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Occidental CEO defends Anadarko purchase, touts Ecopetrol JV in Q2 earnings call

Occidental Petroleum Corp. CEO Vicki Hollub made her most public comments to date on the planned acquisition of Anadarko Petroleum Corp. during the company's second-quarter earnings call Aug. 1, saying it will benefit both Occidental and investors in the future.

The planned $57 billion merger is scheduled to close Aug. 8, pending approval from Anadarko's shareholders. The move has been controversial, with Occidental's share price tumbling to decade lows and activist investor Carl Icahn suing the company and attempting to force a new election to replace four members of the board. Hollub did not address those issues specifically during the call but insisted it was the right move for Occidental.

"The combination of our two companies will strengthen our long-term strategy and position us to drive profitable growth and return excess cash to our shareholders," Hollub said. "We're truly excited about the many benefits that the combination of Oxy and Anadarko will bring to our shareholders, and we're encouraged by the feedback we received from shareholders regarding the transaction and our discussions over the last few months."

One complaint about the Anadarko deal was the belief that it would severely leverage the company and cut into returns to investors. Hollub said the company would increase its dividend for the 17th consecutive year even with the deal, adding that Occidental could also look to divest some of its assets to reduce debt.

"We do have a lot more levers to pull with the combination of Oxy and Anadarko in terms of monetization," Hollub said.

The driving motivation for the Anadarko purchase was to add to Occidental's stake in the Permian Basin, where Occidental broke its company production record in the second quarter.

"Across the Delaware Basin, we delivered 26 of the top 100 wells on a six-month cumulative oil production basis, while drilling nearly 7% of the total wells," Hollub said. "Our enhanced subsurface models enabled us to more precisely design the fracks in those top wells to use much less proppant than the other wells in the top 100."

Occidental has also moved to reduce its costs in the Permian through a joint venture with Ecopetrol SA. Occidental will receive $750 million in cash and $750 million in carried capital in return for a 49% interest in the joint venture, which will cover 97,000 net acres in the Midland Basin.

"This joint venture is an excellent opportunity to bring forward the net present value of our Midland assets without sacrificing any of our current production or cash flow," Hollub said. "The joint venture with Ecopetrol was one example of how we can do something creative without negligibly impacting ourselves."

For the quarter, Occidental reported net income of $635 million, or 84 cents per share. That missed the S&P Global Market Intelligence consensus earnings estimate of 94 cents per share and was down from the year-ago quarter's earnings of $1.10 per share. The results were good enough for Occidental's stock to rise almost 2% in midafternoon trading on the New York Stock Exchange to $52.40 per share.