Deal-maker Armand Hammer Moscow's capitalist comrade
This office is the last place a person would expect to find a picture of Lenin, personally autographed. "To Comrade Armand Hammer from V. I. Ulyanov [Lenin], 10.XI.21 [Nov 10, 1981] ," it reads. Dr. Armand Hammer is 100 percent, unadulterated, prime-cut capitalist, a free- enterprise man if ever there was one, light-years away from Lenin's ideology.
The comradeship with Lenin is genuine becausem of Dr. Hammer's capitalism, not in spite of it. Young Hammer, just out of medical school, arrived in the new Soviet state in 1921 full og idealism and savvy. With Lenin's official blessing and encouragement, he injected the beleaguered Russian economy with a touch of free enterprise. He brought some much- needed vigor to that economy and gained the admiration and support of Lenin in the process.
Yet the framed black and white photograph of the father of Soviet Russia hangs near another memento in Dr. hammer's office, one closer to the substance of his grit. It is a scale model of a drilling rig, the one that brough in Lathrop field, the second largest natural gas well in California, and propelled Dr. Hammer into a position as one of the most powerful captains of American industry.
No, Armand Hammer is not the "baking soda king" -- people constantly ask him and those associated with him if he is -- even though his name matches that of Arm and Hammer Baking Soda. In fact, he is said to have considered buying the company just to put the issue to rest. He claims that his mother named him Armand for the youthful lover in Dumas's "Camille," but another account claims his father, a stalwart socialist, named him for the arm and hammer insignia that was the symbol of socialist revolution at the time.
Dr. Hammer is or has been an oilman a coal man, a chemical man, an art collector and dealer, a cattle breeder, a liquor distiller, and -- neither last nor least -- perhaps the greatest marketing genius since P. T. Barnum. His competitors probably wish he were the baking soda king, since when he takes up an endeavor he is apt to leave a trail of second- place finishers behind him.
For instance, the people at Texaco ara, no doubt, none too happy about the Lathrop gas field. Acting on the advice of a young geologist, Dr. Hammer had his company drill a gas well only a few hundred feet from -- but a thousand feet deeper than -- a well Texaco had abandoned as dry. Dr. Hammer's well brought in and gas industry.
They are not thrilled about him at Mobil, either. He sank a well in a lease tract in Libya that Mobil had given up on and came away with the largest oil strike in one of the Middle East's oil-richest countries.
As for New York's Metropolitan Museum of Art, "I think they get very nervous when I walk in there," Dr. Hammer says with a chuckle.He made off with two paintings -- Rembrandts -- for his private art collection that the Met had on loan and had counted on keeping indefinitely. And when he bought "Juno" and "Man Holding a Black Hat," on separate occasions, for $3 million and $2 million, respectively, Dr. Hammer pulled the rug out from two meseums which thought they had the masterpieces as good as signed, sealed, and delivered. Mentioning the name "Hammer" at those three museums does not evoke gushes of warm feeling.
His present title is chairman of the board and chief executive officer of the Occidental Petroleum Company, or "Oxy," as it is universally known. In a sense, Oxy started out as a retirement project for Dr. Hammer. In 1956 he had left the East Coast to retire to California with his millions. In Los Angeles, a friend pointed him in the direction of Occidental Oil, a company teetering on the abyss of bankruptcy. The friend suggested that Dr. Hammer lend the company $50,000 to drill two new wells -- its last two if they came up dry -- as a tax write-off. According to the company's balance sheet, which now hangs on Dr. Hammer's office wall, Oxy itself was worth $16,000 less than that.
Dr. Hammer who had never seen an oil well, bit, and so did the wells. The company's stock jumped from 18 cents a a share to $1 a share, and Dr. Hammer bought large amounts of it. (He is stll the biggest stockholder.) More oil strikes followed, and Dr. Hammer was elected president in 1957. In 1961 Oxy hit Lathrop field and then in 1966 struck oil in Libya, putting this little $34,000 brat of a company in a league with the majors -- so much so that Standard Oil of Indiana tried to force a takeover of Oxy in 1974. Dr. Hammer fought the raid at every turn, and Standard Oil eventually dropped it.
