Oxy’s Hollub Drills Down on CrownRock Deal, More M&A, Net-zero Oil

Vicki Hollub took over as the CEO of Occidental Petroleum in 2016, becoming the first woman to lead a major American oil company.

But we’re not here to discuss gender politics.

Hollub is Hart Energy and Oil and Gas Investor’s Executive of the Year because she overcame the doubters and critics after outbidding Chevron for Anadarko Petroleum in 2019, beating back the backlash, surviving the pandemic and coming out on top with the necessary scale and inventory needed in the highly coveted Permian Basin.

Then, she continued this year to expand Oxy and its massive footprint in the Permian with the recent $12 billion acquisition of CrownRock—a CrownQuest Operating and Lime Rock Partners joint venture—which closed in August.

Next year, Oxy is poised to become the forerunner in North American direct air capture with the startup of the massive Stratos hub in the Midland Basin that will literally suck emissions out of the sky for sequestration or EOR. Oxy loved the technology so much it bought the developer, Carbon Engineering.

The aims for Hollub and Oxy are to keep leading in M&A and drilling and completion efficiencies, while pushing toward net-zero oil solutions and the goal of keeping crude oil and natural gas viable for the long-term in an evolving world.

Hollub sat down with Hart Energy Editorial Director Jordan Blum to discuss dealmaking, oil and gas trends and the role of hydrocarbons in climate solutions.

This interview has been edited for clarity and length.

Jordan Blum, editorial director, Hart Energy: Our readers are pretty shale-centric and the CrownRock deal just closed in August. So, can you take me through how CrownRock ended up being the target and what it took to get across the finish line?

Vicki Hollub, CEO, Occidental Petroleum: Well, CrownRock was brought to us, so the timing was not our choice. If we had the perfect timing, about a year later would’ve been great. But, because of the timing and that it was available, we looked at it. The reason it was important for us to acquire is that, when we did all the modeling, it was cash-flow accretive from day one, had significant inventory, increased our breakeven at less than $40/bbl inventory by 33% and our breakeven at less than $60/bbl by 25%. So, the inventory was an incredible increase.

The other thing that was important is it made our Midland Basin now a core area. Previously, we had been developing it through the JV (joint venture) with Ecopetrol. Because of the lack of scale there, we felt like that was the best way to convert that to value for our shareholders. But now, with the addition of the CrownRock acreage and production, this makes the Midland Basin much more relevant for us. So, now it is a core area. The scale brings synergies in addition to a deeper inventory there to develop. And our teams have done a really good job with the Midland Basin from the very beginning.

When we first started looking at the Permian, we would’ve categorized the quality of our acreage being New Mexico at the top. Texas Delaware was second and Midland Basin, third. Midland Basin didn’t appear to be really very competitive for capital investment, hence the JV. Then, when we bought Anadarko, that made the Texas Delaware much more competitive. At that point, we started realizing that our New Mexico acreage was really good, too, because we had worked on developing our subsurface modeling. That modeling made what we thought was lower-tier acreage in southeast New Mexico into top tier. We took that modeling, applied it to the Anadarko acreage, applied it to the Midland Basin, and we’re now applying it to the D-J (Denver-Julesburg Basin) and Powder [River Basin]. All of that raised the quality of our inventory across the Permian.

JB: From a modeling and efficiency standpoint, is there any kind of secret sauce or key efficiency that’s unlocked things more than others, whether it’s more contiguous acreage for longer laterals, subsurface imaging or more frac stages?

VH: The contiguous acreage is very important. Drilling the 15,000-foot laterals, that’s very, very important for the economics. It’s made wells even better. Our modeling was the first step to make wells that previously had been producing 300-600 bbl/d initial production to 3,000-4,000 bbl/d initial production. The modeling and frac design is all around how we view where the frac is going to go. And that’s about as much as I can say with respect to what our secret sauce is.

JB: Going back just to CrownRock briefly, is there anything else you can talk about in terms of the competition? I know it wasn’t obviously the public kind like with the Anadarko and Chevron bidding war.

