Occidental Petroleum’s chief executive has pledged to win over skeptical or angry investors who believe Oxy paid too big of a price in its bidding war victory to acquire Anadarko Petroleum over the much larger Chevron.
Speaking at Oxy’s annual meeting on Friday, CEO Vicki Hollub said she is ready to embark on the “transformational” integration of The Woodlands-based Anadarko after agreeing to buy the company for $38 billion late Thursday when Chevron opted to walk away from negotiations.
“We were not going to let it be taken away,” Hollub said. “This is too important for our shareholders.”
Houston-based Oxy’s stock has plunged almost 20 percent in a month – including another dip Friday – because of Wall Street’s fears that Oxy is taking on too much debt to acquire a company that isn’t much smaller than Occidental.
“In the end, this is going to be a great thing for our shareholders, and they’re starting to see that,” Hollub said, acknowledging that she has some convincing left to do.
And she emphasized that there’s a big difference between determination and desperation.
“We were absolutely not desperate,” she said. “We were in a position of strength.”
But Hollub didn’t have to face any angry shareholders on Friday. Whether it was the inclement weather or the late-breaking news before the meeting, not a single investor stood up to ask her a question on Friday. Only about 100 people attended the meeting in a white, windowless conference room at Oxy’s headquarters, and most of those were Oxy employees or media.
Shareholder Steve Lukingbeal, of Houston, attended his first Oxy annual meeting because he was curious about all the deal making.
“I’m still open minded,” he said, recognizing both the potential and risks of the Anadarko deal. “It’s a matter of only time will tell. But I was very impressed with Ms. Hollub’s defense of the acquisition.”
Still, many investors have voiced their displeasure from afar, including large institutional shareholders like T. Rowe Price. Some voted in protest against Oxy’s board members, but all of them were still approved Friday with the support of at least 70 percent of the votes cast.
David Katz, whose Matrix Asset Advisors firm in New York owns more than 240,000 Oxy shares -less than 1 percent of the company – didn’t bother to travel to Houston, but he did vote against the board.
“It’s disappointing and frustrating,” Katz said. “It seemed the CEO made up her mind about Anadarko two years ago and she wasn’t going to let facts change her opinion.”
Among the questions still surrounding the deal is the fate of Anadarko’s campus in The Woodlands and its nearly 2,000 employees there. Chevron had pledged to keep the campus open and retain many of the workers, but Oxy has thus far stayed mum on the topic, declining comment for now.
Oxy, which has about 3,000 Houston-area workers, is likely to come under significant pressure to cut debt and costs — including jobs — after the deal closes in late 2019. Oxy already is slated to move its existing headquarters from its Greenway Plaza hub to the old ConocoPhillips headquarters in Houston’s Energy Corridor.
Occidental’s Chief Financial Officer Cedric Burgher specifically mentioned cutting jobs and selling real estate and Anadarko’s fleet of four corporate jets as means of cost reductions.
“We don’t think we need all of those (jets), and we can reduce that along with, obviously, people and duplicate offices and real estate,” Burgher said Monday in a conference call, although he didn’t specifically cite The Woodlands.
Glenn Vangolen, Oxy’s senior vice president of business support, will lead the integration team with people from both companies.
The deal for Oxy, which includes Anadarko’s crown jewel acreage in West Texas’ Permian Basin, assures it will be a leading producer in the booming Permian for years to come.
For her part, Hollub declined to take much of the credit for winning the bidding war.
“The thing you should know about me is I’m an engineer, and I have very little experience with M&A,” she said, passing the praise onto her mergers and acquisitions “dream team.”
She said Senior Vice President Michael Ure identified Anadarko as an ideal takeover candidate two years ago.
The two biggest moves to secure the financing included whirlwind trips to Paris and Omaha, Neb. They flew to Paris to sell Anadarko’s Africa assets to the French energy major Total for $8.8 billion, including the multibillion-dollar Mozambique liquefied natural gas project that’s about to begin heavy construction.
And then they went to Nebraska to meet with Warren Buffett so his Berkshire Hathaway firm would commit $10 billion to help finance the Anadarko deal. Some shareholders have complained that Oxy gave up too big a stake in the company to Buffett.
“To get this deal done we had to have those funds,” Hollub said Friday. “The timing was critical for us.”
The moves allowed Oxy to sweeten its offer, including upping the cash portion of the cash-and-stock deal to nearly 80 percent, negating the need for a shareholder vote.
Hollub said Oscar Brown, Oxy’s senior vice president of strategy, led the Total negotiations and then he flew with her to Nebraska. Less than 90 minutes were needed to convince Buffett to jump in, she said.
Mizuho Securities analyst Paul Sankey praised the value Oxy got for the Africa assets, but decreid the stake it had to give up to win over Buffett.
“(Hollub) had a major self-inflicted defeat in the financing deal with Warren Buffett, which damaged her standing with existing shareholders, and a real victory with the massive Total deal,” Sankey said Friday in an analyst note.
Part of the reason Oxy was willing to offer $5 billion more than Chevron is because she argued Oxy is the most efficient operator in the Permian, drilling the most successful wells with lower costs, and the industry’s leading enhanced oil recovery business to draw more life out of maturing wells. Hollub estimates Oxy can save $10 billion in the Permian over time versus its peers.
“We can get more out of these assets than any of our competitors,” Hollub said.
Anadarko’s top production area is actually in Colorado’s DJ Basin. Hollub said she’s confident Oxy can carry those best Permian practices over to Colorado.
For her part, Hollub is an Alabama native and a die-hard Alabama Crimson Tide football fan. She started her oil and gas career in 1981 working in Mississippi with Cities Service, the company best known for founding the Citgo brand. One year later, Los Angeles-based Occidental bought Cities Service, and Hollub embarked on her long Oxy career that, in 2016, made her the first female chief executive of a major oil company.
Occidental, which will celebrate its 100th anniversary next year, was a sleepy California firm that was built up by former CEO Armand Hammer in the 1960s and 1970s. A colorful leader, Hammer infamously bought up a large stake in the Arm & Hammer baking soda brand just because people confused their names. For the younger generation, actor Armie Hammer is his great-grandson.
Hollub has worked with Oxy everywhere from Ecuadorian jungles to Russia, but she’s spent much of her time in Houston, which became Oxy’s headquarters in 2014. Hollub took over at Oxy after it moved to Houston and went on a divestment spree, selling pipeline assets and much of its acreage in the Middle East and northern Africa. The company sold its U.S. assets in the Mid-continent and Rockies regions, as well as South Texas’ Eagle Ford shale and North Dakota’s Williston Basin. Oxy even spun off its California business into the California Resources Corp.
All the while, Oxy was doubling and tripling down on focusing the company on West Texas’ Permian Basin, even before the Permian started booming again. Hollub took over during the recent oil bust, but that region is now going gangbusters and so is much of Oxy’s business.
“At least since 2000 (when Oxy bought Altura Energy), the Permian became the foundation of our company and has been since then,” Hollub said in an interview last year. “So the Permian also is now our growth engine as well. So the Permian is now the foundation and the growth of our company.”
This article first appeared on the Houston Chronicle – an Energy Voice content partner. For more from the Houston Chronicle click here.