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How a CEO Rescued a Big Bet on Big Oil

Source: How a CEO Rescued a Big Bet on Big Oil; ‘There Were a Lot of Doubters’ – WSJ

Occidental Petroleum Corp. OXY 1.75% entered the thick of the pandemic among the worst prepared of its U.S. oil-and-gas peers. Struggling with debt from an ill-timed $38 billion deal, Chief Executive Vicki Hollub was fending off activist investor Carl Icahn, who controlled two board seats.

Two years later, the company has emerged as the top performer in the S&P 500, and Ms. Hollub has traded Mr. Icahn, who sold all of his Occidental shares in March, for Warren Buffett, whose Berkshire Hathaway Inc. BRK.B 0.86% now owns nearly 27% of the company.

It was touch and go for a time. Months before the pandemic took hold, she implemented widespread layoffs. To stave off bankruptcy after oil prices collapsed in 2020, she slashed spending and nearly eliminated Occidental’s once-sacrosanct dividend—“the biggest and toughest decision that I made and I’ve ever made in my career,” she said in an interview.

Her 2019 acquisition of rival Anadarko Petroleum Corp., which Mr. Icahn called a “disaster,” has given Occidental the dominant position in the largest U.S. shale-oil field, the Permian Basin. Lifted by climbing oil prices, Occidental generated a record $4.35 billion in free cash flow and $3.7 billion in profit in the second quarter. It has cut its debt to $22 billion from nearly $36 billion a year ago.

Shareholders initially punished Occidental for the Anadarko purchase, although the comeback in oil prices has since helped lift the company’s stock.

Oil-and-gas producers have reported banner profits this year, even as a global energy crisis sparked by Russia’s invasion of Ukraine has threatened to derail European industries, left the U.K. facing its worst economic crisis since the 1970s and forced the Netherlands, Germany and India to rely heavily on coal to make up for a dearth of natural gas.

But Ms. Hollub, the first woman to be CEO of a major U.S. oil company, says she doesn’t feel vindicated. “I just feel relief,” she said. “There were a lot of doubters.”

Mr. Buffett has publicly lauded Ms. Hollub’s leadership. After she detailed the company’s future plans for analysts in February, Mr. Buffett told his own shareholders, “What Vicki Hollub was saying made nothing but sense.” Last month, Berkshire received regulatory approval to buy up to 50% of the oil company’s shares, spurring speculation it might seek to purchase all of Occidental.

On Friday, the conglomerate reported it has bumped its stake in Occidental to 26.8% from a little over 20%, according to regulatory filings.

Mr. Buffett declined to comment for this story. Ms. Hollub said she has “tremendous respect” for Mr. Buffett, adding that “he will be very beneficial for us as we go forward.” She declined to discuss the possibility of Berkshire purchasing the entire company.

Some former investors remain skeptical, saying a spike in oil prices has rescued the company, not Ms. Hollub.

“I have nothing personal against Vicki,” Mr. Icahn said in an interview. “However, that will never change my mind that she should not have made a bet-the-company investment by way of overpaying for Anadarko.”

A University of Alabama graduate, Ms. Hollub joined Occidental in 1982 and soon found herself running operations in Russia and Venezuela. She almost got laid off in 2003, but Todd Stevens, an executive at the company who had followed her rise, arranged for her to lead a team evaluating acreage in Colorado, said Mr. Stevens, who has since left.

Equipment used to process carbon dioxide, crude oil and water at an Occidental Petroleum project in Hobbs, N.M.Photo: Ernest Scheyder/REUTERS

Ms. Hollub became known as a hard worker, once spending three weeks straightening out operations at a new gas field’s first well, said Donnie Enns, a former geophysicist who worked under her. “Nobody worked harder than Vicki,” he said. She also found time to run an office March Madness basketball pool.

After being named CEO of the company in 2016, Ms. Hollub departed from her predecessor’s preference for low-risk, “bolt-on” transactions. A little over a year into the job, she started courting Anadarko, an oil producer of comparable size, for a deal.

She outflanked larger Chevron Corp. in a bidding war that riveted the oil patch, offering $5 billion more than her rival for Anadarko and its prized assets in the epicenter of U.S. shale production. Yet victory came at a steep cost.