Oxy's oil and gas strikes were certainly not just a matter of being in the right place at the right time. In the long run it is the Hammer touch that counts. He can be ruthless, but he can also be a real charmer. For instance, when he presented Occidental's Libyan oil drilling bid, in person, to King Idris I, then undisputed ruler of Libya, he had the proposal written out on a sheepskin, rolled up, and bound with ribbons in Libya's national colors. He also promised that 5 percent of any pretax profits would go to agricultural development and promised that Oxy would search for water as well as oil.
To the astonishment of his much bigger competitors, who had offered more standard terms, Oxy won the concession.When the company struck oil, Dr. Hammond named the field Idris Field. (There has been considerable speculation, never proved, that Occidental's Libyan representative dispensed liberal "bonuses" to members of the Libyan government. It is a charge that has been made against other companies doing business in Libya as well as in the rest of the Mideast.)
The Libyan strike tapped oil reservoir with an estimated flow equal to that of the Nile River and a production lifetime of 200 years.
sitting in his posh Los Angeles office , Dr. Hammer relates these feats of business derring-do with the air of a Vermont grandfather spinning tales in front of a crackling fire. He smiles and gives a faint chuckle when he ends with a punch line such as "We hit a $200 million gas field." He admittedly enjoys defeating other people's expectations about what is possible.
Oxy has risen from near oblivion to become "the 21st largest corporation in America, and the 10th largest oil company," says Dr. Hammer with undisguised delight. It has been the fastest climber on the Fortune-500 list since the list began in 1955. The year before, 1954, Oxy's sales scarcely tipped the scales at "nearly $10 billion," $9.6 billion, actually, "and earned $560 million after taxes." Not bad for a tax write-off.
"I like the challenge," he says. "When someone tells me that something can't be done, I like to prove that it can."
Someone told him that there would never be another great private art collection -- too many masterpieces were locked up for another collector to start from scratch.
"I took that as a challenge," says Dr. Hammer, smiling, and now he owns a traveling collection (bequeathed to the Los Angeles County Museum of Art) of some of the most stunning paintings in existence, perhaps the most concentrated gathering of significant art in the country. His Rembrandt "Juno" has been called the most important painting in any private collection, and his group of Impressionists' paintings represents the absolute cream. He owns a 110 works -- paintings and drawings, each enough to curl the socks off any art lover -- insured for $50 million. And he promises to keep adding to the collection.
He had already set the art world on its ear by selling off the multitude of art treasures he had brought back from Russia -- in department stores across the United States during the depression. No one had ever marketed genuine art in department stores before, but the method was such a wild success that he used it to sell $11 million of William Randolph Hearst's $50 million art collection.
The publishing czar was in desperate financial straits at the end of the '30 s. Dr. Hammer and his brother, Victor, owners of the prestigious Knoedler Contemporary Art gallery in New York, sold thousands of pieces of art and antiques off the floors of Gimbels and Saks Fifth Avenue, helped by the fact that they had persuaded the major New York papers to run front-page stories on the day preceding the opening, a public relations man's dream.
As for his own collection: "When I'm with my paintings, I'm oblivious to everything else," he says. They are his relaxation.
Relaxing moments come few and far between. Dr. Hammer runs most of his business affairs in person. Our original interview date had to be rescheduled because he had flown off in his private jet to Peru to discuss that country's insistence on a bigger cut from Occidental's Peruvian oil wells. The Peruvians had their way, but, as usual, the "good doctor," as other Oxy officials call him , struck a deal protecting the company's interest.
His golden touch, he insists, has nothing to do with luck. "I think I create my own opportunities to a large extent. I see an opportunity where other people don't. I pursue it with intensity and concentration. If I am lucky, it is the sort of luck that comes from working seven days a week, 14 hours a day. Maybe that's where a lot of my intuition comes from.
