UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 on Form 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) [ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of the Securities Exchange Act of 1934
of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9210
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization Delaware
I.R.S. Employer Identification No. 95-4035997
Address of principal executive offices 10889 Wilshire Blvd., Los Angeles, CA
Zip Code 90024
Registrant's telephone number, including area code (310) 208-8800
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
10 1/8% Senior Debentures due 2009 New York Stock Exchange
9 1/4% Senior Debentures due 2019 New York Stock Exchange
Oxy Capital Trust I 8.16% Trust Originated Preferred Securities New York Stock Exchange
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements the past 90 days.
[X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant on February 28, 2002, was approximately $10.0 billion, based on the
closing price on the New York Stock Exchange composite tape of $26.84 per share
of Common Stock on February 28, 2002. Shares of Common Stock held by each
executive officer and director have been excluded from this computation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not a conclusive determination for other purposes.
At February 28, 2002, there were approximately 374,455,513 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, filed in connection
with its May 3, 2002, Annual Meeting of Stockholders, are incorporated by
reference into Part III.
EXPLANATORY NOTES
- -----------------
As reported in Occidental's 8-K filing dated March 22, 2002, effective that
date the Board of Directors of Occidental Petroleum Corporation (the "Company")
decided to no longer engage Arthur Andersen LLP ("Arthur Andersen" or "AA") as
the Company's independent auditors and engaged KPMG LLP ("KPMG") to serve as the
Company's independent auditors for the fiscal year 2002, in accordance with the
recommendation of the Board's Audit Committee.
Arthur Andersen's audit reports on the Company's consolidated financial
statements for each of the fiscal years ended December 31, 2001, 2000 and 1999
did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
Subsequent to the appointment of KPMG, Occidental requested that they perform
audits of the Company's consolidated financial statements for the fiscal years
ended December 31, 2001, 2000 and 1999 to avoid administrative requirements
attendant to using those financial statements in the future. The audits by KPMG
were made in accordance with generally accepted auditing standards and included
a review of the system of internal controls to the extent considered necessary
to determine the audit procedures required to support their opinion on the
consolidated financial statements. Their report dated June 25, 2002 is included
herein. There were no changes in the balance sheet, net income, cash flow or
earnings per share as a result of the audits performed by KPMG. The only
modifications made in connection with the re-audits are to update the
Management's Discussion and Analysis and the Notes to the Consolidated Financial
Statements to reflect disclosures about accounting pronouncements issued and
effective after the dates the original audits were completed, and to update the
Management's Discussion and Analysis and the Notes to Consolidated Financial
Statements to 1) disclose the period in which a transaction is expected to
close, and 2) to disclose the actual redemption of certain oil and gas
partnership interests which occurred subsequent to the Company's filing of its
2001 Annual Report on Form 10-K. These modifications, as outlined below, appear
in Items 1 and 2, and Items 7, 8 and 14 of the 10-K/A. There were no other
changes in the statements.
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES -
CHEMICAL OPERATIONS, ALLIANCES AND STRATEGIC DEVELOPMENTS
With respect to the Lyondell/Equistar transaction, the transaction is now
expected to close in the third quarter of 2002.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
2002 OUTLOOK, CHEMICAL, PETROCHEMICALS (EQUISTAR PARTNERSHIP)
With respect to the Lyondell/Equistar transaction, the transaction is now
expected to close in the third quarter of 2002.
ACQUISITIONS, DISPOSITIONS AND COMMITMENTS, ALTURA ACQUISITION
With respect to Altura Energy Ltd., the sellers retained a preferred
limited partnership interest of approximately $2.0 billion and were
entitled to certain distributions from the partnership. The partnership
exercised an option in May 2002 to redeem the remaining partnership
interests of $1.9 billion held by BP Amoco and Shell in exchange for their
existing note payable of $1.9 billion to the partnership.
ADDITIONAL ACCOUNTING CHANGES -
EITF ISSUE NO. 02-3
In June 2002, the Emerging Issues Task Force (EITF) reached consensus
on certain issues in EITF Issue No. 02-3, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities." Consensus
was reached on two issues: 1) that gains and losses on energy trading
contracts (whether realized or unrealized) should be shown net in the
income statement, and 2) that entities should disclose the types of
contracts that are accounted for as energy trading contracts along
with a variety of other data regarding values, sensitivity to changes
in estimates, maturity dates and other factors. Occidental is required
to implement this consensus in the third quarter 2002 and all
comparative financial statements will be reclassified to conform to
the consensus on the first issue. Occidental has concluded the impact
of this recent consensus will not have any effect on net income, cash
flow or earnings per share. However, Occidental expects the consensus
will require significant reductions in sales and cost of sales by
equal amounts.
i
SFAS NO. 145
In April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." In
addition to amending or rescinding other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions,
SFAS No. 145 precludes companies from recording gains and losses from
the extinguishment of debt as an extraordinary item. Occidental must
implement SFAS No. 145 in the first quarter of 2003 and all
comparative financial statements will be reclassified to conform to
the 2003 presentation. The anticipated effects of the statement
include the reclassification of an extraordinary loss to net income
from continuing operations of $8 million ($0.02 per share) in 2001 and
of $107 million ($0.30 per share) in 1999. There will be no effect on
net income or basic earnings per common share.
SFAS NO. 142
In June 2001, the FASB issued SFAS No, 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changes the accounting and reporting
requirements for acquired goodwill and intangible assets. The
provisions of this statement must be applied starting with fiscal
years beginning after December 15, 2001. At December 31, 2001, the
balance sheet included approximately $108 million of goodwill and
intangible assets with annual amortization expense of approximately $6
million recorded in each of the years' income statements for the
three-year period ended December 31, 2001. As a result, elimination of
goodwill amortization would not have had a material impact on net
income or earnings per share of any of the years presented and, as a
result, the transitional disclosures of adjusted net income excluding
goodwill amortization described by SFAS No. 142 have not been
presented. Occidental implemented SFAS No. 142 in the first quarter of
2002. The adoption of this accounting standard resulted in a
cumulative effect of changes in accounting principles after-tax
reduction in net income of approximately $95 million due to the
impairment of the goodwill. Occidental now has no remaining goodwill
on its financial statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -
REPORT OF INDEPENDENT AUDITORS
NOTE 3 BUSINESS COMBINATIONS AND ASSET ACQUISITIONS AND DISPOSITIONS
With respect to Altura Energy Ltd., the sellers retained a preferred
limited partnership interest of approximately $2.0 billion and were
entitled to certain distributions from the partnership. The partnership
exercised an option in May 2002 to redeem the remaining partnership
interests of $1.9 billion held by BP Amoco and Shell in exchange for their
existing note payable of $1.9 billion to the partnership.
NOTE 4 ASSET WRITE-DOWNS, EXTRAORDINARY ITEMS AND ACCOUNTING CHANGES
With respect to the Lyondell/Equistar transaction, the transaction is now
expected to close in the third quarter of 2002.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
ii
TABLE OF CONTENTS
PAGE
Explanatory Notes........................................................................ i
PART I
ITEMS 1 AND 2 Business and Properties.................................................................. 3
General.................................................................................. 3
Segment Information...................................................................... 3
Oil and Gas Operations................................................................... 3
Chemical Operations...................................................................... 5
Capital Expenditures..................................................................... 9
Employees................................................................................ 9
Environmental Regulation................................................................. 9
PART II
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations (Incorporating Item 7A)....................................................... 10
2001 Business Environment................................................................ 10
Strategic Overview and Review of Business Results - 1999 - 2001.................. 10
2002 Outlook..................................................................... 14
Income Summary................................................................... 15
Segment Operations............................................................... 15
Special Items.................................................................... 17
Consolidated Operations - Revenues............................................... 17
Consolidated Operations - Expenses............................................... 17
Liquidity and Capital Resources.................................................. 18
Analysis of Financial Position................................................... 21
Acquisitions, Dispositions and Commitments....................................... 23
Derivative and Hedging Activities................................................ 24
Taxes............................................................................ 27
Lawsuits, Claims, Commitments, Contingencies and Related Matters................. 27
Environmental Expenditures....................................................... 27
Foreign Investments.............................................................. 29
Critical Accounting Policies..................................................... 29
Additional Accounting Changes.................................................... 29
Safe Harbor Statement Regarding Outlook and Other Forward-Looking Data........... 31
Report of Management............................................................. 31
ITEM 8 Financial Statements and Supplementary Data.............................................. 32
Report of Independent Auditors................................................... 32
Consolidated Statements of Operations............................................ 33
Consolidated Balance Sheets...................................................... 34
Consolidated Statements of Stockholders' Equity.................................. 36
Consolidated Statements of Comprehensive Income.................................. 36
Consolidated Statements of Cash Flows............................................ 37
Notes to Consolidated Financial Statements....................................... 38
Quarterly Financial Data (Unaudited)............................................. 67
Supplemental Oil and Gas Information (Unaudited)................................. 69
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts (Unaudited)...................... 74
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 75
PART I
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
In this report, the term "Occidental" refers to Occidental Petroleum
Corporation, a Delaware corporation, and/or one or more entities in which it
owns a majority voting interest (subsidiaries).
GENERAL
Occidental explores for, develops, produces and markets crude oil and
natural gas. Occidental also manufactures and markets basic chemicals, including
chlorine, caustic soda and ethylene dichloride (EDC), vinyls, including
polyvinyl chloride (PVC) resins and vinyl chloride monomer (VCM), through its
76-percent interest in Oxy Vinyls, LP (OxyVinyls), and performance chemicals.
Occidental conducts its operations through various oil and gas and chemical
subsidiaries and affiliates. Occidental also has an interest in petrochemicals
through its 29.5-percent ownership in Equistar Chemicals, LP (Equistar), which
it intends to sell to Lyondell Chemical Company (Lyondell). See further
information in the "Chemical Operations" section. Occidental's executive offices
are located at 10889 Wilshire Boulevard, Los Angeles, California 90024;
telephone (310) 208-8800.
During 2001, Occidental continued its program to redeploy assets in its
worldwide oil and gas and chemical segments. For information regarding these
developments, see the information under "Oil and Gas Operations", "Chemical
Operations" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (MD&A) in this report.
For information on foreign investments, see the information under "Foreign
Investments" in the MD&A section of this report.
For information on acquisitions and dispositions, see the information under
"Acquisitions, Dispositions and Commitments" in the MD&A section of this report.
SEGMENT INFORMATION
Occidental's principal businesses constitute two industry segments, the
operations of which are described below. For information with respect to the
revenues, net income and assets of Occidental's industry segments and of its
operations in various geographic areas for each of the three years in the period
ended December 31, 2001, see Note 15 to the Consolidated Financial Statements of
Occidental (Consolidated Financial Statements), which is included in this
report, and the information appearing in the MD&A section of this report.
OIL AND GAS OPERATIONS
EXPLORATION AND PRODUCTION
GENERAL
Occidental produces or participates in the production of crude oil,
condensate and natural gas in the United States, Colombia, Ecuador, Oman,
Pakistan, Qatar, Russia and Yemen. Occidental also conducts exploration and/or
development activities in several of these countries, as well as in Albania and
Peru.
COMPARATIVE OIL AND GAS RESERVES AND PRODUCTION
Oil in millions of barrels; natural gas in billions of cubic feet
2001 2000 1999
================================ ============================ ============================ ============================
OIL GAS TOTAL(A) OIL GAS TOTAL(A) OIL GAS TOTAL(A)
-------- -------- -------- -------- -------- -------- -------- -------- --------
U.S. Reserves 1,371 1,962 1,698 1,346 2,094 1,695 464 1,806 765
International Reserves 526 106 543 457 116 476 573 86 587
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 1,897 2,068 2,241 1,803 2,210 2,171 1,037 1,892 1,352
======== ======== ======== ======== ======== ======== ======== ======== ========
U.S. Production 78 223 115 63 241 104 27 242 67
International Production 55 18 59 62 18 65 85 19 89
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 133 241 174 125 259 169 112 261 156
================================ ======== ======== ======== ======== ======== ======== ======== ======== ========
(a) Natural gas volumes have been converted to equivalent barrels based on
energy content of 6,000 cubic feet (one thousand cubic feet is referred to
as an "Mcf") of gas to one barrel of oil.
3
RESERVES
At December 31, 2001, Occidental's oil and gas reserve base, on a barrels
of oil equivalent (BOE) basis, was 2.241 billion equivalent barrels, compared
with 2.171 billion equivalent barrels at December 31, 2000. In 2001, excluding
the effect of acquisitions and sales, Occidental replaced 138 percent of 2001
worldwide combined oil and natural gas production of 174 million barrels, on a
BOE basis. Proved reserve additions from all sources, including the net effect
of acquisitions and property sales, replaced 141 percent of 2001 production.
Occidental's consolidated worldwide net proved developed and undeveloped
reserves of crude oil and condensate were 1.897 billion barrels at year-end
2001, compared with 1.803 billion barrels at year-end 2000. Domestic reserves of
crude oil and condensate increased to 1.371 billion barrels at year-end 2001,
compared with 1.346 billion barrels at year-end 2000, and international crude
oil reserves increased to 526 million barrels from 457 million barrels at
year-end 2000. Worldwide net proved developed and undeveloped reserves of
natural gas were approximately 2.1 trillion cubic feet (Tcf) at year-end 2001,
with 2.0 Tcf attributable to domestic operations. Worldwide net proved developed
and undeveloped natural gas reserves were about 2.2 Tcf at the end of 2000.
COMPETITION
As a producer of crude oil and natural gas, Occidental competes with
numerous other producers, as well as with non-petroleum energy producers. Crude
oil and natural gas are commodities that are sensitive to prevailing conditions
of supply and demand and generally are sold at "spot", contract prices or on
futures markets. Occidental competes through the cost-efficient development and
production of its worldwide oil and gas reserves and through acquiring contracts
for the exploration of blocks in areas with known oil and gas deposits.
Occidental also pursues opportunities to increase production through enhanced
oil recovery projects and strategic acquisitions. In recent years, Occidental
has focused domestic exploration and development efforts on core assets in
California, the Permian Basin and Hugoton, and has focused its international
exploration and development efforts on core assets in the Middle East and Latin
America.
Occidental's oil and gas operations are affected by foreign, federal, state
and local laws and regulations relating to, among other things, increases in
taxes and royalties, production limits and environmental matters.
OIL AND GAS PRODUCTION AND MARKETING
Net daily worldwide oil and condensate production in 2001 averaged 366,000
barrels per day, compared with 343,000 barrels per day in 2000, and net
worldwide natural gas production averaged 660 million cubic feet (MMcf) per day,
compared with 708 MMcf per day in 2000. U.S. operations accounted for
approximately 58 percent of Occidental's oil production and 92 percent of gas
production. On a BOE basis, Occidental produced 476,000 net barrels per day in
2001 from operations in 8 countries, including the United States. For production
information by country, see the production table appearing under the caption
"Segment Operations - Oil and Gas" in the MD&A section of this report.
Set forth below are descriptions of the producing areas for Occidental. The
core producing areas for Occidental are the United States, the Middle East and
Latin America.
UNITED STATES
Occidental produces crude oil and natural gas, principally in California,
the Permian Basin and the Hugoton area encompassing portions of Kansas, Oklahoma
and Texas.
Occidental is the operator of the Elk Hills oil and gas field in California
with an approximate 78-percent interest. The field, which is the tenth largest
in the lower-48 states, encompasses 75 square miles and is located in the
southern portion of the prolific oil-producing San Joaquin Valley.
The THUMS oil property offshore Long Beach, CA was purchased in 2000. The
THUMS operation encompasses a portion of the Wilmington field, the fourth
largest oil field in the continental U.S.
Including the Elk Hills and THUMS properties, Occidental has mineral rights
on approximately 850,000 acres in California, including exploration properties
near Elk Hills and Buena Vista Hills. Occidental also has gas production in the
Sacramento Valley.
Occidental owns a 33-percent interest in the Horn Mountain prospect in the
deepwater Gulf of Mexico (GOM), with first production expected late in 2002. BP
p.l.c. (BP) is the operator.
Occidental has integrated the Altura properties purchased in April 2000
from BP and the Royal Dutch/Shell Group (Shell) with its previously existing
Permian Basin operation (Oxy Permian) in Southwest Texas and Southeast New
Mexico. Over half of Oxy Permian's production is from fields into which carbon
dioxide (CO2) is injected as a tertiary recovery technique.
In late 2000, Occidental purchased BP's 75-percent working interest in the
Bravo Dome CO2 unit in northern New Mexico, which has gross CO2 production of
approximately 320 MMcf per day.
Occidental also owns a large concentration of gas reserves, production
interests and royalty interests in the Hugoton area of Kansas and Oklahoma. The
Hugoton field is the largest natural gas field ever discovered in North America.
4
MIDDLE EAST
In Qatar, Occidental is the operator of the Idd el Shargi North and South
Dome fields under separate production-sharing contracts.
In Yemen, Occidental owns working interests in the Masila field in Block 14
(38 percent) and the East Shabwa field in Block 10 (28.6 percent). In addition,
Occidental has interests in seven exploration blocks encompassing nearly 15
million acres. Of these, Occidental is the operator of Blocks 44 and 20 with
working interests of 75 percent and 50 percent, respectively, and has a
40-percent working interest in each of five blocks - Blocks 11, 12, 36, 56 and
59 - on the border with Saudi Arabia.
In Oman, Occidental is the operator of Block 9, with a 65-percent working
interest, which contains the Safah oil field and six small oil fields along the
southern border of the block. Occidental also is pursuing exploration
opportunities in Block 27.
Operations in Qatar, Oman and Yemen are all conducted under
production-sharing contracts. Occidental's contractual net share of production
in each of these operations varies annually depending on the market price of oil
and the level of investment.
In 2001, Occidental was selected to participate in Core Venture Two of the
Kingdom of Saudi Arabia's Natural Gas Initiative, which includes exploration
acreage, appraisal and development of discovered gas fields, a power plant and
an optional petrochemical plant. Final agreements are currently expected to be
signed in 2002.
OTHER EASTERN HEMISPHERE
In southern Pakistan, Occidental has working interests, which vary from 25
to 30 percent, in the three Badin Blocks.
In Russia, Occidental owns a 50-percent interest in a joint venture
company, Vanyoganneft, in the western Siberian oil basin.
LATIN AMERICA
Occidental has a 35-percent working interest and is operator of the Cano
Limon oil field in Colombia. Occidental also has an approximately 44-percent
interest in the Cano Limon-Covenas oil pipeline and a marine export terminal
operated by Colombia's national oil company, Ecopetrol. The pipeline transports
oil produced from the Cano Limon field for export to international markets. In
addition, Occidental has an 88-percent working interest in three exploration
blocks encompassing 9,325 square miles in the Central Llanos Basin.
In Ecuador, Occidental has a 60-percent working interest and is operator of
Block 15, in the Oriente Basin, under a production-sharing agreement, converted
in 1999 from a risk-service contract.
Occidental also has an approximately 12-percent interest in a 500-kilometer
heavy oil pipeline being constructed to transport oil from the Oriente Basin to
the port of Esmeraldas. The pipeline is expected to be operational in the first
half of 2003.
RESERVES, PRODUCTION AND RELATED INFORMATION
See Note 16 to the Consolidated Financial Statements and the information
under the caption "Supplemental Oil and Gas Information" in Item 8 of this
report for information regarding Occidental's oil and gas reserves, the
production from and other changes in these reserves, the discounted present
value of estimated future net cash flows from these reserves, certain costs and
other financial and statistical information regarding Occidental's oil and gas
exploration and production operations. Estimates of reserves have been made by
Occidental engineers and include reserves under which Occidental holds an
economic interest under service contracts and other arrangements. Occidental's
crude oil reserves include natural gas liquids and condensate. The reserves are
stated after applicable royalties. The definitions used are in accordance with
applicable Securities and Exchange Commission regulations. Accordingly, proved
oil and gas reserves are those estimated quantities of crude oil, natural gas
and natural gas liquids that geological and engineering data demonstrate, with
reasonable certainty, will be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Unless otherwise stated,
all references to reserves are made on a net basis. On May 1, 2001, Occidental
reported to the U.S. Department of Energy on Form EIA-28 proved oil and gas
reserves at December 31, 2000.
CHEMICAL OPERATIONS
GENERAL
Occidental conducts its chemical operations through Occidental Chemical
Corporation and its various subsidiaries and affiliates (collectively, OxyChem).
OxyChem is a chemical manufacturer, with interests in basic chemicals, vinyls,
petrochemicals and performance chemicals. OxyChem's operations are affected by
cyclical economic factors and by specific chemical-industry conditions.
5
OxyChem's products are commodity in nature. They are equivalent to products
manufactured by others that are generally available in the marketplace and are
produced and sold in large volumes to industrial customers for use as raw
materials. Many of OxyChem's products are both sold to others and further
processed by OxyChem into other chemical products. OxyChem's operations are
affected by environmental regulation and associated costs. See the information
appearing under the caption "Environmental Expenditures" in the MD&A section of
this report.
ALLIANCES AND STRATEGIC DEVELOPMENTS
In 1998, Occidental became a partner in Equistar by contributing certain
assets. Lyondell owns 41 percent of Equistar, while Millennium Chemicals, Inc.
and Occidental each own 29.5 percent. Equistar is one of the largest producers
of ethylene, propylene and polyethylene in the world today with an annual
capacity of more than 11 billion pounds of ethylene and more than six billion
pounds of polyethylene.
In January 2002, Occidental and Lyondell agreed in principle for Occidental
to sell its share of Equistar to Lyondell and to purchase an equity interest of
approximately 21 percent in Lyondell. These transactions are subject to the
execution of definitive documents and corporate and regulatory approvals. In
connection with the agreement in principle, Occidental wrote down its investment
in the Equistar partnership by $240 million, after tax, in December 2001. The
transactions are expected to close in the third quarter of 2002.
Because of decreased demand for its products and deteriorating prices, on
June 1, 2001, OxyChem temporarily idled the Ingleside, TX EDC plant and on
December 27, 2001, OxyChem temporarily idled the Deer Park chlor-alkali plant in
Houston, TX. These facilities will remain idle until market conditions improve.
In June 2000, OxyChem announced its decision to withdraw from several of
its chemical intermediates businesses principally located in Niagara Falls, NY
and Ashtabula, OH. As part of the initiative, OxyChem sold its Chlorowax(R)
chlorinated paraffins business in October 2000 and the Ashtabula facility in
June 2001. Although a few products continue to be manufactured for sale, almost
all of the Niagara Falls chemical intermediates production units have been shut
down, and the sale or disposal of these assets is underway.
In April 1999, OxyChem and The Geon Company, now known as PolyOne
Corporation (PolyOne), formed the OxyVinyls partnership, combining the commodity
PVC resin and VCM assets of both companies, and two chlor-alkali and
cogeneration plants of OxyChem. Ownership is shared between OxyChem and PolyOne
on a 76-percent and 24-percent basis, respectively. The partners also formed a
smaller partnership, PVC Powder Blends, LP, a powder compounding business in
which OxyChem owns a 10-percent interest.
OxyVinyls has annual capacities of 4.4 billion pounds of PVC resin, 4.9
billion pounds of VCM and 1.0 million tons of chlor-alkali electrochemical
units. Because chlorine and caustic soda are co-products, the chemical industry
uses electrochemical units as a standard metric corresponding to one ton of
chlorine and approximately 1.1 tons of caustic soda.
BASIC CHEMICALS
OxyChem's basic chemicals group manufactures and markets inorganic
chemicals, including high-volume commodity products, primarily consisting of
chlorine, caustic soda and their derivatives. Chlorine and caustic soda are
supplied to a number of manufacturers, including those in the pulp and paper,
plastics, water-purification, bleach and sanitation industries. EDC plants at
Ingleside, TX (currently idle), and Convent, LA, use part of the chlorine
production from OxyChem's adjacent chlor-alkali facilities and ethylene from
Equistar's nearby olefins plants. EDC is used primarily in making VCM, the raw
material used in the production of PVC. Potassium hydroxide, or caustic potash,
is used by fertilizer, soap and detergent and rubber manufacturers. It also is
used by an OxyChem joint venture with Church & Dwight Co., Inc. to produce
potassium carbonate.
PERFORMANCE CHEMICALS
OxyChem produces organic and inorganic chemicals that are used as raw
materials by customers to enhance the performance of their end products. OxyChem
also produces chlorinated isocyanurates for use in swimming pools and as
cleaning compounds. In addition, OxyChem produces antimony trioxide, used in the
production of polyethylene terephthalate resins and as a flame retardant, and
resorcinol, which is used mainly as an adhesive in tire manufacturing. Other
facilities produce chrome chemicals, which are used in leather tanning, metal
plating and wood preservation and sodium silicates, which are used for
detergents, adhesives and numerous other applications. OxyChem also produces
mercaptans that are used as warning agents in natural gas and propane.
6
PRINCIPAL PRODUCTS
OxyChem produces the following chemical products:
Principal Products Major Uses
- ----------------------- ---------------------------------------- ------------------------------------------------------
Basic Chemicals Chlor-alkali chemicals:
Chlorine Raw material for vinyl chloride monomer, chemical
manufacturing, pulp and paper production, water
treatment
Caustic soda Chemical manufacturing, pulp and paper production,
cleaning products
---------------------------------------- ------------------------------------------------------
Potassium chemicals (including potassium Glass, fertilizers, cleaning products and rubber
hydroxide and, through its Armand
Products joint venture with Church &
Dwight Co., Inc., potassium carbonate)
---------------------------------------- ------------------------------------------------------
Ethylene dichloride (EDC) Raw material for vinyl chloride monomer
- ----------------------- ---------------------------------------- ------------------------------------------------------
Performance Chemicals Sodium silicates Soaps and detergents, catalysts, paint pigments
---------------------------------------- ------------------------------------------------------
Chrome chemicals Metal and wood treatments, leather tanning
---------------------------------------- ------------------------------------------------------
Chlorinated isocyanurates Swimming pool, household and industrial disinfecting
and sanitizing products
---------------------------------------- ------------------------------------------------------
Mercaptans Warning agents for natural gas and propane and raw
material for agricultural chemical intermediates
---------------------------------------- ------------------------------------------------------
Antimony oxide Flame retardant synergist and catalysts
---------------------------------------- ------------------------------------------------------
Resorcinol Tire manufacture, wood adhesives and flame retardant
synergist
- ----------------------- ---------------------------------------- ------------------------------------------------------
Vinyls Vinyl chloride monomer (VCM) Raw material for polyvinyl chloride
---------------------------------------- ------------------------------------------------------
Polyvinyl chloride resin PVC pipe for municipal, plumbing and electrical uses.
External construction materials such as window and
door profiles, fencing, and decking. Flooring, medical
and automotive products, wire and cable insulation,
and packaging.
- ----------------------- ---------------------------------------- ------------------------------------------------------
Specialty Vinyls Polyvinyl chloride (PVC) resin and films Resins for flooring, medical gloves and other flexible
vinyl applications. Calendered films for automotive,
packaging and consumer products
- ----------------------- ---------------------------------------- ------------------------------------------------------
RAW MATERIALS
Nearly all raw materials used in OxyChem's operations are readily available
from a variety of sources. Most of OxyChem's key raw materials purchases are
made through both short and long-term contracts. OxyChem is not dependent on any
single nonaffiliated supplier for a material amount of its raw-material or
energy requirements. Equistar supplies virtually all of the ethylene
requirements (up to 2.55 billion pounds per year) for OxyChem's chlor-alkali
business and OxyVinyls' business. Although earnings have been adversely affected
by higher natural gas, electricity and feedstock prices for most of the past
year, operations have not been curtailed as a result of any supply
interruptions.
PATENTS, TRADEMARKS AND PROCESSES
OxyChem owns and licenses a large number of patents and trademarks and uses
a variety of processes in connection with its operations, some of which are
proprietary and some of which are licensed. OxyChem does not regard its business
as being materially dependent on any single patent, trademark or process.
SALES AND MARKETING
OxyChem's products are sold to industrial users or distributors located in
the United States, largely by its own sales force. OxyChem sells its products
principally at current market or current market-related prices through both
short and long-term sales agreements.
No significant portion of OxyChem's business is dependent on a single
third-party customer. However, OxyChem has entered into significant supply
arrangements with certain of its affiliates. In 2001, PolyOne purchased raw
materials pursuant to PVC resin and VCM sale contracts at market-related prices
from OxyVinyls valued at approximately $184 million. Consequently, changes in
demand by PolyOne will affect OxyVinyls. In addition, in 2001, OxyChem and
OxyMar purchased a combined total of approximately $490 million of ethylene at
market-related prices from Equistar. Finally, OxyMar, which is OxyChem's
affiliate, sold VCM resin at market-related prices valued at approximately $291
million to OxyChem affiliates in 2001. In general, OxyChem does not manufacture
its products against a backlog of firm orders.
7
COMPETITION
The chemical business is very competitive. Since most of OxyChem's products
are commodity in nature, they compete primarily on the basis of price, quality
characteristics and timely delivery. Because OxyChem's products generally do not
occupy proprietary positions, OxyChem endeavors to be an efficient, low-cost
producer. OxyChem's size and the number and location of its plants also produce
competitive advantages, principally in its ability to meet customer delivery
requirements.
PROPERTIES
As of December 31, 2001, OxyChem, which is headquartered in Dallas, Texas,
operated 27 chemical-manufacturing plants in the United States. Many of the
larger facilities are located in the Gulf Coast areas of Texas and Louisiana. In
addition, OxyChem operates six chemical-manufacturing plants in four foreign
countries; its largest investment is in Brazil. A number of additional
facilities process, blend and store the chemical products. OxyChem owns or
leases an extensive fleet of railroad cars.
All of OxyChem's chemical-manufacturing plants are owned, except for a
portion of OxyVinyls' plant at La Porte, Texas, which is leased. The charts
below list OxyChem's principal facilities and plant capacities.
CHLOROVINYLS
Principal Products and U.S. Production Capacities at December 31, 2001
Chlorine Caustic Soda Caustic Potash EDC
Plants (a) (tons) (tons) (tons) (millions of pounds)
- -------------------------- -------------------- -------------------- -------------------- --------------------
BASIC
Mobile, Alabama 49,000 77,000
Muscle Shoals, Alabama 154,000 242,000
Delaware City, Delaware 146,000 123,000 110,000
Convent, Louisiana 389,000 435,000 1,500
Taft, Louisiana 743,000 846,000
Niagara Falls, New York 335,000 371,000
Ingleside, Texas (b, c) 604,000 676,000 1,500
- -------------------------- -------------------- -------------------- -------------------- --------------------
Total 2,420,000 2,451,000 429,000 3,000
========================== ==================== ==================== ==================== ====================
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
(b) Plant assets also comprise an interest in an electric power cogeneration
facility.
(c) As of June 1, 2001, the Ingleside EDC plant was temporarily idled.
Chlorine Caustic Soda VCM PVC Resins
Plants (a) (tons) (tons) (millions of pounds) (millions of pounds)
- -------------------------- -------------------- -------------------- -------------------- --------------------
OXYVINYLS
Louisville, Kentucky 585
Pedricktown, New Jersey 360
Deer Park, Texas (b, d) 410,000 471,000 1,300 555
Ingleside, Texas (c) 2,400
LaPorte, Texas (b) 546,000 628,000 2,400
Pasadena, Texas 2,020
- -------------------------- -------------------- -------------------- -------------------- --------------------
Total 956,000 1,099,000 6,100 3,520
========================== ==================== ==================== ==================== ====================
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
(b) Plant assets also comprise an electric power cogeneration facility.
(c) OxyMar owns plant (78.6% with OxyChem affiliates; 21.4% with Marubeni
affiliate).
(d) As of December 27, 2001, the Deer Park chlor-alkali facility was
temporarily idled.
PVC Resins
Plants (a) (millions of pounds)
- ----------------------------------------------------------------------------------------------- --------------------
SPECIALTY VINYLS
Pottstown, Pennsylvania 220
- ----------------------------------------------------------------------------------------------- --------------------
Total 220
=============================================================================================== ====================
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
8
PERFORMANCE CHEMICALS
Principal Products and U.S. Production Capacities(a)
Plants Product Capacity Volumes
- ----------------------------------------------------------- --------------------------- ------------------
ACL; Illinois and Louisiana Chlorinated Isocyanurates 131 mm lbs
Chrome; North Carolina Chromic Acid 47,000 tons
Chrome; North Carolina Sodium Bichromate 114,000 tons
INDSPEC; Pennsylvania Resorcinol 52 mm lbs
Laurel Industries; Texas Antimony Oxide 33 mm lbs
Natural Gas Odorizing; Texas Mercaptans 18 mm lbs
Silicates; Georgia/Ohio/Texas/Illinois/New Jersey/Alabama Sodium Silicates 746,000 tons
- ----------------------------------------------------------- --------------------------- ------------------
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
INTERNATIONAL
Principal Products and Production Capacities (in metric tons)(a)
Basic
% Oxy Caustic Chrome PVC
Country Location Ownership Chlorine Soda Vinyl Film EDC Sulfate Resins
- -------- ---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Brazil Cubatao 50% 253,000 284,000 144,000
Brazil Rio de Janeiro 100% 32,000
Canada Niagara Falls, Ontario 76% 268,000
Canada Scotford, Alberta 76% 154,000
Chile Talcahuano 100% 55,000 62,000
Thailand Bangkok 49% 12,000
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total 308,000 346,000 32,000 144,000 12,000 422,000
============================================== ========== ========== ========== ========== ========== ==========
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
CAPITAL EXPENDITURES
Occidental's oil and gas operations, based on depletable resources, are
capital intensive, involving large-scale expenditures. In particular, in the
search for and development of new reserves, long lead times are often required.
In addition, Occidental's oil and gas and chemical businesses require capital
expenditures to remain competitive and to comply with safety and environmental
laws. For additional information on capital expenditures, see the information
under the caption "Capital Expenditures" in the MD&A section of this report.
EMPLOYEES
Occidental employed 8,235 people at December 31, 2001, 6,338 of whom were
located in the United States. Occidental employed 2,645 people in oil and gas
operations and 4,555 people in chemical operations. An additional 1,035 people
were employed in administrative and headquarters functions. Approximately 733
U.S.-based employees are represented by labor unions.
Occidental has a long-standing policy to ensure that fair and equal
employment opportunities are extended to all people without regard to race,
color, religion, ethnicity, gender, national origin, disability, age, sexual
orientation, veteran status or any other legally impermissible factor.
Occidental maintains diversity and outreach programs.
ENVIRONMENTAL REGULATION
For environmental regulation information, see "Environmental Expenditures"
in the MD&A section of this report.
9
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (INCORPORATING ITEM 7A)
2001 BUSINESS ENVIRONMENT
In this report, the term "Occidental" refers to Occidental Petroleum
Corporation and/or one or more entities in which it owns a majority voting
interest (subsidiaries). Occidental is divided into two major operating
businesses.
OIL AND NATURAL GAS INDUSTRY
The market price of West Texas Intermediate (WTI) declined considerably
during 2001, falling from around $30/bbl in January to less than $20/bbl in
December. The fourth quarter was the weakest for oil prices since the third
quarter of 1999. Overall, the crude oil market continued to indicate both
long-term and short-term price uncertainty.
