OIL’S Chang­ing FACE

As the first wo­man to run a big oil com­pany, Vicki Hol­lub has quickly made Oc­ci­den­tal Petroleum leaner, smarter, gen­tler—and poised to gusher cash for the next half-cen­tury.

Forbes - - CONTENTS - by CHRISTO­PHER Hel­man

As the first wo­man to run a big oil com­pany, Vicki Hol­lub has quickly made Oc­ci­den­tal Petroleum leaner, smarter, gen­tler—and poised to gusher cash for the next half-cen­tury.

South Cur­tis Ranch is an 11,000acre “unit” that Oc­ci­den­tal Petroleum op­er­ates in the Per­mian Basin, a 300-mile swath of West Texas and south­east­ern New Mex­ico that pro­duces a quar­ter of Amer­ica’s oil. Here, cat­tle placidly mas­ti­cate as hun­dreds of 20-foot-tall “nod­ding don­keys” suck up oil and gas from de­posits 2 miles down. Oxy’s pumps are gray with red tops—a well-gauger might de­scribe his day as hav­ing been spent “chas­ing red­heads.” North winds whip up dust from truck tires crunch­ing on the work roads. A storm-chas­ing group is­sues a flam­ing-tum­ble­weed warn­ing. That’s no joke to Vicki Hol­lub, the chief ex­ec­u­tive of­fi­cer of Oc­ci­den­tal. Just 5-foot5, Hol­lub strides with au­thor­ity to a lineup of ner­vous rough­necks, all men. She shakes hands and lis­tens in­tently as the fore­man re­cites the safety brief­ing. Ev­ery­one wears steel-toe shoes and flame-re­tar­dant cov­er­alls. Hol­lub re­fuses a pho­tog­ra­pher’s re­quest to take off her hard hat and safety glasses for a few pic­tures. “Not go­ing to hap­pen,” she says, tuck­ing blond hair un­der the rim.

Hol­lub, 57, feels at home here. A decade ago, she was run­ning Oxy’s en­tire one-mil­lion-acre Per­mian po­si­tion. The work con­sisted mostly of in­ject­ing car­bon diox­ide into 100-year-old shal­low, con­ven­tional fields to coax out the more stub­born oil. Then came ad­vances in di­rec­tional drilling and hy­draulic frac­tur­ing that en­abled oil com­pa­nies to un­lock deeper, trick­ier oil-soaked rock. Out­put from the Per­mian has dou­bled in the past five years to 2.5 mil­lion bar­rels a day (bpd), with hun­dreds of new rigs de­ployed even in a world of $45 oil.

Oxy is the big­gest pro­ducer in the re­gion, at 270,000 bpd—half the com­pany’s world­wide to­tal. Hol­lub says it will dou­ble that within a decade. “It’s pretty hard to drill a dry hole there. We don’t have to ex­plore to find it. It’s just a mat­ter of engi­neer­ing the right way to get it out.” The ge­ol­ogy is so stacked with oil lay­ers that it’s like hav­ing ten fields in one—a petroleum layer cake. “We know Oxy has more than 50 years of re­serves left,” she says.

Hol­lub pre­sides over an all-new Oxy that has gone all-in on the Per­mian. In an un­for­giv­ing “port­fo­lio op­ti­miza­tion” that sought to undo the ex­cesses of for­mer CEO Ray Irani, Oxy shed 25% of its as­sets, in­clud­ing less cost­ef­fec­tive fields in North Dakota, Colorado, Kansas, Ok­la­homa, Iraq, Libya and Ye­men. In 2014, Hol­lub or­ches­trated the spinoff

of Cal­i­for­nia Re­sources Corp., which took all of Oxy’s as­sets in that state, in­clud­ing Elk Hills, which pro­duces half of the Golden State’s nat­u­ral gas. In the process she also loaded CRC with $6 bil­lion of debt. She even sold off Oxy’s lav­ish Los An­ge­les head­quar­ters for $93 mil­lion and con­sol­i­dated of­fices in Hous­ton. (She lives with her hus­band on Tiki Is­land, near Galve­ston, Texas.) Half of Oxy’s out­put now comes from Qatar, Oman, Abu Dhabi and Colom­bia. The other half is Per­mian. “Now ev­ery dol­lar we in­vest is in a qual­ity as­set,” Hol­lub says.

