PART I FINANCIAL INFORMATION
| |
Item 1. | Financial Statements (unaudited) |
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2018, AND DECEMBER 31, 2017 |
| | | | | | | | |
millions | | September 30, 2019 | | December 31, 2018 |
| | | | |
ASSETS | | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 4,840 |
| | $ | 3,033 |
|
Restricted cash and restricted cash equivalents | | 454 |
| | — |
|
Trade receivables, net | | 5,854 |
| | 4,893 |
|
Inventories | | 1,601 |
| | 1,260 |
|
Assets held for sale | | 6,445 |
| | — |
|
Other current assets | | 1,750 |
| | 746 |
|
Total current assets | | 20,944 |
| | 9,932 |
|
| | | | |
INVESTMENTS IN UNCONSOLIDATED ENTITIES ($2,261 related to WES) | | 3,684 |
| | 1,680 |
|
| | | | |
PROPERTY, PLANT AND EQUIPMENT | | | | |
Oil and Gas segment | | 110,668 |
| | 58,799 |
|
Chemical segment | | 7,092 |
| | 7,001 |
|
Marketing and Other Midstream segment | | 8,133 |
| | 8,070 |
|
WES Midstream segment | | 9,635 |
| | — |
|
Corporate | | 1,397 |
| | 550 |
|
| | 136,925 |
| | 74,420 |
|
Accumulated depreciation, depletion, and amortization | | (46,804 | ) | | (42,983 | ) |
| | 90,121 |
| | 31,437 |
|
| | | | |
OPERATING LEASE ASSETS | | 1,078 |
| | — |
|
| | | | |
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET | | 1,155 |
| | 797 |
|
| | | | |
INTANGIBLES, NET ($2,380 related to WES) | | 2,387 |
| | 8 |
|
| | | | |
GOODWILL - WES | | 6,074 |
| | — |
|
| | | | |
TOTAL ASSETS | | $ | 125,443 |
| | $ | 43,854 |
|
| | | | |
Western Midstream Partners, LP (WES) is a Variable Interest Entity (VIE). See Note 1 - General. The related parenthetical references reflect amounts as of September 30, 2019. |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. |
(Amounts in millions)
|
| | | | | | | | | |
| | 2018 | | 2017 | |
| | | | | |
ASSETS | | | | | |
| | | | | |
CURRENT ASSETS | | | | | |
Cash and cash equivalents | | $ | 2,954 |
| | $ | 1,672 |
| |
Trade receivables, net | | 6,000 |
| | 4,145 |
| |
Inventories | | 1,009 |
| | 1,246 |
| |
Assets held for sale | | — |
| | 474 |
| |
Other current assets | | 1,149 |
| | 733 |
| |
Total current assets | | 11,112 |
|
| 8,270 |
| |
| | | | | |
| | | | | |
| | | | | |
INVESTMENTS IN UNCONSOLIDATED ENTITIES | | 1,568 |
| | 1,515 |
| |
| | | | | |
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation, depletion and amortization of $41,825 at September 30, 2018, and $39,072 at December 31, 2017 | | 31,155 |
| | 31,174 |
| |
| | | | | |
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET | | 1,122 |
| | 1,067 |
| |
| | | | | |
TOTAL ASSETS | | $ | 44,957 |
| | $ | 42,026 |
| |
| | | | | |
The accompanying notes are an integral part of these consolidated condensed financial statements. | |
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2018, AND DECEMBER 31, 2017
(Amounts in millions except share amounts)
(Continued)
|
| | | | | | | | | |
| | 2018 | | 2017 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
CURRENT LIABILITIES | | | | | |
Current maturities of long-term debt | | $ | 116 |
| | $ | 500 |
| |
Accounts payable | | 5,443 |
| | 4,408 |
| |
Accrued liabilities | | 2,813 |
| | 2,492 |
| |
Total current liabilities | | 8,372 |
| | 7,400 |
| |
| | | | | |
LONG-TERM DEBT, NET | | 10,198 |
| | 9,328 |
| |
| | | | | |
DEFERRED CREDITS AND OTHER LIABILITIES | | | | | |
Deferred domestic and foreign income taxes | | 1,162 |
| | 581 |
| |
Asset retirement obligations | | 1,249 |
| | 1,241 |
| |
Pension and postretirement obligations | | 828 |
| | 1,005 |
| |
Environmental remediation reserves | | 740 |
| | 728 |
| |
Other | | 915 |
| | 1,171 |
| |
| | 4,894 |
| | 4,726 |
| |
STOCKHOLDERS' EQUITY | | | | | |
Common stock, at par value (894,874,771 shares at September 30, 2018 and 893,468,707 shares at December 31, 2017) | | 179 |
| | 179 |
| |
Treasury stock (140,886,833 shares at September 30, 2018, and 128,364,195 shares at December 31, 2017) | | (10,162 | ) | | (9,168 | ) | |
Additional paid-in capital | | 7,991 |
| | 7,884 |
| |
Retained earnings | | 23,635 |
| | 21,935 |
| |
Accumulated other comprehensive loss | | (154 | ) | | (258 | ) | |
Total equity attributable to common stock | | 21,489 |
| | 20,572 |
| |
Noncontrolling interest | | 4 |
| | — |
| |
Total stockholders’ equity | | 21,493 |
|
| 20,572 |
| |
| | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 44,957 |
| | $ | 42,026 |
| |
| | | | | |
The accompanying notes are an integral part of these consolidated condensed financial statements. | |
|
| | | | | | | | | |
| millions, except share amounts | | September 30, 2019 | | December 31, 2018 |
| | | | | |
| LIABILITIES AND EQUITY | | | | |
| CURRENT LIABILITIES | | | | |
| Current maturities of long-term debt | | $ | 31 |
| | $ | 116 |
|
| Current operating lease liabilities | | 463 |
| | — |
|
| Accounts payable | | 6,789 |
| | 4,885 |
|
| Accrued liabilities ($315 related to WES) | | 5,175 |
| | 2,411 |
|
| Accrued income taxes | | 1,036 |
| | — |
|
| Liabilities of assets held for sale | | 2,203 |
| | — |
|
| Total current liabilities | | 15,697 |
| | 7,412 |
|
| | | | | |
| LONG-TERM DEBT, NET | | | | |
| Long-term debt, net - Occidental | | 39,946 |
| | 10,201 |
|
| Long-term debt, net - WES | | 7,637 |
| | — |
|
| | | 47,583 |
| | 10,201 |
|
| | | | | |
| DEFERRED CREDITS AND OTHER LIABILITIES | | | | |
| Deferred income taxes ($1,167 related to WES) | | 9,920 |
| | 907 |
|
| Asset retirement obligations ($319 related to WES) | | 4,164 |
| | 1,424 |
|
| Pension and postretirement obligations | | 1,927 |
| | 809 |
|
| Environmental remediation reserves | | 905 |
| | 762 |
|
| Operating lease liabilities | | 676 |
| | — |
|
| Other | | 3,566 |
| | 1,009 |
|
| | | 21,158 |
| | 4,911 |
|
| | | | | |
| EQUITY | | | | |
| Preferred stock, at $1.00 per share par value (100,000 shares at September 30, 2019) | | 9,762 |
| | — |
|
| Common stock, at $0.20 per share par value (1,043,640,621 shares at September 30, 2019, and 895,115,637 shares at December 31, 2018) | | 209 |
| | 179 |
|
| Treasury stock (150,323,151 shares at September 30, 2019, and 145,726,051 shares at December 31, 2018) | | (10,653 | ) | | (10,473 | ) |
| Additional paid-in capital | | 14,867 |
| | 8,046 |
|
| Retained earnings | | 22,227 |
| | 23,750 |
|
| Accumulated other comprehensive loss | | (332 | ) | | (172 | ) |
| Total stockholders' equity | | 36,080 |
| | 21,330 |
|
| | | | | |
| Noncontrolling interests | | 4,925 |
| | — |
|
| Total equity | | 41,005 |
| | 21,330 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 125,443 |
| | $ | 43,854 |
|
| | | | | |
| Western Midstream Partners, LP (WES) is a Variable Interest Entity (VIE). See Note 1 - General. The related parenthetical references reflect amounts as of September 30, 2019. |
|
| The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. |
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018, AND 2017 |
| | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
millions, except per-share amounts | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
REVENUES AND OTHER INCOME | | | | | | | | |
Net sales | | $ | 5,687 |
| | $ | 5,216 |
| | $ | 14,111 |
| | $ | 13,062 |
|
Interest, dividends, and other income | | 56 |
| | 34 |
| | 175 |
| | 101 |
|
Gain on sale of assets, net | | 128 |
| | 926 |
| | 150 |
| | 969 |
|
| | 5,871 |
| | 6,176 |
| | 14,436 |
| | 14,132 |
|
COSTS AND OTHER DEDUCTIONS | | | | | | | | |
Oil and gas operating expense | | 962 |
| | 680 |
| | 2,324 |
| | 1,909 |
|
Transportation expense | | 217 |
| | 41 |
| | 281 |
| | 121 |
|
Chemical and midstream cost of sales | | 741 |
| | 722 |
| | 2,046 |
| | 2,128 |
|
Purchased commodities | | 441 |
| | 343 |
| | 1,237 |
| | 456 |
|
Selling, general and administrative | | 242 |
| | 151 |
| | 545 |
| | 423 |
|
Other operating expense | | 363 |
| | 280 |
| | 861 |
| | 717 |
|
Taxes other than on income | | 198 |
| | 110 |
| | 432 |
| | 333 |
|
Depreciation, depletion, and amortization | | 1,706 |
| | 1,023 |
| | 3,710 |
| | 2,891 |
|
Asset impairments and other items | | 325 |
| | 214 |
| | 325 |
| | 256 |
|
Anadarko merger-related costs | | 924 |
| | — |
| | 974 |
| | — |
|
Exploration expense | | 63 |
| | 24 |
| | 134 |
| | 60 |
|
Interest and debt expense, net | | 381 |
| | 96 |
| | 632 |
| | 290 |
|
| | 6,563 |
| | 3,684 |
| | 13,501 |
| | 9,584 |
|
Income (loss) before income taxes and other items | | (692 | ) | | 2,492 |
| | 935 |
| | 4,548 |
|
| | | | | | | | |
OTHER ITEMS | | | | | | | | |
Gains (losses) on interest rate swaps and warrants, net | | (33 | ) | | — |
| | (33 | ) | | — |
|
Income from equity investments | | 104 |
| | 87 |
| | 274 |
| | 228 |
|
| | 71 |
| | 87 |
| | 241 |
| | 228 |
|
| | | | | | | | |
Income (loss) from continuing operations before income taxes | | (621 | ) | | 2,579 |
| | 1,176 |
| | 4,776 |
|
Income tax expense | | (116 | ) | | (710 | ) | | (647 | ) | | (1,351 | ) |
Income (loss) from continuing operations | | (737 | ) | | 1,869 |
| | 529 |
| | 3,425 |
|
Discontinued operations, net of tax | | (15 | ) | | — |
| | (15 | ) | | — |
|
NET INCOME (LOSS) | | (752 | ) | | 1,869 |
| | 514 |
| | 3,425 |
|
Less: Net income attributable to noncontrolling interests | | (42 | ) | | — |
| | (42 | ) | | — |
|
Less: Preferred stock dividends | | (118 | ) | | — |
| | (118 | ) | | — |
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | (912 | ) | | 1,869 |
| | 354 |
| | 3,425 |
|
| | | | | | | | |
PER COMMON SHARE | | | | | | | | |
Income (loss) from continuing operations—basic | | $ | (1.06 | ) | | $ | 2.44 |
| | $ | 0.47 |
| | $ | 4.46 |
|
Income (loss) from discontinued operations—basic | | (0.02 | ) | | — |
| | (0.02 | ) | | — |
|
Net income (loss) attributable to common stockholders—basic | | $ | (1.08 | ) | | $ | 2.44 |
| | $ | 0.45 |
| | $ | 4.46 |
|
| | | | | | | | |
Income (loss) from continuing operations—diluted | | $ | (1.06 | ) | | $ | 2.44 |
| | $ | 0.47 |
| | $ | 4.45 |
|
Income (loss) from discontinued operations—diluted | | (0.02 | ) | | — |
| | (0.02 | ) | | — |
|
Net income (loss) attributable to common stockholders—diluted | | $ | (1.08 | ) | | $ | 2.44 |
| | $ | 0.45 |
| | $ | 4.45 |
|
| | | | | | | | |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. |
(Amounts in millions, except per-share amounts)
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
REVENUES AND OTHER INCOME | | | | | | | | |
Net sales | | $ | 5,216 |
| | $ | 2,999 |
| | $ | 13,062 |
| | $ | 9,016 |
|
Interest, dividends and other income | | 34 |
| | 20 |
| | 101 |
| | 72 |
|
Gain on sale of assets, net | | 926 |
| | 86 |
| | 969 |
| | 598 |
|
| | 6,176 |
| | 3,105 |
| | 14,132 |
| | 9,686 |
|
COSTS AND OTHER DEDUCTIONS | | | | | | | | |
Cost of sales | | 1,786 |
| | 1,357 |
| | 4,614 |
| | 4,269 |
|
Selling, general and administrative and other operating expenses | | 431 |
| | 352 |
| | 1,140 |
| | 976 |
|
Taxes other than on income | | 110 |
| | 76 |
| | 333 |
| | 221 |
|
Depreciation, depletion and amortization | | 1,023 |
| | 995 |
| | 2,891 |
| | 2,926 |
|
Asset impairments and related items | | 214 |
| | 11 |
| | 256 |
| | 24 |
|
Exploration expense | | 24 |
| | 8 |
| | 60 |
| | 27 |
|
Interest and debt expense, net | | 96 |
| | 91 |
| | 290 |
| | 258 |
|
| | 3,684 |
| | 2,890 |
| | 9,584 |
| | 8,701 |
|
| | | | | | | | |
Income before income taxes and other items | | 2,492 |
| | 215 |
| | 4,548 |
| | 985 |
|
Provision for domestic and foreign income taxes | | (710 | ) | | (85 | ) | | (1,351 | ) | | (448 | ) |
Income from equity investments | | 87 |
| | 60 |
| | 228 |
| | 277 |
|
NET INCOME | | 1,869 |
|
| 190 |
|
| 3,425 |
|
| 814 |
|
| | | | | | | | |
BASIC EARNINGS PER COMMON SHARE | | $ | 2.44 |
| | $ | 0.25 |
| | $ | 4.46 |
| | $ | 1.06 |
|
| | | | | | | | |
DILUTED EARNINGS PER COMMON SHARE | | $ | 2.44 |
| | $ | 0.25 |
| | $ | 4.45 |
| | $ | 1.06 |
|
| | | | | | | | |
DIVIDENDS PER COMMON SHARE | | $ | 0.78 |
| | $ | 0.77 |
| | $ | 2.32 |
| | $ | 2.29 |
|
| | | | | | | | |
The accompanying notes are an integral part of these consolidated condensed financial statements. | | | |
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018, AND 2017
(Amounts in millions)
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
| | 2018 | | 2017 | | 2018 | | 2017 | |
| | | | | | | | | |
Net income | | $ | 1,869 |
| | $ | 190 |
| | $ | 3,425 |
| | $ | 814 |
| |
Other comprehensive income (loss) items: | | | | | | | | | |
Foreign currency translation gains | | — |
| | 2 |
| | — |
| | 3 |
| |
Unrealized gains (losses) on derivatives (a) | | (1 | ) | | 8 |
| | (5 | ) | | 14 |
| |
Pension and postretirement gains (b) | | 144 |
| | 4 |
| | 153 |
| | 12 |
| |
Reclassification of realized (gains) losses on derivatives (c) | | 10 |
| | — |
| | 13 |
| | (1 | ) | |
Other comprehensive income, net of tax | | 153 |
|
| 14 |
| | 161 |
| | 28 |
| |
Comprehensive income | | $ | 2,022 |
| | $ | 204 |
| | $ | 3,586 |
| | $ | 842 |
| |
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
