Occidental has various defined benefit pension plans for certain domestic union, non-union hourly and foreign national employees. In addition, Occidental also provides medical and other benefits for certain active, retired and disabled employees and their eligible dependents.
Note 15 - Industry Segments
Occidental conducts its operations through 43 segments: (1) Oiloil and Gas;gas (2) Chemical;chemical and (3) Marketingmidstream and Other Midstream; and (4) WES Midstream.
marketing. Income taxes, interest income, interest expense, environmental remediation expenses, Anadarko merger-relatedacquisition-related costs and unallocated corporate expenses are included under Corporate and Eliminations. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions. The following tables presenttable presents Occidental’s industry segments:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| millions | | Oil and Gas | | Chemical | | Marketing and Other Midstream | | WES Midstream (a) | | Corporate and Eliminations | | Total |
Three months ended September 30, 2019 | | | | | | | | | | | | |
| Net sales | | $ | 3,821 |
| | $ | 1,071 |
| | $ | 780 |
| | $ | 383 |
| | $ | (368 | ) | | $ | 5,687 |
|
| Income (loss) from continuing operations before income taxes | | $ | 221 |
| | $ | 207 |
| | $ | 266 |
| | $ | 134 |
| | $ | (1,449 | ) | (b) | $ | (621 | ) |
| Income tax expense | | — |
| | — |
| | — |
| | — |
| | (116 | ) | | (116 | ) |
| Income (loss) from continuing operations | | $ | 221 |
| | $ | 207 |
| | $ | 266 |
| | $ | 134 |
| | $ | (1,565 | ) | | $ | (737 | ) |
| | | | | | | | | | | | | |
Three months ended September 30, 2018 | | | | | | | | | | | | |
| Net sales | | $ | 2,889 |
| | $ | 1,185 |
| | $ | 1,367 |
| | $ | — |
| | $ | (225 | ) | | $ | 5,216 |
|
| Income (loss) from continuing operations before income taxes | | $ | 767 |
| | $ | 321 |
| | $ | 1,698 |
| | $ | — |
| | $ | (207 | ) | | $ | 2,579 |
|
| Income tax expense | | — |
| | — |
| | — |
| | — |
| | (710 | ) | | (710 | ) |
| Income (loss) from continuing operations | | $ | 767 |
| | $ | 321 |
| | $ | 1,698 |
| | $ | — |
| | $ | (917 | ) | | $ | 1,869 |
|
| | | | | | | | | | | | | |
Nine months ended September 30, 2019 | | | | | | | | | | | | |
| Net sales | | $ | 8,890 |
| | $ | 3,128 |
| | $ | 2,505 |
| | $ | 383 |
| | $ | (795 | ) | | $ | 14,111 |
|
| Income (loss) from continuing operations before income taxes | | $ | 1,431 |
| | $ | 680 |
| | $ | 876 |
| | $ | 134 |
| | $ | (1,945 | ) | (b) | $ | 1,176 |
|
| Income tax expense | | — |
| | — |
| | — |
| |
|
| | (647 | ) | | (647 | ) |
| Income (loss) from continuing operations | | $ | 1,431 |
| | $ | 680 |
| | $ | 876 |
| | $ | 134 |
| | $ | (2,592 | ) | | $ | 529 |
|
| | | | | | | | | | | | | |
Nine months ended September 30, 2018 | | | | | | | | | | | | |
| Net sales | | $ | 7,874 |
| | $ | 3,515 |
| | $ | 2,359 |
| | $ | — |
| | $ | (686 | ) | | $ | 13,062 |
|
| Income (loss) from continuing operations before income taxes | | $ | 2,297 |
| | $ | 936 |
| | $ | 2,127 |
| | $ | — |
| | $ | (584 | ) | | $ | 4,776 |
|
| Income tax expense | | — |
| | — |
| | — |
| |
|
| | (1,351 | ) | | (1,351 | ) |
| Income (loss) from continuing operations | | $ | 2,297 |
| | $ | 936 |
| | $ | 2,127 |
| | $ | — |
| | $ | (1,935 | ) | | $ | 3,425 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| millions | | Oil and Gas (a) | | Chemical | | Midstream and Marketing (b) | | Corporate and Eliminations (c) | | Total |
