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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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 1934 of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 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 Notes due 2001 New York Stock Exchange
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 (l) 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, 2001, was approximately $8.8 billion, based on the
closing price on the New York Stock Exchange composite tape of $23.99 per share
of Common Stock on February 28, 2001. 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, 2001, there were approximately 370,304,584 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, filed in connection
with its April 20, 2001, Annual Meeting of Stockholders, are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I Page
ITEMS 1 AND 2 Business and Properties.................................................................. 1
General.................................................................................. 1
Segment Information...................................................................... 1
Oil and Gas Operations................................................................... 1
Chemical Operations...................................................................... 5
Capital Expenditures..................................................................... 11
Employees................................................................................ 11
Environmental Regulation................................................................. 11
ITEM 3 Legal Proceedings........................................................................ 11
Environmental Proceedings................................................................ 11
ITEM 4 Submission of Matters to a Vote of Security Holders...................................... 12
Executive Officers of the Registrant..................................................... 12
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters.................... 13
ITEM 6 Selected Financial Data.................................................................. 14
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations (Incorporating Item 7A)....................................................... 14
2000 Business Environment................................................................ 14
Strategic Overview and Review of Business Results - 1998 - 2000.......................... 15
2001 Outlook............................................................................. 19
Income Summary........................................................................... 19
Segment Operations....................................................................... 19
Special Items............................................................................ 21
Consolidated Operations - Revenues....................................................... 21
Consolidated Operations - Expenses....................................................... 22
Liquidity and Capital Resources.......................................................... 22
Analysis of Financial Position........................................................... 23
Acquisitions, Dispositions and Commitments............................................... 25
Derivative Activities.................................................................... 27
Taxes.................................................................................... 28
Lawsuits, Claims, Commitments, Contingencies and Related Matters......................... 28
Environmental Expenditures............................................................... 28
Foreign Investments...................................................................... 29
Accounting Changes....................................................................... 29
Safe Harbor Statement Regarding Outlook and Other Forward-Looking Data................... 30
Report of Management..................................................................... 30
ITEM 8 Financial Statements and Supplementary Data.............................................. 31
Report of Independent Public Accountants............................................ 31
Consolidated Statements of Operations............................................... 32
Consolidated Balance Sheets......................................................... 33
Consolidated Statements of Stockholders' Equity..................................... 35
Consolidated Statements of Comprehensive Income..................................... 35
Consolidated Statements of Cash Flows............................................... 36
Notes to Consolidated Financial Statements.......................................... 37
Quarterly Financial Data (Unaudited)................................................ 62
Supplemental Oil and Gas Information (Unaudited).................................... 64
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts..................................... 69
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 70
PART III
ITEM 10 Directors and Executive Officers of the Registrant....................................... 70
ITEM 11 Executive Compensation................................................................... 70
ITEM 12 Security Ownership of Certain Beneficial Owners and Management........................... 70
ITEM 13 Certain Relationships and Related Transactions........................................... 70
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 70
ii
PART I
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
GENERAL
Occidental Petroleum Corporation, a Delaware corporation ("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 specialty 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").
Occidental's executive offices are located at 10889 Wilshire Boulevard, Los
Angeles, California 90024; telephone (310) 208-8800.
Effective May 21, 1986, Occidental became the successor to a California
corporation of the same name organized in 1920. As used herein, the term
"Occidental" refers to Occidental alone or together with one or more of its
subsidiaries.
During 2000, Occidental continued its program to redeploy assets in its
worldwide oil and gas and chemical segments. For additional information
regarding these developments, see the information appearing below under the
captions "Oil and Gas Operations", "Chemical Operations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this report below.
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, 2000, see Note 16 to the Consolidated Financial Statements of
Occidental ("Consolidated Financial Statements"), which is included in this
report, and the information appearing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in this report.
OIL AND GAS OPERATIONS
MAJOR ACQUISITIONS AND DISPOSITIONS IN 2000
On April 18, 2000, Occidental sold its 29.2 percent common stock interest
in Canadian Occidental Petroleum Ltd., now renamed Nexen Inc. ("CanadianOxy" or
"Nexen") to CanadianOxy and the Ontario Teachers' Pension Plan Board for gross
proceeds of approximately $1.2 billion Canadian. In addition, Occidental
acquired CanadianOxy's interest in Occidental's oil producing properties in
Ecuador.
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura Energy Ltd. from the sellers, BP Amoco plc ("BP") and
Shell Oil Company. Altura Energy Ltd. was renamed Occidental Permian Ltd.
("OPL"), and this business was combined operationally with Occidental's existing
holdings in the Permian Basin of southwest Texas and southeast New Mexico. The
OPL acquisition added over 850 million barrels of proved net oil reserves and
about 142,000 barrels per day of net oil production, both on a BOE basis. In
December, Occidental obtained a low cost source of carbon dioxide for its floods
in the Permian Basin by completing its swap of its Milne Point oil assets in
Alaska for BP's interest in the Bravo Dome CO2 unit in New Mexico.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach
Inc., the owner of the operator of the Long Beach Unit in the Wilmington Field,
California, known as THUMS ("THUMS"), for approximately $68 million in cash. The
acquisition added approximately 95 million barrels of proved net oil reserves
and approximately 25,000 barrels per day of net oil production.
On August 15, 2000, Occidental completed agreements with respect to two
transactions with Apache Corporation involving Occidental's interests in the
Continental Shelf of the Gulf of Mexico ("GOM").
On November 1, 2000, Occidental completed a farm-out of a 40 percent
economic interest in Block 15 in Ecuador to Alberta Energy Company Ltd. ("AEC").
AEC will earn its 40 percent interest through the payment of certain capital
costs through 2004 and Occidental will remain the operator.
EXPLORATION AND PRODUCTION
GENERAL
Through its subsidiaries, 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 is also
conducting exploration and development activities in several of these countries,
as well as in Albania, Indonesia and Peru.
1
COMPARATIVE OIL AND GAS RESERVES AND PRODUCTION
Oil in millions of barrels; natural gas in billions of cubic feet
2000 1999 1998
============================ =============================== =============================== ===============================
OIL GAS TOTAL(a) OIL GAS TOTAL(a) OIL GAS TOTAL(a)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
U.S. Reserves 1,346 2,094 1,695 464 1,806 765 445 1,898 761
International Reserves 457 116 476 573 86 587 621 251 663
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 1,803 2,210 2,171 1,037 1,892 1,352 1,066 2,149 1,424
========= ========= ========= ========= ========= ========= ========= ========= =========
U.S. Production 63 241 104 27 242 67 29 224 66
International Production 62 18 65 85 19 89 88 32 94
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 125 259 169 112 261 156 117 256 160
============================ ========= ========= ========= ========= ========= ========= ========= ========= =========
(a) Natural gas volumes have been converted to equivalent barrels based on
energy content of 6,000 cubic feet (one thousand cubic feet shall be
referred to as an "Mcf") of gas to one barrel of oil.
RESERVES
At December 31, 2000, Occidental's oil and gas reserve base, on a barrels
of oil equivalent ("BOE") basis, was 2.171 billion equivalent barrels, compared
with 1.352 billion equivalent barrels at December 31, 1999. In 2000, Occidental,
excluding the effect of acquisitions and sales, replaced 119 percent of 2000
worldwide combined oil and natural gas production, on a BOE basis, of 169
million barrels. Proved reserve additions from all sources, including the net
effect of acquisitions and property sales, replaced 588 percent of 2000
production. Occidental's consolidated worldwide net proved developed and
undeveloped reserves of crude oil and condensate were 1.803 billion barrels at
year-end 2000, compared with 1.037 billion barrels at year-end 1999. Domestic
reserves of crude oil and condensate increased to 1.346 billion barrels at
year-end 2000, compared with 464 million barrels at year-end 1999, while
international crude oil reserves decreased to 457 million barrels from 573
million barrels at year-end 1999. This calculation of reserve additions does not
take into account dispositions of approximately 183 million barrels of oil
equivalent of proved reserves in Peru, Ecuador and the GOM during 2000.
Worldwide net proved developed and undeveloped reserves of natural gas were
approximately 2.2 trillion cubic feet ("Tcf") at year-end 2000, with 2.1 Tcf
attributable to domestic operations. Worldwide net proved developed and
undeveloped natural gas reserves were about 1.9 Tcf at the end of 1999.
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
exchange traded 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 Qatar, Yemen
and Colombia.
Occidental's oil and gas operations are affected by international, foreign,
federal, state and local laws and regulations relating to, among other things,
increases in taxes and royalties, production limits and environmental matters.
Portions of Occidental's oil and gas assets outside North America are
exposed to varying degrees of political and economic risk. Occidental conducts
its financial affairs so as to mitigate its exposure against such risks. At
December 31, 2000, the carrying value of Occidental's oil and gas assets in
countries outside North America aggregated approximately $1.7 billion, or
approximately 9 percent of Occidental's total assets at that date. Approximately
$1.2 billion of such assets were located in the Middle East, and approximately
$271 million of such assets were located in Latin America. Substantially all of
the remainder was located in Russia and Pakistan.
OIL AND GAS PRODUCTION AND MARKETING
Net daily worldwide oil and condensate production in 2000 averaged 343,000
barrels per day, compared with 306,400 barrels per day in 1999, and net
worldwide natural gas production averaged 708 million cubic feet ("MMcf") per
day, compared with 714 MMcf per day in 1999. International operations accounted
for approximately 54 percent of Occidental's oil production, while approximately
93 percent of gas production came from the United States. On a BOE basis,
Occidental produced 461,000 net barrels per day in 2000 from operations in 8
countries, including the United States (but excluding Peru, where producing
operations were sold in 2000).
In February 1998, Occidental entered into a fifteen-year contract with
Tosco Corporation ("Tosco") through which Tosco purchases the majority of
Occidental's interest in the gross oil production of Elk Hills at market-related
prices.
2
Net daily domestic oil and condensate production averaged approximately
172,000 barrels in 2000, compared with 72,800 barrels in 1999. The 2000
production is net of approximately 9,000 barrels per day assigned pursuant to a
pre-sale agreement. The main reasons for the increase in domestic oil production
are the OPL and THUMS acquisitions. See "Oil and Gas Operations - Major
Acquisitions and Dispositions in 2000". Net daily domestic production of natural
gas averaged 659 MMcf in 2000, compared with 662 MMcf in 1999.
Occidental's average sales price for domestic crude oil was $26.66 per
barrel in 2000, compared with $15.81 in the previous year. The average domestic
natural gas sales price in 2000 was $3.66 per Mcf, compared with $2.09 per Mcf
during 1999.
Set forth below are descriptions of the important production areas for
Occidental. These producing areas are the United States, the Middle East and
Latin America. Following this discussion is a description of other international
operations.
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.
Gross crude oil production at the Elk Hills field in California averaged
approximately 59,000 barrels of oil per day in 2000, including natural gas
liquids production of 12,500 barrels per day, with gas sales averaging
approximately 377 MMcf of gas per day. Occidental is the operator of Elk Hills.
Chevron USA is the other unit interest holder, with an approximate 22 percent
interest.
The THUMS properties offshore Long Beach, California are currently
averaging about 25,000 net barrels of oil production per day.
Including the Elk Hills and THUMS producing properties, Occidental has a
very significant acreage position in California, comprising almost 850,000
acres. Additional properties include exploration properties in the southern San
Joaquin valley around Elk Hills and Buena Vista Hills. Occidental also has gas
production in the Sacramento valley.
Occidental continues to own an interest in the Horn Mountain prospect in
the deepwater GOM, with first production expected in 2002. BP is the operator.
The Altura properties have been integrated with Occidental's existing
Permian Basin operation so that OPL today operates more than 14,000 wells in
Southwest Texas and Southeast New Mexico. During the fourth quarter of 2000, OPL
combined production averaged 163,000 BOE per day.
A large number of OPL's fields are CO2 floods, in which CO2 is injected
into worked-over fields as a tertiary recovery technique. These fields account
for approximately 50% of OPL's production. Through injection of CO2, the
recovery of oil and liquids is greatly improved. CO2 flooding is the most common
tertiary enhanced oil recovery flooding method used in light oil reservoirs. In
this process, CO2 acts as a solvent to overcome forces that trap oil within the
rock matrix, helping sweep the immobile oil remaining after primary or secondary
recovery. Soluble in crude oil at higher pressure, CO2 swells the oil, thereby
reducing viscosity and making it more mobile. Rock and fluid characteristics for
most reservoirs in the Permian Basin make them ideal targets for CO2 projects.
Occidental has recently added to its Permian portfolio BP's 75 percent
working interest in the Bravo Dome CO2 Unit in northern New Mexico, which
encompasses 910,000 net acres and has gross CO2 production of 315 MMcf per day.
Occidental owns a large concentration of gas reserves, production and
royalty interests in the Hugoton area. Net production from these fields during
2000 averaged 168 MMcf of gas per day or approximately one-fourth of the
domestic total. Occidental has approximately 701 billion cubic feet of gas
reserves and 9 million barrels of oil reserves in the Hugoton area.
Occidental has various agreements to supply certain gas marketing companies
with volumes ranging from 38,100 million British thermal units ("MMBtu") down to
1,482 MMBtu per day from 2001 through 2010. Prices under the different
agreements are based on market-sensitive prices, contract prices, or energy
equivalent crude oil prices, some with a yearly escalation provision.
MIDDLE EAST
Occidental has implemented a development plan to increase production and
reserves from the Idd el Shargi North Dome field ("ISND") in Qatar. Occidental
is the operator of the field and is completing development of the field's three
main reservoirs. Gross production in 2000 averaged approximately 95,000 barrels
per day under OPEC quotas, compared with approximately 98,300 barrels per day
for 1999. Occidental has also entered a production sharing agreement to develop
and operate, as a satellite, the Idd el Shargi South Dome field ("ISSD"), 15
miles south of the ISND field. Production began in the fourth quarter of 1999
and has increased from under 2,000 gross barrels of oil per day at the end of
1999 to over 10,000 gross barrels per day at the end of 2000. Average net
production from the combined assets (ISND and ISSD) decreased to 49,000 gross
barrels per day from 57,800 barrels per day in 1999. As is expected with a
production sharing arrangement, Occidental's contractual share of production
fluctuates as the market price of the crude oil changes, decreasing as the
market price of crude oil goes up and increasing as the market price goes down.
Net proved developed and undeveloped reserves for ISND are presently
estimated by Occidental to be approximately 131 million barrels, compared with
140 million barrels at December 31, 1999. Net proved developed and undeveloped
reserves for ISSD are presently estimated by Occidental to be approximately 23
million barrels, compared with 24 million barrels at the end of 1999. Each year
reserve estimates are based
3
on Occidental's estimated percentage share of remaining production from the
field pursuant to the terms of the applicable production sharing agreement.
Occidental owns a 38 percent working interest in the 310,000 acre Masila
Block in Yemen. Occidental's net share under the Masila production-sharing
contract was 27,000 barrels per day in 2000, compared to 30,000 barrels per day
in 1999. The decrease in net production in 2000 was due to the increase in
market prices for crude oil, as the contractual net share of production is
inversely related to such prices. The impact of higher prices on net share more
than offsets the higher share entitlement resulting from increases in gross
production in Masila to 217,000 barrels per day in 2000 from 209,000 barrels per
day in 1999.
Occidental also owns a 28.6 percent working interest in the East Shabwa
Block. Occidental's net share under the East Shabwa production sharing contract
averaged 5,000 barrels per day in 2000, compared to 1,850 barrels per day in
1999.
In Yemen, Occidental has added new exploration blocks that complement the
existing production operations in Masila and East Shabwa. Occidental recently
announced exploration activity in four northern border blocks adjacent to Saudi
Arabia and Block 20 in the west central part of the country. In addition,
Occidental recently signed production sharing agreements for Block 44 (70
percent participating interest), located just to the north of Masila in the
Suyun-Masila Basin, and Block 59 (40 percent participating interest) along the
Yemen-Saudi border in northern Yemen. Both of these production sharing
agreements are awaiting government ratification, which is expected shortly.
In Oman, Occidental is the operator, with a 65 percent working interest, of
Block 9, which contains the Safah field and six small fields along the southern
border of the block. Occidental's net share of production from the block in 2000
averaged approximately 9,000 barrels per day of crude oil, compared with 14,650
barrels per day in 1999. As with Occidental's properties in Qatar and Yemen, the
contractual net share of production fluctuates inversely with the market prices
of oil. Occidental is also pursuing exploration opportunities in Block 27.
LATIN AMERICA
Occidental conducts exploration and production operations in Colombia under
contracts with Ecopetrol, the Colombian national oil company. These contracts
cover the producing Cano Limon area in the Llanos region of northeastern
Colombia, one exploration area in the Llanos fold belt and an exploration area
in the Llanos Foreland. After giving effect to a government royalty,
Occidental's net share of existing production is 35 percent. All of Occidental's
share of production is exported through a trans-Andean pipeline system operated
by Ecopetrol that carries crude oil to an export terminal at Covenas. Occidental
has an approximate 44 percent ownership interest in the pipeline and marine
terminal, both of which are operated by Ecopetrol. Gross production from
Occidental's Cano Limon area declined to approximately 93,000 barrels per day in
2000, compared with 125,000 barrels per day in 1999. The reduction is due
primarily to a natural decline and to pipeline disruptions stemming from
insurgent activity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Occidental's net share of production
decreased to 32,000 barrels per day in 2000, compared with 43,300 barrels per
day in 1999, reflecting the lower gross production.
Occidental obtained exploration and exploitation rights to the Siriri
(formerly Samore) block in 1992, and is the operator and would have an
approximate 33 percent net working interest after determination of
commerciality. As a result of concerns raised by a tribe of indigenous people
called the U'wa, Occidental voluntarily relinquished the southern 75 percent of
the block in 1998. The Colombian government more than tripled the size of the
U'wa reservation. The U'wa, who number approximately 4,000 people, now control a
territory that is 70 percent of the size of Rhode Island. Occidental's drilling
operations are outside the revised U'wa reservation. A Colombian government
commission, including a representative of the U'wa, inspected Occidental's drill
site and issued a report that concluded that Occidental is in full compliance
with all regulations and requirements specified in its environmental license.
Drilling began in the Siriri block in November 2000 and was in progress at
year-end. Occidental expects to complete drilling of the Gibraltar exploration
well later this year.
In Ecuador, Occidental operates the 494,000 acre Block 15, in the Oriente
Basin, under a production sharing agreement, converted in 1999 from a
risk-service contract. Six oil fields were discovered from 1985 to 1992. Net
production was approximately 17,000 barrels per day in 2000, compared with net
production of approximately 15,300 barrels per day in 1999. Occidental acquired
an additional 15 percent interest from Nexen early in 2000, and farmed out a 40
percent economic interest to AEC in November 2000.
Both Occidental and AEC are members of a consortium of producers that have
formed an independent pipeline company to build a new heavy oil pipeline in
Ecuador. Ecuador is currently pipeline-capacity constrained, so the new pipeline
is expected to foster oil development. The independent pipeline company has
signed an agreement with the government to build a 500-kilometer pipeline from
the interior Oriente Basin to the coast of Ecuador over a two-year period. The
pipeline is expected to make it feasible for Occidental to develop the
potentially significant Eden Yuturi field it discovered several years ago in the
southeastern edge of Block 15.
4
OTHER INTERNATIONAL OPERATIONS
Occidental also has important oil and gas exploration and production assets
in other areas of the world. Set forth below are descriptions of Occidental's
properties in Pakistan, Russia and Indonesia.
EXPLORATION
In addition to the exploration activities described above, Occidental is
also engaged in active exploration in Albania, Peru and Indonesia.
In Indonesia, Occidental has a 22.9 percent interest in the Berau Block,
offshore Irian Jaya, where five major natural gas discoveries have been made by
Occidental and BP, the operator. The Berau Block discoveries, together with BP's
Wiriagar Block discovery, are expected to contain sufficient natural gas to
justify construction of a multi-train liquid natural gas ("LNG") project slated
for start-up in the next several years. Certain fields in the Berau and Wiriagar
Blocks, together with the Muturi Block operated by British Gas, are expected to
be unitized before project approval, and Occidental expects to own an
approximate 16 percent interest in the overall project. The partners in this
project, led by Pertamina, the Indonesian national oil company, are seeking
buyers for the LNG. This project will involve significant expenditures and
several years will be required to complete project development.
In addition, Occidental holds exploration rights in the Central Indus Gas
Basin of southern Pakistan totaling 2.9 million acres, and contiguous to the
producing property described below.
PRODUCTION
In southern Pakistan, Occidental has working interests in the three Badin
Blocks, which vary from 25 to 30 percent. In 2000, the blocks produced a net
share of 6,000 barrels of oil per day and 49 MMcf of gas per day, compared to
5,700 barrels of oil per day and 45 MMcf of gas per day in 1999. Development
drilling should help maintain production at current rates.
In Russia, Occidental owns a 50 percent interest in a joint venture
company, Vanyoganneft, in the western Siberian oil basin. During 2000, gross
production averaged 54,000 barrels per day, which was approximately the same
level of production as in 1999. Approximately 44 percent of Occidental's share
of the oil was exported in 2000.