NYMEX domestic natural gas prices were subject to greater volatility in
2001. Natural gas prices, which were over $5/thousand cubic feet (Mcf) in the
fourth quarter of 2000, rose to $7/Mcf in the first quarter of 2001 and then
declined significantly to less than $3/Mcf by year-end. Increased supply from
heavy investment in drilling by the industry in 2000 and 2001, higher
inventories and decreased demand combined to lower gas prices back to the level
last seen in the first quarter of 2000.
The number of U.S. onshore rigs in use climbed from under 500 in mid-1999
to over 1,100 in mid-2001, but the decline in oil and gas prices resulted in
fewer than 800 rigs in use by the end of the year.
CHEMICAL INDUSTRY
The chemical industry experienced a significant decrease in demand as the
decade-long U.S. economic expansion gave way to a recession in March 2001
following a slowdown that began midway through 2000. Due to a pessimistic
outlook and no near-term signs of economic recovery, customers and distributors
continued with inventory reduction and limited purchases. Most Asian, European
and South American countries also experienced an economic downturn similar to
North American trends. Record-high energy prices and feedstock costs began to
drop in the second quarter, but poor product demand for the year resulted in
overall weaker prices and profit margins.
Domestic chlorine demand decreased significantly in 2001, compared with
2000, due to poor demand for chlorine derivatives including vinyls, polyurethane
chemicals, epichlorohydrin and others, which are primarily used in durable goods
and consumer products. The poor chlorine demand resulted in chlorine prices
declining throughout the year. Caustic soda prices peaked in the first half of
the year due to major cutbacks in chlorine production. Demand was stable in the
first half of the year but began to soften in the third quarter. Polyvinyl
chloride (PVC) prices, but not margins, improved for a short time reflecting
higher energy and feedstock prices during the first few months before reaching a
peak in April, but weakened throughout the remainder of the year due to poor
demand and increased industry capacity.
STRATEGIC OVERVIEW AND REVIEW OF BUSINESS RESULTS - 1999 - 2001
STRATEGY
Occidental's overall strategy to add value for shareholders consists of
three basic elements:
>> Shift corporate assets to large, long-lived oil and gas assets with growth
potential
>> Maintain financial discipline and strengthen the balance sheet
>> Harvest cash from chemicals
Implementation of this strategy included divesting interests in the natural
gas pipeline segment and buying large "legacy" oil and gas assets in California
and Texas that are expected to provide stable production, strong earnings and
cash flow and a solid platform for new growth initiatives.
At Occidental, financial discipline means prudently investing capital in
projects that are expected to produce superior returns while strengthening the
balance sheet to reduce both risk and earnings volatility.
The chemicals business is being used to provide free cash flow.
SPECIFIC ACTIONS
OIL AND GAS
The oil and gas business strategy has three parts that, together, are
focused on adding new oil and natural gas reserves at a pace well ahead of
production, while simultaneously keeping finding and development costs among the
lowest in the industry.
>> Continue to add commercial reserves in and around core areas in the U.S.,
Middle East and Latin America through a combination of focused exploration
and development programs.
>> Pursue commercial opportunities with host governments in core areas to
enhance the development of mature fields with large volumes of remaining
oil in place by applying appropriate technology and innovative
reservoir-management practices.
>> Maintain a disciplined approach in buying and selling assets at attractive
prices.
10
Occidental's oil and gas business is currently concentrated in five U.S.
states and nine foreign countries.
The asset mix within each of these areas has been strengthened by the sale
of properties with low or no current return and investment in assets with much
higher performance potential. The results of these changes are discussed below
in "Business Review - Oil & Gas."
CHEMICAL
Occidental conducts its chemical operations through Occidental Chemical
Corporation and its various subsidiaries and affiliates (collectively, OxyChem).
OxyChem focuses on the chlorovinyls chain where it begins with ethylene and
chlorine, which is co-produced with caustic soda, and converts them through a
series of intermediate products into PVC. In order to strengthen its position
along the chlorovinyls chain, Occidental entered into a major business alliance
in 1999, a vinyls partnership with Geon (now known as PolyOne) named OxyVinyls,
LP (OxyVinyls).
CORPORATE
In July 2001, Occidental sold its interests in a subsidiary that owned a
Texas intrastate pipeline and its interest in a liquefied natural gas (LNG)
project in Indonesia. After-tax proceeds of approximately $750 million from
these transactions were used to reduce debt.
In April 2000, Occidental sold its interest in Canadian Occidental
Petroleum Ltd., renamed Nexen Inc. (CanadianOxy or Nexen). After-tax proceeds,
together with tax benefits from the disposition of oil-producing properties in
Peru, totaling $700 million were used to reduce debt following the Altura
acquisition.
Occidental received $775 million from Chevron in a litigation settlement in
November 1999, which was used mainly to reduce high-cost debt.
DEBT STRUCTURE
Occidental's total debt comprises three components, as shown in the table
below (amounts in millions):
Occidental Other Altura Non-
Public Recourse Recourse Total
Date Debt Debt Debt Debt(a)
================ =========== =========== =========== ===========
12/31/97 $ 4,965 $ 1,361 $ -- $ 6,326
12/31/98 $ 5,402 $ 776 $ -- $ 6,178
12/31/99 $ 4,401 $ 1,047 $ -- $ 5,448
April 2000(b) $ 5,766 $ 1,009 $ 2,400 $ 9,175
12/31/00 $ 3,544 $ 912 $ 1,900 $ 6,356
12/31/01 $ 4,119 $ 771 $ -- $ 4,890
- ---------------- ----------- ----------- ----------- -----------
(a) Includes Trust Preferred Securities, natural gas delivery commitment,
preferred stock and capital lease obligations.
(b) Reflects, on a pro-forma basis, the effect of $1.2 billion in debt from the
Altura acquisition on Occidental's debt as of April 2000.
Occidental took full advantage of its increased production profile and high
oil and gas prices over an eighteen-month period in 2000 and 2001 to reduce
total debt. The Altura purchase increased pro-forma debt to nearly $9.2 billion
in April 2000. By the end of 2001, total debt had been lowered to $4.9 billion,
$1.4 billion below the year-end total in 1997. Occidental's public debt at
year-end 2001 is more than $800 million below the year-end 1997 level and more
than $275 million below year-end 1999.
Occidental's other recourse debt, which includes preferred stock and Trust
Preferred Securities in the above table, decreased from $1.4 billion in 1997 to
$771 million in 2001.
Total Debt/Capitalization Ratio (%)
Date Total Debt/Capitalization Ratio
=============================== ===============================
12/31/97 67%
12/31/98 66%
12/31/99 61%
April 2000(a) 71%
12/31/00 57%
12/31/01 46%
- ------------------------------- -------------------------------
(a) Reflects, on a pro-forma basis, the effect of $1.2 billion in debt from the
Altura acquisition on Occidental's public debt as of April 2000.
Occidental's year-end 2001 total debt-to-capitalization ratio has declined
to approximately 46 percent from the 67-percent level that existed at the end of
1997. The debt-to-capitalization ratio is computed by dividing total debt by
total capitalization, excluding minority interest.
BUSINESS REVIEW - OIL AND GAS
Occidental's overall performance during the past three years reflected the
successful implementation of its oil and gas business strategy, beginning with
the 1998 $3.5 billion acquisition of the Elk Hills oil and gas field in
California. Elk Hills is one of the top ten oil and gas fields in the U.S. and
the largest source of gas in California. The Elk Hills acquisition was followed
in April 2000 by the purchases of Altura Energy in Texas for $3.6 billion and
the much smaller THUMS property in Long Beach for $110 million.
At the end of 2001, these three assets made up 65 percent of Occidental's
worldwide proven oil reserves and 52 percent of its proven gas reserves. On a
barrel of oil equivalent (BOE) basis, they accounted for 63 percent of worldwide
reserves. In 2001, the combined production from these assets averaged
approximately 266,000 BOE per day, which represents 56 percent of Occidental's
total worldwide production.
ALTURA ACQUISITION
Occidental completed the acquisition of the Altura properties on April 19,
2000. In the relatively short period since the acquisition, the Altura
properties have generated nearly $1.2 billion in operating cash flow after
capital expenditures of approximately $350 million.
Net production averaged 140,000 BOE per day in 2001.
The Altura properties were successfully integrated with Occidental's
existing Permian operations, making Occidental the largest oil producer in
Texas.
With the Altura acquisition, Occidental has become a world leader in carbon
dioxide (CO2) flood technology, an enhanced oil recovery technique that involves
injecting CO2 into oil reservoirs where it acts as a solvent causing the oil to
flow more freely so it can be pumped to the
11
surface. Currently, Occidental's CO2 floods provide about half of its oil
production in the Permian Basin.
MILNE POINT - BRAVO DOME SWAP
In late 2000, Occidental swapped its 9-percent interest in the Milne Point
oil field in Alaska operated by BP p.l.c. (BP) for BP's 75-percent working
interest in the Bravo Dome CO2 unit in northern New Mexico. Bravo Dome CO2
production averaged approximately 320 million cubic feet per day in 2001.
Because of third-party sales commitments, Bravo Dome currently meets
approximately one-third of Occidental's CO2 demand in the Permian Basin.
THUMS
At year-end 2001, net production from the THUMS oil property in Long Beach,
CA was averaging 30,000 barrels per day, an increase from approximately 25,000
barrels per day at the end of 2000.
In December 2001, work began on a 3-D vertical seismic profile survey,
which is expected to be completed in the first quarter of 2002. The results of
this survey are expected to assist in planning for the future development of the
properties.
Occidental plans to build a 45-megawatt gas-fired power plant to enhance
THUMS' value. Since production at THUMS depends on electric submersible pumps,
electricity is the single largest component of this operation's cost structure.
Moreover, the supply of electricity is interruptible, meaning that when power is
in short supply, service may be interrupted to accommodate other users such as
domestic households. The new power plant will allow THUMS to generate its own
secure supply of electricity from its untapped natural gas resources, while
simultaneously lowering operating costs. Any excess electricity can be sold back
to the local electricity grid. The permitting process and pre-construction
activities are progressing well, and construction is expected to commence in the
first half of 2002.
GULF OF MEXICO
In July 2000, Occidental monetized its interests on the Continental Shelf
in the Gulf of Mexico (GOM) and the proceeds were used to reduce debt. Also
refer to "Acquisitions, Dispositions and Commitments - 2000" for further
information.
The development in the GOM is currently focused on the deep water Horn
Mountain oil discovery in which Occidental has a one-third interest and BP is
the operator. The discovery well, which was drilled to a depth of nearly 14,000
feet, is located about 60 miles off the Louisiana-Mississippi coast in 5,400
feet of water.
Gross proved reserves exceed 100 million BOE with production scheduled to
begin late in 2002. Production is expected to peak in 2003 with Occidental's
peak share estimated at 21,000 BOE per day.
ELK HILLS
As a result of sustained capital investment, production increased in 2001
to approximately 99,000 BOE per day from approximately 96,000 BOE per day in
1999 and 2000. Elk Hills has generated total free cash flow, after capital
expenditures, of approximately $2.4 billion since Occidental acquired the asset
in early 1998.
Since the date of acquisition, Occidental has replaced 108 percent of its
total Elk Hills oil and gas production of 136 million BOE. At the end of 2001,
the property still had an estimated 437 million BOE of proved reserves, compared
to the 425 million BOE that were recorded at the time of the acquisition.
MIDDLE EAST
OMAN
Occidental's Oman business centers on its 300-million barrel discovery in
Block 9. Occidental has produced more than 150 million gross barrels from the
Block, most of it from the Safah field.
Net production to Occidental averaged 14,000 barrels of oil per day in the
fourth quarter, and Occidental expects to expand its Oman business over the next
few years.
Occidental uses multi-lateral horizontal wells to increase production and
recovery rates and to minimize the number of wells needed. Today, 60 percent of
Occidental's production in Oman relies on horizontal wells. A new waterflood
program is currently under way at Safah that will enhance production and improve
the ultimate recovery of reserves from the field.
YEMEN
In Yemen, Occidental's net production averaged 33,000 barrels of oil per
day in 2001, with 29,000 coming from the Masila field and the remainder from
East Shabwa. A series of step-out wells are planned for Masila in 2002 that are
expected to add new reserves.
In 2001, Occidental completed a 3-D seismic program in Block 20.
Preliminary analysis of these data was completed, and plans are under way to
begin drilling two exploratory wells in Block 20 in late 2002. In addition, a
3-D seismic program is beginning in the first quarter of 2002 in Block 44.
Analysis of seismic data for Block 59, which is part of the under-explored
southern portion of the Rub al Khali desert, has been completed and a test well
began drilling in January 2002.
QATAR
In Qatar, Occidental successfully reversed 25 years of declining production
in the Idd el Shargi North Dome field. By introducing advanced drilling systems
and by applying new waterflooding and reservoir characterization techniques,
gross production increased from 20,000 barrels per day to more than 100,000
barrels per day, peaking at 138,000 barrels in 1998.
12
Occidental is developing the South Dome field as a satellite to the North
Dome, which reduces the overall capital requirement of the two projects.
Combined production from the two fields in the fourth quarter of 2001 was 43,000
barrels per day, net to Occidental.
Occidental also has implemented a waterflood program in the North Dome's
Shuaiba Reservoir and is currently evaluating a second-generation redevelopment
project.
Occidental is also pursuing new exploration opportunities in Qatar.
SAUDI ARABIA
In Saudi Arabia, Occidental has a 20-percent interest in the Core Venture
Two consortium, which expects to invest in the Red Sea area to help the Kingdom
identify and develop new natural gas reserves for the domestic market.
The Red Sea venture currently consists of development of discovered gas
from the Midyan and Barqan fields in the northwest part of the Kingdom, and
construction of related gas-processing and pipeline facilities. The consortium
expects to build at least one power plant and possibly a water-desalination unit
and will also evaluate the potential for a petrochemical plant.
The project also calls for onshore and offshore exploration in Blocks 40 to
49 located in and along the Red Sea. Exploration success in these blocks will
lay the foundation for additional investment opportunities in power generation,
water desalination and petrochemicals in the western part of the Kingdom.
An initial agreement was signed with the Kingdom on June 3, 2001. Final
agreements are currently expected to be signed in 2002.
OTHER EASTERN HEMISPHERE
PAKISTAN
Occidental holds oil and gas interests in the Badin Blocks in Pakistan,
which BP operates. Current gross production is 65,000 BOE per day. Occidental's
net share is approximately 16,000 BOE per day.
Current plans call for drilling 13 to 15 wells per year to develop new and
existing fields by the end of 2003, and Occidental continues to evaluate
additional exploration opportunities.
RUSSIA
In Russia, Occidental's 50-percent joint venture company, Vanyoganneft,
produced approximately 28,000 BOE, net to Occidental, in the fourth quarter of
2001.
INDONESIA
In July 2001, Occidental sold its interest in the Tangguh LNG project in
Indonesia, which was in its initial phase of development, to Mitsubishi
Corporation of Japan for a sale price of $480 million. The proceeds were used in
Occidental's debt-reduction program.
LATIN AMERICA
COLOMBIA
In 2001, production from Occidental's Cano Limon operations in Colombia was
substantially reduced from 2000 and 1999 levels due to a record number of
attacks by local left-wing terrorist groups on the pipeline, which is operated
by Ecopetrol. Nevertheless, Occidental's net share of 2001 production averaged
18,000 barrels of oil per day and this operation continues to be profitable.
This operation accounts for less than one percent of Occidental's worldwide
assets and only three percent of total worldwide reserves and four percent of
worldwide oil and gas production at year-end 2001. Occidental presently
anticipates that it will recover the proved reserves attributable to its
contract. The potential rewards are significant when the pipeline is fully
operational.
The Gibraltar exploration well, which was drilled approximately 100 miles
west of Cano Limon, did not encounter commercial quantities of hydrocarbons, and
the $66 million cost of the well was written off in 2001.
ECUADOR
In 2000, Occidental farmed out a 40-percent economic interest in Block 15
in Ecuador to Alberta Energy Company Ltd. (AEC). This transaction reduced
Occidental's exposure in Ecuador and is expected to largely fund its capital
program in-country through 2004.
Gross production in Block 15 is currently flat with 2001 average production
of approximately 30,000 barrels of oil per day, with 13,000 barrels net to
Occidental.
Occidental has begun development of the Eden-Yuturi oil field in the
southeastern corner of Block 15. The start-up of production is scheduled to
coincide with the completion of the Oleoducto de Crudos Pesados (OCP) Ltd.
heavy-oil pipeline in 2003. In addition, work is being carried out in the
western portion of the block in and around fields currently in production. The
combined effect of these projects is expected to add net incremental production
of 30,000 barrels per day to Occidental's production profile.
In addition, Occidental is expanding its exploration activities in Block 15
with an aggressive 3-D seismic program.
13
Foreign oil companies, including Occidental, have been paying Value Added
Tax (VAT), generally calculated on the basis of 10-12 percent of expenditures
for goods and services used in the production of oil for export. Until 2001,
these VAT payments were reimbursed to the oil companies because they are
incurred for the production of an export product. In 2001, the Ecuador tax
authority announced that these VAT payments do not qualify for reimbursement. In
response, the affected oil companies filed actions in the Ecuador Tax Court to
seek a judicial determination that the expenditures are subject to
reimbursement. Occidental believes that it has a valid claim for reimbursement
under applicable Ecuador tax law and historic precedent.
BUSINESS REVIEW - CHEMICAL
Although industry volumes improved in early 2001 following weak second-half
2000 demand, PVC resin sales in North America lagged 2000 levels by 8 percent
through June 2001. Overall demand declined 2.6 percent from 2000 to 2001.
Significant oversupply of PVC resin combined with continued inventory reductions
by customers resulted in North American PVC industry operating rates of around
80 percent in 2001, versus 85 percent in 2000.
PVC resin prices increased only slightly in the first half of 2001, but
declined throughout the remainder of the year. Higher exports in 2001 prevented
operating rates from falling lower, but export sales returned only minimal
margins.
On June 1, 2001, OxyChem temporarily idled its Ingleside, TX ethylene
dichloride (EDC) plant and on December 27, 2001, OxyChem temporarily idled the
Deer Park chlor-alkali plant in Houston, TX due to a combination of
deteriorating prices and weak demand. These facilities will remain idle until
economic conditions improve.
In Occidental's chlor-alkali business, reduced demand for chlorine led to
significantly reduced operating rates. OxyChem's operating rate, as a percent of
capacity, fell from 92 percent in 2000 to 84 percent in 2001. The chlorine
industry's 2001 operating rate was 85 percent compared to 92 percent for 2000.
Despite reduced liquid caustic production, caustic prices declined in the second
half of the year on weak demand. As 2001 progressed, chlorine prices fell due to
declining demand, especially in the global vinyls market. Operations at the
Convent chlor-alkali and EDC plant, which had been curtailed, were recommenced
in 2001.
Record-high energy costs in the first quarter of 2001 adversely affected
earnings. For the total year, energy costs were higher than 2000, but well below
first quarter levels. Feedstock costs followed the same trend as energy costs.
Petrochemical margins were under pressure throughout 2001 due to weak
demand and significant capacity additions by BASF/AtoFina, Formosa Plastics and
Union Carbide/Nova Chemical. Lower feedstock costs in the fourth quarter were
offset by lower prices due to continued weak demand.
The primary goal of Occidental's chemical business is to provide free cash
flow. From 1995 through 2001, total cash flow from the chemicals business was
$3.8 billion, including asset sales, net of acquisitions, of $1.0 billion.
2002 OUTLOOK
OIL AND GAS
The petroleum industry is highly competitive and subject to significant
volatility due to numerous market forces. Crude oil and natural gas prices are
affected by market fundamentals such as weather, inventory levels, competing
fuel prices, overall demand and the availability of supply.
In the fourth quarter of 2001, worldwide oil prices weakened considerably
and have remained lower than their ten-year averages in the first quarter of
2002. Sustained low prices will significantly impact profitability and returns
for Occidental and other upstream producers. However, the industry has
historically experienced wide fluctuations within price cycles.
While fundamentals are a decisive factor affecting crude oil prices over
the long term, day-to-day prices may be more volatile in the futures markets;
such as on the NYMEX and other exchanges, which make it difficult to accurately
predict oil and natural gas prices. In the short term, other factors such as
weather patterns do have a significant effect, particularly on natural gas
prices. In the United States, increased gas supplies from large capital
investment over the past year, combined with a later winter, resulted in
inventory levels at the end of 2001 exceeding the average of the preceding five
years by 20 percent.
The combination of higher gas supplies and lower demand, which is
continuing into the first quarter of 2002, is expected to result in
significantly lower average gas price realizations for Occidental in 2002 than
in 2001.
CHEMICAL
The performance of the chemical business is difficult to forecast, but this
business is capable of contributing significant earnings and cash flow when
demand is strong.
Industry operating rates in the chlor-alkali/vinyls business are expected
to recover gradually in 2002.
CHLOR-ALKALI
Domestic chlorine demand is expected to increase by nearly 2 percent in
2002, which should allow the industry's operating rates to improve in the
absence of capacity additions. Liquid caustic pricing is expected to continue to
be weak.
The domestic chlorine market price is expected to improve gradually
throughout 2002 as the vinyls demand for chlorine increases. Liquid caustic
pricing peaked in the second quarter of 2001 and is expected to decline through
the second quarter of 2002. In late 2001, OxyChem temporarily idled its Deer
Park, TX chlor-alkali facility until economic conditions improve.
14
VINYLS
While the beginning of a weak recovery is expected in the second half of
2002, continued supply/demand imbalances in PVC markets will likely prevent all
but seasonal product price increases. Continued pressure on raw materials,
particularly ethylene, should result in relatively stable, albeit low, price
spreads over raw materials.
Overall, North American PVC growth is expected to average only 2.6 percent
in 2002, reflecting weak consumer confidence and low GDP growth. While PVC will
continue to make inroads into new markets, the high-volume construction and
automotive end markets for PVC products will likely remain well below peak
demand levels. North American PVC industry operating rates are expected to
average between 80-85 percent for the year.
PETROCHEMICALS (EQUISTAR PARTNERSHIP)
In January 2002, Occidental and Lyondell Chemical Company (Lyondell)
agreed, in principle, for Occidental to sell its share of Equistar to Lyondell
and to purchase an equity interest of approximately 21 percent in Lyondell.
These transactions are subject to the execution of definitive documents and
corporate and regulatory approvals. In connection with the agreement in
principle, Occidental wrote down its investment in the Equistar partnership by
$240 million, after tax, in December 2001. Occidental will continue to reflect
its share of Equistar's results until the transaction closes, which is expected
in the third quarter of 2002.
INCOME SUMMARY
Occidental reported net income of $1.2 billion ($3.10 per share) in 2001,
on net sales of $14.0 billion, compared with net income of $1.6 billion ($4.26
per share) in 2000, on net sales of $13.6 billion. Earnings before special items
were $1.3 billion in 2001 and 2000.
SEGMENT OPERATIONS
The following discussion of Occidental's two operating segments and
corporate items should be read in conjunction with Note 15 to the Consolidated
Financial Statements.
Segment earnings exclude interest income, interest expense, unallocated
corporate expenses and extraordinary items, but include gains and losses from
dispositions of segment assets and results from equity investments.
Foreign income and other taxes and certain state taxes are included in
segment earnings on the basis of operating results. U.S. federal income taxes
are not allocated to segments except for amounts in lieu thereof that represent
the tax effect of operating charges resulting from purchase accounting
adjustments, and the tax effects resulting from major, infrequently occurring
transactions, such as asset dispositions and legal settlements that relate to
segment results. Segment earnings in 2001 were affected by $14 million of net
charges allocated comprising $56 million of charges and $42 million of credits
in oil and gas and chemical, respectively. The oil and gas amount included a
charge for the sale of the Indonesian Tangguh LNG project. The chemical amount
included credits for the sale of certain chemical operations. Segment earnings
in 2000 were affected by $25 million from net charges allocated comprising $32
million of charges and $7 million in credits in oil and gas and chemical,
respectively. The oil and gas amount included a charge for the monetization of
the GOM Continental Shelf assets. The chemical amount included a net charge for
the sale of certain chemical operations. Segment earnings in 1999 were affected
by $212 million from net charges allocated comprising $228 million of charges
and $16 million of credits in oil and gas and chemical, respectively. The oil
and gas amount included a charge related to the income on the Chevron litigation
settlement and a credit for losses on sales of assets.
The following table sets forth the sales and earnings of each operating
segment and corporate items:
SEGMENT OPERATIONS
In millions
For the years ended December 31, 2001 2000 1999
================================ ======== ======== ========
SALES
Oil and Gas $ 10,893 $ 9,779 $ 4,599
Chemical 3,092 3,795 3,221
-------- -------- --------
$ 13,985 $ 13,574 $ 7,820
================================ ======== ======== ========
EARNINGS(LOSS)
Oil and Gas $ 2,845 $ 2,417 $ 1,267
Chemical (394) 169 (37)
-------- -------- --------
2,451 2,586 1,230
Unallocated corporate items
Interest expense, net(a) (263) (380) (468)
Income taxes(c) (366) (861) (68)
Trust preferred distributions (56) (67) (62)
and other
Other (b) (580) 291 (64)
-------- -------- --------
Income before extraordinary
items and effect of changes in
accounting principles 1,186 1,569 568
Extraordinary gain(loss), net (8) 1 (107)
Cumulative effect of changes in
accounting principles, net (24) -- (13)
-------- -------- --------
Net Income $ 1,154 $ 1,570 $ 448
================================ ======== ======== ========
(a) The 2001 and 2000 amounts are net of $102 million and $106 million,
respectively, of interest income on notes receivable from Altura partners.
(b) The 2001 amount includes the after-tax loss of $272 million related to the
sale of the entity that owns pipelines in Texas that were leased to a
former subsidiary, a $109 million charge for environmental remediation
expenses and $104 million of preferred distributions to the Altura
partners. The 2000 amount includes the pre-tax gain on the sale of the
CanadianOxy investment of $493 million, partially offset by preferred
distributions to the Altura partners of $107 million. The preferred
distributions are essentially offset by the interest income discussed in
(a) above.
(c) The 2001 amount excludes the income tax benefit of $188 million attributed
to the sale of the entity that owns pipelines in Texas.
15
OIL AND GAS
In millions, except as indicated 2001 2000 1999
===================================== ======== ======== ========
SEGMENT SALES $ 10,893 $ 9,779 $ 4,599
SEGMENT EARNINGS $ 2,845 $ 2,417 $ 1,267
EARNINGS BEFORE SPECIAL ITEMS(a) $ 2,439 $ 2,404 $ 841
NET PRODUCTION PER DAY
UNITED STATES
Crude oil and liquids (MBBL)
California 76 70 52
Permian 137 101 13
U.S. Other -- 1 8
-------- -------- --------
Total 213 172 73
Natural Gas (MMCF)
California 303 306 287
Hugoton 159 168 172
Permian 148 119 55
U.S. Other -- 66 148
-------- -------- --------
Total 610 659 662
LATIN AMERICA
Crude oil & condensate (MBBL)
Colombia 18 32 43
Ecuador 13 17 15
Peru -- -- 38
-------- -------- --------
Total 31 49 96
EASTERN HEMISPHERE
Crude oil & condensate (MBBL)
Oman 12 9 15
Pakistan 7 6 5
Qatar 43 49 58
Russia 27 26 27
Yemen 33 32 32
-------- -------- --------
Total 122 122 137
Natural Gas (MMCF)
Bangladesh -- -- 8
Pakistan 50 49 44
-------- -------- --------
Total 50 49 52
BARRELS OF OIL EQUIVALENT (MBOE) 476 461 425
AVERAGE SALES PRICES
CRUDE OIL PRICES (per barrel)
U.S. $ 21.74 $ 26.66 $ 15.81
Latin America $ 19.95 $ 26.01 $ 13.20
Eastern Hemisphere $ 21.32 $ 25.14 $ 15.86
GAS PRICES (per thousand cubic feet)
U.S. $ 6.40 $ 3.66 $ 2.09
Eastern Hemisphere $ 2.29 $ 1.99 $ 1.17
EXPENSED EXPLORATION(b) $ 184 $ 94 $ 75
CAPITAL EXPENDITURES
Development $ 918 $ 582 $ 302
Exploration $ 171 $ 132 $ 103
Acquisitions and other(c, d) $ 134 $ 77 $ 69
- ------------------------------------- -------- -------- --------
(a) Earnings before special items represents segment earnings adjusted for the
effect of certain infrequent transactions that may affect comparability
between years. Earnings before special items is not considered to be an
alternative to operating income in accordance with generally accepted
accounting principles. See "Special Items" table for a list of special
items affecting earnings.
(b) Includes certain amounts previously shown in exploration capital
expenditures. The 2001 amount includes a $66 million write-off of the
Gibraltar well in Colombia.
(c) Includes mineral acquisitions but excludes significant acquisitions
individually discussed in this report.
(d) Includes capitalized portion of injected CO2 of $48 million and $44 million
in 2001 and 2000, respectively.
Occidental explores for and produces oil and natural gas, domestically and
internationally. Occidental seeks long-term growth and improvement in
profitability and cash flow through a combination of increased operating
efficiencies in core assets, enhanced oil recovery projects, focused exploration
opportunities and complementary property acquisitions.
Earnings before special items in 2001 were $2.44 billion compared with
$2.40 billion in 2000. The increase in earnings before special items reflected
primarily the impact of higher natural gas prices and higher production volumes,
partially offset by lower worldwide crude oil prices and higher exploration
expense.
Approximately 54 percent of oil and gas sales revenues for 2001 were
attributable to oil and gas trading activity, compared with approximately 50
percent in 2000 and 43 percent in 1999. These trading activities focus on
obtaining the highest sale price available. Occidental also occasionally engages
in hedging activities for relatively small parts of its total production to
reduce exposure to price risk, thereby mitigating cash-flow volatility. Refer to
"Derivative and Hedging Activities" for a complete discussion. Other than the
positive effect on oil and gas realized prices, the results of trading
activities are not significant.
The increase in oil and gas trading revenues from 2000 to 2001 was due to a
14-percent increase in the volume of oil and gas trades and a 49-percent
increase in gas prices. The revenue was also positively affected by an increase
in the volume of Natural Gas Liquids (NGLs), although this impact was not
significant. These positive effects were partially offset by an 18-percent
decrease in oil prices associated with the trading contracts.
CHEMICAL
In millions, except as indicated 2001 2000 1999
========================================== ======== ======== ========
SEGMENT SALES $ 3,092 $ 3,795 $ 3,221
SEGMENT (LOSS) EARNINGS $ (394) $ 169 $ (37)
EARNINGS BEFORE SPECIAL ITEMS(a) $ 41 $ 293 $ 147
KEY PRODUCT INDEXES (1987 through
1990 average price = 1.0)
Chlorine 0.74 1.58 0.79
Caustic soda 1.33 0.69 0.66
Ethylene Dichloride 0.61 1.37 0.97
PVC commodity resins(c) 0.68 0.95 0.70
KEY PRODUCT VOLUMES
Chlorine (thousands of tons) 2,847 2,977 3,230
Caustic soda (thousands of tons) 2,857 3,168 3,223
Ethylene Dichloride (thousands of tons) 735 979 1,080
PVC commodity resins
(millions of pounds) 3,950 3,902 3,454
CAPITAL EXPENDITURES(b)
Basic chemicals $ 37 $ 49 $ 35
Vinyls $ 55 $ 61 $ 25
Specialty businesses $ 25 $ 41 $ 50
Other $ 3 $ 4 $ 6
- ------------------------------------------ -------- -------- --------
(a) Earnings before special items represents segment earnings adjusted for the
effect of certain infrequent transactions that may affect comparability
between years. Earnings before special items is not considered to be an
alternative to operating income in accordance with generally accepted
accounting principles. See "Special Items" table for a list of special
items affecting earnings.
(b) Excludes the formation of OxyVinyls and the acquisition of the balance of
INDSPEC in 1999.
(c) Product volumes produced at PolyOne facilities contributed to OxyVinyls are
excluded from the product indexes.
Earnings before special items were $41 million in 2001, compared with $293
million in 2000. The decrease in earnings before special items reflected the
impact of lower average prices for chlorine, EDC and PVC resins and a loss from
the Equistar equity investment compared with income from the prior year,
partially offset by higher prices for caustic soda and lower raw-material and
feedstock costs.
16
Earnings before special items were $293 million in 2000, compared with $147
million in 1999. The increase in earnings before special items primarily
reflected the impact of higher average prices for chlorine, EDC and PVC resins,
partially offset by higher raw-material and feedstock costs.
SPECIAL ITEMS
Special items are significant, infrequent items reflected in the
Consolidated Statements of Operations that may affect comparability between
years. These items are listed below to assist in understanding the results of
Occidental's operations on an ongoing basis. The special items included in the
2001, 2000 and 1999 results are detailed below. For further information, see
Note 15 to the Consolidated Financial Statements and the discussion above.
SPECIAL ITEMS
Benefit (Charge) In millions 2001 2000 1999
========================================= ======= ======= =======
OIL AND GAS
Gain on sale of interest in the
Indonesian Tangguh LNG project(a) $ 399 $ -- $ --
Gain on sale of additional interests in
Gulf of Mexico assets(a) 7 -- --
Gain on partial sale of Gulf of Mexico
assets(a) -- 39 --
Write-down of various assets, real
estate and investments -- (53) (9)
Loss on sale of office building(a) -- (14) --
Chevron litigation settlement(a) -- -- 488
Write-down of Peru producing
operations(a) -- -- (29)
Claims, settlements,
reorganization and other -- -- (35)
Gain on buyout of contingency
payment(a) -- 41 --
Gain on receipt of contingency
payment -- -- 11
- ----------------------------------------- ------- ------- -------
CHEMICAL
Write-down of Equistar investment $ (412) $ -- $ --
Credit from state tax rate adjustment 14 -- --
Write-down of chemical intermediate
businesses and various assets -- (135) (159)
Gain on sale of Durez business(a) -- 13 --
Loss on foreign investment
abandonment (a) -- (2) --
Write-downs by Equistar -- -- (28)
Severance, plant shutdown, idling and
plant write-down costs (37) -- --
Gain on sale of chemical plant by
Equistar -- -- 12
Claims and settlements -- -- (9)
- ----------------------------------------- ------- ------- -------
CORPORATE
Loss on sale of pipeline-owning
entity (a) $ (272) $ -- $ --
Environmental remediation (109) -- --
Settlement of state tax issue 70 -- --
Gain on sale of CanadianOxy
investment -- 493 --
Claims and settlements -- (17) --
Extraordinary (loss)gain on debt
redemption(a) (8) 1 (107)
Insurance dividend 6 11 18
Changes in accounting principles(a) (24) -- (13)
Tax effect of pre-tax adjustments 192 (133) 55
- ----------------------------------------- ------- ------- -------
(a) These amounts are shown after-tax.
CONSOLIDATED OPERATIONS - REVENUES
SELECTED REVENUE ITEMS
In millions 2001 2000 1999
=========================================== ======== ======== ========
Net sales $ 13,985 $ 13,574 $ 7,820
Interest, dividends and other income $ 223 $ 263 $ 913
Gains(losses) on disposition of assets, net $ 10 $ 639 $ (13)
(Loss)income from equity investments $ (92) $ 67 $ 41
- ------------------------------------------- -------- -------- --------
The increase in sales in 2001, compared to 2000, primarily reflected higher
natural gas prices and higher oil and gas trading revenue, in turn, due to
higher oil and gas trading volumes and higher gas prices, partially offset by
lower crude oil and chemical prices. The increase in sales in 2000, compared
with 1999, primarily reflected higher worldwide crude oil and natural gas
prices, higher domestic oil production, mainly from the Altura and THUMS
acquisitions, higher oil and gas trading activity and the inclusion of the full
year revenues from OxyVinyls, partially offset by lower international oil
production.
