Occidental Petroleum (Oxy): A Company Analysis

The History of Occidental Petroleum

This work aims to discuss the company Occidental Petroleum (Oxy), one of the leading firms in the petroleum and energy production industry. The main goal of this company is to create a sustainable environment and improve human life (Woolfson and Beck 2019). Oxy’s main regions currently performing its business ventures are the U.S.A., a massive segment in the Middle East, Africa, and Latin America. There are several missions, visions, and values that this firm operates in the global economy. Some of these visions are having the efficiency and confidence on taking risks, with the appropriate assets reaching the pinnacle in this industry; always delivering more than what is expected; cultivating opportunities and staying passionate in the business conduction. However, the company was not always in such a spectacular position. Even during the year 1982, Oxy was labelled as the number one of the worst managed companies worldwide.

Before 1956, the company was a pretty small one that did not have any exposure. During the year 1956, Armand Hammer became Oxy’s C.E.O. hoping that he would be able to turn the company into a profitable one with stellar growth (Wahnon 2020). However, within 1980 although the company was performing better than before, the growth rate was still not at the level as Hammer expected. In this turn of events, finally, in 1983, Dr. Ray R Irani was summoned as a consultant to take the company’s reins. Irani was a pioneer in the chemical industry who had bagged nearly 150 patents during his entire career. Therefore, it was a masterstroke on Hammer’s part to appoint Irani as the Executive Vice President of Oxy. By the time 2013 rolled in, the company had become the leader in the production of crude oil and mining (see Appendix A).

When Irani joined the board of Oxy, he brought three executives from Olin Corporation, a small chemical company. Those three executives, along with Irani, were appointed in the chemical division of Oxy, which was the least profitable unit of the company back then (Kenny 2021). Generally, when a company is struggling in their business conduction, measures related to high profit seemed like the best solution. However, the case of OxyChem was different as it was operating in a negative profit scenario. Therefore, Irani’s strategy was to search for cash flow and, by using the same cash, start production at a lower cost (Auerbach and Devereux 2018). As the strategic management theory states, for every business venture, no matter how small or large it is, constructing a full proved strategy mapping is a vital step in the growth process. Under this strategy mapping, there are several branches: developing the strategy, implementing the strategy, and finally evaluating the strategy for the future. Following these steps, Irani was able to purchase another chemical company named Diamond Shamrock Chemical which was under the wing of Maxxus Energy during 1986 (Shamrock et al. N.d). This parent company needed cash flow which OxyChem had, and on the flip side, OxyChem intended to increase the chlorine capacity by two times. Therefore, it was seen that both the companies involved in the deal were getting benefitted from it. This was another strategy of Irani where other companies did not hesitate to sign up any deals with him because all the companies benefitted. After this deal signing, Oxy sold its assets, started to acquire higher; profit margins, and initiated a better cash flow scenario in 18 months only. Another Ethelyn leverage buyout named Cain Chemical was bought under OxyChem’s wing two years later. Although this company was a smaller one with only $2.2 billion worth, it acquired higher profit and a pretty generic cycle in the international market.

Irani’s Strategy and Oxy’s Success

Finally, after these successful ventures, Irani was asked to give his input in saving the parent unit of Oxy, and for that purpose, he was asked to come down to L.A. headquarters. From the discussion until now, it can be said that Hammer relied heavily on Irani to make Oxy profitable, and Irani being a spectacular business manager, was able to turn around the winds for Oxy. Therefore, it can be said that Oxy’s most valuable asset was Irani. Within five years of services, Irani’s main focus regarding Oxy was to gain higher profitability. When during 1990, he was appointed as the C.E.O., he focused on the alteration of the business mix for the company. For instance, lowa Beef was a division of Oxy that had no significance with the firm’s primary function and industry specificity. Therefore, Irani got rid of all such divisions to avoid being labeled as anything apart from a petroleum company. The uniqueness of Oxy’s resources and capabilities can be well explained using the V.R.I.O. framework (Miethlich and Oldenburg 2019).