RESERVES, PRODUCTION AND RELATED INFORMATION
See Note 17 to the Consolidated Financial Statements and the information
under the caption "Supplemental Oil and Gas Information" in Item 8 of this
report for information with respect to Occidental's oil and gas reserves, the
production from and other changes in such reserves, the discounted present value
of estimated future net cash flows therefrom, 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 8, 2000, Occidental
reported to the U.S. Department of Energy on Form EIA-28 proved oil and gas
reserves at December 31, 1999.
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 specialty chemicals. OxyChem owns its
interest in petrochemicals through its Equistar investment. OxyChem's operations
are affected by cyclical economic factors and by specific chemical industry
conditions.
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 this report.
ALLIANCES AND STRATEGIC DEVELOPMENTS
In 1998, Occidental acquired an interest in Equistar, a petrochemical
partnership. Lyondell Chemical Company owns 41 percent of Equistar, while
Millennium Chemicals, Inc. and Occidental Petroleum Corporation 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. Its
principal worldwide competition includes Exxon Mobil Chemical Company, Dow
Chemical Company and Shell. Equistar is the second largest producer of ethylene
in North America. Headquartered in Houston, Equistar has 17 manufacturing
facilities along the United States Gulf Coast and in the Midwest, including an
approximate 1,400 mile ethylene/propylene distribution system which spans the
Texas Gulf Coast.
5
Equistar supplies the ethylene requirements (up to 2.55 billion pounds per
year) for OxyChem's chlor-alkali business and OxyVinyls' business.
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 co-generation 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, 4.8
billion pounds of VCM and 0.9 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. The manufacturing plants of
OxyVinyls are described on page 9.
In connection with the sale of CanadianOxy shares in April 2000, Occidental
transferred to CanadianOxy its interest in two sodium chlorate chemicals
partnerships controlled by CanadianOxy.
In June of 2000, OxyChem announced its decision to withdraw from several of
its chemical intermediates businesses principally located in Niagara Falls, NY
and Ashtabula, Ohio. Most of the Niagara Falls production units have been shut
down and discussions are underway concerning the sale or disposal of these
assets and the remaining chemical intermediates businesses. As part of the
initiative, OxyChem sold its Chlorowax(R) chlorinated paraffins business in
October 2000.
Effective July 14, 2000, OxyChem sold its 45 percent interest in Aqua
Clear, a manufacturer and re-packager of water treatment chemicals for swimming
pools, to a subsidiary of Great Lakes Chemical.
Effective October 31, 2000, OxyChem sold its interest in the Durez phenolic
resins and compound business to its joint venture partner Sumitomo Bakelite Co.
Ltd. Operations sold included the following plant properties: Niagara Falls, New
York; Kenton, Ohio; Fort Erie, Ontario, Canada; and Genk, Belgium. In addition,
OxyChem sold its share in joint ventures in Canada, Japan, Singapore and
Indonesia.
On November 29, 2000, an OxyChem subsidiary purchased a 28.6 percent
interest in OxyMar (representing .7 billion pounds of VCM capacity), 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.
BASIC CHEMICALS
OxyChem's basic chemicals group manufactures and markets inorganic
chemicals, including high-volume commodity products. Chlorine and caustic soda
are supplied to a large list of manufacturers, including those in the pulp and
paper, plastics, water-purification, bleach and sanitation industries. Major EDC
plants at Corpus Christi, Texas, and Convent, Louisiana, use part of the
chlorine production from OxyChem's adjacent chlor-alkali facilities and ethylene
from Equistar's nearby olefins plants. The principal manufacturing plants of
basic chemicals are described in the chart below. 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.
SPECIALTY CHEMICALS
OxyChem produces organic and inorganic compounds, intermediate chemicals
and chlorinated isocyanurates, as well as certain specialty resins and PVC film
products that were not contributed to the commodity business of OxyVinyls.
Specialty performance chemicals are produced for the plastics, metal-plating,
wood, water sanitation and food-service industries. In addition, OxyChem's
performance chemical products business and Occidental's INDSPEC Holding
Corporation ("INDSPEC") subsidiary focus on smaller-volume specialty and
intermediate chemical markets. INDSPEC is a leading manufacturer of resorcinol.
Resorcinol is a binding agent principally used in tires and as a flame
retardant.
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 Glass, fertilizers, cleaning products and rubber
(including potassium hydroxide and,
through its Armand Products joint
venture with Church & Dwight,
potassium carbonate)
--------------------------------------------- ---------------------------------------------------------
Ethylene dichloride ("EDC") Raw material for vinyl chloride monomer
--------------------------------------------- ---------------------------------------------------------
Specialty 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
--------------------------------------------- ---------------------------------------------------------
Polyvinyl chloride ("PVC") resin and films Resins for flooring, medical gloves and other flexible
vinyl applications. Calendered films for automotive,
packaging, and consumer 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 (through Vinyl chloride monomer ("VCM") Raw material for polyvinyl chloride
its 76 percent
interest in
OxyVinyls)
--------------------------------------------- ---------------------------------------------------------
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.
--------------------------------------------- ---------------------------------------------------------
Petrochemicals Ethylene Raw material for production of polyethylene, EDC
(through its (precursor to VCM) and for ethylene oxide and ethylene
29.5 percent oxide derivatives such as ethylene glycols
interest in
Equistar)
--------------------------------------------- ---------------------------------------------------------
Benzene Raw material for production of styrene, phenolic
polymers and nylon
--------------------------------------------- ---------------------------------------------------------
Propylene Raw material for production of polypropylene and
acrylonitrile
--------------------------------------------- ---------------------------------------------------------
Ethylene glycols, ethylene oxide and Polyester products, antifreeze and brake fluids
ethylene oxide derivatives
--------------------------------------------- ---------------------------------------------------------
Polyethylene Grocery and trash bags, food packaging films, plastic
bottles and containers
--------------------------------------------- ---------------------------------------------------------
Polypropylene Carpet fibers, injection molding applications
--------------------------------------------- ---------------------------------------------------------
7
Based on internal market assessments, including reviews of statistics in
chemical industry publications, Occidental believes that during 2000, it was the
largest merchant marketer of chlorine and caustic soda and the largest producer
of chrome chemicals in North America. Through its 76 percent interest in
OxyVinyls, Occidental is the largest producer of PVC resins and the
second-largest producer of VCM in North America, and, through its 29.5 percent
interest in Equistar, Occidental is North America's second largest producer of
ethylene. In addition, based on these assessments, Occidental believes that it
is the world's largest producer of potassium hydroxide, chlorinated isocyanurate
products and resorcinol, the world's largest marketer of EDC, the second-largest
producer of antimony oxide, the third-largest producer of mercaptan warning
agents, and the second-largest producer of sodium silicates in North America.
RAW MATERIALS
Nearly all raw materials utilized 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. 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 or trademark it owns or
licenses or any process it uses.
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. Except for sales in the export market,
OxyChem generally does not use spot markets to sell products.
No significant portion of OxyChem's business is dependent on a single
customer. However, Occidental has entered into significant supply arrangements
with certain of its affiliates. In 2000, PolyOne purchased goods and services
(principally pursuant to PVC resin and VCM sale contracts at market-related
prices) from OxyVinyls valued at in excess of $300 million. Consequently,
changes in demand by PolyOne will impact OxyVinyls. In addition, OxyChem and
OxyVinyls purchased ethylene at market-related prices from Equistar pursuant to
a sales contract valued at approximately $630 million in 2000. Finally, OxyMar,
which is owned in part by OxyChem and OxyVinyls, sold VCM resin at
market-related prices valued at approximately $300 million to Occidental
affiliates in 2000. In general, OxyChem does not manufacture its products
against a backlog of firm orders.
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 through the employment of modern, high-yield plants, equipment and
technology. OxyChem's size and the number and location of its plants also
produce competitive advantages, principally in its ability to meet customer
specifications and delivery requirements.
PROPERTIES
As of December 31, 2000, OxyChem, which is headquartered in Dallas, Texas,
operated 28 chemical product-manufacturing facilities in the United States. Many
of the larger facilities are located in the Gulf Coast areas of Texas and
Louisiana. In addition, OxyChem operates eight chemical product-manufacturing
facilities 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 manufacturing facilities are owned, except for a portion
of OxyVinyls' plant at La Porte, Texas, which is leased on a long-term basis.
The charts below list the principal facilities and plant capacities of the basic
chemicals group, specialty chemicals group and OxyVinyls.
8
BASIC AND OXYVINYLS
Principal Products and U.S. Production Capacities at December 31, 2000(a)
Chlorine Caustic Soda Caustic Potash EDC
Plants (Tons) (Tons) (Tons) (millions of pounds)
- ---------------------------- ---------------------- ---------------------- ---------------------- ----------------------
BASIC
- -----
Mobile, Alabama 48,000 75,000
Muscle Shoals, Alabama 151,000 238,000
Delaware City, Delaware 146,000 123,000 110,000
Convent, Louisiana 389,000 435,000 1,500
Taft, Louisiana 750,000 861,000
Niagara Falls, New York 335,000 371,000
Ingleside, Texas (b) 604,000 676,000 1,500
- ---------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Total 2,423,000 2,466,000 423,000 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 co-generation
facility.
Chlorine Caustic Soda VCM PVC Resins
Plants (Tons) (Tons) (millions of pounds) (millions of pounds)
- ---------------------------- ---------------------- ---------------------- ---------------------- ----------------------
OXYVINYLS
- ---------
Louisville, Kentucky 585
Pedricktown, New Jersey 360
Deer Park, Texas (b) 377,000 422,000 1,275 555
Ingleside, Texas (c) 2,300
LaPorte, Texas (b) 525,000 589,000 2,400
Pasadena, Texas 2,020
- ---------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Total 902,000 1,011,000 5,975 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 co-generation facility.
(c) OxyMar owns plant (78.6% with OxyChem affiliates; 21.4% with Marubeni
affiliate).
9
SPECIALTY CHEMICALS
Principal Products and U.S. Production Capacities(a)
Plants Product Capacity(a) Volumes
- ---------------------------------------------------------- ------------------------- -------------------------
ACL; Illinois and Louisiana Chlorinated Isocyanurates 122 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 20 mm lbs
PVC; Pennsylvania PVC Resins 213 mm lbs
Silicates; Georgia/Ohio/Texas/Illinois/New Jersey/Alabama Sodium Silicates 730,000 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 (in metric tons) and Production Capacities(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% 34,000
Canada Niagara Falls, Ontario 76% 256,000
Canada Scotford, Alberta 76% 154,000
Chile Talcahuano 100% 52,000 59,000
Thailand Bangkok (b) 49% 46,000 52,000 12,000
Thailand Rayong 49% 25,000
- -------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------
Total 351,000 395,000 34,000 144,000 12,000 435,000
================================================== ========== ========== ========== ========== ========== =========
(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) The facilities in Bangkok comprise two separate and distinct plants.
10
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. Occidental's capital expenditures for its ongoing businesses totaled
approximately $952 million in 2000, $601 million in 1999, and $1.074 billion in
1998, exclusive of the acquisition cost of Elk Hills, OPL, THUMS and the noncash
consideration for other acquisitions. The 2000 amount included capital
expenditures aggregating $791 million for oil and gas, $155 million for chemical
and $6 million for corporate and other. Occidental's total capital expenditures,
exclusive of acquisitions, if any, for 2001 are expected to approximate $1.1
billion, with $1 billion allocated to oil and gas operations and $100 million to
chemical operations.
EMPLOYEES
Occidental and its subsidiaries employed 8,791 people at December 31, 2000,
of whom 6,761 were located in the United States. Occidental employed 2,494
persons in oil and gas operations and 5,355 persons in chemical operations. An
additional 269 people were employed at corporate headquarters and 99 at other
Occidental subsidiaries. In addition, 574 people were employed by Oxy Services,
Inc., Occidental's shared services subsidiary, and are currently based primarily
in Dallas, Houston and Los Angeles. Approximately 771 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 persons 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
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 are also subject
to environmental protection laws. Applicable U.S. laws include the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), as amended by
the Superfund Amendments and Reauthorization Act ("Superfund"), the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments, the Clean Air Act, the Federal Water Pollution Control Act, and
similar state environmental laws. The laws that require or address environmental
remediation may apply retroactively to previous waste disposal practices and, in
many cases, the laws apply regardless of fault, legality of the original
activities or ownership or control of sites. Occidental and certain of its
subsidiaries are currently participating in environmental assessments and
cleanups under these laws at federal Superfund 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, as potentially responsible parties ("PRPs"), or as both defendants
and PRPs under the federal Superfund law. These proceedings seek remediation,
funding for remediation, or both, and, in some cases, compensation for alleged
personal injury or property damage, punitive damages and civil penalties,
aggregating substantial amounts.
Occidental has accrued reserves for its environmental liabilities. As of
December 31, 2000 and 1999, Occidental had environmental reserves of
approximately $402 million and $454 million, respectively. Occidental made no
provision for additional environmental reserves in 1998 or 1999, but in 2000
made a provision for reserves of $23 million in respect of the OPL acquisition.
Occidental's estimated operating expenses in 2000 relating to compliance
with environmental laws and regulations governing ongoing operations were
approximately $74 million, compared with $64 million in 1999 and $70 million in
1998. In addition, capital expenditures for environmental compliance were $38
million in 2000, compared with $36 million in 1999 and $56 million in 1998. The
2000 amount included $20 million in the oil and gas division and $18 million in
the chemical division. Occidental presently estimates that divisional capital
expenditures for environmental compliance (including environmental control
facilities) will be in the range of $40 million for each of 2001 and 2002.
ITEM 3 LEGAL PROCEEDINGS
Incorporated by reference herein is information regarding lawsuits, claims,
commitments, contingencies and related matters in Note 9 to the Consolidated
Financial Statements.
ENVIRONMENTAL PROCEEDINGS
In April 1998, a civil action was filed on behalf of the U.S. Environmental
Protection Agency against OxyChem relating to the Centre County Kepone Superfund
Site at State College, Pennsylvania. The lawsuit seeks approximately $12 million
in penalties and governmental response costs, a declaratory judgment that
OxyChem is a liable party under CERCLA, and an order requiring OxyChem to carry
out the remedy that is being performed by the site owner. In October 1998, the
U.S. District Court for the Middle District of Pennsylvania granted OxyChem's
motion to dismiss the United States' case. In December 1999, the United States
Court of Appeals for the Third Circuit reversed the dismissal and remanded the
case to the District Court. OxyChem is vigorously contesting the United States'
allegations and the proposed penalty.
11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Occidental's security holders during
the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Age at
February 28,
Name 2001 Positions with Occidental and Subsidiaries and Five-Year Employment History
- ------------------------- ------------ -------------------------------------------------------------------------------
Dr. Ray R. Irani 66 Chairman of the Board of Directors and Chief Executive Officer since 1990;
President from 1984 to 1996; Chief Operating Officer from 1984-1990; Director
since 1984; member of Executive Committee.
Dr. Dale R. Laurance 55 President since 1996; Chairman and Chief Executive Officer of Occidental Oil and
Gas Corporation since 1999; 1990-1996, Executive Vice President and Senior
Operating Officer; 1984-1990, Executive Vice President -- Operations; Director
since 1990; member of Executive Committee.
Stephen I. Chazen 54 Chief Financial Officer and Executive Vice President -- Corporate Development
since 1999; 1994-1999, Executive Vice President -- Corporate Development.
Donald P. de Brier 60 Executive Vice President, General Counsel and Secretary since 1993.
Richard W. Hallock 56 Executive Vice President -- Human Resources since 1994.
J. Roger Hirl 69 Executive Vice President since 1984; Director since 1988; President and Chief
Executive Officer of Occidental Chemical Corporation since 1991.
John W. Morgan 47 Executive Vice President -- Operations since 1998; 1991-1998, Vice President --
Operations.
Howard Collins 57 Vice President -- Public Relations since 1993.
Samuel P. Dominick, Jr. 60 Vice President and Controller since 1991.
James R. Havert 59 Vice President and Treasurer since 1998; 1992-1998, Senior Assistant Treasurer.
Kenneth J. Huffman 56 Vice President -- Investor Relations since 1991.
Anthony R. Leach 61 Vice President Finance since 1999; 1991-1999, Executive Vice President and Chief
Financial Officer.
Robert M. McGee 54 Vice President since 1994; President of Occidental International Corporation
since 1991.
Lawrence P. Meriage 58 Vice President -- Communications and Public Affairs since 2000; 1995-2000, Vice
President -- Executive Services and Public Affairs of Occidental Oil and Gas
Corporation.
Richard A. Swan 53 Vice President -- Health, Environment and Safety since 1995; 1991-1995, Director --
Investor Relations.
Aurmond A. Watkins, Jr. 58 Vice President -- Tax since 1991.
The current term of office of each Executive Officer will expire at the April
19, 2001, organizational meeting of the Occidental Board of Directors or at such
time as his successor shall be elected.
12
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TRADING PRICE RANGE AND DIVIDENDS
There is hereby incorporated by reference the quarterly financial data
appearing under the caption "Quarterly Financial Data" and the information
appearing under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in this
report. Occidental's common stock was held by approximately 74,175 stockholders
of record at December 31, 2000, with an estimated 133,000 additional
stockholders whose shares were held for them in street name or nominee accounts.
The common stock is listed and traded principally on the New York Stock Exchange
and also is listed on certain foreign exchanges. The quarterly financial data on
pages 62 and 63 of this report set forth the range of trading prices for the
common stock as reported on the composite tape of the New York Stock Exchange
and quarterly dividend information.
The quarterly dividend rate for the common stock is $.25 per share. On
February 8, 2001, a dividend of $.25 per share was declared on the common stock,
payable on April 15, 2001 to stockholders of record on March 9, 2001. The
declaration of future cash dividends is a business decision made by the Board of
Directors from time to time, and will depend on Occidental's financial condition
and other factors deemed relevant by the Board.
13
ITEM 6 SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA Occidental Petroleum Corporation
Dollar amounts in millions, except per-share amounts and Subsidiaries
For the years ended December 31, 2000 1999 1998 1997 1996
======================================================= ========= ========= ========= ========= =========
RESULTS OF OPERATIONS(a)
Net sales $ 13,574 $ 7,820 $ 6,805 $ 8,325 $ 8,278
Income from continuing operations $ 1,569 $ 568 $ 325 $ 217 $ 514
Net income(loss) $ 1,570 $ 448 $ 363 $ (390) $ 668
Earnings(loss) applicable to common stock $ 1,571 $ 442 $ 346 $ (478) $ 575
Basic earnings per common share from
continuing operations $ 4.26 $ 1.58 $ .88 $ .39 $ 1.30
Basic earnings(loss) per common share $ 4.26 $ 1.24 $ .99 $ (1.43) $ 1.77
Diluted earnings(loss) per common share $ 4.26 $ 1.24 $ .99 $ (1.43) $ 1.73
Earnings before special items(b) $ 1,326 $ 253 $ 104 $ 691 $ 643
FINANCIAL POSITION(a)
Total assets $ 19,414 $ 14,125 $ 15,252 $ 15,291 $ 14,981
Long-term debt, net and non-recourse debt $ 5,185 $ 4,368 $ 5,367 $ 4,925 $ 4,511
Trust Preferred Securities and preferred stock $ 473 $ 486 $ 243 $ 1,177 $ 1,331
Common stockholders' equity $ 4,774 $ 3,523 $ 3,120 $ 3,109 $ 3,809
Dividends per common share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
AVERAGE SHARES OUTSTANDING (thousands) 368,973 355,381 350,173 334,341 323,782
- ------------------------------------------------------- --------- --------- --------- --------- ---------
(a) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the "Notes to Consolidated Financial Statements"
for information regarding accounting changes, asset acquisitions and
dispositions, discontinued operations, and charges for asset write-downs,
litigation matters, environmental remediation and other costs and other
special items affecting comparability.
(b) Earnings before special items reflect adjustments to net income(loss) to
exclude the after-tax effect of certain infrequent transactions that may
affect comparability between years. See the "Special Items" table for the
specific nature of these items in 2000, 1999 and 1998. Management believes
the presentation of earnings before special items provides a meaningful
comparison of earnings between years to the readers of the consolidated
financial statements. Earnings before special items is not considered to be
an alternative to operating income in accordance with generally accepted
accounting principles.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (INCORPORATING ITEM 7A)
2000 BUSINESS ENVIRONMENT
OIL AND NATURAL GAS INDUSTRY
During 2000, West Texas Intermediate ("WTI") crude oil traded in a wide
range, dipping briefly below $24/bbl in April and above $37/bbl in September.
The highest prices were seen in the third and fourth quarter, but they slipped
considerably in December, ending the year at under $27/bbl. However, average
crude oil prices for the year were slightly above $30/bbl, the highest annual
average since 1983. Overall, the crude oil market continues to indicate
uncertainty, both in long-term direction and in short-term price equilibrium.
NYMEX domestic natural gas prices were also volatile in 2000, ranging from
approximately $2.20/thousand cubic feet ("Mcf") to $10.00/Mcf. Natural gas
prices finished the year very strong, with the fourth quarter averaging over
$5/Mcf, more than double the average prices in the first quarter. A supply
shortage, depleting inventories and an early winter all combined to raise gas
prices to record levels.