millions | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Net income (loss) | | $ | (752 | ) | | $ | 1,869 |
| | $ | 514 |
| | $ | 3,425 |
|
Other comprehensive income (loss) items: | | | | | | | | |
Losses on derivatives (a) | | (114 | ) | | (1 | ) | | (130 | ) | | (5 | ) |
Pension and postretirement (losses) gains (b) | | (34 | ) | | 144 |
| | (30 | ) | | 153 |
|
Reclassification of losses on derivatives (c) | | — |
| | 10 |
| | — |
| | 13 |
|
Other comprehensive (loss) income, net of tax | | (148 | ) | | 153 |
| | (160 | ) | | 161 |
|
Comprehensive income (loss) | | (900 | ) | | 2,022 |
| | 354 |
| | 3,586 |
|
Comprehensive income attributable to noncontrolling interests | | (42 | ) | | — |
| | (42 | ) | | — |
|
Comprehensive income (loss) attributable to preferred and common stockholders | | $ | (942 | ) | | $ | 2,022 |
| | $ | 312 |
| | $ | 3,586 |
|
| |
(a) | Net of tax of zero$32 million and $(5)0 for the three months ended September 30, 2019, and 2018, and 2017, respectively,$36 million and $1 and $(8)million for the nine months ended September 30, 2018,2019, and 2017,2018, respectively. |
| |
(b) | Net of tax of $10 million and $(40) and $(3)million for the three months ended September 30, 2019, and 2018, and 2017, respectively,$8 million and $(43) and $(7)million for the nine months ended September 30, 2019, and 2018, and 2017, respectively. The three and nine months ended September 30, 2018 include $139 ($178 pre-tax) of other comprehensive income related to a postretirement benefit plan design change. Please refer to Note 9. |
| |
(c) | Net of tax of $(3) and zeromillion for the three months ended September 30, 2018, and 2017, respectively, and $(4) and $1million for the nine months ended September 30, 2018, and 2017, respectively. |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
| | | | | | | | |
| | Nine months ended September 30 |
millions | | 2019 | | 2018 |
| | | | |
CASH FLOW FROM OPERATING ACTIVITIES | | | | |
Net income | | $ | 514 |
| | $ | 3,425 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Discontinued operations, net | | 15 |
| | — |
|
Depreciation, depletion and amortization of assets | | 3,710 |
| | 2,891 |
|
Deferred income tax (benefit) provision | | (1,050 | ) | | 550 |
|
Other noncash charges to income | | 578 |
| | 74 |
|
Gain on sale of assets, net | | (150 | ) | | (969 | ) |
Asset impairments and other items | | 325 |
| | 256 |
|
Undistributed earnings from affiliates | | (50 | ) | | (16 | ) |
Dry hole expenses | | 41 |
| | 27 |
|
Changes in operating assets and liabilities, net | | 1,506 |
| | (1,069 | ) |
Cash provided by operating activities - continuing operations | | 5,439 |
| | 5,169 |
|
Cash used by operating activities - discontinued operations | | (73 | ) | | — |
|
Net cash provided by operating activities | | 5,366 |
| | 5,169 |
|
| | | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | | |
Capital expenditures | | (4,184 | ) | | (3,638 | ) |
Change in capital accrual | | (160 | ) | | 7 |
|
Proceeds from sale of assets and equity investments, net | | 4,809 |
| | 2,745 |
|
Purchase of businesses and assets, net | | (27,926 | ) | | (726 | ) |
Equity investments and other, net | | (140 | ) | | (88 | ) |
Cash used by investing activities - continuing operations | | (27,601 | ) | | (1,700 | ) |
Cash used by investing activities - discontinued operations | | (125 | ) | | — |
|
Net cash used by investing activities | | (27,726 | ) | | (1,700 | ) |
| | | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | | |
Proceeds from long-term debt, net | | 21,557 |
| | 978 |
|
Payments of long-term debt | | (4,949 | ) | | (500 | ) |
Proceeds from WES revolvers | | 1,240 |
| | — |
|
Payment of revolvers - WES | | (1,000 | ) | | — |
|
Proceeds from issuance of common and preferred stock | | 10,010 |
| | 17 |
|
Purchases of treasury stock | | (237 | ) | | (908 | ) |
Cash dividends paid to common stockholders | | (1,766 | ) | | (1,780 | ) |
Distributions to noncontrolling interest | | (127 | ) | | — |
|
Other financing, net | | (35 | ) | | 6 |
|
Cash provided (used) by financing activities - continuing operations | | 24,693 |
| | (2,187 | ) |
Cash used by financing activities - discontinued operations | | (1 | ) | | — |
|
Net cash provided by (used) by financing activities | | 24,692 |
| | (2,187 | ) |
| | | | |
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents | | 2,332 |
| | 1,282 |
|
Cash and cash equivalents — beginning of period | | 3,033 |
| | 1,672 |
|
Cash, cash equivalents, restricted cash and restricted cash equivalents — end of period | | $ | 5,365 |
| | $ | 2,954 |
|
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. |
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Stockholders' Equity | | | | |
millions | | Common Stock | | Preferred Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total Equity |
Balance at June 30, 2019 | | $ | 179 |
| | $ | — |
| | $ | (10,653 | ) | | $ | 8,157 |
| | $ | 23,848 |
| | $ | (184 | ) | | $ | — |
| | $ | 21,347 |
|
Net income (loss) | | — |
| | — |
| | — |
| | — |
| | (794 | ) | | — |
| | 42 |
| | (752 | ) |
Other comprehensive loss, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | (148 | ) | | — |
| | (148 | ) |
Dividends on common stock, $0.79 per share | | — |
| | — |
| | — |
| | — |
| | (709 | ) | | — |
| | — |
| | (709 | ) |
Dividends on preferred stock, $1,489 per share | | — |
| | — |
| | — |
| | — |
| | (118 | ) | | — |
| | — |
| | (118 | ) |
Issuance of common stock and other, net | | 30 |
| | — |
| | — |
| | 6,710 |
| | — |
| | — |
| | — |
| | 6,740 |
|
Issuance of preferred stock, net | | — |
| | 9,762 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,762 |
|
Fair value of noncontrolling interest acquired | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,875 |
| | 4,875 |
|
Noncontrolling interest contributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 8 |
|
Balance at September 30, 2019 | | $ | 209 |
| | $ | 9,762 |
| | $ | (10,653 | ) | | $ | 14,867 |
| | $ | 22,227 |
| | $ | (332 | ) | | $ | 4,925 |
| | $ | 41,005 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Stockholders' Equity | | | | |
millions | | Common Stock | | Preferred Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total Equity |
Balance at June 30, 2018 | | $ | 179 |
| | $ | — |
| | $ | (9,268 | ) | | $ | 7,967 |
| | $ | 22,361 |
| | $ | (308 | ) | | $ | — |
| | $ | 20,931 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 1,869 |
| | — |
| | — |
| | 1,869 |
|
Other comprehensive income, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | 153 |
| | — |
| | 153 |
|
Dividends on common stock, $0.78 per share | | — |
| | — |
| | — |
| | — |
| | (595 | ) | | — |
| | — |
| | (595 | ) |
Issuance of common stock, net | | — |
| | — |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
|
Purchases of treasury stock | | — |
| | — |
| | (894 | ) | | — |
| | — |
| | — |
| | — |
| | (894 | ) |
Reclassification of stranded tax effects | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2018 | | $ | 179 |
| | $ | — |
| | $ | (10,162 | ) | | $ | 7,991 |
| | $ | 23,635 |
| | $ | (155 | ) | | $ | — |
| | $ | 21,488 |
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSEQUITY (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018, AND 2017
(Amounts in millions)
|
| | | | | | | | | |
| | 2018 | | 2017 | |
CASH FLOW FROM OPERATING ACTIVITIES | | | | | |
Net income | | $ | 3,425 |
| | $ | 814 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, depletion and amortization of assets | | 2,891 |
| | 2,926 |
| |
Deferred income tax provision (benefit) | | 550 |
| | (111 | ) | |
Other noncash charges to income | | 74 |
| | 170 |
| |
Gain on sale of assets, net | | (969 | ) | | (598 | ) | |
Asset impairments and related items | | 256 |
| | 24 |
| |
Undistributed earnings from affiliates | | (16 | ) | | (70 | ) | |
Dry hole expenses | | 27 |
| | 8 |
| |
Changes in operating assets and liabilities, net | | (1,069 | ) | | (445 | ) | |
Other operating, net | | — |
| | 722 |
| |
Net cash provided by operating activities | | 5,169 |
| | 3,440 |
| |
| | | | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | | (3,638 | ) | | (2,439 | ) | |
Change in capital accrual | | 7 |
| | 20 |
| |
Payments for purchases of assets and businesses | | (726 | ) | | (1,060 | ) | |
Sales of assets, net | | 2,745 |
| | 1,293 |
| |
Equity investments and other, net | | (88 | ) | | 60 |
| |
Net cash used by investing activities | | (1,700 | ) |
| (2,126 | ) | |
| | | | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | | | |
Proceeds from long-term debt, net | | 978 |
| | — |
| |
Payments of long-term debt | | (500 | ) | | — |
| |
Proceeds from issuance of common stock | | 17 |
| | 25 |
| |
Purchases of treasury stock | | (908 | ) | | (12 | ) | |
Cash dividends paid | | (1,780 | ) | | (1,754 | ) | |
Contributions from noncontrolling interest | | 4 |
| | — |
| |
Other financing, net | | 2 |
| | — |
| |
Net cash used by financing activities | | (2,187 | ) | | (1,741 | ) | |
| | | | | |
Increase (decrease) in cash and cash equivalents | | 1,282 |
| | (427 | ) | |
Cash and cash equivalents — beginning of period | | 1,672 |
| | 2,233 |
| |
Cash and cash equivalents — end of period | | $ | 2,954 |
| | $ | 1,806 |
| |
| | | | | |
The accompanying notes are an integral part of these consolidated condensed financial statements. | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Stockholders' Equity | | | | |
millions | | Common Stock | | Preferred Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total Equity |
Balance at December 31, 2018 | | $ | 179 |
| | $ | — |
| | $ | (10,473 | ) | | $ | 8,046 |
| | $ | 23,750 |
| | $ | (172 | ) | | $ | — |
| | $ | 21,330 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 472 |
| | — |
| | 42 |
| | 514 |
|
Other comprehensive loss, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | (160 | ) | | — |
| | (160 | ) |
Dividends on common stock, $2.35 per share | | — |
| | — |
| | — |
| | — |
| | (1,877 | ) | | — |
| | — |
| | (1,877 | ) |
Dividends on preferred stock, $1,489 per share | | — |
| | — |
| | — |
| | — |
| | (118 | ) | | — |
| | — |
| | (118 | ) |
Issuance of common stock, net | | 30 |
| | — |
| | — |
| | 6,821 |
| | — |
| | — |
| | — |
| | 6,851 |
|
Issuance of preferred stock | | — |
| | 9,762 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,762 |
|
Purchases of treasury stock | | — |
| | — |
| | (180 | ) | | — |
| | — |
| | — |
| | — |
| | (180 | ) |
Fair value of noncontrolling interest acquired | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,875 |
| | 4,875 |
|
Noncontrolling interest contributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 8 |
|
Balance at September 30, 2019 | | $ | 209 |
| | $ | 9,762 |
| | $ | (10,653 | ) | | $ | 14,867 |
| | $ | 22,227 |
| | $ | (332 | ) | | $ | 4,925 |
| | $ | 41,005 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Stockholders' Equity | | | | |
millions | | Common Stock | | Preferred Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total Equity |
Balance at December 31, 2017 | | $ | 179 |
| | $ | — |
| | $ | (9,168 | ) | | $ | 7,884 |
| | $ | 21,935 |
| | $ | (258 | ) | | $ | — |
| | $ | 20,572 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 3,425 |
| | — |
| | — |
| | 3,425 |
|
Other comprehensive income, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | 161 |
| | — |
| | 161 |
|
Dividends on common stock, $2.32 per share | | — |
| | — |
| | — |
| | — |
| | (1,783 | ) | | — |
| | — |
| | (1,783 | ) |
Issuance of common stock, net | | — |
| | — |
| | — |
| | 107 |
| | — |
| | — |
| | — |
| | 107 |
|
Purchases of treasury stock | | — |
| | — |
| | (994 | ) | | — |
| | — |
| | — |
| | — |
| | (994 | ) |
Reclassification of stranded tax effects | | — |
| | — |
| | — |
| | — |
| | 58 |
| | (58 | ) | | — |
| | — |
|
Noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2018 | | $ | 179 |
| | $ | — |
| | $ | (10,162 | ) | | $ | 7,991 |
| | $ | 23,635 |
| | $ | (155 | ) | | $ | — |
| | $ | 21,488 |
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 20182019
1.Note 1 - General
Nature of Operations
In these unaudited, consolidated, condensed financial statements,this report, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental conducts its operations through various subsidiaries and affiliates. On August 8, 2019, pursuant to the Agreement and Plan of Merger, dated as of May 9, 2019 (the Merger Agreement), among Occidental, Baseball Merger Sub 1, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of Occidental (Merger Subsidiary), and Anadarko Petroleum Corporation (Anadarko), Occidental acquired all of the outstanding shares of Anadarko through a transaction in which Merger Subsidiary merged with and into Anadarko (the Merger), with Anadarko continuing as the surviving entity and as an indirect, wholly owned subsidiary of Occidental. See Note 3 - The Merger.
