================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 18, 2003
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-9210 95-4035997
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
10889 Wilshire Boulevard
Los Angeles, California 90024
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code:
(310) 208-8800
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Item 9. Regulation FD Disclosure
- ------- ------------------------
Attached as Exhibit 99.1 is the presentation made on November 18, 2003 by
Dr. Ray R. Irani, Chairman and Chief Executive Officer of Occidental Petroleum
Corporation, at the Banc of America Securities 2003 Energy & Power Conference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
(Registrant)
DATE: November 18, 2003 S. P. Dominick, Jr.
--------------------------------------------------
S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
EXHIBIT INDEX
99.1 Presentation made by Dr. Ray R. Irani
EXHIBIT 99.1
- --------------------------------------------------------------------------------
Occidental Petroleum Corporation
[OXY LOGO]
DR. RAY R. IRANI
Chairman & Chief Executive Officer
Occidental Petroleum Corporation
BANC OF AMERICA SECURITIES
2003 Energy & Power Conference
Lake Las Vegas, Nevada
November 18, 2003
- --------------------------------------------------------------------------------
Good morning. It's a pleasure to be here at Banc of America Securities'
2003 Energy & Power Conference.
1
- --------------------------------------------------------------------------------
Performance Goals [OXY LOGO]
o Top Quartile Total Return to Shareholders
o Top Quartile Financial Performance
- Return on equity
- Return on capital employed
o Top Quartile Operational Performance
- Profits per BOE
- Free cash flow per BOE
- Finding & development cost per BOE
- --------------------------------------------------------------------------------
When we began restructuring Occidental in 1997, our focus was on achieving
one primary objective - generating a total return to shareholders that ranked in
the top quartile among our large-cap oil and gas competitors.
This required achieving top quartile financial performance as measured by
returns on equity and capital employed.
We believed we could achieve top quartile financial returns by being a top
quartile performer in terms of profitability, free cash flow and finding and
development costs per BOE.
This morning, I'm going to give you a progress report on how well we're
doing - beginning with the strategy that is driving our performance.
2
- --------------------------------------------------------------------------------
Overall Business Strategy [OXY LOGO]
OIL AND GAS
o Focus on large, "legacy" oil
and gas assets in U.S.,
Middle East and Latin
America
CHEMICALS [photo]
o Harvest cash
BALANCE SHEET
o Maintain strong balance
sheet
- --------------------------------------------------------------------------------
Our business strategy is focused on large, long-lived, cost-competitive oil
and gas "legacy" assets in the U.S., the Middle East and Latin America. These
large core assets give us stable production, strong earnings and cash flow and a
solid platform for new growth initiatives.
The role of our chemical business is to generate cash. Our core chemical
business has always generated positive cash flow - even under the most difficult
market conditions.
The third element of our strategy is to maintain a strong balance sheet -
and we've succeeded in establishing the strongest balance sheet in more than two
decades. A strong balance sheet lowers our risk profile and provides the
financial flexibility needed to capture new opportunities for profitable growth
and to increase dividends.
3
- --------------------------------------------------------------------------------
Oil & Gas Business Model [OXY LOGO]
o Create value throughout
the oil & gas business
cycle [photo]
- Exploration
- Enhanced recovery
- Acquisitions
- --------------------------------------------------------------------------------
Our overall business strategy is driven by our oil and gas business model which
has three components. Each of these components plays an important role:
o We focus on adding commercial reserves in and around our core areas
through the drill bit.
o We pursue opportunities with host governments in our core areas to
enhance the development of mature fields with large volumes of
remaining oil in place.
o Finally, we maintain a disciplined approach in buying assets whose
performance can be improved by the application of new technology and
practices.
o This business model is both flexible and durable.
4
- --------------------------------------------------------------------------------
Return on Equity [OXY LOGO]
Oxy's Ranking Within Oil & Gas Industry: 1997-2002*
[the following is a tabular representation of graphical materials]
1997 1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------ ------
1 1 1 1 1 OXY
2 2 2 OXY OXY 2
3 3 3 3 3 3
4 4 4 4 4 4
5 5 5 5 5 5
6 6 6 6 6 6
7 7 7 7 7 7
8 8 8 8 8 8
9 9 9 9 9 9
10 OXY OXY 10 10 10
11 11 11 11 11 11
OXY 12 12 12 12 12
13 13 13 13 13 13
* Based on rolling three-year averages versus 12 large-cap competitors
- --------------------------------------------------------------------------------
As I noted earlier, one of our objectives when we began restructuring in
1997 was to become a top quartile performer in returns on equity and capital
employed.
