Stephen Chazen led Occidental for roughly five years until 2016 and handpicked current CEO Vicki Hollub.

Photo: brendan mcdermid/Reuters

Occidental Petroleum Corp. plans to bring back former Chief Executive Stephen Chazen as its new chairman, according to people familiar with the matter, as the oil producer scrambles to right itself amid plunging demand and an activist onslaught by Carl Icahn.

Mr. Chazen, a heavy hitter in the energy world, led Occidental for roughly five years until 2016 and handpicked current CEO Vicki Hollub. His appointment could be announced in the coming days, assuming discussions don’t fall apart.

The move is likely aimed at mollifying Mr. Icahn and avoiding a costly and distracting proxy fight at Occidental’s annual meeting later this year. Mr. Icahn had tried to recruit Mr. Chazen for the slate of directors he nominated in November. Mr. Chazen at the time was reluctant to get involved unless it would help Ms. Hollub clear an impasse with the billionaire activist, The Wall Street Journal has reported.

It isn’t clear whether the appointment will have the desired effect. Mr. Icahn’s camp has more recently been critical of what it sees as Mr. Chazen’s role in setting the strategy that led to the company’s current woes.

Mr. Chazen, who was an investment banker at Merrill Lynch before a long career at Occidental, is now chief executive of Magnolia Oil & Gas Corp., an independent producer, and is expected to continue in that role.

The recent plunge in oil prices, due to the novel coronavirus outbreak and a price war between Russia and Saudi Arabia, has devastated Occidental, which just last year loaded up with debt for the $38 billion purchase of Anadarko Petroleum Corp. That deal now looks like one of the most ill-timed acquisitions in history.

Occidental’s shares have lost nearly 90% of their value in less than two years and closed Thursday at $10.83. Its market value has shrunk to less than $10 billion from well over $40 billion before the Anadarko deal was struck last spring. It also has so far been a money-losing position for Mr. Icahn, who owns roughly 10% of the company after scooping up additional shares last week.

Occidental has already added new directors in recent months, including former Schlumberger Ltd. CEO Andrew Gould, to strengthen its standing with shareholders who would ultimately decide any proxy fight. Energy executive Jack Moore was set to take over as chairman from Gene Batchelder before Mr. Chazen entered the mix. Occidental has been considering adding other new blood to its board including former Anadarko Chief Executive Jim Hackett, some of the people said, though it isn’t clear where those discussions stand.

Mr. Icahn and Occidental representatives have spoken briefly in recent days and both sides are motivated to prevent the fight from going all the way to a shareholder vote, some of the people said, but they haven’t held substantial settlement discussions. Mr. Icahn wants to ensure Occidental’s board will seriously consider any sale offers should oil prices recover and consolidation in the industry occur.

Mr. Icahn had accused Ms. Hollub and the board of buying Anadarko to avoid an acquisition of the company itself and criticized its use of pricey financing from investor Warren Buffett.

Occidental said last week it would shrink its dividend and cut costs, moves that would allow it to roughly break even with U.S. benchmark oil prices in the low $30s a barrel. Oil prices rallied Thursday after hitting the lowest level in nearly two decades, closing at around $25.

Write to Cara Lombardo at cara.lombardo@wsj.com

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