CHEMICAL INDUSTRY
In the first half of 2000, the chemical industry experienced strong product
demand and overall economic growth, but in the second half experienced a
slowdown in product demand that triggered significant inventory corrections
among customers and distributors. In the second half of 2000, the U.S. economy
started showing signs of softening in the housing, auto and other consumer
products related industries. Also, U.S. exports of major commodities were
constrained as Asia and Latin America continued to struggle to improve domestic
demand. The combination of high energy and feedstock costs and reduced product
demand decreased profit margins significantly.
Domestic chlorine demand increased in 2000 over 1999 due to overall strong
chlorine demand in chemicals, other than vinyls. Chlorine pricing improved in
the first quarter through the third quarter before falling as fourth quarter
demand dropped. Caustic soda prices declined through the first three quarters
due to over-supply, but strengthened significantly in the fourth
14
quarter as supply became limited due to major cutbacks in chlorine production.
Polyvinyl chloride ("PVC") prices continued to improve during the first half
before reaching a peak in June. Then prices weakened as a combination of poor
demand and inventory corrections took hold.
STRATEGIC OVERVIEW AND REVIEW OF BUSINESS RESULTS - 1998 - 2000
STRATEGY
Occidental's strategy is unchanged since 1997 and consists of two basic
elements:
o Shift corporate assets to large, long-lived oil and gas assets with growth
potential
Occidental will continue to swap or sell marginal assets or assets that are
nearing the end of their economic life cycle and replace them with assets such
as Altura and Elk Hills that give it critical mass in its core markets.
Occidental also refocused its exploration and enhanced recovery programs to
concentrate primarily in the U.S., the Middle East and Latin America.
o Harvest cash from chemicals
To invest in profitable growth opportunities and support debt reduction,
Occidental enhanced its position in core chemical product markets by entering
into strategic alliances that have resulted in cost saving synergies.
SPECIFIC ACTIONS
OIL AND GAS
In implementing its strategy, Occidental has significantly strengthened its
operations in the U.S., Middle East and Latin America.
By concentrating on large assets in these core areas, Occidental has used
economies of scale to reduce operating costs and improve margins.
Occidental has taken a series of steps since 1997 to improve overall
domestic oil and gas performance - beginning with the 1998 acquisition of the
Elk Hills field in California. Each action is discussed below in the "Business
Review." Occidental also consolidated its operations by focusing on 5 states and
exiting 11 others. Occidental has interests in California, Kansas, New Mexico,
Oklahoma and Texas, with California and Texas being the primary areas of focus.
Occidental is no longer active in Alabama, Alaska, Arkansas, Colorado,
Louisiana, Mississippi, Montana, North and South Dakota, Utah and Wyoming.
Outside the U.S., Occidental reduced the number of countries in which it
was involved from 24 in 1997 to 10 in 2000. Today, Occidental operates in
Albania, Colombia, Ecuador, Indonesia, Oman, Pakistan, Peru, Qatar, Russia and
Yemen. Occidental sold producing properties in Venezuela, the Dutch North Sea
and Peru and exited Angola, China, Egypt, Gabon, Hungary, Ireland and Vietnam,
among others. Occidental also completed asset swaps that strengthened its
position in its core areas. These are discussed below by individual country.
CHEMICALS
In its chemicals business, Occidental focused on the chlorovinyls chain
where it takes ethylene and chlorine, which is co-produced with caustic soda,
and converts them through a series of intermediate products into PVC.
Additionally, to strengthen its position along the chlorovinyls chain,
Occidental entered into two major business alliances: in 1999, a vinyls
partnership with Geon (now known as "PolyOne") named Oxy Vinyls, LP
("OxyVinyls"); and in 1998 a petrochemicals investment in Equistar Chemicals, LP
("Equistar").
CORPORATE
Occidental sold all the shares of MidCon Corp ("MidCon"), its natural gas
transmission and marketing business, and exchanged a related note for a total of
$3.5 billion in January 1998. Given the prospects for limited growth in its key
markets, Occidental concluded that MidCon was a non-strategic asset.
In addition, Occidental redeemed 15 million preferred shares in March 1998,
which saved approximately $58 million annually in preferred stock dividend
costs.
Occidental received $775 million from Chevron in a litigation settlement in
November 1999, which was used mainly to reduce high-cost debt.
In April 2000, Occidental sold its interest in Canadian Occidental
Petroleum Ltd., now renamed Nexen Inc. ("CanadianOxy" or "Nexen"). After-tax
proceeds, together with tax benefits from the disposition of the Peru producing
properties, totaled $700 million and were used in its debt reduction program
following the Altura acquisition.
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
Date Debt Debt Debt Total 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* $ 5,766 $ 1,009 $ 2,400 $ 9,175
12/31/00 $ 3,544 $ 912 $ 1,900 $ 6,356
* Pro-forma Post Altura
Acquisition
- ----------------------- ----------- ----------- ----------- -----------
(a) Includes Trust Preferred Securities, natural gas delivery commitment,
preferred stock and capital lease obligations, but excludes unamortized
discount.
The table above reflects, on a pro-forma basis, the effect of the $1.2
billion Altura acquisition debt on Occidental's public debt as of April 2000.
Occidental's public debt at year-end 2000 is more than $1.4 billion below
the year-end 1997 level, and more than $850 million below 1999.
Occidental's other recourse debt, which includes preferred stock and Trust
Preferred Securities in the
15
above table, decreased from $1.4 billion in 1997 to $912 million in 2000.
Compared to the pro-forma debt level in April, after the addition of both
the Altura recourse and non-recourse debt, year-end 2000 total debt is
approximately $900 million higher than at the end of 1999. For that $900 million
increase, net proved reserves increased 60 percent from 1.35 billion BOE at the
end of 1999 to 2.17 billion BOE at the end of 2000.
Total Debt/Capitalization Ratio (%)
-----------------------------------
Date Total Debt/Capitalization Ratio
===================================== ===============================
12/31/97 67
12/31/98 66
12/31/99 61
April 2000* 71
12/31/00 57
* Pro-forma Post Altura Acquisition
- ------------------------------------- -------------------------------
Despite reflecting the Altura acquisition during the year, Occidental's
year-end 2000 total debt-to-capitalization ratio has declined to approximately
57 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. Occidental intends to achieve
additional debt reduction from free cash flow in 2001.
RETURN ON EQUITY
Average Years (a) Annual(b)
============== ============================================= =========
10 Years 7 Years 5 Years 3 Years 2000
--------- --------- --------- --------- ---------
Return on
Equity (%) 7.7 10.6 12.9 20.8 37.9
- -------------- --------- --------- --------- --------- ---------
(a) The return on equity for the multi-year periods was calculated by computing
the return on equity for each year, using earnings applicable to common
stock and the average equity balance, and then averaging the return over
the respective periods.
(b) The return in 2000 was calculated by dividing Occidental's 2000 earnings
applicable to common stock by the average equity balance in 2000.
The table above shows Occidental's return on equity for the most recent 10,
7, 5 and 3-year periods, as well as the return for the year 2000. These results
include non-recurring items such as asset sales and asset write-downs.
This table shows significant and steady progress in improving Occidental's
returns on equity. The improvement over the last three years reflects the growth
of the oil and gas business, higher oil and gas prices and the effect of the
special items. These improvements also include an increase in Occidental's
equity of over $1.2 billion during 2000.
BUSINESS REVIEW - OIL AND GAS
ALTURA ACQUISITION
Occidental completed the acquisition of the Altura properties, valued at
$3.6 billion, on April 19, 2000. Since the acquisition, the Altura properties
have generated approximately $674 million in operating cash flow after capital
expenditures.
Net production averaged 142,000 BOE per day - 7,000 barrels per day more
than Occidental initially projected.
The Altura properties have been successfully integrated with Occidental's
existing Permian operations making Occidental the largest oil producer in Texas.
OCCIDENTAL'S PERMIAN BASIN
Occidental's portfolio of assets in the Permian Basin includes interests in
10 of the 50 largest fields ever discovered in the U.S. and 8 of the 10 largest
fields in the Permian Basin. These fields are expected to provide a steady base
of long-lived production, as well as an opportunity for expansion through
additional enhanced recovery operations.
With the Altura acquisition, Occidental has become a world leader in CO2
flood technology, an enhanced oil recovery technique. Currently, Occidental has
more than 50 active CO2 floods which provide about half of Occidental's
production in the Permian Basin.
MILNE POINT - BRAVO DOME SWAP
Occidental recently swapped its 9 percent interest in the Milne Point field
in Alaska operated by British Petroleum ("BP") for BP's 75 percent working
interest in the Bravo Dome CO2 unit in northern New Mexico.
Production of CO2 at Bravo Dome is roughly equal to Occidental's total CO2
requirements in the Permian Basin. Because of third-party sales commitments,
Bravo Dome currently meets approximately 50 percent of Occidental Permian's CO2
demand.
This transaction assures Occidental of a long-term, secure supply of CO2 to
support the exploitation of its Permian assets and enhances the value of its
Altura investment.
THUMS
The purchase of the THUMS oil properties in Long Beach, California
essentially offset production from the property Occidental sold in Peru. THUMS
production generates significantly higher price realizations than the Peru
operation and it has a much longer life. At year end, net production was
averaging 25,000 barrels per day.
GULF OF MEXICO
Occidental monetized its interests on the Continental Shelf in the Gulf of
Mexico ("GOM"), which would have required significant capital expenditures for
future development.
ELK HILLS ACQUISITION
Elk Hills has generated total free cash flow, after capital expenditures,
of approximately $1.27 billion since the acquisition. Beginning in 1999, the
first full year that Occidental owned the field, production has held steady at
approximately 96,000 BOE per day.
Since the date of acquisition, Occidental has replaced 114 percent of its
total oil and gas production at Elk Hills.
Additionally, Occidental has succeeded at driving down its costs at Elk
Hills. Since gas production in Southern California has been selling at premium
prices compared to almost all other domestic markets, the combination of high
prices and low costs has resulted in very strong earnings from Elk Hills.
16
By the end of 2000, Occidental produced a total of 100 million BOE at Elk
Hills since its acquisition in 1998, and the property still has an estimated 438
million BOE of proved reserves.
Occidental is currently in the early stages of a three-year exploration
program that has already achieved positive results. The first test well was
successful - yielding 2.5 million gross proved barrels. Production from this
discovery has already begun.
MIDDLE EAST
OMAN
Occidental is the operator on Block 9 in Oman where it is actively
developing six fields. Occidental holds a 65 percent interest under a
production-sharing agreement and it operates the Safah field in the northwest
part of the block and the Wadi Latham/Al Barakah fields in the south-central
part. Current gross production is 39,000 barrels of oil per day with more than
9,000 net to Occidental.
The Safah waterflood is now in its second year. The field remains
Occidental's most important development project in Oman and it expects to
increase ultimate recovery from the Safah field from 20 percent to 30 percent of
the oil in place. Occidental's contract, which runs through 2015, can be
extended to 2025 upon completion of the waterflood.
Occidental is also the operator and owner of a 100 percent oil interest and
a 65 percent gas interest in Block 27, where it began to drill the first
exploration wells in the fourth quarter of 2000.
PAKISTAN
Occidental holds interests in the Badin Blocks in Pakistan, which are
operated by BP. Current gross production is 58,000 BOE per day. Occidental's net
share is approximately 14,000 BOE per day.
Data obtained from a three-dimensional seismic survey on the Badin Blocks
in 1996 and 1997 has significantly increased the success rate for both
exploration and development while, at the same time, reducing dry hole costs.
Current plans call for drilling 13 to 15 wells per year to develop existing
and newly developed fields by the end of 2002, and it is also continuing to
evaluate additional exploration opportunities.
YEMEN
In 1998, Occidental swapped its holdings in Malaysia and the Philippines,
which had long lead times and intensive capital requirements, for Shell's
production interests in Colombia and Yemen. In Yemen, the asset swap allowed
Occidental to more than double its interest in the Masila Block, which is
operated by Nexen, to a 38 percent working interest. Gross production has
increased from 120,000 barrels per day early in 1994, when operations began, to
217,000 barrels per day in 2000. Occidental's net share was approximately 27,000
barrels per day in 2000.
The current plan is to continue to exploit identified reserves through a
focused drilling program over the next five years. Occidental believes this
program will maintain gross production at approximately 230,000 barrels per day
through 2002.
In adjacent East Shabwa, production has risen substantially since
Occidental acquired its 29 percent interest in 1999 in a swap with Unocal.
Current gross production is averaging 28,000 barrels of oil per day from three
fields, approximately 6,000 barrels of oil per day net to Occidental, up from
16,000 at the time of the swap. Three-dimensional seismic surveys planned for
2001 will help identify additional exploration objectives in East Shabwa.
Occidental is also evaluating exploration acreage.
QATAR
In Qatar, Occidental's strategy is to continue development of the offshore
North Dome and South Dome fields. Since 1994, it has produced about 190 million
gross barrels of oil in Qatar. Total year-end 2000 proved oil reserves net to
Occidental for both fields are estimated to be approximately 153 million
barrels. Combined production for the two fields in 2000 was approximately
105,000 barrels per day gross and approximately 49,000 barrels per day net to
Occidental.
At the North Dome field, Occidental is implementing a waterflood project to
develop the Shuaiba reservoir. Occidental expects to complete a water injection
plant by the end of the first quarter of 2001 with injection capacity of 160,000
barrels of water per day and it plans to drill 15 wells - 8 producers and 7
injectors - in 2001.
In 2002, Occidental expects to begin further development of non-Shuaiba
reserves.
Occidental is also evaluating second-generation enhanced-recovery projects
at the North Dome field.
Occidental has completed its evaluation of the South Dome field and has
submitted a full field development plan to the government.
SAUDI ARABIA
The government of Saudi Arabia has decided to open its natural gas sector
to foreign investment to help meet the Kingdom's needs for fuel, electric power
and water. Occidental was one of the firms invited by Saudi authorities to
submit letters of intent to participate in two of the three core natural gas and
infrastructure ventures approved for development. Occidental, jointly with
Enron, has submitted proposals that include (1) upstream exploration,
development and production, (2) midstream gathering, processing and transmission
and (3) downstream distribution.
LIBYA
Occidental is also evaluating a series of opportunities in Libya that focus
on returning to operate the assets that it operated before the U.S. government
imposed sanctions in 1986. Occidental sees significant potential for enhancing
production from these older fields as well as applying state-of-the-art
technology to its existing exploration prospects. Occidental has a long track
record of success in Libya, but its return is contingent upon a shift in U.S.
policy permitting U.S. companies to resume operation of their existing Libyan
assets.
17
LATIN AMERICA
COLOMBIA
In Colombia, Occidental is pursuing an aggressive drilling program to
optimize the recovery of reserves from Cano Limon. Occidental completed 16
development wells in 2000, and expects to complete another 20 wells in 2001 and
11 wells in 2002. Production in 2000 was 93,000 gross barrels of oil per day,
32,000 barrels per day net to Occidental.
Although liftings have been significantly reduced since June 2000 due to
disruptions of the Cano Limon pipeline, Occidental presently anticipates that it
will recover the proved reserves attributable to its contract, which amount to
less than 3 percent of its worldwide proved oil and gas reserves.
Occidental began drilling the Gibraltar exploration well in November 2000.
The well location is approximately 100 miles west of Cano Limon and less than
two miles from a major pipeline that is connected to the export market. The
pipeline has a capacity of 250,000 barrels per day and is currently 40 percent
full. Occidental expects to complete the well in mid year.
ECUADOR
Gross production from Occidental's Block 15 interests in Ecuador is
currently averaging approximately 30,000 barrels of oil per day, net to
Occidental of 17,000 barrels per day.
Occidental recently farmed out a 40 percent economic interest in Block 15
to Alberta Energy Company Ltd. ("AEC"). This transaction reduces Occidental's
business and political risk in Ecuador and is expected to largely fund its
capital program in-country for the next four years.
Both Occidental and AEC are members of a consortium of producers that have
formed an independent pipeline company to build a new heavy oil pipeline in
Ecuador. Ecuador is currently pipeline-capacity constrained, so the new pipeline
is expected to foster oil development. The independent pipeline company has
signed an agreement with the government to build a 500-kilometer pipeline from
the interior Oriente Basin to the coast of Ecuador over a two-year period. The
pipeline is expected to make it feasible for Occidental to develop the
potentially significant Eden Yuturi field it discovered several years ago in the
southeastern edge of Block 15.
BUSINESS REVIEW - CHEMICALS
The performance of the chemical business is difficult to forecast from year
to year, but when the market is strong, these businesses are capable of
contributing strong earnings and cash flow.
After a strong first half of 2000 in the PVC business, sales declined in
the second half as customers began to draw down inventories that had grown with
the expectation of higher prices.
In Occidental's chlor-alkali business, the reduced demand for vinyls in the
second half of 2000 has adversely impacted the chlorine market. Chlorine sales
and operating rates have declined. Operating rates dropped to 85 percent in the
second half - down from 99 percent in the first half of the year.
Feedstock and energy cost increases adversely affected earnings in the
third and fourth quarter.
The upside to the reduced demand for chlorine is supply shortages in the
caustic soda markets where demand has remained stable and prices are increasing.
Petrochemical prices are expected to remain under increasing pressure with
the startup of significant new capacity this year and next from BASF/Fina,
Formosa Plastics and Union Carbide/Nova Chemicals. Margins are expected to
remain compressed under the pressure of sustained high feedstock costs.
The primary goal of Occidental's chemicals business is to harvest cash that
can be used to reduce debt and to fund new opportunities. As shown below, from
1995 through 2000, total cash flow from the chemicals business was $3.6 billion
- - with $2.5 billion in cash after capital expenditures coming from Occidental's
core chemical businesses. Asset sales, net of acquisitions, accounted for $1.1
billion.
Chemicals Cash Flow - 1995 - 2000
---------------------------------
Operating Cash Flow After Capital Expenditures $2.5 Billion
Asset Sales, Net of Acquisitions $1.1 Billion
------------
Total $3.6 Billion
============
SUMMARY OF RESULTS AND PLANS FOR FUTURE GROWTH
In summary, the strategic moves made in the past three years have resulted
in significant growth for Occidental.
In oil and gas, Occidental's profitability per barrel has grown
significantly. Occidental has increased production by a compound annual growth
rate of 6 percent and it has increased its reserves-to-production ratio by 40
percent. Upgrading its portfolio of assets has enabled Occidental to improve
both oil and gas price realizations. Operating and administrative costs have
been reduced significantly since 1997. These actions contributed to substantial
improvements in recurring earnings from Occidental's oil and gas business.
In chemicals, Occidental has delivered the synergies expected from its
alliances. When the chemical cycle turns upward, the chemical business will
generate more cash flow.
From its pro-forma high debt level in April, Occidental exceeded its $2
billion debt reduction target for 2000 by an additional $800 million. It has
also improved its return on equity. The growth in Occidental's return on equity
over the past three years demonstrates that its strategy for creating value is
sound.
Occidental has ongoing growth initiatives within its base assets to achieve
the kind of growth necessary to exceed its financial targets. In oil and gas, it
will rely on a three-pronged strategy that encompasses enhanced oil recovery,
exploration and acquisitions. In enhanced oil recovery, Occidental has focused
on two core areas - the Middle East and Latin America - where it has a long
history of success. In exploration, Occidental has a focused program targeting
opportunities in its core areas in the U.S., the Middle East and Latin America.
The commodity chemicals industry is currently under the pressure of high
energy prices and soft
18
demand. When the industry begins to recover, Occidental expects its core
operations to generate strong cash flow.
Overall, however, higher energy prices are a significant net benefit to
Occidental's earnings and cash flow.
2001 OUTLOOK
OIL AND NATURAL GAS
The petroleum industry is a highly competitive business subject to
significant volatility due to numerous external 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.
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. However, weather patterns do have a more
immediate effect, particularly on natural gas prices. In the United States, the
initially severe 2000-2001 winter season increased demand for natural gas, and
tight supply led to very low inventory levels. Inventories at the end of 2000
were at their lowest levels for that time of year since 1993.
Gas production in California of approximately 300 million cubic feet per
day accounts for about 45 percent of Occidental's total U.S. gas production. The
California border and the Henry Hub prices are usually close in value. In the
late fall of 2000, the price differential between Henry Hub and the California
border began to increase driving California prices higher than the NYMEX index.
The reasons behind the increased differential are complex, but the change is due
partially to supply disruptions caused when a major pipeline transporting gas
from the southwestern states to California was temporarily out of commission.
Subsequently, a myriad of other factors contributed to a further widening in the
differential that exceeded $3.00 in December and remains volatile on a
day-to-day basis.
Since there is a time lag of one month between Occidental's gas production
and recorded sales, the results from high gas prices in December 2000 will have
a significant impact on the company's financial performance in the first quarter
of 2001. The combination of high gas prices and low inventory levels, which
continue in the first quarter of 2001, and the unique characteristics of the
California gas market, is expected to result in higher average gas price
realizations for Occidental in 2001 than in 2000.