This slide shows where we ranked in return on equity compared with 12 other
large-cap oil and gas companies - based on rolling three-year average returns.
As you can see, we ranked 12th in 1997 based on the three-year average
returns for 1995 through 1997.
By 2002, we moved up to number one based on our performance during the 2000
- - 2002 period.
5
- --------------------------------------------------------------------------------
Return on Equity [OXY LOGO]
2000-2002 Average
(Percentage)
[the following is a tabular representation of graphical materials]
COMPANY RETURN ON EQUITY
- ------- ----------------
OXY 22.2
XOM 20.4
UCL 18.7
APA 15.7
BR 15.2
AHC 13.2
CVX 12.3
BP 11.7
KMG 10.1
DVN 8.1
APC 7.3
MRO 7.1
COP 6.5
Income applicable to common sthares in 2000-2002 divided by average equity
during the year - per SEC filings.
- --------------------------------------------------------------------------------
This chart shows how our industry-leading three-year average return on
equity of 22.2 percent for the 2000 - 2002 period compares to our large-cap oil
and gas competitors. The average among our competitors is 12.2 percent.
6
- --------------------------------------------------------------------------------
Return on Capital Employed [OXY LOGO]
Oxy's Ranking Within Oil & Gas Industry: 1997-2002*
[the following is a tabular representation of graphical materials]
1997 1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------ ------
1 1 1 1 1 1
2 2 2 2 2 OXY
3 3 3 3 OXY 3
4 4 4 4 4 4
5 5 5 OXY 5 5
6 6 6 6 6 6
7 7 7 7 7 7
8 8 8 8 8 8
9 OXY OXY 9 9 9
10 10 10 10 10 10
11 11 11 11 11 11
12 12 12 12 12 12
OXY 13 13 13 13 13
* Based on rolling three-year averages versus 12 large-cap competitors
- --------------------------------------------------------------------------------
Our returns on capital employed show similar improvements. This slide shows
where we ranked in return on capital compared to 12 other large-cap oil and gas
companies - based on rolling three-year average returns. We moved from last
among our competitors in 1997, to the top quartile in 2001 - and to number two
overall in 2002.
7
- --------------------------------------------------------------------------------
Return on Capital Employed [OXY LOGO]
2000-2002 Average
(Percentage)
[the following is a tabular representation of graphical materials]
COMPANY RETURN ON CAPITAL EMPLOYED
- ------- --------------------------
XOM 17.9
OXY 13.7
APA 11.0
UCL 10.9
BP 9.9
BR 9.8
CVX 9.3
AHC 8.3
KMG 6.7
MRO 5.9
DVN 5.5
APC 4.9
COP 4.7
Total 2000-2002 income before interest expense divided by average capital
employed (average debt plus equity); interest is added back after-tax (using 35%
statutory rate, not effective rate). See Addendum for GAAP reconciliation.
- --------------------------------------------------------------------------------
For the 2000 - 2002 period, our return on capital employed of 13.7 percent
ranked second behind Exxon. The average among our competitors was 8.7 percent.
8
- --------------------------------------------------------------------------------
2000-2002 Average Profitability* [OXY LOGO]
$/BOE
[the following is a tabular representation of graphical materials]
COMPANY AVERAGE PROFITABILITY
- ------- ---------------------
OXY 9.64
APA 6.92
XOM 6.28
BP 5.80
COP 5.38
CVX 5.33
BR 4.97
UCL 4.77
MRO 4.29
APC 4.18
KMG 3.76
AHC 3.64
DVN 3.18
* Exploration & production income after taxes and before interest and non-
recurring impairments - divided by BOE sales.
- --------------------------------------------------------------------------------
For the period 2000 through 2002, we were the industry leader in average
profitability per barrel. This performance measure speaks to the quality of our
barrels and the efficiency of our operations.