| Three months ended September 30, 2020 | | | | | | | | | | |
| Net sales | | $ | 2,989 | | | $ | 937 | | | $ | 364 | | | $ | (182) | | | $ | 4,108 | |
| Income (loss) from continuing operations before income taxes | | $ | (1,072) | | | $ | 178 | | | $ | (2,791) | | | $ | (373) | | | $ | (4,058) | |
Income tax benefit (d) | | 0 | | | 0 | | | 0 | | | 403 | | | 403 | |
| Income (loss) from continuing operations | | $ | (1,072) | | | $ | 178 | | | $ | (2,791) | | | $ | 30 | | | $ | (3,655) | |
| | | | | | | | | | |
| Three months ended September 30, 2019 | | | | | | | | | | |
| Net sales | | $ | 3,993 | | | $ | 1,071 | | | $ | 1,163 | | | $ | (368) | | | $ | 5,859 | |
| Income (loss) from continuing operations before income taxes | | $ | 268 | | | $ | 207 | | | $ | 400 | | | $ | (1,449) | | | $ | (574) | |
| Income tax expense | | 0 | | | 0 | | | 0 | | | (163) | | | (163) | |
| Income (loss) from continuing operations | | $ | 268 | | | $ | 207 | | | $ | 400 | | | $ | (1,612) | | | $ | (737) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| millions | | Oil and Gas (a) | | Chemical | | Midstream and Marketing (b) | | Corporate and Eliminations (c) | | Total |
| Nine months ended September 30, 2020 | | | | | | | | | | |
| Net sales | | $ | 10,089 | | | $ | 2,745 | | | $ | 1,358 | | | $ | (543) | | | $ | 13,649 | |
| Income (loss) from continuing operations before income taxes | | $ | (8,570) | | | $ | 472 | | | $ | (4,085) | | | $ | (2,097) | | | $ | (14,280) | |
Income tax benefit (d) | | 0 | | | 0 | | | 0 | | | 1,896 | | | 1,896 | |
| Income (loss) from continuing operations | | $ | (8,570) | | | $ | 472 | | | $ | (4,085) | | | $ | (201) | | | $ | (12,384) | |
| | | | | | | | | | |
| Nine months ended September 30, 2019 | | | | | | | | | | |
| Net sales | | $ | 9,062 | | | $ | 3,128 | | | $ | 2,888 | | | $ | (795) | | | $ | 14,283 | |
| Income (loss) from continuing operations before income taxes | | $ | 1,478 | | | $ | 680 | | | $ | 1,010 | | | $ | (1,945) | | | $ | 1,223 | |
| Income tax expense | | 0 | | | 0 | | | 0 | | | (694) | | | (694) | |
| Income (loss) from continuing operations | | $ | 1,478 | | | $ | 680 | | | $ | 1,010 | | | $ | (2,639) | | | $ | 529 | |
(a) The WES Midstream segment results representIncludes $795 million in net asset sale losses for the period from August 8, 2019, the Merger date, through September 30, 2019.
(b) The three months ended September 30, 2019 includes merger-related costs of $924 million and amortized debt financing fees of $65 million. The nine months ended September 30, 20192020. Additionally, for the nine months ended September 30, 2020, includes merger-related$7.0 billion related to asset impairments and other charges partially offset by a $1.1 billion gain on the oil collars and calls.
(b) Includes $2.7 billion of other-than-temporary impairment of WES equity investment for the three and nine months ended September 30, 2020. Additionally, for the nine months ended September 30, 2020, includes $1.4 billion of impairments related to the write-off of goodwill and a loss from an equity investment related to WES's write-off of its goodwill.
(c) Includes $302 million in expenses related to Anadarko acquisition-related costs of $974and a $577 million and amortized debt financing fees of $122 million.
