This oil company is America’s hottest stock. Why won’t its CEO pump more oil?

“We don’t feel like we’re in a national crisis right now,” Hollub told MarketWatch in an interview. And that means Hollub can keep executing on her plans: making shareholders happy by paying down debt and buying back shares. “When you have such a low break-even, to me there’s no pressure to increase production right now, when we have these other two ways that we can increase shareholder value,” Hollub said.

That market-focused logic puts her at odds with President Biden, who is acting like there is a national energy crisis ongoing precisely because of what oil CEOs like Hollub are doing. The size of oil companies’ profits is outrageous, Biden said Monday. They’re raking in cash not because of innovation or investment but as a windfall from the war in Ukraine, Biden said. “Rather than increasing their investments in America or giving American consumers a break, their excess profits are going back to their shareholders and to buying back their stock, so the executive pay is — are going to skyrocket,” Biden said. He has ordered releases from the Strategic Petroleum Reserve to keep down gas prices and asked Congress to tax oil-company profits.

But Hollub is single-mindedly focused on seizing the moment to improve the company’s financial position. Occidental still has significant debt left over from a challenging acquisition Hollub spearheaded before the pandemic. In the second quarter alone, the company used its windfall to repay $4.8 billion in debt. If Biden called, she’d listen, but she hasn’t spoken to him one-on-one. Hollub said she’d spoken to the administration through Energy Secretary Jennifer Granholm. (“She doesn’t know the industry very well right now, but it’s because she hasn’t been in her job very long,” Hollub said.) The White House and the Department of Energy did not return requests for comment.  

Hollub says she’s just following the market. “If demand goes down, we reduce production, if it goes up, we increase.” Oil prices have fluctuated rapidly over the year, and with a recession widely anticipated in the near future, demand could drop, Hollub said. Biden’s releases of oil from the SPR, she added, may have reduced gasoline prices, but at a cost to national security. “The SPR should be reserved for emergency situations, and you never know when those might come,” Hollub said. 

Hollub’s message may not be politically convenient, but it’s exactly what her shareholders want to hear. Occidental
OXY,
-3.66%
is America’s hottest stock and has returned 150% this year, making it the top-performing company in the S&P 500
SPX,
-2.50%.
Investors who bought shares of Occidental in January and held them through today would have more than doubled their money, even as the broader market has crashed. Warren Buffett’s Berkshire Hathaway has gone on a buying spree this year, and now owns more than 20% of Occidental’s shares. How Hollub got here constitutes America’s greatest corporate saga in recent years, from her 2019 debt-fueled decision to buy bigger rival Anadarko Petroleum over the vocal objections of activist investor Carl Icahn, to the pandemic-induced collapse in oil prices that almost bankrupted Occidental, and Buffett’s extension, removal, and re-extension of support. 

With Occidental now on solid financial footing, Hollub is continuing to leave a mark on the oil industry and the world, landing her on the MarketWatch 50 list of the most influential people in markets. Hollub’s tangles with the wise men of Wall Street have left her savvier about how to manage her business. Stung by previous boom-and-bust cycles, Hollub has helped lead America’s oil frackers away from being “swing producers” that could counter the war-driven increase in energy prices, as she paid down debt and returned cash to shareholders through dividends and stock buybacks instead of plowing some of that money into shale oil fields. She is also pushing investment into Occidental’s massive new carbon-capture effort. 

More than anything, Hollub is focused on guys like Bill Smead, founder of Smead Capital Management, who is a long-term investor in Occidental and a Hollub fan. “She’s somebody that we have a great deal of respect for and appreciate all the money she’s making us,” he said.

With that kind of backing, Hollub is planning to put Occidental in the driver’s seat of the massive national economic transition induced by climate change. She is positioning Occidental to be the company of the energy transition, one geared not to the free-for-all economy of the last century or some carbonless vision of the next, but the oil company for right now. She might even stop drilling new oil wells entirely.

“Now we feel like we control our own destiny,” Hollub said.

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For the chief executive of a company that’s having a banner year on Wall Street while investors choke down generational losses, Hollub seems to constantly be on the alert for threats. Talking through the company’s prospects, she repeats a certain phrase: “I know that this will ultimately get me in trouble, but…” 

Trouble? Hollub and Occidental have known their share. 

The drama surrounding Occidental’s 2019 acquisition of Anadarko would make for a good boardroom thriller—or at least a lively business-school case study. Anadarko had big assets in the crucial Permian Basin region of Texas and New Mexico, where horizontal drilling in shale rock had reinvigorated an aging oil field into the nation’s biggest production zone. 

Hollub and her team made an offer to buy Anadarko after months of research. She thought she had a deal locked, only to hear on the radio that Anadarko had announced plans to combine with Chevron. She nearly drove off the road, Texas Monthly recounts.

Hollub turned to Buffett for help. He agreed to what was effectively a $10 billion loan at 8% interest, in the form of preferred shares, along with warrants that allow Berkshire Hathaway, Buffett’s company, to buy more common stock. That got Hollub what she wanted, but many on Wall Street hated it. “The Buffett deal was like taking candy from a baby and amazingly she even thanked him publicly for it!” Icahn wrote in a letter to his fellow shareholders. Icahn had bought a slug of Occidental’s shares and, in the ensuing months, the billionaire investor led a shareholder campaign against Hollub, insisting that she needed stronger board oversight. Icahn allies were made Occidental directors. 