9
- --------------------------------------------------------------------------------
2000-2002 Free Cash Flow* [OXY LOGO]
$/BOE
[the following is a tabular representation of graphical materials]
COMPANY FREE CASH FLOW
- ------- --------------
OXY 9.37
AHC 6.01
XOM 5.52
MRO 5.47
BR 5.30
APA 5.05
CVX 4.24
BP 4.13
DVN 3.96
UCL 3.64
KMG 3.59
COP 3.16
APC 0.15
* Exploration & production income after taxes and before interest, plus DD&A,
plus exploration expense, less capital (excluding acquisitions) - divided
by BOE sales. See Addendum for GAAP reconciliation.
- --------------------------------------------------------------------------------
Our free cash flow per barrel, which is net of capital expenditures, shows
a correlation with our profitability. From 2000 through 2002, Occidental's
average annual free cash flow per barrel of $9.37 led the industry - and was 55
percent higher than the company next in line and 125 percent higher than the
industry average of $4.19 per barrel.
10
- --------------------------------------------------------------------------------
Production Replacement [OXY LOGO]
[the following is a
tabular representation [photo]
of graphical materials]
YEAR PRODUCTION REPLACEMENT
- ---- ----------------------
2001 140%
2002 140%
- --------------------------------------------------------------------------------
During each of the last two years we replaced 140 percent of our worldwide
production - and we expect to exceed that rate this year.
11
- --------------------------------------------------------------------------------
Finding & Development Costs [OXY LOGO]
[the following is a
tabular representation [photo]
of graphical materials]
YEAR FINDING & DEVELOPMENT COSTS
- ----------------- ---------------------------
2000 $3.80
2001 $4.80
2002 $4.65
2000-2002 Average $4.09
- --------------------------------------------------------------------------------
Our competitive finding and development costs place us in the top quartile
among our industry competitors. Our cost last year was $4.65 per BOE. Our
average over the last three years was $4.09.
We expect our 2003 F&D costs to be well below $5.00 per BOE.
12
- --------------------------------------------------------------------------------
Finding & Development Costs* [OXY LOGO]
2000-2002 Average
All Sources
($/BOE)
[the following is a tabular representation of graphical materials]
COMPANY FINDING & DEVELOPMENT COSTS
- ------- ---------------------------
OXY 4.09
COP 4.14
XOM 4.41
BP 4.48
CVX 4.56
APA 5.66
BR 7.05
KMG 7.32
DVN 7.93
APC 7.98
UCL 8.14
MRO 10.01
AHC 12.17
* COP adjusted for Conoco purchase
- --------------------------------------------------------------------------------
Replacement rates and finding costs can vary significantly from
year-to-year. That's why it's important to measure performance over a multi-year
period to determine a company's real underlying strengths. As you can see,
Occidental had the lowest average F&D costs for the 2000 through 2002 period.
While we are succeeding in keeping our costs down, we're also dramatically
increasing our reserves.
13
- --------------------------------------------------------------------------------
Proven Reserves [OXY LOGO]
Million BOE
[the following is a
tabular representation [photo]
of graphical materials]
U.S. INTERNATIONAL TOTAL
------------- ------------- -------------
1999 765 587 1,352
2000 1,695 476 2,171
2001 1,698 543 2,241
2002 1,755 556 2,311
- --------------------------------------------------------------------------------
Since 1999, our proven oil and gas reserves have grown by over 70 percent.
Our year-end 2002 proven reserves exceeded 2.3 billion BOE - the highest level
in our history.
Domestic reserves, shown in green, accounted for 76 percent of our
worldwide reserves at the end of last year - compared to 57 percent at the end
of 1999. This shift lowers our risk profile and provides a large, stable
domestic base to support future growth opportunities.
14
- --------------------------------------------------------------------------------
2002 Proven Reserves by Country [OXY LOGO]
Million BOE
COUNTRY PROVEN RESERVES
- -------- ---------------
US 1,756
Qatar 199
Ecuador 104
Oman 67
Yemen 57
Colombia 47
Russia 47
Pakistan 34
- --------------------------------------------------------------------------------
The breakdown of our proven reserves by country at the end of 2002 clearly
illustrates the dominance of our U.S. assets.
