Oil behemoth Occidental
The Permian Basin is an oilfield that was responsible for the production of 4.1 million barrels per day of crude oil just in April, making it the second-largest producing oilfield in the world after Saudi Arabia's Ghawar field. It is well on its way to becoming the largest.
At the moment, Occidental is beating out Chevron in the race to buy out Andarko, with the former arranging for $10 billion of financial backing from business kingpin Warren Buffet in order to make the offer more alluring.
"Increasingly, super majors such as Chevron and ExxonMobil are dominating the Permian," James Reeve, chief economist at Samba Financial Group, wrote in a recent report. "These firms have both the cash flow to ride out periods of low oil prices, and the technology to overcome issues stemming from congested well placement. Both Chevron and Exxon expect to treble their Permian output over the next five years or so."
Vicki Hollub, CEO of Occidental, is committed to closing the deal at any cost. So much so, that the aggressive attempt to push the deal has in fact been censured by many important investors, whom Hollub has attempted to circumvent. This may be because currently, Occidental is on its way to becoming only the fifth-largest oil company in the world by 2025, given that the company remains rooted in its ways and nothing changes.
That said, Chevron has an advantage over Occidental that will be difficult to overcome: scale. Chevron CEO and Chairman Michael Wirth once stated in an interview, "the shale game is a scale game." Given that the company has currently only tapped into 8% to 9% of its reserves, it thus has immense scope for raising capital in a way that Occidental cannot surpass. What's more is that Chevron also owns the land it drills on and therefore has no drilling right fees to pay, cutting costs in that regard as well.
David Katz, president and chief investment officer of Occidental shareholder Matrix Asset Advisors, said, "Vicki Hollub seems committed to getting this done at any cost." He said her "obligation should be to maximize value, not to maximize the empire. We urge the company to consider selling rather than buying."