Occidental's principal businesses consist of 4 reporting segments: Oil and Gas, Chemical, Marketing and Other Midstream, and WES Midstream, which includes the operations of Western Midstream Partners, LP (WES), a publicly traded limited partnership and a consolidated subsidiary of OPC. The Oil and Gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas. The Chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The Marketing and Other Midstream segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity, and invests in entities that conduct similar activities. Also within the Marketing and Other Midstream segment is Oxy Low Carbon Ventures (OLCV). OLCV seeks to capitalize on Occidental’s enhanced oil recovery (EOR) leadership by developing carbon capture, utilization and storage projects that source anthropogenic carbon dioxide and promote innovative technologies that drive cost efficiencies and grow Occidental’s business while reducing emissions. The WES Midstream segment owns gathering systems, plants and pipelines and earns revenue from fee-based and service-based contracts with Occidental and third parties. WES is a variable interest entity (VIE) to Occidental.
Principles of Consolidation
The unaudited consolidated financial statements have been prepared in conformity with United States Generally Accepted Accounting Principles (GAAP) and include the accounts of OPC, its subsidiaries, VIEs for which Occidental is the primary beneficiary, and its undivided interests in oil and gas exploration and production ventures. Occidental has made its disclosures in accordance with United States generally accepted accounting principles (GAAP)GAAP as they apply to interim reporting, and condensed or omitted, as permitted by the Securities and Exchange Commission’sCommission's rules and regulations, certain information and disclosures normally included in consolidated financial statements and the notes. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Occidental’sOccidental's Annual Report on Form 10-K for the year ended December 31, 20172018 (the 2018 Form 10-K).
The Merger, including the addition of WES Midstream as a new reporting segment, introduced different revenue and expense streams to Occidental's legacy operations. As a result, changes were made to the structure of certain financial statements, notes and supplementary data to provide clarity and to conform to the current presentation.
Variable Interest Entities
Occidental, through its ownership of the general partner interest in WES, has the power to direct the activities that significantly affect the economic performance of WES and the obligation to absorb losses or the right to receive benefits that could be significant to WES; therefore, Occidental is considered the primary beneficiary and consolidates WES and all of its consolidated subsidiaries. WES maintains its own capital structure that is separate from Occidental, consisting of its own debt instruments and publicly traded common units. All intercompany transactions have been eliminated.
The assets of WES and its subsidiaries cannot be used by Occidental for general corporate purposes and are included in and disclosed parenthetically on Occidental's consolidated condensed balance sheets, if material. The carrying amount of liabilities related to WES for which the creditors do not have recourse to Occidental's assets are also included in and disclosed parenthetically on Occidental's Consolidated Condensed Balance Sheets, if material.
In the opinion of Occidental’s management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Occidental’s consolidated financial position as of
All outstanding debt for WES at September 30, 20182019, including any borrowings under the WES revolving credit facility (WES RCF) and WES Term Loan Facility, is recourse to the general partner of Western Midstream Operating, LP (WES Operating), which in turn has been indemnified in certain circumstances by certain indirect wholly owned subsidiaries of Occidental for such liabilities. See Note 9 - Long-Term Debt.
WES's sources of liquidity include cash and cash equivalents, cash flows generated from operations, interest income from a note receivable from Anadarko, borrowings under the WES RCF, the issuance of additional partnership units, and debt offerings.
Concurrent with the closing of its May 2008 initial public offering, WES Operating loaned Anadarko $260 million in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The note receivable and related interest income are eliminated in consolidation.
Noncontrolling Interest
WES is a publicly traded limited partnership with its common units traded on the New York Stock Exchange (NYSE) under the ticker symbol "WES." WES also owns the entire non-economic general partner interest and a 98% limited partner interest in WES Operating, a Delaware limited partnership formed by Anadarko in 2007 to acquire, own, develop and operate midstream assets. In addition, Occidental has a 2% limited partner interest in WES Operating and its ownership is held through the investment in WES.
At September 30, 2019, Occidental’s ownership interest in WES consisted of the entire non-economic general partner interest and a 55.4% limited partner interest. The noncontrolling interest primarily consists of the 44.6% limited partner interest of WES owned by the public.
Discontinued Operations
In connection with the Merger, Occidental agreed to sell to TOTAL S.A. (Total) all of the assets, liabilities, businesses, and operations of Anadarko's operations in Algeria, Ghana, Mozambique and South Africa (collectively, the Africa Assets) for $8.8 billion, subject to certain purchase price adjustments. In August 2019, a purchase and sale agreement was executed for these Africa Assets. This transaction is conditioned on the receipt of required regulatory approvals, as well as other customary closing conditions. On September 27, 2019, Occidental completed the sale of Anadarko’s Mozambique LNG assets to Total for $4.2 billion. The assets and liabilities for Algeria, Ghana and South Africa, are presented as held for sale at September 30, 2019. The results of operations of the Africa Assets are presented as discontinued operations, see Note 4 - Acquisitions, Dispositions, and Other.
Unless otherwise indicated, information presented in the Notes to the Consolidated Condensed Financial Statements relates only to Occidental's continuing operations. Information related to discontinued operations is included in Note 4 - Acquisitions, Dispositions, and Other, and in some instances, where appropriate, is included as a separate disclosure within the consolidated statementsindividual Notes to the Consolidated Condensed Financial Statements.
Goodwill and Other Intangible Assets
Goodwill resulting from the Merger was assigned to WES Midstream and represents the excess of operations, comprehensivethe purchase price over the estimated fair value of the assets acquired and liabilities assumed. Goodwill is subject to annual impairment testing. Changes in goodwill may result from, among other things, finalization of preliminary purchase price allocations, impairments, additional acquisitions, or divestitures. See Note 3 - The Merger.
Other intangible assets represent contractual rights obtained in connection with the Merger that had favorable contractual terms relative to market terms as well as customer-related intangible assets, including customer relationships. Other intangible assets are amortized over their estimated useful lives and are assessed for impairment with the associated long-lived asset group whenever impairment indicators are present. See Note 3 - The Merger.
Supplemental Cash Flow Information
Occidental paid international and domestic state income fortaxes of $751 million and $838 million during the three and nine months ended September 30, 2019, and 2018, respectively. Occidental received domestic state tax refunds of $2 million in each of the nine months ended September 30, 2019, and 2017,2018. NaN federal income tax payments were made during the nine months ended September 30, 2019, and 2018. Interest paid totaled $610 million and $298 million during the nine months ended September 30, 2019, and 2018, respectively.
Cash Equivalents and Restricted Cash Equivalents
Occidental considers all highly liquid investments with a maturity of three months or less when purchased to be cash flowsequivalents or restricted cash equivalents. The cash equivalents and restricted cash equivalents balance at September 30, 2019, includes investments in government money market funds in which the carrying value approximates fair value.
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as reported at the end of the period in the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2018, and 2017. Certain data in the financial statements and notes for prior periods have been reclassified to conform2019 to the current presentation. The income and cash flows forline items within the periods ended Consolidated Condensed Balance Sheet at September 30, 2018, and 2017, are not necessarily indicative of the income or cash flows to be expected for the full year.
2. Asset Acquisitions, Dispositions and Other
In September 2018, Occidental divested non-core domestic midstream assets for total consideration of $2.6 billion, of which approximately $2.4 billion2019. There was received at closing, resulting in a pre-tax net gain of $902 million. These assets include the Centurion common carrier oil pipeline and storage system, Southeast New Mexico oil gathering system, and Ingleside Crude Terminal. Following the transaction, Occidental retained its long-term flow assurance, pipeline takeaway and export capacity through its retained marketing business.
In July 2018, Occidental acquired the previously leased power and steam cogeneration facility in Louisiana for $443 million, with one payment of approximately $60 million remaining to be settled in the fourth quarter of 2018.
In March 2018, Occidental divested non-core midstream assets for approximately $150 million, resulting in a pre-tax gain of $43 million.
In March 2018, Occidental issued $1.0 billion of 4.2-percent senior notes due 2048. Occidental received net proceeds of approximately $985 million. Interest on the notes will be payable semi-annually in arrears in March and September of each year, beginning on September 15, 2018. The proceeds were used to refinance the repayment of the $500 million aggregate principal amount of Occidental's 1.5-percent senior notes due in February 2018, with the remainder to be used for general corporate purposes.
In January 2018, Occidental entered into a new five-year, $3.0 billion revolving credit facility (2018 Credit Facility), replacing the previous credit facility that was scheduled to expire in August 2019. The 2018 Credit Facility has similar terms to the previous credit facility and does not contain material adverse change clauses or debt ratings triggers that could restrict Occidental's ability to borrow under the facility.
3. Accounting and Disclosure Changes
In February 2018, the Financial Accounting Standards Board (FASB) released standards that allow the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from changes to U.S. federal tax law from the 2017 Tax Cuts and Jobs Act enacted in December 2017. Occidental early adopted this standard in the first quarter of 2018, resulting in the reclassification of $58 million in stranded tax effects from accumulated other comprehensive income to retained earnings.
In the first quarter of 2018, Occidental adopted the new revenue recognition standard Topic 606 - Revenue from Contracts with Customers and related updates (ASC 606). The new standard requires more detailed disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Occidental adopted the standard using the modified retrospective method. The cumulative-effect adjustment to retained earnings upon adoption was not material. See Note 4 Revenue Recognition.
In March 2017, FASB issued guidance related to presentation of net periodic pension cost and net periodic postretirement benefit cost. The rules became effective in the first quarter of 2018. These rules did not have a material impact to Occidental's financial statements upon adoption.
In January 2017, FASB issued new guidance clarifying the definition of a business under the topic Business Combinations. The rules became effective in the first quarter of 2018, and did not have a material impact to Occidental's financial statements upon adoption.
In November 2016, FASB issued new guidance related to the cash flow classification and presentation of the changes inno restricted cash on the statement of cash flows. The rules became effective in the first quarter of 2018 and must be applied retrospectively. Occidental did not haveor restricted cash as ofequivalents at September 30, 2018 or December 31, 2017.2018.
|
| | | | |
millions | | September 30, 2019 |
Cash and cash equivalents | | $ | 4,840 |
|
Restricted cash and restricted cash equivalents | | 454 |
|
Cash and restricted cash included in assets held for sale | | 16 |
|
Restricted cash and restricted cash equivalents included in long-term receivables and other assets, net | | 55 |
|
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents | | $ | 5,365 |
|
In August 2016, FASB issued new guidance
Total restricted cash and restricted cash equivalents are primarily associated with a benefits trust for former Anadarko employees that was funded as part of the Merger, payments of future hard-minerals royalties conveyed, and a judicially-controlled account related to a Brazilian tax dispute.
Note 2 - Accounting and Disclosure Changes
In January 2019, Occidental adopted the classification of certain cash receipts and payments on the statement of cash flows.new lease standard Accounting Standards Codification Topic 842 - Leases (ASC 842). The rules were adopted for the first quarter of 2018 and resulted in the retrospective reclassification of $135 million of cash receipts from operating cash flows to investing cash flows for the nine months ended September 30, 2017, within the Statement of Cash Flows.
In February 2016, FASB issued rules which requirenew standard requires Occidental to recognize most leases, including operating leases, on the balance sheet. The new rules require lessees to recognize a right-of-use asset
(ROU) and lease liability for all leases with lease terms of more than 12 months.
The lease liability representsOccidental adopted the
discounted obligation to make future minimum lease payments. The corresponding right-of-use asset includesstandard using the
discounted obligation in addition to any upfront payment or cost incurred during contract execution of the lease. Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. Occidental is the lessee under various agreements for real estate, equipment, plants and facilities, aircraft and information technology hardware that are currently accounted for as operating leases. As a result, these new rules will increase reported assets and liabilities. Occidental will not be an early adopter of this standard. Occidental will apply the revised lease rules for its interim and annual reporting periods starting January 1, 2019, using a modified retrospective approach, including
adopting several optional practical
expedients related to leases that commenced before the effective date. Occidental is currently evaluating the effect of these rules on its financial statements, training employees, working with third-party consultants and has developed an internal interim software solution for the identification, documentation, tracking and accounting of leases as a means of an adoption plan based on Occidental's population of leases under the revised definition of leases. Occidental is currently in the test phase and continues to evaluate existing and new lease contracts for compliance, including performing various procedures to assess completeness in population and evaluating right-of-way contract structures under the new guidance to determine future impacts from adoption. The quantitative impacts of the new standard are dependent on the leases in force at the time of adoption. As a result, the evaluation of the effect of the new standard is ongoing.expedients. See Note 10 - Lease Commitments.
Note 3 - The Merger
On January 1, 2018,May 9, 2019, Occidental adopted ASC 606entered into the Merger Agreement with Anadarko. On August 8, 2019, Anadarko’s stockholders voted to approve the Merger and it was made effective the same day. The Merger added to Occidental's oil and gas portfolio, primarily in the Permian Basin, DJ Basin and Gulf of Mexico, and a controlling interest in WES.