VH: (Laughing) Thankfully. There was competition because of the quality of the acreage, but we felt like a couple of things were to our advantage. One being the fact that we had shown significant improvement in our own delivery and recovery of wells in the Midland Basin. I think that the CrownRock people saw that. And, also, unlike others who do these acquisitions, our view is that we need to do our best with respect to the employees. We committed that we were going to offer every employee that CrownQuest didn’t want to keep. They were taking some with them. But, every employee that they were not taking with them, we offered a job. And we didn’t eliminate any Oxy employees as a result of it. That’s kind of our model. When we do acquisitions, we do it in a way that’s not damaging to the employees.

JB: I’m sure that helps with retention.

VH: Yes.

JB: How else would you compare and contrast the Midland and Delaware positions after the deal?

VH: I’d say that, now, the Midland and Delaware are pretty close to being competitive. Some in the Delaware are still better than the Midland Basin returns. But what helps the Midland Basin is the fact that the margins are higher because of the takeaway out of the Midland. The second thing is it’s shallower, and so that helps on the cost. On the other side of it, the Delaware Basin has some overpressured intervals that make up for the fact that you’ve got to spend more money to get there. Both basins—and both parts of the Delaware—are core to us now. We’re in a much better position than we were before where all three now can compete for capital.

JB: Obviously, the Midland is a bit more mature, but you’ve become pretty active now in developing or starting to develop the Barnett in the Midland Basin and maybe looking at the Wolfcamp D bit, too. I wanted to get your take on looking into the different benches, and where you call things Tier 1 or Tier 2 positions?

VH: A lot of that is just testing things. When I was running the Permian EOR part of the basin, I want to say there’s some claim to fame I have here for having approved the drilling of a couple of Barnett wells way back then—not too far from Levelland—they were huge failures. Which is I think what precipitated my promotion to get me out of doing those kinds of things, and to get me in a role where I can’t do those kinds of things anymore. But they were vertical back then. We’re still dabbling with other intervals. The Permian is the basin that keeps on giving. It’s going to be the last basin standing in the U.S. and maybe one of the last basins standing in the world, especially in view of the fact that we ultimately will apply CO₂-enhanced oil recovery to both the conventional—more of the conventional than we have to date—and to the shale.

It’s not only important to have secondary basins or secondary intervals to develop in all these basins, sub-basins. That’s important. But another way of using the infrastructure in a cost-effective way and getting reserves that you otherwise couldn’t get is the use of that CO₂. That doesn’t mean there’s only one other interval, a secondary interval. In all of our acreage, our teams are looking at third, fourth and fifth intervals that we can add over time.

JB: Are you to the point of considering the Emma Barnett field a success, or is it still to be determined?

VH: It’s to be determined. We have hopes. You have to hope that the hopes turn into something material.

JB: On M&A, you just did CrownRock. Exxon Mobil bought Pioneer Natural Resources. ConocoPhillips is acquiring Marathon Oil. Diamondback has Endeavor. Chevron and Hess Corp. is still pending. And there’s lot of other deals. So how do you feel about all of the M&A, and do you see a lot of runway for additional industry consolidation?

VH: I think it has to happen. If you look at what’s happened with respect to exploration around the world, the reality is that the 20 largest reservoirs in the world were discovered before 2000. There hasn’t been a lot discovered that are really big since. Kudos to those that are discovering, but it’s not enough to ultimately keep the supply coming for the world. And, then, 80% of the world’s reserves are managed by national oil companies or countries. So, the private U.S. companies, publicly held U.S. companies and the publicly held companies in Europe and a few other parts of the world are then going to try to get the 20% that’s not already managed by someone else. It is getting harder in international to get contracts that really make sense for publicly held U.S. and European companies. So, there’s basically a limited amount of remaining resource for the rest of the thousands of companies that want to get those resources to develop. So, the M&A is going to happen in a big way, and it’s going to continue for years—despite [FTC Chair] Lina Khan’s efforts (laughs).

JB: Fair to say Oxy isn’t done growing yet?

VH: I think nobody should be [done]. I don’t think anybody would truthfully say that they’re done.

JB: You’ve said you wouldn’t be CEO today if the Anadarko deal hadn’t happened. In hindsight, can you take me through the timing and importance of the deal? Obviously, a lot was said negatively at the time and shortly afterwards about allegedly overpaying and having poor timing.

VH: Looking at where Oxy was at the time and what we were trying to accomplish, we didn’t have the scale that we needed. There was no way that we were ever going to be able to execute a low-carbon strategy either. We were way too small, had far less cash available to even pay the dividend that we had at the time. We were essentially in a bind, and nobody has said that. Nobody went back and looked at the data.

