CVX Chevron Corporation

Vicki Hollub goes all-in to best Chevron for Anadarko -- and dominate a huge oil field

By Christopher M. Matthews, Bradley Olson and Cara Lombardo 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 8, 2019).

Driven by a risk-taking chief executive, Occidental Petroleum Corp. is trying to swallow a competitor close to its own size, outmaneuvering one of the world's oil giants in the process.

If it succeeds, CEO Vicki Hollub will win accolades and Occidental will ward off growing threats from the giants in one of the world's biggest oil fields. If not, Occidental could itself be vulnerable to a takeover.

Occidental's battle with mammoth Chevron Corp. to buy Anadarko Petroleum Corp. has riveted the oil industry since it erupted in mid-April. Occidental currently has the highest offer on the table, one that Anadarko said Monday it now favors over Chevron's. A new offer from Chevron could come any time.

Ms. Hollub lined up $10 billion of backing from Warren Buffett and cut a deal with a French oil company, all in the space of two days, to press her audacious project.

She is pushing it against the wishes of some of Occidental's major investors, spooked by the cost and risk of mounting debt. Mutual-fund giant T. Rowe Price Group intends to vote against Occidental's board slate at the oil company's annual meeting Friday, said a Price portfolio manager, John Linehan.

T. Rowe Price believes financing arranged from Mr. Buffett's Berkshire Hathaway is "extraordinarily expensive," Mr. Linehan said, adding: "We are concerned that as the bidding war intensifies there will be a winner's curse for whoever buys Anadarko."

David Katz, president and chief investment officer of Occidental shareholder Matrix Asset Advisors,, which expressed concerns to Occidental's board, said, "Vicki Hollub seems committed to getting this done at any cost." He said her " obligation should be to maximize value, not to maximize the empire. We urge the company to consider selling rather than buying."

Though it's fraught with danger, Ms. Hollub believes a deal for Anadarko would be a rare chance to transform the company's size and sway in the Permian Basin of Texas and New Mexico, the epicenter of U.S. shale production, said people familiar with her strategy. Though the fifth-largest U.S. oil company, according to this thinking, Occidental is just too small to match Chevron and Exxon Mobil Corp. as they squeeze other producers there with methodically orchestrated expansions.

Top spot

Adding Anadarko's assets would vault Occidental to the top spot in the huge field, according to consulting firm Rystad Energy. Without major change, Occidental, now second, would be only the fifth-largest there by 2025, according to Rystad's forecasts.

"If we're going to get in this thing, we're going to win it," said Glenn Vangolen, one of Ms. Hollub's top lieutenants and a senior vice president. "We're not going to dip our toes in the water and mess up the stock."

Occidental's offer for Anadarko is $38 billion. That tops a $33 billion deal Chevron struck to buy Anadarko last month. This week, Occidental sweetened its bid further by upping the amount of cash it includes.

That step indirectly added to the concerns of the objecting Occidental investors. By reducing the number of new shares Occidental would have to issue, the move eliminated the need to get shareholder approval for a deal.

Ms. Hollub has argued Occidental's investors benefit from the move because it makes the company's bid more likely to succeed. Occidental declined to make Ms. Hollub available for this article.

Those who know Ms. Hollub say beneath her plain-spoken persona lies an intense competitor. An Alabama native and former French horn player in the University of Alabama's "Million Dollar Band," Ms. Hollub, 59 years old, is a passionate fan of Crimson Tide football. Her prized possessions include a portrait of the school's legendary former coach, Paul "Bear" Bryant.

Since she became CEO three years ago -- the first female chief executive at a large oil company -- current and former senior executives saw her zeal for a big deal as a departure from her predecessor, Stephen Chazen, who favored small "bolt-on" transactions and tended to avoid big risks.

Given the size of Anadarko -- which has an enterprise value of about $55.5 billion, only 7% smaller than Occidental -- Ms. Hollub knew an acquisition of it would stretch Occidental to its limits. She expected shareholders to trust her judgment that an acquisition was necessary to ensure the company had the wherewithal to continue competing against oil giants, said people who know her.

Ms. Hollub courted Anadarko, also a substantial player in the Permian Basin, for nearly two years. Early last month she thought she was close to a deal. But after Occidental revised a still-confidential offer of about $76 a share temporarily down to about $72 in early April, she said Anadarko CEO Al Walker stopped responding to her calls and text messages.

Occidental sent a revised $76-a-share offer on April 11, according to people familiar with the issue. By that time, Anadarko had decided to move ahead with Chevron's offer due to concerns that re-engaging in discussions with Occidental would prompt Chevron to walk away, according to people familiar with Anadarko's thinking.

On April 12, Anadarko announced it would be sold to Chevron for roughly $65 a share. Ms. Hollub was frustrated. Instead of giving up, she went public with a new $76-a-share offer -- and over a whirlwind weekend lined up nearly $19 billion in financial ammunition.

Occidental needed a big war chest to compete with Chevron. Ms. Hollub and her advisers discussed approaching a Middle Eastern sovereign-wealth fund, said people familiar with her thinking. They determined that would take too long, one of the people said.