In exchange for each share of Anadarko common stock, Anadarko stockholders received $59.00 in cash and 0.2934 of a share of Occidental common stock, plus cash in lieu of any fractional share of Occidental common stock that otherwise would have been issued, based on the average price of $46.31 per share of Occidental common stock on the NYSE on August 8, 2019.
In connection with the Merger, Occidental issued $13.0 billion of new senior unsecured notes, $8.8 billion of term loans (the Term Loans) and 100,000 shares of series A preferred stock (the Preferred Stock) with a warrant to purchase 80 million shares of Occidental common stock at an exercise price of $62.50 (the Warrant) for $10 billion. In addition, Occidental increased its existing $3.0 billion revolving credit facility by an additional $2.0 billion in commitments. See Note 9 - Long-term DebtandNote 14 - Stockholders' Equity for additional information.
The Merger constitutes a business combination and was accounted for using the modified retrospective method. Results for reporting periods beginning after January 1, 2018, are presented under ASC 606, while prior period amounts have not been adjusted. There was no impactacquisition method of adopting ASC 606accounting. The following table presents the Merger consideration paid to the opening balance of retained earnings. There was no impact to the timing or amount of revenue recognized in the nine months ended September 30, 2018,Anadarko stockholders as a result of the adoptionMerger:
|
| | | | |
millions, except per share amounts | | |
Total shares of Anadarko common stock eligible for Merger consideration | | 491.6 |
|
Cash consideration (per share of common stock and shares underlying Anadarko stock-based awards eligible for Merger consideration) | | $ | 59.00 |
|
Cash portion of Merger consideration | | $ | 29,002 |
|
| | |
Total shares of Anadarko common stock and shares underlying Anadarko stock-based awards eligible for Merger consideration | | 492.0 |
|
Exchange ratio (per share of Anadarko common stock) | | 0.2934 |
|
Total shares of Occidental common stock issued to Anadarko stockholders | | 144 |
|
Average share price of Occidental common stock at August 8, 2019 | | $ | 46.31 |
|
Stock portion of Merger consideration | | $ | 6,684 |
|
Total Merger consideration | | $ | 35,686 |
|
The following table sets forth the preliminary allocation of ASC 606.the Merger consideration. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed, valuation of pre-merger contingencies and final tax returns that provide underlying tax basis of assets acquired and liabilities assumed. Occidental will finalize the purchase price allocation during the 12-month period following the Merger date, during which time the value of the assets and liabilities may be revised as appropriate.
|
| | | | |
millions | | As of August 8, 2019 |
Fair value of assets acquired: | | |
Current assets | | $ | 3,590 |
|
Anadarko's Africa Assets held for sale | | 10,746 |
|
Investments in unconsolidated entities | | 2,430 |
|
Property, plant and equipment, net - Anadarko | | 48,771 |
|
Property, plant and equipment, net - WES Midstream | | 9,475 |
|
Other assets | | 797 |
|
Intangible assets - WES Midstream | | 2,400 |
|
Amount attributable to assets acquired | | $ | 78,209 |
|
| |
|
Fair value of liabilities assumed: | |
|
Current liabilities | | $ | 3,677 |
|
Liabilities of Anadarko's Africa Assets held for sale | | 2,329 |
|
Long-term debt - Anadarko | | 12,829 |
|
Long-term debt - WES Midstream | | 7,407 |
|
Deferred income taxes | | 10,040 |
|
Asset retirement obligations | | 2,728 |
|
Pension and post retirement obligations | | 1,125 |
|
Non-current derivative liabilities | | 1,279 |
|
Other long-term liabilities | | 2,308 |
|
Amount attributable to liabilities assumed | | $ | 43,722 |
|
| | |
Net assets | | $ | 34,487 |
|
Less: Fair value of noncontrolling interests in WES Midstream | | 4,875 |
|
Fair value of net assets acquired | | 29,612 |
|
Goodwill - WES Midstream | | 6,074 |
|
Total Merger consideration | | $ | 35,686 |
|
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their preliminary estimated fair values at the date of the Merger. The valuation of certain assets, including property and intangible assets, are based on preliminary appraisals. The majority of measurements of assets acquired and liabilities assumed, other than debt, are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of acquired properties and equipment is based on both available market data and a cost approach. Oil and natural gas properties were valued using either available market data based on the nature of the properties and the location or an income approach. Intangible assets primarily consist of third-party customer contracts, the fair value of which was determined using an income approach. Deferred income taxes represent the tax effects of differences in the tax basis and merger-date fair values of assets acquired and liabilities assumed. The measurement of debt instruments was based on unadjusted quoted prices in an active market and are primarily Level 1; approximately $6.1 billion of the assumed debt is considered Level 2. The value of derivative instruments was based on observable inputs, primarily forward commodity-price and interest-rate curves and is considered Level 2.
The excess of the purchase price over the preliminary estimated fair value of the net tangible and identifiable intangible assets acquired totaled $6.1 billion in goodwill. Goodwill is attributable to the difference in the WES Midstream market capitalization value at the date of the Merger and the WES Midstream net assets acquired, and primarily represents the intrinsic value of the customer relationship between WES Midstream and Occidental.
With the completion of the Merger, Occidental acquired proved and unproved properties of approximately $18.2 billion and $26.0 billion, respectively, primarily associated with the Permian Basin, DJ Basin, Gulf of Mexico and Powder River Basin. The remaining $5.0 billion is related to land, mineral interests and corporate properties.
Other intangible assets of $2.4 billion primarily relate to customer contracts associated with the WES Midstream segment. These contracts are amortized over 25 years. The annual aggregate amortization expense for intangible assets is expected to be $108 million.
From the date of the Merger through September 30, 2019, revenues and net loss attributable to common stockholders associated with Anadarko assets totaled $1.5 billion and $400 million, respectively.
The following summarizes the unaudited pro forma condensed financial information of Occidental as if the Merger had occurred on January 1, 2018:
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
millions, except per-share amounts | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Revenues | | $ | 7,335 |
| | $ | 8,913 |
| | $ | 22,419 |
| | $ | 23,095 |
|
Net income (loss) attributable to common stockholders | | $ | (427 | ) | | $ | 2,060 |
| | $ | 475 |
| | $ | 3,405 |
|
Net income (loss) attributable to common stockholders per share—basic | | $ | (0.50 | ) | | $ | 2.27 |
| | $ | 0.51 |
| | $ | 3.74 |
|
Net income (loss) attributable to common stockholders per share—diluted | | $ | (0.50 | ) | | $ | 2.26 |
| | $ | 0.50 |
| | $ | 3.73 |
|
| | | | | | | | |
The unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the operating results that would have occurred had the Merger been completed at January 1, 2018, nor is it necessarily indicative of future operating results of the combined entity. The unaudited pro forma information for 2019 and 2018 is a result of combining the three and nine months statements of operations of Occidental with the pre-merger results from January 1, 2019, and 2018 of Anadarko and includes adjustments for revenues and direct expenses. The pro forma results exclude results from the Africa Assets and the impact of any merger-related costs. The pro forma results include adjustments to DD&A (Depreciation, depletion and amortization) based on the purchase price allocated to property, plant, and equipment and intangibles and the estimated useful lives as well as adjustments to interest expense. The pro forma adjustments include estimates and assumptions based on currently available information. Management believes the estimates and assumptions are reasonable, and the relative effects of the Merger are properly reflected. The unaudited pro forma information does not reflect any cost savings anticipated as a result of the Merger or any merger-related costs.
Anadarko Merger-Related Costs
The following table summarizes the merger-related costs incurred:
|
| | | | | | | | |
millions | | Three months ended September 30, 2019 | | Nine months ended September 30, 2019 |
Employee severance and related cost | | $ | 459 |
|
| $ | 459 |
|
Licensing fees for critical seismic data | | 329 |
|
| 354 |
|
Bank, legal and consulting fees | | 136 |
|
| 161 |
|
Total | | $ | 924 |
|
| $ | 974 |
|
| | | | |
Employee severance and related cost primarily relates to one-time severance costs and the accelerated vesting of certain Anadarko share-based awards for former Anadarko employees based on the terms of the Merger Agreement and existing change of control provisions within the former Anadarko employment agreements. In addition, employee severance and related cost includes expenses for a voluntary separation program for eligible employees. Occidental initiated this program to align the size and composition of its workforce with its expected future operating and capital plans. Employee notifications related to the voluntary separation program were ongoing at September 30, 2019, with additional expenses associated with the program expected to be incurred throughout the remainder of 2019 and through most of 2020.
The seismic licensing fees relate to relicensing of critical seismic data related to the Gulf of Mexico, Permian Basin and DJ Basin that Anadarko had licensed from third-party vendors. The third-party vendors who own the seismic data require a transfer fee in order for Occidental to use the data.
Occidental Stock-based Incentive Plans
On the date of the Merger, Occidental issued restricted share awards covering 1.7 million shares of common stock in exchange for Anadarko stock-based incentive shares to the former Anadarko employees. These restricted shares vest in periods ranging from one month to 3.5 years and are conditioned solely on the employees' continued service, with a weighted-average grant-date fair value of $47.13 and a weighted-average remaining life of 1.3 years. Under the terms of the Merger Agreement, these restricted share awards would be subject to accelerated vesting based on a qualifying termination event.
Note 4 - Acquisitions, Dispositions and Other Transactions
On September 27, 2019, Occidental completed the sale of Anadarko’s Mozambique LNG assets to Total for $4.2 billion, with proceeds used to pay down a portion of the Term Loans. Occidental and Total continue to work toward completing the sales of the remaining Africa Assets. Occidental anticipates that the remaining sales will be completed before June 2020. The carrying amount of the remaining Africa Assets will be adjusted in future periods based on changes in fair value. The results of the Africa Assets are presented as discontinued operations in the Consolidated Condensed Statements of Operations and Cash Flows.
The following table presents the amounts reported in discontinued operations, net of income taxes, related to the Africa Assets subsequent to the Merger closing date through September 30, 2019:
|
| | | | |
millions | | 2019 |
| | |
REVENUES AND OTHER INCOME | | |
Net sales | | $ | 228 |
|
| |
|
|
COSTS AND OTHER DEDUCTIONS | | |
Oil and gas operating expense | | $ | 32 |
|
Transportation and marketing expense | | 4 |
|
Taxes other than on income | | 46 |
|
Fair value adjustment on assets held for sale | | 65 |
|
Selling, general and administrative | | 8 |
|
Other | | 4 |
|
| | $ | 159 |
|
| | |
Income before income taxes | | $ | 69 |
|
Income tax expense | | (84 | ) |
Discontinued operations, net of tax | | $ | (15 | ) |
| | |
|
The following table presents the amounts reported in the Consolidated Condensed Balance Sheets as held for sale related to the Africa Assets and other corporate property.
|
| | | | |
millions | | September 30, 2019 |
| | |
Cash and cash equivalents | | $ | 16 |
|
Inventories | | 207 |
|
Other current assets | | 110 |
|
Property, plant and equipment, net | | 5,863 |
|
Operating lease assets | | 29 |
|
Long-term receivables and other assets, net | | 220 |
|
Assets held for sale | | $ | 6,445 |
|
| | |
Current maturities of debt - finance leases | | 13 |
|
Current operating lease liabilities | | 11 |
|
Accounts payable | | 217 |
|
Accrued liabilities | | 152 |
|
Long-term debt, net - finance leases | | 187 |
|
Deferred income taxes | | 1,281 |
|
Asset retirement obligations | | 142 |
|
Other | | 200 |
|
Liabilities of assets held for sale | | $ | 2,203 |
|
| | |
Net assets held for sale | | $ | 4,242 |
|
| | |
Sale of Plains Investment
On September 23, 2019, Occidental sold its remaining equity investment in Plains All American Pipeline, L.P. and Plains GP Holdings, L.P. (together, Plains) for net proceeds of $646 million, which resulted in a pre-tax gain of $111 million. The proceeds were used to pay down a portion of the Term Loans.
Ecopetrol Joint Venture
On July 31, 2019, Occidental and Ecopetrol entered into definitive agreements to form a joint venture to develop approximately 97,000 net acres of Occidental’s Midland Basin properties in the Permian Basin. Ecopetrol will pay $750 million in cash at closing and $750 million of carried capital in exchange for a 49-percent interest in the new venture. Occidental will own a 51-percent interest and operate the joint venture. During the carry period, Ecopetrol will pay 75-percent of Occidental’s share of capital expenditures, up to $750 million. The joint venture allows Occidental to accelerate its development plans in the Midland Basin, where it currently has minimal activity. Occidental will retain production and cash flow from its existing operations in the Midland Basin. This transaction is expected to close in the fourth quarter of 2019.
Note 5 - Revenue Recognition
Revenue from customers is recognized when obligations under the terms of a contract with our customercustomers are satisfied; this generally occurs with the delivery of oil, gas, natural gas liquids ("NGL"),NGL, chemicals or services, such as transportation. Revenue from customers is measured as the amount of consideration Occidental expects to receive in exchange for the delivery of goods or services. Contracts may last from one month to one year or more, and may have renewal terms that extend indefinitely at the option of either party. Price is typically based on market indexes. Volumes fluctuate due to production and, in certain cases, customer demand and transportation availability. Occidental
records revenue net of certain taxes, such as sales taxes, that are assessed by governmental authorities on Occidental's customers. Occidental has elected a practical expedient under ASC 606 and will not disclose revenue recognizable in future periods for unsatisfied performance obligations because the consideration related to those performance obligations is based on volume or market prices, which are variable.
Occidental does not incur significant costs to obtain contracts. Incidental items that are immaterial in the context of the contract are recognized as expense. Sales of hydrocarbons and chemicals to customers are invoiced and settled on a monthly basis. Occidental is not usually subject to obligations for warranties, returns or refunds except in the case of customer incentive payments as discussed for the chemical segment below. Occidental does not typically receive payment in advance of satisfying its obligations under the terms of its sales contracts with customers; therefore, liabilities related to such payment are immaterial to Occidental. As of September 30, 2018,2019, trade receivables, net, of $6.0$5.9 billion represent rights to payment for which Occidental has satisfied its obligations under a contract and its right to payment is conditioned only on the passage of time.