The V.R.I.O. framework is used to evaluate every company based on their resources and the upper hand related to competitiveness. In order to construct the V.R.I.O. framework, resource-based view generation is important (see Appendix B). In the first comes the tangible resources for any company. As the name suggests, tangible resources are those which are physical (Al-Hanshi, Ojiako and Williams 2020). This can entail cash, pieces of machinery, the land where the production unit resides, and others. In the case of Oxy, it can be listed out that its tangible resources are the cash flows acquired by selling assets and increasing profits. Next comes the raw materials like chlorine and Ethelyn, which Oxy also acquired to increase their capacity. From the above discussion, it can be said that Oxy could promptly come to a decision that seemed profitable for them. While buying Cain Chemical, there was uneven competition between Oxy and another larger company for the same buyout. In fear of losing, Oxy took a credit of $8 billion so that the $2.2 billion could be easily paid, and the venture became their only. Next comes the heavy machinery in every production unit. These are the second most valuable asset for the company after Irani, enabling the company to perform its basic activities efficiently (Suchomel et al. 2018). Finally, a brilliant management team that conducts each business activity efficiently.

V.R.I.O. Framework and Oxy’s Uniqueness

After the tangible resources come the intangible resources. As the name suggests, intangible resources are those which are non-physical in nature (van Weele et al. 2020). Some basic examples of intangible resources of a company are brand value, intellectual properties, an image of the brand’s ethics in the international market, trademarks and copyrights. In the case of Oxy, the first and foremost intangible resource is its potential to thrive in the industry. With reference to the case study, it has been observed several times that the company had gone through several depressive periods; still, in the end, it had sustained and finally reached the pinnacle of the industry. The management was indeed highly efficient, and still, if the workers and other stakeholders did not have the potential, then the company would not be this successful (Lobov and Rybin 2021). Next, the patents of Irani can be counted as it was his experience and knowledge that helped him in dragging the company up from the abyss of loss to a highly profitable position. Then there is the research and development division which though consistent up-gradation in maintaining the company’s quality control measures. Finally, the brand value of Oxy, which has developed subsequently in the last few decades, is one of their most important resources.

After defining the tangible and intangible assets, this paper will discuss if the mentioned resources are heterogeneous and immobile. The main objective of the V.R.I.O. framework is to delve into the concept of competitive advantage (Donnellan and Rutledge 2019). This competitive advantage takes place when the resources attained by the firm are heterogeneous and immobile in nature. In other words, the resources have to be different across different firms, and the firms must have an inability to compete so that they cannot acquire resources from other firms. As the resources discussed above, every one of them is unique in the case of Oxy; that is why the company was able to turn its operational dynamic from negative profitability to the highest profitability in this industry.

Therefore, the V.R.I.O. framework can be constructed from the above discussion. From the following table, the company’s uniqueness in resources and capabilities can be analyzed, and therefore its competitive advantage can be understood, which had made the firm a leader in the petroleum industry (Assensoh-Kodua 2019).

Title	Value	Rarity	Imitability	Organizational Capability
Cash Flow	yes			yes
Chemicals and Machinery	yes		yes	yes
Management	yes	yes		yes
Brand Value	yes			yes
Potentiality	yes		yes	yes
R&D	yes		yes	yes

 From the above table, therefore, it can be seen that the firm’s competitive advantage depends on its resources and organizational capabilities. With spectacular proficiency, the firm had started operating since Irani became the Executive Vice President and thus started to excel in the international market through numerous successful business ventures.