CHEMICAL
The widely reported slowdown in the U.S. economy reduced operating rates in
petrochemicals and Occidental's chlor-alkali/vinyls business to the low 80
percent level. These low operating rates are continuing in the first quarter.
Normally, the chemical industry is profitable when operating rates range from
the high 80 to low 90 percent levels. Under current conditions, Occidental is
unable to pass through to its customers the full cost of higher electricity and
natural gas prices.
Although overall pricing may improve in the chemical segment in the second
half of 2001, from the decline experienced in the second half of 2000, higher
energy and feedstock costs and lower demand would continue to have a negative
effect on chemical margins. Specific comments by sub-segment are given below.
CHLOR-ALKALI
Domestic demand for chlorine is expected to grow approximately 2 percent in
2001, but industry capacity additions are expected to limit operating rates.
Caustic soda markets should remain tight until the vinyls demand for chlorine
strengthens.
Chlorine prices peaked early in the third quarter of 2000 due to strong
global demand for ethylene dichloride ("EDC") and strong domestic demand for PVC
in the first half of the year. Later in the third quarter, reduced demand for
chlorine resulted in falling prices and reduced operating rates. Liquid caustic
soda demand remained steady and prices increased due to the reduced supply. This
trend of increasing prices for liquid caustic and declining prices for chlorine
is expected to continue in 2001. Occidental announced February 21, 2001 that it
will temporarily suspend production at its Convent, Louisiana, chlor-alkali and
EDC plant, effective February 28, 2001. The decision was made in response to
sharply higher costs for raw materials, particularly ethylene feedstock and
electricity. The facility will remain idle until economic conditions improve.
VINYLS
For 2001, demand is expected to increase from second half 2000 levels.
However, overall growth will remain modest, tempered by higher energy costs and
lower consumer confidence. Excess PVC resin is expected to be available, and
operating rates constrained, as the marketplace begins to absorb new capacity
from the staged startup of the industry's major new PVC plant addition in
Louisiana. Overall, vinyls margins are expected to decline.
PETROCHEMICALS (EQUISTAR)
Industry forecasts project continued pressure on margins due to continued
high feedstock costs combined with weak demand and capacity additions in the
industry.
INCOME SUMMARY
Occidental reported net income of $1.6 billion ($4.26 per share) in 2000,
on net sales of $13.6 billion, compared with net income of $448 million ($1.24
per share) in 1999, on net sales of $7.8 billion. Earnings before special items
were $1.3 billion in 2000 and $253 million in 1999.
SEGMENT OPERATIONS
The following discussion of Occidental's two operating segments and
corporate items should be read in conjunction with Note 16 to the Consolidated
Financial Statements.
19
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 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. 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. Segment earnings in 1998
were affected by $176 million from net charges comprising $202 million of
charges and $26 million in credits in oil and gas and chemical, respectively.
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, 2000 1999 1998
=================================== ======== ======== ========
SALES
Oil and Gas $ 9,779 $ 4,599 $ 3,650
Chemical 3,795 3,221 3,155
-------- -------- --------
$ 13,574 $ 7,820 $ 6,805
=================================== ======== ======== ========
EARNINGS(LOSS)
Oil and Gas $ 2,417 $ 1,267 $ 592
Chemical 169 (37) 287
-------- -------- --------
2,586 1,230 879
Unallocated corporate items
Interest expense, net (a) (380) (468) (451)
Income taxes (861) (68) (14)
Trust preferred distributions (67) (62) (20)
and other
Other (b) 291 (64) (69)
-------- -------- ---------
Income from continuing
operations 1,569 568 325
Discontinued operations, net -- -- 38
Extraordinary gain(loss), net 1 (107) --
Cumulative effect of changes in
accounting principles, net -- (13) --
-------- -------- ---------
Net Income $ 1,570 $ 448 $ 363
=================================== ======== ======== =========
(a) The 2000 amount is net of $106 million interest income on notes receivable
from Altura partners.
(b) 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. These preferred distributions are
essentially offset by the interest income discussed in (a) above.
OIL AND GAS
In millions, except as indicated 2000 1999 1998
======================================= ======== ======== ========
SEGMENT SALES $ 9,779 $ 4,599 $ 3,650
SEGMENT EARNINGS $ 2,417 $ 1,267 $ 592
EARNINGS BEFORE SPECIAL ITEMS(a) $ 2,404 $ 841 $ 316
AVERAGE SALES PRICES
CRUDE OIL PRICES (per barrel)
U.S. $ 26.66 $ 15.81 $ 12.06
Latin America $ 26.01 $ 13.20 $ 8.78
Eastern Hemisphere $ 25.14 $ 15.86 $ 11.12
GAS PRICES (per thousand cubic feet)
U.S. $ 3.66 $ 2.09 $ 2.05
Eastern Hemisphere $ 1.99 $ 1.17 $ 2.03
EXPENSED EXPLORATION(b) $ 94 $ 75 $ 128
CAPITAL EXPENDITURES
Development $ 582 $ 302 $ 545
Exploration $ 132 $ 103 $ 140
Acquisitions and other(c, d) $ 77 $ 69 $ 66
- --------------------------------------- -------- -------- --------
(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.
(c) Includes mineral acquisitions only but excludes significant acquisitions
individually discussed in this report.
(d) Includes capitalized CO2 of $44 million in 2000.
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 improved operations in
existing fields, enhanced oil recovery projects, selected exploration
opportunities and complementary property acquisitions.
Earnings before special items in 2000 were $2.4 billion, compared with
earnings before special items of $841 million in 1999. The increase in earnings
before special items reflected primarily the impact of higher worldwide crude
oil and natural gas prices, higher domestic production volumes and lower
overhead costs, partially offset by lower international production.
Earnings before special items in 1999 were $841 million, compared with
earnings before special items of $316 million in 1998. The increase in earnings
before special items reflected the impact of higher worldwide crude oil prices,
lower operating and exploration costs, and higher natural gas volumes, partially
offset by lower crude oil volumes.
Approximately 50 percent of oil and gas sales revenues for 2000 were
attributable to oil and gas trading activity, compared with approximately 43
percent in 1999 and 44 percent in 1998. Occidental participates in oil and gas
trading to optimize its long-term global marketing efforts. The results were not
significant.
20
CHEMICAL
In millions, except as indicated 2000 1999 1998
========================================== ======== ======== ========
SEGMENT SALES $ 3,795 $ 3,221 $ 3,155
SEGMENT EARNINGS (LOSS) $ 169 $ (37) $ 287
EARNINGS BEFORE SPECIAL ITEMS(a) $ 293 $ 147 $ 317
KEY PRODUCT INDEXES (1987 through
1990 average price = 1.0)
Chlorine 1.58 0.79 1.13
Caustic soda 0.69 0.66 1.02
Ethylene Dichloride 1.37 0.97 0.46
PVC commodity resins (c) 0.95 0.70 .60
KEY PRODUCT VOLUMES
Chlorine (thousands of tons) 2,977 3,230 2,983
Caustic soda (thousands of tons) 3,165 3,223 3,208
Ethylene Dichloride (thousands of tons) 979 1,080 843
PVC commodity resins
(millions of pounds) 4,484 3,454 1,755
CAPITAL EXPENDITURES(b)
Basic chemicals $ 49 $ 35 $ 126
Vinyls $ 61 $ 25 $ 34
Specialty businesses $ 41 $ 50 $ 148
Other $ 4 $ 6 $ 13
- ------------------------------------------ -------- -------- --------
(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.
(c) Product volumes produced at PolyOne facilities contributed to OxyVinyls are
excluded from the product indexes.
Earnings before special items were $293 million in 2000, compared with $147
million in 1999. The increase in earnings before special items reflected the
impact of higher average prices for chlorine, EDC and PVC resins, partially
offset by higher raw material and feedstock costs.
Earnings before special items were $147 million in 1999, compared with $317
million in 1998. The decrease in earnings before special items primarily
reflected the impact of lower prices for chlorine and caustic soda, as well as
higher costs for ethylene and natural gas.
SPECIAL ITEMS
Special items are significant, infrequent items reflected in the
Consolidated Statements of Operations that may affect comparability between
years. The special items included in the 2000, 1999 and 1998 results are
detailed below. For further information, see Note 16 to the Consolidated
Financial Statements and the discussion above.
SPECIAL ITEMS
Benefit (Charge) In millions 2000 1999 1998
====================================== ======== ======== ========
OIL AND GAS
Gain on partial sale of Gulf of
Mexico assets (a) $ 39 $ -- $ --
Write-down of various assets, real
estate and investments (53) (9) (30)
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) (12)
Gain on buyout of contingency
payment (a) 41 -- --
Gain on receipt of contingency
payment -- 11 --
Gains on sales of major
nonstrategic assets (a) -- -- 317
- -------------------------------------- -------- -------- --------
CHEMICAL
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) --
Gain on sale of chemical plant by
Equistar -- 12 --
Claims and settlements -- (9) --
Reorganization and other -- -- (30)
- -------------------------------------- -------- -------- --------
CORPORATE
Gain on sale of CanadianOxy
investment $ 493 $ -- $ --
Claims and settlements (17) -- --
Extraordinary gain(loss) on debt
redemption (a) 1 (107) --
Insurance dividend 11 18 9
Changes in accounting
principles (a) -- (13) --
Discontinued operations (a) -- -- 38
- -------------------------------------- -------- -------- --------
(a) These amounts are shown after-tax.
CONSOLIDATED OPERATIONS--REVENUES
SELECTED REVENUE ITEMS
In millions 2000 1999 1998
============================================ ======== ======== ========
Net sales $ 13,574 $ 7,820 $ 6,805
Interest, dividends and other income $ 263 $ 913 $ 261
Gains(losses) on disposition of assets, net $ 639 $ (13) $ 546
Income(loss) from equity investments $ 67 $ 41 $ (22)
- -------------------------------------------- -------- -------- --------
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.
21
The increase in sales in 1999, compared with 1998, primarily reflected
higher worldwide crude oil prices in the oil and gas segment, and the inclusion
of eight months of revenues from OxyVinyls, partially offset by lower prices for
chlorine and caustic soda and the absence of revenues related to the
petrochemical assets contributed to Equistar in May 1998 in the chemical
segment.
Interest, dividends and other income in 2000 included interest income on
the notes receivable from the Altura partners of $106 million. Interest,
dividends and other income in 1999 included the favorable litigation settlement
of $775 million. Interest, dividends and other income in 1998 included interest
earned on a $1.4 billion note (the $1.4 billion note receivable) received in
exchange for a note previously issued to Occidental by the MidCon Corp. Employee
Stock Ownership Plan ("ESOP") Trust.
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. Gains on disposition of assets in 1998 included net
pre-tax gains of $532 million on major nonstrategic assets sold as part of an
asset redeployment program.
The increase in income from equity investments in 2000, compared with 1999,
was due to higher earnings at Equistar.
The increase in income from equity investments in 1999, compared with 1998,
primarily reflected the impact of higher worldwide crude oil prices and improved
export prices for vinyl chloride monomer ("VCM").
CONSOLIDATED OPERATIONS--EXPENSES
SELECTED EXPENSE ITEMS
In millions 2000 1999 1998
===================================== ======== ======== ========
Cost of sales $ 8,963 $ 5,269 $ 4,671
Selling, general and administrative
and other operating expenses $ 691 $ 645 $ 678
Write-downs of assets $ 180 $ 212 $ 30
Minority interest $ 185 $ 58 $ 1
Interest and debt expense, net $ 518 $ 498 $ 559
- ------------------------------------- -------- -------- --------
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.
The increase in cost of sales in 1999, compared with 1998, primarily
reflected higher costs related to oil and gas trading, the inclusion of cost of
sales related to the acquired PolyOne facilities and higher raw material and
energy costs in the chemical segment. These were partially offset by the absence
of costs related to the petrochemical assets contributed to Equistar in May 1998
and cost reductions.
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.
Selling, general and administrative and other operating expenses decreased
in 1999, compared with 1998, due to ongoing cost reduction programs.
The increase in minority interest in 2000, compared with 1999, was due to
the preferred distributions to the Altura partners of $107 million.
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.
The decrease in interest and debt expense in 1999, compared with 1998,
reflected lower outstanding debt levels, partially offset by higher rates.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
In millions 2000 1999 1998
======== ======== ========
NET CASH PROVIDED $ 2,401 $ 1,044 $ 80
The higher operating cash flow in 2000, compared with 1999, resulted 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.
The higher operating cash flow in 1999, compared with 1998, resulted from
higher earnings before special items. Other non-cash charges to income were
higher in 1999 compared with 1998, which reflected the non-cash write-downs in
the chemical and oil and gas segments. See the "Special Items" table on page 21.
Changes in operating assets and liabilities reflected lower net working capital
usage in 1999, compared with 1998. Other operating expenses in 1999 reflected
lower payments for other operating uses such as litigation and environmental
costs. Included in total cash flow from operating activities in 1998 was cash
used by discontinued operations of $244 million, which included the negative
effect of $250 million of receivables repurchased in connection with the sale of
MidCon.
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.
Other noncash charges in 1998 included a charge for the write off of an
investment in certain exploration properties, previously announced
reorganization expense accruals and other miscellaneous items. See the "Special
Items" table on page 21. Each of the three years also included charges for
employee benefit plans and other items.
INVESTING ACTIVITIES
In millions 2000 1999 1998
======== ======== ========
NET CASH(USED) PROVIDED $ (3,097) $ 1,591 $ (1,216)
The 2000 amount includes 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
22
approximately $342 million from the monetization of the GOM assets. The 2000
amount also includes 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. The 1998 amount
reflected cash used of $3.5 billion for the purchase of the Elk Hills field. The
1998 amount also included the proceeds of $3.4 billion, primarily from the sale
of MidCon and nonstrategic oil and gas properties. Cash used in investing
activities included Occidental's capital expenditure program as discussed below.
Included in investing activities was net cash used by investing activities
of discontinued operations of $6 million in 1998.
CAPITAL EXPENDITURES
IN MILLIONS 2000 1999 1998
============================= ======== ========= ========
Oil and Gas $ 791 $ 474 $ 751
Chemical 155 116 321
Corporate and other 6 11 2
-------- --------- --------
$ 952 $ 601 $ 1,074
============================= ======== ========= ========
Oil and gas capital expenditures were higher in 2000 reflecting higher
development spending resulting, in part, from a larger asset base. Amounts from
all three years exclude significant acquisitions.
Occidental's capital spending budget for 2001 is $1.1 billion. Of the
total, approximately $1 billion will be allocated to oil and gas, with the
Permian Basin, Elk Hills and Qatar again receiving the highest priority. The
remainder will be allocated to chemicals.
As part of the asset redeployment program, Occidental completed the sale in
1998 of various international and domestic nonstrategic oil and gas properties.
Net proceeds from all major nonstrategic oil and gas asset sales were $1.1
billion, and the total net pre-tax gain was $532 million, which is included in
the total gain from disposition of assets of $546 million. Additionally,
Occidental made a cash payment of $89 million to Shell in connection with the
exchange of certain oil and gas interests.
FINANCING ACTIVITIES
In millions 2000 1999 1998
======== ======== ========
NET CASH PROVIDED(USED) $ 579 $ (2,517) $ 1,119
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.
The 1999 amount reflected the repayment of commercial paper and long-term
debt.
The 1998 amount reflected net cash provided of $1.9 billion, primarily from
proceeds from borrowings, to fund a portion of the acquisition of the Elk Hills
field in February 1998. Cash used for financing activities in 1998 included $937
million for the common stock repurchase program announced in October 1997. Under
the program, Occidental repurchased a total of 39.3 million shares, of which,
35.1 million shares were repurchased in 1998.
Occidental paid common stock dividends of $369 million in 2000 and paid
preferred and common stock dividends of $363 million in 1999 and $387 million in
1998. 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. The holders of the $3.875 preferred stock converted all of the
15.1 million shares into 33.2 million shares of Occidental common stock in March
1998. At the end of 2000 and 1999, Occidental had no preferred stock
outstanding. However, the Trust Preferred Securities issued in January 1999 by
Oxy Capital Trust I, a wholly-owned subsidiary of Occidental, remain outstanding
at December 31, 2000.
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.
ANALYSIS OF FINANCIAL POSITION
The changes in the following components of Occidental's balance sheet are
discussed below:
SELECTED BALANCE SHEET COMPONENTS
In millions 2000 1999
================================================== ======== ========
Trade receivables, net $ 809 $ 559
Receivables from joint ventures, partnerships
and other $ 517 $ 215
Long-term receivables, net $ 2,119 $ 168
Equity investments $ 1,327 $ 1,754
Property, plant and equipment, net $ 13,471 $ 10,029
Current maturities of long-term debt and capital
lease liabilities $ 258 $ 5
Accounts payable $ 1,091 $ 812
Current obligation under natural gas delivery
commitment $ 129 $ 122
Long-term debt, net $ 3,285 $ 4,368
Non-recourse debt $ 1,900 $ --
Long-term obligation under natural gas delivery
commitment $ 282 $ 411
Other deferred credits and liabilities $ 2,415 $ 2,123
Minority interest $ 2,265 $ 252
Trust Preferred Securities $ 473 $ 486
Stockholders' equity $ 4,774 $ 3,523
- -------------------------------------------------- -------- --------
The higher balance in trade receivables at December 31, 2000, compared with
December 31, 1999 reflected additional receivables resulting from higher sales
prices and an increase in production during the year. The increase in
receivables from joint ventures, partnerships and other was due to higher
mark-to-market adjustments in the oil and gas trading group, which are almost
entirely offset by higher mark-to-market adjustments included in accounts
payable. The increase in long-term receivables was due to the addition of notes
receivable from the Altura partners related to the acquisition of Altura. The
lower balance in equity investments primarily reflected the sale of the equity
investment in CanadianOxy in April 2000. The increase in the net
23
balance in property, plant and equipment reflected the impact of capital
spending and the Altura and THUMS acquisitions, offset in part by depreciation,
depletion and amortization.
The increase in accounts payable was due to higher mark-to-market
adjustments in the oil and gas trading group that are almost entirely offset by
mark-to-market adjustments in accounts receivable. The increase in current
maturities of long-term debt reflects debt maturities due in 2001. The decrease
in long-term debt primarily reflected debt repaid from the proceeds of the
CanadianOxy disposition, the monetization of the GOM assets and free cash flow,
as well as the reclassification of debt that matures in 2001 to current
maturities. The non-recourse debt was incurred as a result of the Altura
acquisition. The original balance of the non-recourse debt was approximately
$2.4 billion but Occidental paid down the debt by approximately $500 million
during the year from Altura's free cash flow. The long-term balance of the
obligations under the natural gas delivery commitment decreased from December
31, 1999, which reflected a portion of the obligation that is due within one
year and is shown as a current liability. Other deferred credits and liabilities
includes deferred compensation, primarily other post-employment benefits related
to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 106,
environmental reserves, contract advances, deferred revenue and other deferred
items. The increase in this account was primarily the result of the increase in
deferred revenue from the GOM monetization. The increase in minority interest
was the result of the preferred limited interest retained by the Altura
partners. The increase in stockholders' equity primarily reflected net income,
partially offset by dividends on common stock.
The table below presents principal amounts by currency by year of maturity
for Occidental's long-term debt obligations, excluding $16 million in
unamortized discount, at December 31, 2000:
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 Grand Total(a)
======================== ============= ============= =============
2002 $ 201 $ 60 $ 261
2003 514 300 814
2004 325 300 625
2005 177 1,268 1,445
2006 2 0 2
Thereafter 1,939 115 2,054
------------- ------------- -------------
Total $ 3,158 $ 2,043 $ 5,201
============= ============= =============
Average interest rate 7.90% 7.48% 7.74%
======================== ============= ============= =============
(a) Excludes $16 million of unamortized discounts.
The estimated fair value of Occidental's long-term debt at December 31,
2000 was $6.1 billion. Occidental has the option to call certain issues of
long-term debt prior to their maturity dates.
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 11-1/8 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.
In June 1999, Occidental registered a shelf registration statement for up
to $1 billion of its senior debt securities, subordinated debt securities,
preferred stock, depositary shares, preferred securities of two subsidiary
trusts and Occidental's guarantees of such preferred securities. Occidental may
issue, at its option, 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. At December 31, 2000, no notes were issued and
outstanding under the program.
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
the principal amount thereof. 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
24
of preferred securities, net of unamortized issue costs and repurchases.
At December 31, 2000, Occidental had available approximately $2.1 billion
of committed credit lines, which 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 expects to have sufficient cash in 2001 for its operating needs,
capital expenditure requirements, dividend payments and mandatory debt
repayments.
ACQUISITIONS, DISPOSITIONS AND COMMITMENTS
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, an OxyChem subsidiary 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
net after-tax proceeds of approximately $120 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 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 has 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 are entitled to certain distributions from the partnership. The
acquisition is valued at approximately $3.6 billion. Proved reserves at Altura
were 882 million barrels of oil equivalent at December 31, 2000.
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.
25
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.