Oil and Gas Segment
Revenue from oil and gas production is recognized when it is delivered and control passes to the customer. Revenues from the production of oil and gas properties in which Occidental has an interest with other producers are recognized on the basis of Occidental’s net revenue interest.
Chemical Segment
Revenue from chemical product sales is recognized when control passes to the customer. Certain incentive programs may provide for payments or credits to be made to customers based on the volume of product purchased over a defined period. Customer incentives are estimated and recorded as a reduction to revenue ratably over the contract period. Such estimates are evaluated and revised as warranted. Revenue from exchange contracts is excluded from revenue from customers.
Midstream and Marketing Segment
Revenue from pipeline and gas processing is recognized upon the completion of the transportation or processing service. Revenue from power sales is recognized upon delivery. Net marketing margin is included in net sales, but excluded from revenue from customers. Net marketing margin is recognized upon completion of contract terms that are a prerequisite to payment and upon title transfer for physical deliveries. Unless normal sales treatment has been elected, net marketing margin is classified as a derivative, reported on a net basis, recorded at fair value and changes in fair value are reflected in net sales.
The following table shows a reconciliation of revenue from customers to total net sales (in millions):sales:
| | | | Three Months Ended September 30, 2018 | | Nine months Ended September 30, 2018 | | Three months ended September 30 | | Nine months ended September 30 |
millions | | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | |
Revenue from customers | | $ | 4,257 |
| | $ | 11,813 |
| | $ | 5,231 |
| | $ | 4,257 |
| | $ | 12,397 |
| | $ | 11,813 |
|
All other revenues (a) | | 959 |
| | 1,249 |
| | 456 |
| | 959 |
| | 1,714 |
| | 1,249 |
|
Total net sales | | $ | 5,216 |
| | $ | 13,062 |
| |
Net sales | | | $ | 5,687 |
| | $ | 5,216 |
| | $ | 14,111 |
| | $ | 13,062 |
|
| | | | | | | | | |
(a) Includes net marketing derivatives, oil collars and calls, and chemical exchange contracts. | | (a) Includes net marketing derivatives, oil collars and calls, and chemical exchange contracts. |
(a)Includes net marketing margin and chemical exchange contracts.Disaggregation of Revenue from Contracts with Customers
The following table presents Occidental's revenue from customers by segment, product and geographical area. Because the oilThe Oil and gasGas segment typically sells its hydrocarbonsoil, gas and NGL at the lease or concession area, oil, gas and NGLarea. WES Midstream's operations are assumed to be soldentirely in the area where they are produced.United States. Chemical and midstream revenues are shown by geographic area based on the location of the sale (in millions):sale. Excluding net marketing revenue, Marketing and Other Midstream revenues are shown by the location of sale:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
millions | | United States | | Middle East | | Latin America | | Other International | | Eliminations | | Total |
| | | | | | | | | | | | |
Three months ended September 30, 2019 | | | | | | | | | | | | |
Oil and Gas | | | | | | | | | | | | |
Oil | | $ | 2,453 |
| | $ | 683 |
| | $ | 177 |
| | $ | — |
| | $ | — |
| | $ | 3,313 |
|
NGL | | 177 |
| | 63 |
| | — |
| | — |
| | — |
| | 240 |
|
Gas | | 125 |
| | 78 |
| | 5 |
| | — |
| | — |
| | 208 |
|
Other | | (18 | ) | | 3 |
| | — |
| | — |
| | — |
| | (15 | ) |
Segment total | | $ | 2,737 |
| | $ | 827 |
| | $ | 182 |
| | $ | — |
| | $ | — |
| | $ | 3,746 |
|
| | | | | | | | | | | | |
Chemical | | $ | 1,009 |
| | $ | — |
| | $ | 36 |
| | $ | 16 |
| | $ | — |
| | $ | 1,061 |
|
| | | | | | | | | | | | |
Marketing and Other Midstream | | | | | | | | | | | | |
Gas processing | | 93 |
| | 81 |
| | — |
| | — |
| | — |
| | 174 |
|
Power and other | | 198 |
| | — |
| | — |
| | 37 |
| | — |
| | 235 |
|
Segment total | | $ | 291 |
| | $ | 81 |
| | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | 409 |
|
| | | | | | | | | | | | |
WES Midstream | | $ | 383 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 383 |
|
| | | | | | | | | | | | |
Eliminations | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (368 | ) | | $ | (368 | ) |
| | | | | | | | | | | | |
Consolidated | | $ | 4,420 |
| | $ | 908 |
| | $ | 218 |
| | $ | 53 |
| | $ | (368 | ) | | $ | 5,231 |
|
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
millions | | United States | | Middle East | | Latin America | | Other International | | Eliminations | | Total |
| | | | | | | | | | | | |
Three months ended September 30, 2018 | | | | | | | | | | | | |
Oil and Gas | | | | | | | | | | | | |
Oil | | $ | 1,326 |
| | $ | 1,016 |
| | $ | 197 |
| | $ | — |
| | $ | — |
| | $ | 2,539 |
|
NGL | | 139 |
| | 77 |
| | — |
| | — |
| | — |
| | 216 |
|
Gas | | 47 |
| | 80 |
| | 5 |
| | — |
| | — |
| | 132 |
|
Other | | 3 |
| | — |
| | (1 | ) | | — |
| | — |
| | 2 |
|
Segment total | | $ | 1,515 |
| | $ | 1,173 |
| | $ | 201 |
| | $ | — |
| | $ | — |
| | $ | 2,889 |
|
| | | | | | | | | | | | |
Chemical | | $ | 1,112 |
| | $ | — |
| | $ | 51 |
| | $ | 21 |
| | $ | — |
| | $ | 1,184 |
|
| | | | | | | | | | | | |
Marketing and Other Midstream | | | | | | | | | | | | |
Gas processing | | 148 |
| | 108 |
| | — |
| | — |
| | — |
| | 256 |
|
Pipelines | | 115 |
| | — |
| | — |
| | — |
| | — |
| | 115 |
|
Power and other | | 38 |
| | — |
| | — |
| | — |
| | — |
| | 38 |
|
Segment total | | $ | 301 |
| | $ | 108 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 409 |
|
| | | | | | | | | | | | |
Eliminations | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (225 | ) | | $ | (225 | ) |
| | | | | | | | | | | | |
Consolidated | | $ | 2,928 |
| | $ | 1,281 |
| | $ | 252 |
| | $ | 21 |
| | $ | (225 | ) | | $ | 4,257 |
|
|
| | | | | | | | | | | | | | | | | | | | |
For the three months ended September 30, 2018 |
Revenue by Product | | United States | | Middle East | | Latin America | | Other International | | Total |
| | | | | | | | | | |
Oil and Gas Segment | | | | | | | | | | |
Oil | | $ | 1,326 |
| | $ | 1,016 |
| | $ | 197 |
| | $ | — |
| | $ | 2,539 |
|
NGL | | 139 |
| | 77 |
| | — |
| | — |
| | 216 |
|
Gas | | 47 |
| | 80 |
| | 5 |
| | — |
| | 132 |
|
Other | | 3 |
| | — |
| | (1 | ) | | — |
| | 2 |
|
Segment Total | | $ | 1,515 |
| | $ | 1,173 |
| | $ | 201 |
| | $ | — |
| | $ | 2,889 |
|
| | | | | | | | | | |
Chemical Segment | | $ | 1,112 |
| | $ | — |
| | $ | 51 |
| | $ | 21 |
| | $ | 1,184 |
|
| | | | | | | | | | |
Midstream Segment | | | | | | | | | | |
Marketing and Trading | | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Gas Processing | | 148 |
| | 108 |
| | — |
| | — |
| | 256 |
|
Pipelines | | 115 |
| | — |
| | — |
| | — |
| | 115 |
|
Power and Other | | 35 |
| | — |
| | — |
| | — |
| | 35 |
|
Segment Total | | $ | 301 |
| | $ | 108 |
| | $ | — |
| | $ | — |
| | $ | 409 |
|
| | | | | | | | | | |
Intersegment Eliminations | | $ | (225 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (225 | ) |
| | | | | | | | | | |
Consolidated | | $ | 2,703 |
| | $ | 1,281 |
| | $ | 252 |
| | $ | 21 |
| | $ | 4,257 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
millions | | United States | | Middle East | | Latin America | | Other International | | Eliminations | | Total |
| | | | | | | | | | | | |
Nine months ended September 30, 2019 | | | | | | | | | | | | |
Oil and Gas | | | | | | | | | | | | |
Oil | | $ | 5,105 |
| | $ | 2,266 |
| | $ | 524 |
| | $ | — |
| | $ | — |
| | $ | 7,895 |
|
NGL | | 339 |
| | 196 |
| | — |
| | — |
| | — |
| | 535 |
|
Gas | | 180 |
| | 233 |
| | 14 |
| | — |
| | — |
| | 427 |
|
Other | | (40 | ) | | (2 | ) | | — |
| | — |
| | — |
| | (42 | ) |
Segment total | | $ | 5,584 |
| | $ | 2,693 |
| | $ | 538 |
| | $ | — |
| | $ | — |
| | $ | 8,815 |
|
| | | | | | | | | | | | |
Chemical | | $ | 2,937 |
| | $ | — |
| | $ | 119 |
| | $ | 53 |
| | $ | — |
| | $ | 3,109 |
|
| | | | | | | | | | | | |
Marketing and Other Midstream | | | | | | | | | | | | |
Gas processing | | 302 |
| | 272 |
| | — |
| | — |
| | — |
| | 574 |
|
Power and other | | 274 |
| | — |
| | — |
| | 37 |
| | — |
| | 311 |
|
Segment total | | $ | 576 |
| | $ | 272 |
| | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | 885 |
|
| | | | | | | | | | | | |
WES Midstream | | $ | 383 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 383 |
|
| | | | | | | | | | | | |
Eliminations | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (795 | ) | | $ | (795 | ) |
| | | | | | | | | | | | |
Consolidated | | $ | 9,480 |
| | $ | 2,965 |
| | $ | 657 |
| | $ | 90 |
| | $ | (795 | ) | | $ | 12,397 |
|
|
| | | | | | | | | | | | | | | | | | | | |
For the nine months ended September 30, 2018 |
Revenue by Product | | United States | | Middle East | | Latin America | | Other International | | Total |
| | | | | | | | | | |
Oil and Gas Segment | | | | | | | | | | |
Oil | | $ | 3,907 |
| | $ | 2,507 |
| | $ | 547 |
| | $ | — |
| | $ | 6,961 |
|
NGL | | 339 |
| | 192 |
| | — |
| | — |
| | 531 |
|
Gas | | 141 |
| | 218 |
| | 12 |
| | — |
| | 371 |
|
Other | | 10 |
| | 1 |
| | — |
| | — |
| | 11 |
|
Segment Total | | $ | 4,397 |
| | $ | 2,918 |
| | $ | 559 |
| | $ | — |
| | $ | 7,874 |
|
| | | | | | | | | | |
Chemical Segment | | $ | 3,294 |
| | $ | — |
| | $ | 154 |
| | $ | 59 |
| | $ | 3,507 |
|
| | | | | | | | | | |
Midstream Segment | | | | | | | | | | |
Marketing and Trading | | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 11 |
|
Gas Processing | | 416 |
| | 308 |
| | — |
| | — |
| | 724 |
|
Pipelines | | 310 |
| | — |
| | — |
| | — |
| | 310 |
|
Power and Other | | 73 |
| | — |
| | — |
| | — |
| | 73 |
|
Segment Total | | $ | 810 |
| | $ | 308 |
| | $ | — |
| | $ | — |
| | $ | 1,118 |
|
| | | | | | | | | | |
Intersegment Eliminations | | $ | (686 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (686 | ) |
| | | | | | | | | | |
Consolidated | | $ | 7,815 |
| | $ | 3,226 |
| | $ | 713 |
| | $ | 59 |
| | $ | 11,813 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
millions | | United States | | Middle East | | Latin America | | Other International | | Eliminations | | Total |
| | | | | | | | | | | | |
Nine months ended September 30, 2018 | | | | | | | | | | | | |
Oil and Gas | | | | | | | | | | | | |
Oil | | $ | 3,907 |
| | $ | 2,507 |
| | $ | 547 |
| | $ | — |
| | $ | — |
| | $ | 6,961 |
|
NGL | | 339 |
| | 192 |
| | — |
| | — |
| | — |
| | 531 |
|
Gas | | 141 |
| | 218 |
| | 12 |
| | — |
| | — |
| | 371 |
|
Other | | 10 |
| | 1 |
| | — |
| | — |
| | — |
| | 11 |
|
Segment total | | $ | 4,397 |
| | $ | 2,918 |
| | $ | 559 |
| | $ | — |
| | $ | — |
| | $ | 7,874 |
|
| | | | | | | | | | | | |
Chemical | | $ | 3,294 |
| | $ | — |
| | $ | 154 |
| | $ | 59 |
| | $ | — |
| | $ | 3,507 |
|
| | | | | | | | | | | | |
Marketing and Other Midstream | | | | | | | | | | | | |
Gas processing | | 416 |
| | 308 |
| | — |
| | — |
| | — |
| | 724 |
|
Pipelines | | 310 |
| | — |
| | — |
| | — |
| | — |
| | 310 |
|
Power and other | | 84 |
| | — |
| | — |
| | — |
| | — |
| | 84 |
|
Segment total | | $ | 810 |
| | $ | 308 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,118 |
|
| | | | | | | | | | | | |
Eliminations | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (686 | ) | | $ | (686 | ) |
| | | | | | | | | | | | |
Consolidated | | $ | 8,501 |
| | $ | 3,226 |
| | $ | 713 |
| | $ | 59 |
| | $ | (686 | ) | | $ | 11,813 |
|
Contract Liabilities
Contract liabilities relate to WES fees and capital reimbursements that are charged to customers for only a portion of the contract term and must be recognized as revenues over the expected period of benefit, fixed and variable fees that are received from customers but revenue recognition is deferred under midstream cost of service contracts, and hard-minerals bonus payments received from customers that must be recognized as revenue over the expected period of benefit.