loss on interest rate swaps for the nine months ended September 30, 2020. (d) Includes a valuation allowance on tax assets of $37 million for the three and nine months ended September 30, 2020.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
The following discussion should be read together with the Consolidated Condensed Financial Statements and the Notes to Consolidated Condensed Financial Statements, which are included in this report in Part I, Item 1; the information set forth in Risk Factors under Part II, Item 1A; the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements, which are included in Part II, Item 8 of Occidental's Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K); the information set forth in Risk Factors under Part I, Item 1A of the 2019 Form 10-K; and the information set forth in Risk Factors under Part II, Item 1A of the Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | | | | | |
| INDEX | PAGE |
| Cautionary Statement Regarding Forward-Looking Statements | |
| Current Business Outlook | |
| Consolidated Results of Operations | |
| |
| Income Taxes | |
| Liquidity and Capital Resources | |
| Environmental Liabilities and Expenditures | |
| Lawsuits, Claims, Commitments and Contingencies | |
| Recently Adopted Accounting and Disclosure Standards | |
| | |
| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS |
In this report, “Occidental” means Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Portions of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, and they include, but are not limited to: any projections of earnings, revenue or other financial items or future financial position or sources of financing; any statements of the plans, strategies and objectives of management for future operations or business strategy; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Words such as “estimate,” “project,” “predict,” “will,” “would,” “should,” “could,” “may,” “might,” “anticipate,” “plan,” “intend,” “believe,” “expect,” “aim,” “goal,” “target,” “objective,” “likely” or similar expressions that convey the prospective nature of events or outcomes are generally indicative of forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update, modify or withdraw any forward-looking statements as a result of new information, future events or otherwise.
Although Occidental believes that the expectations reflected in any of ourits forward-looking statements are reasonable, actual results may differ from anticipated results, sometimes materially. Factors that could cause results to differ from those projected or assumed in any forward-looking statement include, but are not limited to: the extentscope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to which Occidental is ablethe pandemic; Occidental’s indebtedness and other payment obligations, including the need to generate sufficient cash flows to fund operations; Occidental’s ability to successfully integrate Anadarko Petroleum Corporation (Anadarko), manage expandedmonetize select assets, repay or refinance debt and the impact of changes in Occidental’s credit ratings; assumptions about energy markets; global and local commodity and commodity-futures pricing fluctuations, such as the sharp decline in crude oil prices that occurred in the first half of 2020; supply and demand considerations for, and the prices of, Occidental’s products and services; actions by OPEC and non-OPEC oil producing countries; results from operations and competitive conditions; future impairments of our proved and unproved oil and gas properties or equity investments, or write-downs of productive assets, causing charges to earnings; unexpected changes in costs; availability of capital resources, levels of capital expenditures and contractual obligations; the regulatory approval environment, including Western Midstream Partners, LP (WES), and realize the anticipated benefits of combining Occidental and Anadarko;Occidental's ability to timely obtain or maintain permits or other governmental approvals, including those necessary for drilling and/or development projects; Occidental's ability to successfully complete, the sale of the remaining assets, liabilities, businesses and operations of the Africa assets to Total S.A. (Total); global commodity pricing fluctuations; supply and demand considerations for Occidental’s products; higher-than-expected costs; the regulatory approval environment; not successfully completing, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; risks associated with acquisitions, mergers and joint ventures, such as difficulties integrating businesses, uncertainty associated with financial projections, projected synergies, restructuring, increased costs and adverse tax consequences; uncertainties and liabilities associated with acquired and divested properties and businesses; uncertainties about the estimated quantities of oil, natural gas and natural gas liquids reserves; lower-than-expected production from development projects or acquisitions; Occidental’s ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes and improve Occidental’s competitiveness; exploration, drilling and other operational risks; disruptions to, capacity constraints in, or other limitations on the pipeline systems that deliver ourOccidental’s oil and natural gas and other processing and transportation considerations; general economic conditions, including slowdowns, domestically or internationally; difficultinternationally, and adverse conditionsvolatility in the domestic and globalsecurities, capital andor credit markets; the impact of potential changes in Occidental's credit ratings; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; governmental actions and political conditions and events; legislative or regulatory changes, including changes relating to hydraulic fracturing or other oil and natural gas operations, retroactive royalty or production tax regimes, deepwater and onshore drilling and permitting regulations and environmental regulation (including regulations related to climate change); environmental risks and liability under international, provincial, federal, regional, state, tribal, local and foreign environmental laws and regulations including(including remedial actions;actions); potential liability resulting from pending or future litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, natural disasters, cyber attackscyber-attacks or insurgent activity; the creditworthiness and performance of Occidental's counterparties, including financial institutions, operating partners and other parties; failure of risk management; changes in law or regulations;Occidental’s ability to retain and hire key personnel; reorganization or restructuring of Occidental’s operations; changes in state, federal or foreign tax rates; and actions by third parties that are beyond Occidental's control;control. The unprecedented nature of the COVID-19 pandemic and recent market decline may make it more difficult to identify potential risks, give rise to risks that are currently unknown or amplify the ability to generate cash to fund operations and repay indebtedness.