1998
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 beginning in 2000. The imputed
interest rate in the transaction is approximately 6 percent. In connection with
this transaction, Occidental simultaneously entered into a natural gas price
swap with a third party based on identical volumes of natural gas and a delivery
schedule that corresponds to the natural gas delivery commitment.
EQUISTAR
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
("EO"), ethylene glycol and EO derivatives businesses to Equistar, in return for
a 29.5 percent interest in the partnership, receipt of approximately $420
million in cash and the assumption by Equistar of approximately $205 million of
Occidental capital lease liabilities. Occidental guaranteed $625 million of
Equistar's debt related to these amounts. Lyondell Petrochemical Company
("Lyondell") and Millennium Chemicals, Inc. ("Millennium"), through their
respective subsidiaries, were the original partners of Equistar. Lyondell owns
41 percent of Equistar, and Occidental and Millennium each own 29.5 percent.
ELK HILLS ACQUISITION
In February 1998, Occidental acquired the U.S. government's approximate 78
percent interest in the Elk Hills field for approximately $3.5 billion.
ASSET SALES PROGRAM
In 1998, Occidental completed a number of international and domestic asset
sales as part of an asset redeployment program. Net proceeds from all major
nonstrategic oil and gas asset sales were $1.1 billion, and the total net
pre-tax gain was $532 million, which is included in the total gains from
disposition of assets of $546 million.
ROYAL DUTCH/SHELL ASSET SWAP
Additionally in 1998, Occidental and the Royal Dutch/Shell Group ("Shell")
exchanged Occidental's oil and gas interests in the Philippines and Malaysia for
Shell's oil and gas interests in Yemen and Colombia. Shell also received a cash
payment of approximately $89 million. No gain or loss was recorded on the
transaction.
SALE OF MIDCON
Occidental completed the sale of all of the issued and outstanding shares
of common stock and a related note of MidCon, its natural gas transmission and
marketing business, to KN Energy, Inc. ("KN Energy"), on January 31, 1998 for a
cash payment of $2.1 billion. The estimated net cash proceeds from the
transaction were approximately $1.7 billion. Additionally, KN Energy issued a
fixed-rate interest bearing note, which was repaid on January 4, 1999, to
Occidental in the amount of $1.4 billion, in exchange for a note previously
issued to Occidental by the MidCon Corp. ESOP Trust. MidCon retained
responsibility for certain Texas intrastate gas pipeline lease obligations to an
Occidental entity. In connection with the sale, the Cumulative MidCon-Indexed
Convertible Preferred Stock was redeemed.
26
CAPITAL EXPENDITURES
Commitments at December 31, 2000 for major capital expenditures during 2001
and thereafter were approximately $73 million. Total capital expenditures for
2001 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 ACTIVITIES
Occidental's market risk exposures relate primarily to commodity prices,
interest rates and foreign currency. Therefore, Occidental periodically uses
commodity futures contracts, options and swaps to hedge the impact of oil and
natural gas price fluctuations; uses interest rate swaps and futures contracts
to hedge interest rates on debt; and uses forward exchange contracts to hedge
the risk associated with fluctuations in foreign currency exchange rates.
Emerging Issues Task Force ("EITF") Issue No. 98-10, Accounting for Contracts
Involved in Energy Trading and Risk Management Activities, was adopted in the
first quarter of 1999. Oil and gas trading contracts are measured at fair value
on the balance sheet date. Gains and losses on such contracts are recognized in
periodic income. Gains and losses on commodity futures contracts that qualify
for hedge accounting, essentially those associated with equity production or
purchases, are deferred until recognized as an adjustment to sales revenue or
purchase costs when the related transaction being hedged is finalized. Gains and
losses on foreign currency forward exchange contracts that hedge identifiable
future commitments are deferred until recognized when the related item being
hedged is settled. All other contracts are recognized in periodic income.
At December 31, 2000, Occidental was a party to commodity exchange and
over-the-counter forward obligations. The financial 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 are 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 in Note 7 of the accompanying financial
statements. 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, which is currently deferred. Any gain or loss will be recognized when
the related transactions are finalized. The financial instruments held or issued
for trading purposes mostly expire 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 are
related physical positions with a $12 million loss. The approximate $19 million
net gain was reflected in the "Consolidated Statements of Operations." The
majority of the gain was from the mark-to-market adjustment of a long-term sales
contract under EITF Issue No. 98-10. The results of oil and gas trading
activities, excluding the long-term sales contract, were not significant.
Interest rate swaps are entered into as part of Occidental's overall
strategy to maintain part of its debt on a floating-rate basis. All of
Occidental's remaining interest rate swaps converting fixed-rate debt to
floating-rate debt matured during November 2000. The swap rate difference
resulted in approximately $1 million of expense in 2000, less than $1 million of
income in 1999 and approximately $2 million of expense in 1998, compared to what
interest expense would have been had the debt remained at fixed rates. The
impact of the swaps on the weighted average interest rates for all debt in 2000,
1999 and 1998 was not significant. Occidental will continue its strategy of
maintaining part of its debt on a floating-rate basis.
At December 31, 2000, Occidental was a party to a series of forward
interest rate locks 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 co-generation plant that will be subject to a long-term operating
lease to an OxyChem affiliate. 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 December 31, 2002. The fair value of these financial
instruments at December 31, 2000 was an unrealized loss of $29 million.
Occidental is exposed to interest rate risk with respect to its variable
rate $2.1 billion credit facilities. At December 31, 2000, there were no
outstanding aggregate balances under these credit facilities. Therefore, a
change in interest rates would have had no effect on Occidental's results of
operations.
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. The effect of exchange rate transactions
in foreign currencies is included in periodic income. Foreign currencies that
are in a net liability position are thus protected from the unfavorable effects
of devaluation. However, in certain foreign chemical subsidiaries and equity
basis joint ventures where the local currency is the functional currency,
Occidental has exposure on joint-venture debt that is denominated in U.S.
dollars. For entities that have a net foreign currency asset position,
Occidental strives to maintain those positions at low levels to mitigate
exposure to currency devaluation.
27
TAXES
Deferred tax liabilities were $1.2 billion at December 31, 2000, net of
deferred tax assets of $845 million. The current portion of the deferred tax
assets of $117 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 or
as potentially responsible parties ("PRP's") in a substantial number of
lawsuits, claims and proceedings, including 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. In December 1998, David
Croucher and others filed suit in the Federal District Court in Houston, Texas
on behalf of persons claiming to have been beneficiaries of the MidCon ESOP. The
suit has been certified as a class action. The plaintiffs allege that each of
the U.S. Trust Company of California (the "ESOP Trustee") and the MidCon ESOP
Administrative Committee breached its fiduciary duty to the plaintiffs by
failing to properly value the securities held by the ESOP, and allege that
Occidental actively participated in such conduct. The plaintiffs claim that, as
a result of this alleged breach, the ESOP participants are entitled to an
additional aggregate distribution of at least $200 million and that Occidental
has been unjustly enriched and is liable for failing to make that distribution.
In December 2000, the named plaintiffs and defendants reached a proposed
settlement of the action. This settlement provides for Occidental to pay the
class $25 million and fees and expenses of plaintiffs' counsel as awarded by the
Court. The Court has scheduled a hearing on March 15, 2001 to consider approving
the settlement. Occidental has adequate reserves.
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 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.
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 which require or address environmental remediation may apply
retroactively to previous waste disposal practices. And, in many cases, the laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Occidental is currently participating in environmental
assessments and cleanups under these laws at federal Superfund 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 PRP's under the federal Superfund 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 Superfund and comparable 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,
and in many cases its equivalent under state law, 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. Prior
to 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.
28
As of December 31, 2000, 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 125 Superfund or comparable state sites. (This
number does not include those sites where Occidental has been successful in
resolving its involvement.) The 125 sites include 34 former Diamond Shamrock
Chemical sites as to which Maxus Energy Corporation has retained all liability.
Of the remaining 91 sites, Occidental has denied involvement at 9 sites and has
yet to determine involvement in 20 sites. With respect to the remaining 62 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 8 of the 62 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 costs, some of which may include estimates, relating to
compliance with environmental laws and regulations are shown below for each
segment:
In millions 2000 1999 1998
============================= ======== ======== ========
OPERATING EXPENSES
Oil and Gas $ 23 $ 13 $ 15
Chemical 51 51 55
-------- -------- --------
$ 74 $ 64 $ 70
======== ======== ========
CAPITAL EXPENDITURES
Oil and Gas $ 20 $ 19 $ 31
Chemical 18 17 25
-------- -------- --------
$ 38 $ 36 $ 56
======== ======== ========
ENVIRONMENTAL RESERVES
Corporate $ 402 $ 454 $ 578
============================= ======== ======== ========
Operating expenses are incurred on a continual basis. Remediation expenses
relate to existing conditions caused by past operations and do not contribute to
current or future revenue generation. Occidental did not incur any additional
remediation expenses in 2000, 1999 and 1998. Capital expenditures relate to
longer lived improvements in facilities. 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. 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. The net decrease in
environmental reserves reflects payments for remediation programs and settlement
agreements.
Occidental manages its environmental remediation efforts through a wholly
owned subsidiary, Glenn Springs Holdings, Inc. ("GSH"). In 1998, GSH was given
full management authority over all remediation sites and reports directly to
Occidental's corporate management.
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 such risks. At December 31, 2000, the carrying
value of Occidental's assets in countries outside North America aggregated
approximately $1.8 billion, or approximately 10 percent of Occidental's total
assets at that date. Of such assets, approximately $1.2 billion was located in
the Middle East, approximately $428 million was located in Latin America, and
substantially all of the remainder were located in Russia and Pakistan.
ACCOUNTING CHANGES
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, $210 million in 1999 and
$209 million in 1998.
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 will be adopted by Occidental on April 1, 2001. The
implementation of all of the
29
provisions of SFAS No. 140 will not have an impact on Occidental's consolidated
financial positions or results of operations.
SFAS NOS. 138, 137 AND 133
SFAS No. 133, Accounting for Derivative Instruments and Hedging, as amended
by SFAS 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, and SFAS 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, is
effective for Occidental as of January 1, 2001. 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. 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 will result in cumulative after-tax reductions in net income of
approximately $24 million and other comprehensive income of approximately $27
million in the first quarter of 2001. The adoption will also increase total
assets by $588 million and total liabilities by $639 million on the balance
sheet.
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.
EITF ISSUE NO. 98-10
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 1999.
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 "2001 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 or political events; 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 domestically or internationally; regulatory
uncertainties; and not successfully completing, or any material delay of, any
development of new fields, expansion, capital expenditure, efficiency
improvement, acquisition or disposition. Forward-looking statements are
generally accompanied by words such as "estimate", "project", "predict",
"believes" or "expect", 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.
30
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors, Occidental Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of OCCIDENTAL
PETROLEUM CORPORATION (a Delaware corporation) and consolidated subsidiaries as
of December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, comprehensive income and cash flows for each
of the three years in the period ended December 31, 2000 (included on pages 32
through 60). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Occidental Petroleum
Corporation and consolidated subsidiaries as of December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the exhibit index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 7, 2001
31
CONSOLIDATED STATEMENTS OF OPERATIONS Occidental Petroleum Corporation
In millions, except per-share amounts and Subsidiaries
For the years ended December 31, 2000 1999 1998
====================================================================== ========= ========= =========
REVENUES
Net sales $ 13,574 $ 7,820 $ 6,805
Interest, dividends and other income 263 913 261
Gains (losses) on disposition of assets, net 639 (13) 546
Income (loss) from equity investments 67 41 (22)
--------- --------- ---------
14,543 8,761 7,590
--------- --------- ---------
COSTS AND OTHER DEDUCTIONS
Cost of sales 8,963 5,269 4,671
Selling, general and administrative and other operating expenses 691 645 678
Write-down of assets 180 212 30
Depreciation, depletion and amortization of assets 901 805 835
Minority interest 185 58 1
Exploration expense 94 75 128
Interest and debt expense, net 518 498 559
--------- --------- ---------
11,532 7,562 6,902
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 3,011 1,199 688
Provision for domestic and foreign income and other taxes 1,442 631 363
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 1,569 568 325
Discontinued operations, net -- -- 38
Extraordinary gain(loss), net 1 (107) --
Cumulative effect of changes in accounting principles, net -- (13) --
--------- --------- ---------
NET INCOME 1,570 448 363
Effect of repurchase of Trust Preferred Securities 1 1 --
Preferred dividends -- (7) (17)
--------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK $ 1,571 $ 442 $ 346
========= ========= =========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 4.26 $ 1.58 $ .88
Discontinued operations, net -- -- .11
Extraordinary loss, net -- (.30) --
Cumulative effect of changes in accounting principles, net -- (.04) --
--------- --------- ---------
BASIC EARNINGS PER COMMON SHARE $ 4.26 $ 1.24 $ .99
========= ========= =========
DILUTED EARNINGS PER COMMON SHARE $ 4.26 $ 1.24 $ .99
====================================================================== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
32
CONSOLIDATED BALANCE SHEETS Occidental Petroleum Corporation
In millions, except share amounts and Subsidiaries
Assets at December 31, 2000 1999
=================================================================================== ========= =========
CURRENT ASSETS
Cash and cash equivalents $ 97 $ 214
Trade receivables, net of reserves of $25 in 2000 and $24 in 1999 809 559
Receivables from joint ventures, partnerships and other 517 215
Inventories 485 503
Prepaid expenses and other 159 197
--------- ---------
TOTAL CURRENT ASSETS 2,067 1,688
--------- ---------
LONG-TERM RECEIVABLES, NET 2,119 168
--------- ---------
EQUITY INVESTMENTS
1,327 1,754
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and gas segment 14,084 11,106
Chemical segment 3,990 4,062
Corporate and other 1,438 1,451
--------- ---------
19,512 16,619
Accumulated depreciation, depletion and amortization (6,041) (6,590)
--------- ---------
13,471 10,029
OTHER ASSETS 430 486
--------- ---------
$ 19,414 $ 14,125
=================================================================================== ========= =========
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
Liabilities and Equity at December 31, 2000 1999
=================================================================================== ========= =========
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 258 $ 5
Notes payable 2 29
Accounts payable 1,091 812
Accrued liabilities 1,089 738
Dividends payable 93 93
Obligation under natural gas delivery commitment 129 122
Domestic and foreign income taxes 78 168
--------- ---------
TOTAL CURRENT LIABILITIES 2,740 1,967
--------- ---------
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND UNAMORTIZED DISCOUNT 3,285 4,368
--------- ---------
NON-RECOURSE DEBT 1,900 --
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,280 995
Obligation under natural gas delivery commitment 282 411
Other 2,415 2,123
--------- ---------
3,977 3,529
--------- ---------
CONTINGENT LIABILITIES AND COMMITMENTS
MINORITY INTEREST 2,265 252
--------- ---------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 473 486
--------- ---------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock; $1.00 par value, authorized 50 million shares;
outstanding shares: 2000 and 1999--none -- --
Common stock, $.20 par value; authorized 500 million shares;
outstanding shares: 2000--369,984,447 and 1999--367,916,297 74 73
Additional paid-in capital 3,743 3,787
Retained earnings(deficit) 1,007 (286)
Accumulated other comprehensive income (50) (51)
--------- ---------
4,774 3,523
--------- ---------
$ 19,414 $ 14,125
=================================================================================== ========= =========
The accompanying notes are an integral part of these financial statements.
34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Occidental Petroleum Corporation
In millions and Subsidiaries
Accum-
ulated
Non- Other
Redeemable ESOP Unearned Additional Retained Compre-
Preferred Preferred ESOP Common Paid-in Earnings hensive
Stock Stock Shares Stock Capital (Deficit) Income
============================================= ========== ========== ========== ========== ========== ========== ==========
BALANCE, DECEMBER 31, 1997 $ 1,125 $ 1,400 $ (1,348) $ 68 $ 4,149 $ (1,097) $ (11)
Net income -- -- -- -- -- 363 --
Other comprehensive income, net of tax -- -- -- -- -- -- (18)
Dividends on common stock -- -- -- -- (354) -- --
Dividends on preferred stock -- -- -- -- (17) -- --
Issuance of common stock -- -- -- -- 28 -- --
Release/Retirement of ESOP shares -- (1,400) 1,348 -- 52 -- --
Repurchase and retirement of common stock -- -- -- (7) (930) -- --
Preferred stock conversions (882) -- -- 8 874 -- --
Exercises of options and other, net -- -- -- -- 12 -- --
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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)
============================================= ========== ========== ========== ========== ========== ========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In millions
For the years ended December 31, 2000 1999 1998
===================================================== ========= ========= =========
Net income $ 1,570 $ 448 $ 363
Other comprehensive income items:
Foreign currency translation adjustments 2 (23) (14)
Minimum pension liability adjustment 2 -- --
Other (3) 1 (4)
--------- --------- ---------
Other comprehensive income, net of tax 1 (22) (18)
--------- --------- ---------
Comprehensive income $ 1,571 $ 426 $ 345
===================================================== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS Occidental Petroleum Corporation
In millions and Subsidiaries
For the years ended December 31, 2000 1999 1998
======================================================================================= ========= ========= =========
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,569 $ 568 $ 325
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation, depletion and amortization of assets 901 805 835
Amortization of debt discount and deferred financing costs 7 12 22
Deferred income tax provision 413 183 275
Other noncash charges to income 170 275 10
Gains on disposition of assets, net and litigation settlement (639) (762) (546)
(Income)loss from equity investments (67) (41) 22
Exploration expense 94 75 128
Changes in operating assets and liabilities:
(Increase)decrease in accounts and notes receivable (201) (269) 54
(Increase)decrease in inventories (39) 27 (43)
Decrease(increase) in prepaid expenses and other assets 34 13 (65)
Increase(decrease) in accounts payable and accrued liabilities 367 90 (176)
(Decrease)increase in current domestic and foreign income taxes (53) 263 (242)
Other operating, net (155) (195) (275)
--------- --------- ---------
2,401 1,044 324
Operating cash flow from discontinued operations -- -- (244)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,401 1,044 80
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (952) (601) (1,074)
Sale of businesses and disposal of property, plant and equipment, net 1,488 52 3,378
Proceeds from litigation settlement -- 775 --
Collection of note receivable -- 1,395 --
Buyout of operating leases -- (17) (41)
Purchase of businesses, net (3,715) (127) (3,528)
Dividends from equity investments and other, net 82 114 55
--------- --------- ---------
(3,097) 1,591 (1,210)
Investing cash flow from discontinued operations -- -- (6)
--------- --------- ---------
NET CASH(USED)PROVIDED BY INVESTING ACTIVITIES (3,097) 1,591 (1,216)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt and non-recourse debt 2,447 835 1,775
(Repayments of)proceeds from commercial paper and revolving credit agreements, net -- (2,201) 811
Payments of long-term debt, non-recourse debt and capital lease liabilities (1,389) (1,305) (679)
Proceeds from issuance of common stock 41 21 29
Proceeds from issuance of Trust Preferred Securities -- 508 --
Repurchase of Trust Preferred Securities (12) (21) --
Proceeds from natural gas delivery commitment -- -- 500
Purchases for natural gas delivery commitment (115) -- --
(Payments)proceeds of notes payable, net (25) 9 (4)
Repurchase of common stock -- -- (937)
Cash dividends paid (369) (363) (387)
Other financing, net 1 -- 11
--------- --------- ---------
NET CASH PROVIDED(USED) BY FINANCING ACTIVITIES 579 (2,517) 1,119
--------- --------- ---------
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (117) 118 (17)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 214 96 113
--------- --------- ---------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 97 $ 214 $ 96
======================================================================================= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
36
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 Occidental has majority ownership of
voting interests and Occidental's proportionate interests in oil and gas
exploration and production ventures. 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 15).
In addition, certain financial statements, notes and supplementary data for
prior years have been changed to conform to the 2000 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 ten other countries. Occidental's OxyChem
subsidiary 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 $13.5 billion as of December 31,
2000. These carrying values are based on Occidental's plans and intentions to
continue to operate, maintain 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 $845 million as of December 31, 2000, 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 $1.8 billion as of December 31, 2000, 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 2000, a
loss of $11 million in 1999 and a loss of $17 million in 1998. The 1998 loss was
primarily due to the currency devaluation in Russia.
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 $46 million and $162 million at December 31, 2000 and
1999, respectively.
TRADE RECEIVABLES
In 1992, Occidental entered into a new agreement to sell, under a revolving
sale program, an undivided percentage ownership interest in a designated pool of
trade receivables, with limited recourse. 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. As of December 31,
2000 and 1999, Occidental had received net cash proceeds totaling $360 million.
Fees and expenses under this program are included in selling, general and
administrative and other
37
operating expenses. During the years ended December 31, 2000, 1999 and 1998, the
cost of this program amounted to approximately 6.7 percent, 5.5 percent, and 5.9
percent, respectively, of the weighted average amount of proceeds received. In
January 2001, Occidental replaced the existing agreement with a similar one.
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 16).
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. The unit-of-production method of depreciation, based on
estimated total productive life, also is used for certain chemical plant and
equipment. Depreciation of other plant and equipment has been provided primarily
using the straight-line method.