Interest, dividends and other income in 2001 and 2000 included interest
income on the notes receivable from the Altura partners of $102 million and $106
million, respectively. Interest, dividends and other income in 1999 included the
favorable litigation settlement of $775 million.
Gains on disposition of assets in 2001 included the pre-tax gain of $454
million on the sale of the interest in the Tangguh LNG project and the pre-tax
loss on the sale of an interest in the subsidiary that leased a pipeline to
Occidental's former MidCon subsidiary of $459 million. Gains on disposition of
assets in 2000 included the pre-tax gain of $493 million on the sale of the
CanadianOxy investment, the pre-tax gain of $61 million on the partial sale of
the Gulf of Mexico assets, the pre-tax gain of $63 million on the receipt of
contingency payments related to a prior-year sale of a Dutch North Sea
subsidiary and the pre-tax gain of $34 million on the sale of the Durez
business.
The loss from equity investments in 2001, compared with income from equity
investments in 2000, was primarily due to a loss of $89 million from the
Equistar equity investment in 2001. The increase in income from equity
investments in 2000, compared with 1999, was due to higher earnings at Equistar.
CONSOLIDATED OPERATIONS - EXPENSES
SELECTED EXPENSE ITEMS
In millions 2001 2000 1999
=================================== ======== ======== ========
Cost of sales $ 9,488 $ 8,963 $ 5,269
Selling, general and administrative
and other operating expenses $ 675 $ 691 $ 645
Write-down of assets $ 415 $ 180 $ 212
Minority interest $ 143 $ 185 $ 58
Exploration expense $ 184 $ 94 $ 75
Interest and debt expense, net $ 392 $ 518 $ 498
- ----------------------------------- -------- -------- --------
17
The increase in cost of sales in 2001, compared with 2000, primarily
reflected higher costs related to increased oil and gas trading volumes, higher
prices for gas trading and higher production volumes. The increase in cost of
sales in 2000, compared with 1999, primarily reflected the higher costs related
to oil and gas trading, higher domestic oil production volumes and higher
raw-material and energy costs in the chemical segment.
Selling, general and administrative and other operating expenses decreased
in 2001, compared to 2000, due mainly to a decrease in chemical selling costs.
Selling, general and administrative and other operating expenses increased in
2000, compared to 1999, due to the increase in oil and gas production taxes
resulting from higher oil and gas prices and the acquisition-related higher
production, partially offset by lower other costs.
Write-down of assets in 2001 included the write-down of the Equistar equity
investment. The 2000 amount includes the write-down of certain oil and gas
investments and the write-down of the chemical intermediate businesses. The 1999
amount includes the write-down of the Peru producing operations and the
write-down of the chemical intermediate business.
Minority interest in 2001 and 2000 included preferred distributions to the
Altura partners of $104 million and $107 million, respectively.
Exploration expense in 2001 included expensing higher-cost exploration
wells, primarily the Gibraltar well in Colombia of $66 million.
The decrease in interest and debt expense in 2001, compared with 2000,
reflected lower outstanding debt levels and lower interest rates. The increase
in interest and debt expense, net in 2000, compared to 1999, reflected the
interest on the Altura non-recourse debt, partially offset by lower outstanding
corporate debt levels.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
In millions 2001 2000 1999
======= ======= =======
NET CASH PROVIDED $ 2,652 $ 2,401 $ 1,044
The higher operating cash flow in 2001, compared with 2000, resulted from
higher recurring non-cash charges, including depreciation, depletion and
amortization, exploration expenses and a loss from equity investments.
The higher operating cash flow in 2000, compared with 1999, resulted mainly
from higher earnings before special items. Depreciation, depletion and
amortization of assets increased due to the increase in property, plant and
equipment from the Altura acquisition.
Other non-cash charges in 2001 included the write-down of the Equistar
investment and environmental remediation accruals. Other non-cash charges in
2000 included the write-down of the chemical intermediate businesses and other
miscellaneous items. Other non-cash charges in 1999 included the write-down of
chemical assets and other miscellaneous items. See the "Special Items" table on
page 19. Each of the three years also included charges for employee benefit
plans and other items.
INVESTING ACTIVITIES
In millions 2001 2000 1999
======= ======= =======
NET CASH(USED) PROVIDED $ (736) $(3,097) $ 1,591
The 2001 amount included the gross proceeds of $863 million from the sale
of the entity that owns pipelines in Texas and the sale of Occidental's interest
in the Tangguh LNG project in Indonesia.
The 2000 amount included the gross proceeds of approximately $800 million
from the sale of the CanadianOxy investment, gross proceeds of $150 million from
the sale of the Durez business and approximately $342 million from the
monetization of the GOM assets. The 2000 amount also included approximately $3.7
billion for the purchases of Altura and THUMS.
The 1999 amount included the proceeds from the $1.4 billion note receivable
and the $775 million proceeds from the Chevron litigation settlement. The 1999
amount reflected lower capital expenditures and also reflected net cash used of
$113 million in connection with the formation of OxyVinyls.
CAPITAL EXPENDITURES
IN MILLIONS 2001 2000 1999
=========================== ======= ======= =======
Oil and Gas $ 1,223 $ 791 $ 474
Chemical 120 155 116
Corporate and other 58 6 11
------- ------- -------
TOTAL $ 1,401 $ 952 $ 601
=========================== ======= ======= =======
Oil and gas capital expenditures were significantly higher in 2001
reflecting higher oil field service costs and higher development spending
resulting, primarily, from a larger asset base. Amounts from all three years
exclude any significant acquisitions.
Occidental's capital spending budget for 2002 is $1.1 billion. Of the
total, approximately $1 billion will be allocated to oil and gas, with Qatar,
Elk Hills and the Permian Basin receiving the highest priority.
FINANCING ACTIVITIES
In millions 2001 2000 1999
======= ======= =======
NET CASH (USED)PROVIDED $(1,814) $ 579 $(2,517)
The 2001 amount reflected the repayment of $2.3 billion of long-term and
non-recourse debt, partially offset by proceeds of $861 million from new
long-term debt.
The 2000 amount reflected the proceeds from the $2.4 billion non-recourse
debt offset by repayments of $1.4 billion on the long-term and non-recourse
debt. The 2000 amount also includes the first year of purchases made to satisfy
delivery commitments under the gas pre-sale commitment that was signed in 1998.
18
The 1999 amount reflected the repayment of commercial paper and long-term
debt.
Occidental paid common stock dividends of $372 million in 2001 and $369
million in 2000 and paid preferred and common stock dividends of $363 million in
1999. In 1999, a total of 4,847,130 shares of CXY-indexed convertible preferred
stock were converted by the holders into 15,708,176 shares of Occidental's
common stock. At the end of 2001, 2000 and 1999, Occidental had no preferred
stock outstanding. However, most of the Trust Preferred Securities issued in
January 1999 by Oxy Capital Trust I, a wholly-owned subsidiary of Occidental,
remain outstanding at December 31, 2001.
Occidental has a centralized cash-management system that funds the working
capital and capital expenditure requirements of its various subsidiaries. There
are no provisions under existing debt agreements that significantly restrict the
ability to move funds among operating entities.
ADDITIONAL CONSIDERATIONS REGARDING FUNDING AND LIQUIDITY
In the course of its business activities, Occidental pursues a number of
projects and transactions to meet its core business objectives. The accounting
and financial statement treatment of these transactions is a result of the
varying methods of funding employed. Occidental also makes commitments on behalf
of unconsolidated entities. These transactions, or groups of transactions, are
recorded in compliance with generally accepted accounting principles and, unless
otherwise noted, are not recorded on Occidental's balance sheets. The following
is a description of the business purpose and nature of these transactions.
>> CHEMICAL TRANSACTIONS
TAFT COGENERATION FACILITY
Occidental has undertaken certain commitments in connection with the
construction and leasing of a cogeneration facility in Taft, LA. This facility
will supply all the steam and electric power requirements for Occidental's Taft
chlor-alkali plant for less cost than if the plant were to generate its own
steam and purchase electricity from a public utility. An owner trust with
investors as participating beneficiaries owns the project, with Occidental
acting as general contractor during construction. The equity participant in the
owner trust has committed to fund the owner trust with equity in the amount of
three percent of the total project cost during construction and 13 percent of
the total project cost upon commencement of the lease term. During the
construction period, Occidental is fully liable for total project costs if an
event of termination occurs due to its willful misconduct or bankruptcy, and
Occidental is liable to pay up to 89.9 percent of the eligible construction
costs if an event of termination occurs for reasons other than force majeure.
Upon completion of construction and satisfaction of certain other conditions,
expected to occur by December 31, 2002, Occidental will enter into a 26-year
operating lease of the facility. The total cost of the project at the inception
of the lease is expected to be approximately $450 million. The total accumulated
costs of the project as of December 31, 2001 amount to approximately $328
million. If these costs were recorded as liabilities on Occidental's balance
sheet, either during construction or during the lease term, the Taft
cogeneration facility would also be recorded as an asset on the balance sheet.
LEASES
Occidental has entered into various operating lease agreements, mainly for
railcars, manufacturing facilities and office space. The leased assets are used
in Occidental's operations where leasing offers advantages of greater operating
flexibility and generally costs less than alternative methods of funding. Lease
payments are charged to Occidental's operations, mainly as cost of sales.
Occidental estimates the present value of the remaining lease payments to be
$310 million at December 31, 2001. Occidental has fixed-price purchase options
associated with certain leases at various dates ranging from 2003 to 2015, with
an estimated present value of $285 million. These obligations are not recorded
as liabilities on Occidental's consolidated balance sheets. If they were so
recorded, the leased properties also would be included on the balance sheets as
assets.
OXYMAR
Occidental has a 78.6-percent ownership interest in OxyMar, a general
partnership that owns a vinyl chloride monomer (VCM) facility in Texas operated
by OxyChem. Marubeni Corporation (Marubeni) owns the remaining 21.4 percent of
OxyMar, but has a 50-percent voting interest. The OxyMar VCM plant is a modern,
efficient manufacturing facility. Occidental's chlorovinyls business derives
economic benefit as the supplier of chlorine, a major raw material, to OxyMar.
OxyMar, in turn, supplies VCM required by Occidental to manufacture PVC, one of
its major products. This investment in OxyMar is recorded as an equity
investment on the consolidated balance sheet. Occidental owns 28.6 percent of
OxyMar directly and the OxyVinyls partnership, which is 76-percent owned by
Occidental, owns 50 percent. Therefore, because of the effect of a third party's
minority ownership interest, Occidental's total share of OxyMar's results is
only approximately 67 percent. Occidental guarantees 50 percent of OxyMar's $165
million private placement bonds due 2016 and 100 percent of a $220 million
revolving line of credit which matures in 2005, under which $105 million was
outstanding at December 31, 2001. These amounts are reflected as debt on
OxyMar's balance sheet. Marubeni has a right to put its interest in OxyMar to
Occidental in 2004 by paying approximately $30 million to Occidental and, in
connection with this transfer, require Occidental to assume Marubeni's guarantee
of OxyMar's debt. If Occidental acquires the Marubeni interest, it will
consolidate OxyMar. If OxyMar were to be consolidated, its assets, including the
VCM facility, and its liabilities, including debt to third parties, would be
recorded on Occidental's consolidated balance sheets. As of December 31, 2001,
Occidental had advanced $144 million to OxyMar and had a net equity investment
of $52 million.
19
INGLESIDE
Occidental and Conoco Inc. (Conoco) each has a 50-percent interest in
Ingleside Cogeneration Limited Partnership, a limited partnership (Ingleside
LP), which operates a cogeneration plant in Texas. The cogeneration facility
supplies all of the steam and electric power requirements to Occidental's
Ingleside chlor-alkali plant and the VCM plant Occidental owns with Marubeni, at
less cost than if these facilities were to produce their own steam and purchase
electric power from a public utility. At December 31, 2001, Ingleside LP had
approximately $178 million in debt, which is secured by its assets. Occidental
has not guaranteed this debt; however, Occidental and Conoco currently each
guarantee half of a debt service reserve amount of approximately $8.5 million.
Occidental accounts for this investment using the equity method.
EQUISTAR
Occidental has entered into an indemnity agreement with Equistar, its
29.5-percent equity investee, to contribute to Equistar an amount equal to the
lesser of approximately $420 million or the principal amount of Equistar's notes
due 2009 then outstanding, together with interest. At December 31, 2001, the
outstanding principal amount of Equistar's notes due 2009 was almost $600
million. Occidental is only required to pay this amount to Equistar if the
holders of the notes have not been able to obtain payment after having pursued
and exhausted all their remedies to compel payment by Equistar, including the
liquidation of assets. The indemnity expressly does not create any right in the
holders of the notes or any person other than Occidental, Equistar and the
partners of Equistar. Occidental may elect to terminate the indemnity in certain
circumstances.
v OIL AND GAS TRANSACTIONS
ECUADOR
In Ecuador, Occidental has a 12-percent interest in a company currently
constructing a pipeline, which is expected to be completed in 2003. Construction
of the pipeline has made it feasible for Occidental to begin developing the Eden
Yuturi field it discovered several years ago in the southeastern corner of Block
15. The development of Eden Yuturi, together with ongoing work in the western
portion of the block that is currently in production, is expected to add net
incremental production of 30,000 barrels per day, all of which is expected to be
shipped through the new pipeline. Occidental has committed to make capital
contributions up to its share (approximately $148 million) of the estimated
total project costs, less an equivalent percentage (up to approximately $110
million under existing financing arrangements) of any senior project debt
incurred by the pipeline company. The pipeline company's senior project debt is
to be repaid with the proceeds of ship-or-pay tariffs of certain upstream
producers in Ecuador, including Occidental. Under their ship-or-pay commitments,
Occidental and the other upstream producers have each assumed their respective
share of project-specific risks, including construction risk, operating risk and
force-majeure risk. Under certain circumstances, Occidental could be required to
pay an advanced tariff payment that would in turn be used by the pipeline
company to service or prepay project debt. As of December 31, 2001, Occidental
has contributed $9 million to the company. Occidental reports this investment in
its consolidated financial statements using the equity method of accounting.
ELK HILLS POWER
Occidental and Sempra Energy (Sempra) each has a 50-percent interest in Elk
Hills Power LLC, a limited liability company that is currently constructing a
gas-fired, power-generation plant in California. Occidental accounts for this
investment using the equity method. In January 2002, Elk Hills Power LLC entered
into a $400 million construction loan facility. Occidental guarantees $200
million (50 percent) of the loan facility. At January 31, 2002, approximately
$94 million of the $200 million guaranteed amount was outstanding.
v OTHER TRANSACTIONS
RECEIVABLES SALE PROGRAM
Occidental has an agreement in place to sell, under a revolving sale
program, an undivided interest in a designated pool of trade receivables. This
program is used by Occidental as a low-cost source of working capital funding.
The amount of proceeds, which totaled $360 million outstanding in each of 2001
and 2000, that Occidental has received on the sale of the undivided interest and
the related accounts receivable that have been sold, are not included in the
debt and trade receivables accounts, respectively, on Occidental's consolidated
balance sheets. Fees and expenses under this program are included in selling,
general and administrative and other operating expense. Under the program,
receivables must meet certain criteria. The program terminates upon certain
events, including Occidental's senior debt rating falling below investment
grade. In such an event, the amount of proceeds outstanding at that time would
have to be funded through other means, which could result in an increase in debt
recorded on the consolidated balance sheets along with a corresponding increase
in the accounts receivable balance. The consolidated income statement effect of
such an event would not be significant.
20
v CONTRACTUAL OBLIGATIONS
The table below summarizes and cross-references certain contractual
obligations that are disclosed in the Consolidated Balance Sheets (CBS) and/or
the accompanying Notes.
(In millions) Payments Due by Year
-------------------------------------------------------
Contractual 2003 2005 2007 and
Obligations Total 2002 to 2004 to 2006 thereafter
=============== ========== ========== ========== ========== ==========
Long-Term
Debt (CBS
and Note 6)(a) $ 4,065 $ -- $ 829 $ 852 $ 2,384
Capital
Leases (CBS
and Note 8) 27 1 1 1 24
Operating
Leases
(Note 8)(b) 426 67 102 70 187
Fixed and
Determinable
Purchase
Obligations
(Note 9)(c) 81 15 26 22 18
Other Long-Term
Contracts
(Notes 1, 7
and 12)(e) 1,105 137 145 360 (d) 463
---------- ---------- ---------- ---------- ----------
TOTAL $ 5,704 $ 220 $ 1,103 $ 1,305 $ 3,076
=============== ========== ========== ========== ========== ==========
(a) Includes principal payments, unamortized discounts and mark-to-market
adjustments related to fair-value hedges.
(b) Offset by sub lease rental income.
(c) Excludes capital commitments.
(d) The $360 million receivable securitization amount is reflected in the
2005-2006 year column since Occidental could finance the amount with its
committed credit line, which becomes due in 2006, if the program was
terminated.
(e) Includes the $282 million natural gas delivery commitment (CBS), the $360
million receivable securitization program and the $463 million Trust
Preferred Securities (CBS).
COMMITMENTS
In addition to those discussed above, Occidental has entered into
commitments on behalf of entities, whether or not affiliated with Occidental,
including performance bonds and guarantees of environmental, financial or other
obligations. Occidental's liability under these commitments arises only if the
entity primarily responsible fails to perform its contractual obligations. In
management's opinion, it is unlikely that any of these commitments will have a
material adverse effect upon Occidental's consolidated financial position or
results of operations.
ANALYSIS OF FINANCIAL POSITION
The changes in the following components of Occidental's balance sheet are
discussed below:
SELECTED BALANCE SHEET COMPONENTS
In millions 2001 2000
================================================ ======== ========
Trade receivables, net $ 360 $ 809
Receivables from joint ventures, partnerships
and other $ 327 $ 517
Long-term receivables, net $ 2,186 $ 2,119
Equity investments $ 993 $ 1,327
Property, plant and equipment, net $ 12,858 $ 13,471
Current maturities of long-term debt and capital
lease liabilities $ -- $ 258
Accounts payable $ 720 $ 1,091
Accrued liabilities $ 858 $ 1,089
Current obligation under natural gas delivery
commitment $ 137 $ 129
Long-term debt, net $ 4,065 $ 3,285
Altura non-recourse debt $ -- $ 1,900
Long-term obligation under natural gas delivery
commitment $ 145 $ 282
Other deferred credits and liabilities $ 2,326 $ 2,415
Minority interest $ 2,224 $ 2,265
Trust Preferred Securities $ 463 $ 473
Stockholders' equity $ 5,634 $ 4,774
- ------------------------------------------------ -------- --------
The lower balance in trade receivables at December 31, 2001, compared with
December 31, 2000, reflected lower product prices during the fourth quarter of
2001 versus 2000. The decrease in receivables from joint ventures, partnerships
and other was due to lower mark-to-market adjustments on derivative financial
instruments in the oil and gas trading group. The lower balance in equity
investments primarily reflected the write-down of the equity investment in
Equistar in December 2001. The decrease in the net balance in property, plant
and equipment reflected depreciation, depletion and amortization and the sale of
the entity that owns pipelines in Texas, offset in part by capital spending.
The decrease in current maturities of long-term debt reflected a
reclassification of the current portion of long-term debt, since it is
management's intention to refinance the amount on a long-term basis by issuing
long-term debt. The decrease in accounts payable was due to lower trade payable
balances in the oil and gas marketing and trading operations. The decrease in
accrued liabilities was due to lower mark-to-market adjustments on derivative
financial instruments in the oil and gas trading group, a lower accrual for
interest expense and other miscellaneous items. The increase in
21
long-term debt primarily reflected the $800 million senior notes that were
issued in 2001 mainly to extinguish the non-recourse debt, which was originally
incurred as a result of the Altura acquisition. The non-recourse debt was
extinguished in 2001 using free operating cash flow and senior-note proceeds.
The long-term balance of the obligations under the natural gas delivery
commitment decreased from December 31, 2000, which reflected the reduction in
the overall amount of the obligation. Other deferred credits and liabilities
included deferred compensation, primarily other post-retirement benefits,
environmental reserves, contract advances, deferred revenue and other deferred
items. The decrease in this account was primarily the result of the decrease in
deferred revenue from the GOM monetization. The increase in stockholders' equity
primarily reflected net income, partially offset by dividends on common stock.
The table below presents principal amounts, by currency and by year of
maturity for Occidental's long-term debt obligations, excluding $9 million in
unamortized discount, at December 31, 2001:
DEBT CURRENCY DENOMINATIONS AND INTEREST RATES
In millions of U.S. dollars, except rates
U.S. Dollar U.S. Dollar
Year of Maturity Fixed Rate Variable Rate(a) Grand Total(b)
====================== ============= ============= =============
2003 $ 507 $ -- $ 507
2004 324 -- 324
2005 1 157 158
2006 246 450 696
2007 2 300 302
Thereafter 1,576 510 2,086
------------- ------------- -------------
TOTAL $ 2,656 $ 1,417 $ 4,073
============= ============= =============
Average interest rate 7.67% 3.48% 6.21%
====================== ============= ============= =============
(a) Includes fixed-rate debt with fair-value hedges.
(b) Excludes $9 million of unamortized discounts.
The estimated fair value of Occidental's long-term debt at December 31,
2001 was $4.3 billion. Occidental has the option to call certain issues of
long-term debt before their maturity dates.
In February 2002, Occidental filed a shelf registration statement for up to
$1 billion of its senior debt securities, subordinated debt securities,
preferred stock, common stock, depositary shares, warrants, stock purchase
contracts, stock purchase units, preferred securities of two subsidiary trusts
and Occidental's guarantees of such preferred securities. Occidental, at its
option, may issue the entire $1 billion under its medium-term notes program,
which includes its Medium-Term Senior Notes, Series C and its Medium-Term
Subordinated Notes, Series A. Currently, no notes are issued and outstanding
under the program.
In December 2001, Occidental issued $300 million of 5.875-percent senior
notes due 2007 and $500 million of 6.750-percent senior notes due 2012 for net
combined proceeds of approximately $794 million. Approximately $700 million of
the net proceeds were used to extinguish the Altura non-recourse debt.
Occidental recorded an after-tax extraordinary loss of $4 million from this
transaction. The remaining proceeds were used for general corporate purposes.
On March 5, 2001, Occidental retired $20.5 million of 7.8-percent pollution
control revenue bonds due on December 1, 2005. As a result of this transaction,
Occidental recognized an after-tax extraordinary loss of $3 million in the first
quarter of 2001.
On December 20, 2000, Occidental redeemed all $270 million of its
outstanding floating-rate extendible notes due 2008 at par.
During the third and fourth quarters of 2000, Occidental repurchased some
of its outstanding public debt securities in open market transactions, with
principal balances totaling $154 million, at current market prices. Occidental
recorded an after-tax extraordinary gain of $1 million that resulted from these
purchases.
On June 1, 2000, Occidental redeemed all of its outstanding 11.125-percent
senior debentures due June 1, 2019, at a redemption price of 100 percent of the
principal amount thereof. The outstanding aggregate principal amount of the
debentures, which were issued on May 15, 1989, was $75 million.
In December 1999, Occidental repurchased for cash, $240 million principal
amount of its 10.125-percent senior notes due November 15, 2001, and $138
million principal amount of its 11.125-percent senior notes due August 1, 2010
and redeemed all of OXY USA's $274 million principal amount of 7-percent
debentures due 2011, for a total of $722 million, including premium, expenses
and accrued interest. Occidental recorded an after-tax extraordinary loss of
$104 million in the fourth quarter of 1999 related to these transactions.
In September 1999, Occidental redeemed $250 million of its 8.5-percent
medium-term notes due 2004 at par.
In August 1999, Occidental called for redemption all of the outstanding
shares of its $3.00 cumulative CXY-indexed convertible preferred stock. Holders
of 3,125,837 shares of such preferred stock converted their shares into
approximately 9.9 million shares of Occidental common stock. Occidental redeemed
the remaining outstanding shares in September 1999.
Also in June 1999, Occidental redeemed $68.7 million of its 11.125-percent
senior debentures due June 1, 2019, at a redemption price of 105.563 percent of
their principal amount. Occidental recorded an after-tax extraordinary loss of
$3 million in the second quarter of 1999 related to the redemption.
In February 1999, Occidental issued $450 million of 7.65-percent senior
notes due 2006 and $350 million of 8.45-percent senior notes due 2029 for net
proceeds of approximately $792 million. The net proceeds were used for general
corporate purposes, which included the repayment of commercial paper and the
redemption of other debt.
In January 1999, Occidental issued $525 million of 8.16-percent Trust
Preferred Securities due in 2039, and callable in 2004, for net proceeds of $508
million. The net proceeds were used to repay commercial paper. The Trust
Preferred Securities balance reflects the issuance of preferred securities, net
of unamortized issue costs and repurchases.
22
At December 31, 2001, Occidental had approximately $2.1 billion of
committed credit lines, which are all available and are utilized, as needed, for
daily operating and other purposes. These lines of credit are primarily used to
back up the issuance of commercial paper. Occidental has reclassified $199
million of maturities due 2002 to long-term debt based on its ability to
refinance this debt on a long-term basis utilizing the committed credit lines
mentioned above.
Occidental expects to have sufficient cash in 2002 from operations, and
from proceeds from existing credit facilities, as necessary, for its operating
needs, capital expenditure requirements, dividend payments and mandatory debt
repayments. In the event of fluctuations in operating cash flow, Occidental has
the ability to vary its discretionary cash outflow, such as capital
expenditures.
ACQUISITIONS, DISPOSITIONS AND COMMITMENTS
2001
SALE OF INTRASTATE PIPELINE
On August 31, 2001, Occidental sold the entity that owns pipelines in Texas
that are leased to a former subsidiary. The entity was sold to Kinder Morgan
Energy Partners, L.P. Occidental recorded an after-tax loss of approximately
$272 million in connection with this transaction.
SALE OF INDONESIA GAS PROPERTIES
On July 10, 2001, Occidental completed the sale of its interest in the
Tangguh LNG project in Indonesia to Mitsubishi Corporation of Japan. Occidental
recorded an after-tax gain of approximately $399 million for this transaction.
2000
MILNE POINT ASSET SWAP
On December 4, 2000, Occidental completed an agreement with BP to obtain
BP's interest in a carbon dioxide field in New Mexico and related pipelines in
exchange for Occidental's interest in the Milne Point oil field in Alaska,
together with additional cash consideration. The gain on this transaction was
not significant.
OXYMAR PURCHASE
On November 29, 2000, OxyChem purchased a 28.6-percent interest in OxyMar,
a Texas general partnership that owns the Ingleside, Texas VCM facility operated
by OxyChem. The interest was purchased from U.S. VCM Corporation, an affiliate
of Marubeni Corporation, which continues to own a 21.4-percent interest and
remains a 50-percent partner for corporate-governance purposes. OxyVinyls owns
the remaining 50-percent interest.
ECUADOR FARM OUT TO AEC
On November 1, 2000, Occidental agreed to farm out a partial economic
interest in its Block 15 operations in Ecuador to AEC. AEC will earn a
40-percent interest in the block and will assume certain capital costs through
2004. Occidental will remain the operator of Block 15. The gain on this
transaction was not significant.
SALE OF DUREZ
On November 1, 2000, Occidental completed the sale of its Durez phenolic
resins and compounding businesses and assets to Sumitomo Bakelite Co., Ltd. for
gross proceeds of approximately $150 million. There was a $13 million after-tax
gain on this transaction.
GULF OF MEXICO ASSETS MONETIZED
On August 15, 2000, Occidental completed agreements with respect to two
transactions with Apache Corporation (Apache) involving Occidental's interests
in the Continental Shelf of the GOM. Occidental entered into a transaction to
deliver, over four years, substantially all of its share of future gas
production from these GOM interests to Apache for approximately $280 million.
Occidental also agreed to sell an interest in the subsidiary that holds the GOM
assets for approximately $62 million, with an option for Apache to purchase
additional interests for $44 million over the next four years. As a result of
these transactions, and the consequent elimination of a portion of Occidental's
responsibility for abandonment liabilities, Occidental recorded an after-tax
gain of $39 million.
SALE OF PERU PROPERTIES
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in December
1999 to write-down the properties to their fair values.
THUMS ACQUISITION
On April 24, 2000, Occidental completed the acquisition of THUMS, an oil
producing entity, for approximately $68 million. The acquisition added
approximately 95 million barrels of net oil reserves and approximately 25,000
barrels per day of net oil production to Occidental's growing California
operations.
ALTURA ACQUISITION
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura, the largest oil producer in Texas. Occidental,
through its subsidiaries, paid approximately $1.2 billion to the sellers,
affiliates of BP and Shell, to acquire the common limited partnership interest
and control of the general partner which manages, operates and controls 100
percent of the Altura assets. The partnership borrowed approximately $2.4
billion, which had recourse only to the Altura assets. The partnership also
loaned approximately $2.0 billion to affiliates of the sellers, evidenced by two
notes, which provide credit support to the partnership. The sellers retained a
preferred limited partnership interest of approximately $2.0 billion and were
entitled to certain distributions from the partnership. The partnership
exercised an option in May 2002 to redeem the remaining partnership interests of
$1.9 billion held by BP Amoco and Shell in exchange for their
23
existing note payable of $1.9 billion to the partnership. The acquisition is
valued at approximately $3.6 billion. The $2.4 billion loan had been completely
paid by the end of 2001. Proved reserves at Altura were 882 million barrels of
oil equivalent at December 31, 2001.
SALE OF CANADIANOXY INVESTMENT
On April 18, 2000, Occidental completed the sale of its 29.2-percent stake
in CanadianOxy for gross proceeds of approximately $1.2 billion Canadian. Of
Occidental's 40.2 million shares of CanadianOxy, 20.2 million were sold to the
Ontario Teachers Pension Plan Board and 20 million to CanadianOxy. In addition,
Occidental and CanadianOxy exchanged their respective 15-percent interests in
joint businesses of approximately equal value, resulting in Occidental owning
100 percent of an oil and gas operation in Ecuador and CanadianOxy owning 100
percent of sodium chlorate operations in Canada and Louisiana. After-tax
proceeds from the CanadianOxy disposition together with tax benefits from the
disposition of the Peru producing properties totaled approximately $700 million.
1999
ASSET SWAP WITH EOG
In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged
certain oil and gas assets. Occidental received producing properties and
exploration acreage in its expanding California asset base, as well as producing
properties in the western Gulf of Mexico near existing operations, in exchange
for oil and gas production and reserves in east Texas. The exchange increased
Occidental's exploration acreage in California from approximately 89,000 acres
to approximately 850,000 acres.
Occidental also farmed out Oklahoma panhandle properties to EOG, retaining
a carried interest, and expects to benefit from EOG's drilling program.
Occidental was not planning on drilling this acreage and, under this program,
EOG will fund all the capital and Occidental will share in the results.
INDSPEC ACQUISITION
In the third quarter of 1999, Occidental acquired the remaining ownership
of INDSPEC through the issuance of approximately 3.2 million shares of
Occidental common stock at an estimated value of approximately $68 million and
the assumption of approximately $80 million of bank debt. As a result of the
transactions, Occidental owns 100 percent of the stock of INDSPEC.
YEMEN ASSET SWAP WITH UNOCAL
In the third quarter of 1999, Occidental acquired oil and gas interests in
Yemen from Unocal International Corporation (UNOCAL) and UNOCAL acquired
Occidental's properties in Bangladesh. The results, after tax benefits, did not
have a significant impact on earnings.
OXYVINYLS PARTNERSHIP
Effective April 30, 1999, Occidental and PolyOne formed two partnerships.
Occidental has a 76-percent interest in OxyVinyls, the PVC commodity resin
partnership, which is the larger of the partnerships, and a 10-percent interest
in a PVC powder compounding partnership. OxyVinyls also has entered into
long-term agreements to supply PVC resin to PolyOne and VCM to Occidental and
PolyOne. In addition, Occidental sold its pellet compounding plant in Pasadena,
Texas and its vinyl film assets in Burlington, New Jersey to PolyOne. As part of
the transaction, PolyOne received $104 million through the retention of working
capital and the distribution of cash from OxyVinyls, and OxyVinyls undertook
approximately $180 million in obligations, for certain PolyOne plant facilities,
which are treated as operating leases for accounting purposes. Occidental did
not record a significant gain or loss on the transaction.
CAPITAL EXPENDITURES
Commitments at December 31, 2001 for major capital expenditures during 2002
and thereafter were approximately $167 million. Total capital expenditures for
2002 are estimated to be approximately $1.1 billion. Occidental will fund these
commitments and capital expenditures with cash from operations and proceeds from
existing credit facilities as necessary.
DERIVATIVE AND HEDGING ACTIVITIES
GENERAL
Occidental's market-risk exposures relate primarily to commodity prices,
and, to a lesser extent, interest rates and foreign currency exchange rates.
Occidental's results are sensitive mainly to crude oil and natural gas prices
and fluctuations in those prices have an impact on Occidental's results. Based
on current levels of production, if oil prices vary overall by $1 per barrel,
they would have approximately a $108 million annual affect, before U.S. income
tax. If natural gas prices vary by $0.25 per million Btu (MMBtu), they would
have approximately a $60 million annual effect, before U.S. income tax. If
production levels change in the future, the sensitivity of Occidental's results
to oil and gas prices also would change. Occidental may periodically use
different types of derivative instruments to achieve the best prices for oil and
gas, to reduce its exposure to price volatility and thus mitigate fluctuations
in commodity-related cash flows. Usually Occidental remains unhedged to
long-term oil and gas prices. Overall, Occidental's use of derivatives in
hedging activity remains at a relatively low level. However, current rules
require extensive disclosure regarding any level of derivative use. The
following disclosures describe each area of Occidental's derivative activity in
detail.
24
Effective January 1, 1999, Occidental adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 98-10, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities", which establishes accounting and
reporting standards for certain energy trading contracts. EITF 98-10 requires
that energy trading contracts must be marked to fair value with gains and losses
included in earnings and separately disclosed in the financial statements or
accompanying footnotes. The initial adoption of EITF 98-10 resulted in a first
quarter non-cash after-tax benefit of $2 million, recorded as a cumulative
effect of a change in accounting principle in 1999.
Effective January 1, 2001, Occidental adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138
(collectively SFAS No. 133, as amended). These statements establish accounting
and reporting standards for derivative instruments and hedging activities and
require an entity to recognize all derivatives in the statement of financial
position and measure those instruments at fair value unless the instrument
qualifies as a normal purchase or sale contract. Changes in the derivative
instrument's fair value must be recognized in earnings unless specific hedge
accounting criteria are met. Changes in the fair value of derivative instruments
that meet specific cash-flow hedge accounting criteria are reported in other
comprehensive income (OCI). The gains and losses on cash-flow hedge transactions
that are reported in OCI are reclassified to earnings in the periods in which
earnings are affected by the variability of the cash flows of the hedged item.
Gains and losses from derivatives that qualify for fair-value hedge accounting
are recorded in earnings along with the change in fair value of the hedged item.