Additional information concerning these and other factors can be found in Occidental’s filings with the U.S. Securities and Exchange Commission, including Occidental’s Annual Report on2019 Form 10-K, for the year ended December 31, 2018 (the 2018 Form 10-K), Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Occidental’s operations, financial condition, cash flows and levels of expenditures are highly dependent on oil prices and, to a lesser extent, natural gas and NGL prices, the Midland-to-Gulf Coast oil spreads and the prices it receives for its chemical products. The Mergerworldwide economy has been severely impacted by the ongoing effects of the COVID-19 pandemic, which began during the first quarter of 2020. In the first quarter, travel restrictions and stay-at-home orders were implemented for much of the world to limit the spread of COVID-19. Though certain restrictions have been lifted oil and gas demand remains below pre-pandemic levels. In March 2020, despite falling oil demand, certain members of the Organization of the Petroleum Exporting Countries and its broader partners (OPEC+) announced their intention to increase crude oil production, and the resulting oversupply led to further declines in oil and gas prices. On April 12, 2020, certain members of OPEC+ agreed to production cuts intended to mitigate the oil supply and demand imbalance to stabilize prices. These production cuts coupled with declining U.S. production helped mitigate the supply and demand imbalance, yet these reductions are not expected to be enough in the near-term to fully offset the decline in demand from the COVID-19 pandemic and prices have not recovered to pre-pandemic levels. We expect that oil prices in the near term will continue to be influenced by the duration and severity of the COVID-19 pandemic and its resulting impact on oil and gas demand, the extent to which countries abide by the OPEC+ production agreement and U.S. production levels.
On August 8,
LIQUIDITY
In response to the dramatic drop in oil prices and the current macroeconomic environment, Occidental has taken significant measures to increase its near and mid-term liquidity and address near-term debt maturities. Specifically, Occidental has:
•Reduced its 2020 capital budget to a range of $2.4 to $2.6 billion from $5.2 to $5.4 billion, a midpoint reduction of more than 50%;
•Made significant cuts to its 2020 operating and corporate costs that are expected to result in cash savings of over $1.0 billion;
•Reduced the quarterly common stock dividend to $0.01 per share from $0.79 per share, effective July 2020, which on an annualized basis, will reduce its dividend outlay by approximately $2.9 billion;
•Elected to pay the preferred stock dividend paid in the second and third quarters of 2020 in the form of shares of common stock, in lieu of cash, preserving $400 million of liquidity. Occidental elected to pay the dividend paid in the fourth quarter in cash. The Board of Directors will continue to assess market conditions and Occidental's financial condition on a quarterly basis to determine whether the preferred stock dividend will be paid in shares of stock, in cash or a combination of shares of common stock and cash;
•Sold approximately 4.5 million mineral acres and 1 million fee surface acres located in Wyoming, Colorado and Utah in October 2020 for net proceeds of approximately $1.0 billion;
•Issued $5.0 billion in senior unsecured notes (the Senior Notes Offerings) in the third quarter of 2020 with maturities ranging from 2025 to 2030 and used the net proceeds from the issuances and the mineral acreage sale to repurchase or repay $5.2 billion of 2021 maturities and $773 million of 2022 through 2023 maturities (collectively, the Tenders and Repayments), through the date of this report;
•Exchanged approximately 27.9 million WES common units to retire a $260 million note payable to WES due 2038;
•Entered into an agreement to sell its onshore oil and gas Colombia assets for a total sales price of approximately $700 million with the potential for additional consideration if certain production and commodity targets are met. The net proceeds will be used to pay down near-term debt maturities.
In 2019, Occidental acquired allentered into three-way oil collar and call derivative instruments to reduce its exposure to commodity-price risk and increase the predictability of near-term cash flows. As of September 30, 2020, these three-way oil collars covered 350 thousand barrels of oil (MBBL) per day for the remainder of the outstanding shares of Anadarko Petroleum Corporation (Anadarko) through a transaction in which an indirect, wholly owned subsidiary of Occidental merged with and into Anadarko (the Merger). Occidental believes that the Merger will enhance Occidental’s Permian Basin leadership position and bolster its portfolio with additional free cash flow-generating assets; generate significant cost and capital synergies as well as capital spending efficiency; enhance its dividend growth strategy while maintaining balance sheet strength; permit Occidental to apply its proven technology and operational excellence to Anadarko’s asset portfolio; and create a global energy leader with enhanced scale and expertise to lead energy into a lower-carbon future.
