In March 2016, the EPA issued a Record of Decision (ROD) specifying remedial actions required for the lower 8.3 miles of the Lower Passaic River. The ROD does not address any potential remedial action for the upper nine miles of the Lower Passaic River or Newark Bay. During the third quarter of 2016, and following Maxus’s bankruptcy filing, Occidental and the EPA entered into an Administrative Order on Consent (AOC) to complete the design of the proposed cleanup plan outlined in the ROD at an estimated cost of $165 million. The EPA announced that it will pursue similar agreements with other potentially responsible parties.18
Occidental has accrued a reserve relating to its estimated allocable share of the costs to perform the design and the remediation called for in the AOC and the ROD, as well as for certain other Maxus-indemnified sites. Occidental’s accrued estimated environmental reserve does not consider any recoveries for indemnified costs. Occidental’s ultimate share of this liability may be higher or lower than the reserved amount, and is subject to final design plans and the resolution of Occidental's allocable share with other potentially responsible parties. Occidental continues to evaluate the costs to be incurred to comply with the AOC, the ROD and to perform remediation at other Maxus-indemnified sites in light of the Maxus bankruptcy and the share of ultimate liability of other potentially responsible parties. In June 2017, the court overseeing the Maxus bankruptcy approved a Plan of Liquidation (Plan) to liquidate
| | |
| NOTE 8 - LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES |
Maxus and create a trust to pursue claims against YPF, Repsol and others to satisfy claims by Occidental and other creditors for past and future cleanup and other costs. In July 2017, the court-approved Plan became final and the trust became effective. Among other responsibilities, the trust will pursue claims against YPF, Repsol and others and distribute assets to Maxus’ creditors in accordance with the trust agreement and Plan.
7. Lawsuits, Claims, Commitments and Contingencies
LEGAL MATTERS
Occidental or certain of its subsidiaries are involved, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. Occidental or certain of its subsidiaries also are involved in proceedings under CERCLAthe Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, regional, state, provincial, tribal, local and foreigninternational environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief. Usually Occidental or such subsidiaries are among many companies in these environmental proceedings and have to date been successful in sharing response costs with other financially sound companies. Further, some lawsuits, claims and legal proceedings involve acquired or disposed assets with respect to which a third party or Occidental retains liability or indemnifies the other party for conditions that existed prior to the transaction.
In accordance with applicable accounting guidance, Occidental accrues reserves for outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated.
In Note 6, Environmental Liabilities and Expenditures,2016, Occidental has disclosed its reserve balancesreceived payments from the Republic of Ecuador of approximately $1.0 billion pursuant to a November 2015 arbitration award for environmental remediation mattersEcuador’s 2006 expropriation of Occidental’s Participation Contract for Block 15. The awarded amount represented a recovery of 60% of the value of Block 15. In 2017, Andes Petroleum Ecuador Ltd. (Andes) filed a demand for arbitration, claiming it is entitled to a 40% share of the judgment amount obtained by Occidental. Occidental contends that satisfy this criteria. Reserve balances for matters, other than environmental remediation, that satisfy this criteria asAndes is not entitled to any of September 30, 2017, and December 31, 2016, were not materialthe amounts paid under the 2015 arbitration award because Occidental’s recovery was limited to Occidental’s consolidated condensed balance sheets.
own 60% economic interest in the block. On March 26, 2021, the arbitration tribunal issued an award in favor of Andes and against Occidental also evaluatesExploration and Production Company (OEPC) in the amount of reasonably possibleapproximately $391 million plus interest. In June 2021, OEPC filed a motion to vacate the award due to concerns regarding the validity of the award. In addition, OEPC has made a demand for significant additional claims not addressed by the arbitration tribunal that OEPC has against Andes relating to Andes' 40% share of costs, liabilities, losses that it could incurand expenses due under the farmout agreement and joint operating agreement to which Andes and OEPC are parties.
In August 2019, Sanchez Energy Corporation and certain of its affiliates (Sanchez) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. Sanchez is a party to agreements with Anadarko Petroleum Corporation and certain of its affiliates (Anadarko) as a result of its 2017 purchase of Anadarko's Eagle Ford Shale assets. Sanchez is attempting to reject some of the agreements related to the purchase of Anadarko’s Eagle Ford Shale assets (the Bankruptcy Litigation). If Sanchez was permitted to reject certain of those agreements, then Anadarko may owe deficiency payments to various third parties. Subsequent to the end of the third quarter of 2021, Occidental and certain of its affiliates reached an agreement in principle to resolve the Bankruptcy Litigation. Occidental expects the settlement, certain aspects of which will require court approval and the satisfaction of certain other conditions, to be finalized by the end of the fourth quarter of 2021. Occidental recorded a contingency reserve at September 30, 2021 associated with this expected settlement.
The ultimate outcome and impact of outstanding lawsuits, claims and proceedings and discloses its estimable range of reasonably possible additional losses for sites where it is a participant in environmental remediation.on Occidental cannot be predicted. Management believes that other reasonably possible losses for non-environmentalthe resolution of these matters that it could incurwill not, individually or in excessthe aggregate, have a material adverse effect on Occidental’s consolidated condensed balance sheets. If unfavorable outcomes of reserves accrued on the balance sheet would not be materialthese matters were to its consolidated financial position oroccur, future results of operations.operations or cash flows for any particular quarterly or annual period could be materially adversely affected. Occidental’s estimates are based on information known about the legal matters and its experience in contesting, litigating and settling similar matters. Occidental reassesses the probability and estimability of contingent losses as new information becomes available.
Tax Matters
TAX MATTERS
During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreigninternational tax jurisdictions. Although taxableTax years through 20092017 for United StatesU.S. federal income tax purposes have been audited by the United States Internal Revenue Service (IRS)IRS pursuant to its Compliance Assurance Program and subsequent taxabletax years are currently under review. TaxableTax years from 2002 through the current year remain subject to examination by foreign and2012 have been audited for state governmentincome tax authoritiespurposes. Significant audit matters in certain jurisdictions. In certain of theseinternational jurisdictions tax authorities are in various stages of auditing Occidental’s income taxes.have been resolved through 2010. During the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law. Occidental believes that the resolution of outstanding tax matters would not have a material adverse effect on its consolidated financial positioncondensed balance sheets or resultsconsolidated condensed statements of operations.
For Anadarko, tax years through 2014 and tax year 2016 for U.S. federal tax purposes have been audited by the IRS. Tax years through 2008 have been audited for state income tax purposes. There are outstanding significant audit matters in one international jurisdiction. As stated above, during the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law. Other than the matter discussed below, Occidental believes that the
resolution of these outstanding tax matters would not have a material adverse effect on its consolidated condensed balance sheets or consolidated condensed statements of operations.
Anadarko received an $881 million tentative refund in 2016 related to Third Partiesits $5.2 billion Tronox Adversary Proceeding settlement payment in 2015. In September 2018, Anadarko received a statutory notice of deficiency from the IRS disallowing the net operating loss carryback and rejecting Anadarko’s refund claim. As a result, Anadarko filed a petition with the U.S. Tax Court to dispute the disallowances in November 2018. The case was in the IRS appeals process until the second quarter of 2020. The case has since been returned to the U.S. Tax Court, where a trial date has been set for July 2022 and Occidental expects to continue pursuing resolution.
In accordance with ASC 740’s guidance on the accounting for uncertain tax positions, Occidental has recorded no tax benefit on the tentative cash tax refund of $881 million. As a result, should Occidental not ultimately prevail on the issue, there would be no additional tax expense recorded relative to this position for financial statement purposes other than future interest. However, in that event, Occidental would be required to repay approximately $1 billion ($996 million in federal taxes and $27 million in state taxes) plus accrued interest of approximately $300 million. A liability for this amount, with the accrued interest, is included in deferred credits and other liabilities-other.
INDEMNITIES TO THIRD PARTIES
Occidental, its subsidiaries, or both, have indemnified various parties against specified liabilities those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds. As of September 30, 2017,2021, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.
8. Retirement and Post-retirement Benefit Plans
The following tables set forth the components of the net periodic benefit costs for Occidental’s defined benefit pension and post-retirement benefit plans for the three and nine months ended September 30, 2017, and 2016 (in millions):
|
| | | | | | | | | | | | | | | | |
| Three months ended September 30 | | 2017 | | 2016 |
| Net Periodic Benefit Costs | | Pension Benefit | | Post-retirement Benefit | | Pension Benefit | | Post-retirement Benefit |
| Service cost | | $ | 2 |
| | $ | 5 |
| | $ | 2 |
| | $ | 4 |
|
| Interest cost | | 4 |
| | 9 |
| | 4 |
| | 9 |
|
| Expected return on plan assets | | (6 | ) | | — |
| | (6 | ) | | — |
|
| Recognized actuarial loss | | 2 |
| | 3 |
| | 3 |
| | 3 |
|
| Settlement loss | | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 2 |
| | $ | 17 |
| | $ | 3 |
| | $ | 16 |
|
|
| | | | | | | | | | | | | | | | |
| Nine months ended September 30 | | 2017 | | 2016 |
| Net Periodic Benefit Costs | | Pension Benefit | | Post-retirement Benefit | | Pension Benefit | | Post-retirement Benefit |
| Service cost | | $ | 6 |
| | $ | 15 |
| | $ | 6 |
| | $ | 14 |
|
| Interest cost | | 12 |
| | 29 |
| | 12 |
| | 29 |
|
| Expected return on plan assets | | (18 | ) | | — |
| | (18 | ) | | — |
|
| Recognized actuarial loss | | 6 |
| | 11 |
| | 9 |
| | 14 |
|
| Settlement loss | | — |
| | — |
| | 2 |
| | — |
|
| Total | | $ | 6 |
| | $ | 55 |
| | $ | 11 |
| | $ | 57 |
|
Occidental contributed approximately $1 million and zero in the three months ended September 30, 2017, and 2016, respectively, and approximately $3 million and $2 million in the nine months ended September 30, 2017, and 2016, respectively, to its defined benefit plans.
9. Fair Value Measurements
Occidental has categorized its assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 — using quoted prices in active markets for the assets or liabilities; Level 2 — using observable inputs other than quoted prices for the assets or liabilities; and Level 3 — using unobservable inputs. Transfers between levels, if any, are recognized at the end of each reporting period.
The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of September 30, 2017, and December 31, 2016 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | |
| Embedded Derivatives | | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral | | Total Fair Value |
| Fair Value Measurements at September 30, 2017: |
| Liabilities: | | | |
|
| | | |
|
| |
|
|
| Accrued Liabilities | | $ | — |
| | $ | 54 |
| | $ | — |
| | $ | — |
| | $ | 54 |
|
| Deferred credits and other liabilities - other | | $ | — |
| | $ | 183 |
| | $ | — |
| | $ | — |
| | $ | 183 |
|
| | | | | | | | | | | |
| Fair Value Measurements at December 31, 2016: |
| Liabilities: | | | | | | | | | | |
| Accrued Liabilities | | $ | — |
| | $ | 43 |
| | $ | — |
| | $ | — |
| | $ | 43 |
|
| Deferred credits and other liabilities - other | | $ | — |
| | $ | 178 |
| | $ | — |
| | $ | — |
| | $ | 178 |
|
Fair Values — Nonrecurring
During the nine months ended September 30, 2017, Occidental did not have any assets or liabilities measured at fair value on a nonrecurring basis. During the year ended December 31, 2016, Occidental recognized pre-tax impairment charges of $15 million related to proved oil and gas properties.
Other Financial Instruments
The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than long-term, fixed-rate debt, approximate fair value. The cost, if any, to terminate Occidental's off-balance-sheet financial instruments is not significant. Occidental estimates the fair value of fixed-rate debt based on the quoted market prices for those instruments or on quoted market yields for similarly rated debt instruments, taking into account such instruments’ maturities. The estimated fair value of Occidental’s debt as of September 30, 2017, and December 31, 2016, was $10.3 billion and $10.2 billion, respectively, and its carrying value net of unamortized discount and debt issuance costs as of September 30, 2017, and December 31, 2016, was $9.8 billion. The majority of Occidental's debt is classified as Level 1, with $225 million classified as Level 2.
10. Derivatives
Occidental uses a variety of derivative financial instruments and physical contracts, including those designated as cash-flow hedges, to manage its exposure to commodity price fluctuations, transportation commitments and to fix margins on the future sale of stored volumes of oil and natural gas. Where Occidental buys product for its own consumption or sells its production to a defined customer, Occidental may elect normal purchases and normal sales exclusions. Occidental usually applies cash-flow hedge accounting treatment to derivative financial instruments to lock in margins on the forecasted sales of its natural gas storage volumes, and at times for other strategies to lock in margins. Occidental also enters into derivative financial instruments for speculative or trading purposes; however, the results of any transactions are immaterial to the marketing portfolio.
The financial instruments not designated as hedges will impact Occidental's earnings through mark-to-market until the offsetting future physical commodity is delivered. For GAAP purposes, any physical inventory is carried at the lower of cost or market on the balance sheet. A substantial majority of Occidental's physical derivative contracts are index-based and carry no mark-to-market value in earnings. Net gains and losses associated with derivative instruments not designated as hedging instruments are recognized currently in net sales. Net gains and losses
attributable to derivative instruments subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings.