The ineffective portions of all hedges are recognized in current period
earnings. Prior to the adoption of SFAS No. 133, gains and losses on commodity
futures contracts that qualified for hedge accounting, essentially those
associated with equity production or purchases, were deferred until recognized
as an adjustment to sales revenue or purchase costs when the related transaction
being hedged was finalized.
Occidental's initial adoption of SFAS No. 133, as amended, resulted in a
first quarter after-tax reduction in net income of $24 million recorded as a
cumulative effect of a change in accounting principles and an after-tax
reduction in OCI of approximately $27 million. The adoption also increased total
assets by $588 million and total liabilities by $639 million as of January 1,
2001.
COMMODITY PRICE DERIVATIVES
GENERAL
With respect to derivatives used in its oil and gas marketing operations,
Occidental used a combination of futures, options and swaps to offset various
open price positions.
The fair value recorded for derivative instruments is based on quoted
market prices, dealer quotes or synthetic price curves established from quoted
prices (adjusted for time, location and quality differentials).
CASH-FLOW COMMODITY HEDGES
Occidental used cash-flow hedges for the sale of crude oil and natural gas
in 2001, with the objective of mitigating price risk arising from fluctuating
values for these commodities. Crude oil hedges were executed for Occidental's
West Texas production. Its strategy to achieve these objectives included a
combination of purchased put options and written call options resulting in no
net premium received for crude oil hedging. Purchased put options were used for
natural gas hedging and were executed for the Mid-continent production area to
establish a minimum sales price for its production. Occidental used no
fair-value hedges for crude oil or natural gas production during 2001.
Occidental's cash-flow-hedging instruments, which consist of natural gas
put option contracts, are highly effective. During 2001, net gains of $0.6
million were recorded to OCI relating to changes in current cash-flow hedges and
net losses of $7.6 million were reclassified from OCI into earnings as a
reduction to net sales revenue, as the forecasted transactions actually
occurred. The fair value at December 31, 2001 of derivative financial
instruments that have been designated and have qualified as cash-flow-hedging
instruments was $0.2 million. The gain was recorded as an increase to OCI and
will be reclassified into earnings during 2002 when the forecasted transactions
actually occur.
MARKETING AND TRADING OPERATIONS
The fair value at December 31, 2001 of derivative instruments used in
marketing and trading operations is a net gain of $9 million. Gains of $24
million were recorded in earnings due to the change in fair value of these
financial derivative instruments during 2001. Offsetting the value of these
instruments are related physical positions with a fair value of $2 million loss
at December 31, 2001. Gains of $15 million were recorded in earnings due to the
change in the fair value of related physical positions during 2001. The net
positions mostly expire in 2002. Additionally, a long-term sales contract volume
commitment is 38,100 MMBtu per day through October 2010. The approximate $39
million net gain from the change in fair value during 2001 of derivative
instruments used in marketing and trading operations was reflected in the income
statement. The $39 million net gain represents a reversal of negative
mark-to-market adjustments resulting from the adoption of SFAS No. 133, as
amended.
At December 31, 2001, total assets and liabilities include $108 million and
$101 million for the fair value of derivative instruments used in marketing and
trading operations.
Prior to the physical settlement of any energy contract held for trading
purposes, favorable or unfavorable price movement is reported in the income
statement. An offsetting amount is recorded on the balance sheet as unrealized
gains or unrealized losses on trading transactions. When a contract to sell
energy is physically settled, the above entries are reversed and the gross
amount invoiced to the customer is included as net sales in the income
statement. Similarly, when a contract to purchase energy is physically settled,
the
25
purchase price is included as cost of sales in the income statement. Until a
contract is physically settled, the unrealized gain or loss is reclassified to a
receivable or payable account. Other than the positive effect on oil and gas
realized prices, the results of trading activities are not significant.
RECONCILIATION OF FAIR VALUE OF CONTRACTS FROM
JANUARY 1, 2001 TO DECEMBER 31, 2001 (in millions)
======================================================================
Fair value of contracts outstanding at January 1, 2001 $ (66)
Contracts realized or otherwise settled during the period
gains/(losses) (30)
Changes in fair value attributable to changes in valuation
techniques and assumptions --
Other changes in fair values 103
-------
Fair value of contracts outstanding at December 31, 2001 $ 7
=======
Maturity Periods
-------------------------------------------------------
2007 Total
Source of 2003 2005 and Fair
Fair Value 2002 to 2004 to 2006 thereafter Value
=============== ========== ========== ========== ========== ==========
Prices actively
quoted $ (12) $ -- $ -- $ -- $ (12)
Prices
provided by
other
external
sources 20 1 -- -- 21
Prices based
on models
and other
valuation
methods -- (1) (1) -- (2)
---------- ---------- ---------- ---------- ----------
TOTAL $ 8 $ -- $ (1) $ -- $ 7
=============== ========== ========== ========== ========== ==========
GAS PRESALE
In November 1998, Occidental entered into a natural gas delivery commitment
for proceeds of $500 million, which obligates Occidental to deliver 263 billion
cubic feet of natural gas over a four-year period ending in December 2003. This
transaction resulted in less expensive financing and enables Occidental to
satisfy the delivery commitment at a fixed price with open market purchases
without reducing its own natural gas reserves. The imputed interest rate in the
transaction is approximately 6 percent. The current portion of Occidental's
natural gas delivery commitment ($137 million at December 31, 2001) is shown as
a current liability on Occidental's consolidated balance sheets. The present
value of the non-current commitment ($145 million at December 31, 2001) is shown
under deferred credits and other liabilities on Occidental's consolidated
balance sheets. In connection with this transaction, Occidental simultaneously
entered into a natural gas price swap based on identical volumes of natural gas
and a delivery schedule that corresponds to the natural gas delivery commitment.
Under the terms of the swap, Occidental will pay an average fixed price of $2.27
per MMBtu of gas and will receive a floating price that will approximate market,
which essentially eliminates Occidental's exposure to commodity price
fluctuations that could affect this transaction. At December 31, 2001, the fair
value of this price swap is an $84 million gain, which is offset by an $84
million loss applicable to the related physical positions.
ACTIVITIES PRIOR TO SFAS 133 IMPLEMENTATION
At December 31, 2000, Occidental was a party to commodity-exchange and
over-the-counter forward obligations. The instruments held for purposes other
than trading expire during the period from January 2001 to December 2003, and
relate to the hedging of natural gas and crude oil prices. The fair value of
these instruments at December 31, 2000 was $511 million. Offsetting the value of
these instruments were related physical positions with a $528 million loss. The
principal components of these instruments and related physical positions are the
related natural gas price swap and the natural gas delivery commitment, which is
discussed above. At December 31, 2000, the difference between the carrying value
and the fair value of these obligations was an unrealized loss of approximately
$17 million. The instruments held or issued for trading purposes mostly expired
in 2001, with the exception of a long-term sales contract that expires in 2010.
The fair value of these instruments at December 31, 2000 was $31 million.
Offsetting the value of these instruments were related physical positions with a
$12 million loss. The net gain of approximately $19 million was reflected in the
income statement. The majority of the gain was from the mark-to-market
adjustment under EITF Issue No. 98-10 of a long-term sales contract.
INTEREST-RATE DERIVATIVES
FAIR-VALUE HEDGES
Interest-rate swaps, forward locks and futures contracts are entered into
as part of Occidental's overall strategy to manage interest-rate exposure.
During 2001, Occidental entered into several interest-rate swaps that qualified
for fair-value hedge accounting. These derivatives effectively convert
approximately $1.3 billion of fixed-rate debt to variable-rate debt with
maturities ranging from 2005 to 2008. In 2000 and 1999, Occidental also had
interest-rate swaps converting fixed-rate debt to floating-rate debt that
matured in November 2000. Net interest expense was impacted by $6.6 million of
income in 2001, $1.0 million of expense in 2000 and income of almost $1.0
million in 1999 to reflect the effects of the fair-value hedges.
CASH-FLOW HEDGES
Occidental is a party to a series of forward interest-rate locks, which
qualified as a cash-flow hedge, that are required to be settled on or prior to
December 31, 2002. These financial instruments relate to debt raised by a third
party to construct a cogeneration plant that will be subject to a long-term
operating lease to OxyChem. As the lease payments will be directly related to
the amount of interest paid on the underlying debt, the forward rate locks were
put in place to hedge the future lease payments. The lease payments are expected
to commence on or before January 15, 2003. The fair value of these financial
instruments at December 31, 2001 was an unrealized loss of $28 million, that
would be offset by potentially lower lease payments due to the lower
interest-rate environment.
26
Occidental and its equity investees have also entered into additional
derivative instruments that qualified as cash-flow hedges. The amounts related
to these hedges are included below.
For the year ended 2001, a $4 million gain was reclassified from OCI to
income due to the expiration of cash-flow hedges and a $3 million loss was
recorded to OCI relating to changes in current cash-flow hedges. During the next
twelve months, Occidental expects that less than about $0.1 million of net
derivative losses included in OCI, based on their valuation at December 31,
2001, will be reclassified into earnings. Hedge ineffectiveness did not have a
significant impact on earnings for the year.
FOREIGN CURRENCY DERIVATIVES
Many of Occidental's foreign oil and gas operations and foreign chemical
operations are located in countries whose currencies generally depreciate
against the U.S. dollar on a continuing basis. Generally, an effective currency
forward market does not exist for these countries. Therefore, Occidental
attempts to manage its exposure primarily by balancing monetary assets and
liabilities and maintaining cash positions only at levels necessary for
operating purposes. Additionally, all of Occidental's oil and gas foreign
entities have the U.S. dollar as the functional currency since the cash flows
are mainly denominated in U.S. dollars. However, in one foreign chemical
subsidiary where the local currency is the functional currency, Occidental has
exposure on debt that is denominated in U.S. dollars that is not material. At
December 31, 2001 and 2000, Occidental had not entered into any foreign currency
derivative instruments. The effect of exchange-rate transactions in foreign
currencies is included in periodic income.
CREDIT RISK
Occidental's derivative contracts are spread among numerous banks and
market leaders in the industry. Creditworthiness is reviewed before doing
business with a new counterparty and on an on-going basis. Occidental monitors
aggregated counter-party exposure relative to credit limits, and manages
credit-enhancement requirements such as collateral, parental guarantees and
letters of credit. Credit limits for all customers (whether financial or
physical) are established and entered into Occidental's risk-management systems,
and these limits are monitored for compliance on an aggregated basis across all
traded commodities. Credit exposure for each customer is monitored for
outstanding balances, current month activity, and forward mark-to-market
exposure. The credit-determination process takes into consideration the
creditworthiness of the counter-party, the counter-party's parent, parental
guarantees, letters of credit, and other credit-enhancing instruments.
TAXES
Deferred tax liabilities were $989 million at December 31, 2001, net of
deferred tax assets of $768 million. The current portion of the deferred tax
assets of $114 million is included in prepaid expenses and other. The net
deferred tax assets are expected to be realized through future operating income
and reversal of taxable temporary differences.
LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
Occidental and certain of its subsidiaries have been named as defendants in
a substantial number of lawsuits, claims and proceedings. They have also been
named as potentially responsible parties (PRPs) in governmental proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and corresponding state acts. These governmental proceedings seek
funding, remediation and, in some cases, compensation for alleged property
damage, punitive damages and civil penalties, aggregating substantial amounts.
Occidental is usually one of many companies in these proceedings, and has to
date been successful in sharing response costs with other financially sound
companies. Occidental has accrued reserves at the most likely cost to be
incurred in those proceedings where it is probable that Occidental will incur
remediation costs which can be reasonably estimated.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from any lawsuits, claims
and proceedings, audits, commitments, contingencies and related matters. Several
of these matters may involve substantial amounts, and if these were to be
ultimately resolved unfavorably to the full amount of their maximum potential
exposure, an event not currently anticipated, it is possible that such event
could have a material adverse effect upon Occidental's consolidated financial
position or results of operations. However, in management's opinion, after
taking into account reserves, it is unlikely that any of the foregoing matters
will have a material adverse effect upon Occidental's consolidated financial
position or results of operations.
ENVIRONMENTAL EXPENDITURES
Occidental's operations in the United States are subject to stringent
federal, state and local laws and regulations relating to improving or
maintaining the quality of the environment. Foreign operations also are subject
to environmental-protection laws. Costs associated with environmental compliance
have increased over time and may continue to rise in the future. Environmental
expenditures related to current operations are factored into the overall
business planning process. These expenditures are mainly considered an integral
part of production in manufacturing quality products responsive to market
demand.
ENVIRONMENTAL REMEDIATION
The laws that require or address environmental remediation may apply
retroactively to previous waste-disposal practices. In many cases, the laws
apply regardless of fault, legality of the original activities or
27
ownership or control of sites. Occidental is currently participating in
environmental assessments and cleanups under these laws at federal CERCLA sites,
comparable state sites and other remediation sites, including Occidental
facilities and previously owned sites. Also, Occidental and certain of its
subsidiaries have been involved in a substantial number of governmental and
private proceedings involving historical practices at various sites including,
in some instances, having been named as defendants and/or as PRPs under the
federal CERCLA law. These proceedings seek funding and/or remediation and, in
some cases, compensation for alleged personal injury or property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental does not consider the number of CERCLA and similar state sites
at which it has been notified that it has been identified as being involved to
be a relevant measure of exposure. Although the liability of a PRP may be joint
and several, Occidental is usually one of many companies cited as a PRP at these
sites and has, to date, been successful in sharing cleanup costs with other
financially sound companies. Also, many of these sites are still under
investigation by the Environmental Protection Agency (EPA) or the equivalent
state agencies. Before actual cleanup, the parties involved assess site
conditions and responsibility and determine the appropriate remedy. The majority
of remediation costs are incurred after the parties obtain EPA or equivalent
state agency approval to proceed. The ultimate future cost of remediation of
certain of the sites for which Occidental has been notified that it has been
identified as being involved cannot be reasonably determined at this time.
As of December 31, 2001, Occidental had been notified by the EPA or
equivalent state agencies, or otherwise had become aware, that it had been
identified as being involved at 126 CERCLA or comparable state sites. (This
number does not include those sites where Occidental has been successful in
resolving its involvement.) The 126 sites include 34 former Diamond Shamrock
Chemical sites as to which Maxus Energy Corporation has retained all liability.
Of the remaining 92 sites, Occidental has denied involvement at 9 sites and has
yet to determine involvement in 20 sites. With respect to the remaining 63 of
these sites, Occidental is in various stages of evaluation, and the extent of
liability retained by Maxus Energy Corporation is disputed at 2 of these sites.
For 54 of these sites, where environmental remediation efforts are probable and
the costs can be reasonably estimated, Occidental has accrued reserves at the
most likely cost to be incurred. The 54 sites include 11 sites as to which
present information indicates that it is probable that Occidental's aggregate
exposure is insignificant. In determining the reserves, Occidental uses the most
current information available, including similar past experiences, available
technology, regulations in effect, the timing of remediation and cost-sharing
arrangements. For the remaining 9 of the 63 sites being evaluated, Occidental
does not have sufficient information to determine a range of liability, but
Occidental does have sufficient information on which to base the opinion
expressed above in the "Lawsuits, Claims, Commitments, Contingencies and Related
Matters" section of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations." For management's opinion on lawsuits and
proceedings and on other environmental loss contingencies, see the above-noted
section.
ENVIRONMENTAL COSTS
Occidental's environmental costs, some of which may include estimates,
relating to compliance with environmental laws and regulations are shown below
for each segment:
In millions 2001 2000 1999
============================= ======= ======= =======
OPERATING EXPENSES
Oil and Gas $ 22 $ 17 $ 13
Chemical 47 51 51
------- ------- -------
$ 69 $ 68 $ 64
======= ======= =======
CAPITAL EXPENDITURES
Oil and Gas $ 60 $ 27 $ 19
Chemical 19 20 17
------- ------- -------
$ 79 $ 47 $ 36
======= ======= =======
REMEDIATION EXPENSES
Corporate $ 109 $ -- $ --
======= ======= =======
ENVIRONMENTAL RESERVES
Corporate $ 454 $ 402 $ 454
============================= ======= ======= =======
Operating expenses are incurred on a continual basis. Capital expenditures
relate to long-lived improvements in currently operating facilities. Remediation
expenses relate to existing conditions caused by past operations and do not
contribute to current or future revenue generation. Although total costs may
vary in any one year, over the long term, segment operating and capital
expenditures for environmental compliance generally are expected to increase.
Occidental manages its environmental remediation efforts through a wholly
owned subsidiary, Glenn Springs Holdings, Inc. (GSH). GSH has full management
authority over all remediation sites and reports directly to Occidental's
corporate management. The environmental reserves, as shown in the table above,
have been provided for environmental remediation liabilities at the Superfund
and comparable state sites discussed above, and for Resource Conservation and
Recovery Act and other sites where Occidental has environmental remediation
responsibility.
Eight counties in the Houston-Galveston area are subject to a federal EPA
mandate to adopt a plan for implementing certain requirements of the federal
Clean Air Act, known as a State Implementation Plan. In October 2001, the EPA
approved a State Implementation Plan for the Houston Galveston area (the Plan).
The Plan contains provisions requiring the reduction of 80 - 90 percent of
current nitrogen oxide (NOx) emissions in the Houston-Galveston area by November
2007. Occidental operates five facilities that will be subject to the Plan's
NOx-reduction requirements. Occidental estimates that its capital expenditures
will increase by between $80 - $120 million for environmental control and
monitoring equipment necessary to comply with the Plan's enacted or proposed
NOx-reduction requirements.
28
Occidental began expending the capital necessary to comply with the Plan in 2001
and expects expenditures to end in 2007, although the timing of the expenditures
will vary by facility.
Occidental presently estimates that divisional capital expenditures for
environmental compliance (including the SIP discussed above) will be in the
range of $38 million for 2002 and $46 million for 2003.
FOREIGN INVESTMENTS
Portions of Occidental's assets outside North America are exposed to
political and economic risks. Occidental conducts its financial affairs so as to
mitigate its exposure against those risks. At December 31, 2001, the carrying
value of Occidental's assets in countries outside North America aggregated
approximately $2.0 billion, or approximately 11 percent of Occidental's total
assets at that date. Of such assets, approximately $1.3 billion was located in
the Middle East, approximately $502 million was located in Latin America, and
substantially all of the remainder were located in Pakistan and Russia.
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles require the use of management
judgments and estimates in addition to the rules and regulations established by
accounting pronouncements.
Occidental has adopted a number of accounting policies, the most important
of which are discussed in Note 1 to the Consolidated Financial Statements,
"Summary of Significant Accounting Policies." Occidental believes the most
critical accounting policy, including judgments in its application, that may
have an impact on Occidental's financial statements relates to the accounting
for capitalized, long-term assets. The rates at which these assets are
depreciated or otherwise written off are subject to a number of judgments about
future events, many of which are beyond management's control.
Oil and gas properties are accounted for using the successful-efforts
method. Costs of acquiring proved and unproved properties, costs of drilling
successful exploration wells and development costs are capitalized. Annual lease
rentals and exploration costs, including geological and geophysical costs and
exploratory dry-hole costs, are expensed as incurred. Depreciation and depletion
of oil and gas producing properties is determined principally by the
unit-of-production method and is based on estimated recoverable reserves. These
reserves are subject to revision based upon actual performance as well as
changes in the price of oil and gas. Significantly higher or lower product
prices will lead to changes in the amount of reserves due to economic limits or
the effects of production-sharing contracts. The process of estimation of
reserves is inherently judgmental, especially during the early life of a field.
Estimation of future production and development costs is also subject to change
partially due to factors beyond Occidental's control, such as energy costs and
inflation or deflation of oil field service costs. Thus, Occidental's
depreciation and depletion expense could change in the future. At December 31,
2001, the costs attributable to unproved properties were approximately $1.6
billion, as shown in Note 16 to the Consolidated Financial Statements. These
costs are not subject to depreciation or depletion on a current basis. As
development work progresses and the reserves on these properties are proven,
capitalized cost of the properties will be subject to depreciation and
depletion. If the development work were to be unsuccessful, the capitalized cost
of the properties related to this unsuccessful work would be expensed in the
year in which the determination was made. The rate at which these unproven
properties are written off, therefore, depends upon future exploration and
development activities as well as the product price environment. Occidental
believes its development and exploration efforts will result in the addition of
sufficient reserves to fully realize this investment in unproved properties.
Chemical facilities are depreciated using either the unit-of-production
method or straight-line method, both based upon the estimated productive life of
the facilities. Occidental makes annual capital renewal expenditures for its
chemical plants on a continual basis while the plants are in operation.
Impairment reserves are provided when a decision is made to dispose of a
property or when operations have been curtailed on other than a temporary basis.
Judgments about the useful life of a chemical plant can change depending on a
number of factors, such as sustained higher or lower energy prices,
environmental regulations, foreign competition and technological change. Thus,
Occidental's depreciation expense could be higher or lower depending on these
and other factors.
ADDITIONAL ACCOUNTING CHANGES
Listed below are additional changes in accounting principles applicable to
Occidental.
EITF ISSUE NO. 02-3
In June 2002, the Emerging Issues Task Force (EITF) reached consensus on
certain issues in EITF Issue No. 02-3, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities." Consensus was reached on two
issues: 1) that gains and losses on energy trading contracts (whether realized
or unrealized) should be shown net in the income statement, and 2) that entities
should disclose the types of contracts that are accounted for as energy trading
contracts along with a variety of other data regarding values, sensitivity to
changes in estimates, maturity dates and other factors. Occidental is required
to implement this consensus in the third quarter 2002 and all comparative
financial statements will be reclassified to conform to the consensus on the
first issue. Occidental has concluded the impact of this recent consensus will
not have any effect on net income, cash flow or earnings per share. However,
Occidental expects the consensus will require significant reductions in sales
and cost of sales by equal amounts.
29
SFAS NO. 145
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." In addition to amending or
rescinding other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions, SFAS No. 145 precludes companies from recording gains and losses
from the extinguishment of debt as an extraordinary item. Occidental must
implement SFAS No. 145 in the first quarter of 2003 and all comparative
financial statements will be reclassified to conform to the 2003 presentation.
The anticipated effects of the statement include the reclassification of an
extraordinary loss to net income from continuing operations of $8 million ($0.02
per share) in 2001 and of $107 million ($0.30 per share) in 1999. There will be
no effect on net income or basic earnings per common share.
SFAS NO. 144
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. Occidental will adopt this
statement in the first quarter of 2002 and it is not expected to have an impact
on the financial statements.
SFAS NO. 143
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No.143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The provisions of this
statement are effective for financial statements issued for fiscal years
beginning after June 15, 2002. Occidental must implement SFAS No. 143 in the
first quarter of 2003 and has not yet determined its impact on the financial
statements.
SFAS NO. 142
In June 2001, the FASB issued SFAS No, 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement must
be applied starting with fiscal years beginning after December 15, 2001. At
December 31, 2001, the balance sheet included approximately $108 million of
goodwill and intangible assets with annual amortization expense of approximately
$6 million recorded in each of the years' income statements for the three-year
period ended December 31, 2001. As a result, elimination of goodwill
amortization would not have had a material impact on net income or earnings per
share of any of the years presented and, as a result, the transitional
disclosures of adjusted net income excluding goodwill amortization described by
SFAS No. 142 have not been presented. Occidental implemented SFAS No. 142 in the
first quarter of 2002. The adoption of this accounting standard resulted in a
cumulative effect of changes in accounting principles after-tax reduction in net
income of approximately $95 million due to the impairment of the goodwill.
Occidental now has no remaining goodwill on its financial statements.
SFAS NO. 141
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 establishes new standards for accounting and reporting business
combinations including eliminating the pooling method of accounting. The
standard applies to all business combinations initiated after June 30, 2001.
Occidental has implemented the provisions of SFAS No. 141, which had no impact
on the financial statements.
EITF ISSUE NO. 00-10
In the fourth quarter of 2000, Occidental adopted the provisions of EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which
establishes accounting and reporting standards for the treatment of shipping and
handling costs. Among its provisions, EITF Issue No. 00-10 requires that
transportation costs that had been accounted for as deductions from revenues
should now be recorded as an expense. The implementation of EITF Issue No. 00-10
had no effect on net income. All prior-year balances have been adjusted to
reflect this accounting change. The transportation costs that have been removed
as deductions from revenues and included in cost of sales on Occidental's
Statements of Operations totaled $245 million in 2000 and $210 million in 1999.
SFAS NO. 140
In the fourth quarter of 2000, Occidental adopted the disclosure provisions
of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a Replacement of FASB Statement No. 125", which
revises disclosure standards for asset securitizations and other financial asset
transfers. SFAS No. 140 also contains provisions which revise certain criteria
for accounting for securitizations, financial-asset transfers and collateral.
These accounting provisions were adopted by Occidental on April 1, 2001. The
implementation of all of the provisions of SFAS No. 140 did not have an impact
on Occidental's consolidated financial positions or results of operations.
SAB NO. 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the Staff's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The bulletin was effective in the fourth quarter of 2000. Occidental
was in compliance with these standards; accordingly, the adoption of SAB No. 101
did not have an impact on its consolidated financial statements.
30
SOP NO. 98-5
Effective January 1, 1999, Occidental adopted the provisions of American
Institute of Certified Public Accountants Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities", which requires that costs of
start-up activities, including organizational costs, be expensed as incurred.
The initial application of the statement resulted in a charge to income for
costs of previously capitalized start-up activities that have not yet been fully
amortized. The initial adoption of SOP 98-5 resulted in a first quarter noncash
after-tax charge of $15 million, net of $8 million in taxes, which has been
recorded as a cumulative effect of a change in accounting principle.
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of this report, including Items 1 and 2 and the information
appearing under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including the information under the
sub-caption "2002 Outlook," contain forward-looking statements and involve risks
and uncertainties that could significantly affect expected results of
operations, liquidity, cash flows and business prospects. Factors that could
cause results to differ materially include, but are not limited to: global
commodity pricing fluctuations; competitive pricing pressures; higher than
expected costs including feedstocks; crude oil and natural gas prices; chemical
prices; potential liability for remedial actions under existing or future
environmental regulations and litigation; potential liability resulting from
pending or future litigation; general domestic and international political
conditions; potential disruption or interruption of Occidental's production or
manufacturing facilities due to accidents, political events or insurgent
activity; potential failure to achieve expected production from existing and
future oil and gas development projects; the supply/demand considerations for
Occidental's products; any general economic recession or slowdown domestically
or internationally; regulatory uncertainties; and not successfully completing,
or any material delay of, any development of new fields, expansion, capital
expenditure, efficiency improvement project, acquisition or disposition.
Forward-looking statements are generally accompanied by words such as
"estimate", "project", "predict", "will", "anticipate", "plan", "intend",
"believe", "expect" or similar expressions that convey the uncertainty of future
events or outcomes. Occidental undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed might not occur.
REPORT OF MANAGEMENT
The management of Occidental Petroleum Corporation is responsible for the
integrity of the financial data reported by Occidental and its subsidiaries.
Fulfilling this responsibility requires the preparation and presentation of
consolidated financial statements in accordance with generally accepted
accounting principles. Management uses internal accounting controls,
corporate-wide policies and procedures and judgment so that such statements
reflect fairly the consolidated financial position, results of operations and
cash flows of Occidental.
31
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders, Occidental Petroleum Corporation:
We have audited the consolidated balance sheets of Occidental Petroleum
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2001 and the related financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Occidental Petroleum
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Los Angeles, California
June 25, 2002
32
CONSOLIDATED STATEMENTS OF OPERATIONS Occidental Petroleum Corporation
In millions, except per-share amounts and Subsidiaries
For the years ended December 31, 2001 2000 1999
====================================================================== ========== ========== ==========
REVENUES
Net sales $ 13,985 $ 13,574 $ 7,820
Interest, dividends and other income 223 263 913
Gains (losses) on disposition of assets, net 10 639 (13)
Income (loss) from equity investments (92) 67 41
---------- ---------- ----------
14,126 14,543 8,761
---------- ---------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 9,488 8,963 5,269
Selling, general and administrative and other operating expenses 675 691 645
Write-down of assets 415 180 212
Depreciation, depletion and amortization of assets 971 901 805
Minority interest 143 185 58
Environmental remediation 109 -- --
Exploration expense 184 94 75
Interest and debt expense, net 392 518 498
---------- ---------- ----------
12,377 11,532 7,562
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 1,749 3,011 1,199
Provision for domestic and foreign income and other taxes 563 1,442 631
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 1,186 1,569 568
Extraordinary (loss) gain, net (8) 1 (107)
Cumulative effect of changes in accounting principles, net (24) -- (13)
---------- ---------- ----------
NET INCOME 1,154 1,570 448
Effect of repurchase of Trust Preferred Securities -- 1 1
Preferred dividends -- -- (7)
---------- ---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 1,154 $ 1,571 $ 442
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 3.18 $ 4.26 $ 1.58
Extraordinary loss, net (.02) -- (.30)
Cumulative effect of changes in accounting principles, net (.06) -- (.04)
---------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE $ 3.10 $ 4.26 $ 1.24
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE $ 3.09 $ 4.26 $ 1.24
====================================================================== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
33
CONSOLIDATED BALANCE SHEETS Occidental Petroleum Corporation
In millions, except share amounts and Subsidiaries
Assets at December 31, 2001 2000
======================================================================= ========== ==========
CURRENT ASSETS
Cash and cash equivalents $ 199 $ 97
Trade receivables, net of reserves of $35 in 2001 and $25 in 2000 360 809
Receivables from joint ventures, partnerships and other 327 517
Inventories 444 485
Prepaid expenses and other 153 159
---------- ----------
TOTAL CURRENT ASSETS 1,483 2,067
---------- ----------
LONG-TERM RECEIVABLES, NET 2,186 2,119
---------- ----------
EQUITY INVESTMENTS
993 1,327
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and gas segment 14,414 14,084
Chemical segment 3,876 3,990
Corporate and other 273 1,438
---------- ----------
18,563 19,512
Accumulated depreciation, depletion and amortization (5,705) (6,041)
---------- ----------
12,858 13,471
OTHER ASSETS 330 430
---------- ----------
$ 17,850 $ 19,414
======================================================================= ========== ==========
The accompanying notes are an integral part of these financial statements.
34
CONSOLIDATED BALANCE SHEETS Occidental Petroleum Corporation
In millions, except share amounts and Subsidiaries
Liabilities and Equity at December 31, 2001 2000
=================================================================================== ========== ==========
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ -- $ 258
Notes payable 54 2
Accounts payable 720 1,091
Accrued liabilities 858 1,089
Dividends payable 94 93
Obligation under natural gas delivery commitment 137 129
Domestic and foreign income taxes 27 78
---------- ----------
TOTAL CURRENT LIABILITIES 1,890 2,740
---------- ----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND UNAMORTIZED DISCOUNT 4,065 3,285
---------- ----------
NON-RECOURSE DEBT -- 1,900
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,103 1,280
Obligation under natural gas delivery commitment 145 282
Other 2,326 2,415
---------- ----------
3,574 3,977
---------- ----------
CONTINGENT LIABILITIES AND COMMITMENTS
MINORITY INTEREST 2,224 2,265
---------- ----------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL
463 473
---------- ----------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock; $1.00 par value, authorized 50 million shares;
outstanding shares: 2001 and 2000 -- none -- --
Common stock, $.20 par value; authorized 500 million shares;
outstanding shares: 2001 -- 374,125,825 and 2000 -- 369,984,447 75 74
Additional paid-in capital 3,857 3,743
Retained earnings 1,788 1,007
Accumulated other comprehensive income (86) (50)
---------- ----------
5,634 4,774
---------- ----------
$ 17,850 $ 19,414
=================================================================================== ========== ==========
The accompanying notes are an integral part of these financial statements.
35
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Occidental Petroleum Corporation
In millions and Subsidiaries
Non-
Redeemable Additional Retained Accumulated Other
Preferred Common Paid-in Earnings Comprehensive
Stock Stock Capital (Deficit) Income
========================================== ========== ========== ========== ========== =================
BALANCE, DECEMBER 31, 1998 $ 243 $ 69 $ 3,814 $ (734) $ (29)
Net income -- -- -- 448 --
Other comprehensive income, net of tax -- -- -- -- (22)
Dividends on common stock -- -- (358) -- --
Dividends on preferred stock -- -- (7) -- --
Issuance of common stock -- 1 88 -- --
Preferred stock conversions/redemptions (243) 3 240 -- --
Exercises of options and other, net -- -- 10 -- --
- ------------------------------------------ ---------- ---------- ---------- ---------- -----------------
BALANCE, DECEMBER 31, 1999 $ -- $ 73 $ 3,787 $ (286) $ (51)
Net income -- -- -- 1,570 --
Other comprehensive income, net of tax -- -- -- -- 1
Dividends on common stock -- -- (92) (277) --
Issuance of common stock -- 1 40 -- --
Exercises of options and other, net -- -- 8 -- --
- ------------------------------------------ ---------- ---------- ---------- ---------- -----------------
BALANCE, DECEMBER 31, 2000 $ -- $ 74 $ 3,743 $ 1,007 $ (50)
Net income -- -- -- 1,154 --
Other comprehensive income, net of tax -- -- -- -- (36)
Dividends on common stock -- -- -- (373) --
Issuance of common stock -- -- 19 -- --
Exercises of options and other, net -- 1 95 -- --
- ------------------------------------------ ---------- ---------- ---------- ---------- -----------------
BALANCE, DECEMBER 31, 2001 $ -- $ 75 $ 3,857 $ 1,788 $ (86)
========================================== ========== ========== ========== ========== =================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In millions
For the years ended December 31, 2001 2000 1999
================================================= ========== ========== ==========
Net income $ 1,154 $ 1,570 $ 448
Other comprehensive income items:
Foreign currency translation adjustments (12) 2 (23)
Derivative mark-to-market adjustments (20) -- --
Minimum pension liability adjustments (6) 2 --
Unrealized gains(losses) on securities 2 (3) 1
---------- ---------- ----------
Other comprehensive income, net of tax (36) 1 (22)
---------- ---------- ----------
Comprehensive income $ 1,118 $ 1,571 $ 426
================================================= ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
36
CONSOLIDATED STATEMENTS OF CASH FLOWS Occidental Petroleum Corporation
In millions and Subsidiaries
For the years ended December 31, 2001 2000 1999
================================================================================ ========== ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,186 $ 1,569 $ 568
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation, depletion and amortization of assets 971 901 805
Amortization of debt discount and deferred financing costs 5 7 12
Deferred income tax (benefit) provision (181) 413 183
Other noncash charges to income 508 170 275
Gains on disposition of assets, net and litigation settlement (10) (639) (762)
Loss(income) from equity investments 92 (67) (41)
Exploration expense 184 94 75
Changes in operating assets and liabilities:
Decrease(increase) in accounts and notes receivable 1,085 (201) (269)
Decrease(increase) in inventories 37 (39) 27
Decrease(increase) in prepaid expenses and other assets 72 34 13
(Decrease)increase in accounts payable and accrued liabilities (1,150) 367 90
Increase(decrease) in current domestic and foreign income taxes 4 (53) 263
Other operating, net (151) (155) (195)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,652 2,401 1,044
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (1,401) (952) (601)
Sale of businesses and disposal of property, plant and equipment, net 852 1,488 52
Proceeds from litigation settlement -- -- 775
Collection of note receivable -- -- 1,395
Buyout of operating leases -- -- (17)
Purchase of businesses, net (46) (3,715) (127)
Equity investments and other, net (141) 82 114
---------- ---------- ----------
NET CASH(USED)PROVIDED BY INVESTING ACTIVITIES (736) (3,097) 1,591
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt and non-recourse debt 861 2,447 835
Repayments of commercial paper and revolving credit agreements, net -- -- (2,201)
Payments of long-term debt, non-recourse debt and capital lease liabilities (2,258) (1,389) (1,305)
Proceeds from issuance of common stock 18 41 21
Proceeds from issuance of Trust Preferred Securities -- -- 508
Repurchase of Trust Preferred Securities (11) (12) (21)
Purchases for natural gas delivery commitment (121) (115) --
(Payments)proceeds of notes payable, net (2) (25) 9
Cash dividends paid (372) (369) (363)
Stock options exercised 72 2 --
Other financing, net (1) (1) --
---------- ---------- ----------
NET CASH (USED)PROVIDED BY FINANCING ACTIVITIES (1,814) 579 (2,517)
---------- ---------- ----------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 102 (117) 118
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 97 214 96
---------- ---------- ----------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 199 $ 97 $ 214
================================================================================ ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Occidental Petroleum Corporation
and Subsidiaries
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Occidental
Petroleum Corporation, all entities where it owns a majority voting interest
(subsidiaries) and their proportionate interests in oil and gas exploration and
production ventures. In these Notes, the term "Occidental" refers to Occidental
Petroleum Corporation and/or one or more of its subsidiaries. All material
intercompany accounts and transactions have been eliminated. Investments in less
than majority-owned enterprises, except for oil and gas exploration and
production ventures, are accounted for on the equity method (see Note 14).
