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WHEN: Today, Wednesday, April 24, 2019
WHERE: CNBC's "Squawk Box "
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Occidental Petroleum CEO Vicki Hollub and CNBC's David Faber on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, April 24th. The following is video of the interview on CNBC.com: https://www.cnbc.com/video/2019/04/24/occidental-ceo-discusses-the-decision-to-make-a-formal-bid-to-buy-anadarko.html.
All references must be sourced to CNBC.
DAVID FABER: Becky, Occidental Petroleum has decided to move forward with a public proposal to acquire Anadarko Petroleum, of course. So, we've been following this story for a couple of weeks, ever since Chevron agreed to a deal to acquire Anadarko at $65 a share in stock and cash. Moments ago, Occidental decided -- or has presented a proposal to the board of directors of Anadarko to acquire the company for $76 a share. Half of that in cash and half of that in stock. Viewers may recall a couple of weeks back when the Chevron/Anadarko deal was signed on the 12th of this month, I believe it was, a Friday. We had at that time reported on the possibility of that Occidental would choose to do this, feeling as though it had been shut out of the final bidding for that asset, having pursued it for a number of years, actually, and feeling as though its proposal at the time, which as we reported was $76 a share, 40% of that in cash, was superior and wondering why it was unable to get the attention of Anadarko's board of directors. And so, what we have here now is, well, a good old-fashioned fight for Anadarko, whose board of directors, of course, is going to have to respond to this offer this morning. And Chevron, potentially, in a position where it is going to have to compete with a potentially higher offer. Now, it's important to back away and remember, Anadarko chose not to pursue what was a $76-a-share offer from Occidental when there was conceivably an auction going on, although one that from Occidental's point of view, at least, did not actually give it the opportunity to mount its best and final bid. But Anadarko felt at the time, according to people close to that company who have spoken to me, that the stock price at Occidental, the need for a shareholder vote by Occidental shareholders, simply posed too much risk for Anadarko to be willing to take what appeared to be a significantly higher bid. Remember, $76 versus $65. That is still the case, although now they have added actually even more cash to that bid that we'd reported on as being the last one when the auction was going on privately. Now, it's going to be in the public, at this point. The company is saying, by the way, it would create $100 billion global energy leader. They're talking about $3.5 billion of free cash flow improvements through synergies and capital reduction. They're talking about as much as $2 billion in annual synergies and another $1.5 billion in what they call annual capital reduction, guys. So, an interesting morning here, certainly, for Anadarko waking up to this, not to mention Chevron, and it should be an interesting period in time ahead of us here. You can see how Occidental's share price is responding. We'll get a better look at that a couple hours from now. Anadarko is up sharply.
BECKY QUICK: All right, let's get back to David Faber. He joins us with a special guest after all of this news that he just broke. David?
DAVID FABER: Thanks, Becky. We are joined by Vicki Hollub, President and CEO of Occidental. Of course, we just shared the news with you, the decision by the company to submit a, what it calls, a superior proposal to acquire Anadarko. Nice to have you. Thank you.
VICKI HOLLUB: Thank you. I'm so happy to be here.
DAVID FABER: Well, it's going to be a busy day for you. Why are you doing this?
VICKI HOLLUB: Because we're so excited about this acquisition. Anadarko has great assets, and those assets will enhance our dividend-plus-growth strategy. We are the right acquirer for Anadarko Petroleum because we can get the most out of the shale. We have a lot more experience there. We are performing really, really well. And what hasn't been talked about very much is that the up side in this deal is the shale play, is the shale development. 75% of the value of Anadarko is in the shale. And we're the best company to develop the shale. We have a proven track record in the Permian. We're, right now, the best operator in the Permian, and –
DAVID FABER: I noted some of those statistics that you shared in terms of 4% of the wells drilled but 23 of the top 100 top performing wells.
VICKI HOLLUB: Yes. We have a lot of experience and there's been talk about Mozambique and the Gulf of Mexico and that that's not synergistic with us. But the reality is, that's only about 15% of the value of this deal. So, where the money's going to be made, where the value's going to be added is in the development of the shale.
DAVID FABER: In the last almost two weeks, we've been talking a bit about the process that took place. Tell me from your perspective, though, do you feel as though you did not have an opportunity during the period of time you were negotiating with Anadarko to submit your best bid? Did you feel as though, perhaps there was a favoritism of the Chevron bid? Why would you decide to obviously move forward with a public proposal, if you had the opportunity, one would expect, to have submitted a proposal that clearly did not get the attention of the board of directors?