Credit Risk
The majority of Occidental's counterparty credit risk is related to the physical delivery of energy commodities to its customers and their inability to meet their settlement commitments. Occidental manages credit risk by selecting counterparties that it believes to be financially strong, by entering into master netting arrangements with counterparties and by requiring collateral or other credit risk-mitigants, as appropriate. Occidental actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits and monitors credit exposures against those assigned limits. Occidental also enters into future contracts through regulated exchanges with select clearinghouses and brokers, which are subject to minimal credit risk as a significant portion of these transactions settle on a daily margin basis.
Certain of Occidental's over-the-counter derivative instruments contain credit-risk-contingent features, primarily tied to credit ratings for Occidental or its counterparties, which may affect the amount of collateral that each would need to post. Occidental believes that if it had received a one-notch reduction in its credit ratings, it would not have resulted in a material change in its collateral-posting requirements as of September 30, 2017, and December 31, 2016.
Cash-Flow Hedges
Occidental’s marketing operations store natural gas purchased from third parties at Occidental’s leased storage facilities. Derivative instruments are used to fix margins on the future sales of the stored volumes. These agreements continue through 2018. As of September 30, 2017, Occidental had approximately 7 billion cubic feet (Bcf) of natural gas held in storage, and had cash-flow hedges for the forecasted sales to be settled by physical delivery of approximately 6 Bcf of stored natural gas. As of December 31, 2016, Occidental had approximately 7 Bcf of natural gas held in storage, and had cash-flow hedges for the forecasted sales, to be settled by physical delivery, of approximately 7 Bcf of stored natural gas. The amount of cash-flow hedges, including the ineffective portion, was immaterial for the nine months ended September 30, 2017, and the year ended December 31, 2016.
Derivatives Not Designated as Hedging Instruments
The following table summarizes the amounts reported in net sales related to the outstanding commodity derivative instruments not designated as hedging instruments as of September 30, 2017, and December 31, 2016:
|
| | | | | | | | |
| (in millions, except Long/(Short) volumes) | | 2017 | | 2016 |
| Unrealized gain (loss) on derivatives not designated as hedges | | | | |
| Oil commodity contracts | | $ | (30 | ) | | $ | (5 | ) |
| Natural gas commodity contracts | | $ | 1 |
| | $ | 1 |
|
| | | | | |
| Outstanding net volumes on derivatives not designated as hedges | | | | |
| Oil Commodity Contracts | | | | |
| Volume (MMBL) | | 65 |
| | 67 |
|
| Price Per Bbl | | $ | 50.11 |
| | $ | 53.86 |
|
| | | | | |
| Natural gas commodity contracts | | | | |
| Volume (Bcf) | | (43 | ) | | (12 | ) |
| Price Per MMBTU | | $ | 2.65 |
| | $ | 3.19 |
|
Fair Value of Derivatives
The following tables presents the gross and net fair values of Occidental’s outstanding derivatives as of September 30, 2017, and December 31, 2016 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 | | Fair Value Measurements Using | | Netting (b) | | Total Fair Value |
| (in millions) | | (Commodity Contracts) | | Level 1 | | Level 2 | | Level 3 | | |
| Assets: | | | | | | | | | | |
Cash-flow hedges: (a) | | | | | | | | | | |
| Other current assets | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Long-term receivables and other assets, net | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivatives not designated as hedging instruments: (a) | | | | | | | | | | |
| Other current assets | | $ | 345 |
| | $ | 61 |
| | $ | — |
| | $ | (387 | ) | | $ | 19 |
|
| Long-term receivables and other assets, net | | $ | 29 |
| | $ | 2 |
| | $ | — |
| | $ | (29 | ) | | $ | 2 |
|
| Liabilities: | | | | | | | | | | |
Cash-flow hedges: (a) | | | | | | | | | | |
| Accrued liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Deferred credits and liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivatives not designated as hedging instruments: (a) | | | | | | | | | | |
| Accrued liabilities | | $ | 371 |
| | $ | 63 |
| | $ | — |
| | $ | (387 | ) | | $ | 47 |
|
| Deferred credits and liabilities | | $ | 27 |
| | $ | 5 |
| | $ | — |
| | $ | (29 | ) | | $ | 3 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 | | Fair Value Measurements Using | | Netting (b) | | Total Fair Value |
| (in millions) | | (Commodity Contracts) | | Level 1 | | Level 2 | | Level 3 | | |
| Assets: | | | | | | | | | | |
Cash-flow hedges: (a) | | | | | | | | | | |
| Other current assets | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Long-term receivables and other assets, net | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivatives not designated as hedging instruments: (a) | | | | | | | | | | |
| Other current assets | | $ | 166 |
| | $ | 57 |
| | $ | — |
| | $ | (196 | ) | | $ | 27 |
|
| Long-term receivables and other assets, net | | $ | 2 |
| | $ | 3 |
| | $ | — |
| | $ | (2 | ) | | $ | 3 |
|
| Liabilities: | | | | | | | | | | |
Cash-flow hedges (a) | | | | | | | | | | |
| Accrued liabilities | | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
| Deferred credits and liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Derivatives not designated as hedging instruments: (a) | | | | | | | | | | |
| Accrued liabilities | | $ | 172 |
| | $ | 51 |
| | $ | — |
| | $ | (196 | ) | | $ | 27 |
|
| Deferred credits and liabilities | | $ | 1 |
| | $ | 6 |
| | $ | — |
| | $ | (2 | ) | | $ | 5 |
|
| | |
(a) | Fair values are presented at gross amounts, including when the derivatives are subject to netting arrangements and presented on a net basis in the consolidated condensed balance sheets.NOTE 9 - ENVIRONMENTAL LIABILITIES AND EXPENDITURES |
| |
(b) | These amounts do not include collateral. As of September 30, 2017, collateral received of $2 million has been netted against derivative assets and collateral paid of $31 million has been netted against derivative liabilities. As of December 31, 2016, collateral received of $4 million has been netted against derivative assets and collateral paid of $13 million has been netted against derivative liabilities. Collateral deposited by Occidental, mainly for initial margin, of $33 million and $25 million as of September 30, 2017, and December 31, 2016, respectively, has not been reflected in these derivative fair value tables. This collateral is included in other current assets in the consolidated condensed balance sheets. |
11. Industry Segments
Occidental conducts its operations through three segments: (1) oil and gas (2) chemical and (3) midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, CO2 and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities.
Results of industry segments generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income from the segments' equity investments. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
The following tables present Occidental’s industry segments (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Oil | | | | Midstream | | Corporate | | |
| | | and | | | | and | | and | | |
| | | Gas | | Chemical | | Marketing | | Eliminations | | Total |
| Three months ended September 30, 2017 | | | | | | | | | | |
| Net sales | | $ | 1,865 |
| | $ | 1,071 |
| | $ | 266 |
| | $ | (203 | ) | | $ | 2,999 |
|
| Pre-tax operating profit (loss) | | $ | 220 |
| (a) | $ | 200 |
| | $ | 4 |
| | $ | (149 | ) | (b) | $ | 275 |
|
| Income taxes | | — |
| | — |
| | — |
| | (85 | ) | (c) | (85 | ) |
| Net income (loss) | | $ | 220 |
| | $ | 200 |
| | $ | 4 |
| | $ | (234 | ) | | $ | 190 |
|
| | | | | | | | | | | |
| Three months ended September 30, 2016 | | | | | | | | | | |
| Net sales | | $ | 1,660 |
| | $ | 988 |
| | $ | 202 |
| | $ | (202 | ) | | $ | 2,648 |
|
| Pre-tax operating profit (loss) | | $ | (51 | ) | (d) | $ | 117 |
| | $ | (180 | ) | | $ | (154 | ) | (b) | $ | (268 | ) |
| Income taxes | | — |
| | — |
| | — |
| | 30 |
| (c) | 30 |
|
| Discontinued operations, net | | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
| Net income (loss) | | $ | (51 | ) |
| $ | 117 |
|
| $ | (180 | ) |
| $ | (127 | ) |
| $ | (241 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Oil | | | | Midstream | | Corporate | | |
| | | and | | | | and | | and | | |
| | | Gas | | Chemical | | Marketing | | Eliminations | | Total |
| Nine months ended September 30, 2017 | | | | | | | | | | |
| Net sales | | $ | 5,607 |
| | $ | 3,295 |
| | $ | 747 |
| | $ | (633 | ) | | $ | 9,016 |
|
| Pre-tax operating profit (loss) | | $ | 1,067 |
| (a) | $ | 600 |
| | $ | 76 |
| (e) | $ | (481 | ) | (b) | $ | 1,262 |
|
| Income taxes | | — |
| | — |
| | — |
| | (448 | ) | (c) | (448 | ) |
| Net income (loss) | | $ | 1,067 |
| | $ | 600 |
| | $ | 76 |
| | $ | (929 | ) | | $ | 814 |
|
| | | | | | | | | | | |
| Nine months ended September 30, 2016 | | | | | | | | | | |
| Net sales | | $ | 4,560 |
| | $ | 2,786 |
| | $ | 476 |
| | $ | (520 | ) | | $ | 7,302 |
|
| Pre-tax operating profit (loss) | | $ | (653 | ) | (d) | $ | 419 |
| (f) | $ | (333 | ) | | $ | (496 | ) | (b) | $ | (1,063 | ) |
| Income taxes | | — |
| | — |
| | — |
| | 329 |
| (c) | 329 |
|
| Discontinued operations, net | | — |
| | — |
| | — |
| | 432 |
| | 432 |
|
| Net income (loss) | | $ | (653 | ) | | $ | 419 |
| | $ | (333 | ) | | $ | 265 |
| | $ | (302 | ) |
(a) The three and nine months ended September 30, 2017, included pre-tax gains on sale of non-strategic acreage in the Midland Basin of $81 million. The nine months ended September 30, 2017, also included pre-tax gains of $510 million on sale of domestic oil and gas assets, including South Texas.
(b) Included unallocated net interest expense, administration expense, environmental remediation and other pre-tax items.
(c) Included all foreign and domestic income taxes from continuing operations.
(d) The three and nine months ended September 30, 2016, included pre-tax impairment charges of $112 million related to Occidental's former Libya operations and $160 million related to terminated crude oil supply contracts partially offset by pre-tax gains of $59 million on the sale of South Texas Eagle Ford non-operated properties. The nine months ended September 30, 2016, also reflected a $121 million pre-tax gain on the sale of Occidental's Piceance Basin operations in Colorado.
(e) Included a pre-tax non-cash fair value gain of $94 million on the Plains equity investment.
(f) Included a pre-tax gain on sale of $57 million and $31 million related to the Occidental Tower in Dallas, Texas, and a non-core specialty chemicals business, respectively.
12. Earnings Per Share
Occidental’s instruments containing rights to nonforfeitable dividends granted in stock-based awards are considered participating securities prior to vesting and, therefore, net income allocated to these participating securities has been deducted from earnings in computing basic and diluted EPS under the two-class method.
Basic EPS was computed by dividing net income attributable to common stock, net of income allocated to participating securities, by the weighted-average number of common shares outstanding during each period, net of treasury shares and including vested but unissued shares and share units. The computation of diluted EPS reflects the additional dilutive effect of stock options and unvested stock awards.
The following table presents the calculation of basic and diluted EPS for the three and nine months ended September 30, 2017, and 2016 (in millions, except per-share amounts):
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Basic EPS | | | | | | | | |
| Income (loss) from continuing operations | | $ | 190 |
| | $ | (238 | ) | | $ | 814 |
| | $ | (734 | ) |
| Discontinued operations, net | | — |
| | (3 | ) | | — |
| | 432 |
|
| Net income (loss) | | 190 |
| | (241 | ) | | 814 |
| | (302 | ) |
| | | | | | | | | |
| Less: Net income allocated to participating securities | | (1 | ) | | — |
| | (4 | ) | | — |
|
| Net income (loss), net of participating securities | | 189 |
| | (241 | ) | | 810 |
| | (302 | ) |
| | | | | | | | | |
| Weighted average number of basic shares | | 765.5 |
| | 764.0 |
| | 764.9 |
| | 763.7 |
|
| Basic EPS | | $ | 0.25 |
| | $ | (0.32 | ) | | $ | 1.06 |
| | $ | (0.40 | ) |
| | | | | | | | | |
| Diluted EPS | | | | | | | | |
| Net income (loss), net of participating securities | | $ | 189 |
| | $ | (241 | ) | | $ | 810 |
| | $ | (302 | ) |
| Weighted average number of basic shares | | 765.5 |
| | 764.0 |
| | 764.9 |
| | 763.7 |
|
| Dilutive effect of potentially dilutive securities | | 0.9 |
| | — |
| | 0.8 |
| | — |
|
| Total diluted weighted average common shares | | 766.4 |
| | 764.0 |
| | 765.7 |
| | 763.7 |
|
| Diluted EPS | | $ | 0.25 |
| | $ | (0.32 | ) | | $ | 1.06 |
| | $ | (0.40 | ) |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this report, “Occidental” means Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Portions of this report contain forward-looking statements and involve risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows and business prospects. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. Factors that could cause results to differ include, but are not limited to: global commodity pricing fluctuations; supply and demand considerations for Occidental’s products; higher-than-expected costs; the regulatory approval environment; not successfully completing, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; uncertainties about the estimated quantities of oil and natural gas reserves; lower-than-expected production from development projects or acquisitions; exploration risks; general economic slowdowns domestically or internationally; political conditions and events; liability under environmental regulations including remedial actions; litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, natural disasters, cyber attacks or insurgent activity; failure of risk management; changes in law or regulations; reorganization or restructuring of Occidental’s operations; or changes in tax rates. Words such as “estimate,” “project,” “predict,” “will,” “would,” “should,” “could,” “may,” “might,” “anticipate,” “plan,” “intend,” “believe,” “expect,” “aim,” “goal,” “target,” “objective,” “likely” or similar expressions that convey the prospective nature of events or outcomes generally indicate forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update any forward-looking statements, as a result of new information, future events or otherwise. Material risks that may affect Occidental’s results of operations and financial position appear in Part I, Item 1A “Risk Factors” of Occidental's Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Form 10-K).