In addition, certain financial statements, notes and supplementary data for
prior years have been changed to conform to the 2001 presentation.
NATURE OF OPERATIONS
Occidental is a multinational organization whose principal business
segments are oil and gas exploration, production and marketing and chemicals
production and marketing. In oil and gas, Occidental has active exploration and
production in the United States and in nine other countries. Occidental has
interests in basic chemicals (principally chlorine and caustic soda), vinyls,
petrochemicals and specialty products.
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the consolidated financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts, generally not by
material amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of Occidental's financial
position and results of operations.
Included in the accompanying balance sheet is net property, plant and
equipment at a carrying value of approximately $12.9 billion as of December 31,
2001. The carrying value is based on Occidental's plans and intentions to
continue to operate, maintain, develop and, where it is economically desirable,
to expand its businesses. If future economic conditions result in changes in
management's plans or intentions, the carrying values of the affected assets
will be reviewed again and any appropriate adjustments made.
Included in the accompanying consolidated balance sheet are deferred tax
assets of $768 million as of December 31, 2001, the noncurrent portion of which
is netted against deferred income tax liabilities. Realization of these assets
is dependent upon Occidental generating sufficient future taxable income.
Occidental expects to realize the recorded deferred tax assets through future
operating income and reversal of taxable temporary differences.
The accompanying consolidated balance sheet includes assets of
approximately $2.0 billion as of December 31, 2001, relating to Occidental's
operations in countries outside North America. Some of these countries may be
considered politically and economically unstable. These assets and the related
operations are subject to the risk of actions by governmental authorities and
insurgent groups. Occidental attempts to conduct its financial affairs so as to
mitigate its exposure against such risks and would expect to receive
compensation in the event of nationalization.
Since Occidental's major products are commodities, significant changes in
the prices of oil and gas and chemical products could have a significant impact
on Occidental's results of operations for any particular year.
FOREIGN CURRENCY TRANSLATION
The functional currency applicable to all Occidental's foreign oil and gas
operations is the U.S. dollar since cash flows are denominated principally in
U.S. dollars. Occidental's chemical operations in Brazil use the Real as the
functional currency. Brazil devalued the Real in January 1999. The devaluation
had an unfavorable pre-tax income effect in 1999 on Occidental of approximately
$13 million. The effect of exchange-rate changes on transactions denominated in
nonfunctional currencies generated a gain of less than $1 million in both 2001
and 2000 and a loss of $11 million in 1999.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with initial maturities of three months or less. Cash equivalents
totaled approximately $139 million and $46 million at December 31, 2001 and
2000, respectively.
38
TRADE RECEIVABLES
Occidental has an agreement in place to sell, under a revolving sale
program, an undivided interest in a designated pool of trade receivables. This
program is used by Occidental as a low-cost source of working capital funding.
The amount of proceeds, which totaled $360 million outstanding in each of 2001
and 2000, that Occidental has received on the sale of the undivided interest and
the related accounts receivable that have been sold, are not included in the
debt and trade receivables accounts, respectively, on Occidental's consolidated
balance sheets. Fees and expenses under this program are included in selling,
general and administrative and other operating expense. Under the program,
receivables must meet certain criteria. The program terminates upon certain
events, including Occidental's senior debt rating falling below investment
grade. In such an event, the amount of proceeds outstanding at that time would
have to be funded through other means, which could result in an increase in debt
recorded on the consolidated balance sheets along with a corresponding increase
in the accounts receivable balance. The consolidated income statement effect of
such an event would not be significant.
Under this program, Occidental serves as the collection agent with respect
to the receivables sold. An interest in new receivables is sold as collections
are made from customers. Fees and expenses under this program are included in
selling, general and administrative and other operating expenses. During the
years ended December 31, 2001, 2000 and 1999, the cost of this program amounted
to approximately 4.5 percent, 6.7 percent and 5.5 percent, respectively, of the
weighted average amount of proceeds received.
INVENTORIES
Product and raw-material inventories, except certain domestic chemicals,
are stated at cost determined on the first-in, first-out (FIFO) and average-cost
methods and did not exceed market value. The remaining product and raw-material
inventories are stated at cost using the last-in, first-out (LIFO) method and
also did not exceed market value. Inventories of materials and supplies are
valued at cost or less (see Note 5).
PROPERTY, PLANT AND EQUIPMENT
Property additions and major renewals and improvements are capitalized at
cost. Interest costs incurred in connection with major capital expenditures are
capitalized and amortized over the lives of the related assets (see Note 15).
Oil and gas properties are accounted for using the successful-efforts
method. Costs of acquiring proved and unproved properties, costs of drilling
successful exploration wells and development costs are capitalized. Annual lease
rentals and exploration costs, including geological and geophysical costs and
exploratory dry-hole costs, are expensed as incurred. Depreciation and depletion
of oil and gas producing properties is determined principally by the
unit-of-production method and is based on estimated recoverable reserves. These
reserves are subject to revision based upon actual performance as well as
changes in the price of oil and gas. Significantly higher or lower product
prices will lead to changes in the amount of reserves due to economic limits or
the effects of production-sharing contracts. The process of estimation of
reserves is inherently judgmental, especially during the early life of a field.
Estimation of future production and development costs is also subject to change
partially due to factors beyond Occidental's control, such as energy costs and
inflation or deflation of oil field service costs. Thus, Occidental's
depreciation and depletion expense could change in the future. At December 31,
2001, the costs attributable to unproved properties were approximately $1.6
billion, as shown in Note 16 to the Consolidated Financial Statements. These
costs are not subject to depreciation or depletion on a current basis. As
development work progresses and the reserves on these properties are proven,
capitalized cost of the properties will be subject to depreciation and
depletion. If the development work were to be unsuccessful, the capitalized cost
of the properties related to this unsuccessful work would be expensed in the
year in which the determination was made. The rate at which these unproven
properties are written off, therefore, depends upon future exploration and
development activities as well as the product price environment. Occidental
believes its development and exploration efforts will result in the addition of
sufficient reserves to fully realize this investment in unproved properties.
Chemical facilities are depreciated using either the unit-of-production
method or straight-line method, both based upon the estimated productive life of
the facilities. Occidental makes annual capital renewal expenditures for its
chemical plants on a continual basis while the plants are in operation.
Impairment reserves are provided when a decision is made to dispose of a
property or when operations have been curtailed on other than a temporary basis.
Judgments about the useful life of a chemical plant can change depending on a
number of factors, such as sustained higher or lower energy prices,
environmental regulations, foreign competition and technological change. Thus,
Occidental's depreciation expense could be higher or lower depending on these
and other factors.
At December 31, 2000 corporate property, plant and equipment and
accumulated depreciation, depletion and amortization included $1.2 billion and
$436 million, respectively, for an intrastate gas pipeline owned by Occidental.
The entity that owned this pipeline was sold in 2001. See Note 3 for more
information.
39
OTHER ASSETS
Other assets include tangible and intangible assets, certain of which are
amortized over the estimated periods to be benefited.
GOODWILL
Goodwill, which is included in the Other Assets account, has been amortized
over periods ranging from 5 to 40 years.
NOTES PAYABLE
Notes payable at December 31, 2001 and 2000 consisted of short-term notes
due to financial institutions and other corporations. The weighted average
interest rate on short-term borrowings outstanding as of December 31, 2001 and
2000 was 2.9 percent and 17.4 percent, respectively.
ACCRUED LIABILITIES--CURRENT
Accrued liabilities include the following (in millions):
Balance at December 31, 2001 2000
====================================================== ======== ========
Accrued payroll, commissions and related expenses $ 143 $ 180
Accrued environmental reserves $ 96 $ 79
Derivative financial instruments $ 102 $ 250
- ------------------------------------------------------ -------- --------
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Reserves for estimated costs that relate to
existing conditions caused by past operations and that do not contribute to
current or future revenue generation are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining
the reserves, Occidental uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost-sharing arrangements. The environmental reserves
are based on management's estimate of the most likely cost to be incurred and
are reviewed periodically and adjusted as additional or new information becomes
available. Probable recoveries or reimbursements are recorded as an asset. The
environmental reserves are included in accrued liabilities and other noncurrent
liabilities and amounted to $96 million and $358 million, respectively, at
December 31, 2001 and $79 million and $323 million, respectively, at December
31, 2000.
Environmental reserves are discounted only when the aggregate amount of the
estimated costs for a specific site and the timing of cash payments are reliably
determinable. As of December 31, 2001 and 2000, reserves that were recorded on a
discounted basis were not material.
DISMANTLEMENT, RESTORATION AND RECLAMATION COSTS
The estimated future abandonment costs of oil and gas properties and
removal costs for offshore production platforms, net of salvage value, are
accrued over their operating lives. Such costs are calculated at
unit-of-production rates based upon estimated proved recoverable reserves and
are taken into account in determining depreciation, depletion and amortization.
For onshore production, Occidental assumes that the salvage value of the oil and
gas property will equal the dismantlement restoration and reclamation costs so
no accrual is necessary. For the chemical segment, appropriate reserves are
provided when a decision is made to dispose of a property, since Occidental
makes capital renewal expenditures on a continual basis while an asset is in
operation. Reserves for dismantlement, restoration and reclamation costs are
included in accrued liabilities and in other noncurrent liabilities and amounted
to $1 million and $21 million, respectively, at December 31, 2001, and $2
million and $28 million, respectively, at December 31, 2000.
DERIVATIVE INSTRUMENTS
Occidental's market-risk exposures relate primarily to commodity prices,
and, to a lesser extent, interest rates and foreign currency exchange rates.
Occidental may periodically use different types of derivative instruments to
achieve the best prices for oil and gas, to reduce its exposure to price
volatility and thus mitigate fluctuations in commodity-related cash flows.
Usually Occidental remains unhedged to long-term oil and gas prices. Overall,
Occidental's use of derivatives in hedging activity remains at a relatively low
level. However, current rules require extensive disclosure regarding any level
of derivative use.
40
Effective January 1, 1999, Occidental adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 98-10, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities", which establishes accounting and
reporting standards for certain energy trading contracts. EITF 98-10 requires
that energy trading contracts must be marked to fair value with gains and losses
included in earnings and separately disclosed in the financial statements or
accompanying footnotes. The initial adoption of EITF 98-10 resulted in a first
quarter non-cash after-tax benefit of $2 million, recorded as a cumulative
effect of a change in accounting principle in 1999.
Effective January 1, 2001, Occidental adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138
(collectively SFAS No. 133, as amended). These statements establish accounting
and reporting standards for derivative instruments and hedging activities and
require an entity to recognize all derivatives in the statement of financial
position and measure those instruments at fair value unless the instrument
qualifies as a normal purchase or sale contract. Changes in the derivative
instrument's fair value must be recognized in earnings unless specific hedge
accounting criteria are met. Changes in the fair value of derivative instruments
that meet specific cash-flow hedge accounting criteria are reported in other
comprehensive income (OCI). The gains and losses on cash-flow hedge transactions
that are reported in OCI are reclassified to earnings in the periods in which
earnings are affected by the variability of the cash flows of the hedged item.
Gains and losses from derivatives that qualify for fair-value hedge accounting
are recorded in earnings along with the change in fair value of the hedged item.
The ineffective portions of all hedges are recognized in current period
earnings. Prior to the adoption of SFAS No. 133, gains and losses on commodity
futures contracts that qualified for hedge accounting, essentially those
associated with equity production or purchases, were deferred until recognized
as an adjustment to sales revenue or purchase costs when the related transaction
being hedged was finalized.
Except where a right of setoff exists, gains are recognized as assets and
losses are recognized as liabilities.
FINANCIAL INSTRUMENTS
Occidental values financial instruments as required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The carrying amounts of
cash and cash equivalents and short-term notes payable approximate fair value
because of the short maturity of those instruments. The carrying value of other
on-balance sheet financial instruments approximates fair value and the cost, if
any, to terminate off-balance sheet financial instruments is not significant.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the years 2001, 2000 and 1999 included federal,
foreign and state income taxes of approximately $472 million, $686 million and
$105 million, respectively. Interest paid (net of interest capitalized) totaled
approximately $389 million, $516 million and $468 million for the years 2001,
2000 and 1999, respectively. See Note 3 for detail of noncash investing and
financing activities regarding certain acquisitions.
NOTE 2 DERIVATIVE ACTIVITIES INCLUDING FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Occidental adopted the provisions of SFAS No. 133, as amended, in January
2001. The derivative financial instrument balances included in the consolidated
balance sheets were as follows (in millions):
Balance at December 31, 2001
================================================ ========
Derivative financial instrument assets
Current $ 116
Non-current 120
--------
$ 236
========
Derivative financial instrument liabilities
Current $ 102
Non-current 119
--------
$ 221
================================================ ========
COMMODITY PRICE DERIVATIVES
GENERAL
With respect to derivatives used in its oil and gas marketing operations,
Occidental used a combination of futures, options and swaps to offset various
open price positions.
The fair value recorded for derivative instruments is based on quoted
market prices, dealer quotes or synthetic price curves established from quoted
prices (adjusted for time, location and quality differentials).
41
CASH-FLOW COMMODITY HEDGES
Occidental used cash-flow hedges for the sale of crude oil and natural gas
in 2001, with the objective of mitigating price risk arising from fluctuating
values for these commodities. Crude oil hedges were executed for Occidental's
West Texas production. Its strategy to achieve these objectives included a
combination of purchased put options and written call options resulting in no
net premium received for crude oil hedging. Purchased put options were used for
natural gas hedging and were executed for the Mid-continent production area to
establish a minimum sales price for its production. Occidental used no
fair-value hedges for crude oil or natural gas production during 2001.
Occidental's cash-flow-hedging instruments, which consist of natural gas
put option contracts, are highly effective. During 2001, net gains of $0.6
million were recorded to OCI relating to changes in current cash-flow hedges and
net losses of $7.6 million were reclassified from OCI into earnings as a
reduction to net sales revenue, as the forecasted transactions actually
occurred. The fair value at December 31, 2001 of derivative financial
instruments that have been designated and have qualified as cash-flow-hedging
instruments was $0.2 million. The gain was recorded as an increase to OCI and
will be reclassified into earnings during 2002 when the forecasted transactions
actually occur.
MARKETING AND TRADING OPERATIONS
The fair value at December 31, 2001 of derivative instruments used in
marketing and trading operations is a net gain of $9 million. Gains of $24
million were recorded in earnings due to the change in fair value of these
financial derivative instruments during 2001. Offsetting the value of these
instruments are related physical positions with a fair value of $2 million loss
at December 31, 2001. Gains of $15 million were recorded in earnings due to the
change in the fair value of related physical positions during 2001. The net
positions mostly expire in 2002. Additionally, a long-term sales contract volume
commitment is 38,100 MMBtu per day through October 2010. The approximate $39
million net gain from the change in fair value during 2001 of derivative
instruments used in marketing and trading operations was reflected in the income
statement. The $39 million net gain represents a reversal of negative
mark-to-market adjustments resulting from the adoption of SFAS No. 133, as
amended.
At December 31, 2001, total assets and liabilities include $108 million and
$101 million for the fair value of derivative instruments used in marketing and
trading operations.
Prior to the physical settlement of any energy contract held for trading
purposes, favorable or unfavorable price movement is reported in the income
statement. An offsetting amount is recorded on the balance sheet as unrealized
gains or unrealized losses on trading transactions. When a contract to sell
energy is physically settled, the above entries are reversed and the gross
amount invoiced to the customer is included as net sales in the income
statement. Similarly, when a contract to purchase energy is physically settled,
the purchase price is included as cost of sales in the income statement. Until a
contract is physically settled, the unrealized gain or loss is reclassified to a
receivable or payable account. Other than the positive effect on oil and gas
realized prices, the results of trading activities are not significant.
RECONCILIATION OF FAIR VALUE OF CONTRACTS FROM JANUARY 1, 2001 TO DECEMBER 31,
2001 (in millions)
============================================================================================================== ==========
Fair value of contracts outstanding at January 1, 2001 $ (66)
Contracts realized or otherwise settled during the period gains/(losses) (30)
Changes in fair value attributable to changes in valuation techniques and assumptions --
Other changes in fair values 103
----------
Fair value of contracts outstanding at December 31, 2001 $ 7
==========
Maturity Periods
----------------------------------------------------------------------
2003 2005 2007 and Total
Source of Fair Value 2002 to 2004 to 2006 thereafter Fair Value
================================================== ========== ========== ========== ========== ==========
Prices actively quoted $ (12) $ -- $ -- $ -- $ (12)
Prices provided by other external sources 20 1 -- -- 21
Prices based on models and other valuation methods -- (1) (1) -- (2)
---------- ---------- ---------- ---------- ----------
TOTAL $ 8 $ -- $ (1) $ -- $ 7
================================================== ========== ========== ========== ========== ==========
ACTIVITIES PRIOR TO SFAS 133 IMPLEMENTATION
At December 31, 2000, Occidental was a party to commodity-exchange and
over-the-counter forward obligations. The instruments held for purposes other
than trading expire during the period from January 2001 to December 2003, and
relate to the hedging of natural gas and crude oil prices. The fair value of
these instruments at December 31, 2000 was $511 million. Offsetting the value of
these instruments were related physical positions with a $528 million loss. The
principal components of these instruments and related physical positions are the
related natural gas price swap and the
42
natural gas delivery commitment, which is discussed in Note 7. At December 31,
2000, the difference between the carrying value and the fair value of these
obligations was an unrealized loss of approximately $17 million. The instruments
held or issued for trading purposes mostly expired in 2001, with the exception
of a long-term sales contract that expires in 2010. The fair value of these
instruments at December 31, 2000 was $31 million. Offsetting the value of these
instruments were related physical positions with a $12 million loss. The net
gain of approximately $19 million was reflected in the income statement. The
majority of the gain was from the mark-to-market adjustment under EITF Issue No.
98-10 of a long-term sales contract.
CREDIT RISK
Occidental's derivative contracts are spread among numerous banks and
market leaders in the industry. Creditworthiness is reviewed before doing
business with a new counterparty and on an on-going basis. Occidental monitors
aggregated counter-party exposure relative to credit limits, and manages
credit-enhancement requirements such as collateral, parental guarantees and
letters of credit. Credit limits for all customers (whether financial or
physical) are established and entered into Occidental's risk-management systems,
and these limits are monitored for compliance on an aggregated basis across all
traded commodities. Credit exposure for each customer is monitored for
outstanding balances, current month activity, and forward mark-to-market
exposure. The credit-determination process takes into consideration the
creditworthiness of the counter-party, the counter-party's parent, parental
guarantees, letters of credit, and other credit-enhancing instruments.
INTEREST-RATE DERIVATIVES
FAIR-VALUE HEDGES
Interest-rate swaps, forward locks and futures contracts are entered into
as part of Occidental's overall strategy to manage interest-rate exposure.
During 2001, Occidental entered into several interest-rate swaps that qualified
for fair-value hedge accounting. These derivatives effectively convert
approximately $1.3 billion of fixed-rate debt to variable-rate debt with
maturities ranging from 2005 to 2008. In 2000 and 1999, Occidental also had
interest-rate swaps converting fixed-rate debt to floating-rate debt that
matured in November 2000. Net interest expense was impacted by $6.6 million of
income in 2001, $1.0 million of expense in 2000 and income of almost $1.0
million in 1999 to reflect the effects of the fair-value hedges.
CASH-FLOW HEDGES
Occidental is a party to a series of forward interest-rate locks, which
qualified as a cash-flow hedge, that are required to be settled on or prior to
December 31, 2002. These financial instruments relate to debt raised by a third
party to construct a cogeneration plant that will be subject to a long-term
operating lease to OxyChem. As the lease payments will be directly related to
the amount of interest paid on the underlying debt, the forward rate locks were
put in place to hedge the future lease payments. The lease payments are expected
to commence on or before January 15, 2003. The fair value of these financial
instruments at December 31, 2001 was an unrealized loss of $28 million, that
would be offset by potentially lower lease payments due to the lower interest
rate environment.
Occidental and its equity investees have also entered into additional
derivative instruments that qualified as cash-flow hedges. The amounts related
to these hedges are included below.
For the year ended 2001, a $4 million gain was reclassified from OCI to
income due to the expiration of cash-flow hedges and a $3 million loss was
recorded to OCI relating to changes in current cash-flow hedges. During the next
twelve months, Occidental expects that less than about $0.1 million of net
derivative losses included in OCI, based on their valuation at December 31,
2001, will be reclassified into earnings. Hedge ineffectiveness did not have a
significant impact on earnings for the year.
FOREIGN CURRENCY DERIVATIVES
Many of Occidental's foreign oil and gas operations and foreign chemical
operations are located in countries whose currencies generally depreciate
against the U.S. dollar on a continuing basis. Generally, an effective currency
forward market does not exist for these countries. Therefore, Occidental
attempts to manage its exposure primarily by balancing monetary assets and
liabilities and maintaining cash positions only at levels necessary for
operating purposes. Additionally, all of Occidental's oil and gas foreign
entities have the U.S. dollar as the functional currency since the cash flows
are mainly denominated in U.S. dollars. However, in one foreign chemical
subsidiary where the local currency is the functional currency, Occidental has
exposure on debt that is denominated in U.S. dollars that is not material. At
December 31, 2001 and 2000, Occidental had not entered into any foreign currency
derivative instruments. The effect of exchange-rate transactions in foreign
currencies is included in periodic income.
43
NOTE 3 BUSINESS COMBINATIONS AND ASSET ACQUISITIONS AND DISPOSITIONS
- --------------------------------------------------------------------------------
2001
On August 31, 2001, Occidental sold the entity that owns pipelines in Texas
that are leased to a former subsidiary. The entity was sold to Kinder Morgan
Energy Partners, L.P. Occidental recorded an after-tax loss of approximately
$272 million in connection with this transaction.
On July 10, 2001, Occidental completed the sale of its interest in the
Tangguh LNG project in Indonesia to Mitsubishi Corporation of Japan. Occidental
recorded an after-tax gain of approximately $399 million for this transaction.
2000
On December 4, 2000, Occidental completed an agreement with BP p.l.c. (BP)
to obtain BP's interest in a carbon dioxide field in New Mexico and related
pipelines in exchange for Occidental's interest in the Milne Point oil field in
Alaska, together with additional cash consideration. The gain on this
transaction was not significant.
On November 29, 2000, an OxyChem subsidiary purchased a 28.6-percent
interest in OxyMar, a Texas general partnership that owns the Ingleside, Texas
vinyl chloride monomer (VCM) facility operated by OxyChem. The interest was
purchased from U.S. VCM Corporation, an affiliate of Marubeni Corporation, which
continues to own a 21.4-percent interest and remains a 50-percent partner for
corporate governance purposes. Oxy Vinyls, LP (OxyVinyls) owns the remaining
50-percent interest.
On November 1, 2000, Occidental agreed to farm out a partial economic
interest in its Block 15 operations in Ecuador to Alberta Energy Company Ltd.
(AEC). AEC will earn a 40-percent interest in the block and will assume certain
capital costs through 2004. Occidental will remain the operator of Block 15. The
gain on this transaction was not significant.
On November 1, 2000, Occidental completed the sale of its Durez phenolic
resins and compounding businesses and assets to Sumitomo Bakelite Co., Ltd. The
gross proceeds of approximately $150 million from the sale will be applied to
Occidental's debt-reduction program. Manufacturing facilities included in the
sale are located in Niagara Falls, New York; Kenton, Ohio; Fort Erie, Ontario,
Canada; and Genk, Belgium, as well as OxyChem's share in joint ventures located
in Japan, Singapore, Indonesia and Canada. There was a $13 million after-tax
gain on this transaction.
On August 15, 2000, Occidental completed agreements with respect to two
transactions with Apache Corporation (Apache) involving Occidental's interests
in the Continental Shelf of the Gulf of Mexico (GOM). Occidental entered into a
transaction to deliver, over four years, substantially all of its share of
future gas production from these GOM interests to Apache for approximately $280
million. Occidental also agreed to sell an interest in the subsidiary that holds
the GOM assets for approximately $62 million, with an option for Apache to
purchase additional interests for $44 million over the next four years. As a
result of these transactions, and the consequent elimination of a portion of
Occidental's responsibility for abandonment liabilities, Occidental recorded an
after-tax gain of $39 million.
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in December
1999 to write-down the properties to their fair values.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach
Inc. (THUMS), an oil producing entity, for approximately $68 million.
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura Energy Ltd. (Altura) (now "Occidental Permian Ltd."),
the largest oil producer in Texas. Occidental, through its subsidiaries, paid
approximately $1.2 billion to the sellers, affiliates of BP Amoco plc and Shell
Oil Company, to acquire the common limited partnership interest and control of
the general partner which manages, operates and controls 100 percent of the
Altura assets. The partnership borrowed approximately $2.4 billion, which had
recourse only to the Altura assets. The partnership also loaned approximately
$2.0 billion to affiliates of the sellers, evidenced by two notes recorded as
long-term receivables, which provide credit support to the partnership. The
sellers retained a preferred limited partnership interest of approximately $2.0
billion and were entitled to certain distributions from the partnership. The
partnership exercised an option in May 2002 to redeem the remaining partnership
interests of $1.9 billion held by BP Amoco and Shell in exchange for their
existing note payable of $1.9 billion to the partnership. The acquisition is
valued at approximately $3.6 billion. Occidental's results of operations include
the operations of the Altura assets from the date of acquisition. Pro-forma net
income for the year ended December 31, 2000, including historical Altura results
as if the acquisition had occurred on January 1, 2000, would have been $1.6
billion ($4.47 earnings per share). Pro-forma net income for the year ended
December 31, 1999, including historical Altura results as if the acquisition had
occurred on January 1, 1999, would have been $601 million ($1.69 earnings per
share). Pro-forma revenues would have been $14.9 billion and $9.4 billion for
the year ended December 31, 2000, and 1999, respectively. The pro-forma
calculations were made with historical operating results from Altura prior to
ownership by Occidental and give effect to certain adjustments, including
increased depreciation, depletion and amortization to reflect the value assigned
to the Altura property, plant and equipment, increased interest expense, and
income tax effects. The pro-forma results are not necessarily indicative of the
results of operations that would have occurred if the acquisition had been made
at the beginning of the periods presented or that may be obtained in the future.
Also, the pro-forma calculations do not reflect anticipated cost savings,
synergies, changes in realized prices or production rates and certain other
adjustments that are expected to result from the acquisition and operation of
Altura.
44
On April 18, 2000, Occidental completed the sale of its 29.2-percent stake
in Canadian Occidental Petroleum Ltd. (CanadianOxy) for gross proceeds of
approximately $1.2 billion Canadian, following approval of the sale by
CanadianOxy stockholders. Of Occidental's 40.2 million shares of CanadianOxy,
20.2 million were sold to the Ontario Teachers Pension Plan Board and 20 million
to CanadianOxy. These sales resulted in a net pre-tax gain of approximately $493
million. In addition, Occidental and CanadianOxy sold their respective
15-percent interests in joint businesses of approximately equal value, resulting
in Occidental owning 100 percent of an oil and gas operation in Ecuador and
CanadianOxy owning 100 percent of sodium chlorate operations in Canada and
Louisiana.
1999
In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged
certain oil and gas assets. Occidental received assets that will enhance its
programs to further focus exploration and production activities and achieve cost
savings through operational benefits. Occidental received producing properties
and exploration acreage in its expanding California asset base, as well as
producing properties in the western Gulf of Mexico near existing operations in
exchange for oil and gas production and reserves in east Texas. Occidental also
farmed out Oklahoma panhandle properties to EOG and retained a carried interest.
In the third quarter of 1999, pursuant to a series of transactions,
Occidental indirectly acquired the remaining ownership of INDSPEC Chemical
Corporation (INDSPEC) through the issuance of approximately 3.2 million shares
of Occidental common stock at an estimated value of approximately $68 million
and the assumption of approximately $80 million of bank debt. As a result of the
transactions, Occidental owns 100 percent of the stock of INDSPEC, which is a
leading manufacturer of resorcinol, a bonding agent principally used in tires
and as a flame retardant.
In the third quarter of 1999, Occidental acquired Unocal International
Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired
Occidental's properties in Bangladesh. The results, after tax benefits, did not
have a significant impact on earnings.
Effective April 30, 1999, Occidental and The Geon Company (now known as
"PolyOne") formed two partnerships. Occidental has a 76-percent interest in the
polyvinyl chloride (PVC) commodity resin partnership, OxyVinyls, which is the
larger of the partnerships, and a 10-percent interest in a PVC powder
compounding partnership. OxyVinyls also has entered into long-term agreements to
supply PVC resin to PolyOne and VCM to Occidental and PolyOne. In addition, as
part of the transaction, Occidental sold its pellet compounding plant in
Pasadena, Texas and its vinyl film assets in Burlington, New Jersey to PolyOne.
As part of the transaction, PolyOne received approximately $104 million through
the retention of working capital and the distribution of cash from OxyVinyls,
and OxyVinyls undertook approximately $180 million in obligations for certain
PolyOne plant facilities, which are treated as operating leases for accounting
purposes. Occidental did not record a significant gain or loss on the
transaction.
NOTE 4 ASSET WRITE-DOWNS, EXTRAORDINARY ITEMS AND ACCOUNTING CHANGES
- --------------------------------------------------------------------------------
2001
In January 2002, Occidental and Lyondell Chemical Company (Lyondell)
agreed, in principle, for Occidental to sell its share of Equistar to Lyondell
and to purchase an equity interest of approximately 21 percent in Lyondell.
These transactions are subject to the execution of definitive documents and
corporate and regulatory approvals. In connection with the agreement in
principle, Occidental wrote down its investment in the Equistar partnership by
$240 million, after tax, in December 2001. The transactions are expected to
close in the third quarter of 2002.
In December 2001, Occidental issued $300 million of 5.875-percent senior
notes due 2007 and $500 million of 6.750-percent senior notes due 2012 for net
combined proceeds of approximately $794 million. Approximately $700 million of
the net proceeds were used to extinguish the Altura non-recourse debt.
Occidental recorded an after-tax extraordinary loss of $4 million from this
transaction.
On March 5, 2001, Occidental retired $20.5 million of 7.8-percent pollution
control revenue bonds due on December 1, 2005. As a result of this transaction,
Occidental recognized an after-tax extraordinary loss of $3 million in the first
quarter of 2001.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The provisions of this statement are effective
for financial statements issued for fiscal years beginning after December 15,
2001. Occidental will adopt this statement in the first quarter of 2002 and it
is not expected to have an impact on the financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No.143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The provisions of this
statement are effective for financial statements issued for fiscal years
beginning after June 15, 2002. Occidental must implement SFAS No. 143 in the
first quarter of 2003 and has not yet determined its impact on the financial
statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement must
be applied starting with fiscal years beginning after December 15, 2001. Certain
transitional provisions of the statement can be implemented as late as the
fourth quarter of 2002, provided that the transitional effect, if any, is
recorded retroactive to the first quarter of 2002. At December 31, 2001, the
balance sheet included approximately
45
$108 million of goodwill and intangible assets with annual amortization expense
of approximately $6 million recorded in the income statement. Occidental expects
to implement SFAS No. 142 in the first quarter of 2002. The adoption of this
accounting standard is expected to result in a cumulative effect of changes in
accounting principles after-tax reduction in net income of approximately $95
million due to the anticipated impairment of the goodwill.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 establishes new standards for accounting and reporting business
combinations including eliminating the pooling method of accounting. The
standard applies to all business combinations initiated after June 30, 2001.
Occidental has implemented the provisions of SFAS No. 141, which had no impact
on the financial statements.
On January 1, 2001, Occidental adopted SFAS No. 133, as amended. These
statements established accounting and reporting standards for derivative
instruments and hedging activities and required an entity to recognize all
derivatives in the statement of financial position and measure those instruments
at fair value. Changes in the derivative instrument's fair value must be
recognized in earnings unless specific hedge accounting criteria are met.
Adoption of these new accounting standards resulted in cumulative after-tax
reductions in net income of approximately $24 million and OCI of approximately
$27 million in the first quarter of 2001. The adoption also increased total
assets by $588 million and total liabilities by $639 million as of January 1,
2001.
2000
The 2000 results included pre-tax charges of $120 million for the
write-down of the chemical intermediate businesses to net realizable value, $53
million for the write-down of various oil and gas assets and investments and $15
million for the write-down of various chemical assets.
During the third and fourth quarters of 2000, Occidental repurchased some
of its outstanding public debt securities in open market transactions, with
principal balances totaling $154 million, at current market prices. Occidental
recorded an after-tax extraordinary gain of $1 million that resulted from these
purchases.
In the fourth quarter of 2000, Occidental adopted the provisions of EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which
establishes accounting and reporting standards for the treatment of shipping and
handling costs. Among its provisions, EITF Issue No. 00-10 requires that
transportation costs that had been accounted for as deductions from revenues
should now be recorded as an expense. The implementation of EITF Issue No. 00-10
had no effect on net income. All prior-year balances have been adjusted to
reflect this accounting change. The transportation costs that have been removed
as deductions from revenues and included in cost of sales on Occidental's
"Statements of Operations" totaled $245 million in 2000 and $210 million in
1999.
1999
The 1999 results included pre-tax charges of $159 million for the
write-down to realizable value of certain chemical assets, $28 million for
write-downs by Equistar and $9 million for various oil and gas assets.
Effective January 1, 1999, Occidental adopted the provisions of American
Institute of Certified Public Accountants Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities", which requires that costs of
start-up activities, including organizational costs, be expensed as incurred.
The initial application of the statement resulted in a charge to income for
costs of previously capitalized start-up activities that have not yet been fully
amortized. The initial adoption of SOP 98-5 resulted in a first quarter noncash
after-tax charge of $15 million, net of $8 million in taxes, which has been
recorded as a cumulative effect of a change in accounting principle.