Some of Occidental’s largest shareholders decried the deal—especially a pricey loan from Mr. Buffett in the form of $10 billion in preferred stock paying 8% annually in dividends, or $800 million. Ms. Hollub negotiated the funding at the eleventh hour after meeting with the financier in Omaha, Neb. Mr. Icahn, who first bought stock as the Anadarko bidding war came to a close, wrote to Occidental shareholders that “Buffett figuratively took her to the cleaners.”

Ms. Hollub acknowledged the deal damaged the company’s standing with some investors. “I was never offended at the fact that our shareholders were skeptical,” she said.

Vicki Hollub said she never doubted the wisdom of the Anadarko acquisition.Photo: Angela Owens/The Wall Street Journal

But she said she never doubted the wisdom of the acquisition, even after it sparked an investor revolt that created an opportunity for Mr. Icahn.

Central to Ms. Hollub’s strategy was building on Occidental’s already-large position in the oil-rich Permian of West Texas and New Mexico. She believed purchasing and drilling a huge swath of new acreage, much of it near the company’s existing assets, would give Occidental economies of scale and allow it to outperform Permian rivals. Occidental, she said, was one of the most technologically advanced drillers in the field; it would turn Anadarko’s undeveloped assets into oil-gushing wells.

By the end of 2019, the oil producer said it was making progress on its merger goals. It had divested itself of more than $6 billion in assets, including stakes in a liquefied natural gas export project in Mozambique and in a Houston-based pipeline company. Occidental recorded single-day and monthly production records in the Permian and other oil fields. Occidental announced its 182nd consecutive quarterly dividend, which Ms. Hollub noted at the time that “few other companies can claim.”

Ms. Hollub believed the merger was on track, but investors remained skeptical. From the time of Occidental’s counteroffer for Anadarko in April 2019 to February 2020 Occidental’s stock fell around 35%. Then the global pandemic took hold.

As billions of people around the world began to lock down, demand for oil plummeted. In the spring, oil prices reached historic lows, briefly turning negative for the first time ever as traders paid counterparties to take oil off their hands. Falling demand for their product hammered oil-and-gas companies, forcing dozens into bankruptcy.

Every day, Ms. Hollub would drive to Occidental’s Houston offices in her red Jeep Wrangler, said Glenn Vangolen, a former senior vice president at Occidental and close adviser to the CEO. Mondays and Fridays, she and her lieutenants would mask up and gather in a conference room to discuss operations. Her office was spartan—a mostly bare room, except for a TV playing business news on mute, and a plush stuffed version of a costumed elephant, the Alabama Crimson Tide’s mascot, Mr. Vangolen said.

Occidental was in a worse situation than many of its peers: At the end of 2019, its long-term debt of about $39 billion was equivalent to roughly four times its earnings, excluding interest, taxes and other accounting items, quadruple the ratio from a year earlier, S&P Capital IQ data show. The divestitures it had planned on to pay it down were no longer viable as assets were losing value.

Ms. Hollub said that Occidental made a lot of the difficult decisions before the pandemic to mitigate the downside risks of the Anadarko acquisition, including hedging a portion of its oil production and bumping its line of credit to $5 billion. But the company still faced painful months ahead as it had barely enough cash on hand to meet debt maturities coming due in 2021 and was later forced to hire restructuring advisers.

Ms. Hollub moved to cut her executives’ salaries—including her own by 81%—offer employees voluntary buy-outs, slash expenses in the oil patch and cancel employee perks. She also cut the dividend, which rankled investors.

Mr. Icahn amplified his calls for Ms. Hollub’s ouster and said he would seek to replace the entire board of directors at the company’s annual meeting. As the oil producer’s stock plunged to under $10 from around $45 before the pandemic, Mr. Icahn—facing paper losses of about $1 billion—doubled down on his shares, boosting his stake to roughly 10% from about 2%.

After a price war between Russia and Saudi Arabia caused oil prices to plunge below $25 a barrel in March, Occidental reached a settlement with Mr. Icahn. The deal gave board seats to two of his deputies and added another director, required Occidental to create an oversight committee that must be informed of any offers to acquire the company or its assets, and replaced the board chairman with Stephen Chazen, Ms. Hollub’s predecessor as CEO.

Mr. Icahn’s camp pushed for Occidental to give its shareholders warrants that could allow them to buy discounted shares in the future. After he prevailed, Mr. Icahn received roughly 11 million warrants initially and bought more when they were worth around $3.