One of the main strengths of Oxy was to get the sources of oil finders who were best compared in the whole world. Irani constructed his strategy according to this source finding and flowed the necessary resources and capital towards acquiring these sources so that in the long run, the company becomes enable to further lower its production costs and increase the profit margin (Yong et al. 2020). During the last couple of years of the 1990s, the Oil price in the international market witnessed a downfall; the price per barrel stood at $11 to $14. During that time, Oxy chose the age-old oil fields situated in Texas and invested there. Now, the main reason behind this strategy was to get the barrels at a lower cost, and the fields of Texas were aligned with this plan of Oxy. Furthermore, Oxy had great potential in enhanced oil recovery (E.O.R.), which worked as a catalyst for this company to utilize such opportunities (Bealessio et al. 2021).

By the time 2005 rolled in, the global oil price again started to increase at a steady rate. Therefore, compared to other firms, Oxy stood in a much more profitable position during that time. This result was mainly the contribution of the Texas accumulation, for which the company spent nearly $7 billion. Therefore, as calculated during 2004-2005, the company maintained a profit margin of $20 per barrel when the said rise occurred in the crude oil industry (Su et al. 2020). It was Irani’s prediction that if Oxy acquired more projects and ventures, the company’s production capacity would start to rise by a significant amount. Even by 2010, it was expected that daily production potentiality could reach the count of 1 million barrels; in other words, nearly double than 590,000 during 2004.

In the year 2010, the petroleum industry worldwide experienced a consolidation scenario. During that time, all the leading firms in the industry were looking forward to investing in the expansion of reserves, technology up-gradation, and acquiring the oil fields, which had shown higher potentiality in the past (Ruble 2019). Before 2010, there were several phases when the consolidations were mainly focused on creating business giants; but the 2010 consolidation was mainly zeroed in the production of natural gas. More of this consolidation took place in the United States of America, where the domestic reserved had witnessed a sudden spike due to technological up-gradation. Oxy is a USA-based company that developed strategic plans to cope-up with this consolidation. The company drew back its operation from Argentina and invested more in the U.S.A. region. The Argentine unit was en-cashed for $2.5 billion, and this newly acquired liquid asset went to the U.S.A. division fields, more specifically in units of Texas and North Dakota. The main reason behind this disinvestment was the probable chance of nationalization of Oxy’s Argentine unit in that era of consolidation.

Moreover, Oxy also approached China, whose government was focused at that point in time on acquiring more oil. Data had shown that during 2010 China invested nearly 15% of the U.S.A.’s FDI in South America in only the sector of oil, copper, and soy (Stanley 2019). This was a brilliant masterstroke by Oxy as Argentina will less likely want to nationalize a company whose assets were acquired by China rather than the U.S.A. After this movement from Argentina to the U.S.A. Oxy started to perform more efficiently in the international market as there was no looming political threat on the company, and it could channel all its resources to the business operation rather than business safety. After two years, this decision proved to be more accurate as the Argentine government acquired a 51% share of another Spanish oil company, Y.P.F., and its nationalization process was complete. Therefore, it can be said that the timing of decision-making was the most significant attribute of Oxy that enabled the company to deal with the consolidations of 2010 pretty effectively. Lastly, the decision to reinvestment in the home country and select a Chinese firm further accelerated Oxy’s productivity and growth in the oil industry. Moreover, as the active region was shifted to the home country, the chance of risk was significantly low (Ellis 2018).

In the segment of management and business operations, there is a saying that there are only a countable number of C.E.O.s who have the ability to hold on to their position for nearly 20 years. Although real-life data is proof that this saying is not merely used for literature purposes, rather it is true for most cases. Irani was such a C.E.O. who was able to retain his position for more than 20 years. As it has been discussed in the paper, the managing and strategy construction skills of Irani were of the highest quality. Several pioneers of the marketing industry still do not possess efficiency like him despite having numerous supporting resources. The first masterstroke as performed by Irani was the liquification of non-core assets (Harris et al. 2020). Following it up with acquiring lower-cost oil and gases also proved to be advantageous for the company. When the twenty-first century emerged, Oxy started to experience a growth scenario in the business operation. During the first five years, the company was able to decrease its debt by a raging 53% as well as it could increase its production capability by 23%. Not only that, but also the company’s shareholders experienced a value increase to $22.6 billion. During the years 1985 and 2010, Oxy’s growth statement was most dynamic. After 2010, consolidation in the oil industry changed the world dynamic of the said sector. In 2011, Irani stepped down from his position as an acting C.E.O. The post was acquired by a woman named Vicki Hollab, a loyal employee at Oxy who only spent a large amount of her career at this company. Although Irani was a spectacular C.E.O., Vicki was not bad herself, and the reins of the company were safe and sustainable in her hands (Stoll 2019).