Effective January 1, 1999, Occidental adopted the provisions of EITF Issue
No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities", which establishes accounting and reporting standards for
certain energy trading contracts. EITF Issue No. 98-10 requires that energy
trading contracts must be marked-to-market with gains and losses included in
earnings and separately disclosed in the financial statements or footnotes
thereto. The initial adoption of EITF Issue No. 98-10 resulted in a first
quarter noncash after-tax benefit of $2 million, recorded as a cumulative effect
of a change in accounting principle.
In June 1999, Occidental redeemed $68.7 million of its 11.125 percent
senior debentures due June 1, 2019 and recorded an after-tax extraordinary loss
of $3 million in the second quarter of 1999 related to the redemption.
In December 1999, OXY USA settled its long-standing litigation with Chevron
U.S.A. Inc. (Chevron) for a cash payment of $775 million from Chevron. The
related pre-tax income of $775 million is reported as interest, dividends and
other income in the accompanying consolidated statements of operations.
Occidental then repurchased for cash, $240 million principal amount of its
10.125 percent senior notes due November 15, 2001, and $138 million principal
amount of its 11.125 percent senior notes due August 1, 2010 and redeemed all of
OXY USA's $274 million principal amount of 7 percent debentures due 2011 for a
total of $722 million, including premium, expenses and accrued interest.
Occidental recorded an after-tax extraordinary loss of $104 million in the
fourth quarter of 1999 related to the transactions. The 1999 total year results
included a net extraordinary loss of $107 million, which resulted from the early
extinguishment of high-cost debt.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the Staff's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The bulletin was effective in the fourth quarter of 2000. Occidental
was in compliance with these standards; accordingly, the adoption of SAB No. 101
did not have an impact on its consolidated financial statements.
46
NOTE 5 INVENTORIES
- --------------------------------------------------------------------------------
Inventories of approximately $214 million and $268 million were valued
under the LIFO method at December 31, 2001 and 2000, respectively. Inventories
consisted of the following (in millions):
Balance at December 31, 2001 2000
================================================================================ ======== ========
Raw materials $ 62 $ 68
Materials and supplies 123 125
Work in process 2 3
Finished goods 268 343
-------- --------
455 539
LIFO reserve (11) (54)
-------- --------
TOTAL $ 444 $ 485
================================================================================ ======== ========
NOTE 6 LONG-TERM DEBT AND NON-RECOURSE DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following (in millions):
Balance at December 31, 2001 2000
================================================================================ ======== ========
OCCIDENTAL PETROLEUM CORPORATION
6.75% senior notes due 2012 $ 500 $ --
7.65% senior notes due 2006 (a) 457 450
6.4% senior notes due 2013, subject to remarketing April 1, 2003 450 450
7.375% senior notes due 2008 (a) 394 395
8.45% senior notes due 2029 350 350
9.25% senior debentures due 2019, putable August 1, 2004 at par 300 300
5.875% senior notes due 2007 (a) 297 --
10.125% senior debentures due 2009 276 276
7.2% senior debentures due 2028 200 200
6.75% senior notes due 2002 163 163
6.5% senior notes due 2005 (a) 155 157
Medium-term notes due 2002 through 2008 (7.18% to 8.34% at December 31, 2001) 120 150
8.5% senior notes due 2001 -- 132
8.75% medium-term notes due 2023 100 100
10.125% senior notes due 2001 -- 89
11.125% senior notes due 2010 12 12
-------- --------
3,774 3,224
-------- --------
OXY USA INC.
4.8% unsecured notes due 2006 20 --
7.2% unsecured notes due 2020 7 7
5.7% to 7.8% unsecured notes due 2001 through 2007 -- 34
-------- --------
27 41
-------- --------
OTHER SUBSIDIARY DEBT
1.45% to 7.67% unsecured notes due 2003 through 2030 273 276
6% secured notes due 2001 through 2007 -- 17
-------- --------
273 293
-------- --------
4,074 3,558
Less:
Unamortized discount, net (9) (16)
Current maturities -- (257)
-------- --------
TOTAL LONG-TERM DEBT 4,065 3,285
-------- --------
Occidental Permian Ltd. non-recourse term loan due 2005 -- 1,900
-------- --------
TOTAL LONG-TERM DEBT AND NON-RECOURSE DEBT $ 4,065 $ 5,185
================================================================================ ======== ========
(a) 2001 amount includes a mark-to-market adjustment due to a fair-value hedge.
47
At December 31, 2001, $199 million of notes due in 2002 were classified as
non-current since it is management's intention to refinance this amount on a
long-term basis by issuing long-term debt. In addition, at December 31, 2001,
Occidental had available lines of committed bank credit of approximately $2.1
billion. Bank fees on these committed lines of credit ranged from 0.125 percent
to 0.175 percent.
At December 31, 2001, minimum principal payments on long-term debt
subsequent to December 31, 2002 aggregated $4,073 billion, of which $507 million
is due in 2003, $324 million in 2004, $158 million in 2005, $696 million in
2006, $302 million in 2007 and $2,086 billion thereafter. These amounts do not
include the mark-to-market adjustments, which netted to $1 million, related to
fair-value hedges on debt of $1.3 billion. Unamortized discount is generally
being amortized to interest expense on the effective interest method over the
lives of the related issuances.
At December 31, 2001, under the most restrictive covenants of certain
financing agreements, the capacity for the payment of cash dividends and other
distributions on, and for acquisitions of, Occidental's capital stock was
approximately $3.4 billion, assuming that such dividends, distributions and
acquisitions were made without incurring additional borrowings.
Occidental estimates the fair value of its long-term debt based on the
quoted market prices for the same or similar issues or on the yields offered to
Occidental for debt of similar rating and similar remaining maturities. The
estimated fair value of Occidental's total debt, including the non-recourse debt
and Trust Preferred Securities, at December 31, 2001 and 2000 was approximately
$4.8 billion and approximately $6.1 billion, respectively, compared with a
carrying value of approximately $4.5 billion, and approximately $5.9 billion,
respectively.
NOTE 7 NATURAL GAS DELIVERY COMMITMENT
- --------------------------------------------------------------------------------
In November 1998, Occidental entered into a natural gas delivery commitment
for proceeds of $500 million, which obligates Occidental to deliver 263 billion
cubic feet of natural gas over a four-year period ending in December 2003. This
transaction resulted in less expensive financing and enables Occidental to
satisfy the delivery commitment at a fixed price with open market purchases
without reducing its own natural gas reserves. The imputed interest rate in the
transaction is approximately 6 percent. The current portion of Occidental's
natural gas delivery commitment ($137 million at December 31, 2001) is shown as
a current liability on Occidental's consolidated balance sheets. The present
value of the non-current commitment ($145 million at December 31, 2001) is shown
under deferred credits and other liabilities on Occidental's consolidated
balance sheets. In connection with this transaction, Occidental simultaneously
entered into a natural gas price swap based on identical volumes of natural gas
and a delivery schedule that corresponds to the natural gas delivery commitment.
Under the terms of the swap, Occidental will pay an average fixed price of $2.27
per MMBtu of gas and will receive a floating price that will approximate market,
which essentially eliminates Occidental's exposure to commodity price
fluctuations that could affect this transaction. At December 31, 2001, the fair
value of this price swap is an $84 million gain, which is offset by an $84
million loss applicable to the related physical positions. Occidental has the
ability to satisfy the delivery commitment with open market purchases and has
not reduced its natural gas reserves for the commitment. At December 31, 2001,
the future minimum delivery commitment under the contract expressed in dollars
and in volumes is as follows (dollars in millions, volumes in billions of cubic
feet):
VALUE VOLUMES
============================================================================= ========== ==========
2002 $ 150 66
2003 147 65
---------- ----------
TOTAL 297 131
==========
Less:
Imputed interest (15)
Current portion (137)
----------
PRESENT VALUE OF NATURAL GAS DELIVERY COMMITMENT, NET OF CURRENT PORTION $ 145
============================================================================= ==========
48
NOTE 8 LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The present value of net minimum capital lease payments, net of the current
portion, totaled $26 million at both December 31, 2001 and 2000. These amounts
are included in other liabilities.
Operating and capital lease agreements, which include leases for
manufacturing facilities, office space, railcars and tanks, frequently include
renewal and/or purchase options and require Occidental to pay for utilities,
taxes, insurance and maintenance expense.
At December 31, 2001, future net minimum lease payments for capital and
operating leases (excluding oil and gas and other mineral leases) were the
following (in millions):
CAPITAL OPERATING
============================================================================ ========== ==========
2002 $ 1 $ 67
2003 1 57
2004 1 45
2005 1 37
2006 1 33
Thereafter 30 187
---------- ----------
TOTAL MINIMUM LEASE PAYMENTS 35 $ 426
==========
Less:
Imputed interest (8)
Current portion (1)
----------
PRESENT VALUE OF MINIMUM CAPITAL LEASE PAYMENTS, NET OF CURRENT PORTION $ 26
============================================================================ ==========
Rental expense for operating leases, net of sublease rental income, was $84
million in 2001, $98 million in 2000 and $93 million in 1999. Rental expense was
net of sublease income of $8 million in 2001 and 2000 and $9 million in 1999. At
December 31, 2001, sublease rental amounts included in the future operating
lease payments totaled $93 million, as follows (in millions): 2002--$7,
2003--$7, 2004--$8, 2005--$8, 2006--$8, and 2007 and thereafter--$55.
Occidental has guaranteed the residual value of certain leased assets of
approximately $152 million. If the assets are not purchased at the end of the
lease-term, Occidental would be obligated to pay any deficiency between the fair
value of the assets and the guaranteed residual; however, Occidental does not
expect to make payments under this provision.
Included in the 2001 and 2000 property, plant and equipment accounts were
$11 million and $62 million, respectively, of property leased under capital
leases and $8 million and $57 million, respectively, of related accumulated
amortization.
Occidental has undertaken certain commitments in connection with the
construction and leasing of a cogeneration facility in Taft, LA. This facility
will supply all the steam and electric power requirements for Occidental's Taft
chlor-alkali plant for less cost than if the plant were to generate its own
steam and purchase electricity from a public utility. An owner trust with
investors as participating beneficiaries owns the project, with Occidental
acting as general contractor during construction. The equity participant in the
owner trust has committed to fund the owner trust with equity in the amount of
three percent of the total project cost during construction and 13 percent of
the total project cost upon commencement of the lease term. During the
construction period, Occidental is fully liable for total project costs if an
event of termination occurs due to its willful misconduct or bankruptcy, and
Occidental is liable to pay up to 89.9 percent of the eligible construction
costs if an event of termination occurs for reasons other than force majeure.
Upon completion of construction and satisfaction of certain other conditions,
expected to occur by December 31, 2002, Occidental will enter into a 26-year
operating lease of the facility. The total cost of the project at the inception
of the lease is expected to be approximately $450 million. The total accumulated
costs of the project as of December 31, 2001 amount to approximately $328
million. If these costs were recorded as liabilities on Occidental's balance
sheet, either during construction or during the lease term, the Taft
cogeneration facility would also be recorded as an asset on the balance sheet.
Occidental has entered into various operating lease agreements, mainly for
railcars, manufacturing facilities and office space. The leased assets are used
in Occidental's operations where leasing offers advantages of greater operating
flexibility and generally costs less than alternative methods of funding. Lease
payments are charged to Occidental's operations, mainly as cost of sales.
Occidental estimates the present value of the remaining lease payments to be
$310 million at December 31, 2001. Occidental has fixed-price purchase options
associated with certain leases at various dates ranging from 2003 to 2015, with
an estimated present value of $285 million. These obligations are not recorded
as liabilities on Occidental's consolidated balance sheets. If they were so
recorded, the leased properties also would be included on the balance sheets as
assets.
49
NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
- --------------------------------------------------------------------------------
Occidental and certain of its subsidiaries have been named as defendants in
a substantial number of lawsuits, claims and proceedings. They have also been
named as potentially responsible parties in governmental proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act and similar
state acts. These governmental proceedings seek funding, remediation and, in
some cases, compensation for alleged property damage, punitive damages and civil
penalties, aggregating substantial amounts. Occidental is usually one of many
companies in these proceedings, and has to date been successful in sharing
response costs with other financially sound companies. Occidental has accrued
reserves at the most likely cost to be incurred in those proceedings where it is
probable that Occidental will incur remediation costs which can be reasonably
estimated.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
At December 31, 2001, commitments for major capital expenditures during
2002 and thereafter were approximately $167 million.
Occidental has entered into agreements providing for future payments to
secure terminal and pipeline capacity, drilling services, electrical power,
steam and certain chemical raw materials. At December 31, 2001, the net present
value of the fixed and determinable portion of the obligations under these
agreements, which were used to collateralize financings of the respective
suppliers, aggregated $81 million, which was payable as follows (in millions):
2002--$15, 2003--$14, 2004--$12, 2005--$11, 2006--$11 and 2007 through
2018--$18. Fixed payments under these agreements, were $19 million in 2001, $42
million in 2000 and $20 million in 1999.
Occidental has certain other commitments under contracts, guarantees and
joint ventures, and certain other contingent liabilities. Many of these
commitments, although not fixed or determinable, involve capital expenditures
and are part of the $1.1 billion capital expenditures estimated for 2002.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing lawsuits,
claims and proceedings, audits, commitments, contingencies and related matters.
Several of these matters may involve substantial amounts, and if these were to
be ultimately resolved unfavorably to the full amount of their maximum potential
exposure, an event not currently anticipated, it is possible that such event
could have a material adverse effect upon Occidental's consolidated financial
position or results of operations. However, in management's opinion, after
taking into account reserves, it is unlikely that any of the foregoing matters
will have a material adverse effect upon Occidental's consolidated financial
position or results of operations.
NOTE 10 DOMESTIC AND FOREIGN INCOME AND OTHER TAXES
- --------------------------------------------------------------------------------
The domestic and foreign components of income(loss) from continuing
operations before domestic and foreign income and other taxes were as follows
(in millions):
For the years ended December 31, Domestic Foreign Total
========================================================================== ========== ========== ==========
2001 $ 293 $ 1,456 $ 1,749
========== ========== ==========
2000 $ 1,534 $ 1,477 $ 3,011
========== ========== ==========
1999 $ 473 $ 726 $ 1,199
========================================================================== ========== ========== ==========
The provisions(credits) for domestic and foreign income and other taxes
consisted of the following (in millions):
U.S. State
For the years ended December 31, Federal and Local Foreign Total
=========================================================== ========== ========== ========== ==========
2001
Current $ 331 $ 17 $ 396 $ 744
Deferred (38) (141) (2) (181)
---------- ---------- ---------- ----------
$ 293 $ (124) $ 394 $ 563
=========================================================== ========== ========== ========== ==========
2000
Current $ 433 $ 18 $ 578 $ 1,029
Deferred 403 9 1 413
---------- ---------- ---------- ----------
$ 836 $ 27 $ 579 $ 1,442
=========================================================== ========== ========== ========== ==========
1999
Current $ 76 $ 26 $ 346 $ 448
Deferred 184 7 (8) 183
---------- ---------- ---------- ----------
$ 260 $ 33 $ 338 $ 631
=========================================================== ========== ========== ========== ==========
50
The credit for deferred state and local income taxes in 2001 reflects a
benefit of $70 million related to the settlement of a state tax issue, deferred
tax reversing due to the sale of the entity owning pipelines in Texas that are
leased to a former subsidiary and an adjustment to reflect lower effective state
tax rates.
The following is a reconciliation, stated as a percentage of pre-tax
income, of the U.S. statutory federal income tax rate to Occidental's effective
tax rate on income from continuing operations:
For the years ended December 31, 2001 2000 1999
================================================================================ ======== ======== ========
U.S. federal statutory tax rate 35% 35% 35%
Operations outside the United States(a) 2 11 12
State taxes, net of federal benefit (5) 1 2
Other -- 1 4
-------- -------- --------
Tax rate provided by Occidental 32% 48% 53%
================================================================================ ======== ======== ========
(a) Included in these figures is the impact of not providing U.S. taxes on the
unremitted earnings of certain foreign subsidiaries. The effect of this is
to reduce the U.S. federal tax rate by approximately 7 percent in 1999. The
effect on 2001 and 2000 was insignificant due to distributions from these
subsidiaries.
The tax effects of temporary differences resulting in deferred income taxes
at December 31, 2001 and 2000 were as follows (in millions):
2001 2000
--------------------------- ---------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX Tax Tax
Items resulting in temporary differences ASSETS LIABILITIES Assets Liabilities
======================================================= =========== =========== =========== ===========
Property, plant and equipment differences $ 100 $ 967 $ 188 $ 884
Equity investments including partnerships -- 694 -- 1,066
Environmental reserves 178 -- 145 --
Postretirement benefit accruals 180 -- 184 --
State income taxes 54 -- 108 --
All other 264 96 243 58
----------- ----------- ----------- -----------
Subtotal 776 1,757 868 2,008
Valuation allowance (8) -- (23) --
----------- ----------- ----------- -----------
Total deferred taxes $ 768 $ 1,757 $ 845 $ 2,008
======================================================= =========== =========== =========== ===========
Included in total deferred tax assets was a current portion aggregating
$114 million and $117 million as of December 31, 2001 and 2000, respectively,
that was reported in prepaid expenses and other.
A deferred tax liability of approximately $135 million at December 31, 2001
has not been recognized for temporary differences related to Occidental's
investment in certain foreign subsidiaries primarily as a result of unremitted
earnings of consolidated subsidiaries, as it is Occidental's intention,
generally, to reinvest such earnings permanently.
The extraordinary loss that resulted from the early extinguishment of debt
was reduced by an income tax benefit of $4 million in 2001 and $61 million in
1999.
The cumulative effect of changes in accounting principles was reduced by an
income tax benefit of $13 million in 2001 and $7 million in 1999.
Additional paid-in capital was credited $7 million in 2001 for a tax
benefit resulting from the exercise of certain stock options.
Items included in OCI are net of a tax benefit of $14 million in 2001 and
charges of $6 million and $5 million in 2000 and 1999, respectively.
51
NOTE 11 STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The following is an analysis of nonredeemable preferred stock and common
stock (shares in thousands):
Nonredeemable Common
Preferred Stock Stock
============================================= =============== ===============
BALANCE, DECEMBER 31, 1998 4,852 347,722
Issued -- 4,610
Preferred stock conversions/redemptions (4,852) 15,708
Options exercised and other, net -- (124)
- --------------------------------------------- --------------- ---------------
BALANCE, DECEMBER 31, 1999 -- 367,916
Issued 2,244
Options exercised and other, net (176)
- -------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 -- 369,984
Issued 1,064
Options exercised and other, net 3,078
- --------------------------------------------- --------------- ---------------
BALANCE, DECEMBER 31, 2001 -- 374,126
============================================= =============== ===============
NONREDEEMABLE PREFERRED STOCK
Occidental has authorized 50,000,000 shares of preferred stock with a par
value of $1.00 per share. In February 1994, Occidental issued 11,388,340 shares
of $3.00 cumulative CXY-indexed convertible preferred stock in a public offering
for net proceeds of approximately $557 million. The shares were convertible into
Occidental common stock in accordance with a conversion formula that was indexed
to the market price of the common shares of CanadianOxy. In August 1999,
Occidental called for redemption all of the outstanding shares of such preferred
stock. In 1999, 4,847,130 shares of CXY-indexed convertible preferred stock were
converted by the holders into 15,708,176 shares of Occidental's common stock.
At December 31, 2001 and 2000, Occidental had no outstanding shares of
preferred stock.
STOCK INCENTIVE PLANS
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The 1987 Stock Plan, as amended, provided for the grant of incentive stock
options (ISOs), nonqualified stock options (NQSOs) and stock appreciation rights
(SARs) to the executive officers and other key employees of Occidental and its
subsidiaries. An aggregate of 9,000,000 shares of common stock was reserved for
issuance upon exercise of ISOs, NQSOs or SARs granted. Options granted under the
plan were granted at an exercise price not less than the fair market value on
the date of grant and the price may not be changed except to reflect a change in
capitalization. The 1987 Plan provides that outstanding options and SARs will be
accelerated if Occidental enters into one or more agreements to dispose of
substantially all the assets or 50 percent, or more of the capital stock, of
Occidental by sale, merger, reorganization or liquidation in one transaction or
a related series of transactions. In an acceleration event, optionees subject to
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") will
receive a cash payment equal to the difference between the fair market value of
the shares subject to the option and the exercise price. The 1987 Plan was
terminated for the purposes of further grants upon the effective date of the
1995 Incentive Stock Plan.
The 1995 Incentive Stock Plan, as amended, provided for the grant of awards
in the form of options, SARs, performance stock or restricted stock to salaried
employees of Occidental and its subsidiaries or persons who have agreed to
become salaried employees. An aggregate of 25,000,000 shares of common stock was
reserved for issuance in connection with awards under the plan. Adjustments to
the number of shares covered by an award or the option or base price of an
option or SAR may be made by the Committee in order to prevent the dilution or
expansion in participants rights due to a change in capitalization, merger,
consolidation, reorganization or similar corporate transaction. Stockholder
approval is required to extend the maximum period for exercising stock options
or SARs (10 years from the date of grant), to reduce the option price or base
price of any outstanding options or SARs, or for any material amendment of the
Plan as defined in Rule 16b-3 of the Exchange Act. The 1995 Incentive Stock Plan
was terminated for the purposes of further grants upon the effective date of the
2001 Incentive Stock Plan.
52
The 2001 Incentive Compensation Plan, as amended, provides for the grant of
awards in the form of common stock, options, SARs, restricted stock, stock units
or similar rights to purchase shares. Any of the awards may be granted as
performance-based awards. An aggregate of 17,000,000 shares was initially
reserved for issuance under the plan. The plan administrator will
proportionately adjust outstanding awards in the event of an extraordinary
dividend or distribution or any reclassification, recapitalization,
reorganization, merger or other extraordinary corporate transaction, or a sale
of substantially all of the assets of Occidental as a whole. In such events, an
adjustment may be made to the number and type of shares subject to an award, the
grant, purchase or exercise price of outstanding awards; the securities, cash or
property deliverable upon exercise of an outstanding award or the performance
goals or objectives applicable to an outstanding award. Upon the occurrence of a
change of control event (the dissolution or liquidation of Occidental,
consummation of a business combination, any person acquires more than 20 percent
of the voting power of Occidental or, a significant change in Board composition)
and unless the Administrator determines to the contrary, options and SARs become
immediately exercisable, restricted stock immediately vests, performance based
awards become immediately payable and any rights of a participant under any
other award are accelerated to give the participant the benefit of the award.
Stockholder approval is required for any reduction in the exercise price of any
option or SAR below the fair market value on the date of grant and for any
amendment to the plan that would materially increase the benefits to
participants under the Plan or the number of securities which may be issued or
materially modify the requirements for eligibility. No awards may be made under
the plan after April 20, 2011. At December 31, 2001, 10,421,184 shares were
available for future awards under this plan, all of which were available to
issue stock options, SARs, restricted stock and performance stock awards.
Options to purchase common stock of Occidental have been granted to
officers and employees under stock option plans adopted in 1987, 1995 and 2001,
as discussed above. During 2001, options for 10,380,946 shares became
exercisable, and options for 15,023,102 shares were exercisable at December 31,
2001 at a weighted-average exercise price of $22.95. Generally, these options
vest over three years with a maximum term of ten years and one month. At
December 31, 2001, options with SARs for 235,000 shares were outstanding, all of
which were exercisable.
The following is a summary of stock option transactions during 2001, 2000
and 1999 (shares in thousands):
2001 2000 1999
------------------------ ------------------------ ------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
=============================== ======= ============== ======= ============== ======= ==============
BEGINNING BALANCE 18,217 $ 21.532 13,033 $ 23.249 8,169 $ 24.065
Granted or issued 11,039 $ 26.171 5,577 $ 20.144 5,221 $ 19.577
Exercised (3,395) $ 22.398 (93) $ 19.968 (7) $ 17.750
Canceled or expired (471) $ 23.495 (300) $ 25.018 (350) $ 26.874
------- ------- -------
ENDING BALANCE 25,390 $ 23.396 18,217 $ 21.532 13,033 $ 23.249
OPTIONS EXERCISABLE AT YEAR END 15,023 8,374 5,761
=============================== ======= ======= =======
The following is a summary of stock options outstanding at December 31,
2001 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
================= ============= ================== ================ ============= ================
$14.88 to $20.06 6,710 7.69 $ 19.19 2,911 $ 18.63
$20.50 to $23.88 4,266 6.53 $ 21.17 4,041 $ 21.10
$24.38 to $29.44 14,414 7.36 $ 26.01 8,071 $ 25.43
- ----------------- ------------- ------------------ ---------------- ------------- ----------------
53
RESTRICTED STOCK AWARDS
Pursuant to the 2001 Incentive Compensation Plan and the 1995 Incentive
Stock Plan, employees have been awarded Occidental restricted common stock at
the par value of $.20 per share, with such shares vesting after three or four
years, respectively, or earlier under certain conditions. The related expense is
amortized over the vesting period. In 2001, 275,384 shares were awarded at a
weighted-average grant-date value of $24.59; in 2000, 40,000 shares were awarded
at a weighted-average grant-date value of $21.875 per share; in 1999, 223,902
shares were awarded at a weighted-average grant-date value of $20.563 per share;
85,451 shares were awarded in 1998 at a weighted-average grant-date value of
$28.519 per share; 149,885 shares were awarded in 1997 at a weighted-average
grant-date value of $23.375 per share; 171,649 shares were awarded in 1996 at a
weighted-average grant-date value of $21.431 per share; and 21,339 shares were
awarded in 1995 at a weighted-average grant-date value of $20.875 per share.
PERFORMANCE STOCK AWARDS AND OPTIONS
Performance stock awards have been made to various executive officers
pursuant to the 2001 Incentive Compensation Plan and the 1995 Incentive Stock
Plan. The number of shares of common stock to be received, under these awards,
by such officers at the end of the performance period will depend on the
attainment of performance objectives based either on a peer company comparison
of total stockholder return for such period, or in the case of segment
employees, a combination of total stockholder return and return on assets of the
segment. The grantees will receive shares of common stock in an amount ranging
from zero to 200 percent of the Target Share Award (as such amount is defined in
the grant). The shares vest or fail to vest by the end of the four-year
performance term. In 2001, awards for 336,642 target shares were granted at a
weighted-average grant-date value of $24.27; in 2000, awards for 375,654 target
shares were granted at a weighted-average grant-date value of $21.625 per share;
in 1999, awards for 502,531 target shares were granted at a weighted-average
grant-date value of $16.875 per share; 134,705 target shares were granted in
1998 at a weighted-average grant-date value of $29.3125 per share; awards for
97,832 target shares were granted in 1997 at a weighted-average grant-date value
of $23.375 per share; and 101,630 target shares were granted in 1996 at a
weighted-average grant-date value of $21.375 per share. In 2001 and 2000, 47,782
and 101,630 shares, respectively, were issued for the target shares granted in
1997 and 1996, respectively.
In 1997, 4,655,000 Performance Stock Options were granted to certain
executive officers at an exercise price of $25.375. Under the terms of these
grants, as amended in 1999, these options expire 10 years from the grant date
and will become vested upon the earlier of the following events occurring, at
which time the grants become fully vested and exercisable: (a) for twenty
consecutive trading days, the New York Stock Exchange closing price of
Occidental common stock must be $25 or more per share; or (b) July 2, 2002. As
of December 31, 2001, all of the Performance Stock Options were exercisable.
PRO-FORMA DISCLOSURE
Occidental accounts for these plans under Accounting Principles Board
Opinion No. 25. Had the compensation expense for these plans been determined in
accordance with SFAS No. 123, "Accounting for Stock Based Compensation",
Occidental's pro-forma net income would have been $1.1 billion in 2001, $1.6
billion in 2000 and $439 million in 1999. Basic and diluted earnings per share
would have been $3.05 for 2001, $4.22 for 2000 and $1.22 for 1999. The method of
accounting under SFAS No. 123 has not been applied to options granted prior to
January 1, 1995; therefore, the resulting pro-forma compensation expense may not
be representative of that to be expected in future years. The fair value of each
option grant, for pro-forma calculation purposes, is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: dividend yield
of 3.74, 4.97 and 4.60 percent; expected volatility of 29.33, 28.37 and 23.57
percent; risk-free rate of return of 4.84, 6.27 and 5.86 percent; and expected
lives of 5 years.
1996 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
Under the 1996 Restricted Stock Plan for Non-Employee Directors, each
non-employee Director of the Company will receive awards of restricted common
stock each year as additional compensation for their services as a member of the
Board of Directors. A maximum of 150,000 shares of common stock may be awarded
under the Directors Plan and 21,000, 21,000 and 18,800 shares of common stock
were awarded during 2001, 2000 and 1999, respectively. At December 31, 2001,
81,789 shares of common stock were available for the granting of future awards.
54
EARNINGS PER SHARE AND ANTI-DILUTIVE COMPUTATIONS
Basic earnings per share was computed by dividing net income, less
preferred dividend requirements, plus the effect of repurchase of Trust
Preferred Securities by the weighted average number of common shares outstanding
during each year. The computation of diluted earnings per share further assumes
the dilutive effect of stock options.
The following are the share amounts used to compute the basic and diluted
earnings per share for the years ended December 31 (in millions, except
per-share amounts):
2001 2000 1999
=============================================================================== ======== ======== ========
BASIC EARNINGS PER SHARE
Weighted average common shares outstanding 372.4 369.0 355.4
======== ======== ========
DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding 372.4 369.0 355.4
Dilutive effect of exercise of options outstanding 1.8 .2 .1
-------- -------- --------
Dilutive shares 374.2 369.2 355.5
======== ======== ========
The following items were not included in the computation of diluted
earnings per share because their effect was anti-dilutive for the years ended
December 31:
2001 2000 1999
============================================== =================== =================== ===================
STOCK OPTIONS
Number of shares (in millions) 0.02 5.64 4.63
Price range $ 29.063 - $29.438 $ 21.250 - $29.438 $ 21.250 - $29.625
Expiration range 12/1/07 - 4/29/08 4/28/03 - 11/10/09 1/14/00 - 7/8/08
- ---------------------------------------------- ------------------- ------------------- -------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
AOCI consisted of the following (in millions):
Balance at December 31, 2001 2000
============================================================================================ ======== ========
Foreign currency translation adjustments $ (61) $ (49)
Derivative mark-to-market adjustments (20) --
Minimum pension liability adjustments (5) 1
Unrealized losses on securities -- (2)
-------- --------
TOTAL $ (86) $ (50)
============================================================================================ ======== ========
55
NOTE 12 TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
In January 1999, Oxy Capital Trust I, a wholly-owned subsidiary of
Occidental, issued 21,000,000 shares of 8.16 percent Trust Originated Preferred
Securities (Trust Preferred Securities) to the public and 649,485 shares of
Trust Originated Common Securities (Common Securities) to Occidental. The
proceeds of such issuances were invested by Oxy Capital Trust I in $541.2
million aggregate principal amount of Occidental's 8.16 percent Subordinated
Deferrable Interest Notes due 2039 (Trust Subordinated Notes). The Trust
Subordinated Notes represent the sole assets of Oxy Capital Trust I. The Trust
Subordinated Notes mature on January 20, 2039, bear interest at the rate of 8.16
percent payable quarterly and are redeemable in whole, or in part, by Occidental
beginning on January 20, 2004 at 100 percent of the principal amount thereof,
plus any accrued and unpaid interest to the redemption date. The Trust
Subordinated Notes are unsecured obligations of Occidental and are junior in
right of payment to all present and future senior indebtedness of Occidental and
are also effectively subordinate to certain indebtedness of Occidental's
consolidated subsidiaries. Occidental may defer interest payments on the Trust
Subordinated Notes from time to time for a period not exceeding twenty
consecutive quarters. However, any unpaid quarterly interest payments on the
Trust Subordinated Notes will continue to accrue interest at 8.16 percent per
annum.
Holders of the Trust Preferred Securities and Common Securities are
entitled to cumulative cash distributions at an annual rate of 8.16 percent of
the liquidation amount of $25 per security. The Trust Preferred Securities and
Common Securities will be redeemed upon repayment of the Trust Subordinated
Notes. If Occidental defers interest payments on the Trust Subordinated Notes,
Oxy Capital Trust I will defer distributions on the Trust Preferred Securities
and Common Securities during any deferral period. However, any unpaid quarterly
distributions on the Trust Preferred Securities and Common Securities will
continue to accrue with interest at 8.16 percent per annum.
Occidental has guaranteed, on a subordinated basis, distributions and other
payments due on the Trust Preferred Securities (the Guarantee). The Guarantee,
when taken together with Occidental's obligations under the Trust Subordinated
Notes and the indenture pursuant to which the Trust Subordinated Notes were
issued and Occidental's obligations under the Amended and Restated Declaration
of Trust governing Oxy Capital Trust I, provides a full and unconditional
guarantee of amounts due on the Trust Preferred Securities.
The Trust Subordinated Notes and the related Oxy Capital Trust I investment
in the Trust Subordinated Notes have been eliminated in consolidation and the
Trust Preferred Securities are reported as Occidental Obligated Mandatorily
Redeemable Trust Preferred Securities of a Subsidiary Trust Holding Solely
Subordinated Notes of Occidental in the accompanying consolidated financial
statements. Distributions on the Trust Preferred Securities are reported under
the caption minority interest in the statement of operations. Total net proceeds
to Occidental were $508 million. The balance reflected in the accompanying
consolidated financial statements at December 31, 2001 and 2000 is net of
unamortized issue costs and also reflects the repurchase in 2001 and 2000 of
437,100 and 555,760 shares with a liquidation value of $10.9 million and $13.9
million, respectively. At December 31, 2001, 19,069,704 Trust Preferred
Securities and 649,485 Common Securities were outstanding.
56
NOTE 13 RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
Occidental has various defined contribution retirement plans for its
salaried, domestic union and nonunion hourly, and certain foreign national
employees that provide for periodic contributions by Occidental based on
plan-specific criteria, such as base pay, age level and/or employee
contributions. Occidental expensed $57 million in 2001, $55 million in 2000, and
$46 million in 1999 under the provisions of these plans.
Occidental provides medical and dental benefits and life insurance coverage
for certain active, retired and disabled employees and their eligible
dependents. The benefits generally are funded by Occidental as the benefits are
paid during the year. The cost of providing these benefits is based on claims
filed and insurance premiums paid for the period. The total benefit costs
including the postretirement costs were approximately $82 million in 2001, $69
million in 2000, and $67 million in 1999.
Pension costs for Occidental's defined benefit pension plans, determined by
independent actuarial valuations, are generally funded by payments to trust
funds, which are administered by independent trustees.