Mr. Vangolen said Mr. Icahn’s demand for warrants was part of the investor’s “raider playbook,” which he described as “trying to extract as much cash out of the business as you can before you bail.”

Mr. Icahn said that all the shareholders who rode the stock down deserved something for their loyalty.

As the pandemic dragged on, Occidental logged a roughly $14.8 billion loss for 2020, its largest on record, according to S&P Capital IQ data. Still, it continued to whittle down its mammoth debt, closing around $2.5 billion in asset sales at the end of 2020. Anadarko’s assets, meanwhile, were starting to shine, with production in the Permian reaching the high end of company estimates.

Even as Ms. Hollub wrestled with Mr. Icahn, she was building a relationship with Mr. Buffett.

In 2020, she traveled to Omaha to discuss Occidental’s long-term strategy with Mr. Buffett, according to a person familiar with the meeting. The investor expressed a strong interest in the company’s goal to become a leader in carbon capture, this person said.

Occidental says it has no plans to stop producing oil but also aims to be a leader in “carbon management.” It wants to develop 70 plants by 2035 to suck carbon dioxide out of the air, store it in the ground and sell carbon credits to businesses seeking to offset their own emissions—a technology still in its commercial infancy that received a boost thanks to tax credits included in the climate package President Biden signed into law last month. The company also plans to use the gas to squeeze more oil from underground.

Then, in late February of this year, Russia invaded Ukraine.

The war propelled oil prices to their highest level in years, with Brent crude oil topping $120 in March, translating into a windfall for oil companies. In the first quarter of the year, Occidental made roughly $4.9 billion in profit, its highest quarterly earnings on record, according to S&P Capital IQ.

The company now holds the most acreage across the Permian, with leases covering about 2.8 million net acres, according to data firm Enverus. Its domestic oil output in the second quarter of this year was up roughly 80% compared with before it acquired Anadarko, Occidental reported.

As Occidental’s stock rose above $50 a share in March, Mr. Icahn sold his common stake. The investor’s two representatives on Occidental’s board also resigned, as was required by the settlement agreement. Mr. Icahn made over $1.5 billion on his investment and still holds some warrants, according to public filings and people familiar with the matter.

As Mr. Icahn got out of the stock, Mr. Buffett bought in. In May, Berkshire reported it had purchased roughly $8 billion worth of shares.

Mr. Icahn said that Mr. Buffett’s investment could be ill-timed. “I respect Buffett a lot but I think buying this stock at this level is obviously not like buying warrants at $3,” he said. “I made a great deal of money on my investment in Occidental, especially with the warrants, and activism worked in that regard,” he said.

Ms. Hollub and Mr. Buffett have developed a personal relationship and the two talk periodically, said Mr. Vangolen. Ms. Hollub said in an interview she had no personal relationship with Mr. Icahn when he was an investor, and that he turned out not to be the kind of long-term shareholder the company prizes.

Mr. Icahn’s retort: “She came very close to not being a long-term shareholder also, because her ill-timed investment put the company on the brink of bankruptcy.”

Akane Otani contributed to this article.

Write to Benoît Morenne at benoit.morenne@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

Appeared in the September 10, 2022, print edition as ‘A CEO’s Big Bet On Big Oil Pays Off’.

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A passenger with an $11,000 ticket to Europe says Air Canada ‘begged’ 25 people to get off the plane because it was too heavy to take off. Then they lost his bag.

Business Insider, 7/13/22: A passenger with an $11,000 ticket to Europe says Air Canada ‘begged’ 25 people to get off the plane because it was too heavy to take off. Then they lost his bag.

  • An Air Canada passenger flying to Europe had his flights delayed 10 times on Saturday.
  • On one of the flights, 25 passengers had to deboard because it was “too heavy” to take off, he said.
  • The airline also lost his luggage, forcing him to spend over $4,500 on replacement items, he said.

Even a senior manager at a global travel logistics company can’t escape this summer’s airport chaos: The man, who’s based in the Western US, told Insider his 21-hour trip to Europe last weekend was the “worst experience flying” he’s ever had — complete with nearly a dozen flight delays and a lost suitcase.

“I travel a ton for work and I think I’m above average for forgiving airline trouble,” he told Insider.