Consolidated Results of Operations
Occidental reported net income of $190 million for the third quarter of 2017 on net sales of $3.0 billion, compared to a net loss of $241 million on net sales of $2.6 billion for the third quarter of 2016. Diluted earnings per share was $0.25 for the third quarter of 2017, compared to a diluted loss of $0.32 per share for the third quarter of 2016.
Occidental reported net income of $814 million for the first nine months of 2017 on net sales of $9.0 billion, compared to a net loss of $302 million on net sales of $7.3 billion for the same period in 2016. Diluted earnings per share was $1.06 per share for the first nine months of 2017, compared to a diluted loss per share of $0.40 for the same period of 2016. Net income for the nine months ended September 30, 2016, included income from discontinued operations of $432 million or diluted income of $0.56 per share for the same period of 2016.
The third quarter of 2017 reflected the impact of Hurricane Harvey which reduced Chemical and Midstream and Marketing segment earnings by $70 million and reduced average daily production by 1,000 BOE in the Permian Resources operations. The increase in net income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected higher oil and NGLs prices, higher chemical sales prices across most products and lower asset impairment and related charges. The increase in net income for the nine months ended September 30, 2017, compared to the same period of 2016, also reflected higher gains on sale of assets, lower depreciation, depletion and amortization rates and the addition of equity income from the Ingleside ethylene cracker and the fair value gain on the Plains equity investment.
Selected Statements of Operations Items
Net sales increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, due to higher realized crude oil and NGLs prices and higher sale prices across most chemical product lines. The increase in net sales for the nine months ended September 30, 2017, also reflected higher chemical sales volumes across most products and higher realized domestic natural gas prices in the oil and gas segment. Gain on sale of assets, net, totaling $598 million for the nine months ended September 30, 2017, primarily reflected gains on the sale of the South Texas operations and the sale of non-strategic acreage in the Midland Basin. Gain on sale of assets, net, for the nine months ended September 30, 2016, primarily reflected the sales of the Piceance Basin operations in Colorado for a pre-tax gain of $121 million, the South Texas Eagle Ford non-operated properties for a pre-tax gain of $59 million, the Occidental Tower building in Dallas for a pre-tax gain of $57 million and a non-core specialty chemical business for a pre-tax gain of $31 million.
Compared to the same periods of 2016, cost of sales for the nine months ended September 30, 2017, reflected higher raw materials and energy costs in the chemical segment and higher energy and purchase injectant and gas plant costs in the oil and gas segment. Compared to the same periods of 2016, DD&A expense for the three and nine months ended September 30, 2017, reflected improved DD&A rates and the sale of oil and gas assets. The nine months ended September 30, 2016 reflected impairment and related charges of $112 million related to Occidental’s former Libya operations and $160 million related to terminated crude oil supply contracts.
The increases in domestic and foreign income tax provisions for the three and nine months ended September 30, 2017, compared to the income tax benefits for same periods of 2016, reflect higher pre-tax operating income. In addition, the 2016 benefits included a tax benefit associated with the relinquishment of foreign exploration blocks not included in the 2017 provision.
The increase in income from equity investments for the nine months ended September 30, 2017, reflected a non-cash fair value gain on the Plains equity investment and equity income from the Ingleside ethylene cracker, which commenced operations in February 2017.
Selected Analysis of Financial Position
See “Liquidity and Capital Resources” for a discussion about the changes in cash and cash equivalents and restricted cash.
The increase in inventories at September 30, 2017, compared to December 31, 2016, reflected higher crude oil storage and prices. The decrease in other current assets is primarily related to receipt of a federal tax refund relating to the 2016 net operating loss carryback. The decrease in property, plant and equipment at September 30, 2017, compared to December 31, 2016, reflected current year DD&A of $2.9 billion partially offset by capital expenditures of $2.4 billion.
Current maturities of long-term debt at September 30, 2017, reflected the reclassification of 1.5-percent senior notes due February 2018 from long-term debt. The decrease in accrued liabilities at September 30, 2017, is mainly due to payments for the extension of Oman Block 9 and litigation settlements in the Chemical segment. The decrease in long term other liabilities at September 30, 2017, is mainly due to the decrease in asset retirement obligations for the South Texas assets that were sold in April.
Segment Operations
Occidental conducts its operations through three segments: (1) oil and gas (2) chemical and (3) midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, NGLs and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, CO2 and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities.
The following table sets forth the sales and earnings of each operating segment and corporate items for the three and nine months ended September 30, 2017, and 2016 (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2017 | | 2016 | | 2017 | | 2016 |
Net Sales (a) | | | | | | | | |
| Oil and Gas | | $ | 1,865 |
| | $ | 1,660 |
| | $ | 5,607 |
| | $ | 4,560 |
|
| Chemical | | 1,071 |
| | 988 |
| | 3,295 |
| | 2,786 |
|
| Midstream and Marketing | | 266 |
| | 202 |
| | 747 |
| | 476 |
|
| Eliminations | | (203 | ) | | (202 | ) | | (633 | ) | | (520 | ) |
| | | $ | 2,999 |
| | $ | 2,648 |
| | $ | 9,016 |
| | $ | 7,302 |
|
Segment Results (b) | | | | | | | | |
| Oil and Gas | | $ | 220 |
| | $ | (51 | ) | | $ | 1,067 |
| | $ | (653 | ) |
| Chemical | | 200 |
| | 117 |
| | 600 |
| | 419 |
|
| Midstream and Marketing | | 4 |
| | (180 | ) | | 76 |
| | (333 | ) |
| | | 424 |
|
| (114 | ) |
| 1,743 |
| | (567 | ) |
Unallocated Corporate Items (b) | | | | | | | | |
| Interest expense, net | | (85 | ) | | (62 | ) | | (244 | ) | | (203 | ) |
| Income tax benefit (provision) | | (85 | ) | | 30 |
| | (448 | ) | | 329 |
|
| Other expense, net | | (64 | ) | | (92 | ) | | (237 | ) | | (293 | ) |
| | | | | | |
|
| |
|
|
| Income (loss) from continuing operations | | 190 |
|
| (238 | ) |
| 814 |
|
| (734 | ) |
| Discontinued operations, net | | — |
| | (3 | ) | | — |
| | 432 |
|
| Net Income (loss) | | $ | 190 |
|
| $ | (241 | ) |
| $ | 814 |
| | $ | (302 | ) |
(a) Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
(b) Refer to “Significant Transactions and Events Affecting Earnings."
Significant Transactions and Events Affecting Earnings
The following table sets forth significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount for the three and nine months ended September 30, 2017, and 2016 (in millions):
|
| | | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil and Gas | | | | | | | | |
| Asset sales gains and other | | $ | 81 |
| | $ | 59 |
| | $ | 591 |
| | $ | 82 |
|
| Asset impairments and related Items | | — |
| | (61 | ) | | — |
| | (61 | ) |
| Total Oil and Gas | | 81 |
| | (2 | ) | | 591 |
| | 21 |
|
| | | | | | | | | |
| Chemical | | | | | | | | |
| Asset sales gains | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 88 |
|
| | | | | | | | | |
| Midstream and Marketing | | | | | | | | |
| Asset impairments and related items | | $ | — |
| | $ | (160 | ) | | $ | — |
| | $ | (160 | ) |
| Non-cash fair value gain on Plains equity investment | | — |
| | — |
| | 94 |
| | — |
|
| Total Midstream and Marketing | | — |
| | (160 | ) | | 94 |
| | (160 | ) |
| | | | | | | | | |
| Corporate | | | | | | | | |
| Asset impairments and related items | | $ | — |
| — |
| $ | — |
| | $ | — |
| | $ | (78 | ) |
Tax effect of pre-tax adjustments (a) | | (28 | ) | | 36 |
| | (244 | ) | | 69 |
|
Discontinued operations, net (b) | | — |
| | (3 | ) | | — |
| | 432 |
|
| Total Corporate | | $ | (28 | ) | | $ | 33 |
|
| $ | (244 | ) | | $ | 423 |
|
| | | | | | | | | |
| Total | | $ | 53 |
| | $ | (129 | ) |
| $ | 441 |
| | $ | 372 |
|
(a) The 2016 amount included benefits for the relinquishment of foreign exploration blocks.
(b) Amounts shown after tax.
Worldwide Effective Tax Rate
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations for the three and nine months ended September 30, 2017, and 2016 (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil and Gas results | | $ | 220 |
| | $ | (51 | ) | | $ | 1,067 |
| | $ | (653 | ) |
| Chemical results | | 200 |
| | 117 |
| | 600 |
| | 419 |
|
| Midstream and Marketing results | | 4 |
| | (180 | ) | | 76 |
| | (333 | ) |
| Unallocated corporate items | | (149 | ) | | (154 | ) | | (481 | ) | | (496 | ) |
| Pre-tax income (loss) | | 275 |
|
| (268 | ) |
| 1,262 |
| | (1,063 | ) |
| | | | | | | | | |
| Income tax benefit (provision) | | | | | | | | |
| Federal and state | | 100 |
| | 242 |
| | 134 |
| | 767 |
|
| Foreign | | (185 | ) | | (212 | ) | | (582 | ) | | (438 | ) |
| Total | | (85 | ) |
| 30 |
|
| (448 | ) | | 329 |
|
| | | | | | | | | |
| Income (loss) from continuing operations | | $ | 190 |
|
| $ | (238 | ) |
| $ | 814 |
| | $ | (734 | ) |
| | | | | | | | | |
| Worldwide effective tax rate | | 31 | % | | 11 | % | | 35 | % | | 31 | % |
Occidental's worldwide effective tax rate of 31 percent for the three months ended September 30, 2017, is higher than the comparative period of 2016 mainly due to higher pre-tax income and the mix of domestic operating losses and foreign operating income.
Oil and Gas Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017, (in millions):
|
| | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Oil and Gas segment results roll-forward | | 2017 | | 2017 |
Oil and Gas prior year results(a) | | $ | (49 | ) | | $ | (674 | ) |
| Sales price | | 193 |
| | 1,191 |
|
| Sales volume / mix | | (41 | ) | | (112 | ) |
| Operating expenses | | (15 | ) | | (124 | ) |
| DD&A rate | | 95 |
| | 269 |
|
| Exploration expense | | 2 |
| | 18 |
|
| All others | | (46 | ) | | (92 | ) |
| | | | | |
| Oil and Gas current year results | | $ | 139 |
| | $ | 476 |
|
| | | | | |
| Significant transactions and events | | | | |
| Asset sales gains | | $ | 81 |
| | $ | 591 |
|
| | | | | |
| Oil and Gas current year segment earnings | | $ | 220 |
| | $ | 1,067 |
|
(a) Excluded net asset sales gains and impairment related charges of $2 million and net gain of $21 million for the three and nine months ended September 30, 2016, respectively.
The three and nine months ended September 30, 2017, included pre-tax gains of $81 million and $591 million, respectively, primarily related to the sale of the South Texas operations and non-strategic acreage in the Midland Basin. Excluding the gains on sale, the increase in earnings for the three and nine months ended September 30, 2017, compared to the same periods of 2016, was mainly due to higher realized commodity prices for oil and NGLs and lower DD&A rates.