"Many people have opportunities, and they either don't recognize them or they don't pursue them. They're lazy or distracted by other pleasures. They want to quit at 5 o'clock, play golf, or take long weekends. I don't do any of that. My pleasure is my business. That's my hobby, except for my two other interests: my art and my interest in the Salk [medical research] Institute. . . . Going out to the country or playing golf would bore [me]."
He has the knack of recognizing when advice is sound. When a young geologist named Bob Teitsworth suggested that Texaco had given up too soon on Lathrop, Dr. Hammer listened. When his drilling chief and the rest of Occidental's board of directors suggested that the company was in over its head in Libya, he marched to his own drummer. Both decisions proved to be turning points in Oxy's fortunes.
Some of his business ventures have drawn criticism -- some of it justified and some not. And he had been investigated by the US Securities and Exchange Commission, each case concluding with the company's signing a consent decree, admitting to no guilt but agreeing to stop whatever it was accused of doing.
Whatever successes Occidental Petroleum has had in the past, its future, and Dr. Hammer's looks even rosier. It has diversified its energy development and all the most profitable directions. Oxy owns Island Creek Coal Company, the third-largest in the US. Not only do Dr. Hammer's plans for Island Creek come at a time when the nation expects to rely increasingly on coal, but the company has also launched a research project to extract liquid fuel from coal.
Besides, Occidental holds the patent for what may be the most promising method of extracting oil from oil shale. At present, to "milk" shale for oil involves heating the rock so that the oil flows out, leaving huge waste heaps of discarded shale.
The Occidental process heats the rock and extracts the oil while the shale is still in the ground, eliminating most of the waste problem. By 1985, pilot plants built by Oxy will be producing 50,000 barrels of oil from shale a day, according to a company spokesman. Costs are expected to be between $15 and $20 a barrel, compared with $30 a barrel for oil from the Organization of Petroleum Exporting Countries (OPEC). The amount of oil available from shale oil, experts estimate, is more than 1.8 trillion barrels. The Mideast, on the other hand, produced a mere 7.7 billion barrels in 1978.
Although energy problems occupy much of Dr. Hammer's thinking now, relations between the US and USSR get to top billing. After all, his experiences with the Soviets range from friendship with Lenin to Friendship with Brezhnev.
With disease and famine rampant in the early postrevolution days, Dr. Hammer, just out of medical school, went to Soviet Union to volunteer his services as a doctor. He took with him a fully equipped field hospital and was the first American and one of the first Westerners allowed into the new Bolshevik state. The widespread starvation appalled him, and he quickly arranged a shipment of American grain. The move so impressed Lenin that he called Dr. Hammer in for private meeting. "It's just fortunate that I was there at a time when Lenin was disillusioned with communism," Dr. Hammer recalled of those early days in Russia. "He told me that communism wasn't working and that was why he adopted the New Economic Policy, opening up private trade and giving concessions to foreigners to come and do business with Russia. He said to me, 'Why don't you come in and be the first? What we need is businessmen like you. You can have any concession you like.'
"He gave me two: one for mining asbestos and the other for fur import-export" (mostly furs on the export side; Dr. Hammer established trapping outposts all over Siberia).
Dr. Hammer set up numerous enterprises in the Soviet Union, including a pencil factory that introduced the capitalist concept of piecework.
Armand Hammer knew nothing about making pencils -- but the neither did anyone else in Russia. He did know, however, that pencils would be in enormous demand as the USSR began educating its illiterate populace. The German company, Faber, had a virtual hammerlock on pencilmaking technology and a monopoly on the world market. Dr. Hammer secretly hired away some of the German company's master craftsmen.
So some of USSR's leaders must have learned their Cyrillic ABCs with capitalist pencils clutched in their little fingers.
Dr. Hammer eventually became the representative in the USSR for 38 foreign companies in their dealings with Moscow. Soviet agriculture owes its mechanization in part to his ability to persuade Henry Ford, an ardent anticommunist and alleged anti-Semite, to let Dr. Hammer, a Jew, sell Ford tractors jto the very bulwark of communism.
"I'm a dealmaker," he says. "I love to make deals."