In connection with the Merger, Occidental agreed to sell to Total all of Anadarko's assets, liabilities, businesses, and operations for 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 assets. 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 atcalendar year. Through September 30, 2019. The results2020, Occidental has received $643 million of operationsproceeds associated with these instruments, and the remaining net fair value of the Africa Assets are presentedthree-way collars and calls was $250 million as discontinued operations.
of September 30, 2020. See Note 36 - The MergerDerivatives, in the Notes to Consolidated Condensed Financial Statements in Part 1I, Item 1 of this Form 10-Q,10-Q. In September 2020, Occidental entered into two-way collar derivative instruments for 2021 to manage its near-term exposure to cash flow variability from natural gas commodity price risks. Beginning January 1, 2021, these two-way collar derivative instruments will cover 500 thousand MMBTU per day throughout the year and Occidental will receive in cash per MMBTU the difference between the floor purchased put price of $2.50, and the natural gas commodity price on the settlement date. The volume weighted average ceiling price of the two-way collars is $3.61, above which Occidental will pay the difference between $3.61 and the then-current natural gas price. Natural gas commodity prices averaged $1.94 for the third quarter of 2020.
Occidental believes the actions outlined above enhance its liquidity position to fund its operations. Occidental will continue to evaluate the economic environment, as well as the commodity price environment, and may make further
adjustments to its levels of expenditures and operating and corporate costs. However, the ultimate impact of the COVID-19 pandemic on Occidental's results of operations, cash flows and financial position are unknown, and those impacts could be material. Additionally, actions taken in response to the current macro-environment may result in the long-term reduction of its capital expenditure and production profile.
DEBT AND INTEREST RATE SWAPS
After the completion of the Tenders and Repayments, Occidental has debt maturities of approximately $1.1 billion in 2021, $4.0 billion in 2022 and $1.2 billion in 2023.
Occidental’s Zero Coupon senior notes due 2036 (Zero Coupons) can be put to Occidental in October of each year, in whole or in part, for the then accreted value of the outstanding Zero Coupons. An immaterial amount was put to Occidental in 2020. The Zero Coupons can next be put to Occidental in October 2021, which, if put in whole, would require a payment of approximately $1.0 billion at such date. Occidental currently has the intent and ability to meet this obligation, including using amounts available under the revolving credit facility (RCF) should the put right be exercised.
In addition, Occidental has interest rate swaps with a fair value of $1.0 billion as of September 30, 2020 that have a mandatory termination date in September 2021. The fair value of these swaps, which is included in accrued liabilities, will continue to fluctuate with changes in interest rates through the mandatory termination date.
As of September 30, 2020, Occidental had approximately $1.9 billion of cash and cash equivalents on hand, and as of the date of this filing, $5.0 billion of borrowing capacity under its existing RCF which matures in 2023. Occidental continues to pursue divestitures of certain assets and intends to use the net proceeds from asset sales and free cash flow to repay its nearer-term debt maturities, but the expected timing and final proceeds from such asset sales are uncertain. Occidental currently expects its cash on hand and funds available under its RCF to be sufficient to meet its debt maturities, operating expenditures and other obligations for the next 12 months from the date of this filing. However, given the inherent uncertainty associated with the duration and severity of the COVID-19 pandemic and its resulting impact on oil demand, Occidental may need to seek additional liquidity sources, refinance debt maturities or both, to fund its operations.
DEBT RATINGS
In connection with the Senior Notes Offerings, Occidental's long-term debt credit ratings were reviewed by the three major rating agencies. As of September 30, 2020, Occidental’s long-term debt was rated BB+ by Standard and Poor’s (S&P), BB by Fitch Ratings (Fitch), and Ba2 by Moody’s Investors Service (Moody’s). Any additional downgrade in credit ratings could impact Occidental's ability to access capital and increase its cost of capital. In addition, given that Occidental’s current debt ratings are non-investment grade, Occidental may be requested, and in some cases required, to provide collateral in the form of cash, letters of credit, surety bonds or other acceptable support as financial assurance of its performance and payment obligations under certain contractual arrangements such as pipeline transportation contracts, oil and gas purchase contracts and certain derivative instruments.
As of the date of this filing, Occidental has provided required financial assurances through a combination of cash, letters of credit and surety bonds made available to us on a bilateral basis and has not issued any letters of credit under the RCF. For additional information, see Risk Factors in Part II1, Item 1A of Occidental’s 2019 Form 10-K and this Form 10-Q10-Q.
