The Heir, Apparently : Energy: Unlike his predecessors, Occidental’s Ray Irani has stayed in Chairman Armand Hammer’s good graces. But he’s not a Hammer clone.

The president’s office at Occidental Petroleum Corp. has had so many occupants that the joke had been that it should have a revolving door.

Over the years, several ambitious executives arrived and were touted as heirs to Armand Hammer, the globe-trotting millionaire, Russophile, art collector and strong-willed chairman of Occidental. But each would eventually lose favor and depart, generally after public disagreements with the 91-year-old “Doctor.”

That is, until Ray R. Irani.

Irani, 55, the company’s president and chief operating officer, last month became the first man ever to be approved by the board to replace Hammer, should the chairman either die or retire.

How has Irani--described by acquaintances as brilliant, ambitious and plain-speaking--hung on where similar officers have failed?

“He was the type of person who recognized the problem some of us had with Dr. Hammer, and he just made up his mind, come hell or high water, to put up with him,” said one former executive who asked not to be named. “Ambition only goes so far, but Irani was willing to do it. I admire the guy’s patience; he lets Dr. Hammer take all the credit for everything.”

But that’s not the whole story, observers said. Dissident shareholders and others speculate that Irani is merely biding his time until he can assume control. They hope that he will redress what they argue have been excesses by Hammer that have hurt Occidental’s stock value and return to shareholders.

“Irani has his own mind on where the company should be going. That was my sense after meeting with him” in November, said Dale M. Hanson, chief executive of the California Public Employees’ Retirement System, a major Occidental shareholder. “But Dr. Hammer casts a long shadow, and I think (Irani) has to function as a lord in waiting.”

Publicly, Irani dismisses such characterizations. He has nothing but praise for his mentor and adds that he plans to continue in Hammer’s footsteps even after he takes charge.

“To speculate on what I might or might not do is very strange, particularly since Dr. Hammer and I work together very closely,” he said in an interview recently. “But to say there will be a dramatic change is incorrect.”

Irani is already managing the company’s day-to-day operations, while Hammer increasingly acts as the big thinker, charity worker and ambassador of goodwill, analysts and observers said. Recent visitors described the chairman as frail and thin, though the company maintains that he has been in excellent health since he had a pacemaker implanted in November.

“If there’s any work being done there, constructive work and something that brings the bacon back home, it’s being done by Irani,” the former executive said.

Hammer declined to be interviewed for this story.

Once Irani takes over, how much will he depart from Hammer’s lead? Analysts doubt that he will veer sharply from current strategies. But institutional shareholders confide that, even now, Irani does not always act on some of Hammer’s ideas for the company, though he listens to them.

Once he takes over, Irani may have to take a hard look at some of Occidental’s longtime holdings and policies, including its traditional dividend payout and high corporate debt level.

Analysts speculate, for example, that Irani may be tempted to sell Occidental’s remaining 51% share of IBP Inc., the Nebraska-based meatpacker and a company that appears to have little in common with Occidental’s core chemical and oil and gas businesses.

Irani said he has already turned down several offers for IBP and denied that he is thinking of selling, though analysts credit him with the idea of selling 49% of IBP to the public in 1988 in an offering that raised $960 million.

One of Irani’s major tasks once he takes over will be mollifying shareholders angered by Occidental’s involvement with the Armand Hammer Museum of Art and Cultural Center, intended to house Hammer’s art collection.

Occidental has committed $85 million to build and endow the museum, which is being built next to Occidental’s Westwood headquarters--a commitment that has generated shareholder lawsuits and spurred a proposal to form a shareholders’ rights committee under Occidental’s board at the company’s annual meeting in May.

One shareholders group called it the “20th Century equivalent of the pyramids for Dr. Hammer.”

The subject is so touchy that Irani refused to discuss it at all, except to say, “We’re comfortable with what we’re doing.” But Irani has shown a willingness to meet with Hanson, head of the California public employee group, and other shareholders to discuss the company in general terms.

Attending to Details

Irani stands to inherit a company that analysts have speculated is ripe for a takeover. The unusual announcement of Irani’s future succession was meant in part to calm a stock market that sent Occidental’s stock up sharply each time Hammer became ill, speculating that a corporate raider could step in should there be management turmoil in the event of Hammer’s death.

Whatever his plans, Irani has won praise for being more concerned with company operations and attending more to the details of running Occidental than was Hammer.

