Occidental Petroleum Corporation

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Occidental Petroleum Corporation

10889 Wilshire Boulevard
Los Angles, California 90024
U.S.A.
(213) 208-8800
Fax: (213) 208-5701

Public Company
Incorporated: 1920
Employees: 55,000
Sales: $21.69 billion
Stock Exchanges: New York Pacific Amsterdam Antwerp Basel Brussels Dusseldorf Frankfurt Geneva Hamburg London Tokyo Toronto Zürich

Occidental Petroleum (Oxy) is in the fuels, chemicals, and fresh-meat business. It engages in exploration, exploitation, transmission, and sales of oil, natural gas, and coal, and the production and sales of certain by-products for these fuels. Increasingly the lions share of its earnings come from chemicals.

Occidental supplies large volumes of raw materials for industrial use, such as polymers, plastics, and detergents, as well as agricultural chemicals, such as phosphates and phosphoric acids. The company processes pork and beef and sells both carcasses and boxed products; it also processes and sells by-products of such meat.

Occidental Petroleum was founded in 1920 in California. Its early years as an oil-finding entity were largely undistinguished, with the company almost bankrupt by the mid-1950s. It was Occidental Petroleum’s early difficulties that laid the groundwork for its later success. In 1956 Occidental Petroleum came to the attention of Armand Hammer, a millionaire who was well-known for his savvy and success in dealing with the Soviet Union in the 1920s. In 1921 Hammer had met Vladimir Lenin, the leader of the Russian Revolution, and had become the first U.S. businessman to establish ties with the Soviet Union. Among other enterprises, Hammer had operated an asbestos mine, imported grain, and manufactured pencils. While in Moscow, he had purchased Russian art treasures at bargain prices, later reselling many art objects in the United States at considerable profit.

In 1956 Hammer and his wife Frances each invested $50,000 in two oil wells that Occidental planned to drill in California. When both wells struck oil, Hammer, nearly 60, took an active interest in further Occidental oil exploration.

At Hammer’s first association with Occidental, it was run by president Dave Harris and by Roy Roberts and John Sullivan. Hammer’s increased involvement, his strong personality, and his ability to raise money for oil drilling propelled him more and more into the limelight. By July 1957 Hammer was president.

Hammer’s influence played a key role in the development of Occidental. As Steve Weinberg wrote in Armand Hammer: The Untold Story, ”Few Fortune 500 corporations have come so totally under the sway of one person, especially one who owned such a tiny percentage of stock.”

From his earliest days as president of Occidental, one of Hammer’s overriding drives was for Oxy to diversify. In his autobiography, Hammer reported that a prime rationale for diversifying was to make Oxy too big for the other major oil companies to take over. Acquisitions included energy and chemical companies and meat-producing operations.

At the time Hammer became involved with Occidental, it was listed on very small stock exchanges on the West Coast, but within several years, Oxy was on the American Stock Exchange, boosted by the 1959 Hammer-led acquisition of Gene Reid Drilling Company of Bakersfield, California. This acquisition was to prove fortuitous for the growth of Occidental. Hammer attracted Reid, an engineer, and his son Bud, a geologist, to the cash-poor Occidental by offering them shares of the company. Hammer was to use the stock strategy to attract talent in other acquisitions as well.

In 1961 while working with Occidental employees Richard Vaughn, Robert Teitsworth, and the Reids, Hammer took a chance on drilling the Lathrop field, near San Francisco. It had been drilled previously for natural gas by Texaco and other companies, but only to a depth of about 5,600 feet. Reid and the others suggested that there was gas farther down, and at 6,900 feet they were proved right. Occidental made one of the largest gas finds in California. Overnight, the company found gas worth hundreds of millions of dollars.

By the end of 1961, Occidental had a $1 million profit on revenues of over $4 million. Continued success in natural gas, and oil finds increased the fortune and reputation of the company. By March 1964 Oxy’s shares were trading on the New York Stock Exchange.

Through the mid-1960s, Hammer moved Oxy more and more to an international position. It built, for example, a superphosphoric-acid plant in England and helped build a $33 million ammonia and urea plant in Saudi Arabia. Oxy also had dealings with other countries, among them Nicaragua, Venezuela, Morocco, and Turkey.