Qatar is our largest international operation, but it accounts for only 9
percent of our proven reserves. Ecuador is next with 5 percent.
15
- --------------------------------------------------------------------------------
2003 Regional Production Forecast [OXY LOGO]
BOE/Day
[map of world]
[the following is a tabular representation of graphical materials]
REGION PRODUCTION FORECAST
- ------------- -------------------
US 337,000
Latin America 44,000
Middle East 107,000
Other 47,000
- --------------------------------------------------------------------------------
o Our two largest U.S. operations are in the Permian Basin in West Texas and
southeastern New Mexico, and the Elk Hills field in California. We also
have a 10 percent interest in the giant Hugoton gas field that extends from
Kansas into the Texas panhandle. In addition, we operate the THUMS property
offshore Long Beach, California. We also have a one-third interest in the
Horn Mountain operation in the deep water Gulf of Mexico that came on
stream in late 2002.
o These U.S. properties account for 337,000 BOE per day of the 535,000
BOE of worldwide production included in our 2003 forecast.
o Our existing operations in the Middle East include Qatar, Yemen and Oman.
o We are forecasting 2003 net production from these operations to be
107,000 BOE per day - or about 20 percent of the worldwide total.
o In Latin America, our operations in Colombia and Ecuador account for 44,000
BOE per day in our 2003 forecast.
16
- --------------------------------------------------------------------------------
U.S. - Permian Basin [OXY LOGO]
2003 ACQUISITIONS
o Proven reserves
o 73 million BOE [photo]
o Purchase price
o $3.20 / BOE
o Production impact
o 10,000 BOE/Day [photo]
o Increased 2003-2006 global
production forecast
- --------------------------------------------------------------------------------
Let's look at three examples of how we are growing our production,
beginning with targeted acquisitions in our core areas.
Last April we acquired 73 million barrels of proven reserves in the Permian
Basin for an average price of $3.20 per BOE.
The acquisitions enhance our industry leading position in the Permian
Basin. We are the largest oil producer in Texas.
Following these acquisitions, we raised our production forecast by 10,000
BOE per day for 2003 through 2006.
17
- --------------------------------------------------------------------------------
Latin America - New Projects [OXY LOGO]
[map of Latin America]
Ecuador
Oxy Net Production 2003 YTD 20,000 Barrels/Day
Oxy Net Production 2004 Forecast 45,000 Barrels/Day
- --------------------------------------------------------------------------------
We also have been growing through the drill bit in Ecuador where our
average net production through the first three quarters this year has increased
to 20,000 barrels of oil per day compared to 13,000 barrels per day in 2002.
The new Eden-Yuturi oil field came on stream on September 1 with the start
up of the new trans-Ecuadorian pipeline known by its Spanish acronym OCP. We
expect net production for the full year to average 25,000 barrels per day.
With the full annual benefit of production from Eden-Yuturi and other
recent discoveries in Block 15, we expect to increase our average net production
in Ecuador to 45,000 barrels per day in 2004 - and to maintain production at
that level through 2006.
18
- --------------------------------------------------------------------------------
Middle East - New Projects [OXY LOGO]
[map of Middle East]
Dolphin
Oxy's Interest...................................................24.5%
Oxy's Net Reserves Estimate.................................150 MM BOE
Oxy's Net Production Estimate...........................30,000 BOE/Day
- --------------------------------------------------------------------------------
The third example shows production growth being driven by large development
projects - like the Dolphin Project in the Middle East. This project involves
the development and transportation of approximately 2 billion cubic feet of gas
per day through a new trans-border pipeline from Qatar's giant North Field to
power and water desalination markets in the United Arab Emirates.
We have a 24.5 percent stake in the project which will result in the
addition of an estimated 900 million cubic feet of gas equivalent net to
Occidental to our proven reserve base - which is equal to 150 million barrels of
oil. When fully operational, it will add estimated daily production of 125
million cubic feet of gas and 9,000 barrels of liquids net to Oxy - equal to
approximately 30,000 BOE per day.
Gas supply agreements with the UAE were signed several weeks ago and the
project is moving forward toward its scheduled 2006 start up.