The following table sets forth the components of the net periodic benefit
costs for Occidental's defined benefit pension and postretirement benefit plans
for 2001, 2000 and 1999 (in millions):
Pension Benefits Postretirement Benefits
------------------------------ ------------------------------
For the years ended December 31, 2001 2000 1999 2001 2000 1999
=============================================== ======== ======== ======== ======== ======== ========
NET PERIODIC BENEFIT COSTS:
Service cost--benefits earned during the period $ 9 $ 9 $ 4 $ 5 $ 4 $ 5
Interest cost on benefit obligation 25 23 24 31 29 25
Expected return on plan assets (24) (23) (19) -- -- --
Amortization of net transition obligation -- -- 1 -- -- --
Amortization of prior service cost 1 1 3 -- 1 1
Recognized actuarial loss 4 (1) (5) -- (1) (1)
Curtailments and settlements -- -- (1) -- (8) (4)
Currency adjustments (1) (5) (6) -- -- --
-------- -------- -------- -------- -------- --------
Net period benefit cost $ 14 $ 4 $ 1 $ 36 $ 25 $ 26
=============================================== ======== ======== ======== ======== ======== ========
Occidental recorded adjustments to accumulated other comprehensive income
of a credit of $6 million in 2001, a charge of $2 million in 2000, and credits
of less than $1 million in 1999, to reflect the net-of-tax difference between
the additional liability required under pension accounting provisions and the
corresponding intangible asset.
Occidental's defined benefit pension and postretirement defined benefit
plans are accrued based on various assumptions and discount rates, as described
below. The actuarial assumptions used could change in the near term as a result
of changes in expected future trends and other factors which, depending on the
nature of the changes, could cause increases or decreases in the liabilities
accrued.
The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation for Occidental's defined benefit
pension and postretirement benefit plans (in millions):
Pension Benefits Postretirement Benefits
------------------------- -------------------------
2001 2000 2001 2000
========================================================= ========== ========== ========== ==========
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation -- beginning of year $ 295 $ 261 $ 383 $ 372
Service cost--benefits earned during the period 9 9 5 4
Interest cost on projected benefit obligation 25 23 31 29
Actuarial (gain)loss 28 -- 95 15
Foreign currency exchange rate changes (3) (6) -- --
Benefits paid (20) (18) (49) (43)
Plan amendments 3 -- -- --
Businesses acquired -- 41 (a) -- 14 (a)
Divestitures -- (16)(b) -- --
Curtailments and settlements -- 1 -- (8)
---------- ---------- ---------- ----------
Benefit obligation -- end of year $ 337 $ 295 $ 465 $ 383
========================================================= ========== ========== ========== ==========
(a) Relates to Oxy Permian and THUMS.
(b) Primarily relates to Durez.
57
The following table sets forth the reconciliation of the beginning and
ending balances of the fair value of plan assets for Occidental's defined
benefit pension plans (in millions):
Pension Benefits
-------------------------
2001 2000
======================================================================================= ========== ==========
CHANGES IN PLAN ASSETS:
Fair value of plan assets-- beginning of year $ 254 $ 254
Actual return on plan assets 14 10
Foreign currency exchange rate changes (1) (1)
Employer contribution 8 2
Benefits paid (20) (18)
Businesses acquired -- 21 (a)
Divestitures -- (14)(b)
---------- ----------
Fair value of plan assets-- end of year $ 255 $ 254
======================================================================================= ========== ==========
(a) Relates to Oxy Permian and THUMS.
(b) Primarily relates to Durez.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for defined benefit pension plans with accumulated benefit
obligation in excess of plan assets were $212 million, $193 million and $123
million, respectively, as of December 31, 2001 and $103 million, $84 million and
$41 million, respectively, as of December 31, 2000.
The weighted average discount rate used in determining the benefit
obligation was 7 percent and 7.75 percent, respectively as of December 31, 2001
and 2000. The weighted average rate of increase in future compensation levels
used in determining the benefit obligations was approximately 4.5 percent in
2001 and 2000. The expected long-term rate of return on assets was 9.0 percent
in 2001 and 2000.
The postretirement benefit obligation was determined by application of the
terms of medical and dental benefits and life insurance coverage, including the
effect of established maximums on covered costs, together with relevant
actuarial assumptions and health care cost trend rates projected at a Consumer
Price Index (CPI) increase of 3.0 percent as of December 31, 2001 and 2000
(participants other than certain union employees pay for all medical cost
increases in excess of increases in the CPI). For certain union employees, the
health care cost trend rates were projected at annual rates ranging ratably from
12 percent in 2001 to 6.0 percent through the year 2007 and level thereafter. A
1-percent increase or a 1-percent decrease in these assumed health care cost
trend rates would result in an increase of $19 million or a reduction of $17
million, respectively, in the postretirement benefit obligation as of December
31, 2001, and an increase or reduction of $1 million, in interest cost in 2001.
The annual service costs would not be materially affected by these changes.
The following table sets forth the funded status and amounts recognized in
Occidental's consolidated balance sheets for the defined benefit pension and
postretirement benefit plans at December 31, 2001 and 2000 (in millions):
Pension Benefits Postretirement Benefits
------------------------- -------------------------
Balance at December 31, 2001 2000 2001 2000
========================================================= ========== ========== ========== ==========
Unfunded obligation $ (83) $ (41) $ (465) $ (383)
Unrecognized net transition obligation 2 2 -- --
Unrecognized prior service cost 5 3 9 9
Unrecognized net (gain)loss 41 7 75 (20)
---------- ---------- ---------- ----------
Net amount recognized $ (35) $ (29) $ (381) $ (394)
========== ========== ========== ==========
Prepaid benefit cost $ 38 $ 36 $ -- $ --
Accrued benefit liability (83) (66) (381) (394)
Intangible assets 1 -- -- --
Accumulated other comprehensive income 9 1 -- --
---------- ---------- ---------- ----------
Net amount recognized $ (35) $ (29) $ (381) $ (394)
========================================================= ========== ========== ========== ==========
58
NOTE 14 INVESTMENTS AND TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Investments in entities, other than oil and gas exploration and production
companies, in which Occidental has a voting stock interest of at least 20
percent, but not more than 50 percent, and certain partnerships are accounted
for on the equity method. At December 31, 2001, Occidental's equity investments
consisted of a 29.5-percent interest in Equistar acquired in May 1998 and
various partnerships and joint ventures, discussed below. As discussed in Note
4, in December 2001, Occidental wrote down its investment in Equistar by $412
million. Equity investments paid dividends of $27 million, $99 million and $100
million to Occidental in 2001, 2000 and 1999, respectively. Cumulative
undistributed earnings since acquisition, in the amount of $51 million, of
50-percent-or-less-owned companies have been accounted for by Occidental under
the equity method. At December 31, 2000, Occidental's investment in equity
investees exceeded the historical underlying equity in net assets by
approximately $128 million. This excess was eliminated in 2001 in connection
with the Equistar write-down. Investments also include certain cost method
investments, in which Occidental owns less than 20 percent of the voting stock.
Occidental and its subsidiaries' purchases from certain chemical
partnerships at market-related prices, in which it has investments, were $656
million, $755 million and $860 million in 2001, 2000 and 1999, respectively.
Occidental and its subsidiaries' sales to certain chemical partnerships at
market-related prices, in which it has investments, were $68 million, $217
million and $251 million, in 2001, 2000 and 1999, respectively.
The following table presents Occidental's proportional interest in the
summarized financial information of its equity method investments (in millions):
For the years ended December 31, 2001 2000 1999
============================================ ========== ========== ==========
Revenues $ 2,223 $ 2,735 $ 2,491
Costs and expenses 2,315 2,668 2,450
---------- ---------- ----------
Net (loss)income $ (92) $ 67 $ 41
============================================ ========== ========== ==========
Balance at December 31, 2001 2000
============================================ ========== ==========
Current assets $ 429 $ 512
Noncurrent assets $ 1,951 $ 1,975
Current liabilities $ 298 $ 285
Long-term debt $ 960 $ 1,034
Other non-current liabilities $ 172 $ 74
Stockholders' equity $ 950 $ 1,094
- -------------------------------------------- ---------- ----------
Occidental has a 78.6-percent ownership interest in OxyMar, a general
partnership that owns a vinyl chloride monomer (VCM) facility in Texas operated
by OxyChem. Marubeni Corporation (Marubeni) owns the remaining 21.4 percent of
OxyMar, but has a 50-percent voting interest. The OxyMar VCM plant is a modern,
efficient manufacturing facility. Occidental's chlorovinyls business derives
economic benefit as the supplier of chlorine, a major raw material, to OxyMar.
OxyMar, in turn, supplies VCM required by Occidental to manufacture PVC, one of
its major products. This investment in OxyMar is recorded as an equity
investment on the consolidated balance sheet. Occidental owns 28.6 percent of
OxyMar directly and the OxyVinyls partnership, which is 76-percent owned by
Occidental, owns 50 percent. Therefore, because of the effect of a third party's
minority ownership interest, Occidental's total share of OxyMar's results is
only approximately 67 percent. Occidental guarantees 50 percent of OxyMar's $165
million private placement bonds due 2016 and 100 percent of a $220 million
revolving line of credit which matures in 2005, under which $105 million was
outstanding at December 31, 2001. These amounts are reflected as debt on
OxyMar's balance sheet. Marubeni has a right to put its interest in OxyMar to
Occidental in 2004 by paying approximately $30 million to Occidental and, in
connection with this transfer, require Occidental to assume Marubeni's guarantee
of OxyMar's debt. If Occidental acquires the Marubeni interest, it will
consolidate OxyMar. If OxyMar were to be consolidated, its assets, including the
VCM facility, and its liabilities, including debt to third parties, would be
recorded on Occidental's consolidated balance sheets. As of December 31, 2001,
Occidental had advanced $144 million to OxyMar and had a net equity investment
of $52 million.
Occidental and Conoco Inc. (Conoco) each has a 50-percent interest in
Ingleside Cogeneration Limited Partnership, a limited partnership (Ingleside
LP), which operates a cogeneration plant in Texas. The cogeneration facility
supplies all of the steam and electric power requirements to Occidental's
Ingleside chlor-alkali plant and the VCM plant Occidental owns with Marubeni, at
less cost than if these facilities were to produce their own steam and purchase
electric power from a public utility. At December 31, 2001, Ingleside LP had
approximately $178 million in debt, which is secured by its assets. Occidental
has not guaranteed this debt; however, Occidental and Conoco currently each
guarantee half of a debt service reserve amount of approximately $8.5 million.
Occidental accounts for this investment using the equity method.
59
In Ecuador, Occidental has a 12-percent interest in a company currently
constructing a pipeline, which is expected to be completed in 2003. Construction
of the pipeline has made it feasible for Occidental to begin developing the Eden
Yuturi field it discovered several years ago in the southeastern corner of Block
15. The development of Eden Yuturi, together with ongoing work in the western
portion of the block that is currently in production, is expected to add net
incremental production of 30,000 barrels per day, all of which is expected to be
shipped through the new pipeline. Occidental has committed to make capital
contributions up to its share (approximately $148 million) of the estimated
total project costs, less an equivalent percentage (up to approximately $110
million under existing financing arrangements) of any senior project debt
incurred by the pipeline company. The pipeline company's senior project debt is
to be repaid with the proceeds of ship-or-pay tariffs of certain upstream
producers in Ecuador, including Occidental. Under their ship-or-pay commitments,
Occidental and the other upstream producers have each assumed their respective
share of project-specific risks, including construction risk, operating risk and
force-majeure risk. Under certain circumstances, Occidental could be required to
pay an advanced tariff payment that would in turn be used by the pipeline
company to service or prepay project debt. As of December 31, 2001, Occidental
has contributed $9 million to the company. Occidental reports this investment in
its consolidated financial statements using the equity method of accounting.
Occidental and Sempra Energy (Sempra) each has a 50-percent interest in Elk
Hills Power LLC, a limited liability company that is currently constructing a
gas-fired, power-generation plant in California. Occidental accounts for this
investment using the equity method. In January 2002, Elk Hills Power LLC entered
into a $400 million construction loan facility. Occidental guarantees $200
million (50 percent) of the loan facility. At January 31, 2002, approximately
$94 million of the $200 million guarantee was outstanding.
Occidental has entered into an indemnity agreement with Equistar, its
29.5-percent equity investee, to contribute to Equistar an amount equal to the
lesser of approximately $420 million or the principal amount of Equistar's notes
due 2009 then outstanding, together with interest. At December 31, 2001, the
outstanding principal amount of Equistar's notes due 2009 was almost $600
million. Occidental is only required to pay this amount to Equistar if the
holders of the notes have not been able to obtain payment after having pursued
and exhausted all their remedies to compel payment by Equistar, including the
liquidation of assets. The indemnity expressly does not create any right in the
holders of the notes or any person other than Occidental, Equistar and the
partners of Equistar. Occidental may elect to terminate the indemnity in certain
circumstances.
NOTE 15 INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
- --------------------------------------------------------------------------------
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131--"Disclosures about Segments of an Enterprise and Related Information."
Occidental has identified two reportable segments through which it conducts its
continuing operations: oil and gas and chemical. The factors for determining the
reportable segments were based on the distinct nature of their operations. They
are managed as separate business units because each requires and is responsible
for executing a unique business strategy. The oil and gas segment explores for,
develops, produces and markets crude oil and natural gas domestically and
internationally. The chemical segment manufactures and markets, domestically and
internationally, basic chemicals, specialty chemicals and vinyls. Additionally,
it has an investment in a petrochemical partnership.
Earnings of industry segments and geographic areas exclude interest income,
interest expense, environmental remediation expenses, unallocated corporate
expenses, cumulative effect of changes in accounting principles and
extraordinary items, but include income from equity investments and gains and
losses from dispositions of segment and geographic area assets.
Foreign income and other taxes and certain state taxes are included in
segment earnings on the basis of operating results. U.S. federal income taxes
are not allocated to segments except for amounts in lieu thereof that represent
the tax effect of operating charges resulting from purchase accounting
adjustments, which arose from the implementation in 1992 of SFAS No. 109 -
"Accounting for Income Taxes," and the tax effects resulting from major,
infrequently occurring transactions such as asset sales and legal settlements
that relate to segment results.
Identifiable assets are those assets used in the operations of the
segments. Corporate assets consist of cash, short-term investments, certain
corporate receivables, an intrastate pipeline (sold in the third quarter of
2001) and other assets.
60
INDUSTRY SEGMENTS
In millions
Oil and Gas Chemical Corporate Total
============================================================= =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 2001
Net sales(a) $ 10,893 (b) $ 3,092 (c) $ -- $ 13,985
=========== =========== =========== ===========
Pretax operating profit(loss)(d) $ 3,292 $ (437) $ (1,106)(f) $ 1,749
Income taxes (447) 43 (159)(g) (563)
Extraordinary loss, net -- -- (8) (8)
Cumulative effect of changes in accounting principles, net -- -- (24) (24)
----------- ----------- ----------- -----------
Net income(loss)(e) $ 2,845 (h) $ (394)(i) $ (1,297)(j) $ 1,154
=========== =========== =========== ===========
Unconsolidated equity investments $ 75 $ 663 $ 255 $ 993
=========== =========== =========== ===========
Property, plant and equipment additions, net (l) $ 1,223 $ 120 $ 58 $ 1,401
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 750 $ 190 $ 31 $ 971
=========== =========== =========== ===========
Total assets $ 13,316 $ 4,074 $ 460 $ 17,850
============================================================= =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 2000
Net sales(a) $ 9,779 (b) $ 3,795 (c) $ -- $ 13,574
=========== =========== =========== ===========
Pretax operating profit(loss)(d) $ 3,012 $ 176 $ (177)(f) $ 3,011
Income taxes (595) (7) (840)(g) (1,442)
Extraordinary loss, net -- -- 1 1
Cumulative effect of changes in accounting principles, net -- -- -- --
----------- ----------- ----------- -----------
Net income(loss)(e) $ 2,417 (h) $ 169 (i) $ (1,016)(j) $ 1,570
=========== =========== =========== ===========
Unconsolidated equity investments $ 67 $ 1,203 $ 57 $ 1,327
=========== =========== =========== ===========
Property, plant and equipment additions, net(l) $ 791 $ 155 $ 6 $ 952
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 670 $ 190 $ 41 $ 901
=========== =========== =========== ===========
Total assets $ 13,384 $ 4,848 $ 1,182 (k) $ 19,414
============================================================= =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1999
Net sales(a) $ 4,599 (b) $ 3,221 (c) $ -- $ 7,820
=========== =========== =========== ===========
Pretax operating profit(loss)(d) $ 1,841 $ (23) $ (619)(f) $ 1,199
Income taxes (574) (14) (43)(g) (631)
Extraordinary loss, net -- -- (107) (107)
Cumulative effect of changes in accounting principles, net -- -- (13) (13)
----------- ----------- ----------- -----------
Net income(loss)(e) $ 1,267 (h) $ (37)(i) $ (782)(j) $ 448
=========== =========== =========== ===========
Unconsolidated equity investments $ 119 $ 1,388 $ 247 $ 1,754
=========== =========== =========== ===========
Property, plant and equipment additions, net(l) $ 474 $ 116 $ 11 $ 601
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 577 $ 190 $ 38 $ 805
=========== =========== =========== ===========
Total assets $ 7,271 $ 5,346 $ 1,508 (k) $ 14,125
============================================================= =========== =========== =========== ===========
Footnotes:
(a) Occidental has implemented EITF Issue No. 00-10, "Shipping and Handling
Fees and Costs" effective with the fourth quarter of 2000. As a result of
this adoption, Occidental has added to revenues and cost of sales amounts
of transportation costs that previously had been accounted for as
deductions from revenues. There is no effect on income. Oil and gas
revenues include $34 million, $29 million and $27 million for 2001, 2000
and 1999, respectively. Chemical revenues include $238 million, $216
million and $183 million for 2001, 2000 and 1999, respectively.
(b) Approximately 54 percent of oil and gas sales revenues for 2001 were
attributable to oil and gas trading activity, compared with approximately
50 percent in 2000 and 43 percent in 1999. Oil sales represented
approximately 58 percent, 70 percent and 71 percent of net sales for the
periods ending December 31, 2001, 2000 and 1999, respectively.
61
Footnotes continued:
(c) Total product sales for the chemical segment were as follows:
Basic Chemicals Commodity Vinyl Resins Performance Chemicals
====================== ====================== ======================
YEAR ENDED DECEMBER 31, 2001 37% 46% 17%
Year ended December 31, 2000 32% 47% 21%
Year ended December 31, 1999 35% 40% 25%
(d) Research and development costs were $8 million in 2001, $16 million in 2000
and $20 million in 1999.
(e) Segment earnings include charges and credits in lieu of U.S. federal income
taxes. In 2001, the amounts allocated to the segments were charges of $56
million and a credit of $42 million in oil and gas and chemical,
respectively. In 2000, the amounts allocated to the segments were charges
of $32 million and a credit of $7 million in oil and gas and chemical,
respectively. In 1999, the amounts allocated to the segments were a charge
of $228 million and a credit of $16 million in oil and gas and chemical,
respectively. 2001, 2000 and 1999 reflect allocation of taxes to segments
for major, infrequently occurring transactions.
(f) Includes unallocated net interest expense, administration expense, pipeline
lease income, pipeline depreciation expense and other items.
(g) Includes unallocated income taxes.
(h) Includes the following special items for the years ended December 31:
Benefit (Charge) In millions 2001 2000 1999
==================================================================== ========== ========== ==========
OIL AND GAS
Gain on sale of interest in the Indonesian Tangguh LNG project(a) $ 399 $ -- $ --
Gain on sale of additional interests in Gulf of Mexico assets(a) 7 -- --
Gain on partial sale of Gulf of Mexico assets(a) -- 39 --
Write-down of various assets, real estate and investments -- (53) (9)
Loss on sale of office building(a) -- (14) --
Chevron litigation settlement(a) -- -- 488
Write-down of Peru producing operations(a) -- -- (29)
Claims, settlements, reorganization and other -- -- (35)
Gain on buyout of contingency payment(a) -- 41 --
Gain on receipt of contingency payment -- -- 11
-------------------------------------------------------------------- ---------- ---------- ----------
(a) These amounts are shown after-tax.
(i) Includes the following special items for the years ended December 31:
Benefit (Charge) In millions 2001 2000 1999
==================================================================== ========== ========== ==========
CHEMICAL
Write-down of Equistar investment $ (412) $ -- $ --
Credit from state tax rate adjustment 14 -- --
Write-down of chemical intermediate businesses and various assets -- (135) (159)
Gain on sale of Durez business(a) ` -- 13 --
Loss on foreign investment abandonment(a) -- (2) --
Write-downs by Equistar -- -- (28)
Severance, plant shutdown, idling and plant write-down costs (37) -- --
Gain on sale of a chemical plant by Equistar -- -- 12
Claims and settlements -- -- (9)
-------------------------------------------------------------------- ---------- ---------- ----------
(a) These amounts are shown after-tax.
(j) Includes the following special items for the years ended December 31:
Benefit (Charge) In millions 2001 2000 1999
==================================================================== ========== ========== ==========
CORPORATE
Loss on sale of pipeline-owning entity(a) $ (272) $ -- $ --
Environmental remediation (109) -- --
Settlement of state tax issue 70 -- --
Gain on sale of CanadianOxy investment -- 493 --
Claims and settlements -- (17) --
Extraordinary (loss)gain on debt redemption(a) (8) 1 (107)
Insurance dividend 6 11 18
Changes in accounting principles(a) (24) -- (13)
Tax effect of pre-tax adjustments 192 (133) 55
-------------------------------------------------------------------- ---------- ---------- ----------
(a) These amounts are shown after-tax.
(k) 2000 and 1999 include the net assets of an intrastate pipeline, which was
sold in the third quarter of 2001.
(l) Excludes acquisitions of other businesses and formation of OxyVinyls.
Amounts exclude $3.8 billion in oil and gas in 2000 and $976 million in
chemical in 1999, but include capitalized interest of $5 million in 2001,
$3 million in 2000 and $4 million in 1999.
62
GEOGRAPHIC AREAS
In millions
Net sales(a) Property, plant and equipment, net
---------------------------------------- ----------------------------------------
For the years ended December 31, 2001 2000 1999 2001 2000 1999
================================ ========== ========== ========== ========== ========== ==========
United States $ 12,132 $ 11,101 $ 5,958 $ 11,217 $ 11,890 $ 8,504
Qatar 539 747 507 859 825 794
Yemen 377 435 254 273 229 222
Colombia 179 392 329 81 104 78
Russia 157 180 111 64 66 72
Oman 151 116 116 122 99 88
Canada 136 189 117 31 29 7
Pakistan 113 102 57 49 44 38
Ecuador 82 148 76 109 85 102
Other Foreign 119 164 295 53 100 124
---------- ---------- ---------- ---------- ---------- ----------
Total $ 13,985 $ 13,574 $ 7,820 $ 12,858 $ 13,471 $ 10,029
================================ ========== ========== ========== ========== ========== ==========
(a) Sales are shown by individual country based on the location of the entity
making the sale.
NOTE 16 COSTS AND RESULTS OF OIL AND GAS PRODUCING ACTIVITIES
- --------------------------------------------------------------------------------
Capitalized costs relating to oil and gas producing activities and related
accumulated depreciation, depletion and amortization, were as follows (in
millions):
United Latin Eastern Total
States America Hemisphere Worldwide
========================================================== ========== ========== ========== ==========
DECEMBER 31, 2001
Proved properties $ 9,027 $ 659 $ 2,642 $ 12,328
Unproved properties(d) 1,606 2 13 1,621
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS 10,633 661 2,655 13,949
Support facilities 290 37 82 409
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS(a) 10,923 698 2,737 14,358
Accumulated depreciation, depletion and amortization (2,210) (507) (1,364) (4,081)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 8,713 $ 191 $ 1,373 $ 10,277
========================================================== ========== ========== ========== ==========
DECEMBER 31, 2000
Proved properties $ 8,616 $ 618 $ 2,369 $ 11,603
Unproved properties(d) 1,970 19 77 2,066
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS 10,586 637 2,446 13,669
Support facilities 244 40 76 360
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS(a) 10,830 677 2,522 14,029
Accumulated depreciation, depletion and amortization (2,299) (484) (1,213) (3,996)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 8,531 $ 193 $ 1,309 $ 10,033
========================================================== ========== ========== ========== ==========
DECEMBER 31, 1999
Proved properties $ 4,884 $ 1,580 $ 2,141 $ 8,605
Unproved properties(d) 2,136 25 45 2,206
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS 7,020 1,605 2,186 10,811
Support facilities 23 94 72 189
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS(a) 7,043 1,699 2,258 11,000
Accumulated depreciation, depletion and amortization (2,103) (1,500) (1,006) (4,609)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 4,940 $ 199 $ 1,252 $ 6,391
========== ========== ========== ==========
Share of equity investees' net capitalized costs(b) $ 94 $ 337 (c) $ 94 $ 525
========================================================== ========== ========== ========== ==========
(a) Includes costs related to leases, exploration costs, lease and well
equipment, pipelines and terminals, gas plants and other equipment.
(b) Excludes amounts applicable to synthetic fuels.
(c) Includes amounts in Latin America and Canada.
(d) Primarily consists of California properties.
63
Costs incurred relating to oil and gas producing activities, whether
capitalized or expensed, were as follows (in millions):
United Latin Eastern Total
States America Hemisphere Worldwide
============================================== ========== ========== ========== ==========
DECEMBER 31, 2001
Acquisition of properties
Proved $ 7 $ -- $ 19 $ 26
Unproved 46 -- 10 56
Exploration costs 57 60 54 171
Development costs 602 (c) 56 260 918
---------- ---------- ---------- ----------
$ 712 $ 116 $ 343 $ 1,171
============================================== ========== ========== ========== ==========
DECEMBER 31, 2000
Acquisition of properties
Proved $ 3,690 $ 42 $ 21 $ 3,753
Unproved 7 -- 1 8
Exploration costs 56 58 20 134
Development costs 339 (a,c) 32 208 579
---------- ---------- ---------- ----------
$ 4,092 $ 132 $ 250 $ 4,474
============================================== ========== ========== ========== ==========
DECEMBER 31, 1999
Acquisition of properties
Proved $ 26 $ -- $ 22 $ 48
Unproved 16 -- 2 18
Exploration costs 66 11 26 103
Development costs 126 12 164 302
---------- ---------- ---------- ----------
$ 234 $ 23 $ 214 $ 471
========== ========== ========== ==========
Share of equity investees' costs $ 18 $ 39 (b) $ 45 $ 102
============================================== ========== ========== ========== ==========
(a) Excludes costs related to the acquisition of CO2 properties.
(b) Includes amounts in Latin America and Canada.
(c) Excludes capitalized CO2 of $48 million in 2001 and $44 million in 2000.
64
The results of operations of Occidental's oil and gas producing activities,
which exclude oil and gas trading activities and items such as asset
dispositions, corporate overhead and interest, were as follows (in millions):
United Latin Eastern Total
States America (a) Hemisphere Worldwide
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2001
Revenues $ 3,471 $ 225 $ 1,323 (b) $ 5,019
Production costs 773 63 195 1,031
Exploration expenses 42 81 61 184
Other operating expenses 141 4 70 215
Depreciation, depletion and amortization 535 24 188 747
---------- ---------- ---------- ----------
PRETAX INCOME 1,980 53 809 2,842
Income tax expense(c) 530 18 458 (b) 1,006
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 1,450 $ 35 $ 351 $ 1,836
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2000
Revenues $ 2,762 $ 461 $ 1,567 (b) $ 4,790
Production costs 540 66 179 785
Exploration expenses 50 31 13 94
Other operating expenses 141 27 47 215
Depreciation, depletion and amortization 444 35 182 661
---------- ---------- ---------- ----------
PRETAX INCOME 1,587 302 1,146 3,035
Income tax expense(c) 366 147 538 (b) 1,051
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 1,221 $ 155 $ 608 $ 1,984
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
Revenues $ 1,011 $ 450 $ 1,042 (b) $ 2,503
Production costs 218 92 142 452
Exploration expenses 40 9 26 75
Other operating expenses 49 44 77 170
Other expense--asset write-downs -- 44 -- 44
Depreciation, depletion and amortization 290 57 207 554
---------- ---------- ---------- ----------
PRETAX INCOME 414 204 590 1,208
Income tax expense(c) 34 81 251 (b) 366
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 380 $ 123 $ 339 $ 842
========== ========== ========== ==========
Share of equity investees' results of operations(d) $ (1) $ (11)(e) $ 33 $ 21
========================================================== ========== ========== ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
received an agreed-upon fee per barrel of crude oil produced in 1999.
(b) Revenues and income tax expense include taxes owed by Occidental but paid
by governmental entities on its behalf.
(c) U.S. federal income taxes reflect expenses allocated for U.S. income tax
purposes only related to oil and gas activities, including allocated
interest and corporate overhead. Foreign income taxes were included in
geographic areas on the basis of operating results.
(d) Equity investee results of operations are reflected in the geographic area
in which the producing operation is located.
(e) Includes amounts in Latin America and Canada.
65
RESULTS PER UNIT OF PRODUCTION (Unaudited)
United Latin Eastern Total
States America Hemisphere Worldwide
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2001
Revenues from net production
Oil ($/bbl.) $ 22.76 $ 19.70 $ 28.83 (a) $ 24.48
========== ========== ========== ==========
Natural gas ($/Mcf) $ 6.52 $ -- $ 2.40 $ 6.25
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 28.22 $ 19.70 $ 28.15 (a) $ 27.73
Production costs 6.28 5.73 4.15 5.70
Exploration expenses .34 7.36 1.30 1.02
Other operating expenses 1.15 .36 1.49 1.19
Depreciation, depletion and amortization 4.35 2.18 4.00 4.13
---------- ---------- ---------- ----------
PRETAX INCOME 16.10 4.07 17.21 15.69
Income tax expense 4.31 1.64 9.74 (a) 5.56
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 11.79 $ 2.43 $ 7.47 $ 10.13
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2000
Revenues from net production
Oil ($/bbl.) $ 27.40 $ 25.85 $ 34.06 (a) $ 29.51
========== ========== ========== ==========
Natural gas ($/Mcf) $ 3.73 $ -- $ 2.02 $ 3.61
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 25.57 $ 25.85 $ 32.65 (a) $ 27.53
Production costs 5.00 3.67 3.73 4.51
Exploration expenses .46 1.72 .27 .54
Other operating expenses 1.31 1.50 .98 1.24
Depreciation, depletion and amortization 4.11 1.94 3.79 3.80
---------- ---------- ---------- ----------
PRETAX INCOME 14.69 17.02 23.88 17.44
Income tax expense 3.39 8.17 11.21 (a) 6.04
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 11.30 $ 8.85 $ 12.67 $ 11.40
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
Revenues from net production
Oil ($/bbl.) $ 16.56 $ 12.84 $ 20.32 (a) $ 17.06
========== ========== ========== ==========
Natural gas ($/Mcf) $ 2.09 $ -- $ 1.17 $ 2.02
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 14.24 $ 12.84 $ 19.66 (a) $ 15.74
Production costs 3.07 2.63 2.68 2.84
Exploration expenses .56 .25 .50 .47
Other operating expenses .69 1.25 1.45 1.07
Other expense--asset write-downs -- 1.25 -- .28
Depreciation, depletion and amortization 4.09 1.63 3.90 3.48
---------- ---------- ---------- ----------
PRETAX INCOME 5.83 5.83 11.13 7.60
Income tax expense .48 2.30 4.73 (a) 2.30
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 5.35 $ 3.53 $ 6.40 $ 5.30
========================================================== ========== ========== ========== ==========
(a) Revenues and income tax expense include taxes owed by Occidental but paid
by governmental entities on its behalf; however, oil revenues from net
production per barrel, as shown in the "Management's Discussion and
Analysis," excludes these taxes.
(b) Natural gas volumes have been converted to equivalent barrels based on
energy content of six Mcf of gas to one barrel of oil.
(c) Revenues from net production exclude royalty payments and other
adjustments.
66
2001 QUARTERLY FINANCIAL DATA (Unaudited) Occidental Petroleum Corporation
In millions, except per-share amounts and Subsidiaries
Three months ended MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
======================================================== ============ ============ ============ ============
Segment net sales
Oil and gas $ 3,612 $ 2,964 $ 2,521 $ 1,796
Chemical 863 881 764 584
------------ ------------ ------------ ------------
Net sales $ 4,475 $ 3,845 $ 3,285 $ 2,380
============ ============ ============ ============
Gross profit $ 1,186 $ 1,095 $ 868 $ 413
============ ============ ============ ============
Segment earnings(loss)
Oil and gas $ 946 $ 806 $ 927 $ 166
Chemical (79) 58 40 (413)
------------ ------------ ------------ ------------
867 864 967 (247)
Unallocated corporate items
Interest expense, net (76) (71) (60) (56)
Income taxes (175) (249) (129) 187
Trust preferred distributions and other (16) (14) (13) (13)
Other (89) (57) (321) (113)
------------ ------------ ------------ ------------
Income before extraordinary items 511 473 444 (242)
Extraordinary loss, net (3) -- -- (5)
Cumulative effect of changes in accounting principles,
net (24) -- -- --
------------ ------------ ------------ ------------
Net income $ 484 (a) $ 473 (b) $ 444 (c) $ (247)(d)
============ ============ ============ ============
Basic earnings per common share
Income before extraordinary items $ 1.38 $ 1.27 $ 1.19 $ (.65)
Extraordinary loss, net (.01) -- -- (.01)
Cumulative effect of changes in accounting
principles, net (.06) -- -- --
------------ ------------ ------------ ------------
Basic earnings per common share $ 1.31 $ 1.27 $ 1.19 $ (.66)
============ ============ ============ ============
Diluted earnings per common share
Income before extraordinary items $ 1.37 $ 1.26 $ 1.18 $ (.65)
Extraordinary loss, net (.01) -- -- (.01)
Cumulative effect of changes in accounting
principles, net (.06) -- -- --
------------ ------------ ------------ ------------
Diluted earnings per common share $ 1.30 $ 1.26 $ 1.18 $ (.66)
============ ============ ============ ============
Dividends per common share $ .25 $ .25 $ .25 $ .25
============ ============ ============ ============
Market price per common share
High $ 26.39 $ 31.08 $ 28.55 $ 26.93
Low $ 22.10 $ 24.39 $ 21.90 $ 23.56
======================================================== ============ ============ ============ ============
(a) Includes $26 million after-tax in special items for severance and plant
write-downs and an increase in environmental reserves, $24 million
after-tax charge for a change in accounting standards for derivatives.
(b) Includes a $7 million gain, net of tax, from the sale of additional
interest in the Gulf of Mexico.
(c) Includes a net after-tax gain of $127 million from the sale of interest in
the Tangguh LNG project and the sale of the entity that leased a pipeline
in Texas to Occidental's former MidCon subsidiary.
(d) Includes a $240 million after-tax write-down related to the agreement in
principle to sell Occidental's interest in Equistar, a $60 million pre-tax
charge for environmental remediation expenses, an $11 million pre-tax
charge to idle a chemical facility in Texas, a $5 million after-tax
extraordinary loss from early debt extinguishments and a $14 million
benefit from lower effective state tax rates.