Oil and gas properties are accounted for using the successful-efforts
method. Costs of acquiring nonproducing acreage, costs of drilling successful
exploration wells and development costs are capitalized. Producing and
nonproducing properties are evaluated periodically and, if conditions warrant,
an impairment reserve is provided. Annually, a determination is made whether it
is probable that significant impairment of the carrying cost for individual
fields or groups of fields has occurred, considering a number of factors,
including profitability, political risk and Occidental's estimate of future oil
and gas prices. If impairment is believed probable, a further analysis is
performed using Occidental's estimate of future oil and gas prices to determine
any impairment to be recorded for specific fields or groups of fields. Annual
lease rentals and exploration costs, including geologic and geophysical costs
and exploratory dry-hole costs, are expensed as incurred.
At December 31, 2000 and 1999 corporate property, plant and equipment
included $1.2 billion for an intrastate gas pipeline owned by Occidental.
Accumulated depreciation, depletion and amortization included $436 million and
$407 million at December 31, 2000 and 1999, respectively, for such pipeline.
OTHER ASSETS
Other assets include tangible and intangible assets, certain of which are
amortized over the estimated periods to be benefited.
NOTES PAYABLE
Notes payable at December 31, 2000 and 1999 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, 2000 and
1999 was 17.4 percent and 11.2 percent, respectively. The notes payable balance
at December 31, 2000 and 1999 included high-rate notes denominated in Brazilian
Reals.
ACCRUED LIABILITIES--CURRENT
Accrued liabilities include the following (in millions):
Balance at December 31, 2000 1999
====================================================== ======== =========
Accrued payroll, commissions and related expenses $ 180 $ 130
Accrued interest expense $ 88 $ 101
- ------------------------------------------------------ -------- ---------
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 $79 million and $323 million, respectively, at
December 31, 2000 and $88 million and $366 million, respectively, at December
31, 1999.
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, 2000 and 1999, reserves that were recorded on a
discounted basis were not material.
38
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 all other operations, 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 $2 million and
$28 million, respectively, at December 31, 2000, and $3 million and $76 million,
respectively, at December 31, 1999.
DERIVATIVE ACTIVITIES
Occidental periodically uses commodity futures contracts, options and swaps
to hedge the impact of oil and natural gas price fluctuations and uses forward
exchange contracts to hedge the risk associated with fluctuations in foreign
currency exchange rates. Emerging Issues Task Force ("EITF") Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities, was implemented in the first quarter of 1999. Oil and gas trading
contracts are measured at fair value on the balance sheet date. Gains and losses
on such contracts are recognized in periodic income. Except where a right of
setoff exists, gains are recognized as accrued receivables and losses are
recognized as accrued payables. Gains and losses on commodity futures contracts
that qualify for hedge accounting, essentially those associated with equity
production or purchases, are deferred until recognized as an adjustment to sales
revenue or purchase costs when the related transaction being hedged is
finalized. Gains and losses on foreign currency forward exchange contracts that
hedge identifiable future commitments are deferred until recognized when the
related item being hedged is settled. All other contracts are recognized in
periodic income. The cash flows from such contracts are included in operating
activities in the consolidated statements of cash flows.
Interest rate swaps and futures are entered into, from time to time, on
specific debt as part of Occidental's overall strategy to maintain part of its
debt on a floating-rate basis. There were no interest rate swaps outstanding at
December 31, 2000.
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging, as amended by SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, and SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, is effective for Occidental as of
January 1, 2001. 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. Changes in the derivative instrument's fair
value must be recognized into earnings unless specific hedge accounting criteria
are met. Adoption of these new accounting standards will result in cumulative
after-tax reductions in net income of approximately $24 million and other
comprehensive income of approximately $27 million in the first quarter of 2001.
The adoption will also increase total assets by $588 million and total
liabilities by $639 million on the balance sheet.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the years 2000, 1999 and 1998 included federal,
foreign and state income taxes of approximately $686 million, $105 million and
$212 million, respectively. Interest paid (net of interest capitalized) totaled
approximately $516 million, $468 million and $491 million for the years 2000,
1999 and 1998, respectively. See Note 3 for detail of noncash investing and
financing activities regarding certain acquisitions.
NOTE 2 FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
COMMODITY FUTURES AND FORWARD CONTRACTS
Occidental's oil and gas segment engages in commodity derivative activity,
both for the purpose of hedging and trading activities. The resulting energy
trading contracts are measured at fair value on the balance sheet date. Gains
and losses on such contracts are recognized in periodic income. Gains and losses
on commodity futures contracts that qualify for hedge accounting, essentially
those associated with equity production or purchases, are deferred until
recognized as an adjustment to sales revenue or purchase costs when the related
transaction being hedged is finalized.
FORWARD EXCHANGE AND INTEREST RATE CONTRACTS
Occidental is engaged in both oil and gas and chemical activities
internationally. International oil and gas transactions are mainly denominated
in U.S. dollars; consequently, foreign currency exposure is not deemed material.
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. 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.
39
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. The effect of exchange rate transactions in foreign
currencies is included in periodic income. Foreign currencies which are in a net
liability position are thus protected from the unfavorable effects of
devaluation. For entities that have a net foreign currency asset position,
Occidental attempts to maintain those positions at low levels to mitigate
exposure to currency devaluation. At December 31, 2000, Occidental had no
foreign currency contracts outstanding.
From time to time, Occidental enters into interest rate swaps and futures
contracts to hedge interest rates on debt. In November 1993, Occidental entered
into interest rate swaps on newly issued fixed-rate debt for notional amounts
totaling $530 million. This converted fixed-rate debt into variable-rate debt,
based on the London Interbank Offered Rate. All remaining agreements matured in
November 2000. Notional amounts did not represent cash flow. Credit risk
exposure, which was not material, was limited to the net interest differentials.
The swap rate difference resulted in approximately $1 million of expense in
2000, less than $1 million of income in 1999 and approximately $2 million of
expense in 1998, compared to what interest expense would have been had the debt
remained at fixed rates. The impact of the swaps on the weighted average
interest rates for all debt in 2000, 1999 and 1998 was not significant.
At December 31, 2000, Occidental was a party to a series of forward rate
locks 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
co-generation plant that will be subject to a long-term operating lease to an
OxyChem affiliate. 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 will commence on or before
December 31, 2002. The fair value of these financial instruments at December 31,
2000 was an unrealized loss of $29 million.
FAIR VALUE OF 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. 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, 2000 and 1999 was approximately $6.1 billion and
approximately $4.9 billion, respectively, compared with a carrying value of
approximately $5.9 billion, and approximately $4.9 billion, respectively.
Occidental will continue its strategy of maintaining part of its debt on a
floating-rate basis.
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.
Occidental values derivative financial instruments (a futures, forward,
swap, or option contract, or other financial instrument with similar
characteristics) as required by the SFAS No. 119, Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments. The average fair
value of derivative financial instruments held or issued for trading purposes
during 2000 was $2 million. The fair value of these instruments at December 31,
2000 was $31 million. Offsetting the value of these instruments are related
physical positions with a $12 million loss. The approximate $19 million net gain
was reflected in the consolidated statements of operations. The majority of the
gain realized from derivative financial instruments held or issued for trading
purposes was from the mark-to-market under EITF Issue No. 98-10 of a long-term
sales contract. The gross value of these positions has been reflected on the
accompanying consolidated balance sheet as $252 million of accrued receivables
and $233 million of accrued liabilities. Excluding the long-term sales contract
that was marked-to-market under EITF Issue No. 98-10, the obligations' net
positions, most of which expire in 2001, cover 5 billion cubic feet of natural
gas and 50 thousand barrels of crude oil. The long-term sales contract volume
commitment is 38,100 MMBtu per day through October 2010. The risk portfolio is
spread out over numerous counterparties. The majority of the exposure is with
institutional banks and with market leaders in the industry. No defaults are
expected nor anticipated. Counterparty creditworthiness is reviewed before doing
business with a new counterparty and on an on-going basis. The derivative
financial 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 are related
physical positions with a $528 million loss. The principal components of these
instruments and related physical positions are the natural gas delivery
commitment and the related natural gas price swap discussed in Note 7. At
December 31, 2000, the difference between the carrying value and the fair value
of financial instruments held for purposes other than trading was an unrealized
loss of approximately $17 million, which is currently deferred. Any gain or loss
will be recognized when the related transactions are finalized.
The results of oil and gas trading activities, excluding the long-term
sales contract, were not significant.
40
NOTE 3 BUSINESS COMBINATIONS, ASSET ACQUISITIONS AND DISPOSITIONS,
AND DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
On December 4, 2000, Occidental completed an agreement with BP Amoco ("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
net after-tax proceeds of approximately $120 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. (now "Occidental Permian Ltd.")
("Altura"), 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 has 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 are entitled to certain distributions from 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.
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.
41
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.
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
and ethylene glycol derivatives businesses (collectively, "the petrochemicals
business") to a partnership called Equistar Chemicals, LP ("Equistar"), in
return for a 29.5 percent interest in such partnership, receipt of approximately
$420 million in cash and the assumption by Equistar of approximately $205
million of Occidental capital lease liabilities. Occidental guaranteed $625
million of Equistar's debt related to these amounts. Lyondell Petrochemical
Company ("Lyondell") and Millennium Chemicals, Inc. ("Millennium"), through
their respective subsidiaries, were the original partners of Equistar. Lyondell
owns 41 percent of Equistar and Occidental and Millennium each own 29.5 percent.
Occidental did not record a gain or loss on the transaction.
In February 1998, Occidental acquired the U.S. government's approximate 78
percent interest in the Elk Hills Naval Petroleum Reserve oil and gas fields
("Elk Hills field") for approximately $3.5 billion. Occidental's results of
operations include the operations of the Elk Hills field from the date of
acquisition. Pro-forma net income for the year ended December 31, 1998,
including historical Elk Hills results as if the acquisition had occurred at
January 1, 1998, would not have been materially different. Pro-forma revenues
would have been $7.4 billion for the year ended December 31, 1998. The pro-forma
calculations were made with historical operating results for the Elk Hills field
prior to ownership by Occidental and give effect to certain adjustments
including increased depreciation, depletion and amortization to reflect the
value assigned to Elk Hills property, plant and equipment, increased interest
expense assuming the acquisition was completely financed, and income and
property tax effects, but did not reflect anticipated future production
enhancements in the Elk Hills field and operational cost improvements expected
to be realized.
In 1998, Occidental completed a number of international and domestic asset
sales as part of an asset redeployment program. The sale of major nonstrategic
oil and gas properties included Occidental's entire interest in an oilfield
development project in Venezuela, the stock of the subsidiary which owned its
oil and gas assets in the Netherlands and the North Sea, as well as various
domestic properties. Net proceeds from all major nonstrategic oil and gas asset
sales were $1.1 billion, and the total net pre-tax gain was $532 million, which
is included in the total gain from disposition of assets of $546 million.
Additionally in 1998, Occidental and the Royal Dutch/Shell Group ("Shell")
exchanged Occidental's oil and gas interests in the Philippines and Malaysia for
Shell's oil and gas interests in Yemen and Colombia. Shell also received a cash
payment of approximately $89 million. No gain or loss was recorded on the
transaction.
Occidental completed the sale of all of the issued and outstanding shares
of common stock of MidCon, its natural gas transmission and marketing business,
to KN Energy, Inc. ("KN Energy"), on January 31, 1998 in return for a cash
payment of $2.1 billion. The estimated net cash proceeds from the transaction
were approximately $1.7 billion. Additionally, KN Energy issued a fixed-rate
interest bearing note, payable January 4, 1999, to Occidental in the amount of
$1.4 billion, in exchange for a note previously issued to Occidental by the
MidCon Corp. Employee Stock Ownership Plan ("ESOP") Trust. The $1.4 billion note
was repaid on January 4, 1999. MidCon also retained responsibility for certain
Texas intrastate pipeline lease obligations to an Occidental subsidiary. In
connection with the sale, the Cumulative MidCon-Indexed Convertible Preferred
Stock ("CMIC Preferred Stock") was redeemed.
42
NOTE 4 EXTRAORDINARY ITEMS AND ACCOUNTING CHANGES AND OTHER TRANSACTIONS
- --------------------------------------------------------------------------------
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, $210 million in 1999
and $209 million in 1998.
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.
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The implementation of SFAS No. 130 did
not have an impact on Occidental's results of operations. The prior year
financial statements have been restated to conform to the new presentation.
Occidental's comprehensive income is composed primarily of net income or loss,
foreign currency translation adjustments and minimum pension liability
adjustments. Occidental's comprehensive income was $1,571 million in 2000, $426
million in 1999 and $345 million in 1998.
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
statement establishes standards for reporting and display of information about
operating segments. It supersedes or amends several Financial Accounting
Standards Board ("FASB") statements, most notably, SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. The implementation of SFAS No.
131 did not have an impact on Occidental's consolidated financial position or
results of operations.
43
NOTE 5 INVENTORIES
- --------------------------------------------------------------------------------
Inventories of approximately $268 million and $246 million were valued
under the LIFO method at December 31, 2000 and 1999, respectively. Inventories
consisted of the following (in millions):
Balance at December 31, 2000 1999
============================== ========= =========
Raw materials $ 68 $ 60
Materials and supplies 125 167
Work in process 3 7
Finished goods 343 294
--------- ---------
539 528
LIFO reserve (54) (25)
--------- ---------
TOTAL $ 485 $ 503
============================== ========= =========
NOTE 6 LONG-TERM DEBT AND NON-RECOURSE DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following (in millions):
Balance at December 31, 2000 1999
==================================================================================== ========= =========
OCCIDENTAL PETROLEUM CORPORATION
7.65% senior notes due 2006 $ 450 $ 450
6.4% senior notes due 2013, subject to remarketing April 1, 2003 450 450
7.375% senior notes due 2008 395 400
8.45% senior notes due 2029 350 350
9.25% senior debentures due 2019, putable August 1, 2004 at par 300 300
10.125% senior debentures due 2009 276 276
7.2% senior debentures due 2028 200 200
6.75% senior notes due 2002 163 200
6.5% senior notes due 2005 157 250
Medium-term notes due 2001 through 2008 (7.18% to 9.75% at December 31, 2000) 150 427
8.5% senior notes due 2001 132 150
8.75% medium-term notes due 2023 100 100
10.125% senior notes due 2001 89 90
11.125% senior notes due 2010 12 12
Floating rate extendible notes due 2008 -- 270
11.125% senior debentures due 2019, redeemed on June 1, 2000 at par -- 75
--------- ---------
3,224 4,000
--------- ---------
OXY USA INC.
5.7% to 7.8% unsecured notes due 2001 through 2007 34 48
7.2% unsecured notes due 2020 7 7
--------- ---------
41 55
--------- ---------
OTHER SUBSIDIARY DEBT
4.4% to 7.85% unsecured notes due 2001 through 2030 276 321
6% secured notes due 2001 through 2007 17 17
--------- ---------
293 338
--------- ---------
3,558 4,393
Less:
Unamortized discount, net (16) (21)
Current maturities (257) (4)
--------- ---------
TOTAL LONG-TERM DEBT 3,285 4,368
--------- ---------
Occidental Permian Ltd. non-recourse term loan due 2005
(7.66% weighted average interest rate at December 31, 2000) 1,900 --
--------- ---------
TOTAL LONG-TERM DEBT AND NON-RECOURSE DEBT $ 5,185 $ 4,368
==================================================================================== ========= =========
44
At December 31, 2000, 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, 2000, minimum principal payments on long-term debt and
non-recourse debt subsequent to December 31, 2001 aggregated $5.2 billion, of
which $261 million is due in 2002, $814 million in 2003, $625 million in 2004,
$1.4 billion in 2005, $2 million in 2006 and $2.1 billion thereafter.
Unamortized discount is generally being amortized to interest expense on the
effective interest method over the lives of the related issues.
At December 31, 2000, 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 $2.5 billion, assuming that such dividends, distributions and
acquisitions were made without incurring additional borrowings.
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 beginning in 2000. The imputed
interest rate in the transaction is approximately 6 percent. 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 mitigates
Occidental's price exposure. At December 31, 2000, the fair value of this price
swap is a $525 million gain, which is offset by a $525 million loss applicable
to the related physical positions. This price swap is the principal component of
the fair value for derivative financial instruments disclosed in Note 2.
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, 2000, 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
============================================================================= ========= =========
2001 $ 150 66
2002 150 66
2003 147 65
--------- ---------
TOTAL 447 197
=========
Less:
Imputed interest (36)
Current portion (129)
---------
PRESENT VALUE OF NATURAL GAS DELIVERY COMMITMENT, NET OF CURRENT PORTION $ 282
============================================================================= =========
45
NOTE 8 LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The present value of net minimum capital lease payments, net of the current
portion, totaled $26 million and $27 million at December 31, 2000 and 1999,
respectively. 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, 2000, 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
============================================================================= ========= =========
2001 $ 4 $ 79
2002 2 54
2003 1 44
2004 1 30
2005 1 22
Thereafter 42 172
--------- ---------
TOTAL MINIMUM LEASE PAYMENTS 51 $ 401
=========
Less:
Executory costs (1)
Imputed interest (22)
Current portion (2)
---------
PRESENT VALUE OF NET MINIMUM CAPITAL LEASE PAYMENTS, NET OF CURRENT PORTION $ 26
============================================================================= =========
Rental expense for operating leases, net of sublease rental income, was $98
million in 2000, $93 million in 1999 and $106 million in 1998. Rental expense
was net of sublease income of $8 million in 2000, $9 million in 1999 and $10
million in 1998. At December 31, 2000, sublease rental amounts included in the
future operating lease payments totaled $98 million, as follows (in millions):
2001--$8, 2002--$7, 2003--$7, 2004--$7, 2005--$7, and 2006 and thereafter--$62.
In addition, Occidental has undertaken certain commitments in connection with
the construction and leasing of a co-generation facility in Louisiana. Upon
completion of construction and satisfaction of certain other conditions, lease
payments are expected to commence on or before December 31, 2002.
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 2000 and 1999 property, plant and equipment accounts were
$62 million and $59 million, respectively, of property leased under capital
leases and $57 million and $52 million, respectively, of related accumulated
amortization.
NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
- --------------------------------------------------------------------------------
Occidental and certain of its subsidiaries have been named as defendants or
as potentially responsible parties in a substantial number of lawsuits, claims
and proceedings, including 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.
In December 1998, David Croucher and others filed suit in the Federal
District Court in Houston, Texas on behalf of persons claiming to have been
beneficiaries of the MidCon ESOP. The suit has been certified as a class action.
The plaintiffs allege that each of the U.S. Trust Company of California (the
"ESOP Trustee") and the MidCon ESOP Administrative Committee breached its
fiduciary duty to the plaintiffs by failing to properly value the securities
held by the ESOP, and allege that Occidental actively participated in such
conduct. The plaintiffs claim that, as a result of this alleged breach, the ESOP
participants are entitled to an additional aggregate distribution of at least
$200 million and that Occidental has been unjustly enriched and is liable for
failing to make that distribution. In December 2000, the named plaintiffs and
defendants reached a proposed settlement of the action. This settlement provides
for Occidental to pay the class $25 million and fees and expenses of plaintiffs'
counsel as awarded by the Court. The Court has scheduled a hearing on March 15,
2001 to consider approving the settlement. Occidental has adequate reserves.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
46
At December 31, 2000, commitments for major capital expenditures during
2001 and thereafter were approximately $73 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, 2000, 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 $251 million, which was payable as follows (in millions):
2001--$29, 2002--$27, 2003--$26, 2004--$23, 2005--$22 and 2006 through
2016--$131. Payments under these agreements, including any variable component,
were $42 million in 2000, $20 million in 1999 and $19 million in 1998.
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 2001.
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
=================================== ========= ========= =========
2000 $ 1,534 $ 1,477 $ 3,011
========= ========= =========
1999 $ 473 $ 726 $ 1,199
========= ========= =========
1998 $ 388 $ 300 $ 688
=================================== ========= ========= =========
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
=================================== ========= ========= ========= =========
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
=================================== ========= ========= ========= =========
1998
Current $ (113) $ 23 $ 178 $ 88
Deferred 249 29 (3) 275
--------- --------- --------- ---------
$ 136 $ 52 $ 175 $ 363
=================================== ========= ========= ========= =========
47
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, 2000 1999 1998
========================================== ======== ======== ========
U.S. federal statutory tax rate 35% 35% 35%
Operations outside the United States(a) 11 12 15
State taxes, net of federal benefit 1 2 5
Capital loss benefit -- -- (5)
Other 1 4 3
-------- -------- --------
Tax rate provided by Occidental 48% 53% 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 and
6 percent in 1998. The effect on 2000 due to distributions from these
subsidiaries was insignificant.
