(FORTUNE Magazine) – ARMAND HAMMER, the capitalist chum of Lenin and friend of U.S. Presidents since Franklin D. Roosevelt, the globe-girdling amateur diplomat and millionaire art collector, the nonpracticing physician who made fortunes in pharmaceuticals, pencils, bull breeding, and whiskey before he became chairman and chief executive of Occidental Petroleum, is 90 years old. He looks it. His voice is weak, his hearing weaker, his walk halting. When he sits, his clothes hang loosely on his bones and he scarcely moves. Surrounded by a protective staff who revere him as the Doctor, Hammer salts his conversation with long-ago triumphs, nurses long-ago wounds, and often responds to questions with long-ago answers. It would be easy to dismiss him. And yet, says Robert Peterson, a former Occidental director who once tangled with the chairman, ''only a fool would underestimate Armand Hammer.'' The Doctor is so good at tooting his own horn, one hates to do it for him. Yet in the twilight of his career Hammer seems to have brought off his most remarkable coup yet: After 31 years Occidental is beginning to be run more like a solid FORTUNE 500 company, rather than the highly questionable, wildly erratic one-man operation of legend. Even in the face of low oil prices and heavy corporate debt, the chemicals division is swelling the company's earnings. The betting, though always hedged, is that the notorious revolving door on the Los Angeles presidential suite -- six men have held the job in 20 years -- has stopped spinning. Ray Irani, a hard-driving chemical engineer who masterminded the turnaround of Oxy's chemical business, seems a true heir apparent to the irascible man who has been chairman for more than three decades. Both men are doctors of a sort -- Hammer got his M.D. in 1921, Irani his Ph.D. in 1957. ''Ray Irani and his team run the company,'' says a security analyst whose view of Oxy has changed considerably. ''Hammer is very much a figurehead, a traveling spokesman.'' The Doctor doesn't admit to being a front man, but he acknowledges he has become a hands-off, albeit watchful, chairman of the board. Says Hammer: ''Most of the things I'm proudest of, I've done in the past five years, since Dr. Irani came to the company.'' He is referring to his efforts to raise $1 billion for cancer research and his attempts to improve U.S.-Soviet relations. ''I've been able to do them because my mind has been relieved of the work of a president and chief operating officer,'' he says. ''I know that when I go to China or Russia, the company is in good hands with Dr. Irani. Ray knows he'll be the chief executive officer of Occidental, but he's not in a hurry.'' Irani isn't the only person who has had to be patient with Hammer and the company he created: The Doctor's legacy is one of horrendous ups and downs; gains, particularly for investors, have been long in coming. In 1955 the market value of Occidental was $108,000. Nowadays Oxy is the tenth-largest oil company in the world, with a market value of $6.9 billion and major interests not only in the energy business and in chemicals, but also in beef and pork processing. Hammer constructed this edifice, however, on a framework of high debt and dubious earnings. THE STORY since 1955 -- and the key to Occidental's strategy -- has been, in Hammer's telling, the picaresque adventures of little Armand Hammer and little Oxy in what he calls ''the Big World.'' An outsider to the industry peering up at giant oil companies, Hammer has feared takeover by the so-called Seven Sisters ever since 1966, when Oxy struck a billion-barrel oil field in Libya. ''If Occidental were to be impregnable to takeover,'' writes Hammer in his autobiography, ''I had to make it too big for the majors to swallow.'' The way to do that, he decided, was by buying other businesses. The Libyan oil pumped up Oxy stock into what Hammer called, with typical understatement, a ''supercharged'' currency for ''one of the fastest and most extensive drives of corporate acquisition in the American 20th century.'' Hammer succeeded in making Oxy big, but at the cost of saddling it with ''enough debt to choke a horse,'' says another security analyst. Oxy's borrowings represent about half its total capital, roughly twice as much debt as the biggest oil companies carry; they amount to $6.3 billion, down from a peak of $7.4 billion in 1986. While the company has consistently reported earnings, Oxy would have lost money were it not for huge asset sales over the past several years. According to Paul Leming, a chemicals analyst with the Morgan Stanley investment bank, massive debt-servicing requirements bit so deeply into cash flow that Hammer has had to sell assets to keep Oxy in the black. Without those sales, Oxy was cash-flow negative, Leming and other analysts say, with more money going out the door than coming in. Hammer has also used frequent sales of stock to prop up Oxy's finances. In 1972 shares outstanding