Throughout the 1960s, Hammer kept up negotiations with Libya’s King Idris for the use of Libya’s natural resources. This persistence was to pay off handsomely. In 1966 Oxy’s potential skyrocketed, with a billion-barrel oil field find in Libya. The find was “vintage” Hammer, as he wined and dined important Libyan officials, and then took a risk on land previously drilled by others. The Libyan oil finds established Oxy as one of the largest petroleum companies in the world. From early 1967 until November of that same year, Oxy’s stock doubled in value to more than $100 a share.

Hammer’s skills as a negotiator were put to the test when the Libyan king was overthrown in a bloodless coup in 1969 and replaced by the Revolutionary Command Council, soon to be headed by Moammar Khadafi. Many analysts feared the new government would nationalize the oil fields; however, Hammer negotiated in late 1970 an agreement by which Libya received an immediate increase of 30C per barrel of oil, with another 10C increase spread over five years. Some oil observers viewed this agreement as the beginning of the end of cheap energy. Other multinational oil companies quickly signed similar agreements with their host countries. Most petroleum-producing countries called for matching increases, and oil prices headed upward.

In the early 1970s, Hammer caused a sensation with a $20 billion long-term deal with the Soviets that featured a barter agreement by which Oxy would supply phosphate fertilizer to the USSR in exchange for Soviet ammonia and urea. Many in the U.S. government criticized the deal, saying the agreement helped a communist country, despite the fact that the deal was consummated during a period of dètente between the United States and the Soviet Union. Hammer, in fact, considered his dealings as dètente through trade. Hammer continued this notion of dètente through trade with the Chinese, with whom in 1979 he began negotiating. Oxy ended up with two offshore oil exploration and development contracts and a joint agreement to develop a Chinese coal mine.

In 1981 Oxy moved completely away from the energy and chemical fields to acquire Iowa Beef Packers (IBP), the largest meatpacker in the United States. IBP cost Oxy $750 million in stock and proved to be a sound investment. In 1987 Oxy sold 49.5% of IBP to the public for $960 million. The United Food and Commercial Workers Union maintained, however, that while these profits were being generated, Oxy management was unconcerned with workers at the packing plants, at which there were numerous union strikes over pay and working conditions.

In 1982 Hammer engineered Oxy’s $4 billion acquisition of Cities Service Company, a huge domestic oil company headquartered in Oklahoma. The act was scoffed at by investment bankers who, as reported in Hammer’s autobiography, Hammer, took the stance, “This is like Jonah trying to swallow the whale.” The deal made Occidental the eighth-largest oil company in the United States and the country’s twelfth-largest industrial concern. One of Hammer’s first steps after the acquisition was to sell off Cities Service units he felt Occidental did not need, resulting in about $1 billion in revenue for Oxy. Other steps were not so popular. Some 16,000 jobs were lost as the Cities Service work force dropped 80%.

In late 1985 Hammer made another multi-billion dollar transaction, acquiring Midcon, the huge domestic natural-gas pipeline company, for $3 billion. Shortly after the acquisition the natural-gas industry was deregulated. Occidental was hurt. The industry, as a whole, suffered from strong competition because of deregulation.

In a reorganization move in May 1986, Occidental Petroleum Corporation, of California, became a wholly owned subsidiary of the parent company. Corporate headquarters remained in Los Angeles.

The most successful of Oxy’s operations during the mid-to-late 1980s was its chemical branch, Occidental Chemical (Oxychem). The chemical operations were built largely through the acquisitions of other companies. Occidental purchased holdings from Diamond Shamrock Chemicals in 1986, and from Du Pont and Shell Chemical in 1987, among others. In the five years, from 1983 through 1987, Oxychem almost doubled its sales to nearly $3 billion. According to J. Roger Hirl, president and chief operating officer of Oxychem, as reported in Chemical & Engineering News, May 2, 1988, Oxy moved into the chemical industry as a balance to its petroleum business. While noting the cyclical nature of both the petroleum and chemical industries, Hirl said they normally were not in parallel cycles.

In 1988 Occidental, spending $2.2 billion to purchase Cain Chemical, moved up to sixth-largest U.S. chemical producer, with sales accounting for almost 25% of Oxy’s total. Cain Chemical became Oxy Petrochemicals Inc.