The following table summarizes current period activity related to contract liabilities from contracts with customers:
|
| | | | |
millions | | |
Balance at December 31, 2018 | | $ | — |
|
Increase due to contract liabilities acquired with Anadarko | | 154 |
|
Increase due to cash received, excluding revenues recognized in the period | | 9 |
|
Decrease due to revenue recognized | | (13 | ) |
Balance at September 30, 2019 | | $ | 150 |
|
Transaction Price Allocated to Remaining Performance Obligations
Revenue expected to be recognized from certain performance obligations that are unsatisfied as of September 30, 2019, is reflected in the table below. Occidental applies the optional exemptions in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations. As a result, the following table represents a small portion of Occidental's expected future consolidated revenues, as future revenue from the sale of most products and services is dependent on future production or variable customer volume and variable commodity prices for that volume:
|
| | | | | | | | | | | | | | | | |
millions | | Oil and Gas | | WES Midstream | | Eliminations | | Total |
Remainder of 2019 | | $ | 26 |
| | $ | 193 |
| | $ | (127 | ) | | $ | 92 |
|
2020 | | 103 |
| | 863 |
| | (589 | ) | | 377 |
|
2021 | | 103 |
| | 912 |
| | (645 | ) | | 370 |
|
2022 | | 7 |
| | 963 |
| | (703 | ) | | 267 |
|
2023 | | 7 |
| | 915 |
| | (690 | ) | | 232 |
|
Thereafter | | 60 |
| | 4,399 |
| | (3,768 | ) | | 691 |
|
Total | | $ | 306 |
| | $ | 8,245 |
| | $ | (6,522 | ) | | $ | 2,029 |
|
Note 6 - Inventories
Commodity inventory and finished goods primarily represents crude oil, which is carried at the lower of weighted-average cost or market value, and caustic soda and chlorine, which are valued under the last-in, first-out (LIFO) method. Inventories consisted of the following:
|
| | | | | | | | |
millions | | September 30, 2019 | | December 31, 2018 |
| | | | |
Raw materials | | $ | 67 |
| | $ | 74 |
|
Materials and supplies | | 916 |
| | 445 |
|
Commodity inventory and finished goods | | 665 |
| | 788 |
|
| | 1,648 |
| | 1,307 |
|
Revaluation to LIFO | | (47 | ) | | (47 | ) |
Total | | $ | 1,601 |
| | $ | 1,260 |
|
Note 7 - Derivative Instruments
Occidental uses a variety of derivative financial instruments and physical contracts to manage its exposure to commodity-price fluctuations and transportation commitments, to fix margins on the future sale of stored commodity volumes and interest rate risks. Occidental also enters into derivative financial instruments for trading purposes.
Occidental may elect normal purchases and normal sales exclusions when physically delivered commodities are purchased or sold to a customer. Occidental occasionally 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, such as to lock rates on forecasted debt issuances. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty.
5. Supplemental Cash Flow InformationDerivatives Not Designated as Hedging Instruments
As of September 30, 2019, Occidental's derivatives not designated as hedges consist of three-way oil collars and call options, interest rate swaps, marketing derivatives and the Warrant.
Derivative instruments that are derivatives not designated as hedging instruments are required to be recorded on the statement of operations and balance sheet at fair value. Changes in fair value will impact Occidental's earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument.
Three-way Oil Collars and Call Options
In July 2019, Occidental entered into three-way costless collar derivative instruments for 2020 and additional call options in 2021 to manage its near-term exposure to cash-flow variability from commodity-price risks. A three-way collar is a combination of three options: a sold call, a purchased put and a sold put. The sold call establishes the ceiling price that Occidental will receive for the contracted commodity volume for a defined period of time. The purchased put establishes the floor price that Occidental will receive for the contracted volumes unless the market price for the commodity falls below the sold put strike price, at which point the floor price equals the reference price plus the difference between the purchased put strike price and the sold put strike price for a defined period of time. Occidental entered into the 2021 call options to substantially improve the ceiling price that Occidental will receive for the contracted commodity volumes in 2020. In the Merger, Occidental also assumed three-way costless collars that expire throughout the rest of 2019. Net gains and losses associated with collars and calls are recognized currently in net sales. Hedge accounting was not elected for these contracts.
Occidental had the following collars and calls outstanding at September 30, 2019:
|
| | | | | | | |
Collars and Calls, not designated as hedges | | |
2019 Settlement | | | |
Three-way collars (Oil MMBL) | | | 8.0 |
|
| Average price per barrel (NYMEX/Brent oil pricing) | | | |
| | Ceiling sold price (call) | | | $ | 72.98 |
|
| | Floor purchased price (put) | | | $ | 56.72 |
|
| | Floor sold price (put) | | | $ | 46.72 |
|
| | | | | |
2020 Settlement | | | |
Three-way collars (Oil MMBL) | | | 109.8 |
|
| Average price per barrel (Brent oil pricing) | | | |
| | Ceiling sold price (call) | | | $ | 74.09 |
|
| | Floor purchased price (put) | | | $ | 55.00 |
|
| | Floor sold price (put) | | | $ | 45.00 |
|
| | | | | |
2021 Settlement | | | |
Call Options sold (Oil MMBL) | | | 109.5 |
|
| Average price per barrel (Brent oil pricing) | | | |
| | Ceiling sold price (call) | | | $ | 74.09 |
|
Occidental Interest Rate Swaps (Excluding WES Midstream)
Occidental acquired interest rate swap contracts in the Merger. The contracts lock in a fixed interest rate in exchange for a floating interest rate indexed to three-month London Inter-Bank Offered Rate (LIBOR) throughout the reference period. Net gains and losses associated with interest rate derivative instruments not designated as hedging instruments are recognized currently in losses on interest rate swaps and warrants, net.
Occidental paid foreignhad the following outstanding interest rate swaps at September 30, 2019:
|
| | | | | | | | | | |
millions except percentages | | | | Mandatory | | Weighted-Average |
Notional Principal Amount | | Reference Period | | Termination Date | | Interest Rate |
$ | 125 |
| | | September 2016 - 2046 | | October 2019 | | 6.782 | % |
$ | 550 |
| | | September 2016 - 2046 | | September 2020 | | 6.418 | % |
$ | 125 |
| | | September 2016 - 2046 | | September 2022 | | 6.835 | % |
$ | 100 |
| | | September 2017 - 2047 | | September 2020 | | 6.891 | % |
$ | 250 |
| | | September 2017 - 2047 | | September 2021 | | 6.570 | % |
$ | 450 |
| | | September 2017 - 2047 | | September 2023 | | 6.445 | % |
Depending on market conditions, liability-management actions or other factors, Occidental may enter into offsetting interest rate swap positions or settle or amend certain or all of the currently outstanding interest rate swaps.
Derivative settlements and domestic state income taxescollateralization are classified as cash flows from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. As a result of $838 millionprior extensions of reference-period start dates without settlement of the related interest rate derivative obligations, the interest rate derivatives in Occidental's portfolio contain an other-than-insignificant financing element, and $553therefore, any settlements, collateralization or cash payments for amendments related to these extended interest rate derivatives are classified as cash flows from financing activities. Net cash payments related to settlements and amendments of interest rate swap agreements were $43 million during the period from August 8, 2019, through September 30, 2019. Subsequent to September 30, 2019, Occidental settled interest rate swaps that had a mandatory termination date of October 11, 2019, and a notional value of $125 million.
WES Interest Rate Swaps
In the Merger, Occidental also acquired interest rate swap contracts held by WES. WES exchanged a floating interest rate indexed to the three-month LIBOR for a fixed interest rate. Net gains and losses associated with these interest rate derivative instruments are recognized currently in losses on interest rate swaps and warrants, net. The following interest rate swaps were outstanding at September 30, 2019:
|
| | | | | | | | | | |
millions except percentages | | | | Mandatory | | Weighted-Average |
Notional Principal Amount | | Reference Period | | Termination Date | | Interest Rate |
$ | 375 |
| | | December 2019 - 2024 | | December 2019 | | 2.662 | % |
$ | 375 |
| | | December 2019 - 2029 | | December 2019 | | 2.802 | % |
$ | 375 |
| | | December 2019 - 2049 | | December 2019 | | 2.885 | % |
Depending on market conditions, liability-management actions, or other factors, WES may settle or amend certain or all of the currently outstanding interest rate swaps.
Marketing Derivatives
Occidental's marketing derivative instruments not designated as hedges are physical and financial forward contracts which typically settle within three months. A substantial majority of Occidental's physically settled derivative contracts are index-based and carry no mark-to-market valuation in earnings. These instruments settle at a weighted-average contract price of $58.39 per barrel and $2.22 per thousand cubic feet (Mcf) for crude oil and natural gas, respectively, at September 30, 2019. The weighted-average contract price was $58.81 per barrel and $3.18 per Mcf for crude oil and natural gas, respectively, at December 31, 2018. Net gains and losses associated with marketing derivative instruments not designated as hedging instruments are recognized currently in net sales.
The following table summarizes net long/(short) volumes associated with the outstanding marketing commodity derivatives not designated as hedging instruments as of September 30, 2019, and December 31, 2018.
|
| | | | | | |
| | 2019 | | 2018 |
| | | | |
Crude Oil Commodity Contracts | | | | |
Volume (MMBL) | | 36 |
| | 61 |
|
Natural Gas Commodity Contracts | | | | |
Volume (Bcf) | | (128 | ) | | (142 | ) |
The Warrant
The Warrant issued with the Preferred Stock in connection with the Merger is exercisable at the holder's option, in whole or in part, until the first anniversary of the date on which no shares of Preferred Stock remain outstanding at which point the Warrant expires. The holder of the Warrant may require net cash settlement if certain shareholder and regulatory approvals to issue Occidental common stock are not obtained on a timely basis. The initial fair value of the Warrant, $188 million, was measured at the date of the Merger using the Black Scholes option model. The following inputs were used in the Black Scholes option model; the expected life is based on the estimated term of the Warrant, the volatility factor is based on historical volatilities of Occidental common stock, and the call option price for Occidental common stock at $62.50. The fair value of the Warrant is remeasured each reporting period based on changes in the inputs above.
Derivatives Designated as Hedging Instruments
Net gains and losses attributable to derivative instruments subject to cash flow hedge accounting reside in accumulated other comprehensive loss and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings.
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. As of September 30, 2019, Occidental had approximately 5 billion cubic feet (Bcf) of natural gas held in storage, and had cash flow hedges for the forecast sales, to be settled by physical delivery, of approximately 3 Bcf of stored natural gas. As of December 31, 2018, Occidental had approximately 5 Bcf of natural gas held in storage, and had cash flow hedges for the forecasted sales, to be settled by physical delivery, of approximately 4 Bcf of stored natural gas. The fair value of the cash flow hedges associated with stored natural gas was immaterial at September 30, 2019 and December 31, 2018. The ineffective portion recognized through earnings was immaterial for the nine months ended September 30, 2019, and the year ended December 31, 2018.
In June 2019, in anticipation of issuing debt in the third quarter to partially finance the cash portion of the Merger consideration, Occidental entered into a series of U.S. treasury locks which were designated as cash flow hedges. In August 2019, the U.S. treasury locks were unwound with the issuance of the $13.0 billion new senior unsecured notes, and the resulting after-tax accumulated other comprehensive loss of $125 million will be amortized to interest expense over the life of the underlying senior notes.
Fair Value of Derivatives
The following tables present the fair values of Occidental’s outstanding derivatives. Fair values are presented at gross amounts, including when the derivatives are subject to master netting arrangements, and are presented on a net basis in the Consolidated Condensed Balance Sheets.
|
| | | | | | | | | | | | | | | | | | | | |
Balance Sheet Classification | | Fair-Value Measurements Using | | Netting (a) | | Total Fair Value |
millions | | Level 1 | | Level 2 | | Level 3 | | |
| | | | | | | | | | |
September 30, 2019 | | | | | | | | | | |
Oil Collars and Calls | | | | | | | | | | |
Other current assets | | $ | — |
| | $ | 217 |
| | $ | — |
| | $ | (4 | ) | | $ | 213 |
|
Accrued liabilities | | — |
| | 3 |
| | — |
| | (3 | ) | | — |
|
Deferred credits and other liabilities - other | | — |
| | 97 |
| | — |
| | — |
| | 97 |
|
Marketing Derivatives | | | | | | | | | | |
Other current assets | | 838 |
| | 97 |
| | — |
| | (861 | ) | | 74 |
|
Long-term receivables and other assets, net | | 70 |
| | 12 |
| | — |
| | (70 | ) | | 12 |
|
Accrued liabilities | | 827 |
| | 45 |
| | — |
| | (861 | ) | | 11 |
|
Deferred credits and other liabilities - other | | 71 |
| | 1 |
| | — |
| | (70 | ) | | 2 |
|
Interest Rate Swaps (excluding WES) | | | | | | | | | | |
Other current assets | | — |
| | 14 |
| | — |
| | — |
| | 14 |
|
Long-term receivables and other assets, net | | — |
| | 13 |
| | — |
| | — |
| | 13 |
|
Accrued liabilities | | — |
| | 882 |
| | — |
| | — |
| | 882 |
|
Deferred credits and other liabilities - other | | — |
| | 879 |
| | — |
| | — |
| | 879 |
|
WES Interest Rate Swaps | | | | | | | | | | |
Accrued liabilities | | — |
| | 171 |
| | — |
| | — |
| | 171 |
|
Warrant | | | | | | | | | | |
Deferred credits and other liabilities - other | | — |
| | 168 |
| | — |
| | — |
| | 168 |
|
| | | | | | | | | | |
December 31, 2018 | | | | | | | | | | |
Marketing Derivatives | | | | | | | | | | |
Other current assets | | $ | 2,531 |
| | $ | 110 |
| | $ | — |
| | $ | (2,392 | ) | | $ | 249 |
|
Long-term receivables and other assets, net | | 5 |
| | 9 |
| | — |
| | (6 | ) | | 8 |
|
Accrued liabilities | | 2,357 |
| | 101 |
| | — |
| | (2,392 | ) | | 66 |
|
Deferred credits and other liabilities - other | | 6 |
| | 2 |
| | — |
| | (6 | ) | | 2 |
|
| |
(a) | These amounts do not include collateral. |
As of September 30, 2019, $359 million of collateral has been netted against derivative liabilities related to interest rate swaps. Occidental had $36 million of initial margin deposited with brokers as of September 30, 2019, related to marketing derivatives. As of December 31, 2018, $45 million collateral received has been netted against derivative assets, and 2017, respectively.collateral posted of $1 million has been netted against derivative liabilities. Occidental received domestic tax refundshad $178 million of $2initial margin deposited with brokers as of December 31, 2018. Initial margin is included in other current assets in the Consolidated Condensed Balance Sheets and has not been reflected in these derivative fair-value tables.