totaled a mere 55 million. But to pay for those acquisitions Hammer peddled equity all over the place, quintupling the number of shares to 267 million this year. A $1.4 billion stock sale in July was one of the largest in U.S. history. How have shareholders fared? Poorly (see chart). Total annual return (including stock price and dividend yield) compounded over the past ten years averages 9%, compared with 14% for ten other large oil companies. In other words, if an investor had bought $100 of Oxy stock at the beginning of 1978, his stake would have grown to $227, compared with $378 for $100 invested in the stocks of ten other oil giants. ONLY ONCE in the past six years have Occidental's operating earnings covered its $2.50 dividend -- which gives the stock a junk bond-like yield of 10%. They aren't likely to cover the dividend this year either. Why keep the dividend so high? Hammer says that he made a commitment to shareholders and he won't break that promise. A high yield is also the main enticement in Oxy's recent sales of stock. If the company did cut the dividend the stock price would surely fall, and perhaps collapse. The dividend also plays a big part in Hammer's strategy of keeping Oxy independent whatever the cost. The company's breakup value is estimated at anywhere from $30 to $40, vs. its recent share price of $25.75. If Hammer cuts the dividend to a seemingly reasonable level, say, 50 cents, then the share price could plummet to maybe $15. That would open a huge gulf between market and breakup value, almost certainly enticing a raider, says Bruce Lazier, an oil analyst at the brokerage house of Prescott Ball & Turben. Lazier notes that the last time Hammer cut the dividend, in the early Seventies, his worst nightmare came true: Standard Oil of Indiana tried a hostile takeover. (It lost.) If Oxy's past is so thoroughly checkered, why then does much of Wall Street recommend the stock now? First, because Hammer's financial high wire isn't as far off the ground as one might think. Cash flow this year will exceed $8 a share, more than enough to cover the dividend. Since 1978 the company's net worth has quadrupled, to $5.2 billion in 1987. And despite its jerry-built earnings, Oxy is rich in assets: $19.6 billion, as of June 30, up from $16.7 billion in December, mostly thanks to, you guessed it, another acquisition. The company has other strengths as well. Historically it has found as much new oil as it took out of the ground, discovering five one-billion-barrel oil fields since 1966, an excellent record. In 1987 reserves totaled 736 million ^ barrels, compared with 728 million the year before. Oxy has some of the lowest finding costs in the oil industry: $3.30 a barrel over the past five years vs. the industry average of $6.19, according to John S. Herold Inc., an oil research firm in Greenwich, Connecticut. And Oxy is spending the money to find more oil: Its exploration budget this year will total $580 million, up 35% from a year earlier. Many of Hammer's deals, while derided by Wall Street at the time, have turned out to be perspicacious. His $4 billion acquisition of Cities Service in 1982 was criticized as a poorly timed purchase of a mediocre company. What few investors have realized, says oil analyst Ron Londe of the A.G. Edwards & Sons brokerage firm, is that the deal transformed Oxy from a risky international oil company to one with more stable sources of supply in the U.S. Iowa Beef Processors, the huge beef and pork producer, was Hammer's strangest buy. It has also proved to be one his most profitable, albeit with a lot of fancy financial footwork. Last year Oxy spun off 49.5% of IBP to the public. Having bought IBP for $750 million in stock in 1981, Occidental got back $960 million while retaining nearly half the company. Analysts expect Oxy to earn its dividend next year, or at least to get close. Indeed, the company should be able to cover its dividend out of earnings for the next several years. Declares Hammer: ''We are not dependent on asset sales anymore,'' and for once the analysts agree with him. Oxy's improved prospects are due, in large part, to another controversial acquisition -- its purchase in May of Cain Chemical. Gordon Cain had put the company together in 1987 from operations cast off by big chemical companies such as Du Pont. The veteran chemical executive paid about $1 billion for the properties. Oxy paid Cain shareholders $2.2 billion, a price that looked to some analysts like absolute top dollar. But some of those same analysts now estimate that the Cain assets have increased in value, to as much as $3.5 billion. The acquisition makes Oxy the third-largest maker of ethylene, a building block of plastics with uses ranging from pipes to luggage. Ethylene prices have zoomed from 27 cents a pound in May to more than 33 cents today. Oxy's first-half earnings tell its near-term future: Chemicals accounted for 44% of the $769 million in first-half operating