Stock spotlight: Occidental Petroleum seeks stability at the top
The nation’s fourth biggest oil company, Occidental Petroleum Corp., is primarily involved in oil and natural gas exploration and production. It is also a major manufacturer of oil-related chemicals.
The Westwood company said its domestic production of oil and natural gas rose to the equivalent of 475,000 barrels of oil a day at the end of 2012, setting a record for the ninth straight quarter.
But Occidental’s stock performance hasn’t been as good as that of others in the industry. And investor activism has been on the rise.
For Occidental shareholders, executive compensation and succession plans have been an issue for at least three years. The question of who will run the company continues to roil shareholders.
The latest
There have been rumors of a power struggle between Executive Chairman Ray R. Irani and Chief Executive Stephen I. Chazen.
In the wake of a February announcement that the board was seeking a successor to Chazen, Irani was reported by the Wall Street Journal to be trying to push out Chazen in favor of a former Occidental executive. Irani was said to be disturbed by Occidental’s stock price and miffed that he had to relinquish the CEO job in 2011 after shareholder revolt over his lofty compensation.
Last week, the company’s board of directors sought to do some damage control, saying that Irani, 78, was playing no role in succession plans and would be retiring in 2014.
The board added that it had begun the search for a replacement for Chazen, 66, because of the need for long-term succession plans during challenging times for Occidental, including disappointing stock performance.
But that seemed to have done little to settle matters. Amid talk of a proxy fight, some shareholders, including Matrix Asset Advisors Inc., aren’t happy.
“As investors with a long-term approach, we want to convey to the board our strong support for Stephen Chazen remaining as CEO,” the New York investment group said in a letter to the board. “In our opinion, Mr. Chazen is one of the top CEOs in the oil industry.”
Accomplishments
In terms of oil production, Occidental tends to go where many other oil companies have gone before: old oil fields. The company extracts more crude from those locations than anyone thought possible.
Long after the world’s biggest oil companies largely abandoned the 48 contiguous states, thinking them played out and less economical than oil fields in the Middle East and other parts of the world, Occidental not only remained in the U.S., it expanded.
One of its acquisitions included the Bakken oil formation in North Dakota. North Dakota has become the nation’s second-biggest oil producing state, behind Texas.
With proven reserves of nearly 3.3 billion barrels of oil in 2012, and nearly 2.27 billion of them in the U.S., Occidental has become the largest domestic crude producer.
Challenges
Occidental remains unusual for its lack of a succession plan for top executives that most other industry players consider essential.
In 2011, British oil giant BP, for example, facing record fines after a fatal accident and major oil spill involving the Deepwater Horizon drilling rig, had four top executives that it had been grooming for years when it replaced Chief Executive Tony Hayward.
Another problem: Costs have been rising, which analysts say has helped depress the stock price. Chazen’s moves to boost production, the board acknowledged last week, “led to some execution inefficiencies, resulting in increases in operating and capital costs.”
In addition, oil prices haven’t been rising, which hurts Occidental’s earnings.
Analyst opinions
Six analysts rate Occidental as a strong buy. Ten rate it as a buy. Eight are telling investors to hold. None had it listed as underperform or sell.