We needed to do something. When we saw the Anadarko assets, we felt like they fit like a glove with what we needed to be and to do. I think everybody is critical of the $5 billion difference between our offer and the other offer (Chevron’s) out there. We more than made up that difference. We achieved our synergies in less than six months, and we had synergies of double what the competition had and thought they could do. Our teams were just amazing through this acquisition. We’re right on the cusp. We’ve almost essentially paid out the acquisition in right around five years, or maybe it’ll be five and a half years, but that’s phenomenal.

We bought a company essentially our size. With synergies and the cash flow from operations that we were able to get from it, it’s been to me a phenomenal example of how an organization can do amazing things. And we did it quickly. A good part of it was due to the fact that our teams had—before the Anadarko acquisition—started to crack the nut on how to get more out of these wells than we had originally thought was possible. I do believe that we are still getting more out of our wells than our competition. That was the case when we made the acquisition, that was the case continuing on, and that’s what made us so confident that it would work and that we needed to do it and that we could spend the $5 billion incremental, because now that’s essentially paid for.

JB: Obviously, you didn’t know that prices were going to tank not too long after, but it now looks like there was a lot of foresight in terms of the need that everyone’s now talking about for scale and inventory.

VH: Exactly. Some people say that the M&A is just happening now. I think we kicked it off. The only reason it wasn’t continuous was because of the pandemic. But, we saw it coming, we knew it was coming and we knew that this would happen. And I feel like we started it, and we had a team that had the capabilities to enable the leadership team to be bold enough to fight for it.

JB: I wanted to pivot just a little bit to divestitures and debt reduction. I know there’s not necessarily any rush on these things, but I wanted to get your breakdown of what you’ve done so far and what you’re looking at next. You did the Permian Resources deal. I think there was a small, non-core sale to Continental Resources. What are you looking at with Western Midstream?

VH: Well, the Barilla Draw we sold to Permian Resources. That had become non-core for us. And with our vast acreage in both the Permian and the D-J, there’s still smaller areas, nothing big. But accumulations of several smaller things can be significant. There are outliers in all of the basins. There’s some stuff in the Midland, there’s some stuff in the Delaware and some things in the D-J that could be up for sale.

JB: Anything in the Gulf of Mexico or internationally? Or not at this point?

VH: Not at this point.

JB: What else can you say in terms of the plans for Western Midstream?

VH: (Smiling) We like getting the dividend.

JB: With CrownRock, Ecopetrol ended up declining taking a stake. I think that was something you were expecting to come to fruition. But was it more of a happy accident that it didn’t work out?

VH: We wanted all of it.

As you know, according to the agreement, they had the opportunity to buy up to 49%, and we absolutely didn’t want that to happen. Since we had a longstanding, very respectful and good relationship with Ecopetrol for decades, going all the way back to the early ’80s, and because of that partnership we had built and the way we operated with them, we felt like that was a scenario where we wanted to be good partners. So, we didn’t have to negotiate for something smaller. It was either they had to take the 49% or nothing. But, we decided we would negotiate and that’s how we came to 30% for them. And then, as I said on the earnings call, what really killed the deal at the end was the president of Colombia (Gustavo Petro).

JB: Politics happen. Considering you wanted all of it, I guess there’s no consideration to selling a minority stake in the CrownRock assets to anyone else at this point?

VH: No.

JB: Warren Buffett continues to say very nice things about you, but Berkshire Hathaway’s ownership of Oxy is up to about 29% now. I wanted to get your take on at what point it’s too much, and how you keep the ownership diversified?

VH: We would never consider it to be too much. Having Berkshire in our stock, as we do with our other larger and long-term shareholders, it’s good to have conversations with Berkshire and others to make sure that we keep the dialogue going as to what they’re seeing, what they like about what we’re doing, suggestions and take on the macros. We try to get information from all the sources that we can to make the decisions that we make. Long-term shareholders are the ones that are going to appreciate us the most because we’re not really built for hedge funds, although we know that there’s some in the stock. We appreciate all of our shareholders that are in the stock, but the hedge fund owners are probably not going to be as happy as the longer-term shareholders. Right now, we’re in a good position with about 50% of our company owned by long-term shareholders that we’ve known for a long time.