Our success in growing production through acquisition, the drill bit and
development projects is reflected in our rising production profile.
19
- --------------------------------------------------------------------------------
Oil & Gas Production Forecast [OXY LOGO]
Thousand BOE/Day
[the following is a tabular representation of graphical materials]
YEAR U.S. MIDDLE EAST LATIN AMERICA OTHER TOTAL
- ----- ------------- ------------- ------------- ------------- -------------
2001 315 88 31 42 476
2002 326 93 48 48 515
2003F 337 107 44 47 535
2004F* 340 120 65 50 575
2005F* 342 130 69 49 590
2006F* 341 162 70 47 620
* 5% Average Annual Growth Rate
- --------------------------------------------------------------------------------
Production grew by 8 percent from 2001 through 2002, and we expect growth
to continue at an average annual rate of 5 percent from 2004 through 2006.
20
- --------------------------------------------------------------------------------
2003 Production [OXY LOGO]
Thousand BOE/Day
[the following is a tabular representation of graphical materials]
YEAR PRODUCTION
- --------------------- ----------
2002 515
2003 Forecast 525
Revised 2003 Forecast 535
Jan-Sept 2003 Results 541
- --------------------------------------------------------------------------------
Our 2002 production averaged 515,000 BOE per day - which was 15,000 BOE per
day above our forecast.
Our initial forecast for this year was 525,000 BOE per day. As I noted
earlier, we raised our forecast by 10,000 BOE per day in April following the
Permian acquisitions.
I'm very pleased to report that our actual production through nine months
averaged 541,000 BOE per day, clearly placing us on track to surpass our
ambitious forecast of 535,000 BOE per day for the year.
21
- --------------------------------------------------------------------------------
Future Growth Projects [OXY LOGO]
[map of world]
o Exploration
- Current plans to drill 30-40 wells in 2004
o EOR/Redevelopment
- Continued application of EOR techniques
* Elk Hills
* Permian
* Qatar
- New opportunities in & around core areas
* Oman gas project (mid-2004)
o Acquisition
- Consolidation opportunities in & around core areas
- --------------------------------------------------------------------------------
We also are pursuing a number of additional growth opportunities that are
not included in our forecast.
Our current EXPLORATION plans call for drilling between 30 and 40
exploration wells in 2004.
We expect to continue adding reserves and production in Elk Hills, Permian
and Qatar through EOR and REDEVELOPMENT work programs.
We are moving ahead with a new natural gas project in Oman to produce
stranded gas. We expect start up in mid-2004.
And, we are continuing to evaluate niche ACQUISITION opportunities in and
around our core areas - including new consolidation opportunities in the
Permian.
22
- --------------------------------------------------------------------------------
Chemicals [OXY LOGO]
o Role of chemicals business
- Generate free cash flow
- Average annual free cash flow 1993 - 2002
* $260 million/year*
* See Addendum for non-GAAP reconciliation
- --------------------------------------------------------------------------------
Now, I'd like to shift your attention briefly to our chemicals business.
The role of our chemicals business in our corporate strategy is quite simple. It
is to generate free cash flow.
And we've been accomplishing our objective in that regard. Since 1993, our
current mix of chemical businesses has produced average annual free cash flow of
$260 million.
23
- --------------------------------------------------------------------------------
Core Earnings [OXY LOGO]
$ Million
[the following is a tabular representation of graphical materials]
2002 2003
------ ------
1st Qtr 123 433
2nd Qtr 241 374
3rd Qtr 312 446
9 Months 676 1,253
- --------------------------------------------------------------------------------
As you can see from this chart, our core earnings for the first quarter
this year were substantially higher than last year's first quarter.
That trend continued in the second and third quarters, resulting in a
doubling of our core earnings through the first nine months compared to last
year.
24
- --------------------------------------------------------------------------------
Total Debt & Debt/Capitalization Ratio [OXY LOGO]
Total Debt - $ Millions
[the following is a tabular representation of graphical materials]
YEAR TOTAL DEBT
- ------- ----------
2000 6,354
2001 4,890
2002 4,759
2003 Q3 4,633
Debt/Cap - Percentage
[the following is a tabular representation of graphical materials]
YEAR DEBT/CAP
- ------- --------
2000 57
2001 46
2002 43
2003 Q3 38
- --------------------------------------------------------------------------------
We also have made significant progress in strengthening our balance sheet.