During the years 2014 and 2016, there was an economic depression in the global market, which escalated in the reduction of the oil barrel price (Kim 2018) (see Appendix C). The economic depression was so massive that every sector of the international market got scarred from it. Furthermore, there was political propaganda connected with the said depression. Needless to say, it was bound to affect the oil and gas industry. The oil barrel price stood at $120 before this recession, which declined steeply to $26. Official records stated that approximately 175 oil companies could not get on board with such devastating changes and either went bankrupt or were forced to close down their operations. However, Oxy also faced severe issues, still sustained during this period. Oxy may be a successful leading venture in the international market, but this industry is filled with giant firms with a lot more investment capacity and resources available. Those giant firms took part in the consolidation when this recession occurred in 2014.

In the year 2019, Oxy signed a deal to buy Anadarko’s shares (Kenny 2021). The negotiations for this deal were going on for a subsequently large amount of time. Nevertheless, just before the deal was about to get signed, another oil industry leader, Chevron, joined the bid and offered $300 billion along with debt. Hollub, being the efficient C.E.O. she is, flew to Paris to save the deal and convinced TOTAL to invest $8.8billion in the North African assets under Anadarko’s wing. As a result, the debt burden on Oxy decreased by a significant amount. Then by further measures as taken by Hollub, Warren Buffet was convinced to contribute $10 billion and acquire 100,000 shares as preferred by Oxy. By following these measures, the company was finally able to compete with Chevron and successfully expanded its offer. Although to achieve the same, there was a lot of borrowing involved; still, historical shreds of evidence prove that Oxy had the potential to overcome their borrowing within a short period. Finally, it was seen that Oxy’s offering was $57 billion more than what was offered by Chevron, and the bid was bagged by Oxy (Becht, polo and Rossi 2021).

Despite having a successful business venture for the past three decades, the covid-19 pandemic is a looming threat to Oxy’s business conduction. Since this viral outbreak had occurred, the dynamic of the international business has changed by a massive level. Several businesses were forced to close down their operations. After two years, the governments are still suffering to gain back the growth scenario as before the pandemic.
From a company perspective, Oxy has ensured its stakeholders that they are taking necessary adaptive measures to sustain themselves in these tough times. However, experts all around the globe are suggesting after the recession as induced by the covid-19 pandemic had taken a toll on the oil industry, and the crisis can be non-reversible (Manzur, Dang and Vega 2021) (see Appendix D). Moreover, there is a slim chance of getting investors to continue business operations in the upcoming times. The most devastating fact is that the tycoon firms are even suffering from this recession. Then, naturally, the scenario is much more horrific for the smaller firms.

If Oxy wants to survive in the industry, it can channel its resources to some alternate industry (see Appendix E). As the oil industry is in a dangerous position right now, if the investors get the assurance that alternate industries have the potential to give back higher returns, then naturally, they would like to invest in those sectors. One such alternative can be renewable and sustainable energy management (Kuzemko et al. 2020). For this option, Oxy has most of its resources already present. Now, suppose the additional attributes like a better plan and proper framework can be applied to develop a business plan in accordance with the new ventures. In that case, there is a chance for Oxy to sustain through the after-pandemic recession period. From this entire discussion, one thing is for sure the company had faced several breakdowns in its operational history. That is why it knows which options to choose or how the plans must be implemented to redirect its resources in the growth process and drag the firm up from the abyss of recession.

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