The following tables set forth the production and sales volumes of oil, NGLs and natural gas per day for the three and nine months ended September 30, 2017, and 2016. The differences between the production and sales volumes per day are generally due to the timing of shipments at Occidental’s international locations where the product is loaded onto tankers.
|
| | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Production Volumes per Day | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil (MBBL) | | | | | | | | |
| United States | | 199 |
| | 181 |
| | 196 |
| | 189 |
|
| Middle East | | 148 |
| | 164 |
| | 150 |
| | 172 |
|
| Latin America | | 32 |
| | 26 |
| | 31 |
| | 33 |
|
| NGLs (MBBL) | | | | | | | | |
| United States | | 54 |
| | 55 |
| | 53 |
| | 54 |
|
| Middle East | | 33 |
| | 31 |
| | 30 |
| | 27 |
|
| Natural Gas (MMCF) | | | | | | | | |
| United States | | 261 |
| | 349 |
| | 298 |
| | 364 |
|
| Middle East | | 533 |
| | 531 |
| | 503 |
| | 608 |
|
| Latin America | | 7 |
| | 8 |
| | 7 |
| | 8 |
|
Total Production Volumes (MBOE) (a) | | 600 |
| | 605 |
| | 595 |
| | 638 |
|
| | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Sales Volumes per Day | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil (MBBL) | | | | | | | | |
| United States | | 199 |
| | 181 |
| | 196 |
| | 189 |
|
| Middle East | | 150 |
| | 163 |
| | 151 |
| | 173 |
|
| Latin America | | 30 |
| | 31 |
| | 30 |
| | 34 |
|
| NGLs (MBBL) | | | | | | | | |
| United States | | 54 |
| | 55 |
| | 53 |
| | 54 |
|
| Middle East | | 33 |
| | 31 |
| | 30 |
| | 27 |
|
| Natural Gas (MMCF) | | | | | | | | |
| United States | | 261 |
| | 349 |
| | 298 |
| | 364 |
|
| Middle East | | 533 |
| | 531 |
| | 503 |
| | 608 |
|
| Latin America | | 7 |
| | 8 |
| | 7 |
| | 8 |
|
Total Sales Volumes (MBOE) (a) | | 600 |
| | 609 |
| | 595 |
| | 640 |
|
(See footnote following the table below)
The following tables set forth the production and sales volumes of ongoing operations for oil, NGLs and natural gas per day for the three and nine months ended September 30, 2017 and 2016, excluding operations sold or exited.
|
| | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Production Volumes per Day from Ongoing Operations | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil (MBBL) | | | | | | | | |
United States (b) | | 199 |
| | 179 |
| | 195 |
| | 186 |
|
Middle East (c) | | 148 |
| | 164 |
| | 150 |
| | 163 |
|
| Latin America | | 32 |
| | 26 |
| | 31 |
| | 33 |
|
| NGLs (MBBL) | | | | | | | | |
United States (b) | | 54 |
| | 50 |
| | 51 |
| | 48 |
|
| Middle East | | 33 |
| | 31 |
| | 30 |
| | 27 |
|
| Natural Gas (MMCF) | | | | | | | | |
United States (b) | | 261 |
| | 238 |
| | 251 |
| | 233 |
|
Middle East (c) | | 533 |
| | 531 |
| | 503 |
| | 457 |
|
| Latin America | | 7 |
| | 8 |
| | 7 |
| | 8 |
|
| Total Production Ongoing Operations (MBOE) | | 600 |
|
| 579 |
|
| 584 |
| | 573 |
|
| Operations Sold, Exited and Exiting | | — |
| | 26 |
| | 11 |
| | 65 |
|
Total Production Volumes (MBOE) (a) | | 600 |
| | 605 |
| | 595 |
| | 638 |
|
| | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Sales Volumes per Day from Ongoing Operations | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Oil (MBBL) | | | | | | | | |
United States (b) | | 199 |
| | 179 |
| | 195 |
| | 186 |
|
Middle East (c) | | 150 |
| | 163 |
| | 151 |
| | 164 |
|
| Latin America | | 30 |
| | 31 |
| | 30 |
| | 34 |
|
| NGLs (MBBL) | | | | | | | | |
United States (b) | | 54 |
| | 50 |
| | 51 |
| | 48 |
|
| Middle East | | 33 |
| | 31 |
| | 30 |
| | 27 |
|
| Natural Gas (MMCF) | | | | | | | | |
United States (b) | | 261 |
| | 238 |
| | 251 |
| | 233 |
|
Middle East (c) | | 533 |
| | 531 |
| | 503 |
| | 457 |
|
| Latin America | | 7 |
| | 8 |
| | 7 |
| | 8 |
|
| Total Sales Ongoing Operations (MBOE) | | 600 |
|
| 583 |
|
| 584 |
|
| 575 |
|
| Operations Sold, Exited and Exiting | | — |
| | 26 |
| | 11 |
| | 65 |
|
Total Sales Volumes (MBOE) (a) | | 600 |
| | 609 |
| | 595 |
| | 640 |
|
Note: MBBL represents thousand barrels. MMCF represents million cubic feet.
(a) Natural gas volumes have been converted to thousands of barrels of oil equivalent (MBOE) based on energy content of six million cubic feet (MMCF) of gas to one thousand barrels of oil (MBOE). Barrels of oil equivalence does not necessarily result in price equivalence.
(b) Excludes 2 MBBL, 5 MBBL and 111 MMCF of oil, NGLs and gas for the three months ended September 30, 2016, related to South Texas. Excludes 1 MBBL, 2 MMBL and 47 MMCF of oil, NGLs and gas for the nine months ended September 30, 2017, related to South Texas and 3 MBBL, 6 MMBL, and 131 MMCF of oil, NGLs and gas for the nine months ended September 30, 2016, related to South Texas and Piceance.
(c) Excludes 9 MBBL and 151 MMCF of oil and gas for the nine months ended September 30, 2016, related to Bahrain and Iraq.
Total average daily production volumes were 600,000 barrels of oil equivalent (BOE) for the third quarter of 2017 compared to 605,000 BOE for the third quarter of 2016. In April 2017, Occidental completed the sale of its non-core South Texas operations, which produced average daily volumes of 26,000 BOE in the third quarter of 2016. Excluding South Texas, total company average daily oil and gas production volumes for ongoing operations increased by 21,000 BOE to 600,000 BOE from 579,000 BOE in the third quarter of 2016. Average daily production for the third quarter of 2017 reflected a 1,000 BOE decrease to Permian Resources production due to Hurricane Harvey. Compared to the third quarter of 2016, domestic average daily production for ongoing operations increased by 29,000 BOE to 297,000 BOE in the third quarter of 2017, with Permian Resources increasing by 18,000 BOE due to increased drilling activity and well productivity, and Permian EOR increasing by 10,000 BOE partially due to the purchase of EOR
properties in the third quarter of 2017. International average daily production for ongoing operations decreased to 303,000 BOE in the third quarter of 2017 from 311,000 BOE in the third quarter of 2016. The decrease in international production is primarily attributable to higher prices impacting our cost recovery volumes under production-sharing contracts and third-party outages, partially offset by higher production in Colombia.
Total average daily production volumes for the first nine months of 2017 and 2016 were 595,000 BOE and 638,000 BOE, respectively. For the first nine months of 2017 and 2016, non-core operations produced average daily volumes of 11,000 BOE and 65,000 BOE, respectively. For the first nine months of 2017, total company average daily oil and gas production volumes for ongoing operations increased by 11,000 BOE to 584,000 BOE from 573,000 BOE for the first nine months of 2016. Domestic average daily production for ongoing operations increased by 15,000 BOE for the first nine months of 2017, as compared to the first nine months of 2016, with Permian Resources increasing by 10,000 BOE. International average daily production decreased to 296,000 BOE for the first nine months of 2017 from 300,000 BOE for the first nine months of 2016. The decrease in international production is primarily attributable to higher prices impacting production-sharing contracts, partially offset by higher production at Al Hosn Gas.
The following tables present information about Occidental's average realized prices and index prices for the three and nine months ended September 30, 2017, and 2016:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Average Realized Prices | | 2017 | | 2016 | | 2017 | | 2016 |
| Oil ($/BBL) | | | | | | | | |
| United States | | $ | 45.04 |
| | $ | 41.49 |
| | $ | 46.19 |
| | $ | 37.31 |
|
| Middle East | | $ | 47.84 |
| | $ | 41.84 |
| | $ | 48.99 |
| | $ | 36.26 |
|
| Latin America | | $ | 45.54 |
| | $ | 39.66 |
| | $ | 45.26 |
| | $ | 35.50 |
|
| Total Worldwide | | $ | 46.19 |
| | $ | 41.49 |
| | $ | 47.23 |
| | $ | 36.70 |
|
| NGLs ($/BBL) | | | | | | | | |
| United States | | $ | 22.99 |
| | $ | 15.21 |
| | $ | 22.18 |
| | $ | 13.12 |
|
| Middle East | | $ | 17.01 |
| | $ | 14.63 |
| | $ | 17.23 |
| | $ | 14.47 |
|
| Total Worldwide | | $ | 20.73 |
| | $ | 14.99 |
| | $ | 20.37 |
| | $ | 13.58 |
|
| Natural Gas ($/MCF) | | | | | | | | |
| United States | | $ | 2.15 |
| | $ | 2.30 |
| | $ | 2.38 |
| | $ | 1.74 |
|
| Latin America | | $ | 5.22 |
| | $ | 3.48 |
| | $ | 5.04 |
| | $ | 3.66 |
|
| Total Worldwide | | $ | 1.77 |
| | $ | 1.84 |
| | $ | 1.88 |
| | $ | 1.43 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Average Index Prices | | 2017 | | 2016 | | 2017 | | 2016 |
| WTI oil ($/BBL) | | $ | 48.21 |
| | $ | 44.94 |
| | $ | 49.47 |
| | $ | 41.33 |
|
| Brent oil ($/BBL) | | $ | 52.18 |
| | $ | 46.98 |
| | $ | 52.59 |
| | $ | 43.01 |
|
| NYMEX gas ($/MCF) | | $ | 2.95 |
| | $ | 2.70 |
| | $ | 3.12 |
| | $ | 2.24 |
|
|
| | | | | | | | | | | | |
| Average Realized Prices as Percentage of Average Index Prices | | Three months ended September 30 | | Nine months ended September 30 |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Worldwide oil as a percentage of average WTI | | 96 | % | | 92 | % | | 95 | % | | 89 | % |
| Worldwide oil as a percentage of average Brent | | 89 | % | | 88 | % | | 90 | % | | 85 | % |
| Worldwide NGLs as a percentage of average WTI | | 43 | % | | 33 | % | | 41 | % | | 33 | % |
| Domestic natural gas as a percentage of average NYMEX | | 73 | % | | 85 | % | | 76 | % | | 78 | % |
Worldwide commodity prices for the third quarter of 2017 were higher than the third quarter of 2016. The average quarterly WTI and Brent prices increased to $48.21 per barrel and $52.18 per barrel, respectively, for the third quarter of 2017, compared to $44.94 per barrel and $46.98 per barrel, respectively, for the third quarter of 2016. Worldwide realized crude oil prices increased by 11 percent to $46.19 per barrel for the third quarter of 2017, compared to $41.49 per barrel in the third quarter of 2016. Worldwide realized NGL prices increased by 38 percent to $20.73 per barrel in the third quarter of 2017, compared to $14.99 per barrel in the third quarter of 2016. Domestic realized natural gas
prices decreased by 7 percent in the third quarter of 2017 to $2.15 per MCF, compared to $2.30 per MCF in the third quarter of 2016.
Worldwide commodity prices for the first nine months of 2017 were higher than the same period of 2016. Worldwide realized crude oil prices increased by 29 percent to $47.23 per barrel for the first nine months of 2017, compared to $36.70 per barrel for the same period of 2016. Worldwide realized NGL prices increased by 50 percent to $20.37 per barrel for the first nine months of 2017, compared to $13.58 per barrel for the same period of 2016. Domestic realized natural gas prices increased by 37 percent for the first nine months of 2017 to $2.38 per MCF, compared to $1.74 per MCF for the same period of 2016.
Occidental’s financial results correlate closely to the prices it obtains for its products. Significant declines in commodity prices may result in impairments to reduce the carrying value of Occidental’s oil and gas properties, while also reducing the amount of volumes that can be produced economically and the quantity and present value of proved reserves.
Chemical Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017 (in millions):
|
| | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Chemical segment results roll-forward | | 2017 | | 2017 |
Chemical prior year results(a) | | $ | 117 |
| | $ | 331 |
|
| Sales price | | 109 |
| | 372 |
|
| Sales volume / mix | | (12 | ) | | 68 |
|
| Operations / manufacturing | | (32 | ) | | (223 | ) |
All others(b) | | 18 |
| | 52 |
|
| Chemical current year segment earnings | | $ | 200 |
| | $ | 600 |
|
(a) Excluded gain on sale of the Occidental Tower in Dallas and a non-core specialty chemicals business of $88 million for the nine months ended September 30, 2016.
(b) Included equity income from the Ingleside joint venture ethylene cracker.
Chemical segment earnings for the third quarter of 2017 of $200 million was negatively impacted by Hurricane Harvey by approximately $60 million due to the temporary shutdown of chlorovinyl production, and higher costs for plant maintenance and raw materials and a lack of utilities. The higher earnings for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected higher realized pricing for caustic soda, improved vinyls margins, and the addition of equity income from the joint venture ethylene cracker in Ingleside, Texas, partially offset by the impact of Hurricane Harvey.