Between the end of 2000 and the third quarter this year, we reduced our total
debt by $1.7 billion.
At the end of 2000, our debt-to-capitalization ratio was 57 percent. By the
end of the third quarter this year that ratio was down to 38 percent - the
lowest level in more than two decades.
25
- --------------------------------------------------------------------------------
Interest Expense [OXY LOGO]
$ Millions
[the following is a tabular representation of graphical materials]
YEAR INTEREST EXPENSE
- ----- ----------------
2000 544
2001 444
2002 320
2003E 275
o Impact of $269 million in pre-tax interest savings
- Net improvement of $0.45 per share
- Horn Mountain -
[photo]
- --------------------------------------------------------------------------------
One of the effects of reducing debt has been the reduction in total
interest expense. We are estimating 2003 pre-tax interest expense to be
approximately $275 million - or $269 million less than in 2000. The savings
equates to an annual net improvement of 45-cents per share, and we expect
additional debt reduction next year.
At the end of the third quarter, we had $529 million in cash on our balance
sheet.
We plan to use some of these cash proceeds to redeem $454 million in 8.16
percent Trust Preferred Securities in January 2004. This redemption will result
in annual pre-tax savings of $39 million, for an annual net improvement of
6-cents per share.
26
- --------------------------------------------------------------------------------
Non-core Investments [OXY LOGO]
$ Millions
11/11/03
----------
[LYONDELL LOGO] 39.0 million shares (22%) $ 575
[PREMCOR LOGO] 9.0 million shares (12%) $ 210
----------
$ 785
Implied Value ($/Oxy Share) $2.00
- --------------------------------------------------------------------------------
Let me say a few words about two significant investments we have outside
our core oil and gas and chemical businesses.
We hold a 22 percent interest in Lyondell Chemical Company. On November 11,
our 39 million Lyondell shares had a market value of $575 million.
We also have a 12 percent stake in the Premcor refining business. As of
November 11, our 9 million Premcor shares had a market value of $210 million.
The total implied value for these investments is $2.00 per share.
We believe both investments have substantial upside.
27
- --------------------------------------------------------------------------------
Dividend Increase [OXY LOGO]
o 2002 Board of Directors Actions
- Increased 2003 dividend rate by 4% to $1.04/share
- Announced plans to evaluate dividend policy annually
* Commitment to rank in the top quartile for total
returns among large-cap oil and gas companies
- --------------------------------------------------------------------------------
Last December, our Board of Directors announced a 4 percent increase in our
annual dividend rate to $1.04 per share.
The Board expects to review dividend policy annually as part of our
continuing commitment to generate top quartile total returns in competition with
our large-cap oil and gas industry peers.
28
- --------------------------------------------------------------------------------
Comparative Total Returns [OXY LOGO]
5 Years (10/31/98 - 10/31/03)*
(Percent)
[the following is a tabular representation of graphical materials]
COMPANY TOTAL RETURNS
- ------- -------------
APA 194.5
OXY 117.8
DVN 45.8
COP 37.4
APC 32.5
BR 26.5
KMG 24.3
XOM 15.3
BP 11.7
CVX 7.3
MRO 7.2
UCL 5.5
AHC 0.8
* Data Source: Bloomberg
- --------------------------------------------------------------------------------
As we have seen, our success in producing top quartile returns in
profitability, free cash flow and F&D costs per BOE has generated strong returns
on equity and capital employed.
These results have, in turn, resulted in a top quartile total return to our
shareholders over the last five years when ranked against our large-cap oil and
gas competitors.
29
- --------------------------------------------------------------------------------
Comparative Total Returns [OXY LOGO]
3 Years (10/31/00 - 10/31/03)*
(Percent)
[the following is a tabular representation of graphical materials]
COMPANY TOTAL RETURNS
- ------- -------------
OXY 97.5
APA 48.9
BR 40.5
MRO 20.8
CVX 0.4
UCL 0.0
DVN (2.5)
COP (3.8)
BP (7.9)
XOM (11.8)
AHC (12.0)
KMG (29.4)
APC (30.6)
* Data Source: Bloomberg
- --------------------------------------------------------------------------------
The same is true if you look at our performance over three years during
which our total return to shareholders was at the top of the upper quartile.
