US Energy Company Occidental Reaches Settlement with Icahn

Agreement to Add Two Board Members Instead of Replacing iCan CEO
Announcement of Agreement Expected as Early as the 23rd

[Asia Economy Reporter Naju-seok] It has been reported that a compromise has been reached between the American energy company Occidental Petroleum and activist investor Carl Icahn, who had been engaged in a management rights dispute. Icahn abandoned his initial demand to replace Occidental CEO Vicki Hollub and instead aimed to secure some seats on the board of directors.

Carl Icahn
Photo by Reuters

On the 22nd (local time), the Wall Street Journal (WSJ), citing insiders, reported that Occidental and Icahn are coordinating their opinions toward ending the ongoing management rights dispute. Under this agreement, Icahn is said to have given up his demand to replace the entire board, including CEO Hollub, and will have two individuals he proposed, Andrew Langham and Nicholas Graziano, join Occidental’s board. Icahn is also reported to have accepted Occidental’s position to appoint former CEO Steven Chazen as chairman of the board. WSJ reported that although the situation is fluid, both parties may announce the reconciliation as early as the 23rd.

Icahn had demanded Hollub’s dismissal, citing reasons such as her overpaying for the shale company Anadarko. Occidental acquired Anadarko for $38 billion (48.3 trillion KRW) last May after fierce competition with rival Chevron.

After spending a huge amount to acquire Anadarko, Occidental fell victim to the winner’s curse. Especially with the recent oil price war between Saudi Arabia and Russia causing prices to plunge below $30 per barrel, combined with demand declines due to the COVID-19 pandemic, Occidental’s stock price has dropped about 78% from its peak earlier this year.

According to the U.S. energy industry, shale companies generally predicted oil prices to be between $55 and $65 per barrel this year. However, the oil price war and the impact of COVID-19 materialized, rapidly worsening the business environment. Having expanded its scale by acquiring Anadarko, Occidental inevitably feels the pain of low oil prices more acutely.

Moreover, Occidental carries a significant debt burden from loans taken during the Anadarko acquisition. Credit rating agency Standard & Poor’s (S&P) estimated Occidental’s debt to be $41 billion as of the end of last year. Had oil prices remained above a certain level, Occidental’s gamble might have succeeded, but the rapid deterioration of market conditions due to low oil prices has triggered red flags across its management.

Due to the worsening situation, Occidental cut its quarterly dividend per share by 86%, from 79 cents to 11 cents.

Against this backdrop, Icahn recently increased his stake in Occidental to about 10% of the total shares. He then demanded the replacement of CEO Hollub. In a media interview, he said, "CEO Hollub and the board made reckless bets during the acquisition process and failed tremendously," adding, "They must take responsibility and step down." Furthermore, Icahn’s investment firm, Icahn Enterprises, stated in a disclosure that "if our demands are not met, we will consider all options," leaving open the possibility of a hostile takeover.

WSJ reported, "With both sides reaching an agreement, Occidental can now take a breather from the management rights dispute and focus on business challenges such as low oil prices."

This content was produced with the assistance of AI translation services.