Gains and Losses on Derivatives
The following table presents the effect of Occidental's derivative instruments on the Consolidated Condensed Statements of Operations:
|
| | | | | | | | | | | | | | | | |
Income Statement Classification | | Three months ended September 30 | | Nine months ended September 30 |
millions | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
Oil Collars and Calls | | | | | | | | |
Net sales | | $ | 75 |
| | $ | — |
| | $ | 75 |
| | $ | — |
|
Marketing Derivatives | | | | | | | | |
Net sales | | 91 |
| | 36 |
| | (119 | ) | | 8 |
|
Interest Rate Swaps (Excluding WES) | | | | | | | | |
Losses on interest rate swaps and warrants, net | | (45 | ) | | — |
| | (45 | ) | | — |
|
Interest Rate Swaps (WES) | | | | | | | | |
Losses on interest rate swaps and warrants, net | | (8 | ) | | — |
| | (8 | ) | | — |
|
Warrants | | | | | | | | |
Gains on interest rate swaps and warrants, net | | 20 |
| | — |
| | 20 |
| | — |
|
Credit Risk
Occidental's counterparty credit risk related to the physical delivery of energy commodities results from its customers' potential inability to meet their settlement commitments. Occidental manages credit risk by selecting counterparties that it believes to be financially strong, by entering into 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 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 party would need to post. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed at September 30, 2019 was $1.6 billion (net of $0.3 billion collateral), primarily related to acquired interest-rate swaps, and $68 million (net of $1 million of collateral) existed at December 31, 2018.
Note 8 - Fair-Value Measurements
Occidental has categorized its assets and $756 million duringliabilities 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.
Fair Values — Recurring
In January 2012, Occidental entered into a long-term contract to purchase CO2. This contract contains a price adjustment clause that is linked to changes in NYMEX crude oil prices. Occidental determined that the portion of this contract linked to NYMEX oil prices is not clearly and closely related to the host contract, and Occidental therefore bifurcated this embedded pricing feature from its host contract and accounts for it at fair value in the Consolidated Condensed Financial Statements.
The following tables provide fair-value measurement information for embedded derivatives that are measured on a recurring basis:
|
| | | | | | | | | | | | | | | | | | | | | | |
millions | | Fair-Value Measurements Using | | | | |
Embedded derivatives | | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral | | Total Fair Value |
As of September 30, 2019 | | | | | | | | | | |
Accrued liabilities | | $ | — |
| | $ | 54 |
| | $ | — |
| | $ | — |
| | $ | 54 |
|
Deferred credits and other liabilities - other | | — |
| | 73 |
| | — |
| | — |
| | 73 |
|
| | | | | | |
As of December 31, 2018 | | | | | | | | | | |
Accrued liabilities | | $ | — |
| | $ | 66 |
| | $ | — |
| | $ | — |
| | $ | 66 |
|
Deferred credits and other liabilities - other | | — |
| | 116 |
| | — |
| | — |
| | 116 |
|
Fair-Values — Nonrecurring
During the nine months ended September 30, 2018,2019, Occidental measured assets and 2017, respectively. Interest paid totaled $298 millionliabilities at merger-date fair value on a nonrecurring basis related to the Merger. See Note 3 - The Merger for more detail.
During the three and $266 million during the nine months ended September 30, 2019, Occidental's Oil and Gas segment recognized pre-tax impairment and related charges of $285 million related to domestic undeveloped leases that were set to expire in the near term, where Occidental had no plans to pursue exploration activities, and $40 million related to Occidental's mutually agreed early termination of its Qatar Idd El Shargi South Dome (ISSD) contract.
During 2018, Occidental recognized pre-tax impairment and 2017, respectively.related charges of $416 million primarily related to Idd El Shargi North Dome (ISND) and ISSD proved properties and inventory. The fair value of the proved properties was measured based on the income approach, which incorporated a number of assumptions involving expectations of future cash flows. These assumptions included estimates of future product prices, which Occidental based on forward price curves, estimates of oil and gas reserves, estimates of future expected operating and capital costs and a risk-adjusted discount rate of 10 percent. These inputs are categorized as Level 3 in the fair-value hierarchy.
Other Financial Instruments 6. InventoriesThe 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.
Finished goods primarily represents crude oil, caustic soda and vinyl products. InventoriesThe estimated fair value of Occidental’s debt as of September 30, 2019, was $47.8 billion, which included $7.6 billion in debt related to WES. The majority of Occidental's debt is classified as Level 1, with $12.5 billion classified as Level 2. At December 31, 2018, the estimated fair value of Occidental's debt was $10.3 billion.
Note 9 - Long-Term Debt
Long-term debt consisted of the following:
|
| | | | |
millions | | Balance at September 30, 2019 |
Occidental | | |
4.850% senior notes due 2021 | | $ | 677 |
|
2.600% senior notes due 2021 | | 1,500 |
|
4.100% senior notes due 2021 | | 1,249 |
|
Variable rate bonds due 2021 (3.137% as of September 30, 2019) | | 500 |
|
Variable rate bonds due 2021 (3.437% as of September 30, 2019) | | 500 |
|
2-year variable rate Term Loan due 2021 (3.417% as of September 30, 2019) | | 3,966 |
|
2.700% senior notes due 2022 | | 2,000 |
|
3.125% senior notes due 2022 | | 814 |
|
2.600% senior notes due 2022 | | 400 |
|
Variable rate bonds due 2022 (3.637% as of September 30, 2019) | | 1,500 |
|
2.700% senior notes due 2023 | | 1,191 |
|
8.750% medium-term notes due 2023 | | 22 |
|
2.900% senior notes due 2024 | | 3,000 |
|
6.950% senior notes due 2024 | | 650 |
|
3.450% senior notes due 2024 | | 248 |
|
3.500% senior notes due 2025 | | 750 |
|
5.550% senior notes due 2026 | | 1,100 |
|
3.200% senior notes due 2026 | | 1,000 |
|
3.400% senior notes due 2026 | | 1,150 |
|
7.500% debentures due 2026 | | 112 |
|
3.000% senior notes due 2027 | | 750 |
|
7.125% debentures due 2027 | | 150 |
|
7.000% debentures due 2027 | | 48 |
|
6.625% debentures due 2028 | | 14 |
|
7.150% debentures due 2028 | | 235 |
|
7.200% senior debentures due 2028 | | 82 |
|
7.200% debentures due 2029 | | 135 |
|
7.950% debentures due 2029 | | 116 |
|
8.450% senior debentures due 2029 | | 116 |
|
3.500 senior notes due 2029 | | 1,500 |
|
Variable rate bonds due 2030 (1.785% as of September 30, 2019) | | 68 |
|
7.500% senior notes due 2031 | | 900 |
|
7.875% senior notes due 2031 | | 500 |
|
6.450% senior notes due 2036 | | 1,750 |
|
Zero Coupon senior notes due 2036 | | 2,271 |
|
4.300% senior notes due 2039 | | 750 |
|
7.950% senior notes due 2039 | | 325 |
|
6.200% senior notes due 2040 | | 750 |
|
4.500% senior notes due 2044 | | 625 |
|
4.625% senior notes due 2045 | | 750 |
|
6.600% senior notes due 2046 | | 1,100 |
|
4.400% senior notes due 2046 | | 1,200 |
|
4.100% senior notes due 2047 | | 750 |
|
4.200% senior notes due 2048 | | 1,000 |
|
4.400% senior notes due 2049 | | 750 |
|
7.730% debentures due 2096 | | 60 |
|
7.500% debentures due 2096 | | 78 |
|
7.250% debentures due 2096 | | 49 |
|
Total borrowings at face value (a) | | 39,151 |
|
Adjustments to book value: | | |
Unamortized premium, net | | 859 |
|
Debt issuance costs | | (133 | ) |
Long-term finance leases | | 69 |
|
Long-term Debt, net - Occidental | | $ | 39,946 |
|
(a) Total borrowings at face value also includes a $310 thousand 7.25% senior note due 2025 |
|
| | | | |
millions | | Balance at September 30, 2019 |
WES | | |
5.375% senior notes due 2021 | | $ | 500 |
|
4.000% senior notes due 2022 | | 670 |
|
3.950% senior notes due 2025 | | 500 |
|
4.650% senior notes due 2026 | | 500 |
|
4.500% senior notes due 2028 | | 400 |
|
4.750% senior notes due 2028 | | 400 |
|
5.450% senior notes due 2044 | | 600 |
|
5.300% senior notes due 2048 | | 700 |
|
5.500% senior notes due 2048 | | 350 |
|
WES Term Loan Facility (3.420% as of September 30, 2019) | | 3,000 |
|
WES revolving credit facility (3.340% as of September 30,2019) | | 160 |
|
Total borrowings at face value | | $ | 7,780 |
|
Adjustments to book value: | | |
Unamortized discount net | | (135 | ) |
Debt issuance costs | | (8 | ) |
Long-term Debt, net - WES | | $ | 7,637 |
|
| | |
Occidental Consolidated | | |
Total borrowings at face value | | $ | 46,931 |
|
| | |
Adjustments to book value: | | |
Unamortized premium, net | | 724 |
|
Debt issuance costs | | (141 | ) |
Long-term finance leases | | 69 |
|
Total Occidental Consolidated Long-term Debt | | $ | 47,583 |
|
|
| | | | |
millions | | Balance at December 31, 2018 |
Occidental | | |
9.250% senior debentures due 2019 | | $ | 116 |
|
4.100% senior notes due 2021 | | 1,249 |
|
3.125% senior notes due 2022 | | 813 |
|
2.600% senior notes due 2022 | | 400 |
|
2.700% senior notes due 2023 | | 1,191 |
|
8.750% medium-term notes due 2023 | | 22 |
|
3.500% senior notes due 2025 | | 750 |
|
3.400% senior notes due 2026 | | 1,150 |
|
3.000% senior notes due 2027 | | 750 |
|
7.200% senior debentures due 2028 | | 82 |
|
8.450% senior debentures due 2029 | | 116 |
|
4.625% senior notes due 2045 | | 750 |
|
4.400% senior notes due 2046 | | 1,200 |
|
4.100% senior notes due 2047 | | 750 |
|
4.200% senior notes due 2048 | | 1,000 |
|
Variable rate bonds due 2030 (1.9% as of December 31, 2018) | | 68 |
|
| | 10,407 |
|
Adjustments to book value: | | |
Unamortized discount, net | | (36 | ) |
Debt issuance costs | | (54 | ) |
Current maturities | | (116 | ) |
Total Occidental Consolidated Long-term Debt | | $ | 10,201 |
|
Debt Issued
On August 8, 2019, Occidental issued $13.0 billion of new senior unsecured notes, consisting of both floating and fixed rate debt. Occidental also borrowed under the Term Loans, which consist of: (1) a 364-day senior unsecured variable-rate term loan tranche of $4.4 billion and (2) a two-year senior unsecured variable-rate term loan tranche of $4.4 billion. In total, the $21.8 billion in debt issued was used to finance part of the cash portion of the purchase price for the Merger.
Debt Assumed as Part of the Merger
In the Merger, Occidental assumed Anadarko and WES debt with an outstanding principal balance of $11.9 billion and $4.6 billion, respectively. In addition, WES had borrowings of $2.9 billion under an RCF and term loan facilities at the Merger date. Debt assumed from Anadarko and WES was recorded at fair value at the Merger date, refer to Note 3 - The Merger. In September 2019, Occidental completed its offers to exchange the Anadarko senior notes and debentures assumed as part of the Merger for notes of a corresponding series issued by Occidental and cash, and related solicitation of consents. Of the approximately $11.9 billion in aggregate principal amount of Anadarko senior notes and debentures offered in the exchange, 97 percent, or approximately $11.5 billion, were tendered and accepted in the exchange offers. The portion not exchanged, approximately $400 million, remains outstanding with the original terms.
Debt Repayment
In September 2019, Occidental paid down $4.8 billion on the Term Loans, primarily using proceeds from the sales of both the Anadarko Mozambique LNG asset and Occidental's equity investment in Plains.
WES Debt
Debt related to WES included $4.6 billion in senior unsecured notes, $3.0 billion under the WES Term Loan Facility due December 2020, and $160 million drawn against the WES RCF at September 30, 2019. The WES Term Loan Facility has a maturity date of December 31, 2020 and requires that net cash proceeds received from future asset sales and debt or equity offerings must be used to repay amounts outstanding under the facility, with a $1.0 billion exclusion for debt offering proceeds. The WES RCF has a maturity date of February 2024 and a borrowing capacity of $2.0 billion. In September 2019, WES borrowed $1.0 billion under the WES Term Loan Facility and used the funds to repay borrowings under the WES RCF.
Revolving Credit Facility
On June 3, 2019, Occidental entered into an amendment to its existing $3.0 billion revolving credit facility (Occidental RCF) pursuant to which, among other things, the commitments under the Occidental RCF were increased to $5.0 billion at the closing of the Merger. Borrowings under the Occidental RCF bear interest at various benchmark rates, including LIBOR, plus a margin based on Occidental's senior debt ratings. The facility has similar terms to other debt agreements and does not contain material adverse change clauses or debt-ratings triggers that could restrict Occidental's ability to borrow, or that would permit lenders to terminate their commitments or accelerate debt repayment. The facility provides for the termination of loan commitments and requires immediate repayment of any outstanding amounts if certain events of default occur. Occidental has not drawn down any amounts under the Occidental RCF.