VICKI HOLLUB: Well, we've been working on this, Anadarko, and studying it for two years. And it was in July of 2017 that we made our first approach to talk to the CEO of Anadarko. Since then, we've been in friendly transactions and conversation and engagement. And even today, this is still a friendly engagement. And if you look into the details of that, you'll probably -- you're probably the one that can figure that out. But this is a friendly engagement.
DAVID FABER: People always say it's friendly for shareholders. I'm not sure Anadarko is going to see it as friendly.
VICKI HOLLUB: Well, it is. Because we -- the way we view it is, we're a great company, and the industry knows that. We have a great reputation. And our reputation for core competence and expertise is in subsurface, whether it's enhanced oil recovery or whether it's shale development. We're a great company with respect to subsurface, and this shale play, this is where we really excel. And we have the most compelling bid out there today, and we can add the most value through the shale development.
DAVID FABER: Why not have looked at other shale plays? It's not as if there aren't at a surfeit of them, or at least some available that would give you what you're looking for without having to get into a potentially huge public fight here to acquire a company.
VICKI HOLLUB: Because again, we've been working this two years, and in the two years that we've been working this, there is no other opportunity that has the upside potential that this does. This is one of those very rare opportunities.
DAVID FABER: Give me a sense, then, of this upside potential you keep talking about.
VICKI HOLLUB: Well, it's tremendous because there's more than 10,000 wells that can be drilled. And when you look at the fact that in the Delaware Basin, our performance, our wells perform about 74% better than Anadarko's, and we have lower cost development on both the drilling and completion execution and operations. So, if you take that and you apply that to 10,000 wells, that's a huge upside.
DAVID FABER: Vicki, you're going to issue approximately 309 million shares to Anadarko shareholders, assuming your proposal is accepted and goes forward as currently is constructed. There was concern on the Anadarko part that those shares would not be worth anywhere near what they appeared to be when you made the first bid. What assurances can you give that you think your shareholders -- your share price, I should say, will hold up, given concerns about that shareholder base in terms of your pursuing this very, very large deal?
VICKI HOLLUB: Well, we're combining Anadarko's great assets with the best portfolio that we've ever had as a company. And I think we've clearly shown through our improvement and performance over the last few years that we are a high-performing company. We delivered a return on capital employed of 18% in 2018. That's the best we've delivered since 2011. And oil prices in 2011 were $95 versus $65 in 2018. And the importance of that is we're delivering better return on capital employee than the majors are. So, our performance is better. What we haven't had a chance to do is talk to our shareholders and help them understand the strategy here and how we view this. Now, with this information today, we'll have the opportunity to be clearer with them about what we intend to do and why this makes sense.
DAVID FABER: So, you'll be able to engage with them.
VICKI HOLLUB: Exactly.
DAVID FABER: You'll still need a shareholder vote of those shareholders given all the stock you're issuing. You're confident you can get a yes?
VICKI HOLLUB: I'm very confident we're going to get support of our shareholders. They know and they realize how much we've really gotten to the point where we're the experts in the shale play in the Permian. We're the largest operator in the Permian, and it's not just the shale play, it's enhanced oil recovery. And we have the ability to take enhanced oil recovery and apply it to the shale. There's no company that can do that today like we can.
DAVID FABER: And finally, $2 billion in annual synergies, another $1.5 billion in annual capital reduction. Why do you have confidence? That's a very large number, $4 billion in overall synergies.
VICKI HOLLUB: The $2 billion is based on things that we have already done in our own operations and just taking that and applying it to what we can do with the combined assets. That includes the logistics that we've been able to establish in the Permian and make work. A lot of people have heard about our Aventine hub, which was an innovative way to support our operations. We're going to apply that to the Anadarko assets. We have some proprietary drilling software and modeling that we do that has helped to reduce our cost on the drilling side. And our completions. When you talked about the fact that we have 23 of the top 100 wells, the other fact there is the other wells and the other companies that have wells in that top 100, they had to use 27% more profit, which is about $500,000 a well more than we had to pay to get that performance. So, basically, we can do this for lower cost than others, and we've demonstrated that, and now we can apply it to Anadarko's not only Permian, the DJ Basin as well.
DAVID FABER: Well, we appreciate your joining us this morning. Are you ready for a fight? Because it could be.
VICKI HOLLUB: we didn't intend to fight that's not who we are. This has been a friendly process since July of 2017. We're continuing that process.
DAVID FABER: Well, they didn't continue it, but you're continuing it.
VICKI HOLLUB: We're continuing it.
DAVID FABER: Thank you for joining us. Appreciate it.
VICKI HOLLUB: thank you so much.
DAVID FABER: Vicki Hollub, CEO of Occidental Petroleum. Joe, back to you.
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