Flight receipts and email notifications reviewed by Insider show Air Canada delayed the passenger’s flights a total of 10 times during the three-legged journey and lost his baggage along the way.

The passenger, who was traveling to a business conference, told Insider he has not received compensation for the flight and spent more than $4,500 on replacement items and clothes. He spoke on condition of anonymity because his employer — who purchased his ticket — does not allow its staff to talk to the media, but his identity is known to Insider, which also reviewed his travel documents. His final destination is being withheld to protect his identity.

The trouble began in Denver, which reached a record-breaking 100 degrees that day. Extreme heat makes it harder for fully-loaded planes to take off, especially at higher altitudes.

After passengers and their luggage were fully boarded onto the plane, he said crew members “begged” 25 people to switch their flights at the last minute because the aircraft was too heavy to take off, even with all the carry-on luggage removed.

The flight’s crew members were “super nice,” but worked for a third-party service, with one saying she was “quitting after today,” the passenger told Insider. Eventually, a large group traveling on vacation together volunteered to switch their flights without any compensation, he said.

Flight notifications viewed by Insider show the flight from Denver landed in Montréal, Canada, at around 10 p.m., where the passenger said there was no ground crew to taxi the plane to the gate. This caused passengers to wait an additional “two hours sitting on the tarmac,” he told Insider.

At the gate, the passenger said he was told there were no more flights to his final destination, meaning he would have to spend the night at a hotel in Canada.

Airline staff informed him he would not be compensated for the flight or hotel “because it was a weather-related issue in Denver that caused the delay,” despite the two hours the plane spent on the tarmac, he told Insider.

Fortunately, a 10 p.m. flight to Europe had also been severely delayed due to “pilot-scheduling issues,” he said, allowing him to catch that flight. Once he arrived at his final destination on Sunday morning, he said he was notified that his bag was still in Montréal.

After waiting for approximately an hour and a half for his suitcase to arrive, airport staff told him they were actually unsure of his bag’s location, the passenger told Insider. Two days later, he says he still has no luggage.

About 65% of Air Canada flights were delayed on Friday and Saturday, as Bloomberg reported Monday. On Sunday, 70% were delayed — more than any other airline that day, according to Flight Aware.

When contacted by Insider, Air Canada said it deals with customers “directly,” and that airlines are “currently challenged due to issues with airports and third-party providers of such services as passenger screening, customs, and air navigation.”

“We are working hard with these partners and governments to resolve these issues as they are affecting the performance of airlines,” the spokesperson added.

The passenger’s 21 hours of travel chaos represents nearly every issue plaguing the airline industry today: labor shortages, extreme weather, third-party provider snags, and missing luggage — plus the inescapable technical snafu.

At the most basic level, the industry is facing an imbalance in its supply (of workers) and consumer’s demand (for travel). This post-pandemic mismatch has led to a summer riddled with flight disruptions, resulting in both frustrated passengers and burnt-out airline workers.

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For White-Collar Workers, It’s Prime Time to Get a Big Raise

WSJ, By Sarah Chaney Cambon, 2/21/2022

White-collar professionals are reaping big pay gains as worker bargaining power spreads across the U.S. economy and shows early signs of durability.

Wall Street banks are boosting compensation for employees. Consumer lenders are seeing their biggest pay bumps in more than a decade. Legal firms are raising wages aggressively as burned-out workers flee the industry.

Pay for finance, information and professional employees rose 4.4% in January from a year earlier, outpacing 4% wage growth for all workers, according to the Atlanta Fed’s wage tracker.

Workers in higher-wage sectors experienced the fastest month-over-month earnings growth in January, Labor Department data showed. Wages in the professional and business services sector—which includes jobs in management, law and engineering—rose 0.8% in January from a month earlier. That was well above a 0.1% wage increase in leisure and hospitality.

“For most of last year, wage growth was really strong for lots of low-wage workers,” said Nick Bunker, economist at jobs site Indeed. “Now, the overall labor market is just tighter and that is boosting the bargaining power of the rest of the workforce.”

Workers like Andrew Eberle are benefiting. Mr. Eberle, 30 years old, started a remote business analyst job in the Phoenix area in mid-2020, shortly before he graduated from a master’s degree program in analytics. He said he enjoyed that position but was spending a lot of time refreshing Excel charts; he wanted a position where he could more deeply analyze and visualize data.