Midstream and Marketing Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017, (in millions):
|
| | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| Midstream and Marketing segment results roll-forward | | 2017 | | 2017 |
Midstream and Marketing prior year results (a) | | $ | (20 | ) | | $ | (173 | ) |
| Marketing | | 4 |
| | 90 |
|
| Gas plants | | 9 |
| | 17 |
|
| Pipelines | | 9 |
| | 44 |
|
| Power generation | | (4 | ) | | (5 | ) |
| All others | | 6 |
| | 9 |
|
| Midstream and Marketing current year results | | $ | 4 |
| | $ | (18 | ) |
| Significant transactions and events | | | | |
| Non-cash fair value gain on Plains equity investment | | $ | — |
| | $ | 94 |
|
| | | | | |
| Midstream and Marketing current year segment earnings | | $ | 4 |
| | $ | 76 |
|
(a) Excluded $160 million related to terminated crude oil supply contracts for the three and nine months ended September 30, 2016.
Midstream and marketing segment earnings for the third quarter of 2017 of $4 million was negatively impacted by Hurricane Harvey by approximately $10 million. The increase in income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected improved Midland to Gulf Coast spreads, income from the Ingleside Crude Oil Terminal, which commenced operations in late 2016, higher sulfur sales in Al Hosn and higher domestic pipeline sales.
Liquidity and Capital Resources
At September 30, 2017, Occidental had $1.8 billion in cash. Income and cash flows are largely dependent on the oil and gas segment's realized prices, sales volumes and operating costs. Occidental expects to fund its liquidity needs, including future dividend payments, through cash on hand, cash generated from operations, monetization of non-core assets or investments and, if necessary, through future borrowings or proceeds from other forms of capital issuance.
Net cash provided by operating activities was $3.6 billion and $2.5 billion for the nine months ended September 30, 2017, and 2016, respectively. Cash flows in the first nine months of 2017 were positively impacted by improved commodity prices in both the oil and gas and chemicals segments, and federal income tax refunds of $749 million. Operating cash flows in 2016 benefited from $882 million for the Ecuador settlement and $302 million of federal income tax refunds. The impact of the chemical and the midstream and marketing segments on overall cash flows is typically less significant than the impact of the oil and gas segment because the chemical and midstream and marketing segments are significantly smaller.
Occidental’s net cash used by investing activities was $2.3 billion for the first nine months of 2017, compared to $2.0 billion for the same period of 2016. Capital expenditures for the first nine months of 2017 were $2.4 billion of which $2.0 billion was for the oil and gas segment. Capital expenditures were $1.8 billion for the first nine months of 2016, of which $1.4 billion was for the oil and gas segment. Proceeds of $1.3 billion from the sale of assets in the first nine months of 2017 primarily reflected the sale of Occidental's South Texas operations, and non-strategic acreage in the Midland Basin. Asset acquisitions in the first nine months of 2017 of $1.1 billion mainly reflected Permian acquisitions and the Oman Block 9 bonus payment.
Occidental’s net cash used by financing activities was $1.7 billion for the first nine months of 2017, compared to cash used by financing activities of $0.5 billion for the same period of 2016. Cash used by financing activities in the first nine months of 2017 primarily reflected the payment of dividends. In the first nine months of 2016, restricted cash of $1.2 billion was used to pay dividends and repay debt. In the first nine months of 2016, Occidental issued $2.75 billion of senior notes, repaid $700 million of 2.5-percent senior notes due February 2016 and $750 million of 4.125-
percent senior notes due June 2016, and completed the early redemption of $1.25 billion of 1.75-percent senior notes due February 2017.
As of September 30, 2017, Occidental was in compliance with all covenants of its financing agreements and had substantial capacity for additional unsecured borrowings, the payment of cash dividends and other distributions on, or acquisitions of, Occidental stock.
Environmental Liabilities and Expenditures
Occidental’s operations are subject to stringent federal, regional, state, provincial, tribal, local and foreigninternational laws and regulations related to improving or maintaining environmental quality. Occidental’s environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.
The laws that require or address environmental remediation, including CERCLA and similar federal, regional, state, provincial, tribal, local and foreigninternational laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OPCOccidental or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal of hazardous substances;disposal; or operation and maintenance of remedial systems. TheseThe environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.
ReferENVIRONMENTAL REMEDIATION
As of September 30, 2021, Occidental participated in or monitored remedial activities or proceedings at 165 sites. The following table presents Occidental’s current and non-current environmental remediation liabilities as of September 30, 2021. The current portion, $123 million, is included in accrued liabilities and the non-current portion, $1.0 billion, in deferred credits and other liabilities - environmental remediation liabilities.
Occidental’s environmental remediation sites are grouped into four categories: sites listed or proposed for listing by the U.S. Environmental Protection Agency (EPA) on the CERCLA National Priorities List (NPL) and three categories of non-NPL sites—third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.
| | | | | | | | | | | | | | |
| millions, except number of sites | | Number of Sites | | Remediation Balance |
| NPL sites | | 30 | | | $ | 427 | |
| Third-party sites | | 69 | | | 298 | |
| Occidental-operated sites | | 16 | | | 131 | |
| Closed or non-operated Occidental sites | | 50 | | | 267 | |
| Total | | 165 | | | $ | 1,123 | |
As of September 30, 2021, Occidental’s environmental remediation liabilities exceeded $10 million each at 18 of the 165 sites described above, and 95 of the sites had liabilities from zero to Note 6, Environmental Liabilities$1 million each. Based on current estimates, Occidental expects to expend funds corresponding to approximately 40% of the period-end remediation balance at the
sites described above over the next three to four years and Expenditures,the remaining balance at these sites over the subsequent 10 or more years. Occidental believes its range of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites could be up to $1.1 billion. The status of Occidental's involvement with the sites and related significant assumptions, including those sites indemnified by Maxus Energy Corporation (Maxus), has not changed materially since December 31, 2020.
MAXUS ENVIRONMENTAL SITES
When Occidental acquired Diamond Shamrock Chemicals Company in 1986, Maxus, a subsidiary of YPF S.A., agreed to indemnify Occidental for a number of environmental sites, including the Diamond Alkali Superfund Site (Site) along a portion of the Passaic River. On June 17, 2016, Maxus and several affiliated companies filed for Chapter 11 bankruptcy in federal district court in the Notes State of Delaware. Prior to filing for bankruptcy, Maxus defended and indemnified Occidental in connection with clean-up and other costs associated with the sites subject to the Consolidated Condensed Financial Statements indemnity, including the Site.
In March 2016, the EPA issued a Record of Decision (ROD) specifying remedial actions required for the lower 8.3 miles of the Lower Passaic River. The ROD does not address any potential remedial action for the upper 9 miles of the Lower Passaic River or Newark Bay. During the third quarter of 2016, and following Maxus’ bankruptcy filing, Occidental and the EPA entered into an Administrative Order on Consent (AOC) to complete the design of the proposed clean-up plan outlined in Part I Item 1the ROD at an estimated cost of $165 million. The EPA announced that it will pursue similar agreements with other potentially responsible parties.
Occidental has accrued a reserve relating to its estimated allocable share of the costs to perform the design and remediation called for in the AOC and the ROD as well as for certain other Maxus-indemnified sites. Occidental's accrued estimated environmental reserve does not consider any recoveries for indemnified costs. Occidental’s ultimate share of this Form 10-Qliability may be higher or lower than the reserved amount, and is subject to final design plans and the resolution of Occidental's allocable share with other potentially responsible parties. Occidental continues to evaluate the costs to be incurred to comply with the AOC and the ROD and to perform remediation at other Maxus-indemnified sites in light of the Environmental LiabilitiesMaxus bankruptcy and Expenditures sectionthe share of ultimate liability of other potentially responsible parties. In June 2018, Occidental filed a complaint under CERCLA in federal district court in the State of New Jersey against numerous potentially responsible parties for reimbursement of amounts incurred or to be incurred to comply with the AOC and the ROD, or to perform other remediation activities at the Site.
In September 2021, the EPA issued a ROD for an interim remedy plan for the upper 9 miles of Lower Passaic River. At this time Occidental’s potential role or responsibilities under this ROD, if any, have not yet been agreed to with the EPA. Occidental will continue to evaluate the ROD issued for the upper nine miles of the Lower Passaic River.
In June 2017, the court overseeing the Maxus bankruptcy approved a Plan of Liquidation (Plan) to liquidate Maxus and create a trust to pursue claims against current and former parents YPF and each of its respective subsidiaries and affiliates (YPF) and Repsol, S.A. and each of its respective subsidiaries and affiliates (Repsol), as well as others to satisfy claims by Occidental and other creditors for past and future cleanup and other costs. In July 2017, the court-approved Plan became final and the trust became effective. The trust is pursuing claims against YPF, Repsol and others and is expected to distribute assets to Maxus' creditors in accordance with the trust agreement and Plan. In June 2018, the trust filed its complaint against YPF and Repsol in Delaware bankruptcy court asserting claims based upon, among other things, fraudulent transfer and alter ego. During 2019, the bankruptcy court denied Repsol's and YPF's motions to dismiss the complaint as well as their motions to move the case away from the bankruptcy court. Discovery remains ongoing at the time of this report.
| | |
| NOTE 10 - RETIREMENT AND POSTRETIREMENT BENEFIT PLANS |
Occidental has various defined contribution and defined benefit plans for its salaried, domestic union and non-union hourly and certain foreign national employees. In addition, Occidental also provides medical and other benefits for certain active, retired and disabled employees and their eligible dependents.
The following table contains a summary of Occidental's retirement and postretirement benefits plan costs for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net gains related to pension settlement and curtailment (a) | | 1 | | | $ | 8 | | | 11 | | | $ | 142 | |
Net periodic benefit costs related to pension special termination benefits (a) | | — | | | $ | 3 | | | — | | | $ | 21 | |
| Net periodic benefit costs (gains) related to pension benefits excluding settlement, curtailment and special termination benefits | | (4) | | | $ | (2) | | | (12) | | | $ | 22 | |
| Net periodic benefit costs related to postretirement benefits | | 23 | | | $ | 18 | | | 61 | | | $ | 56 | |
| Contributions to qualified and supplemental pension plans | | 5 | | | $ | 30 | | | 157 | | | $ | 132 | |
(a) Net gains related to pension settlement and curtailment and costs of special termination benefits for the three and nine months ended September 30, 2021 and 2020 primarily related to a separation program and the freezing of benefit accruals for Anadarko employees.
The increase in 2021 contributions was primarily due to distributions related to the separation program and freezing of benefit accruals described above and for contributions which were previously deferred in 2020 under the Coronavirus Aid, Relief, and Economic Security Act.
| | |
| NOTE 11 - EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY |
The following table presents the calculation of basic and diluted net income (loss) attributable to common stockholders per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions except share and per-share amounts | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) from continuing operations | | $ | 830 | | | $ | (3,655) | | | $ | 1,229 | | | $ | (12,384) | |
| Income (loss) from discontinued operations | | (2) | | | 80 | | | (444) | | | (1,335) | |
| Net income (loss) | | 828 | | | (3,575) | | | 785 | | | (13,719) | |
| | | | | | | | |
| Less: Preferred stock dividends | | (200) | | | (203) | | | (600) | | | (644) | |
| Net income (loss) attributable to common stockholders | | $ | 628 | | | $ | (3,778) | | | $ | 185 | | | $ | (14,363) | |
| Less: Net income allocated to participating securities | | (5) | | | — | | (1) | | | — |
| Net income (loss), net of participating securities | | 623 | | (3,778) | | | 184 | | (14,363) | |
| Weighted-average number of basic shares | | 935.4 | | 929.3 | | 934.4 | | 913.9 |
| | | | | | | | |
| Basic income (loss) per common share | | $ | 0.67 | | | $ | (4.07) | | | $ | 0.20 | | | $ | (15.72) | |
| | | | | | | | |
| | | | | | | | |
| Net income (loss), net of participating securities | | $ | 623 | | | $ | (3,778) | | | $ | 184 | | | $ | (14,363) | |
| | | | | | | | |
| Weighted-average number of basic shares | | 935.4 | | 929.3 | | 934.4 | | 913.9 |
| Dilutive securities | | 22.3 | | | — | | 19.8 | | | — |
| Dilutive effect of potentially dilutive securities | | 957.7 | | | 929.3 | | 954.2 | | | 913.9 |
| | | | | | | | |
| Diluted income (loss) per common share | | $ | 0.65 | | | $ | (4.07) | | | $ | 0.19 | | | $ | (15.72) | |
As of September 30, 2021, warrants and options covering approximately 87 million shares of Occidental common stock were excluded from the diluted shares as their effect would have been anti-dilutive. As of September 30, 2020, warrants and options covering approximately 200 million shares of Occidental common stock were excluded from the diluted shares as their effect would have been anti-dilutive.