The tax effects of temporary differences and carryforwards resulting in
deferred income taxes at December 31, 2000 and 1999 were as follows (in
millions):
2000 1999
------------------------- -------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX Tax Tax
Items resulting in temporary differences and carryforwards ASSETS LIABILITIES Assets Liabilities
============================================================= =========== =========== =========== ===========
Property, plant and equipment differences $ 188 $ 884 $ 190 $ 695
Equity investments including partnerships -- 1,066 -- 1,046
Environmental reserves 145 -- 152 --
Postretirement benefit accruals 184 -- 140 --
State income taxes 108 -- 95 --
Tax credit carryforwards -- -- 60 --
All other 243 58 427 141
----------- ----------- ----------- -----------
Subtotal 868 2,008 1,064 1,882
Valuation allowance (23) -- (32) --
----------- ----------- ----------- -----------
Total deferred taxes $ 845 $ 2,008 $ 1,032 $ 1,882
============================================================= =========== =========== =========== ===========
Included in total deferred tax assets was a current portion aggregating
$117 million and $145 million as of December 31, 2000 and 1999, respectively,
that was reported in prepaid expenses and other.
A deferred tax liability of approximately $145 million at December 31, 2000
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 foreign currency translation adjustment included in other comprehensive
income was net of an income tax charge of $6 million in 2000, a charge of $5
million in 1999 and a benefit of $6 million in 1998.
The extraordinary loss that resulted from the early extinguishment of debt
was reduced by an income tax benefit of $61 million in 1999.
The cumulative effect of changes in accounting principles in 1999 was
reduced by an income tax benefit of $7 million.
Discontinued operations included income tax charges of $21 million in 1998.
During 2000, Occidental utilized, for U.S. federal income tax return
purposes, the entire alternative minimum tax credit carryforward balance of $60
million.
48
NOTE 11 NONREDEEMABLE PREFERRED STOCK AND COMMON STOCK
- --------------------------------------------------------------------------------
The following is an analysis of nonredeemable preferred stock and common
stock (shares in thousands):
Nonredeemable Common
Preferred Stock Stock
================================================ =============== ===============
BALANCE, DECEMBER 31, 1997 22,491 341,127
Issued -- 1,246
Preferred stock conversions (17,639) 40,098
Repurchase program -- (35,142)
Options exercised and other, net -- 393
- ------------------------------------------------ --------------- ---------------
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
================================================ =============== ===============
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 and 1998, 4,847,130 shares and 2,532,740 shares of CXY-indexed
convertible preferred stock were converted by the holders into 15,708,176 shares
and 6,911,913 shares of Occidental's common stock, respectively.
At December 31, 2000 and 1999, Occidental had no outstanding shares of
preferred stock.
COMMON STOCK REPURCHASE PROGRAM
In 1998, Occidental completed the common stock repurchase program announced
in October 1997. Under the program, 39.3 million shares were repurchased and
retired for a total cost of $1.06 billion of which 35.1 million shares were
repurchased and retired in 1998 at a cost of $937 million.
STOCK INCENTIVE PLANS
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Options to purchase common stock of Occidental have been granted to
officers and employees under stock option plans adopted in 1987 and 1995. During
2000, options for 2,987,348 shares became exercisable, and options for 8,373,508
shares were exercisable at December 31, 2000 at a weighted-average exercise
price of $22.84. Generally, these options vest over three years with a maximum
term of ten years and one month. At December 31, 2000, options with stock
appreciation rights ("SAR") for 473,000 shares were outstanding, all of which
were exercisable.
The following is a summary of stock option transactions during 2000, 1999
and 1998 (shares in thousands):
2000 1999 1998
------------------------- ------------------------- -------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
======================== ======== ============== ======== ============== ======== ==============
BEGINNING BALANCE 13,033 $ 23.249 8,169 $ 24.065 6,769 $ 23.274
Granted or issued 5,577 $ 20.144 5,221 $ 19.577 2,443 $ 26.032
Exercised (93) $ 19.968 (7) $ 17.750 (605) $ 22.310
Canceled or expired (300) $ 25.018 (350) $ 26.874 (438) $ 25.222
-------- -------- --------
ENDING BALANCE 18,217 $ 21.532 13,033 $ 23.249 8,169 $ 24.065
======== ======== ========
OPTIONS EXERCISABLE
AT YEAR-END 8,374 5,761 4,400
======================== ======== ======== ========
49
The following is a summary of stock options outstanding at December 31,
2000 (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 7,365 8.26 $ 19.17 1,397 $ 17.76
$20.50 to $23.88 5,979 7.47 $ 21.23 2,896 $ 21.76
$24.38 to $29.44 4,873 6.76 $ 25.46 4,081 $ 25.35
- ----------------- ------------- ------------------ ---------------- ------------- ----------------
RESTRICTED STOCK AWARDS
Pursuant to the 1995 Incentive Stock Plan, employees may be awarded
Occidental restricted common stock at the par value of $.20 per share, with such
shares vesting after four years or earlier under certain conditions. The related
expense is amortized over the vesting period. 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 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 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 2000, 101,630 shares
were issued in respect of the target shares granted in 1996.
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, 2000, none of the options were exercisable.
Under the 1995 Stock Incentive Plan, a total of 25,000,000 shares may be
awarded. At December 31, 2000, 2,519,848 shares were available for future awards
under the 1995 Plan, all of which were available to issue stock options, SARs,
restricted stocks and performance stock awards.
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 $1.6 billion in 2000, $439
million in 1999 and $358 million in 1998. Basic and diluted earnings per share
would have been $4.23 for 2000, $1.22 for 1999 and $.97 for 1998. 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 2000, 1999 and 1998, respectively: dividend yield
of 4.97, 4.60 and 3.84 percent; expected volatility of 28.37, 23.57 and 22.91
percent; risk-free rate of return of 6.27, 5.86 and 5.45 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, 18,800 and 3,500 shares of common stock
were awarded during 2000, 1999 and 1998, respectively. At December 31, 2000,
99,950 shares of common stock were available for the granting of future awards.
50
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, 2000 and 1999 is net of issue
costs and also reflects amortization of a portion of the issue costs, and the
repurchase in 2000 and 1999 of 555,760 and 937,436 shares with a liquidation
value of $13.9 million and $23.4 million, respectively.
51
NOTE 13 EARNINGS PER SHARE
- --------------------------------------------------------------------------------
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 and the conversion of preferred stocks.
The following is a calculation of earnings per share for the years ended
December 31 (in millions, except per-share amounts):
2000 1999 1998
------------------------------- ------------------------------- -------------------------------
PER-SHARE Per-Share Per-Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
============================ ========= ========= ========= ========= ========= ========= ========= ========= =========
BASIC EARNINGS PER SHARE
- ------------------------
Earnings from continuing
operations applicable to
common stock $ 1,570.5 369.0 $ 4.26 $ 562.6 355.4 $ 1.58 $ 308.1 350.2 $ .88
Discontinued operations, net -- -- 38.4 .11
Extraordinary gain(loss), net 1.2 -- (107.4) (.30) -- --
Cumulative effect of
changes in accounting
principles, net -- -- (13.4) (.04) -- --
--------- --------- --------- --------- --------- ---------
Earnings applicable to
common stock $ 1,571.7 $ 4.26 $ 441.8 $ 1.24 $ 346.5 $ .99
========= ========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE
- --------------------------
Earnings from continuing
operations applicable to
common stock $ 1,570.5 369.0 $ 562.6 355.4 $ 308.1 350.2
Dilutive effect of exercise of
options outstanding -- .2 -- .1 -- .4
--------- --------- --------- --------- --------- ---------
Earnings from continuing
operations applicable to
common stock 1,570.5 369.2 $ 4.26 562.6 355.5 $ 1.58 308.1 350.6 $ .88
Discontinued operations, net -- -- 38.4 .11
Extraordinary gain(loss), net 1.2 -- (107.4) (.30) -- --
Cumulative effect of
changes in accounting
principles, net -- -- (13.4) (.04) -- --
--------- --------- ---------- --------- --------- ---------
Earnings applicable to
common stock $ 1,571.7 $ 4.26 $ 441.8 $ 1.24 $ 346.5 $ .99
============================ ========= ========= ========= ========= ========= =========
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:
2000 1999 1998
==================================== ================== ================== ==================
Stock Options
Number of shares 5.6 4.6 1.7
Price range $ 21.250 - $29.438 $ 21.250 - $29.625 $ 24.375 - $29.625
Expiration range 4/28/03 - 11/10/09 1/14/00 - 7/8/08 8/20/99 - 12/1/07
Convertible Preferred Stock $3.00
Number of shares -- -- 10.5
Dividends paid $ -- $ -- $ 16.5
- ------------------------------------ ------------------ ------------------ ------------------
52
NOTE 14 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 $55 million in 2000, $46 million in 1999 and
$49 million in 1998 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 $69 million in 2000, $67
million in 1999 and $75 million in 1998.
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 2000, 1999 and 1998 (in millions):
Pension Benefits Postretirement Benefits
--------------------------------- ---------------------------------
For the years ended December 31, 2000 1999 1998 2000 1999 1998
=============================================== ========= ========= ========= ========= ========= =========
NET PERIODIC BENEFIT COSTS:
Service cost--benefits earned during the period $ 9 $ 4 $ 5 $ 4 $ 5 $ 5
Interest cost on benefit obligation 23 24 22 29 25 25
Expected return on plan assets (23) (19) (17) -- -- --
Amortization of net transition obligation -- 1 1 -- -- --
Amortization of prior service cost 1 3 3 1 1 1
Recognized actuarial loss (1) (5) (2) (1) (1) (2)
Curtailments and settlements -- (1) 4 (8) (4) --
Currency adjustments (5) (6) (3) -- -- --
--------- --------- --------- --------- --------- ---------
Net period benefit cost $ 4 $ 1 $ 13 $ 25 $ 26 $ 29
=============================================== ========= ========= ========= ========= ========= =========
Occidental recorded adjustments to accumulated other comprehensive income
of $2 million in 2000 and credits of less than $1 million in 1999 and 1998, 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 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
----------------------- -----------------------
2000 1999 2000 1999
======================================================== ========= ========= ========= =========
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation -- beginning of year $ 261 $ 241 $ 372 $ 344
Service cost -- benefits earned during the period 9 4 4 5
Interest cost on projected benefit obligation 23 24 29 25
Actuarial (gain)loss -- (22) 15 8
Foreign currency exchange rate changes (6) (12) -- --
Benefits paid (18) (19) (43) (38)
Businesses acquired 41 (a) 45 (c) 14 (a) 32 (c)
Divestitures (16)(b) -- -- --
Curtailments and settlements 1 -- (8) (4)
--------- --------- --------- ---------
Benefit obligation -- end of year $ 295 $ 261 $ 383 $ 372
======================================================== ========= ========= ========= =========
(a) Relates to Altura and THUMS.
(b) Primarily relates to Durez.
(c) Primarily relates to INDSPEC.
53
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
-----------------------
2000 1999
================================================= ========= =========
CHANGES IN PLAN ASSETS:
Fair value of plan assets -- beginning of year $ 254 $ 234
Actual return on plan assets 10 8
Foreign currency exchange rate changes (1) (4)
Employer contribution 2 7
Benefits paid (18) (19)
Businesses acquired 21 (a) 28 (c)
Divestitures (14)(b) --
--------- ---------
Fair value of plan assets -- end of year $ 254 $ 254
================================================= ========= =========
(a) Relates to Altura and THUMS.
(b) Primarily relates to Durez.
(c) Primarily relates to INDSPEC.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for defined benefit pension plans with accumulated benefit
obligations in excess of plan assets were $103 million, $84 million and $41
million, respectively, as of December 31, 2000 and $60 million, $58 million and
$23 million, respectively, as of December 31, 1999.
The weighted average discount rate used in determining the benefit
obligations was 7.75 percent as of December 31, 2000 and 1999. The weighted
average rate of increase in future compensation levels used in determining the
benefit obligations was approximately 4.5 percent in 2000 and 1999. The expected
long-term rate of return on assets was 9.0 percent in 2000 and 1999.
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, 2000 and 1999,
(beginning in 1993, 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 7.0 percent in 2000 to 5.0 percent through the year 2004
and level thereafter. A 1.0 percent increase or a 1.0 percent decrease in these
assumed health care cost trend rates would result in an increase of $15 million
or a reduction of $14 million, respectively, in the postretirement benefit
obligation as of December 31, 2000, and an increase or reduction of $1 million
in interest cost in 2000. 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, 2000 and 1999 (in millions):
Pension Benefits Postretirement Benefits
----------------------- -----------------------
Balance at December 31, 2000 1999 2000 1999
========================================= ========= ========= ========= =========
Funded status $ (41) $ (7) $ (383) $ (372)
Unrecognized net transition obligation 2 2 -- --
Unrecognized prior service cost 3 3 9 10
Unrecognized net (gain)loss 7 (5) (20) (35)
--------- --------- --------- ---------
Net amount recognized $ (29) $ (7) $ (394) $ (397)
========= ========= ========= =========
Prepaid benefit cost $ 36 $ 37 $ -- $ --
Accrued benefit liability (66) (44) (394) (397)
Accumulated other comprehensive income 1 -- -- --
--------- --------- --------- ---------
Net amount recognized $ (29) $ (7) $ (394) $ (397)
========================================= ========= ========= ========= =========
54
NOTE 15 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, 2000, Occidental's equity investments
consisted of a 29.5 percent interest in Equistar acquired in May 1998 and
various chemical partnerships and joint ventures. Equity investments paid
dividends of $99 million, $100 million and $69 million to Occidental in 2000,
1999 and 1998, respectively. Cumulative undistributed earnings since
acquisition, in the amount of $49 million, of 50-percent-or-less-owned companies
have been accounted for by Occidental under the equity method. At December 31,
2000 and 1999, Occidental's investment in equity investees exceeded the
historical underlying equity in net assets by approximately $128 million and
$155 million, respectively, which is being amortized into income over periods
not exceeding 40 years.
Occidental and its subsidiaries' purchases from certain chemical
partnerships, in which it has investments, were $755 million, $860 million and
$350 million in 2000, 1999 and 1998, respectively. Occidental and its
subsidiaries' sales to certain chemical partnerships, in which it has
investments, were $217 million, $251 million and $266 million, in 2000, 1999 and
1998, 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, 2000 1999 1998
===================================== ========= ========= =========
Revenues $ 2,735 $ 2,491 $ 2,118
Costs and expenses 2,668 2,450 2,140
--------- --------- ---------
Net income(loss) $ 67 $ 41 $ (22)
===================================== ========= ========= =========
Balance at December 31, 2000 1999
===================================== ========= =========
Current assets $ 1,576 $ 680
Noncurrent assets $ 5,950 $ 2,890
Current liabilities $ 867 $ 483
Noncurrent liabilities $ 2,915 $ 1,632
Stockholders' equity $ 3,744 $ 1,455
- ------------------------------------- --------- ---------
Investments also include certain cost method investments, in which
Occidental owns less than 20 percent of the voting stock.
NOTE 16 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, discontinued operations, 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.
Intersegment sales and transfers between geographic areas are made at prices
approximating current market values.
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 and other assets.
55
INDUSTRY SEGMENTS
In millions
Oil and Gas Chemical Corporate Total
=============================================================== =========== =========== =========== ===========
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 (n) $ 791 $ 155 $ 6 $ 952
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 670 $ 190 $ 41 $ 901
=========== =========== =========== ===========
Total assets $ 13,384 $ 4,848 $ 1,182 (o) $ 19,414
=============================================================== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1999
Net sales (a) $ 4,599 (b) $ 3,221 (p) $ -- $ 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 (k) $ (37)(l) $ (782)(m) $ 448
=========== =========== =========== ===========
Unconsolidated equity investments $ 119 $ 1,388 $ 247 $ 1,754
=========== =========== =========== ===========
Property, plant and equipment additions, net (n) $ 474 $ 116 $ 11 $ 601
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 577 $ 190 $ 38 $ 805
=========== =========== =========== ===========
Total assets $ 7,271 $ 5,346 $ 1,508 (o) $ 14,125
=============================================================== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1998
Net sales (a) $ 3,650 (b) $ 3,155 (q) $ -- $ 6,805
=========== =========== =========== ===========
Pretax operating profit(loss) (d) $ 982 $ 283 $ (577)(f) $ 688
Income taxes (390) 4 23 (g) (363)
Discontinued operations, net -- -- 38 38
----------- ----------- ----------- -----------
Net income(loss)(e) $ 592 (r) $ 287 (s) $ (516)(t) $ 363
=========== =========== =========== ===========
Unconsolidated equity investments $ 120 $ 1,586 $ 253 $ 1,959
=========== =========== =========== ===========
Property, plant and equipment additions, net (n) $ 751 $ 321 $ 2 $ 1,074
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 603 $ 199 $ 33 $ 835
=========== =========== =========== ===========
Total assets $ 7,570 $ 4,799 $ 2,883 (o) $ 15,252
=============================================================== =========== =========== =========== ===========
See footnotes on following page
56
(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 $29 million, $27 million and $29 million for 2000, 1999
and 1998, respectively. Chemical revenues include $216 million, $183
million and $180 million for 2000, 1999 and 1998, respectively.
(b) Oil sales represented approximately 70 percent, 71 percent and 76 percent
of net sales for the periods ending December 31, 2000, 1999 and 1998,
respectively.
(c) Of total product sales, approximately 32 percent were in basic chemicals,
47 percent in commodity vinyl resins and 18 percent in specialty chemicals
prior to intercompany eliminations.
(d) Research and development costs were $16 million in 2000, $20 million in
1999 and $18 million in 1998.
(e) Segment earnings include charges and credits in lieu of U.S. federal income
taxes. 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. In 1998, the amounts allocated to the segments were charges
of $202 million and credits of $26 million in oil and gas and chemical,
respectively. 2000, 1999 and 1998 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 an after-tax gain of $39 million related to the sale of an
interest in certain of Occidental's Gulf of Mexico assets, an after-tax
gain on a receipt of a contingency payment of $41 million related to a
prior year sale of a Dutch North Sea subsidiary, a net pre-tax charge of
$53 million for the write-down of various oil and gas assets and
investments and an after-tax loss of $14 million related to the sale of an
office building.
(i) Includes a pre-tax charge of $120 million resulting from the decision to
exit several chemical intermediate businesses, an after-tax gain of $13
million on the sale of the Durez business, a pre-tax charge of $15 million
for the write-down of various assets, and a $2 million after-tax loss
resulting from a decision to abandon a foreign investment.
(j) Includes an after-tax gain of approximately $300 million related to the
sale of Occidental's 29.2 percent interest in CanadianOxy, a pre-tax gain
of $11 million related to an insurance dividend and a $17 million charge
for litigation settlement.
(k) Includes a net after-tax gain of $488 million related to a litigation
settlement with Chevron, a gain of $11 million related to the receipt of a
contingency payment, a charge of $9 million for the write-down of various
assets, a charge of $25 million for claims and settlements, a charge of $10
million for the closing of the oil and gas offices in Bakersfield,
California and a $29 million, net after-tax charge for the write-down of
Occidental's Peru producing assets.
(l) Includes pre-tax charges of $159 million for the write-down of various
assets, $28 million for write-downs by Equistar, $9 million for claims and
settlements and a gain of $12 million related to the sale of a chemical
plant by Equistar.
(m) Includes a pre-tax gain of $18 million related to an insurance dividend.
(n) Excludes acquisitions of other businesses and formation of OxyVinyls.
Amounts exclude $3.8 billion in oil and gas in 2000, $976 million in
chemical in 1999 and $3.5 billion in oil and gas in 1998, but include
capitalized interest of $3 million in 2000, $4 million in 1999 and $16
million in 1998.
(o) Includes the net assets of an intrastate pipeline. At December 31, 1998,
this amount also includes a note receivable of approximately $1.4 billion.
(p) Of total product sales, approximately 35 percent were in basic chemicals,
40 percent in commodity vinyl resins and 23 percent in specialty chemicals
prior to intercompany eliminations.
(q) Of total product sales, approximately 41 percent were in basic chemicals,
19 percent in commodity vinyl resins and 24 percent in specialty chemicals
prior to intercompany eliminations.
(r) Includes net after-tax gains of approximately $317 million from the sale of
major nonstrategic oil and gas properties, a pre-tax $30 million charge for
the write-off of certain exploration projects and a $12 million pre-tax
reorganization charge.
(s) Includes $30 million pre-tax for reorganization and other charges.
(t) Includes an after-tax $38 million benefit which reflects the closing of the
sale of MidCon and the finalization of the discontinued operations reserve.
GEOGRAPHIC AREAS
In millions
Net sales (a) Property, plant and equipment, net
------------------------------------ ------------------------------------
For the years ended December 31, 2000 1999 1998 2000 1999 1998
=================================== ========== ========== ========== ========== ========== ==========
United States $ 11,101 $ 5,958 $ 5,453 $ 11,890 $ 8,504 $ 8,162
Qatar 747 507 426 825 794 790
Yemen 435 254 123 229 222 183
Colombia 392 329 142 104 78 89
Canada 189 117 10 29 7 6
Russia 180 111 83 66 72 82
Ecuador 148 76 51 85 102 114
Oman 116 116 93 99 88 101
Other Foreign 266 352 424 144 162 378
---------- ---------- ---------- ---------- ---------- ----------
Total $ 13,574 $ 7,820 $ 6,805 $ 13,471 $ 10,029 $ 9,905
=================================== ========== ========== ========== ========== ========== ==========
(a) Sales are shown by individual country based on the location of the entity
making the sale.