Like su­per­ma­jors Exxon Mo­bil and Chevron, Oc­ci­den­tal has a ver­ti­cally in­te­grated op­er­a­tion at Hol­lub’s dis­posal, at least in Texas. Oxy’s pipe­line net­work car­ries oil down to Cor­pus Christi, where the Oxy­chem divi­sion op­er­ates chem­i­cal plants and a new ter­mi­nal for su­per­tankers built on a for­mer naval base. “We’re in­te­grated like a ma­jor, pay div­i­dends like a ma­jor, but we’re small enough that we can still gen­er­ate solid growth,” Hol­lub says. Oxy pro­duced $117 mil­lion of net in­come in the first quar­ter on $3 bil­lion in rev­enue, when oil prices av­er­aged $51 a bar­rel. In 2016, with oil around $40, Oxy posted a net loss of nearly $600 mil­lion. But Hol­lub says at $45 Oxy can in­crease pro­duc­tion. That’s a far lower breakeven than you’d get from deep­wa­ter drilling in the Gulf of Mex­ico, and it also beats frack­ing in once-hot places like North Dakota, where the Bakken Shale is only a frac­tion as thick as the Per­mian lay­ers. If oil prices re­turn to their 20-year, in­fla­tion-ad­justed av­er­age of $60, Oxy is poised to make $1.5 bil­lion in net prof­its. Put an­other way, for ev­ery dol­lar in higher oil prices, about $100 mil­lion drops di­rectly to Oxy’s bot­tom line.

It was no dumb luck that Oxy al­ready had a gi­ant po­si­tion in the re­gion be­fore “Per­ma­nia” took hold of the oil in­dus­try. Hol­lub is ex­e­cut­ing a strat­egy put into place nearly two decades ago by Stephen Chazen, her pre­de­ces­sor as CEO, who was con­vinced that the best place to find new oil was where it had been found be­fore. In 1998, Oxy ac­quired the old Elk Hills oil­field near Bak­ers­field, Cal­i­for­nia. It fol­lowed that up with the 2000 pur­chase of Per­mian-fo­cused Al­tura En­ergy for $3.6 bil­lion. When Oxy bought Al­tura, it paid only for the old, de­pleted con­ven­tional fields, which were be­ing kept alive via in­jec­tions of pres­sur­ized car­bon. But there was more to it than that, says Chazen, who at 71 has spent three decades in the oil busi­ness.

“When you do a deal, the goal is to get free op­tions. That is, things that might turn out but you don’t have to pay for them.” The Per­mian is the king of op­tion­al­ity. All those deeper lay­ers of oil­soaked rock with names like Wolf­camp, Avalon and Bone Spring were seen as worth­less, Chazen says. “We paid for the CO2 busi­ness, but we got mul­ti­ple prospec­tive tar­get zones for free.” Oxy didn’t even know how to drill those tar­gets in 2000. But it does now.

Oxy’s 25,000 well­bores in the Per­mian have lots of “jew­elry” on them—sen­sors that mea­sure, for in­stance, how flow rates re­spond to changes in at­mo­spheric tem­per­a­ture and pres­sure. That big data feeds ar­ti­fi­cial-in­tel­li­gence soft­ware that guides drill bits hor­i­zon­tally into the thick­est zones of oil-soaked rock. Thanks to bet­ter tech­nol­ogy and bet­ter fields, Oxy has re­duced its to­tal cost per bar­rel (in­clud­ing over­head, cap­i­tal and op­er­at­ing costs) by more than half, to just $28.

It’s been a bold trans­for­ma­tion for one of Amer­ica’s most un­usual com­pa­nies. Oxy’s founder, Ar­mand Ham­mer, was the Bronx-born child of Soviet sym­pa­thiz­ers. He made his first for­tune trad­ing medicine, grain and pen­cils to Lenin in the 1920s. Ham­mer founded Oxy in 1956 and dur­ing the Cold War be­came an in­fa­mous back chan­nel be­tween the Krem­lin and the White House. He also used his diplo­matic charms to win lu­cra­tive oil li­censes around the world.