Although his business dealings with the Soviet Union were cut short when Stalin came to power, he had more or less single-handedly laid the groundwork for the current state of Western trade with the Soviet Union, and he remains an ardent supporter of increasing the flow of commerce. Not only do he and Occidental stand to reap considerable financial gain (for nearly a decade Dr. Hammer has been putting together a $22 billion fertilizer deal with the Russians , a deal now partly stalemated by President Carter's trade restrictions), but he sees trade as vital for maintaining peace.
This wily capitalist was quietly going about his business in Moscow long before President Nixon brought on detente. The common meeting ground, Dr. Hammer says, is trade.
"Benjamin Franklin was a pretty smart old fellow, you know. He said that trading partners don't very often make war with each other," Dr. Hammer said.
He feels strongly that the present state of tension between the two countries over Afghanistan "is the most dangerous [situation] I've ever seen in my 60 years of relationships with Russia. The lowest ebb."
This man, one of the few Americans on a first-name basis with Leonid Brezhnev , thinks the Soviets are just as paranoid about what they see as signs of US aggression in the Persian Gulf as the US is about Soviet Intentions there. "One of the things happening in Iran is that the Russians fear we may try to take over or invade Iran. They think the military presence we have there now is all out of proportion with the necessity of freeing the hostages. They are as fraud of us as we are of them. . . .
"So I think, there's no solution except accommodation, and that means we have to get along with each other. We don't buy their ideology. They don't buy ours , but there's no reason why we have to threaten each other. Let history take care of whose ideology is going to prevail.
"I feel that we must be patient with the Russians. Above all, we mustn't try to pressure them to where they retaliate."
He has a four-point program to make the United States entirely self-sufficient in energy in 10 years. It is certainly no accident, however, that Occidental would benefit if his ideas were carried out.
The Hammer program:
* "Use more coal. Every public utility must substitute coal for gas and oil. They should install scrubbers and whatever equipment is needed to keep the environment clean. We should do the same thing for industrial boilers.
"If every boiler is the US that burns oil would burn coal, we could save 1 to 1 1/2 millions barrels of oil a day. If [the utilities and industries] don't do it, they should be punished. But we should give them accelerated depreciation and loans if they need it. Whatever it takes to get the job done.
"In Japan, within five years there won't be a single boiler that doesn't burn coal."
* Develop shale oil. "Our company is pioneering that. There is enough oil in shale to take care of this country's needs for 100 years. We could once again supply our own needs as well as out allies'."
* Make a deal with Mexico and help them with their unemployment problems. Build American industries in Mexico, employing Mexican Labor. Our company (Hooker Chemical, a subsidiary of Oxidental) is already doing it.
We've Mexicanized ourselves. We went public and sold 51 percent of our company to the Mexican people and we're doing very well." (Hooker is also the company involved in the Love Canal toxic-waste dumping scandal in New York Occidental officials point out that Hooker was at Love Canal before Oxy acquired company.)
"In return for encouraging American business [the Mexican government] would give insurance against nationaliztion and expropriation, plus tax benefits. Them I'm sure we could work out a trade deal with the Mexican government where they would step up their oil production from 2 million barrels a day to 4 million. We ought to get 2 million barrels a day from Mexico.
* Develop coal liquefaction, another synfuel process that turns coal into a liquid fuel. "Solar ang geotherman are fine and they should be developed, but you can't run cars on them."
Dr. Hammer does not believe energy conservation is much more than a stopgap measure. "If we conserve a significant amount of fuel, the the OPEC nations will just cut back on production to keep prices high. It's already happening.
"I think there will be a lot of movement in these directions over the next few years. Then we can talk to OPEC from strength instead of weakness. We could say, 'In 10 years we won't need your oil, so you'd better make a good deal with us now.'"
Dr. Hammer is living proof that the odds against reaching a goal are largely a matter of perception. Back when he was in his early 70s, a number of people suggested, not too subtly, that he should step down from directing Occidental's affairs. Now that he has passed 80, the same people are asking, "What's next?"