In 2020, as COVID-19 flattened the global economy, deeply indebted Occidental was forced to cut its dividend for the first time in decades. Buffett sold his stock. At Icahn’s urging, the company issued 113 million warrants to its shareholders, allowing them to buy shares at $22, at a time when the stock was trading at $17. Gary Hu, one of the Icahn directors on Occidental’s board, pointed to those warrants as evidence of their success. “Our involvement in Occidental represented activism at its finest,” said Hu.

Hollub flatly disagrees. Icahn saw an opportunity to make an easy profit in derailing the Anadarko deal, Hollub said. “And what he expected is that we would lose and he would benefit from that. Since that didn’t happen, he managed to maneuver his way onto the board.” Icahn’s representatives on the board came to Hollub with a number of plans, including the warrants. She felt that one wouldn’t do any harm. “So that’s what we agreed to, but yeah, the other 10 or so weird things, we didn’t do.”

Former Occidental CEO Stephen Chazen returned to chair the board at Icahn’s insistence. Icahn and Occidental ultimately reached a settlement. His board members left, and the activist sold his common shares earlier this year. Chazen passed away in September. The experience embittered both sides, but there is one point of agreement: Hollub will do as she sees fit. “We were clearly wrong about the board’s ability to restrain Vicki’s ambitions,” Hu said.

Icahn made a $1.5 billion profit. At a MarketWatch event in September, Icahn said he still holds the warrants. But he hasn’t let go of the issues that motivated him to push into Occidental in the first place, though he insists he has no problem with Hollub personally. He likened her to a kid who got lucky gambling in Vegas. “The system allowed her to do it. And she’s just one small example of what is wrong with corporate governance.”

But as Icahn has himself shown, the system of corporate money in America is malleable. Its players can learn the rules of the game and adapt. Quarter after quarter since the dark days of the pandemic, Hollub turned up on corporate earnings calls pledging to keep cash flows strong, to invest in the highest-returning assets, and not to fall into the trap of overinvesting in debt-fueled or expensive production capacity, as so many failed shale producers have done in the past. She’s driven the company’s debt from nearly $40 billion following the Anadarko acquisition to less than $20 billion today. She increased the company’s dividend earlier this year. Along the way she transformed from market pariah to textbook CEO. 

Hollub and other CEOs who run America’s biggest shale-oil producers have learned from the industry’s past mistakes. After proving a decade ago they could successfully extract shale oil, many U.S. oil producers were cheered on by growth and momentum stock investors as they borrowed billions to ramp up production, only to have those same investors abandon them after Saudi Arabia induced a plunge in oil prices. In the years that followed, U.S. shale-oil producers cultivated a new set of more value-oriented shareholders by promising they would share in profits through dividends and stock buybacks. Hollub and many of those other CEOs are not interested in chasing unrestrained growth again.    

The world’s most famous value investor is now also on board. For Buffett, an earnings call Hollub led in February was the turning point. “I read every word, and said this is exactly what I would be doing. She’s running the company the right way,” Buffett told CNBC. Berkshire Hathaway
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started buying Occidental stock soon after. In August, federal regulators gave Buffett’s company permission to buy up to half of the company. (Asked for comment, a representative of Berkshire Hathaway asked for questions by email but did not respond to them.) 

The markets are rife with speculation that Buffett will go all the way and purchase the entire company, though neither Hollub nor Berkshire have said as much. Hollub said simply that Buffett is bullish on oil, so she expects him to invest for the long haul. A Buffett buyout wouldn’t necessarily be a win for the investors who’ve hung on as Occidental’s stock price has recovered. “I’d probably make more money if he doesn’t buy it,” said Smead. 

Where Hollub might cause real trouble is in the fight to keep carbon dioxide out of the earth’s atmosphere. That’s not because she’s a climate-denier. Far from it. Like many of her fellow oil-and-gas CEOs in recent years, Hollub has come to see climate change not as a threat to the business, but as an opportunity to be managed. 

“I know some people don’t want oil to be produced for very long, but it’s going to be,” Hollub said. For that to change, people have to start using less oil. “It’s not that the more supply we generate, then the more that people are gonna use. It’s all driven by demand,” she said. And even with an electric vehicle in every driveway, we’d still need to extract oil to produce plastics and to create airplane fuel, among other projects that fall under the category of hard-to-abate emissions. 

Hollub’s plan for Occidental is to wrap the company around that lingering stream of demand for hydrocarbons. She says Occidental is now in the business of carbon management, a euphemism that glides over the messiness of the climate transition and companies’ role in it. Companies need to show anxious shareholders that they’re serious about reducing their carbon emissions, but they also need to keep operating in an economy that is still seriously short on meaningful alternatives to fossil fuels. Occidental is here to help, spurred along by a series of state and federal incentives that the company lobbied for over years, culminating in the passage this year of the Inflation Reduction Act. 