JB: And your market cap is right about $50 billion. I wanted to get your opinion on the overall investment thesis for Oxy and just how undervalued you feel the company still is.

VH: We’re incredibly undervalued. It’s because we’ve been going through a transformation, and we’re not quite done with that yet. It’s two-pronged. One was to get out of assets that were geopolitically risky, and to move more to the U.S. to lower that risk, but also to get higher-quality assets. We started that almost 10 years ago. That was the first part of the transformation. The second part was to get bigger in the U.S., and that was the reason for the Anadarko acquisition. CrownRock was helpful for that, too.

When I became CEO, 50% of our production was international and, now, about 83% of our production is domestic, and between 90-95% of our future growth is in the United States. From a geopolitical standpoint and from a quality of assets standpoint, we have the best assets that we’ve ever had, and they’re safe assets. What we did internationally is, we stayed in the areas that we knew were going to be stable. I won’t mention the countries we exited, but we’re in Abu Dhabi, we’re in Oman and in Algeria. We initially did try to sell Algeria, but we couldn’t make the sale happen. And now that we are there, we’ve become more knowledgeable about the reservoirs, and the reservoirs there are really good, and the country is a democratic country. And so now, the three places where we are internationally are what we think are some of the safest in the world. Oman and Abu Dhabi, while they’re in the Middle East, we don’t believe that those two countries would ever be involved in any of the potential chaos that’s happening there now.

JB: Is there anywhere else in the U.S. you might eventually want to be? Obviously, you’re more oil-centric, but any of the gas plays at some point?

VH: No, we’re strictly Permian, D-J, Powder River. If we saw another oil play onshore, we would go after that. We have no intention of getting into any gas areas. We’ve always viewed the price of natural gas to be between $2-$3/MMBtu. Except for some short periods of time, that’s essentially what it’s been. So, we don’t see a benefit for us to expand in that direction.

The Gulf of Mexico is another area that we ultimately want to grow. When we first bought Anadarko, we viewed the Gulf of Mexico [assets] to be more of a cash cow for us—high margins, quality oil—and so we thought that that would be the cash generator to provide the funds for the Permian. However, now with almost 300 blocks offshore and a partnership network that we’ve built over the last few years, that’s given us a big enough footprint to have a database that will allow us to do more work with AI in the subsurface to do offshore what we did in the Permian.

Our Permian Basin modeling and subsurface work didn’t happen by accident. We put forth an effort to get the best team that we could put together and isolated from other parts of the business, so they could just focus on the Permian. We gave them the resources to do what they needed to do. And now we’re doing that same initiative for the Gulf of Mexico. We’ve already put the team together. They’re working AI for the Gulf. And we believe that, with the massive database we’ll have, we’ll be able to make a difference here because it’s highly complex. It’s more complex than some parts of the Permian, and you’ve had folding of deeper horizons on top of shallower ones. We drilled through one target where we thought maybe it had pinched out or something. But, then, as we drilled deeper, we found the shallower interval deeper than the old formations. It is so complex that we believe with AI we’re going to be able to now turn the Gulf of Mexico into a growth asset ultimately.

JB: It used to be that offshore technology would get translated to onshore. Now, is it more the opposite happening?

VH: For subsurface, yes, in my view, at least for us.

JB: Back on gas, obviously the Permian is quite gassy too. How difficult has it been with pricing, especially Waha pricing?

VH: That’s been difficult for the basin, clearly. But that’s one of the advantages we have with our midstream business in that we have capacity in various places. When there’s a situation where you have people who can’t move molecules, get stuck and they’re trying to pay people to take gas away, our midstream marketing team has been able to take advantage of that to move gas and get gas moved around.

There are gas intervals deeper [in the Permian], and the current price of gas doesn’t warrant drilling as deep as that. But, ultimately, if the LNG projects that are currently planned happen, it could be that 10, 15, 20 years down the road, we would be drilling deeper in the Permian, but we wouldn’t go to Appalachia or Anadarko or anywhere else to drill.

JB: Is your bullishness on gas more forward-looking with LNG and all the talk of data centers and AI? You’re using AI, but AI also is increasing demand. Do you see more data centers being built up in the Permian region, as well?