30
- --------------------------------------------------------------------------------
Comparative 2003 Total Returns [OXY LOGO]
(12/31/02 - 10/31/03)*
(Percent)
[the following is a tabular representation of graphical materials]
COMPANY TOTAL RETURNS
- ------- -------------
MRO 47.1
APA 36.3
OXY 27.7
COP 21.5
BR 19.5
UCL 17.8
BP 14.9
CVX 14.5
XOM 11.6
AHC 3.1
KMG (0.6)
APC (1.2)
DVN (3.6)
* Data Source: Bloomberg
- --------------------------------------------------------------------------------
While there is considerable variation in total returns within this group of
companies from week to week, Occidental has consistently been in the top
quartile throughout the year.
As you have seen, we have clearly accomplished what we set out to do when
we began restructuring in 1997.
31
- --------------------------------------------------------------------------------
Corporate Governance [OXY LOGO]
o GovernanceMetrics International (GMI)
- Oxy awarded top corporate governance score
* One of 15 US and 2 Canadian companies out of 1,000 US
and 600 international companies to receive a top rating
of 10.0
o Institutional Shareholder Services (ISS)
- Oxy ranks in top 5% of S&P 500 Index Companies
- --------------------------------------------------------------------------------
The issue of corporate governance has been very much on the collective
minds of investors ever since the Enron collapse. Occidental began strengthening
its corporate governance policies in the early 1990s. Our policies are outlined
in our 2002 Annual Report to Stockholders and in the Comparative Performance
booklet that is part of the material distributed to you this morning.
Occidental was one of fifteen U.S. and two Canadian firms to receive a top
corporate governance score of 10.0 by GovernanceMetrics International. GMI is an
independent governance agency that rated 1,000 U.S. and 600 foreign companies.
A study by Institutional Shareholders Services, the world's leading
provider of proxy voting and corporate governance services, ranked Occidental's
corporate governance practices in the top 5 percent of the S & P 500 Index
companies.
32
- --------------------------------------------------------------------------------
Summary [OXY LOGO]
o Disciplined growth
- Oil & gas production growth averaging 5% per year
- #1 in profits & free cash flow/BOE
- #1 in return on equity
- Top quartile returns on capital employed
- Top quartile replacement costs
- Competitive dividend
o Business strategy successful
- Profitable growth
- Disciplined investment decisions
o Top quartile total returns to shareholders
- --------------------------------------------------------------------------------
In summary, our financial performance over the past three years has been driven
by disciplined growth.
o Oil and gas production has been growing at an average annual rate of 5
percent.
o For the years 2000 through 2002, our performance has excelled when
compared to the other large-cap energy companies.
o We led our peers in profitability and free cash flow per BOE.
o Our return on equity was best in class.
o Our return on capital employed and our replacement costs were at
the upper end of the top quartile.
o We pay a competitive dividend.
o Our business strategy is working. We are achieving profitable growth
by making disciplined investment decisions.
o The end result has been top quartile total returns to shareholders
whether you are looking at the last five years, the last three years
or the results so far this year. I believe we will remain a top
quartile performer for the foreseeable future.
33
- --------------------------------------------------------------------------------
[OXY LOGO]
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
Occidental Petroleum Corporation [OXY LOGO]
Statements in this presentation that contain words such as "will" or
"expect", or otherwise relate to the future, are forward-looking and
involve risks and uncertainties that could significantly affect
expected results. Factors that could cause results to differ
materially include, but are not limited to: global commodity pricing
fluctuations, and supply/demand considerations, for oil, gas and
chemicals; higher-than-expected costs; and not successfully completing
(or any material delay in) any expansion, capital expenditure,
acquisition, or disposition. Occidental disclaims any obligation to
update any forward-looking statements.