Analysts have said they also find him more down to earth than Hammer, who is known to favor the company of presidents and kings. Irani canceled a January visit with New York analysts so that he could be in Los Angeles when his 30-year-old daughter gave birth to a son, Irani’s first grandchild. (As it turned out, the baby was born a couple of days early, so Irani just missed the birth.)

Irani’s ultimate succession would complete a meteoric ascent that began in 1953, when he graduated with honors from American University in his home town of Beirut. He went on to earn a doctorate in physical chemistry from USC in 1957 at the age of 22, his official biography says.

In the next three decades, he rose quickly through the corporate hierarchies of such chemical companies as Monsanto Co., Diamond Shamrock Corp. and Olin Corp., ending up as president of Olin in 1980. Along the way, he racked up 50 U.S. and more than 100 foreign patents, published more than 50 technical articles and wrote a chemistry text.

“I think he was recognized as a young opportunist,” said Edward P. Lyons, who was Olin’s chief financial officer and vice chairman during Irani’s tenure. “He would either get to the top at Olin or get to the top somewhere else. He was destined by his ability, by his background and by his drive to achieve the top.”

Irani did not immediately respond to overtures from Hammer that he run Occidental’s chemical unit--not until Occidental’s board agreed to his salary demands. Irani had cash compensation of $2.125 million in 1988, according to the company’s 1989 proxy statement.

Irani’s abrupt departure from Olin in 1983 ruffled feathers there, Lyons said. When former Olin Chairman John M. Henske died recently, Irani did not attend the funeral.

“The chairman resented to a degree when Ray left and people left with him, so I would have been surprised if he had come,” Lyons said.

But co-workers recalled that Irani was a strong motivator of his staff, engendering such loyalty that several Olin managers, including Dale R. Laurance, followed him to Occidental. Laurance is now Occidental’s executive vice president for operations.

Close Relationship

At Occidental, Irani found himself in a position that had been previously occupied by other hard-driving, ambitious executives. After a honeymoon period, each had fallen out of favor with Hammer.

Former President Joseph Baird left after getting the blame for Occidental’s failure to acquire Mead Corp. Former President A. Robert Abboud departed after being caught in a battle for power between Hammer and director David Murdock. Former Vice Chairman Zoltan Merszei left after being passed over first by Abboud, then by Irani. All three men declined to comment for this story on their conflicts with Hammer.

Irani’s official designation as Hammer’s successor may result from Hammer’s recognition that he is getting on in years. But it may also be due in part to an unusually close working relationship between the two. “Dr. Hammer trusts him a great deal,” Laurance said.

Irani will inherit a company sculpted almost single-handedly by Hammer into an unorthodox combination of oil and gas assets, natural gas pipelines, chemical operations, coal and meatpacking. Unlike most large oil companies, Occidental chose not to get into refining and marketing, instead concentrating on chemicals.

Occidental’s net income has not broken records. It fell in 1989 to $285 million from $302 million the year before. Earnings would have been even lower if not for profitable asset sales and acquisitions, including after-tax gains from asset dispositions of about $49 million in 1989 and a gain of $190 million from a stock offering and asset sales in 1988.

Operating earnings were slightly up in 1989, to $1.39 billion from $1.38 billion. But that came mainly from chemicals. Earnings fell in every other operation, including oil and gas, natural gas pipelines, meatpacking and coal.

Even so, the company has maintained a high annual dividend since 1974. In 1989, it was $2.50, even though net income has not covered the dividend since 1984.

Irani and other Occidental officials defend the dividend, saying it is pegged to Occidental’s healthy cash flow. Irani said he has no plans to change the dividend policy, which wins the loyalty of the company’s shareholders, 64% of whom are small investors.

Occidental also maintains a high level of long-term debt, in part to dissuade raiders and in part reflecting Hammer’s willingness to pursue any deal that promises a good return. Irani admitted that reducing debt is a priority, but added--echoing Hammer--that Occidental will not be deterred from a profitable acquisition merely to avoid incurring more debt.

Still, in 1989 Occidental restructured its long-term debt, which stood at $8.153 billion at the end of last year, or more than half of total capital, which includes total debt, preferred stock and shareholders’ equity. The pay-back period was lengthened to take advantage of rising oil prices, and interest rates were lowered.

A problem for Occidental’s stock is that the company regularly issues new shares to generate cash, analysts said. In January, a successful offering of 23 million new shares raised $586 million to help reduce debt, but it swelled the number of outstanding shares to 293 million from about 100 million in 1984.

