flow, allowing it to reward shareholders with continued double-digit dividend growth.