VH: We do, and we think what’s going to help with the data centers is this technology that we’re equity owners in, and that’s NET Power.

We own about 40% of NET Power, and it is a technology that creates power by combusting natural gas with oxygen instead of air. There are no volatile organic emissions and, as a part of that combustion process, it generates water and CO₂. The CO₂ drives the turbine to create the electricity, and the excess CO₂ comes off. It’s almost a pure stream of CO₂. That’s going to be, I think, revolutionary for the power industry here in the United States. Where there’s natural gas that we can get the power to the data center, that’s really the source that they should plan on using in the future. Certainly, solar could be a part of that. But, to ensure that they have 24-hour, 365-days-a-year power, that NET Power process is going to be the answer for data centers here in the U.S. and anywhere internationally where there’s electricity needed and there’s hydrocarbon gas.

JB: You’re already the leaders on EOR, but you’re on the verge of being pioneers on direct air capture, as well. Where are we on the Stratos project, and what’s ahead in terms of the challenges of scaling up DAC and making things economic?

VH: Stratos, we’ll have starting to produce by [the middle of] next year, starting to get CO₂ out of the atmosphere. Stratos for us is the thing that we needed to do to make sure that the world understands that this is a reality, that it can happen, that we can ultimately lower the cost. Already with Stratos, we’re building it in a couple of phases, and we’re already starting to use some of the innovations that we put together for the second phase. We’re already innovating. That was part of the reason we bought (DAC developer) Carbon Engineering, because it was to provide a group of incredibly innovative and passionate people to give them the resources and the capital they needed to start testing some of their innovative ideas. They didn’t have the people, resources, nor the cash to do what they needed to do to advance the first phase of Stratos to the point where it was lower cost.

We took our board up there to visit with them a couple of times now, and from their first visit to their last visit, the dramatic increase in the ideas and how they’re advancing those was pretty dramatic. We’re excited about the fact that the first one won’t be the best one. Clearly, it never is in any technology. For wind and solar, it took about 10 years to make those technologies more successful and lower cost. We think we can do direct air capture faster because we have people working on ideas that are just amazing. We also have the benefit of using a digital twin as we build the one here in the Permian. And that digital twin will enable us to test some of those ideas that they’re having before we actually build it in the field. So, by the time we get to build the first one at the King Ranch (South Texas DAC Hub), we’re pretty excited about what that one’s going to look like. It’s not going to be a 10-year cost down curve for us. It’s going to be something less than that. Can’t say what it’ll be.

I would love to give the team a target through your article, but I think I’ll hold off on that (laughs). We’re very excited about where we are and where we’re going with that. It’s going to provide CO₂ not only for companies to make sustainable aviation fluids if they want, but also for our enhanced oil recovery in both the conventional and the shale where we can then produce net-zero-carbon oil.

JB: A lot of both CCUS and permanent sequestration?

VH: We’re doing the permanent sequestration initially because that’s what the purchasers of the carbon reduction credits preferred. I think, ultimately, as we help people understand what net-zero-carbon oil means and how it works and why it is potentially a better approach, we will do whatever our clients want us to do.

JB: King Ranch is going to be the next DAC project, but do you have a timeline for that yet?

VH: No, not yet, because we’ve been working with the DOE (Department of Energy). That negotiation has gone really well. We are moving forward with it, but we do have to do an environmental assessment, and so it’s the timing of that that really is uncertain at this point.

JB: And you’re working on CCS hubs in the Houston area and Louisiana as well? The Bluebonnet and Magnolia projects?

VH: The Bluebonnet one is going to be specifically carbon sequestration, and we’ve advanced negotiations with some other companies on that. We hope to make some announcements regarding that over the next six months or so. Bluebonnet is the one where we’ve made the most progress so far. But we’re working on all of them.

JB: I wanted to delve deeper into the net-zero oil talk. You just dealt with protestors at a New York climate conference, but you stuck around and pushed back. I wanted to get your take on the net-zero debate, and I guess the counterargument to those who oppose producing all hydrocarbons.

VH: What we have to get the world to understand is that somebody, somewhere started this concept and this idea that we need to eliminate the production of fossil fuels in order to deal with the emissions—that that’s the only way. That’s not the only way. And so, those who want oil and gas to go away, we’re trying to help them understand that we’ve got to all—as a world—we’ve got to refocus on what the problem is. The problem is not the fuel source; the problem is the emissions.

