For better or worse, the Anadarko deal will define Hollub’s legacy — and the trajectory of Occidental.
Second-biggest US oil takeover in history
It remains an open question whether Occidental truly won the war. Valued at $58 billion including debt, the Anadarko acquisition is the second-biggest takeover on record by a US oil-and-gas company, according to Dealogic. Any deal of that size is inherently risky.
Even supporters of the transaction have serious reservations.
“It will work out in the long run. But I wish they did not do it,” said Pavel Molchanov, an energy-industry analyst at Raymond James. “It caused too much damage to the stock and to the reputation of the company.”
Occidental’s stock fell 40% from the time the deal was announced through early December, and since then, has only just begun to recoup some of those losses.
“If oil prices collapse and stay low for five years, [the Anadarko buy] will look like a bad decision,” said Amy Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations. “But if oil prices stay here it will be a good decision, because size matters.”
Occidental insists it can weather the next oil storm because of its superior technology, which is highly regarded throughout the industry. The company’s proprietary drilling techniques allow it to pump oil more cheaply than its rivals.
A potential hidden ‘pot of gold’
Occidental believes there is substantial value in Anadarko that others, including Chevron, weren’t willing to pay up for.
“Vicki and her team saw an enormous pot of gold in the middle of Anadarko’s assets that Wall Street analysts didn’t see,” said Julio Friedmann, senior research scholar at the Center for Global Energy Policy at Columbia University, adding that the hidden value is likely in the Permian Basin. “That pot of gold will either be there or not.”
Friedmann said Occidental’s “track record in excellence,” including low-drilling costs and top-tier efficiencies, will make this deal a winner.
“She sees value in the rocks,” he said. “I would be reluctant to bet against them.”
Sexism in criticism?
Jaffe, the CFR fellow, suggested there is an element of sexism in the criticism of Hollub.
“In my heart I believe this is an industry where risk-taking is rewarded,” said Jaffe. “If she was T. Boone Pickens, we would all be praising his risk-taking.”
Hollub, who in April 2016 became the first woman to be CEO of a major oil company, has acknowledged the difficulty of breaking into a male-dominated industry. But Hollub’s passion for college football helped her make inroads, she said.
“I knew just about every statistic there was for any time playing in the SEC,” Hollub said during a conference in April, referring to the Southeastern Conference in which her alma mater, the University of Alabama, plays. “I had a way of talking to and connecting to the men.”
Nonetheless, analysts and institutional shareholders have shared Icahn’s criticism of the deal with Buffett, who has a long history of extracting a high price for his endorsement.
“It was expensive. Nothing Warren Buffett does come cheap. We’ve known that for a long time,” said Molchanov, the Raymond James analyst.
The burden of debt
“Our concern is that the financial flexibility of this company is now somewhat compromised by the amount of debt that was incurred,” Andrew Brooks, vice president at Moody’s. “They’ve got to address the debt levels.”
Hollub has not ignored these concerns.
And this week Occidental said it has determined that layoffs are “necessary” to hit the financial goals it set in the Anadarko deal. Occidental did not say how many jobs will be cut.
“That’s a pretty unprecedented move,” said Brooks, vice president at Moody’s. “Debt reduction is paramount.”
It will take years to deliver the final verdict on the Anadarko deal—and Hollub’s legacy. Even then, it won’t be decided by the likes of Icahn or Wall Street analysts, but by the whims of the notoriously boom-to-bust oil market.
Source : CNN