57
NOTE 17 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, 2000
Proved properties $ 8,616 $ 618 $ 2,369 $ 11,603
Unproved properties 1,970 19 77 2,066
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 10,586 637 2,446 13,669
Support facilities 244 40 76 360
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 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 2,136 25 45 2,206
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 7,020 1,605 2,186 10,811
Support facilities 23 94 72 189
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 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
============================================================= ========== ========== ========== ==========
DECEMBER 31, 1998
Proved properties $ 5,821 $ 1,571 $ 2,015 $ 9,407
Unproved properties 1,749 9 58 1,816
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 7,570 1,580 2,073 11,223
Support facilities 16 141 69 226
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 7,586 1,721 2,142 11,449
Accumulated depreciation, depletion and amortization (2,561) (1,401) (812) (4,774)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 5,025 $ 320 $ 1,330 $ 6,675
========== ========== ========== ==========
Share of equity investees' net capitalized costs(b) $ 50 $ 150 (c) $ 112 $ 312
============================================================= ========== ========== ========== ==========
(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.
58
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, 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) 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
===================================== ========== ========== ========== ==========
DECEMBER 31, 1998
Acquisition of properties
Proved $ 1,834 $ -- $ 26 $ 1,860
Unproved 1,709 -- 2 1,711
Exploration costs 32 24 84 140
Development costs 169 35 341 545
---------- ---------- ---------- ----------
$ 3,744 $ 59 $ 453 $ 4,256
========== ========== ========== ==========
Share of equity investees' costs $ 46 $ 62 (b) $ 66 $ 174
===================================== ========== ========== ========== ==========
(a) Excludes costs related to the acquisition of CO2 properties and capitalized
CO2.
(b) Includes amounts in Latin America and Canada.
59
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, 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 (c) 35 182 661
---------- ---------- ---------- ----------
PRETAX INCOME 1,587 302 1,146 3,035
Income tax expense(d) 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 (c) 57 207 554
---------- ---------- ---------- ----------
PRETAX INCOME 414 204 590 1,208
Income tax expense(d) 34 81 251 (b) 366
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 380 $ 123 $ 339 $ 842
========== ========== ========== ==========
Share of equity investees' results of operations(e) $ (1) $ (11)(f) $ 33 $ 21
========================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues $ 860 $ 280 $ 818 (b) $ 1,958
Production costs 242 106 168 516
Exploration expenses 43 26 59 128
Other operating expenses 79 36 98 213
Other expense--asset write-downs -- -- 30 30
Depreciation, depletion and amortization 285 (c) 68 239 592
---------- ---------- ---------- ----------
PRETAX INCOME 211 44 224 479
Income tax expense(d) -- 25 145 (b) 170
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 211 $ 19 $ 79 $ 309
========== ========== ========== ==========
Share of equity investees' results of operations(e) $ -- $ (28)(f) $ 18 $ (10)
========================================================== ========== ========== ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
received an agreed-upon fee per barrel of crude oil produced in 1999 and
1998.
(b) Revenues and income tax expense include taxes owed by Occidental but paid
by governmental entities on its behalf.
(c) Includes credits of $5 million in 2000, $8 million in 1999 and $12 million
in 1998, under the method of allocating amounts in lieu of taxes.
(d) U.S. federal income taxes reflect expense allocations related to oil and
gas activities, including allocated interest and corporate overhead.
Foreign income taxes were included in geographic areas on the basis of
operating results.
(e) Equity investee results of operations are reflected in the geographic area
in which the producing operation is located.
(f) Includes amounts in Latin America and Canada.
60
RESULTS PER UNIT OF PRODUCTION (Unaudited)
United Latin Eastern Total
States America Hemisphere Worldwide
================================================= ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2000
Revenues from net production
Oil ($/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
================================================= ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues from net production
Oil ($/bbl.) $ 11.79 $ 8.48 $ 13.43 (a) $ 11.65
========== ========== ========== ==========
Natural gas ($/Mcf) $ 2.05 $ -- $ 2.03 $ 2.04
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 12.11 $ 8.48 $ 13.41 (a) $ 11.87
Production costs 3.41 3.21 2.75 3.13
Exploration expenses .61 .79 .98 .78
Other operating expenses 1.11 1.09 1.61 1.29
Other expense--asset write-downs -- -- .49 .18
Depreciation, depletion and amortization 4.01 2.06 3.91 3.59
---------- ---------- ---------- ----------
PRETAX INCOME 2.97 1.33 3.67 2.90
Income tax expense -- .75 2.37 (a) 1.03
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 2.97 $ .58 $ 1.30 $ 1.87
================================================= ========== ========== ========== ==========
(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.
61
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.
62
1999 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 $ 752 $ 950 $ 1,271 $ 1,626
Chemical 634 746 899 942
------------ ------------ ------------ ------------
Net sales $ 1,386 $ 1,696 $ 2,170 $ 2,568
============ ============ ============ ============
Gross profit $ 257 $ 367 $ 513 $ 664
============ ============ ============ ============
Segment earnings (loss)
Oil and gas $ 65 $ 166 $ 280 $ 756
Chemical 12 33 44 (126)
------------ ------------ ------------ ------------
77 199 324 630
Unallocated corporate items
Interest expense, net (116) (123) (118) (111)
Income taxes 3 (27) (41) (3)
Trust preferred distributions and other (14) (15) (16) (17)
Other (7) (22) (23) (12)
------------ ------------ ------------ ------------
Income(loss) before extraordinary items and effect
of changes in accounting principles (57) 12 126 487
Extraordinary loss, net -- (3) -- (104)
Cumulative effect of changes in accounting
principles, net (13) -- -- --
------------ ------------ ------------ ------------
Net income(loss) $ (70) $ 9 (a) $ 126 (b) $ 383 (c)
============ ============ ============ ============
Basic earnings per common share
Income(loss) before extraordinary items and effect
of changes in accounting principles $ (.17) $ .03 $ .35 $ 1.33
Extraordinary loss, net -- (.01) -- (.29)
Cumulative effect of changes in accounting
principles, net (.04) -- -- --
------------ ------------ ------------ ------------
Basic earnings(loss) per common share $ (.21) $ .02 $ .35 $ 1.04
============ ============ ============ ============
Diluted earnings per common share
Income(loss) before extraordinary items and effect
of changes in accounting principles $ (.17) $ .03 $ .35 $ 1.33
Extraordinary loss, net -- (.01) -- (.29)
Cumulative effect of changes in accounting
principles, net (.04) -- -- --
------------ ------------ ------------ ------------
Diluted earnings(loss) per common share $ (.21) $ .02 $ .35 $ 1.04
============ ============ ============ ============
Dividends per common share $ .25 $ .25 $ .25 $ .25
============ ============ ============ ============
Market price per common share
High $ 18.25 $ 22.25 $ 23.81 $ 24.19
Low $ 14.75 $ 18.06 $ 19.00 $ 19.94
====================================================== ============ ============ ============ ============
(a) Includes $12 million gain on the sale of a chemical plant by Equistar.
(b) Includes net pre-tax gains of $11 million related to the receipt of a
contingent payment and a $10 million charge for the closing of the oil and
gas offices in Bakersfield, California.
(c) Includes net after-tax gains of $488 million for a favorable litigation
settlement, and charges of $29 million (after-tax benefits) related to the
sale of Occidental's Peru producing assets, and pre-tax charges of $34
million for claims and settlements, $28 million for Occidental's share of
asset write-downs in Equistar and asset write-downs of $168 million.
63
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, 1997 197 1,635 316 -- 387 823 900 2,458
Revisions of previous estimates (6) 40 (21) -- (5) 20 (32) 60
Improved recovery 10 6 -- -- 49 -- 59 6
Extensions and discoveries 1 48 -- -- 27 81 28 129
Purchases of proved reserves 318 710 45 -- 35 -- 398 710
Sales of proved reserves (46) (317) (113) -- (11) (641) (170) (958)
Production (29) (224) (33) -- (55) (32) (117) (256)
- --------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
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
=================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES' RESERVES
December 31, 1997 5 45 45 (b) 168 (b) 27 25 77 238
===== ===== ===== ===== ===== ===== ===== =====
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, 1997 151 1,571 235 -- 251 207 637 1,778
===== ===== ===== ===== ===== ===== ===== =====
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
=================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES' RESERVES
December 31, 1997 4 31 38 (b) 140 (b) 21 20 63 191
===== ===== ===== ===== ===== ===== ===== =====
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.
64
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, 2000, 1999 and 1998. 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.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
In millions
United Latin Eastern Total
States America (a) Hemisphere Worldwide
======================================================== ========== ========== ========== ==========
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
---------- ---------- ---------- ----------
$ 3,897 $ 1,292 $ 2,979 $ 8,168
======================================================== ========== ========== ========== ==========
AT DECEMBER 31, 1998
Future cash flows $ 7,898 $ 1,437 $ 4,346 $ 13,681
Future costs
Production costs and other operating expenses (3,199) (908) (1,788) (5,895)
Development costs(b) (652) (75) (718) (1,445)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 4,047 454 1,840 6,341
Future income tax expense (24) (159) (54) (237)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 4,023 295 1,786 6,104
Ten percent discount factor (1,900) (75) (760) (2,735)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE 2,123 220 1,026 3,369
Share of equity investees' standardized measure 50 150 112 312
---------- ---------- ---------- ----------
$ 2,173 $ 370 $ 1,138 $ 3,681
======================================================== ========== ========== ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
receives an agreed-upon fee per barrel of crude oil produced in 1999 and
1998.
(b) Includes dismantlement and abandonment costs.
65
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
In millions
For the years ended December 31, 2000 1999 1998
=============================================================================== ========= ========= =========
BEGINNING OF YEAR $ 7,408 $ 3,369 $ 3,690
--------- --------- ---------
Sales and transfers of oil and gas produced, net of production costs and
other operating expenses (3,546) (1,838) (925)
Net change in prices received per barrel, net of production costs and other
operating expenses 6,219 7,712 (2,661)
Extensions, discoveries and improved recovery, net of future production and
development costs 1,222 660 236
Change in estimated future development costs (95) (299) 330
Revisions of quantity estimates 1,315 (808) 390
Development costs incurred during the period 576 298 535
Accretion of discount 783 308 307
Net change in income taxes (3,954) (1,694) 881
Purchases and sales of reserves in place, net 5,927 (150) 625
Changes in production rates and other (511) (150) (39)
--------- --------- ---------
NET CHANGE 7,936 4,039 (321)
--------- --------- ---------
END OF YEAR $ 15,344 $ 7,408 $ 3,369
=============================================================================== ========= ========= =========
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, 2000, 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)
=================================================== ========== ========== ==========
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
- --------------------------------------------------- ---------- ---------- ----------
1998
Oil -- Average sales price ($/bbl.) $ 12.06 $ 8.78 $ 11.12
Gas -- Average sales price ($/Mcf) $ 2.05 $ -- $ 2.03
Average oil and gas production cost ($/bbl.)(c) $ 3.41 $ 3.21 $ 2.75
- --------------------------------------------------- ---------- ---------- ----------
(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.
66
The following table sets forth, for each of the three years in the period
ended December 31, 2000, Occidental's net productive and dry-exploratory and
development wells drilled.
NET PRODUCTIVE AND DRY -- EXPLORATORY AND DEVELOPMENT WELLS DRILLED
United Latin Eastern Total
For the years ended December 31, States America Hemisphere Worldwide
=================================== ========== ========== ========== ==========
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
- ----------------------------------- ---------- ---------- ---------- ----------
1998
Oil -- Exploratory -- 0.2 1.1 1.3
Development 109.7 9.8 114.3 233.8
Gas -- Exploratory -- -- 1.8 1.8
Development 32.4 -- 2.3 34.7
Dry -- Exploratory .5 1.8 5.9 8.2
Development 14.5 -- 1.8 16.3
- ----------------------------------- ---------- ---------- ---------- ----------
The following table sets forth, as of December 31, 2000, 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, States America Hemisphere Worldwide
========================== ============ ============ ============ ============
Oil -- Gross(a) 13,943 (244) 215 (--) 872 (81) 15,030 (325)
Net(b) 8,754 (168) 100 (--) 478 (51) 9,332 (219)
Gas -- Gross(a) 2,222 (20) -- (--) 32 (1) 2,254 (21)
Net(b) 1,890 (11) -- (--) 13 (1) 1,903 (12)
- -------------------------- ------------ ------------ ------------ ------------
(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, 2000, 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, States America Hemisphere Worldwide
=============================================== ========== ========== ========== ==========
Exploratory and development wells -- Gross 25 3 17 45
Net 16 3 9 28
- ----------------------------------------------- ---------- ---------- ---------- ----------
At December 31, 2000, Occidental was participating in 112 pressure
maintenance and waterflood projects in the United States, 4 in Latin America, 17
in the Middle East and 2 in Russia.
67
The following table sets forth, as of December 31, 2000, 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, States America Hemisphere Worldwide
======================================= ========== ========== ========== ==========
Developed(a) -- Gross(b) 3,625 19 15,329 18,973
Net(c) 1,870 10 7,553 9,433
- --------------------------------------- ---------- ---------- ---------- ----------
Undeveloped(d) -- Gross(b) 2,649 2,236 14,803 19,688
Net(c) 1,267 1,793 7,084 10,144
- --------------------------------------- ---------- ---------- ---------- ----------
(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, 2000, 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
--------------------------------- ---------------------------------
2000 1999 1998 2000 1999 1998
================ ========= ========= ========= ========= ========= =========
California 70 52 41 306 287 149
Permian 101 13 14 119 55 70
Hugoton -- -- -- 168 172 248
Others 1 8 26 66 148 147
--------- --------- --------- --------- --------- ---------
TOTAL 172 73 81 659 662 614
================ ========= ========= ========= ========= ========= =========
The following table sets forth, for each of the three years in the period
ended December 31, 2000, 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
--------------------------------- ---------------------------------
2000 1999 1998 2000 1999 1998
================ ========= ========= ========= ========= ========= =========
Bangladesh -- -- -- -- 8 --
Colombia 32 43 27 -- -- --
Ecuador 17 15 12 -- -- --
Netherlands -- -- -- -- -- 50
Oman 9 15 17 -- -- --
Pakistan 6 5 5 49 44 39
Peru -- 38 48 -- -- --
Qatar 49 58 75 -- -- --
Russia 26 27 29 -- -- --
Venezuela -- -- 2 -- -- --
Yemen 32 32 25 -- -- --
--------- --------- --------- --------- --------- ---------
TOTAL 171 233 240 49 52 89
================ ========= ========= ========= ========= ========= =========
68
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 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
================================================= ========== ========== ========== ========== ==========
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)
================================================= ========== ========== ========== ========== ==========
1998
Allowance for doubtful accounts $ 24 4 $ -- $ (5) $ 23
========== ========== ========== ========== ==========
Environmental $ 646 -- $ 9 $ (77)(a) $ 578
Foreign and other taxes, litigation and other
reserves 846 187 7 (239) 801
---------- ---------- ---------- ---------- ----------
$ 1,492 187 $ 16 $ (316) $ 1,379 (b)
================================================= ========== ========== ========== ========== ==========
(a) Primarily represents payments.
(b) Of these amounts, $143 million, $155 million and $172 million in 2000, 1999
and 1998, respectively, is classified as current.
69
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information regarding
Occidental's directors appearing under the caption "Election of Directors" in
Occidental's definitive proxy statement filed in connection with its April 20,
2001, Annual Meeting of Stockholders (the "2001 Proxy Statement"). See also the
list of Occidental's executive officers and related information under "Executive
Officers of the Registrant" in Part I hereof.
ITEM 11 EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the captions "Executive Compensation" (excluding, however, the information
appearing under the subcaptions "Report of the Compensation Committee" and
"Performance Graphs") and "Election of Directors -- Information Regarding the
Board of Directors and Its Committees" in the 2001 Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information with respect to
security ownership appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2001 Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Election of Directors --Certain Relations and Related Transactions"
in the 2001 Proxy Statement.
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.(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 Bank 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.
4.2* Credit Agreement, dated as of April 19, 2000, among Occidental
Permian Ltd., Chase Securities Inc., as Arranger, Bank of
America, N.A., as Syndication Agent, Morgan Guaranty Trust
Company of New York and UBS AG, as Documentation Agents, and The
Chase Manhattan Bank, as Administrative Agent (filed as Exhibit
4.1 of the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 2000, File No. 1-9210).
4.3 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
10.36 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.
- ---------------------------------
*Incorporated herein by reference
70
10.1* Employment Agreement, dated May 14, 1997, between Occidental and
J. Roger Hirl (filed as Exhibit 10.1 to the Quarterly Report on
Form 10-Q of Occidental for the quarterly period ended June 30,
1997, File No. 1-9210).
10.2 Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Ray R. Irani.
10.3 Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Dale R. Laurance.
10.4 Employment Agreement, dated as of November 17, 2000, between
Occidental and Stephen I. Chazen.
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.
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).
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 (as
amended and restated effective as of January 1, 1999) (filed as
Exhibit 10.23 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended September 30, 1999, 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).
- ---------------------------------
*Incorporated herein by reference
71
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).
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* 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).
10.28* 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).
10.29* 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).
10.30* 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).
10.31* 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).
10.32* 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).
10.33* 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).
10.34* Occidental Petroleum Corporation Supplemental Retirement Plan,
Amended and Restated Effective as of January 1, 1999 (filed as
Exhibit 10.1 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).
10.35* 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).
10.36* 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).
- ---------------------------------
*Incorporated herein by reference
72
10.37* 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).
10.38* 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).
10.39* 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).
10.40* 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).
10.41* 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,
2000.
21 List of subsidiaries of Occidental at December 31, 2000.
23 Consent of Independent Public Accountants.
- ---------------------------------
*Incorporated herein by reference
73
(b) REPORTS ON FORM 8-K
During the fourth quarter of 2000, Occidental filed the following Current
Reports on Form 8-K:
1. Current Report on Form 8-K dated October 18, 2000 (date of earliest
event reported), filed on October 18, 2000, 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.
2. Current Report on Form 8-K dated November 16, 2000 (date of earliest
event reported), filed on November 16, 2000, for the purpose of reporting, under
Item 9, a financial analyst presentation by Dr. Ray R. Irani, Chief Executive
Officer.
During the first quarter of 2001 to the date hereof, Occidental filed the
following Current Report on Form 8-K:
1. Current Report on Form 8-K dated January 24, 2001 (date of earliest
event reported), filed on January 24, 2001, for the purpose of reporting, under
Item 5, Occidental's results of operations for the fourth quarter and fiscal
year ended December 31, 2000, and under Item 9, speeches and supplemental
investor information relating to Occidental's fourth quarter 2000 earnings
announcement.
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
March 8, 2001 By: /s/ RAY R. IRANI
-----------------------------------------
Ray R. Irani
Chairman of the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RAY R. IRANI Chairman of the Board of March 8, 2001
- ------------------------------- Directors and Chief
Ray R. Irani Executive Officer
/s/ STEPHEN I. CHAZEN Executive Vice President - March 8, 2001
- ------------------------------- Corporate Development
Stephen I. Chazen and Chief Financial Officer
/s/ SAMUEL P. DOMINICK, JR. Vice President and March 8, 2001
- ------------------------------- Controller (Chief
Samuel P. Dominick, Jr. Accounting Officer)
/s/ RONALD W. BURKLE Director March 8, 2001
- -------------------------------
Ronald W. Burkle
/s/ JOHN S. CHALSTY Director March 8, 2001
- -------------------------------
John S. Chalsty
/s/ EDWARD P. DJEREJIAN Director March 8, 2001
- -------------------------------
Edward P. Djerejian
/s/ JOHN E. FEICK Director March 8, 2001
- -------------------------------
John E. Feick
/s/ J. ROGER HIRL Director March 8, 2001
- -------------------------------
J. Roger Hirl
/s/ DALE R. LAURANCE Director March 8, 2001
- -------------------------------
Dale R. Laurance
75
/s/ IRVIN W. MALONEY Director March 8, 2001
- -------------------------------
Irvin W. Maloney
/s/ RODOLFO SEGOVIA Director March 8, 2001
- -------------------------------
Rodolfo Segovia
/s/ AZIZ D. SYRIANI Director March 8, 2001
- -------------------------------
Aziz D. Syriani
/s/ ROSEMARY TOMICH Director March 8, 2001
- -------------------------------
Rosemary Tomich
76
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
4.1 Occidental Petroleum Corporation Five-Year Credit Agreement, dated
as of January 4, 2001 among Occidental, Chase Securities Inc. and
Bank 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.
10.2 Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Ray R. Irani.
10.3 Employment Agreement, dated as of November 17, 2000, between
Occidental and Dr. Dale R. Laurance.
10.4 Employment Agreement, dated as of November 17, 2000, between
Occidental and Stephen I. Chazen.
10.6 Amendment, dated November 17, 2000, to Employment Agreement, dated
April 3, 1998, between Occidental and Donald P. de Brier.
12 Statement regarding computation of total enterprise ratios of
earnings to fixed charges for the five years ended December 31,
2000.
21 List of subsidiaries of Occidental at December 31, 2000.
23 Consent of Independent Public Accountants.