If we could all get on that same page and just work together and collaborate and say, OK, the emissions are the problem, now let’s see what we can do to attack those emissions and to mitigate to the degree that we can those emissions with the lowest-cost way to do that. Because, right now, the models that are being put together are absolutely unaffordable. The world cannot afford it, and they throw numbers out. And, everybody—behind the scenes, behind closed doors—goes “Where are we ever going to come up with that money? There’s no way.”

If you could do it for a lower cost and allow the developing countries to use their natural resources, but use it in a way where we’re offsetting those emissions, why not do that? What some are trying to eliminate is the highest-intensity energy at the lowest per energy unit cost of anything that anybody’s come up with in the world. Then, what we have to do is get people to realize that there is a different way and stop trying to kill oil and gas. Start including us and helping us, working with maritime and aviation on how to make it happen. We believe that’s going to require a lot of things. We believe that we certainly have to continue solar and—I guess for people that insist—wind, and nuclear and geothermal and, for us, oil and gas. With a combination of all those, we can then come up with the right combination of sustainable aviation fuels along with net-zero oil, which will create net-zero fuels for maritime and aviation.

I think that there’s even a segment of the population who believes—believe me, I know this—that wind and solar is the only answer that we need. They forget about the liquid part of the fuels that you have to provide for aviation, and they’re thinking of batteries or hydrogen or something for aviation. Even with sustainable aviation fuels, what people forget is, it’s just a man-made hydrocarbon in most cases.

So, what’s the difference in a man-made hydrocarbon versus oil that comes out of the ground? The difference is that sustainable aviation fuels are a combination of hydrogen and carbon—in the way that they should be made—would be about 25-50% of the emissions of a normal barrel of oil, but still require some additional reduction of carbon in some way. And that’s how we can work with those that produce and want to make sustainable aviation fuels. We can work with them, too, to provide the carbon reduction credits that offset that part of the emissions that still exist from the manmade hydrocarbons.

JB: And you have a new subsidiary and JV with Berkshire Hathaway for domestic lithium mining, TerraLithium?

VH: Lithium is another component of our business which we believe will be helpful, and will be lower cost than bringing in lithium to the United States from mining sources that are much less environmentally friendly, and also that are more costly having to be imported into the U.S. We’re trying to provide a solution to getting lithium out of brine water. It’s a great source to create what we need to provide for the batteries.

What we’re doing first with Berkshire in the Salton Sea is we’ve already tested our technology there. It works. Our view and plans are to ultimately expand TerraLithium’s technology beyond the Salton Sea to places like Arkansas and places internationally. There are lots of waters around the world where you can get lithium. We think that this is just the first step for us to start broadening that out.

The reason that we saw that as a core competence, too, is because, when you combine the brine water that our chemicals business uses with the brine that we produce as a part of our oil and gas operations, we probably are one of the largest handlers of brine in the U.S. And so, that’s a core competency for us.

JB: Lastly, can you reflect on what drew you to the energy sector in the first place, and what you see the future holding from here?

VH: Some people say fail quickly if you’re going to fail. I failed quickly in a music career. I was the first, and I think still only person from my high school, to make All State playing French horn. I didn’t have a lot of knowledge about what was out there in terms of other things to do. I went to the University of Alabama to major in music. One of the advantages of being a music major at the time was to be in the band and to go to the football games for free. That was a part of my thought process back then, which shows how little research I’d done on anything. First semester, my French horn instructor asked me what I aspired to be and to do, and I told him to play in the Boston Symphony or the Philadelphia Philharmonic, and I had always dreamed to do that. He said, “Well, then we need to talk.” And his talk was very open, transparent, but kindly done, that told me basically I’ve got to change my career plans.

So, I then started looking at mining, went down into a coal mine on a field trip from our Engineering 101. I decided to go into engineering. This was a class that tried to introduce you to various types of engineering. And thank God for that class. I went down into a mine. It was cold, dark and damp. I got claustrophobic and I couldn’t do it. About a month later, we then went out to a drilling rig that was drilling near the university, and it was amazing. From the moment I walked onto location and saw this humongous thing, pulling something out of the ground, I decided then I’d go into petroleum engineering.