IMPACT OF COVID-19 PANDEMIC TO GLOBAL OPERATIONS
Occidental is focused on protecting the health and safety of its employees and contractors during the COVID-19 pandemic. Occidental has implemented workplace restrictions in our offices and work sites for more information. Occidental'shealth and safety reasons. Occidental has not incurred material costs as a result of new protocols and procedures. Occidental continues to monitor national, state and local government directives where we have operations and/or offices. While Occidental has not incurred any significant disruptions to its day-to-day operations as a result of any workplace restrictions related to the COVID-19 pandemic to-date, the extent to which the COVID-19 pandemic adversely affects our business, results of operations includeand financial condition will depend on future developments, which are highly uncertain.
POTENTIAL FOR ADDITIONAL FUTURE IMPAIRMENTS
As a result of the resultsexpected prolonged period of Anadarko from August 8, 2019lower commodity prices brought on by the COVID-19 pandemic’s impact on oil demand, Occidental tested substantially all of its oil and gas assets for impairment during the second quarter of 2020. Occidental recognized pre-tax impairment charges of $6.4 billion related to continuing operations and $2.2 billion related to discontinued operations for the three months ended June 30, 2020. No triggering events were identified and no proved or material unproved impairments were taken during the three months ended September 30, 2019.2020. If there is a further worsening of the macroeconomic conditions and if such worsened condition is expected to be prolonged, Occidental’s oil and gas properties may be subject to further testing for impairment, which could result in additional non-cash asset impairments, and such impairments could be material to our financial statements.
Consolidated ResultsPROVED RESERVES
Occidental's proved reserves are estimated using the unweighted arithmetic average of Operationsthe first-day-of-the-month price for each month within the applicable year. The average first-day-of-the-month prices used to compute proved reserves at December 31, 2019, were $55.69 per barrel for WTI, $63.03 per barrel for Brent and $2.58 per MMBtu for Henry Hub. The average first-day-of-the-month prices for the first eleven months of 2020 were $39.12 per barrel for WTI, $43.04 per barrel for Brent, and $1.90 per MMBtu for Henry Hub. Based on these average commodity prices, Occidental expects negative price-related reserve revisions at year-end 2020, the magnitude of which could be significant. In addition, as Occidental lowers its projected capital spending, this could result in a material amount of proved undeveloped reserves no longer being supportable within five years of the original year in which the reserves were initially booked, and thus no longer meeting the criteria to be classified as proved. Occidental had proved undeveloped reserves of 905 MMBOE at December 31, 2019.
| | |
| CONSOLIDATED RESULTS OF OPERATIONS |
Occidental reported a loss from continuing operations of $737 million for the third quarter of 2019 on net sales of $5.7 billion, compared to income from continuing operations of $1.9 billion on net sales of $5.2$3.7 billion for the third quarter of 2018.2020 on net sales of $4.1 billion, compared to a loss from continuing operations of $737 million on net sales of $5.9 billion for the third quarter of 2019. Diluted earnings from continuing operations per share was a loss of $4.16 for the third quarter of 2020 compared to a loss of $1.06 for the third quarter of 2019 compared to earnings of $2.44 for the third quarter of 2018.
Occidental reported incomea loss from continuing operations of $529 million$12.4 billion for the nine months ended September 30, 20192020, on net sales of $14.1$13.6 billion, compared to income from continuing operations of $3.4 billion$529 million on net sales of $13.1$14.3 billion for the nine months ended September 30, 2018.2019. Diluted earnings from continuing operations per share was a loss of $14.26 for the nine months ended September 30, 2020 compared to earnings per share of $0.47 for the nine months ended September 30, 2019, compared to $4.45 for the nine months ended September 30, 2018.
Excluding the impact of Anadarko merger-related costs, asset impairments, assetlosses on sale, gains on the oil collars and equity investment sales gains,calls, net losses on the interest rate swaps and acquisition-related costs, the decrease in income from continuing operations for the three and nine months ended September 30, 2019,2020, compared to the same periods in 2018,2019, is primarily related to lower crude oil prices lower realized caustic soda prices and lower marketing margins due to the tightening of the Midland-to-Magellan East Houston terminal (MEH) differential. The nine months ended September 30, 2020 also reflected higher interest expense due to the increase in debt issued to partially fund the Acquisition, as well as the debt assumed through the Acquisition, the effects of which were partially offset by higher crude oil, NGLs, and natural gas production volumes acquired with the Merger and from legacy Occidental operations in the Permian Basin.Acquisition.