profit, while making up only 20% of the first-half revenue of $9.2 billion. The big question mark about a cyclical < industry like chemicals is how long the boom will last. Most industry analysts believe that it will take a recession, plus the addition of a lot more capacity, which would take maybe four years to build, to bring on a major downturn. Until, say, 1991 Oxy should enjoy substantial profits from Cain and its other chemical properties, aided by low prices for oil, the feedstock for most of its chemicals. ''Oxy is a company with a disastrous past,'' concludes Leming of Morgan Stanley, ''but since Irani and crew came in, every year they've been cleaning things up, and it's getting a little bit better.'' IT WAS HARDLY love at first sight for Irani and Hammer. Irani came to Occidental in 1983 from the presidency of Olin Corp., a $2-billion-a-year chemicals and metals conglomerate. Hammer wanted him to head Oxy's troubled chemicals division, which that year lost $38 million on sales of $1.7 billion. ''Oxy, for its size, was probably the worst chemical company at that time,'' recalls Irani. ''Most of my colleagues thought I'd flipped.'' Even though Irani was getting restless at Olin, it took a lot to get him to change jobs. Among other concessions, he held out for the same salary he had at Olin, even though he would be only a division head at Oxy. Louis Nizer, the famed attorney and an Occidental director, helped negotiate Irani's contract. He remembers Irani's terms as ''very, very severe and harsh.'' But, says Nizer, ''Hammer saw in him a future top executive, and he told me, 'Give it to him.' '' Irani, 53, is the son of a mathematics professor in Lebanon. Graduating summa cum laude in chemistry from Beirut's American University at 18, he earned his doctorate in physical chemistry from the University of Southern California at a mere 22. As a research scientist at Monsanto, Irani earned the bulk of his more than 150 patents for such products as pesticides, food additives, and cleaning compounds. ''I got into management because I had more ideas than my two hands could do,'' the naturalized American says. Irani, who rarely socializes with colleagues, can be brusque in a business setting. At Oxy meetings he grills division heads bluntly. But friends say Irani has a puckish sense of humor, plays a mean game of gin rummy, and is improving at golf. A film buff, Irani picked USC for his doctoral work because he wanted to be near movie stars, one of his idols being John Wayne. A clue to Irani's partnership with Hammer can be found in his relationship with John Olin, who died in 1982 at the age of 89. Olin, a noted right-winger and a dominating presence at the conglomerate his father founded, intimidated many. ''I liked the guy, I respected him,'' says Irani, but he notes, ''I wasn't afraid of him.'' When he felt his advice was ignored by Olin, Irani would snap, ''If you didn't want my opinion, why are you paying for it?'' Such plain speaking seems to delight Hammer. One former heir apparent has a more acerbic explanation of the apparent concord: ''Dr. Irani is the ideal partner for Dr. Hammer: He does all the work and Dr. Hammer takes all the credit.'' What would Irani do if he became chairman? He resolutely declares that the company isn't another Gulf & Western waiting to be restructured after the death of its long-term leader (G&W stock spurted upward after Charles Bluhdorn died). Analysts nonetheless give free rein to their imagination, seeing a newly liberated Irani slashing the dividend, selling off oil assets, paying down debt, and concentrating on chemicals. Irani says they are wrong. For his part, Hammer insists he isn't going anywhere, certainly not into retirement. Hammer hews to a regime he fashioned after a heart attack in 1976. He gets up at 5 or 6 A.M. for a rubdown by a Finnish masseur. Then for half an hour he swims naked (''It feels better'') in the pool of his Westwood home, listening to Bing Crosby or Frank Sinatra records. Breakfast in bed follows, where he peruses the Wall Street Journal, the Los Angeles Times, the New York Times, and the Oil Daily. Then a chauffeured five-minute drive to the office at 10 A.M. Appointments and paperwork occupy him straight through to lunch at his desk. A catnap breaks up the afternoon, and then work to 7 or 8 P.M. Asked if he is the ultimate survivor, Hammer waves the question away like a gnat: ''I don't feel my age, that's for sure.'' As an aside, he mentions his best-selling autobiography, Hammer, which details his life up to 1986. ''I'm working now,'' he says blithely, ''on volume two.''

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: HOW OXY's RETURNS MEASURE UP Occidental's total return to investors -- dividends and appreciation in the stock price -- has usually lagged behind the average of other oil giants, ranging from Exxon to Unocal.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: INVESTOR'S SNAPSHOT OCCIDENTAL PETROLEUM