Climate advocates have for years tried to make the use of fossil fuels reflect their full cost on the environment. That has put them deeply at odds with oil-and-gas executives like Hollub, who opposes carbon taxes. It’s also left U.S. climate policy stalled as the planet warms. But the IRA tries something else. “I do not see the IRA as a handout to the energy industry,” said Sasha Mackler, executive director of the energy program at the Bipartisan Policy Center, a D.C. think tank. Rather than making dirty energy more expensive, the IRA tries to make clean energy cheaper, Mackler said. And that’s something Hollub can get on board with. She’s selling the idea that a barrel of oil can be clean. 

Getting to a net-zero barrel of oil, as Hollub calls it, involves literally rerouting the route carbon dioxide takes through the world. For companies like Occidental, CO2 isn’t just a planet-destroying waste product. It’s a critical input to the process of oil production. Engineers can use CO2 to essentially juice aging oil wells by pumping it underground to displace hydrocarbons. The process is called enhanced oil recovery, or EOR. Occidental is the industry leader, producing the equivalent of 130,000 barrels per day of EOR oil and gas as of 2020. And that oil can, in theory, be less impactful on the climate. “We have it documented that it takes more CO2 injected into the reservoir than what the incremental barrels from that CO2 that are produced will emit when they’re used,” she said. 

The trick is where that injected CO2 comes from. The Permian is crisscrossed with thousands of miles of pipelines that bring CO2 to oil fields from as far away as Colorado. At the moment, the vast majority comes from naturally occurring reservoirs or as a byproduct of the production of methane. One of the strangest ironies of modern oil production is that companies like Occidental don’t actually have enough CO2. “There’s two billion barrels of resources remaining to be developed in our conventional reservoirs using CO2,” Hollub said. 

So she and her team went out looking for more. Eventually they hit on the idea that’s encapsulated in the IRA. Instead of pulling CO2 out of the ground only to put it back, Occidental could divert some of the CO2 that’s being produced by so-called industrial sources, companies that would otherwise be dumping it into the atmosphere because, of course, there’s no business reason not to. 

Finding companies that wanted to do the right thing with their waste CO2 turned out to be harder than Hollub thought. “We knocked on the doors of a lot of emitters,” Hollub said. They found one taker—a Texas ethanol producer that was willing to try a pilot. It was a decent start but not enough to unlock all those buried barrels. 

That may soon change, driven by the IRA. The law puts new financial incentives behind those conversations Occidental was having with CO2 emitters. The IRA significantly beefed up the so-called 45Q tax incentive for companies to put CO2 permanently in the ground. Occidental can get $60 a ton in tax credits if the CO2 is stored in the process of pumping more oil for EOR, or $85 if the company just buries it. 

There’s also a higher tier of incentives if companies obtain that CO2 using an experimental technology called direct air capture. Occidental is spending $1 billion to build what would be the world’s largest direct-air-capture facility in Texas, which you can loosely think of as a giant fan to suck ambient CO2 directly out of the atmosphere. Hollub plans to build as many as 70 by 2035. 

The problem some see with this plan, and with Hollub and others’ efforts to shape legislation around it, is it tightens the economy’s dependence on fossil fuels rather than loosening it. Americans will now effectively pay Occidental to pursue more enhanced oil recovery. Those net-zero barrels of oil—should they materialize—might be better in climate terms than a traditional barrel. But that’s not the only alternative. Dollar for dollar, public money would be better spent on solar energy and other low-carbon options than on EOR, said Kurt House, who knows as much because he’s tried it. House got a Ph.D. at Harvard in the science of carbon capture and storage more than a decade ago and co-founded a company to put the idea into practice. “It is bad, bad economics,” he said. “If you pay people a million dollars a ton of CO2 sequestering, they will sequester a lot of CO2. But it’ll cost us. It’ll make solving global warming much, much, much, much, much more expensive.” 

But Hollub isn’t likely to change course. “I would say to those who don’t like what we’re doing, who do they want to do this? Tell me who have they gotten to, that will commit to take CO2 out of the atmosphere?” she said. “This climate transition cannot happen as fast as some people want it to happen because the world can’t afford it,” Hollub said. “We’re looking at, you know, $100 to $200 trillion for this climate transition. We cannot spend that kind of money to make this transition happen without help from diverting some of the CO2 to enhanced oil recovery, which enables then the technology to be developed and to be built at a faster pace.” And in the meantime, Occidental can sell carbon offsets to companies like United Airlines, which is supporting the direct-air-capture facility. 

Those companies can choose whether they want the CO2 Occidental is capturing to be buried, full stop, or used for more oil production. But it’s clear Hollub thinks EOR is a big part of the future for Occidental. She has often said that the last barrel of oil should come from EOR. “I think there could be a world where we do stop drilling new wells,” she said. “To increase recovery from the remaining conventional reservoirs is something that’s kind of like a best kept secret for the United States. Nobody very much realizes that, but that is there. And that gives us that longevity beyond what some people are forecasting,” Hollub said. 

Hollub is well-aware of her critics. Perhaps that’s why she keeps looking around for signs of trouble. But even if it finds her, she doesn’t plan to change much. “I have no regrets,” she said.