Zero Coupon Notes Due 2036
The Zero Coupon senior notes due 2036 (Zero Coupons) have an aggregate principal amount due at maturity of approximately $2.3 billion, reflecting an accretion rate of 5.24%. The 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. None of the Zero Coupons were put to Occidental in October 2019. The Zero Coupons can next be put to Occidental in October 2020, which, if put in whole, would be $992 million at such date. Occidental has the ability and intent to refinance these obligations using long-term debt should a put be exercised.
Note 10 - Lease Commitments
On January 1, 2019, Occidental adopted ASC 842 using the modified retrospective approach, which provided a method for recording existing leases at adoption and did not require restatement of prior year amounts and disclosures, which continue to be reflected in accordance with ASC 840. Occidental elected certain practical expedients as follows:
Leases that commenced before the effective date carried forward their historical lease classification.
Existing or expired land easements as of December 31, 2018, were not reassessed to determine whether or not they contained a lease.
Leases with a lease term of 12 months or less from lease commencement date are considered short-term leases and not recorded on the Consolidated Condensed Balance Sheet; however, the lease expenditures recognized are captured and reported as incurred.
For asset classes, except long-term drilling rigs, Occidental elected to account for the lease and non-lease components as a single lease component as the non-lease portions were not significant to separate in determining the lease liability. For long-term drilling rig contracts, Occidental bifurcated the lease and non-lease components using relative fair value as a stand-alone selling price between the asset rental and the services obtained.
ASC 842 requires lessees to recognize a ROU asset and lease liability for all long-term leases. A ROU asset represents Occidental’s right to use an underlying asset for the lease term and the associated lease liability represents the discounted obligation of future minimum lease payments. Occidental identifies leases through its accounts payable and contract monitoring process. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU assets include the discounted obligation in addition to any upfront payments or costs incurred during the contract execution of the lease and amortized on a straight-line basis over the course of the lease term. Except for leases with explicitly defined contract terms, Occidental utilizes judgment to assess likelihood of renewals, terminations and purchase options, in order to determine the lease term. Occidental uses the incremental borrowing rate at commencement date to determine the present value of lease payments. The incremental borrowing rate equates to the rate of interest that Occidental would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain leases include variable lease payments which are over and above the minimum lease liability used to derive the ROU asset and lease liability and are based on the underlying asset’s operations. These variable lease costs are reported in the lease cost classification table.
Recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The criteria for distinguishing between finance and operating leases are substantially similar to the criteria under ASC 840. For Occidental operations, adoption of ASC 842 resulted in recording of net lease assets and lease liabilities of $772 million as of January 1, 2019. There was no material impact to net income, cash flows, or stockholders’ equity.
Merger Impact
ASC 805 Business Combinations requires lease-related assets and liabilities acquired to be measured as if the lease were new at the merger date. Occidental measured the Anadarko legacy lease agreements using an updated incremental borrowing rate curve. This resulted in legacy Anadarko assets and liabilities of $498 million and $574 million, respectively, excluding the Africa Assets at the Merger date. These agreements are still under further review for above-or below-market impacts.
The following table reconciles the undiscounted cash flows related to the operating and finance lease liabilities assumed in the Merger and recorded on the Consolidated Condensed Balance Sheet at the Merger date:
|
| | | | | | | | | | | | |
millions | | Operating Leases | | Finance Leases | | Total |
Remainder of 2019 | | $ | 90 |
| | $ | 7 |
| | $ | 97 |
|
2020 | | 172 |
| | 25 |
| | 197 |
|
2021 | | 64 |
| | 15 |
| | 79 |
|
2022 | | 42 |
| | 12 |
| | 54 |
|
2023 | | 28 |
| | 7 |
| | 35 |
|
Thereafter | | 136 |
| | 42 |
| | 178 |
|
Total lease payments | | 532 |
| | 108 |
| | 640 |
|
Less: Interest | | (44 | ) | | (22 | ) | | (66 | ) |
Total lease liabilities | | $ | 488 |
| | $ | 86 |
| | $ | 574 |
|
Additionally, Occidental has elected short-term lease treatment for those acquired lease contracts which, at the Merger date, have a remaining lease term of 12 months or less. For the leases acquired through the Merger, Occidental will retain the previous lease classification.
Nature of Leases
Occidental’s operating lease agreements include leases for oil and gas exploration and development equipment, including offshore and onshore drilling rigs of $186 million, compressors of $174 million and other field equipment of $97 million, which are recorded gross on the Consolidated Condensed Balance Sheet and in the lease cost disclosures below. Contract expiration terms generally range from two to seven years. Further, actual expenditures are netted against joint-interest recoveries on the income statement through the normal joint-interest billing process. Occidental’s leases also include pipelines, rail cars, storage facilities, easements and real estate of $682 million, which typically are not associated with joint-interest recoveries. Real estate leases have contract expiration terms ranging from 1 to 16 years.
Occidental’s finance lease agreements include leases for oil and gas exploration and development equipment, as well as real estate offices, compressors, and field equipment of approximately $100 million.
The following table presents lease balances and their location on the Consolidated Condensed Balance Sheet at September 30, 2019:
|
| | | | | | |
millions | | Balance sheet location | | 2019 |
Assets: | | | | |
Operating | | Operating lease assets | | $ | 1,078 |
|
Finance | | Property, plant and equipment | | 97 |
|
Total lease assets | | | | $ | 1,175 |
|
| | | | |
Liabilities: | | | | |
Current | | | | |
Operating | | Current operating lease liabilities | | $ | 463 |
|
Finance | | Current maturities of long-term debt | | 31 |
|
Non-current | | | | |
Operating | | Deferred credits and other liabilities - Operating lease liabilities | | 676 |
|
Finance | | Long-term debt, net - Occidental | | 69 |
|
Total lease liabilities | | | | $ | 1,239 |
|
At September 30, 2019, Occidental's leases expire based on the following schedule:
|
| | | | | | | | | | | | |
| | Operating | | Finance | | |
millions | | Leases (a) | | Leases (b) | | Total |
Remainder of 2019 | | $ | 119 |
| | $ | 8 |
| | $ | 127 |
|
2020 | | 390 |
| | 38 |
| | 428 |
|
2021 | | 197 |
| | 15 |
| | 212 |
|
2022 | | 129 |
| | 12 |
| | 141 |
|
2023 | | 94 |
| | 7 |
| | 101 |
|
Thereafter | | 311 |
| | 42 |
| | 353 |
|
Total lease payments | | 1,240 |
| | 122 |
| | 1,362 |
|
Less: Interest | | (101 | ) | | (22 | ) | | (123 | ) |
Total lease liabilities | | $ | 1,139 |
| | $ | 100 |
| | $ | 1,239 |
|
(a) The weighted-average remaining lease term is 5.3 years and the weighted-average discount rate is 2.79%.
(b) The weighted-average remaining lease term is 6.4 years and the weighted-average discount rate is 4.92%.
At December 31, 2018, future undiscounted net minimum fixed lease payments for non-cancellable operating leases, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows:
|
| | | | |
| | Operating |
millions | | Leases |
2019 | | $ | 186 |
|
2020 | | 147 |
|
2021 | | 96 |
|
2022 | | 68 |
|
2023 | | 49 |
|
Thereafter | | 158 |
|
Total minimum lease payments(a) | | $ | 704 |
|
(a) The amount represents the future undiscounted cash flows at December 31, 2018, excluding any amount associated with the Merger.
The following tables present Occidental's total lease cost and classifications, as well as cash paid for amounts included in the measurement of operating and finance lease liabilities.
|
| | | | | | | | |
Lease cost classification(a) | | Three months ended September 30, 2019 | | Nine months ended September 30, 2019 |
millions | | |
Operating lease costs(b) | | | | |
Property, plant and equipment, net | | $ | 139 |
| | $ | 321 |
|
Cost of sales | | 133 |
| | 271 |
|
Selling, general and administrative expenses | | 26 |
| | 61 |
|
Finance lease cost | | | | |
Amortization of ROU assets | | 5 |
| | 11 |
|
Interest on lease liabilities | | 1 |
| | 1 |
|
| | $ | 304 |
| | $ | 665 |
|
(a) Amounts reflected are gross before joint-interest recoveries. |
(b) Includes short-term lease cost of $139 million and $295 million for the three and nine months ended September 30, 2019, respectively, and variable lease cost of $55 million and $115 million for the three and nine months ended September 30, 2019, respectively. |
|
| | | | |
millions | | Nine months ended September 30, 2019 |
Operating cash flows | | $ | 162 |
|
Investing cash flows | | 83 |
|
Financing cash flows | | 11 |
|
Note 11 - 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 Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and similar federal, state, local and foreign 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 12 - Environmental Liabilities and Expenditures, Occidental has disclosed its reserve balances for environmental remediation matters that satisfy this criteria. Reserve balances for matters, other than environmental remediation, that satisfy this criteria as of September 30, 2019, and December 31, 2017, consisted2018, were not material to Occidental’s Consolidated Condensed Balance Sheets.
In 2016, Occidental received payments from the Republic of Ecuador of approximately $1.0 billion pursuant to a November 2015 arbitration award for Ecuador’s 2006 expropriation of Occidental's Participation Contract for Block 15. The awarded amount represented a recovery of 60 percent of the following (in millions):value of Block 15. In 2017, Andes Petroleum Ecuador Ltd. (Andes) filed a demand for arbitration, claiming it is entitled to a 40 percent share of the judgment amount obtained by Occidental. Occidental contends that Andes is not entitled to any of the amounts paid under the 2015 arbitration award because Occidental’s recovery was limited to Occidental’s own 60 percent economic interest in the block. The merits hearing is scheduled for May 2020. Occidental intends to vigorously defend against this claim in arbitration.
On May 30, 2019, a complaint was filed in the Court of Chancery of the State of Delaware by purported Occidental stockholders High River Limited Partnership, Icahn Partners Master Fund LP and Icahn Partners LP (the “Icahn Complainants”), captioned High River Ltd. P’ship v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, seeking inspection of Occidental’s books and records pursuant to Section 220 of the Delaware General Corporation Law. In the complaint, the Icahn Complainants noted that they had accumulated over $1.6 billion of Occidental Common Stock. On June 14, 2019, Occidental filed an answer to the complaint in the Court of Chancery of the State of Delaware. A trial was held on September 20, 2019, and the parties are awaiting a ruling.
The ultimate outcome and impact of outstanding lawsuits, claims and proceedings on Occidental cannot be predicted. Management believes that the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on Occidental's Consolidated Condensed Balance Sheets. If unfavorable outcomes of these matters were to occur, future results of 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
During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. With the Merger, Occidental maintains 2 separate federal consolidated groups. For the legacy Occidental group, taxable years through 2016 for United States federal income tax purposes have been audited by the United States Internal Revenue Service (IRS) pursuant to its Compliance Assurance Program and subsequent taxable years are currently under review. Taxable years through 2009 have been audited for state income tax purposes. While a single foreign tax jurisdiction is open for 2002 and subsequent years, all other significant audit matters in foreign jurisdictions have been resolved through 2010.
For Anadarko, taxable years through 2016 for United States federal and state income tax purposes have been audited by the IRS and respective state taxing authorities. While the local country audit of a single foreign tax jurisdiction is open for tax years 2011 through 2013, there are no outstanding significant audit matters in foreign jurisdictions. 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 position or results of operations. |
| | | | | | | | | |
| | 2018 | | 2017 | |
| | | | | |
Raw materials | | $ | 69 |
| | $ | 66 |
| |
Materials and supplies | | 434 |
| | 447 |
| |
Finished goods | | 549 |
| | 776 |
| |
| | 1,052 |
| | 1,289 |
| |
Revaluation to LIFO | | (43 | ) | | (43 | ) | |
Total | | $ | 1,009 |
| | $ | 1,246 |
| |
The tax deduction for the Tronox Adversary Proceeding (Tronox) settlement payment contributed to a net operating loss reported on Anadarko’s 2015 federal income tax return that was subsequently carried back to previous years and resulted in a tentative cash refund of $881 million of prior taxes paid, which was received in 2016. While Occidental believes it is entitled to this refund, in accordance with ASC 740's guidance on the accounting for uncertain tax positions, as of September 30, 2019, Occidental has recorded no tax benefit on the tentative cash tax refund of prior federal taxes paid of $881 million. As a result, should Occidental not ultimately prevail on the issue, there would be no tax expense recorded for financial statement purposes other than future interest. However, in that event Occidental would be required to repay approximately $917 million ($898 million federal and $19 million in state taxes) plus accrued interest of approximately $171 million.
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, 2019, 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.
Purchase Obligations and Commitments
Occidental, its subsidiaries, or both, have entered into agreements providing for future payments to secure terminal and pipeline capacity, drilling rigs and services, electrical power, steam and certain chemical raw materials. Occidental has certain other commitments under contracts, guarantees and joint ventures, including purchase commitments for goods and services at market-related prices and certain other contingent liabilities.
As of September 30, 2019, there were no material changes to Occidental's legacy purchase obligations since disclosure in the 2018 Form 10-K. In the Merger, Occidental assumed purchase obligations of approximately $5.2 billion, which included approximately $315 million, $1.0 billion, $907 million, $735 million, $589 million and $1.6 billion that will be paid for the remainder of 2019, 2020, 2021, 2022, 2023, and 2024 and thereafter, respectively. These amounts were discounted at 3.88%. These purchase obligations are related to long-term and work-related commitments for drilling wells, obtaining and processing seismic data, and fulfilling rig commitments, as well as various processing, transportation, storage, and purchase agreements to access markets and provide flexibility to sell its oil, natural gas, and NGL in certain areas.
7.Note 12 - Environmental Liabilities and Expenditures
Occidental’s operations are subject to stringent federal, state, local, and foreigninternational laws and regulations related to improving or maintaining environmental quality. The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)CERCLA and similar federal, state, 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.