Occidental conducts its operations through 3 segments: (1) oil and gas (2) chemical and (3) midstream and marketing. Income taxes, interest income, interest expense, environmental remediation expenses, Anadarko acquisition-related costs and unallocated corporate expenses are included under corporate and eliminations. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions. The following table presents Occidental’s industry segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| millions | | Oil and gas (a) | | Chemical | | Midstream and marketing (b) | | Corporate and eliminations (c) | | Total |
| Three months ended September 30, 2021 | | | | | | | | | | |
| Net sales | | $ | 4,955 | | | $ | 1,396 | | | $ | 702 | | | $ | (261) | | | $ | 6,792 | |
| Income (loss) from continuing operations before income taxes | | $ | 1,467 | | | $ | 407 | | | $ | 20 | | | $ | (677) | | | $ | 1,217 | |
| Income tax expense | | — | | | — | | | — | | | (387) | | | (387) | |
| Income (loss) from continuing operations | | $ | 1,467 | | | $ | 407 | | | $ | 20 | | | $ | (1,064) | | | $ | 830 | |
| Three months ended September 30, 2020 | | | | | | | | | | |
| Net sales | | $ | 2,989 | | | $ | 937 | | | $ | 364 | | | $ | (182) | | | $ | 4,108 | |
| Income (loss) from continuing operations before income taxes | | $ | (1,072) | | | $ | 178 | | | $ | (2,791) | | | $ | (373) | | | $ | (4,058) | |
| Income tax benefit | | — | | | — | | | — | | | 403 | | | 403 | |
| Income (loss) from continuing operations | | $ | (1,072) | | | $ | 178 | | | $ | (2,791) | | | $ | 30 | | | $ | (3,655) | |
| millions | | Oil and gas (a) | | Chemical | | Midstream and marketing (b) | | Corporate and eliminations (c) | | Total |
| Nine months ended September 30, 2021 | | | | | | | | | | |
| Net sales | | $ | 13,124 | | | $ | 3,671 | | | $ | 2,006 | | | $ | (758) | | | $ | 18,043 | |
| Income (loss) from continuing operations before income taxes | | $ | 2,036 | | | $ | 970 | | | $ | 272 | | | $ | (1,603) | | | $ | 1,675 | |
| Income tax expense | | — | | | — | | | — | | | (446) | | | (446) | |
| Income (loss) from continuing operations | | $ | 2,036 | | | $ | 970 | | | $ | 272 | | | $ | (2,049) | | | $ | 1,229 | |
| Nine months ended September 30, 2020 | | | | | | | | | | |
| Net sales | | $ | 10,089 | | | $ | 2,745 | | | $ | 1,358 | | | $ | (543) | | | $ | 13,649 | |
| Income (loss) from continuing operations before income taxes | | $ | (8,570) | | | $ | 472 | | | $ | (4,085) | | | $ | (2,097) | | | $ | (14,280) | |
| Income tax benefit | | — | | | — | | | — | | | 1,896 | | | 1,896 | |
| Income (loss) from continuing operations | | $ | (8,570) | | | $ | 472 | | | $ | (4,085) | | | $ | (201) | | | $ | (12,384) | |
(a) The three months ended September 30, 2021 included $97 million of net oil, gas, and CO2 derivative losses and $17 million in asset impairments. The nine months ended September 30, 2021 included $277 million of net oil, gas, and CO2 derivative losses and $173 million of asset impairments. The three and nine months ended September 30, 2020 included $795 million in net asset sale losses. Additionally, the nine months ended September 30, 2020 included $7.0 billion related to asset impairments and other charges partially offset by a $1.1 billion gain on the oil collars and call options.
(b) The three months ended September 30, 2021 included $11 million of net derivative mark-to-market losses. The nine months ended September 30, 2021 included $124 million of gains on sales, primarily from the sale of 11.5 million limited partner units in WES, and $176 million in derivative mark-to-market losses. The three and nine months ended September 30, 2020 included $2.7 billion of the other-than-temporary impairment of WES, an equity investment. Additionally, the nine months ended September 30, 2020 included $1.4 billion of impairments related to the write-off of goodwill and a loss from an equity investment related to WES's write-off of its goodwill.
(c) The three months ended September 30, 2021 included $88 million of losses on debt tenders, $26 million of net derivative mark-to-market losses on interest rate swaps and $29 million of Anadarko acquisition-related costs. The nine months ended September 30, 2021 included $88 million of losses on debt tenders, $150 million net derivative mark-to-market gains on interest rate swaps and $122 million of Anadarko acquisition-related costs. The nine months ended September 30, 2020 included $302 million of Anadarko acquisition-related costs and a $577 million loss on interest rate swaps.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations (MD&A)
The following discussion should be read together with the consolidated condensed financial statements and the notes to consolidated condensed financial statements, which are included in this report in Part I, Item 1; the information set forth in Risk Factors under Part II, Item 1A; the consolidated financial statements and the notes to the consolidated financial statements, which are included in Part II, Item 8 of Occidental's 2020 Form 10-K; and the information set forth in Risk Factors under Part I, Item 1A of the 2020 Form 10-K.
| | |
| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS |
Portions of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, and they include, but are not limited to: any projections of earnings, revenue or other financial items or future financial position or sources of financing; any statements of the plans, strategies and objectives of management for future operations or business strategy; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Words such as “estimate,” “project,” “predict,” “will,” “would,” “should,” “could,” “may,” “might,” “anticipate,” “plan,” “intend,” “believe,” “expect,” “aim,” “goal,” “target,” “objective,” "commit," "advance," “likely” or similar expressions that convey the prospective nature of events or outcomes are generally indicative of forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update, modify or withdraw any forward-looking statements as a result of new information, future events or otherwise.
Although Occidental believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results may differ from anticipated results, sometimes materially. Factors that could cause results to differ from those projected or assumed in any forward-looking statement include, but are not limited to: the scope and duration of the COVID-19 pandemic and ongoing actions taken by governmental authorities and other third parties in response to the pandemic; Occidental’s indebtedness and other payment obligations, including the need to generate sufficient cash flows to fund operations; Occidental’s ability to successfully monetize select assets and repay or refinance debt and the impact of changes in Occidental’s credit ratings; assumptions about energy markets; global and local commodity and commodity-futures pricing fluctuations; supply and demand considerations for, and the prices of, Occidental’s products and services; actions by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries; results from operations and competitive conditions; future impairments of our proved and unproved oil and gas properties or equity investments, or write-downs of productive assets, causing charges to earnings; unexpected changes in costs; availability of capital resources, levels of capital expenditures and contractual obligations; the regulatory approval environment, including Occidental's ability to timely obtain or maintain permits or other governmental approvals, including those necessary for drilling and/or development projects; Occidental's ability to successfully complete, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; risks associated with acquisitions, mergers and joint ventures, such as difficulties integrating businesses, uncertainty associated with financial projections, projected synergies, restructuring, increased costs and adverse tax consequences; uncertainties and liabilities associated with acquired and divested properties and businesses; uncertainties about the estimated quantities of oil, NGL and natural gas reserves; lower-than-expected production from development projects or acquisitions; Occidental’s ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes and improve Occidental’s competitiveness; exploration, drilling and other operational risks; disruptions to, capacity constraints in, or other limitations on the pipeline systems that deliver Occidental’s oil and natural gas and other processing and transportation considerations; general economic conditions, including slowdowns, domestically or internationally, and volatility in the 2016securities, capital or credit markets; inflation; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; governmental actions and political conditions and events; legislative or regulatory changes, including changes relating to hydraulic fracturing or other oil and natural gas operations, retroactive royalty or production tax regimes, deepwater and onshore drilling and permitting regulations and environmental regulation (including regulations related to climate change); environmental risks and liability under federal, regional, state, provincial, tribal, local and international environmental laws and regulations (including remedial actions); Occidental's ability to recognize intended benefits from its business strategies and initiatives, such as Oxy Low Carbon Ventures or announced greenhouse gas reduction targets; potential liability resulting from pending or future litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, power outages, natural disasters, cyber-attacks or insurgent activity; the creditworthiness and performance of Occidental's counterparties, including financial institutions, operating partners and other parties; failure of risk management; Occidental’s ability to retain and hire key personnel; supply, transportation, and labor constraints; reorganization or restructuring of Occidental’s operations; changes in state, federal or international tax rates; and actions by third parties that are beyond Occidental's control.
Additional information concerning these and other factors can be found in Occidental’s filings with the U.S. Securities and Exchange Commission, including Occidental’s 2020 Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Occidental’s operations, financial condition, cash flows and levels of expenditures are highly dependent on oil prices and, to a lesser extent, NGL and natural gas prices, the Midland-to-Gulf-Coast oil spreads and the prices it receives for its chemical products. Oil prices have increased significantly in 2021. Occidental's average worldwide realized price for the three months ended September 30, 2021 was $68.74, compared to $38.51 in the same period of 2020. While the worldwide economy continues to be impacted by the ongoing effects of the COVID-19 pandemic and emergence and spread of new variants of the virus, demand for Occidental's products has increased with the lifting of certain restrictions, including certain travel restrictions and stay-at-home orders. Current oil prices could be negatively impacted by a resurgence of COVID-19 cases, slow vaccine distribution in certain large international economies, or the recurrence or tightening of travel restrictions and stay-at-home orders. We expect that oil prices in the near-term will continue to be influenced by the duration and severity of the COVID-19 pandemic and its resulting impact on oil and gas supply and demand.
Occidental's operational priorities for 2021 continue to be to maximize cash flow by sustaining production in-line with its 2020 fourth quarter rate with an annualized $2.9 billion capital budget and by maintaining a majority of the cost savings achieved in 2020. Occidental intends to use excess cash flow generated during 2021, coupled with divestiture proceeds, to continue to strengthen its balance sheet by reducing its debt and other financial obligations. Year to date, Occidental has repaid a total of $4.5 billion of debt and retired $750 million in interest rate swaps, which are estimated to result in total annual interest and financing cost savings of approximately $170 million.
LIABILITY MANAGEMENT
In the third quarter of 2021, Occidental reduced total borrowings at face value by $4.3 billion, through a combination of cash tenders, scheduled repayments, and early retirements resulting in near-term debt maturities of $728 million in 2022 and $465 million in 2023. During the nine months ended September 30, 2021, Occidental has reduced total borrowings at face value by $4.5 billion.
Occidental’s Zero Coupon senior notes due 2036 (Zero Coupons) can be put to Occidental in October of each year, in whole or in part, for the then accreted value of the outstanding Zero Coupons. The Zero Coupons can next be put to Occidental in October 2022, which, if put in whole, would require a payment of approximately $1.1 billion at such date. None of the outstanding Zero Coupons were put to Occidental in October 2021. Occidental currently has the ability to meet this obligation and may use available capacity under the revolving credit facility (RCF) to satisfy the put should it be exercised.
During the third quarter of 2021, Occidental cash settled certain interest rate swaps in advance of their mandatory termination dates with a notional value of $750 million for $815 million. The interest rate swaps remaining with a notional value of $725 million and a fair value of approximately $410 million, net of collateral, as of September 30, 2021, have mandatory termination dates in September 2022 and 2023. The interest rate swaps' fair value, and cash required to settle on their termination dates, will continue to fluctuate with changes in interest rates through the mandatory termination dates. Depending on market conditions, liability management actions or other factors, Occidental may enter into offsetting interest rate swap positions or amend or settle certain or all of the currently outstanding interest rate swaps, as appropriate.
As of the date of this filing, Occidental had $5.0 billion of committed borrowing capacity under its RCF, which matures in January 2023. Additionally, Occidental has up to $400 million of capacity, subject to monthly redetermination, under its receivables securitization facility, which matures in November 2022. Occidental intends to use excess cash flow and the net proceeds from the Ghana asset sale to repay additional indebtedness. The closing of the Ghana asset sale completed Occidental's large-scale asset divestiture program. Occidental expects its cash on hand and funds available under its RCF to be sufficient to meet its near-term debt maturities, operating expenditures and other obligations for the next 12 months from the date of this filing.
DEBT RATINGS
As of September 30, 2021, Occidental’s long-term debt was rated Ba2 by Moody’s Investors Service, BB by Fitch Ratings and BB by Standard and Poor’s. In the third quarter of 2021, Standard and Poor's upgraded Occidental's credit rating from BB- to BB. Any downgrade in credit ratings could impact Occidental's ability to access capital and increase its cost of capital. In addition, given that Occidental’s current debt ratings are non-investment grade, Occidental may be requested, and in some cases be required, to provide collateral in the form of cash, letters of credit, surety bonds or other acceptable support as financial assurance of its performance and payment obligations under certain contractual arrangements such as pipeline transportation contracts, environmental remediation obligations, oil and gas purchase contracts and certain derivative instruments.
As of the date of this filing, Occidental has provided required financial assurances through a combination of cash, letters of credit and surety bonds made available to it on a bilateral basis and has not issued any letters of credit under the RCF or other committed facilities. For additional information, regardingsee Risk Factors in Part I, Item 1A of Occidental’s environmental expenditures.2020 Form 10-K.