Ambitious Plans

Irani has ambitious plans to increase revenue and income in 1990. The company will boost capital spending by 7%, to $1.3 billion, with the greatest increases going to oil and gas exploration. That includes aggressive drilling programs in South America, Indonesia, Malaysia, Pakistan and China, as well as major redevelopment of the Piper Field in the North Sea off the coast of the United Kingdom, which the British government approved late last year.

Occidental has a 36.5% interest there. Production was halted by the June, 1988, explosion that destroyed the Piper Alpha platform.

Piper production is expected to resume in 1992. The company also plans to develop satellite fields near existing production facilities. A total of 275 million barrels of oil and condensate should be recovered from these North Sea fields, of which Occidental’s share will be about 100 million barrels, Irani said.

Occidental stands to profit as crude oil prices rise and because of certain tax breaks on new production from the North Sea. In 1989, Occidental said it replaced about 130% of its total worldwide production of oil and gas through new finds and acquisitions.

In the United States, Occidental completed a major restructuring of its domestic oil and gas operations, cutting 900 jobs and saving about $100 million a year. Occidental already has among the lowest costs of production in the oil industry, an average of about $3.15 per barrel in 1984-88, in contrast with an industry average of $5.58, according to John S. Herold Inc., an oil industry research firm in Greenwich, Conn.

On the chemical side, analysts expect earnings to fall in 1990.

Irani, a chemical engineer by training, gets credit for taking Occidental’s moribund chemical operation and transforming it into the company’s most profitable unit and the source of 76% of Occidental’s operating income.

“What Oxy had before was a checkerboard, a hodgepodge,” said Andrew Gray III, an industry analyst with the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. in Jersey City, N.J. “He got them to the starting point, which was the ethylene business, and filled in the gaps they had moving down the pipeline . . . integrating the company,” he said.

Irani’s experience as a chemical researcher and executive enabled him to recognize the value in unwanted chemical properties and to snap them up at bargain prices. He oversaw a series of canny acquisitions of chemical plants, assets and companies, culminating with the 1988 purchase of Cain Chemical for $2.2 billion.

As a result, Oxychem is now a leading U.S. producer of several high-value chemicals used to make everything from plastic pipe to antifreeze to garbage bags to wire coatings. Gray estimates the total worth of Occidental’s chemical operations at about $7.6 billion.

More important, Irani integrated Occidental’s chemical business, increasing its flexibility and enabling it to withstand the ups and downs of the market a little better than its competitors. When prices are bad, Occidental can use chemicals that it produces in its own plants; when prices are good, it can sell them on the open market. Many chemicals can be made with natural gas liquids from Occidental’s own oil and gas unit.

Occidental thus seems well positioned to ride out an expected slump in the chemical business in 1990, analysts said. Irani said capital spending in chemicals will remain flat at $330 million this year, which will go toward achieving an internal goal of reducing annual production costs by $100 million.

Despite the company’s plans, Irani--perhaps mindful of his predecessors’ fates--refused to compare himself to Hammer or take credit for the company’s accomplishments. “I have a very close relationship with him; he values my opinion and I value his, greatly,” he said.

And with modesty uncharacteristic of Hammer, he added: “You have a successful operation by having a number of people contribute.”

OCCIDENTAL PETROLEUM AT A GLANCE After-Tax Operating Income

In millions of dollars

Division 1991E 1990E 1989 1988(a) 1987 1986 Oil and gas $135 $120 $91(c) $210(b) $276 $348 Natural gas transmission 250 205 154 176 245 404(g) Chemicals 900 850 1,056 878 322(d) 133 Agriculture (e) 120 90 79 103 85 59 Coal 20 15 8 14 11 21 TOTAL 1,425 1,280 1,388 1,381 939(f) 965

E-estimate

(a) Includes Cain acquisition of May 2, 1988

(b) Includes $176-million gain from 25% sale of Colombian interests.

(c) Includes net gain from sale of Hartzog Draw Unit in Wyoming and $35-million after-tax charge for restructuring.

(d) Includes $127-million gain on the sale of processed chemical operations

(e) Occidental holds a 51% interest in IBP Inc., meatpackers.

(f) Includes $372-million gain from asset sales, including a 49% interest in IBP.

(g) Includes MidCon acquisition of February, 1986.

Source: Occidental; Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. (1990 and 1991 estimates)