At Ham­mer’s death in 1990, Oxy’s fate fell to his hand­picked suc­ces­sor, Ray Irani, an im­pe­ri­ous

chem­i­cal en­gi­neer who car­ried on Ham­mer’s global gal­li­vant­ing and landed megadeals with the likes of Qatar, Oman and Libya. Irani was the high­est­paid CEO of his day, max­ing out at $460 mil­lion in 2006. His lav­ish Bev­erly Hills life­style made Irani the liv­ing in­car­na­tion of cor­po­rate greed—but he made share­hold­ers rich, with Oxy shares re­turn­ing 2,000% over Irani’s 20-year ten­ure, roughly four times bet­ter than the S&P 500. Run­ning the show be­hind Irani was Chazen, a for­mer in­vest­ment banker who had dis­armed mines in Viet­nam. He also had a PH.D. in ge­ol­ogy. Low-key and sub­tle, Chazen found Irani em­bar­rass­ing. In 2011, the Oxy board could no longer ig­nore the out­rage over Irani’s pay, so they made Chazen CEO but left Irani as chair­man. Irani re­fused to re­lin­quish his grip. In 2013, af­ter du­el­ing proxy votes, share­hold­ers booted him. Irani’s cu­mu­la­tive com­pen­sa­tion: $1.2 bil­lion. At last, Oxy could get on with sell­ing as­sets. Chazen pro­moted Hol­lub to pres­i­dent and sent her to spear­head the Cal­i­for­nia spinoff. She took over the CEO job in early 2016.

Hol­lub grew up lov­ing Alabama foot­ball and idol­ized its leg­endary coach, Bear Bryant. At Tuscaloosa Hol­lub’s fresh­man am­bi­tion was to play French horn in a sym­phony, but an in­struc­tor broke it to her that she was good enough only for the Crim­son Tide march­ing band. “It was a real bless­ing he was so hon­est with me,” Hol­lub says. Watch­ing Bryant trans­formed her. “It wasn’t about win­ning sin­gle games,” she says. “The coaches were only com­fort­able win­ning na­tional cham­pi­onships. It’s a cul­ture and an at­ti­tude of not set­tling.” She con­sid­ered mine engi­neer­ing un­til she took a field trip down one of Alabama’s mines. “It was claus­tro­pho­bic, cold, wet. I never wanted to do it again.” The next trip was to an oil rig. “I was 18 years old and thought that was so cool.” Af­ter grad­u­at­ing, she worked on rigs in Mis­sis­sippi and made the three­hour drive back for home games.

In 1982, Oc­ci­den­tal bought the com­pany she worked for, Cities Ser­vice. She never left. Hol­lub led teams in Venezuela and Ecuador. “I was sur­prised at the op­por­tu­ni­ties I got,” she says. When she landed in Rus­sia, “I found out I was there be­cause a lot of other peo­ple didn’t want to go.” Foot­ball helped her en­dure tough jobs in a male-dom­i­nated in­dus­try. “It was the one thing we could al­ways talk about. It broke down bar­ri­ers.” Now Hol­lub is one of just 28 women run­ning S&P 500 com­pa­nies. “I don’t like the term ‘role model.’ What I do feel is, I’ve been for­tu­nate. With­out foot­ball and help along the way from some key men, I wouldn’t be where I am to­day.”

As the down­turn took hold in 2015, Hol­lub made a big de­ci­sion: Cut as­sets, not peo­ple. Oxy would ax con­trac­tors, sure, but not em­ploy­ees. Hol­lub saw it as a way to heal the Oxy cul­ture in the wake of its post-irani up­heaval. Mil­len­ni­als got sent to the field in­stead of the chop­ping block. Jenny James, a 26-year-old petroleum en­gi­neer, worked 16 months on a rig in Pe­cos, Texas, liv­ing in a “man camp.” Does she care that Oxy’s CEO is fe­male (as are the gen­eral coun­sel, mid­stream pres­i­dent, con­troller and head of ex­ter­nal re­la­tions)? “It shouldn’t make a dif­fer­ence,” James says, “but it’s still re­ally ex­cit­ing.”

It’ll be even more ex­cit­ing when oil prices go up. At an av­er­age oil price of $50, Oxy fig­ures, it can gen­er­ate $5.6 bil­lion in cash a year, enough to sup­port $3.3 bil­lion a year in cap­i­tal in­vest­ment plus $2.3 bil­lion in div­i­dends. Shares yield 5%. Hol­lub con­sid­ers the pay­outs—raised for 12 years straight—to be sa­cred and good for fis­cal dis­ci­pline, which makes Oxy a solid choice for any timid oil bull. “Just as the Per­mian Basin will be the last basin stand­ing, so Oc­ci­den­tal will be the last com­pany stand­ing.”

the mini-ma­jor: Ceo Vicki hol­lub says oxy will drill thou­sands of wells in West texas.

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