IMPACT OF COVID-19 PANDEMIC TO GLOBAL OPERATIONS
Occidental continues to focus on protecting the health and safety of its employees and contractors during the COVID-19 pandemic. Certain workplace restrictions implemented in the initial stages of the pandemic for our offices and work sites for health and safety reasons were lifted in 2021 due to higher vaccination rates and lower infection rates. Other restrictions remain in place. Occidental has not incurred material costs as a result of new protocols and procedures. Occidental continues to monitor national, state and local government directives where it has operations and/or offices. Occidental has not incurred any significant disruptions to its day-to-day operations as a result of any workplace restrictions related to the COVID-19 pandemic to date; however, the extent to which the COVID-19 pandemic could adversely affect Occidental's business, results of operations and financial condition will depend on future developments, which remain uncertain.
| | |
| CONSOLIDATED RESULTS OF OPERATIONS |
Occidental reported after-tax income from continuing operations of $830 million on net sales of $6.8 billion, for the three months ended September 30, 2021, compared to an after-tax loss from continuing operations of $3.7 billion on net sales of $4.1 billion for the same period of 2020. Diluted income from continuing operations per share was $0.65 for the three months ended September 30, 2021 compared to a diluted loss of $4.16 for the same period of 2020.
Occidental reported after-tax income from continuing operations of $1.2 billion on net sales of $18.0 billion for the nine months ended September 30, 2021, compared to an after-tax loss from continuing operations of $12.4 billion on net sales of $13.6 billion for the same period of 2020. Diluted income from continuing operations per share was $0.65 for the nine months ended September 30, 2021 compared to a diluted loss of $14.26 for the same period of 2020.
Excluding the impact of asset impairments, gains and losses on sales of assets and equity investments, gains and losses on derivative mark-to-market adjustments and acquisition-related costs, the increase in income from continuing operations for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to higher crude oil, NGL and natural gas prices, higher marketing margins in the midstream and marketing segment and higher realized prices across most chemical product lines, partially offset by lower crude oil sales volumes, higher depreciation, depletion and amortization (DD&A) rates and higher chemical ethylene and energy costs.
SELECTED STATEMENTS OF OPERATIONS ITEMS
Net sales increased for the three and nine months ended September 30, 2021, compared to the same periods in 2020, primarily as a result of higher crude oil, NGL and natural gas prices, higher realized prices across most chemical product lines and higher marketing margins in the midstream and marketing segment, partially offset by lower crude oil sales volumes.
Gains on sales of assets and equity investments, net for the nine months ended September 30, 2021, was primarily related to a $102 million gain from the sale of limited partner units of WES in the first quarter of 2021. Losses on sales of assets and equity method investments, net for the three and nine months ended September 30, 2020 primarily comprised of $431 million in losses associated with mineral and surface acres located in Wyoming, Colorado and Utah and $356 million in losses related to onshore oil and gas Colombia assets.
Transportation and gathering expense decreased for the nine months ended September 30, 2021 compared to the same period in 2020, primarily as a result of lower domestic oil and gas production volumes.
Purchased commodities increased for the three and nine months ended September 30, 2021 compared to the same periods in 2020, due to higher crude prices on third-party crude purchases related to the midstream and marketing segment.
Other operating and non-operating expense increased for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a net gain in the second quarter of 2020 related to the settlement, curtailment, and special termination benefits on pension plans acquired from Anadarko.
Taxes other than on income increased for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to higher production taxes, which are directly tied to higher commodity prices.
Asset impairments and other charges for the three months ended September 30, 2020 included a $2.7 billion other-than-temporary impairment on the WES equity investment. Asset impairments and other charges for the nine months ended September 30, 2020 also included $7.0 billion in pre-tax impairments on oil and gas proved and unproved properties, a $1.2 billion impairment of goodwill attributable to Occidental's ownership in WES and other impairments to both proved and unproved oil and gas properties and lower of cost or net realizable value adjustments for crude inventory.
Interest and debt expense, net increased for the nine months ended September 30, 2021 compared to the same period in 2020, as a result of higher effective interest rates and premiums and fees related to debt tenders.
Gains (losses) on interest rate swaps and warrants, net increased for the nine months ended September 30, 2021 compared to the same period in 2020, due to changes in the three-month LIBOR, upon which the floating rate of the
underlying interest rate swaps are indexed. See Note 5 - Derivatives in the notes to the consolidated condensed financial statements in Part 1, Item 1 of this Form 10-Q for further discussion. Income (loss) from equity investments for the nine months ended September 30, 2020 included a loss of approximately $240 million related to WES' write-off of its goodwill of $440 million in the first quarter of 2020.
Income tax expense increased for the three and nine months ended September 30, 2021 compared to the same periods in 2020, primarily due to higher pre-tax income. See further discussion under the heading IncomeTaxes.
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| SEGMENT RESULTS OF OPERATIONS AND ITEMS AFFECTING COMPARABILITY |
SEGMENT RESULTS OF OPERATIONS
Occidental’s principal businesses consist of three reporting segments: oil and gas, chemical and midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, NGL and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, CO2 and power. It also trades around its assets, including transportation and storage capacity, and invests in entities that conduct similar activities such as WES.
The following table sets forth the sales and earnings of each operating segment and corporate items for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net sales (a) | | | | | | | | |
| Oil and gas | | $ | 4,955 | | | $ | 2,989 | | | $ | 13,124 | | | $ | 10,089 | |
| Chemical | | 1,396 | | | 937 | | | 3,671 | | | 2,745 | |
| Midstream and marketing | | 702 | | | 364 | | | 2,006 | | | 1,358 | |
| Eliminations | | (261) | | | (182) | | | (758) | | | (543) | |
| Total | | 6,792 | | | 4,108 | | | 18,043 | | | 13,649 | |
| Income (loss) from continuing operations | | | | | | | | |
Oil and gas (b) | | 1,467 | | | (1,072) | | | 2,036 | | | (8,570) | |
| Chemical | | 407 | | | 178 | | | 970 | | | 472 | |
Midstream and marketing (b) | | 20 | | | (2,791) | | | 272 | | | (4,085) | |
| Total | | 1,894 | | | (3,685) | | | 3,278 | | | (12,183) | |
Unallocated corporate items (b) | | | | | | | | |
| Interest expense, net | | (449) | | | (353) | | | (1,229) | | | (1,015) | |
| Income tax benefit (expense) | | (387) | | | 403 | | | (446) | | | 1,896 | |
| Other items, net | | (228) | | | (20) | | | (374) | | | (1,082) | |
| Income (loss) from continuing operations | | $ | 830 | | | $ | (3,655) | | | $ | 1,229 | | | $ | (12,384) | |
(a) Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
ITEMS AFFECTING COMPARABILITY
The following table sets forth items affecting the comparability of Occidental's earnings that vary widely and unpredictably in nature, timing and amount:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions | | 2021 | | 2020 | | 2021 | | 2020 |
| Oil and gas | | | | | | | | |
| Asset impairments - domestic | | $ | (17) | | | $ | (21) | | | $ | (173) | | | $ | (5,817) | |
| Asset impairments - international | | — | | | — | | | — | | | (1,195) | |
| Asset sales gains (losses), net - domestic | | 14 | | | (439) | | | 14 | | | (425) | |
| | | | | | | | |
| Asset sales losses, net - international | | (12) | | | (356) | | | (12) | | | (356) | |
| Rig termination and others - domestic | | — | | | (23) | | | — | | | (61) | |
| Rig termination and others - international | | — | | | (4) | | | — | | | (10) | |
Oil, gas and CO2 derivative gains (losses), net | | (97) | | | 136 | | | (277) | | | 1,059 | |
| Total oil and gas | | (112) | | | (707) | | | (448) | | | (6,805) | |
| | | | | | | | |
| Midstream and marketing | | | | | | | | |
| Asset sales gains (losses) and other, net | | — | | | (46) | | | 124 | | | (46) | |
| Goodwill and other asset impairment | | — | | | (2,729) | | | — | | | (4,194) | |
| Derivative gains (losses), net | | (11) | | | (20) | | | (176) | | | 285 | |
| Total midstream and marketing | | (11) | | | (2,795) | | | (52) | | | (3,955) | |
| | | | | | | | |
| Corporate | | | | | | | | |
| Anadarko acquisition-related costs | | (29) | | | (5) | | | (122) | | | (302) | |
| Acquisition-related pension and curtailment gains | | — | | | — | | | — | | | 114 | |
| Interest rate swap gains (losses), net | | (26) | | | 88 | | | 150 | | | (577) | |
| Debt tender premium and related items, net | | (88) | | | — | | | (88) | | | — | |
| Warrants gains, net | | — | | | — | | | — | | | 5 | |
| Total corporate | | (143) | | | 83 | | | (60) | | | (760) | |
| | | | | | | | |
| Valuation allowance on tax assets | | — | | | (37) | | | — | | | (37) | |
| State tax rate revaluation | | — | | | — | | | 55 | | | — | |
| Income taxes | | 60 | | | 386 | | | 123 | | | 1,607 | |
| Loss from continuing operations | | $ | (206) | | | $ | (3,070) | | | $ | (382) | | | $ | (9,950) | |
Discontinued operations, net of taxes (a) | | $ | (2) | | | $ | 80 | | | $ | (444) | | | $ | (1,335) | |
| Total | | $ | (208) | | | $ | (2,990) | | | $ | (826) | | | $ | (11,285) | |
(a) Included in discontinued operations, net of taxes are the results of Occidental's Ghana assets and a $403 million loss contingency which was recorded in the first quarter of 2021 associated with Occidental's former operations in Ecuador; see Note 8 - Lawsuits, Claims, Commitments and Contingencies in the notes to consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q.
OIL AND GAS SEGMENT
Oil and gas segment pre-tax income was $1.5 billion and $2.0 billion for the three and nine months ended September 30, 2021, respectively, compared with segment pre-tax losses of $1.1 billion and $8.6 billion for the same periods in 2020, respectively. Excluding the impact of asset impairments and other charges and oil, gas and CO2 derivative gains (losses), oil and gas segment results for the three and nine months ended September 30, 2021, compared to the same periods in 2020, reflected higher commodity prices, partially offset by lower crude oil sales volumes and higher DD&A rates.
As a result of Occidental's mid-year reserve review undertaken in the second quarter of 2021, DD&A rates for the second half of 2021 were lower compared to the first half of 2021 due to increased proved reserves primarily related to positive price revisions. Proved oil, NGL and natural gas reserves were estimated during this mid-year review using the unweighted arithmetic average of the first-day-of-the-month price for each month for the twelve months ended June 30, 2021, unless prices were defined by contractual arrangements. DD&A rates for the three and nine months ended September 30, 2020 were lower compared to the current period as a result of higher reported reserves volumes at year-end 2019, consistent with higher average prices in 2019.
The following table sets forth the average sales volumes per day for oil in thousands of barrels (Mbbl), for NGL in thousands of barrels equivalent (Mboe) and for natural gas in millions of cubic feet (MMcf):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Sales Volumes per Day | | | | | | | | |
| Oil (Mbbl) | | | | | | | | |
| United States | | 483 | | | 508 | | | 496 | | | 591 | |
| International | | 121 | | | 108 | | | 118 | | | 125 | |
| NGL (Mboe) | | | | | | | | |
| United States | | 219 | | | 212 | | | 214 | | | 224 | |
| International | | 36 | | | 36 | | | 33 | | | 37 | |
| Natural Gas (MMcf) | | | | | | | | |
| United States | | 1,295 | | | 1,439 | | | 1,303 | | | 1,609 | |
| International | | 496 | | | 527 | | | 471 | | | 544 | |
Total Continuing Operations Volumes (Mboe) (a) | | 1,158 | | | 1,192 | | | 1,157 | | | 1,336 | |
Operations Exited or Exiting (a) | | 36 | | | 64 | | | 24 | | | 62 | |
Total Sales Volumes (Mboe) (b) | | 1,194 | | | 1,256 | | | 1,181 | | | 1,398 | |
(a) Operations exited or exiting included Colombia and Ghana.
(b) Natural gas volumes have been converted to barrels of oil equivalent (Boe) based on energy content of six Mcf of gas to one barrel of oil. Barrels of oil equivalent does not necessarily result in price equivalency.
Average daily sales volumes from continuing operations were 1,158 Mboe per day (Mboe/d) for the three months ended September 30, 2021, compared to 1,192 Mboe/d for the same period in 2020. Average daily sales volumes from continuing operations for the first nine months of 2021 and 2020 were 1,157 Mboe/d and 1,336 Mboe/d, respectively. The decrease in average daily sales volumes from continuing operations of 34 Mboe/d and 179 Mboe/d for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily reflected declines in the Permian and DJ Basins as a result of reduced capital investment.