Another option seemed to lie in Omaha, Neb. Bank of America Chief Executive Brian Moynihan had visited Occidental's Houston office before the Chevron deal to discuss financing options. After the Chevron-Anadarko deal was announced -- and Occidental needed cash fast -- Mr. Moynihan offered to reach out Mr. Buffett, who was looking for ways to invest Berkshire Hathaway's large pile of cash, another person familiar with the maneuverings said.

An investment from him would have the bonus of looking like an endorsement of an Occidental deal from the famed investor, this person said.

Mr. Moynihan called Mr. Buffett to broker a meeting. Ms. Hollub planned a visit to Omaha for that weekend.

First, however, she made a quick trip to Paris on April 26 and struck a conditional deal to sell Anadarko's extensive African assets to oil company Total SA for $8.8 billion, reducing Occidental's leverage after an Anadarko takeover.

Her next trip was to Omaha. With her was a top lieutenant and former Bank of America banker, Oscar Brown, Mr. Buffett said at Berkshire's annual meeting on Saturday.

Within an hour, they struck a deal for Berkshire to spend $10 billion for 100,000 Occidental preferred shares yielding 8% if the Anadarko deal went through.

It gave Ms. Hollub more room to raise her offer. "They absolutely know we have $10 billion and we're not going to tell them how to structure their transaction and do anything else," Mr. Buffett said on Saturday.

Decades ago, Occidental was one of a handful of oil explorers led by charismatic wildcatters -- companies like J. Paul Getty's Getty Oil Co. and Leon Hess's Hess Corp. -- that took risks in places others avoided. Occidental boomed under Armand Hammer, who took over what was a sleepy California oil company in 1957 and turned it into a substantial player, mainly through an oil concession in Libya he obtained in the late 1960s.

Competing with companies five or six times its size, Occidental developed an expertise at pumping oil from places that others were willing to discard. One such was the Permian Basin, which had once been among the world's hottest oil fields but by the late 1990s and early 2000s was left for dead by most of the majors.

Occidental developed ways to get more oil out of aging conventional wells there by injecting carbon dioxide into them. It is now a leader in the process, which analysts say could extend the lives not only of conventional wells but of shale wells, which produce prodigiously at first but rapidly decline.

That has also put Occidental at the forefront of the burgeoning business of capturing carbon to forestall climate change. Last year, Ms. Hollub helped lobby for legislation, since passed, to extend and increase carbon-capture tax credits.

"She was the go-to phone call," said former Sen. Heidi Heitkamp of North Dakota. "She's not like a lot of executives who might just say, 'I need this.' She will put the credibility of her company into something she believes in."

Ms. Hollub, who studied mineral engineering at Alabama, worked on oil rigs right out of college and landed at Occidental in 1982 when it bought the company she worked for, Cities Service. She rose through Occidental's ranks, running operations from Russia to Venezuela to West Texas.

One of her first big jobs was overseeing Occidental oil fields in a remote part of Ecuador, where she was essentially the mayor of a small city as she managed drilling operations in the Amazon jungle, said the company's Mr. Vangolen.

Workers there, mostly men, "were all very skeptical of her, being a female in the middle of the jungle, where there basically were no women, " said Mr. Vangolen. "Very quickly, she figured out how to get everyone's input and get them onboard."

Glass ceiling

Edward Djerejian, a former chairman of Occidental and onetime U.S. ambassador to Israel and Syria, recalled Ms. Hollub impressing the board years ago with a presentation on Permian Basin operations. Around 2014, he and then-CEO Mr. Chazen identified her as Mr. Chazen's successor.

"The major consideration was her competence," he said. "We also obviously realized if we made this move we'd be breaking the glass ceiling in the oil-and-gas industry."

With Ms. Hollub as CEO, Occidental has performed in the middle of the pack. After she took over in April 2016, the company stuck to Ms. Hollub's pledge not to lay off employees resulting from the industry downturn that began with a late-2014 plunge in oil prices.

But Occidental has shed nearly $9 billion in market value during her tenure while its share prices have fallen about 11%. Much of that decline has come as a result of the offer. Through April 11, the day before Chevron's announcement, when Occidental's interest was also revealed, the company's performance in total return to investors was better than its smaller peers but worse than that of major oil companies including Chevron or ConocoPhillips.

In discussions with shareholders about the company's all-in bid for Anadarko, Ms. Hollub and her team have invoked an acquisition Occidental made in 2000. The takeover then of Altura Energy gave Occidental the rights to depleted conventional wells in the Permian Basin, wells Occidental has since reinvigorated with carbon injection. The $3.6 billion price for Altura meant that Occidental essentially would acquire for nothing the takeover target's shale reserves, which frackers would later figure out how to tap.

Similar to that deal, Occidental believes that in an acquisition of Anadarko, it would acquire not just that company's known oil reserves in the Permian Basin but potentially much more. On a Monday call with investors, Ms. Hollub described a deal for Anadarko as "transformational."

Write to Christopher M. Matthews at christopher.matthews@wsj.com, Bradley Olson at Bradley.Olson@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

May 08, 2019 02:47 ET (06:47 GMT)

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