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35
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Addendum [OXY LOGO]
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36
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Return on Capital Employed (ROCE) [OXY LOGO]
Reconciliation to Generally Accepted Accounting Principles (GAAP)
Annual Average
2000-2002
($ Millions)
--------------
GAAP measure - earnings applicable
to common stockholders ------------------------- $ 1,238
Interest Expense --------------------------------- 393
Tax effect of interest expense ------------------- (138)
Earnings before tax-effected interest expense ---- $ 1,493
GAAP average stockholders' equity ---------------- $ 5,575
Average debt
GAAP debt
Notes payable -------------------------------- $ 18
Debt, including current maturities ----------- 3,937
Non-GAAP debt
Capital lease obligation --------------------- 26
Subsidiary preferred stock ------------------- 25
Gas sale agreements -------------------------- 231
Trust preferred securities ------------------- 464
Non-recourse debt ---------------------------- 633
Average total debt ------------------------------- $ 5,334
Total average capital employed ------------------- $ 10,909
ROCE --------------------------------------------- 13.7%
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o Return on capital employed (ROCE) is calculated by dividing earnings
applicable to common shares, before interest expense, by average capital
employed (average debt plus equity); interest is added back after-tax (using a
35% statutory rate, not the effective rate).
o Occidental management considers ROCE a useful measure because it indicates
the return on all capital, both debt and equity, employed in the business.
Occidental management believes that ROCE is an additional measure of efficiency
when used in conjunction with Return on Equity, which measures the return on
only the shareholders' equity portion of the total capital employed.
37
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Oil & Gas: Free Cash Flow/BOE [OXY LOGO]
Reconciliation to Generally Accepted Accounting Principles (GAAP)
Annual Average
Occidental Petroleum consolidated 2000-2002
statement of cash flow ($ Millions)
--------------
Cash flow from operating activities -------------- $ 2,338
Cash flow from investing activities -------------- (1,797)
Cash flow from financing activities -------------- (564)
Change in cash ----------------------------------- $ (23)
Annual Average
2000-2002
($ Millions)
--------------
FAS 69 GAAP Oil & Gas results of operations ------ $ 1,761
Depreciation, Depletion & Amortization ----------- 744
Exploration expense ------------------------------ 151
Capital expenditures (excluding acquisitions) ---- (942)
Free cash flow from operations ------------------- $ 1,714
Sale volumes (million BOE) ----------------------- 183
Cash flow per BOE -------------------------------- $ 9.37
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o There is no GAAP free cash flow measure comparable to this calculation;
operating cash flow, investing cash flow, financing cash flow, and change in
cash calculated in accordance with GAAP are presented above for reference.
o Oxy calculates free cash flow per barrel of oil equivalent (BOE) by taking
the exploration and production income after taxes but before interest, adding
back the depreciation, depletion & amortization and exploration expense, and
subtracting from that amount, total capital expenditures excluding acquisitions.
The result is then divided by the BOE sale volumes.
o Occidental management believes that free cash flow per BOE is a useful
measure to show the net cash results of the Oil and Gas operation on a per
barrel basis. This measure is useful to compare the performance among companies
of varying sizes.
38
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Chemicals: Free Cash Flow [OXY LOGO]
Reconciliation to Generally Accepted Accounting Principles (GAAP)
Annual Average
Occidental Petroleum consolidated 2000-2002
statement of cash flow ($ Millions)
--------------
Cash flow from operating activities -------------- $ 1,427
Cash flow from investing activities -------------- (940)
Cash flow from financing activities -------------- (486)
Change in cash ----------------------------------- $ 1
Annual Average
2000-2002
($ Millions)
--------------
GAAP Chemical segment results,
excluding Petrochemicals ----------------------- $ 268
Depreciation, Depletion & Amortization ----------- 174
Capital expenditures (excluding acquisitions) ---- (182)
Free cash flow from operations ------------------- $ 260
- --------------------------------------------------------------------------------
o There is no GAAP free cash flow measure comparable to this calculation;
operating cash flow, investing cash flow, financing cash flow, and change in
cash calculated in accordance with GAAP are presented above for reference.
o Oxy calculates free cash flow by taking Chemical segment income, excluding
the Petrochemical business results, after state taxes but before interest,
adding back the depreciation, depletion & amortization, and subtracting from
that amount, total capital expenditures excluding acquisitions.
o Occidental management believes that free cash flow is a useful measure to
show net cash results of the Chemical operations.
39