In February 1988 Oxy was found liable for cleaning up the toxic wastes at the United States’s most infamous landfill, Love Canal in Niagara Falls, New York. After eight years of deliberations, a federal judge ruled that Occidental was responsible for the improper disposal by Hooker Chemical of more than 21,000 tons of chemicals on the site, during the 1940s and 1950s. Occidental had purchased Hooker Chemical in 1968, unaware of the problems that began to surface in 1978. Before the ruling, Oxy had paid $20 million in damages to 1,300 former Love Canal residents, but nothing toward the cleanup of the site. Total cleanup costs were expected to exceed $100 million, and final settlement was pending in 1990.

In July 1988 Oxy was hit by a disaster unequaled in oil production history. The company’s Piper Alpha offshore oil platform exploded in Britain’s North Sea, killing 167 people. The accident panicked the oil market, already made nervous by the continuing Iran-Iraq War. Oil prices were driven up immediately after the accident by as much as $1 a barrel. The accident was thought to be caused by a leak in a pressurized natural-gas line that triggered the massive explosion. Occidental immediately shut down the pipeline that served the platform and five others. In August 1989 Oxy resumed North Sea production. The accident was estimated to have cost over $1 billion, including an approximately $183 million settlement with families of the victims and surviving workers.

During 1989 Oxy restructured its domestic oil and gas operations, which resulted in the loss of 900 jobs, the majority from the Oxy Oil and Gas subsidiary’s headquarters in Tulsa, Oklahoma. For the year 1989 however, Oxy reported an overall increase of about 1,000 workers, due primarily to expansion at IBP and Oxychem.

Hammer’s decisions have not always pleased stockholders. One such circumstance centered around Occidental’s funding of a $95 million museum to house Hammer’s valuable painting collection. The collection was worth an estimated $250 million. Many shareholders did not see the expense of building and operating a museum as serving the best financial interest of the company. The disagreement ended in the courts, in 1990, and although the Armand Hammer Museum of Art and Cultural Center would be built as planned alongside Occidental’s corporate headquarters in Los Angles, the proposed settlement called for limits on the amount of future contributions by Occidental to the museum and to other charities associated with Hammer.

Throughout his career Hammer had been able to attract talented people to Occidental. Nowhere was this more evident than with Ray Irani, the president and chief operating officer during Hammer’s last years at Occidental. In 1983 Hammer had convinced Irani, the president of Olin Corporation, to run Oxychem. When Irani took over, Oxychem had an operating loss of $23 million and supplied about 9% of Occidental’s total sales. In 1989 Oxychem had an operating profit of $1.2 billion and supplied about one-quarter of Oxy’s total sales. In February 1990, the board of directors of Occidental designated Irani as the successor to Armand Hammer as chairman and chief executive officer, when Hammer would cease to hold those positions.

Occidental’s 1989 annual report pointed to 94% of its revenues coming from domestic operations compared to 55% from the same source in 1980. The 1989 report said that this trend toward domestic operations should continue. Oxy may, however, continue to be involved in large foreign operations. In June 1990, for example, Oxy was the only U.S. company in a four-country agreement to build a $7 billion petrochemical plant in the Soviet Union, the largest-ever joint Soviet-Western project.

When Armand Hammer died at the age of 92 on December 10, 1990, the changeover in command at the top was expected: Ray Irani, president and chief executive officer under Hammer for six years, took over as chairman of the board. The rapid pace of change at Occidental was not entirely expected. Within a few weeks, Irani instituted a restructuring plan that largely abandoned many of Hammer’s policies. For example, Irani decided to cancel Occidental’s billion-dollar petrochemical deal with the Soviet Union. He also announced that Oxy’s 51% stake in IBP, Inc. was for sale. Perhaps most importantly, Irani outlined a strategy to reduce the company’s debt load by 40%, or $3 billion, by 1992. The strategy called for selling assets like IBP, Inc., but also included slashing stockholder dividends to $1 a share from $2.50.

Reaction from the business community seemed supportive. Standard & Poor’s Corporation raised its ratings on about $8.8 billion of the company’s debt, and the stock price seemed headed upward. Although Armand Hammer ran Occidental as his own for many years, Oxy appeared ready to enter a new era under the direction of Ray Irani.

Principal Subsidiaries

Occidental Oil and Gas Corporation; OXY USA Inc.; Occidental International Exploration and Production Company; Occidental Crude Sales, Inc.; MidCon Corporation; Occidental Chemical Corporation; Oxy Petrochemicals Inc.; IBP Inc.; Island Creek Corporation; Occidental International Corporation; Canadian Occidental Petroleum Ltd.