Such an opportunity came last year as more companies shifted to longer-term remote work because of the pandemic. Mr. Eberle took a remote job as a business analyst for a California-based company in a role that boosted his salary to $80,000, a big step up from his previous pay of about $67,000.

“I feel like everything happened at the right time for me and where I was going,” the Chandler, Ariz., resident said. In his new position, Mr. Eberle analyzes contract-worker compensation data for big companies.

The pandemic economy isn’t all good news for workers. Annual inflation is running above 7%, the highest in 40 years, meaning rising prices are wiping out wage gains for many. Workers could start to see their extra dollars go further if inflation cools while wage growth remains elevated.

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Pay is rising, in part, because companies can’t find enough workers. The supply of labor shrank at the onset of Covid-19. It remains depressed because of an acceleration in retirements and millions of people sitting on the sidelines due to child-care issues, Covid-19 illnesses and burnout.

Many workers in the law industry, burned out from 90-hour weeks and holiday hours, left during the pandemic, said Chere Estrin, who runs a legal staffing firm.

A lot of law firms “are in a panic because they can’t get people to do the work,” Ms. Estrin said. “I have never seen anything like this.”

Chere Estrin, who runs a legal staffing firm, said many law firms are unable to find people to fill certain in-demand roles.

Some specialized workers, such as corporate paralegals, are in particularly short supply, in part because schools aren’t churning out enough graduates for certain in-demand roles, she said. As a result, some corporate paralegals can now demand nearly as much pay as an associate lawyer. Ms. Estrin is helping fill a senior corporate paralegal role for up to $195,000 a year, plus overtime, a hiring bonus and a year-end bonus—a higher rate than she has ever seen.

“They could come away with $300,000, easily,” Ms. Estrin said. “You could buy a house for that.”

Some economists are optimistic that more people will return to the labor force. Others don’t expect the supply of workers to quickly bounce back.

Labor constraints, such as population aging, immigration restrictions and changing work-life preferences, will linger, Alex Domash and Lawrence Summers of Harvard University said in a new working research paper. Meanwhile, businesses will continue to pay workers more as they seek to fill job openings, putting greater pressure on inflation, the two economists contend.

With the price increases, some individuals are coming out ahead even though many aren’t. For instance, workers who switch jobs in finance, accounting, technology and legal are often seeing pay raises that exceed inflation, said Paul McDonald, senior executive director at professional staffing firm Robert Half.

Mr. Eberle’s pay increase of nearly 20% is outpacing costs for many services, allowing him to spend on travel—including a recent trip to the Oregon coast with his wife—and other experiences.

“I feel like we have wiggle room to do things—to go out to eat dinner, to have date nights or go on weekend trips—and not feel crunched,” he said.

Still, Mr. Eberle is holding off on buying a car and isn’t putting a down payment on a house as prices surge. Mr. Eberle also noticed the $70 cost to fill up the tank of his Jeep Grand Cherokee is much higher than it used to be.

Economic research suggests there is a tight link between rates of worker resignations and wage gains. About 3.6% of workers in professional and business services quit their jobs in December, up from 2.8% at the start of 2021. That suggests wage growth in some white-collar roles could continue to run hot.

Job switchers are seeing the strongest wage growth, but companies are feeling pressure to raise pay for their current employees, too. Firms are trying to retain workers amid poaching attempts; in other cases, they are aiming to keep up with the rising cost of living. Annual wages for people staying in their jobs grew by 3.7% last month, up from 3.1% in January 2021, according to the Atlanta Fed.

Wall Street banks are paying up to keep their employees from jumping ship. JPMorgan Chase & Co. last month said it had spent an additional $3.6 billion on compensation in 2021.

“There’s a lot more compensation for our top bankers and traders and managers,” said JPMorgan Chase & Co. Chief Executive Jamie Dimon in an earnings call last month. “We will be competitive in pay. If that squeezes margins a little bit for shareholders, so be it.”

The Wall Street Journal wants to hear from you. Has your pay changed recently? Did you switch jobs or get a raise in your current role?

https://www.wsj.com/articles/for-white-collar-workers-its-prime-time-to-get-a-big-raise-11645439400?mod=itp_wsj&mod=djemITP_h

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