The following table presents information about Occidental's average realized prices and index prices:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Average Realized Prices | | | | | | | | |
| Oil ($/Bbl) | | | | | | | | |
| United States | | $ | 68.76 | | $ | 38.22 | | $ | 63.16 | | $ | 35.27 |
| International | | $ | 68.65 | | $ | 39.86 | | $ | 61.98 | | $ | 41.49 |
| Total Worldwide | | $ | 68.74 | | $ | 38.51 | | $ | 62.94 | | $ | 36.36 |
| NGL ($/Boe) | | | | | | | | |
| United States | | $ | 35.20 | | $ | 14.62 | | $ | 28.20 | | $ | 11.19 |
| International | | $ | 26.85 | | $ | 16.24 | | $ | 24.32 | | $ | 15.79 |
| Total Worldwide | | $ | 34.01 | | $ | 14.85 | | $ | 27.68 | | $ | 11.84 |
| Natural Gas ($/Mcf) | | | | | | | | |
| United States | | $ | 3.35 | | $ | 1.18 | | $ | 2.84 | | $ | 1.09 |
| International | | $ | 1.68 | | $ | 1.64 | | $ | 1.68 | | $ | 1.68 |
| Total Worldwide | | $ | 2.89 | | $ | 1.31 | | $ | 2.53 | | $ | 1.24 |
| | | | | | | | |
| Average Index Prices | | | | | | | | |
| WTI oil ($/Bbl) | | $ | 70.56 | | $ | 40.93 | | $ | 64.82 | | $ | 38.32 |
| Brent oil ($/Bbl) | | $ | 73.23 | | $ | 43.37 | | $ | 67.78 | | $ | 42.53 |
| NYMEX gas ($/Mcf) | | $ | 3.71 | | $ | 1.94 | | $ | 3.06 | | $ | 1.92 |
| | | | | | | | |
| Average Realized Prices as Percentage of Average Index Prices | | | | | | | | |
| Worldwide oil as a percentage of average WTI | | 97 | % | | 94 | % | | 97 | % | | 95 | % |
| Worldwide oil as a percentage of average Brent | | 94 | % | | 89 | % | | 93 | % | | 85 | % |
| Worldwide NGL as a percentage of average WTI | | 48 | % | | 36 | % | | 43 | % | | 31 | % |
| Domestic natural gas as a percentage of average NYMEX | | 90 | % | | 61 | % | | 93 | % | | 57 | % |
CHEMICAL SEGMENT
Chemical segment pre-tax earnings for the three and nine months ended September 30, 2021 were $407 million and $970 million, respectively, compared to $178 million and $472 million for the same periods in 2020, respectively. Compared to the same periods in 2020, the three and nine months ended September 30, 2021 reflected improved realized prices across most product lines, partially offset by higher raw material costs, primarily ethylene and energy.
MIDSTREAM AND MARKETING SEGMENT
Midstream and marketing segment pre-tax earnings for the three and nine months ended September 30, 2021 were $20 million and $272 million, respectively, compared to pre-tax losses of $2.8 billion and $4.1 billion for the same periods in 2020, respectively. Excluding the impact of impairment charges, net derivative mark-to-market gains and losses and asset sale gains and losses, the increase in midstream and marketing segment results for the nine months ended September 30, 2021, compared to the same period in 2020, was attributed to the rising crude oil price environment and its impact on export sales and higher realized sulfur prices at Al Hosn Gas.
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions, except percentages | | 2021 | | 2020 | | 2021 | | 2020 |
| Income (loss) from continuing operations before income taxes | | $ | 1,217 | | | $ | (4,058) | | | $ | 1,675 | | | $ | (14,280) | |
| Income tax benefit (expense) | | | | | | | | |
| Domestic - federal and state | | (151) | | | 511 | | | (41) | | | 2,178 | |
| International | | (236) | | | (108) | | | (405) | | | (282) | |
| Total income tax benefit (expense) | | (387) | | | 403 | | | (446) | | | 1,896 | |
| Income (loss) from continuing operations | | $ | 830 | | | $ | (3,655) | | | $ | 1,229 | | | $ | (12,384) | |
| Worldwide effective tax rate | | 32% | | 10% | | 27% | | 13% |
Occidental estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which Occidental operates, adjusted for certain discrete items. Each quarter, Occidental updates these rates and records a cumulative adjustment to its income taxes by applying the rates to the pre-tax income excluding certain discrete items. Occidental’s quarterly estimate of its effective tax rates can vary significantly based on various forecasted items, including future commodity prices, capital expenditures, expenses for which tax benefits are not recognized and the geographic mix of pre-tax income and losses. The difference between the 32% and 27% effective tax rates for income from continuing operations for the three and nine months ended September 30, 2021, and the 21% U.S. federal statutory tax rate is primarily driven by the jurisdictional mix of income. U.S. income is taxed at a U.S. federal statutory rate of 21%, while international income is subject to tax at statutory rates as high as 55%. In addition, the effective tax rate was impacted by a state margin tax rate reduction and one-time benefits associated with the settlement of federal and state audit matters.
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| LIQUIDITY AND CAPITAL RESOURCES |
At September 30, 2021, Occidental had $2.1 billion in cash and cash equivalents and $220 million in restricted cash and restricted cash equivalents classified as current assets.
Operating cash flow from continuing operations was $7.0 billion for the nine months ended September 30, 2021, compared to $2.5 billion for the same period in 2020. The increase in operating cash flow from continuing operations was primarily due to higher commodity prices as compared to the same period in 2020. This increase was partially offset by an increase in working capital related to receivables, which increased largely as a result of the improvement in prices.
Occidental’s net cash used by investing activities from continuing operations was $1.2 billion for the nine months ended September 30, 2021, compared to $2.4 billion for the same period in 2020. Capital expenditures for the nine months ended September 30, 2021 and 2020 were approximately $1.9 billion for each period, of which substantially all were for the oil and gas segment. For the nine months ended September 30, 2021, proceeds from sales of equity investments and other assets, net primarily included the divestitures of non-strategic assets in the Permian Basin and non-operated assets in the DJ Basin and the sale of WES units.
Occidental’s net cash used by financing activities from continuing operations was $6.0 billion for the nine months ended September 30, 2021, compared to approximately $1.6 billion for the same period in 2020. Cash used by financing activities for the nine months ended September 30, 2021 reflected the dividend payments of $630 million on preferred and common stock, debt repayments of $4.6 billion and $815 million paid in advance of the mandatory termination dates of interest rate swaps during the third quarter of 2021.
As of September 30, 2021, and as of the date of this filing, Occidental was in compliance with all covenants in its financing agreements. Occidental currently expects its cash on hand and funds available under its RCF to be sufficient to meet its near-term debt maturities, operating expenditures and other obligations for the next 12 months from the date of this filing.
For information regarding upcoming debt maturities and other near-term obligations, see the Current Business Outlook section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| | |
| LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES |
Occidental accrues reserves for outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Occidental has disclosed its reserve balances for environmental matters. Reserve balances for otherremediation matters as of September 30, 2017, and December 31, 2016, were not material to Occidental's consolidated condensed balance sheets. Occidental also evaluates the amount of reasonably possible losses that it could incur as a result of the matters mentioned above. Occidental has disclosed its estimated range of reasonably possible additional losses for sites where it is a participant in environmental remediation. Occidental believes that other reasonably possible losses which it could incur in excess of reserves accrued on the balance sheet would not be material to its consolidated financial position or results of operations. For further information, see such matters. See Note 7,8 - Lawsuits, Claims, Commitments and Contingencies in the Notesnotes to Consolidated Condensed Financial Statements in Part I Item 1 of this Form 10-Q.
Recently Adopted Accounting and Disclosure Changes
See Note 3, Accounting and Disclosure Changes, in the Notes to Consolidated Condensed Financial Statements consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q. for further information.
| | |
| ENVIRONMENTAL LIABILITIES AND EXPENDITURES |
Occidental’s operations are subject to stringent federal, regional, state, provincial, tribal, local and international laws and regulations related to improving or maintaining environmental quality. Occidental’s environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations as an integral part of its business planning process.
The laws that require or address environmental remediation, including CERCLA and similar federal, regional, state, provincial, tribal, local and international laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. Occidental or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal; or operation and maintenance of remedial systems. The environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.
See Note 9 - Environmental Liabilities and Expenditures in the notes to the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q and the Environmental Liabilities and Expenditures section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Form 10-K for additional information regarding Occidental’s environmental liabilities and expenditures.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
ForExcept as discussed below, for the three and nine months ended September 30, 2017,2021, there were no material changes in the information required to be provided under Item 305 of Regulation S-K included under Item 7A, "QuantitativeQuantitative and Qualitative Disclosures About Market Risk",Risk in the 20162020 Form 10-K.
As of September 30, 2021, Occidental had Brent-priced call options which enhanced the upside of three-way collars that expired in 2020, with an underlying volume of 350 thousand Bbl/d. These call options settle or expire ratably throughout the remainder of 2021. Brent prices have increased substantially since December 31, 2020 which has increased the fair value of the liability of these call options. See Note 5 - Derivatives in the notes to the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q. The following table shows a sensitivity analysis based on both a 5% and 10% change in Brent crude oil prices and their effects on the net derivative liability position of $174 million at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
| millions except percentages | | | | | |
| Percent change in commodity prices | | Net derivative liability | | Change to fair value from
September 30, 2021 position |
| + 5% | | | $ | (270) | | | | $ | (96) | |
| - 5% | | | $ | (99) | | | | $ | 75 | |
| + 10% | | | $ | (378) | | | | $ | (204) | |
| - 10% | | | $ | (49) | | | | $ | 125 | |
As of September 30, 2021, Occidental also had derivative instruments in place to reduce the price risk associated with future gas production of 630 thousand MMbtu/d through the remainder of 2021. NYMEX natural gas prices have increased substantially since December 31, 2020 which has increased the fair value of the liability of these options. See Note 5 - Derivatives in the notes to the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q.
The following table shows a sensitivity analysis based on both a 5% and 10% change in NYMEX natural gas prices and their effects on the net derivative liability position of $90 million at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
| millions except percentages | | | | | |
| Percent change in commodity prices | | Net derivative liability | | Change to fair value from
September 30, 2021 position |
| + 5% | | | $ | (101) | | | | $ | (11) | |
| - 5% | | | $ | (79) | | | | $ | 11 | |
| + 10% | | | $ | (112) | | | | $ | (22) | |
| - 10% | | | $ | (68) | | | | $ | 22 | |
Item 4.Controls and Procedures
Occidental's President and Chief Executive Officer and its Senior Vice President and Chief Financial Officer supervised and participated in Occidental's evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, Occidental's President and Chief Executive Officer and its Senior Vice President and Chief Financial Officer concluded that Occidental's disclosure controls and procedures were effective as of September 30, 2017.
2021.
There has been no change in Occidental's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the first ninethree months of 2017ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, Occidental's internal control over financial reporting.
Occidental is converting legacy Anadarko's information into Occidental's primary Enterprise Resource Planning system during the first quarter of 2022. Certain existing internal controls will be modified and new controls will be implemented.
PART
Part II OTHER INFORMATIONOther Information
Item 1.Legal Proceedings
For information regarding other legal proceedings, see Note 7,8 - Lawsuits, Claims, Commitments and Contingencies in the Notesnotes to Consolidated Condensed Financial Statements,the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q, and10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors included under Part I, Item 3, “Legal Proceedings” in the 20161A of Occidental’s 2020 Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds6. Exhibits
Share Repurchase Activities
Occidental's share repurchase activities for the nine months ended September 30, 2017, were as follows:
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (a) |
| | | | | | | | | |
| First Quarter 2017 | | — |
| | — |
| | — |
| | |
| Second Quarter 2017 | | 96,828 |
| (b) | $ | 60.77 |
| | — |
| | |
| July 1- 31, 2017 | | — |
| | — |
| | — |
| | |
| August 1 - 31, 2017 | | 96,933 |
| (b) | $ | 60.62 |
| | — |
| | |
| September 1 - 30, 2017 | | — |
| | — |
| | — |
| | |
| Third Quarter 2017 | | 96,933 |
| | $ | 60.62 |
| | — |
| | |
| Total | | 193,761 |
| | $ | 60.69 |
| | — |
| | 63,756,544 |
|
| |
(a) | Represents the total number of shares remaining at September 30, 2017, under Occidental's share repurchase program of 185 million shares. The program was initially announced in 2005. The program does not obligate Occidental to acquire any specific number of shares and may be discontinued at any time. |
| |
(b) | Includes purchases from the trustee of Occidental's defined contribution savings plan that are not part of publicly announced plans or programs. |
Item 6. Exhibits |
| |
124.1 | Statement regardingSecond Supplemental Indenture to that certain Indenture, dated as of August 18, 2011, by and between Occidental Petroleum Corporation and The Bank of New York Mellon Trust Company, N.A. (filed as Exhibit 4.1 to the computationCurrent Report on Form 8-K of total enterprise ratios of earnings to fixed charges for the nine months ended September 30, 2017, and 2016, and for each of the five years in the period ended December 31, 2016.Occidental dated July 14, 2021, filed July 15, 2021, File No. 1-9210). |
| |
31.14.2 | |
| |
| 31.1* | |
| |
31.231.2* | |
| |
32.132.1** | |
| |
101.INS101.INS* | Inline XBRL Instance Document. |
| |
101.SCH101.SCH* | Inline XBRL Taxonomy Extension Schema Document. |
| |
101.CAL101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
101.LAB101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| |
101.PRE101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| |
101.DEF101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| |
* Incorporated herein by reference104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| OCCIDENTAL PETROLEUM CORPORATION | |
|
| | | |
DATE: | November 1, 2017OCCIDENTAL PETROLEUM CORPORATION | /s/ Jennifer M. Kirk | |
| | Jennifer M. Kirk | |
| | Vice President, Controller and | |
| | Principal Accounting Officer | |
| | | | | | | | |
| November 4, 2021 | /s/ Christopher O. Champion | |
| Christopher O. Champion | |
| Vice President, Chief Accounting Officer and Controller | |