67
2000 QUARTERLY FINANCIAL DATA (Unaudited) Occidental Petroleum Corporation
In millions, except per-share amounts and Subsidiaries
Three months ended March 31 June 30 September 30 December 31
=============================================== ============ ============ ============ ============
Segment net sales
Oil and gas $ 1,534 $ 2,128 $ 2,972 $ 3,145
Chemical 1,040 1,067 891 797
------------ ------------ ------------ ------------
Net sales $ 2,574 $ 3,195 $ 3,863 $ 3,942
============ ============ ============ ============
Gross profit $ 787 $ 952 $ 1,036 $ 967
============ ============ ============ ============
Segment earnings(loss)
Oil and gas $ 394 $ 557 $ 696 $ 770
Chemical 143 34 47 (55)
------------ ------------ ------------ ------------
537 591 743 715
Unallocated corporate items
Interest expense, net (99) (104) (97) (80)
Income taxes (150) (349) (169) (193)
Trust preferred distributions and other (17) (16) (17) (17)
Other -- 442 (59) (92)
------------ ------------ ------------ ------------
Income before extraordinary items 271 564 401 333
Extraordinary gain, net -- -- 1 --
------------ ------------ ------------ ------------
Net income $ 271 (a) $ 564 (b) $ 402 (c) $ 333 (d)
============ ============ ============ ============
Basic earnings per common share
Income before extraordinary items $ 0.74 $ 1.53 $ 1.09 $ 0.90
Extraordinary gain, net -- -- -- --
------------ ------------ ------------ ------------
Basic earnings per common share $ 0.74 $ 1.53 $ 1.09 $ 0.90
============ ============ ============ ============
Diluted earnings per common share
Income before extraordinary items $ 0.74 $ 1.53 $ 1.09 $ 0.90
Extraordinary gain, net -- -- -- --
------------ ------------ ------------ ------------
Diluted earnings per common share $ 0.74 $ 1.53 $ 1.09 $ 0.90
============ ============ ============ ============
Dividends per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25
============ ============ ============ ============
Market price per common share
High $ 22.38 $ 24.13 $ 24.46 $ 25.50
Low $ 15.75 $ 20.13 $ 18.69 $ 19.38
=============================================== ============ ============ ============ ============
(a) Includes an insurance dividend of $11 million.
(b) Includes a gain of $493 million related to the sale of CanadianOxy and a
charge of $120 million to write-down the chemical intermediate businesses.
(c) Includes an after-tax gain of $39 million related to the sale of an
interest in Occidental's Gulf of Mexico assets, an after-tax gain of $41
million on the receipt of a contingency payment related to a prior-year
sale of a Dutch North Sea subsidiary, and a charge of $53 million for the
write-down of various oil and gas assets and investments and a write-down
of a building of $21 million.
(d) Includes a $13 million gain on sale of the Durez business, a charge of $17
million related to a litigation settlement, a charge of $15 million related
to a write-down of various chemical assets and an after-tax loss of $2
million on the abandonment of a foreign investment.
68
SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)
The following tables set forth Occidental's net interests in quantities of
proved developed and undeveloped reserves of crude oil, condensate and natural
gas and changes in such quantities. Crude oil reserves (in millions of barrels)
include condensate. The reserves are stated after applicable royalties.
Estimates of reserves have been made by Occidental engineers. These estimates
include reserves in which Occidental holds an economic interest under service
contracts, production sharing contracts and other arrangements.
RESERVES
Oil in millions of barrels, natural gas in billions of cubic feet
United Latin Eastern Total
States America Hemisphere Worldwide
---------------- ---------------- ---------------- ----------------
Oil Gas Oil (a) Gas Oil Gas Oil Gas
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
PROVED DEVELOPED AND UNDEVELOPED RESERVES
BALANCE AT DECEMBER 31, 1998 445 1,898 194 -- 427 251 1,066 2,149
Revisions of previous estimates 2 111 78 -- (65) 12 15 123
Improved recovery 32 54 -- -- 9 -- 41 54
Extensions and discoveries 31 49 -- -- 9 -- 40 49
Purchases of proved reserves 3 66 -- -- 8 -- 11 66
Sales of proved reserves (22) (130) -- -- (2) (158) (24) (288)
Production (27) (242) (35) -- (50) (19) (112) (261)
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 1999 464 1,806 237 -- 336 86 1,037 1,892
Revisions of previous estimates 29 179 12 -- 22 44 63 223
Improved recovery 41 25 -- -- 1 -- 42 25
Extensions and discoveries 24 108 5 -- 7 4 36 112
Purchases of proved reserves 881 417 19 -- -- -- 900 417
Sales of proved reserves (30) (200) (120) -- -- -- (150) (200)
Production (63) (241) (18) -- (44) (18) (125) (259)
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 2000 1,346 2,094 135 -- 322 116 1,803 2,210
Revisions of previous estimates (14) (53) 10 -- 33 4 29 (49)
Improved recovery 92 23 -- -- 47 -- 139 23
Extensions and discoveries 22 118 10 -- 24 4 56 122
Purchases of proved reserves 3 4 -- -- -- -- 3 4
Sales of proved reserves -- (1) -- -- -- -- -- (1)
Production (78) (223) (11) -- (44) (18) (133) (241)
- ------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 2001 1,371 1,962 144 -- 382 106 1,897 2,068
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES'
RESERVES
December 31, 1998 5 49 44 (b) 138 (b) 34 -- 83 187
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1999 6 46 45 (b) 133 (b) 36 -- 87 179
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
PROVED DEVELOPED RESERVES
December 31, 1998 367 1,836 171 -- 306 190 844 2,026
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1999 339 1,670 153 -- 245 61 737 1,731
===== ===== ===== ===== ===== ===== ===== =====
December 31, 2000 1,079 1,814 82 -- 249 84 1,410 1,898
===== ===== ===== ===== ===== ===== ===== =====
DECEMBER 31, 2001 1,106 1,718 83 -- 283 89 1,472 1,807
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES'
RESERVES
December 31, 1998 5 48 35 (b) 127 (b) 24 -- 64 175
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1999 5 41 36 (b) 115 (b) 21 -- 62 156
=========================================== ===== ===== ===== ===== ===== ===== ===== =====
(a) Portions of these reserves are being produced pursuant to exclusive service
contracts.
(b) Includes amounts in Latin America and Canada.
69
STANDARDIZED MEASURE, INCLUDING YEAR-TO-YEAR CHANGES THEREIN, OF DISCOUNTED
FUTURE NET CASH FLOWS
For purposes of the following disclosures, estimates were made of
quantities of proved reserves and the periods during which they are expected to
be produced. Future cash flows were computed by applying year-end prices to
Occidental's share of estimated annual future production from proved oil and gas
reserves, net of royalties. Future development and production costs were
computed by applying year-end costs to be incurred in producing and further
developing the proved reserves. Future income tax expenses were computed by
applying, generally, year-end statutory tax rates (adjusted for permanent
differences, tax credits, allowances and foreign income repatriation
considerations) to the estimated net future pre-tax cash flows. The discount was
computed by application of a 10 percent discount factor. The calculations
assumed the continuation of existing economic, operating and contractual
conditions at each of December 31, 2001, 2000 and 1999. However, such arbitrary
assumptions have not necessarily proven to be the case in the past. Other
assumptions of equal validity would give rise to substantially different
results.
The year-end prices used to calculate future cash flows vary by producing
area and market conditions. For the 2001, 2000 and 1999 disclosures, the West
Texas Intermediate oil prices used were $19.84/bbl, $26.80/bbl and $25.60/bbl,
respectively. The NYMEX gas prices used for the 2001, 2000 and 1999 disclosures
were $2.57/MMBtu, $9.78/MMBtu and $2.32/MMBtu, respectively.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
In millions
United Latin Eastern Total
States America (a) Hemisphere Worldwide
============================================================ ========== ========== ========== ==========
AT DECEMBER 31, 2001
Future cash flows $ 28,146 $ 2,119 $ 6,619 $ 36,884
Future costs
Production costs and other operating expenses (14,404) (821) (2,250) (17,475)
Development costs(b) (2,282) (200) (611) (3,093)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 11,460 1,098 3,758 16,316
Future income tax expense (2,224) (447) (458) (3,129)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 9,236 651 3,300 13,187
Ten percent discount factor (5,088) (188) (1,309) (6,585)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE $ 4,148 $ 463 $ 1,991 $ 6,602
============================================================ ========== ========== ========== ==========
AT DECEMBER 31, 2000
Future cash flows $ 53,195 $ 2,744 $ 6,868 $ 62,807
Future costs
Production costs and other operating expenses (13,236) (785) (1,767) (15,788)
Development costs(b) (1,962) (47) (539) (2,548)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 37,997 1,912 4,562 44,471
Future income tax expense (11,023) (896) (623) (12,542)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 26,974 1,016 3,939 31,929
Ten percent discount factor (14,608) (392) (1,585) (16,585)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE $ 12,366 $ 624 $ 2,354 $ 15,344
============================================================ ========== ========== ========== ==========
AT DECEMBER 31, 1999
Future cash flows $ 14,604 $ 3,619 $ 7,329 $ 25,552
Future costs
Production costs and other operating expenses (3,162) (754) (1,879) (5,795)
Development costs(b) (1,166) (185) (716) (2,067)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 10,276 2,680 4,734 17,690
Future income tax expense (2,306) (1,076) (345) (3,727)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 7,970 1,604 4,389 13,963
Ten percent discount factor (4,177) (624) (1,754) (6,555)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE 3,793 980 2,635 7,408
Share of equity investees' standardized measure 104 312 344 760
---------- ---------- ---------- ----------
STANDARDIZED MEASURE INCLUDING SHARE OF EQUITY INVESTEES'
STANDARDIZED MEASURE $ 3,897 $ 1,292 $ 2,979 $ 8,168
============================================================ ========== ========== ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
receives an agreed-upon fee per barrel of crude oil produced in 1999.
(b) Includes dismantlement and abandonment costs.
70
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
In millions
For the years ended December 31, 2001 2000 1999
================================================================================= ======== ======== ========
BEGINNING OF YEAR $ 15,344 $ 7,408 $ 3,369
-------- -------- --------
Sales and transfers of oil and gas produced, net of production costs and
other operating expenses (3,433) (3,546) (1,838)
Net change in prices received per barrel, net of production costs and other
operating expenses (12,850) 6,219 7,712
Extensions, discoveries and improved recovery, net of future production and
development costs 1,238 1,222 660
Change in estimated future development costs (923) (95) (299)
Revisions of quantity estimates 83 1,315 (808)
Development costs incurred during the period 913 576 298
Accretion of discount 1,910 783 308
Net change in income taxes 4,174 (3,954) (1,694)
Purchases and sales of reserves in place, net 19 5,927 (150)
Changes in production rates and other 127 (511) (150)
-------- -------- --------
NET CHANGE (8,742) 7,936 4,039
-------- -------- --------
END OF YEAR $ 6,602 $ 15,344 $ 7,408
================================================================================= ======== ======== ========
The information set forth below does not include information with respect
to operations of equity investees. The following table sets forth, for each of
the three years in the period ended December 31, 2001, Occidental's approximate
average sales prices and average production costs of oil and gas. Production
costs are the costs incurred in lifting the oil and gas to the surface and
include gathering, treating, primary processing, field storage, property taxes
and insurance on proved properties, but do not include depreciation, depletion
and amortization, royalties, income taxes, interest, general and administrative
and other expenses.
AVERAGE SALES PRICES AND AVERAGE PRODUCTION COSTS OF OIL AND GAS
United Latin Eastern
For the years ended December 31, States America (a,b) Hemisphere (a)
================================================================= ========== ========== ==========
2001
Oil -- Average sales price ($/bbl.) $ 21.74 $ 19.95 $ 21.32
Gas -- Average sales price ($/Mcf) $ 6.40 $ -- $ 2.29
Average oil and gas production cost ($/bbl.)(c) $ 6.28 $ 5.73 $ 4.15
- ----------------------------------------------------------------- ---------- ---------- ----------
2000
Oil -- Average sales price ($/bbl.) $ 26.66 $ 26.01 $ 25.14
Gas -- Average sales price ($/Mcf) $ 3.66 $ -- $ 1.99
Average oil and gas production cost ($/bbl.)(c) $ 5.00 $ 3.67 $ 3.73
- ----------------------------------------------------------------- ---------- ---------- ----------
1999
Oil -- Average sales price ($/bbl.) $ 15.81 $ 13.20 $ 15.86
Gas -- Average sales price ($/Mcf) $ 2.09 $ -- $ 1.17
Average oil and gas production cost ($/bbl.)(c) $ 3.07 $ 2.63 $ 2.68
- ----------------------------------------------------------------- ---------- ---------- ----------
(a) Sales prices include royalties with respect to certain of Occidental's
interests.
(b) Sales prices include fees received under service contracts.
(c) Natural gas volumes have been converted to equivalent barrels based on
energy content of six Mcf of gas to one barrel of oil.
71
The following table sets forth, for each of the three years in the period
ended December 31, 2001, Occidental's net productive and dry-exploratory and
development wells completed.
NET PRODUCTIVE AND DRY -- EXPLORATORY AND DEVELOPMENT WELLS COMPLETED
United Latin Eastern Total
For the years ended December 31, States America Hemisphere Worldwide
=============================================== ========== ========== ========== ==========
2001
Oil -- Exploratory 3.0 -- 3.1 6.1
Development 432.1 14.0 60.4 506.5
Gas -- Exploratory 7.8 -- -- 7.8
Development 38.1 -- .5 38.6
Dry -- Exploratory 10.1 .9 1.8 12.8
Development 34.7 -- .3 35.0
- ----------------------------------------------- ---------- ---------- ---------- ----------
2000
Oil -- Exploratory 1.6 1.3 -- 2.9
Development 273.9 8.1 119.0 401.0
Gas -- Exploratory 3.4 -- 0.6 4.0
Development 32.9 -- 4.3 37.2
Dry -- Exploratory 1.2 2.7 1.0 4.9
Development 25.3 -- 1.2 26.5
- ----------------------------------------------- ---------- ---------- ---------- ----------
1999
Oil -- Exploratory 1.0 -- -- 1.0
Development 76.8 5.4 105.1 187.3
Gas -- Exploratory -- -- .5 .5
Development 13.4 -- 4.5 17.9
Dry -- Exploratory 1.9 -- -- 1.9
Development 13.3 -- 1.1 14.4
- ----------------------------------------------- ---------- ---------- ---------- ----------
The following table sets forth, as of December 31, 2001, Occidental's
productive oil and gas wells (both producing wells and wells capable of
production). The numbers in parentheses indicate the number of wells with
multiple completions.
PRODUCTIVE OIL AND GAS WELLS
United Latin Eastern Total
Wells at December 31, 2001 States America Hemisphere Worldwide
======================================= ============ ============ ============ ============
Oil -- Gross(a) 16,673 (246) 241 (--) 951 (72) 17,865 (318)
Net(b) 11,413 (167) 114 (--) 517 (47) 12,044 (214)
Gas -- Gross(a) 2,226 (20) -- (--) 32 (1) 2,258 (21)
Net(b) 1,858 (13) -- (--) 13 (1) 1,871 (14)
- --------------------------------------- ------------ ------------ ------------ ------------
(a) The total number of wells in which interests are owned or which are
operated under service contracts.
(b) The sum of fractional interests.
The following table sets forth, as of December 31, 2001, Occidental's
participation in exploratory and development wells being drilled.
PARTICIPATION IN EXPLORATORY AND DEVELOPMENT WELLS BEING DRILLED
United Latin Eastern Total
Wells at December 31, 2001 States America Hemisphere Worldwide
=============================================== ========== ========== ========== ==========
Exploratory and development wells -- Gross 35 5 11 51
Net 24 3 5 32
- ----------------------------------------------- ---------- ---------- ---------- ----------
At December 31, 2001, Occidental was participating in 115 pressure
maintenance projects in the United States, 4 in Latin America and 16 in the
Eastern Hemisphere.
72
The following table sets forth, as of December 31, 2001, Occidental's
holdings of developed and undeveloped oil and gas acreage.
OIL AND GAS ACREAGE
United Latin Eastern Total
Thousands of acres at December 31, 2001 States America Hemisphere Worldwide
=============================================== ========== ========== ========== ==========
Developed(a) -- Gross(b) 3,622 20 1,198 4,840
Net(c) 2,760 10 408 3,178
- ----------------------------------------------- ---------- ---------- ---------- ----------
Undeveloped(d) -- Gross(b) 1,536 8,853 24,000 34,389
Net(c) 1,116 7,423 11,441 19,980
- ----------------------------------------------- ---------- ---------- ---------- ----------
(a) Acres spaced or assigned to productive wells.
(b) Total acres in which interests are held.
(c) Sum of the fractional interests owned based on working interests, or shares
of production if under production-sharing agreements.
(d) Acres on which wells have not been drilled or completed to a point that
would permit the production of commercial quantities of oil and gas,
regardless of whether the acreage contains proved reserves.
The following table sets forth, for each of the three years in the period
ended December 31, 2001, Occidental's U.S. oil, NGL and natural gas production.
OIL AND NATURAL GAS PRODUCTION -- U.S.
Liquids Production Natural Gas Production
Thousands of barrels per day Millions of cubic feet per day
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
===================================== ======== ======== ======== ======== ======== ========
California 76 70 52 303 306 287
Permian 137 101 13 148 119 55
Hugoton -- -- -- 159 168 172
Others -- 1 8 -- 66 148
-------- -------- -------- -------- -------- --------
TOTAL 213 172 73 610 659 662
===================================== ======== ======== ======== ======== ======== ========
The following table sets forth, for each of the three years in the period
ended December 31, 2001, Occidental's international oil and natural gas
production.
OIL AND NATURAL GAS PRODUCTION -- INTERNATIONAL
Oil Production Natural Gas Production
Thousands of barrels per day Millions of cubic feet per day
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
===================================== ======== ======== ======== ======== ======== ========
Bangladesh -- -- -- -- -- 8
Colombia 18 32 43 -- -- --
Ecuador 13 17 15 -- -- --
Oman 12 9 15 -- -- --
Pakistan 7 6 5 50 49 44
Peru -- -- 38 -- -- --
Qatar 43 49 58 -- -- --
Russia 27 26 27 -- -- --
Yemen 33 32 32 -- -- --
-------- -------- -------- -------- -------- --------
TOTAL 153 171 233 50 49 52
===================================== ======== ======== ======== ======== ======== ========
73
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Unaudited) Occidental Petroleum Corporation
In millions and Subsidiaries
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
================================================ ========== ========== ========== ========== ==========
2001
Allowance for doubtful accounts $ 25 $ 12 $ -- $ (2) $ 35
========== ========== ========== ========== ==========
Environmental $ 402 $ 109 $ 18 $ (75)(a) $ 454
Foreign and other taxes, litigation and other
reserves 1,001 10 27 (108) 930
---------- ---------- ---------- ---------- ----------
$ 1,403 $ 119 $ 45 $ (183) $ 1,384 (b)
================================================ ========== ========== ========== ========== ==========
2000
Allowance for doubtful accounts $ 24 $ 2 $ -- $ (1) $ 25
========== ========== ========== ========== ==========
Environmental $ 454 $ -- $ 23 $ (75)(a) $ 402
Foreign and other taxes, litigation and other
reserves 857 42 231 (129) 1,001
---------- ---------- ---------- ---------- ----------
$ 1,311 $ 42 $ 254 $ (204) $ 1,403 (b)
================================================ ========== ========== ========== ========== ==========
1999
Allowance for doubtful accounts $ 23 $ 2 $ -- $ (1) $ 24
========== ========== ========== ========== ==========
Environmental $ 578 $ -- $ 11 $ (135)(a) $ 454
Foreign and other taxes, litigation and other
reserves 801 164 1 (109) 857
---------- ---------- ---------- ---------- ----------
$ 1,379 $ 164 $ 12 $ (244) $ 1,311 (b)
================================================ ========== ========== ========== ========== ==========
(a) Primarily represents payments.
(b) Of these amounts, $165 million, $143 million and $155 million in 2001, 2000
and 1999, respectively, is classified as current.
74
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) AND (2). FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference is made to the Index to Financial Statements and Related Information
under Item 8 in Part II hereof, where these documents are listed.
(a)(3). EXHIBITS
3.(i)* Restated Certificate of Incorporation of Occidental, dated
November 12, 1999 (filed as Exhibit 3.(i) to the Annual Report on
Form 10-K of Occidental for the fiscal year ended December 31,
1999, File No. 1-9210).
3.(i)(a)* Certificate of Change of Location of Registered Office and of
Registered Agent, dated July 6, 2001. (filed as Exhibit 3.1(i) to
the Registration Statement on Form S-3 of Occidental, File No.
333-82246).
3.(ii)* Bylaws of Occidental, as amended through April 30, 1999 (filed as
Exhibit 3.(ii) to the Registration Statement on Form S-8 of
Occidental, File No. 333-78031).
4.1* Occidental Petroleum Corporation Five-Year Credit Agreement,
dated as of January 4, 2001 among Occidental, Chase Securities
Inc. and Banc of America Securities, LLC, as Co-Lead Arrangers,
The Chase Manhattan Bank, as Syndication Agent, Bank of America,
N.A. and ABN Amro Bank N.V., as Co-Documentation Agents, and The
Bank of Nova Scotia, as Administrative Agent (filed as Exhibit
4.1 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 2000, File No. 1-9210).
4.2* Indenture (Senior Debt Securities), dated as of April 1, 1998,
between Occidental and The Bank of New York, as Trustee (filed as
Exhibit 4 to the Registration Statement on Form S-3 of
Occidental, File No. 333-52053).
4.3* Specimen certificate for shares of Common Stock (filed as Exhibit
4.9 to the Registration Statement on Form S-3 of Occidental, File
No. 333-82246).
4.4 Instruments defining the rights of holders of other long-term
debt of Occidental and its subsidiaries are not being filed since
the total amount of securities authorized under each of such
instruments does not exceed 10 percent of the total assets of
Occidental and its subsidiaries on a consolidated basis.
Occidental agrees to furnish a copy of any such instrument to the
Commission upon request.
All of the Exhibits numbered 10.1 to 10.42 are management contracts and
compensatory plans required to be identified specifically as responsive to Item
601(b)(10)(iii)(A) of Regulation S-K pursuant to Item 14(c) of Form 10-K.
10.1* Employment Agreement, dated as of December 13, 2001, between
Occidental and J. Roger Hirl (filed as Exhibit 10.1 to the
Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 2001, File No. 1-9210).
10.2* Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Ray R. Irani (filed as Exhibit 10.2 to the
Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 2000, File No. 1-9210).
10.3* Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Dale R. Laurance (filed as Exhibit 10.3 to the
Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 2000, File No. 1-9210).
10.4* Employment Agreement, dated as of November 17, 2000, between
Occidental and Stephen I. Chazen (filed as Exhibit 10.4 to the
Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 2000, File No. 1-9210).
10.5* Employment Agreement, dated April 3, 1998, between Occidental and
Donald P. de Brier (filed as Exhibit 10.7 to the Annual Report on
Form 10-K of Occidental for the fiscal year ended December 31,
1999, File No. 1-9210).
10.6* Amendment, dated November 17, 2000, to Employment Agreement,
dated April 3, 1998, between Occidental and Donald P. de Brier
(filed as Exhibit 10.6 to the Annual Report on Form 10-K of
Occidental for the fiscal year ended December 31, 2000, File No.
1-9210).
10.7* Form of Indemnification Agreement between Occidental and each of
its directors and certain executive officers (filed as Exhibit B
to the Proxy Statement of Occidental for its May 21, 1987, Annual
Meeting of Stockholders, File No. 1-9210).
- --------------------
*Incorporated herein by reference
75
10.8* Occidental Petroleum Corporation Split Dollar Life Insurance
Program and Related Documents (filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended September 30, 1994, File No. 1-9210).
10.9* Occidental Petroleum Insured Medical Plan, as amended and
restated effective April 29, 1994, amending and restating the
Occidental Petroleum Corporation Executive Medical Plan (as
amended and restated effective April 1, 1993) (filed as Exhibit
10 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ending March 31, 1994, File No. 1-9210).
10.10* Occidental Petroleum Corporation 1987 Stock Option Plan, as
amended through April 29, 1992 (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended March 31, 1992, File No. 1-9210).
10.11* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.2 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.12* Form of Nonqualified Stock Option Agreement, with Stock
Appreciation Right, under Occidental Petroleum Corporation 1987
Stock Option Plan (filed as Exhibit 10.3 to the Quarterly Report
on Form 10-Q of Occidental for the quarterly period ended March
31, 1992, File No. 1-9210).
10.13* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.4 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.14* Form of Incentive Stock Option Agreement, with Stock Appreciation
Right, under Occidental Petroleum Corporation 1987 Stock Option
Plan (filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q
of Occidental for the quarterly period ended March 31, 1992, File
No. 1-9210).
10.15* Occidental Petroleum Corporation Deferred Compensation Plan,
Amended and Restated Effective as of January 1, 1999 (filed as
Exhibit 10.4 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended March 31, 2001, File No. 1-9210).
10.16* Occidental Petroleum Corporation Senior Executive Deferred
Compensation Plan (effective as of January 1, 1986, as amended
and restated effective as of January 1, 1996) (filed as Exhibit
10.24 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.17* Occidental Petroleum Corporation Senior Executive Supplemental
Life Insurance Plan (effective as of January 1, 1986, as amended
and restated effective as of January 1, 1996) (filed as Exhibit
10.25 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.18* Occidental Petroleum Corporation Senior Executive Supplemental
Retirement Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996) (filed as Exhibit 10.26
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1995, File No. 1-9210).
10.19* Amendment to Occidental Petroleum Corporation Senior Executive
Supplemental Retirement Plan (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended June 30, 1998, File No. 1-9210).
10.20* Occidental Petroleum Corporation Senior Executive Survivor
Benefit Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996) (filed as Exhibit 10.27
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1995, File No. 1-9210).
10.21* Occidental Petroleum Corporation 1995 Incentive Stock Plan, as
amended (filed as Exhibit 10.28 to the Annual Report on Form 10-K
of Occidental for the fiscal year ended December 31, 1999, File
No. 1-9210).
10.22* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
99.2 to the Registration Statement on Form S-8 of Occidental,
File No. 33-64719).
10.23* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
99.3 to the Registration Statement on Form S-8 of Occidental,
File No. 33-64719).
10.24* Form of Stock Appreciation Rights Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
99.4 to the Registration Statement on Form S-8 of Occidental,
File No. 33-64719).
10.25* Form of Restricted Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.5 to
the Registration Statement on Form S-8 of Occidental, File No.
33-64719).
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*Incorporated herein by reference
76
10.26* Form of Performance Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.6 to
the Registration Statement on Form S-8 of Occidental, File No.
33-64719).
10.27* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
10.2 to the Current Report on Form 8-K of Occidental, dated
January 6, 1999 (date of earliest event reported), filed January
6, 1999, File No. 1-9210, amends Form previously filed as Exhibit
10.1 to the Registration Statement on Form S-8 of Occidental,
File No. 33-64719 and incorporated by reference as Exhibit 10.39
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1997, File No. 1-9210).
10.28* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
10.3 to the Current Report on Form 8-K of Occidental, dated
January 6, 1999 (date of earliest event reported), filed January
6, 1999, File No. 1-9210, amends Form previously filed as Exhibit
10.2 to the Registration Statement on Form S-8 of Occidental,
File No. 33-64719 and incorporated by reference as Exhibit 10.40
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1997, File No. 1-9210).
10.29* Form of Incentive Stock Option Agreement (With Accelerated
Performance Vesting) under Occidental Petroleum Corporation 1995
Incentive Stock Plan (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
June 30, 1999, File No. 1-9210).
10.30* Form of Nonqualified Stock Option Agreement (With Accelerated
Performance Vesting) under Occidental Petroleum Corporation 1995
Incentive Stock Plan (filed as Exhibit 10.3 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
June 30, 1999, File No. 1-9210).
10.31* Form of 1997 Performance Stock Option Agreement under the 1995
Incentive Stock Plan of Occidental Petroleum Corporation (filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Occidental for the quarterly period ended June 30, 1997, File No.
1-9210).
10.32* Form of Amendment to 1997 Performance Stock Option Agreement
under the 1995 Incentive Stock Plan of Occidental Petroleum
Corporation (filed as Exhibit 10.43 to the Annual Report on Form
10-K of Occidental for the fiscal year ended December 31, 1999,
File No. 1-9210).
10.33* Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (as amended April 28, 2000) (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended March 31, 2000, File No. 1-9210).
10.34* Form of Restricted Stock Option Assignment under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee
Directors (filed as Exhibit 99.2 to the Registration Statement on
Form S-8 of Occidental, File No. 333-02901).
10.35* Occidental Petroleum Corporation 1988 Deferred Compensation Plan
(as amended and restated effective as of January 1, 1996) (filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Occidental for the fiscal quarter ended September 30, 1996, File
No. 1-9210).
10.36* Occidental Petroleum Corporation Supplemental Retirement Plan,
Amended and Restated Effective as of January 1, 1999, reflecting
amendments effective through March 1, 2001] (filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 2001, File No. 1-9210).
10.37* Occidental Petroleum Corporation 2001 Incentive Compensation
Plan, as amended (filed as Exhibit 10.1 to the Quarterly Report
on Form 10-Q of Occidental for the quarterly period ended March
31, 2001, File No. 1-9210).
10.38* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended September 30, 2001, File No.
1-9210).
10.39* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan (filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended September 30, 2001, File No.
1-9210).
10.40* Form of Restricted Common Share Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan (filed as
Exhibit 10.40 to the Annual Report on Form 10-K of Occidental for
the fiscal year ended December 31, 2001, File No. 1-9210)
10.41* Form of Performance Based Stock Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan (filed as
Exhibit 10.41 to the Annual Report on Form 10-K of Occidental for
the fiscal year ended December 31, 2001, File No. 1-9210).
10.42* Occidental Petroleum Corporation Executive Incentive Compensation
Plan (filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q
of Occidental for the quarterly period ended March 31, 2001, File
No. 1-9210).
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*Incorporated herein by reference
77
10.43* Master Transaction Agreement, dated May 15, 1998, by and among
Equistar Chemicals, LP, Occidental, Lyondell Petrochemical
Company and Millennium Chemicals Inc. (filed as Exhibit 10.1 to
the Current Report on Form 8-K of Occidental dated May 15, 1998
(date of earliest event reported), filed May 29, 1998, File No.
1-9210).
10.44* Amended and Restated Limited Partnership Agreement of Equistar
Chemicals, LP, dated May 15, 1998, by and among the partners
named therein (filed as Exhibit 10.2 to the Current Report on
Form 8-K of Occidental dated May 15, 1998 (date of earliest event
reported), filed May 29, 1998, File No. 1-9210).
10.45* Agreement and Plan of Merger and Asset Contribution, dated as of
May 15, 1998, by and among Equistar Chemicals, LP, Occidental
Petrochem Partner 1, Inc., Occidental Petrochem Partner 2, Inc.,
Oxy Petrochemicals Inc. and PDG Chemical Inc. (filed as Exhibit
10.3 to the Current Report on Form 8-K of Occidental dated May
15, 1998 (date of earliest event reported), filed May 29, 1998,
File No. 1-9210).
10.46* Amended and Restated Parent Agreement, dated as of May 15, 1998,
among Occidental Chemical Corporation, Oxy CH Corporation,
Occidental, Lyondell Petrochemical Company, Millennium Chemicals
Inc. and Equistar Chemicals, LP (filed as Exhibit 10.4 to the
Current Report on Form 8-K of Occidental dated May 15, 1998 (date
of earliest event reported), filed May 29, 1998, File No.
1-9210).
10.47* Purchase and Sale Agreement dated March 7, 2000, by and among
Amoco D. T. Company, Amoco X. T. Company, Amoco Y. T. Company,
SWEPI LP, Shell Land & Energy Company, Shell Onshore Ventures
Inc., Shell K2 Inc., and Shell Everest, Inc., as Sellers, and
Occidental Petroleum Corporation, as Buyer (filed as Exhibit 10.1
to the Current Report on Form 8-K of Occidental dated March 7,
2000 (date of earliest event reported), filed March 15, 2000,
File No. 1-9210).
12* Statement regarding computation of total enterprise ratios of
earnings to fixed charges for the five years ended December 31,
2001 (filed as Exhibit 12 to the Annual Report on Form 10-K of
Occidental for the fiscal year ended December 31, 2001, File No.
1-9210).
21* List of subsidiaries of Occidental at December 31, 2001 (filed as
Exhibit 21 to the Annual Report on Form 10-K of Occidental for
the fiscal year ended December 31, 2001, File No. 1-9210).
23 Independent Auditors' Consent.
(b) REPORTS ON FORM 8-K
During the fourth quarter of 2001, Occidental filed the following Current
Reports on Form 8-K:
1. Current Report on Form 8-K dated October 16, 2001 (date of earliest
event reported), filed on October 16, 2001, for the purpose of reporting, under
Item 9, a presentation by Dr. Ray R. Irani, Chief Executive Officer, and Stephen
I. Chazen, Chief Financial Officer and Executive Vice President - Corporate
Development.
2. Current Report on Form 8-K dated October 17, 2001 (date of earliest
event reported), filed on October 17, 2001, for the purpose of reporting, under
Item 5, Occidental's results of operations for the third quarter ended September
30, 2000, and under Item 9, speeches and supplemental investor information
relating to Occidental's third quarter 2000 earnings announcement.
3. Current Report on Form 8-K dated November 29, 2001 (date of earliest
event reported), filed on December 3, 2001, for the purpose of reporting, under
Item 5, the filing of exhibits with respect to the sale of $300 million
aggregate principal amount of 5.875% Senior Notes due January 15, 2007, and $500
million aggregate principal amount of 6.750% Senior Notes due January 15, 2012,
and under Item 7, certain exhibits related to the sale.
During the first quarter of 2002 to March 13, 2002 (the date of filing of the
Annual Report on Form 10-K), Occidental filed the following Current Reports on
Form 8-K:
1. Current Report on Form 8-K dated January 8, 2002 (date of earliest event
reported), filed on January 8, 2002, for the purpose of reporting, under Item 9,
a presentation by Dr. Ray R. Irani, Chief Executive Officer.
2. Current Report on Form 8-K dated January 31, 2002 (date of earliest
event reported), filed on February 4, 2002, for the purpose of reporting, under
Item 5, an agreement in principle to sell Occidental's partnership interest in
Equistar Chemicals, LP, and Occidental's results of operations for the fourth
quarter and fiscal year ended December 31, 2001, and under Item 9, speeches and
supplemental investor information relating to Occidental's fourth quarter 2001
earnings announcement.
3. Current Report on Form 8-K dated March 6, 2002 (date of earliest event
reported), filed on March 7, 2002, for the purpose of reporting, under item 5,
the commencement of Occidental's program offering from time to time up to
$1,000,000,000 aggregate initial offering price of its Medium-Term Senior Notes,
Series C, and its Medium-Term Subordinated Notes, Series A, and under Item 7,
the filing of certain exhibits related to such program.
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*Incorporated herein by reference
78
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
(Registrant)
DATE: July 19, 2002 /s/ STEPHEN I. CHAZEN
-------------------------------------------------
Stephen I. Chazen, Executive Vice President -
Corporate Development and Chief Financial Officer
79
INDEX TO EXHIBITS
Exhibit
Number Description
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23 Independent Auditors' Consent
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors, Occidental Petroleum Corporation
We consent to the incorporation by reference in the registration statements
(Nos. 33-14662, 33-47636, 33-59395, 33-64719, 333-49207, 333-72719, 333-78031,
333-37970, 333-55404, 333-63444, 333-82246, and 333-83124) on Forms S-3 and S-8
of Occidental Petroleum Corporation of our report dated June 25, 2002, with
respect to the consolidated balance sheets of Occidental Petroleum Corporation
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2001 and the related
financial statement schedule, which report appears in the Form 10-K/A dated July
19, 2002 of Occidental Petroleum Corporation.
/s/ KPMG LLP
Los Angeles, California
July 19, 2002