Selected Statements of Operations ItemsSELECTED STATEMENTS OF OPERATIONS ITEMS
Net sales increaseddecreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019, primarily as a result of lower crude oil, NGL and natural gas prices, lower marketing margins due to the tightening of the Midland to MEH differentials, and lower sales volumes in the chemical segments. Additionally contributing to the decrease in net sales for the nine months ended September 30, 2020, we experienced lower realized caustic soda prices. These decreases were partially offset by higher crude oil, NGLs and natural gas production volumes from assets acquired through the Acquisition.
Losses on sales of assets, net for the three and nine months ended September 30, 2020, is primarily comprised of $431 million in losses associated with mineral and surface acres located in Wyoming, Colorado and Utah, and $356 million in losses related to onshore oil and gas Colombia assets.
Oil and gas operating expense decreased for the three months ended September 30, 2020, compared to the same period in 2018,2019, primarily due to decreases in maintenance, workover and support costs and purchased injectant costs as a result of measures to reduce operating costs. Transportation and gathering expense increased for the three months ended September 30, 2020, compared to the same period in 2019, primarily due to higher domestic crude oiltransportation costs due to full quarter of volumes fromacquired with the assets acquired through the Merger and from legacy Permian Resources operations. Increases in net sales were partially offset by lower crude oil prices and lower realized caustic soda pricesAcquisition in the Chemical segment.
third quarter of 2020. Oil and gas operating expense and transportation and gathering expense increased for the nine months ended September 30, 2020, compared to the same period of 2019, primarily due to higher transportation expenses and surface operations and maintenance costs due to increased production as a result of the Acquisition. The cost of purchased commodities decreased for the three and nine months ended September 30, 2020, compared to the same periods in 2019, due to lower crude oil prices on third-party crude purchases related to the midstream and marketing segment. The decrease in taxes other than on income for the three months ended September 30, 2020, compared to the same period in 2019, reflected lower production taxes, which are generally tied to revenues. The decrease in selling, general and administrative expense for the three months ended September 30, 2020, compared to the same period in 2019, along with the decrease in other operating and non-operating expense for the three and nine months ended September 30, 2020, compared to the same periods in 2019, reflected 2020 cost reduction initiatives to reduce overhead costs and net gains related to the settlement, curtailment and special termination benefits on pension plans acquired in the Acquisition. The increase in selling, general and administrative expense for the nine months ended September 30, 2020, compared to the same period in 2019, reflected higher costs acquired in the Acquisition. DD&A expense increased for the three and nine months ended September 30, 2019,2020, compared to the same periods in 2018, primarily due to higher production costs for surface operations and maintenance due to increased production as a result of the Merger. Purchased commodities increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, due to higher third-party crude purchases related to the Marketing and Other Midstream segment. DD&A (depreciation, depletion and amortization) expense increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, was primarily due to depreciation associated with assets acquired through the Merger.
Interest and debt expense, net, increased for the three and nine months ended September 30, 2019,2020, compared to the same periodsperiod in 2018,2019, due to the increase in debt issued to partially fund the Merger,Acquisition, as well as the debt assumed through the Merger.
The decrease in the provision for income taxes from continuing operations for the three and nine months ended September 30, 20192020, compared to the same periods in 20182019 reflects lower pre-tax income, which is partially offset by an increase in taxthe impairment of certain international assets as a result of transaction-related costswell as the equity method goodwill associated with the WES investment, for which Occidental receivedthe company receives no tax benefit. The difference between the 13 percent effective tax rate for the nine months ended September 30, 2020, and the 21 percent U.S. federal statutory tax rate is similarly primarily driven by the impairment of certain international assets and the WES goodwill.
| | |
| SEGMENT RESULTS OF OPERATIONS AND ITEMS AFFECTING COMPARABILITY |
Segment Operations
SEGMENT RESULTS OF OPERATIONS
Occidental conducts its operations through fourOccidental’s principal businesses consist of three reporting segments: (1) Oiloil and Gas; (2) Chemical; (3) Marketinggas, chemical, and Other Midstream;midstream and (4) WES Midstream.marketing. The Oiloil and Gasgas segment explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas. The Chemicalchemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The Marketingmidstream and Other Midstreammarketing segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, COcarbon dioxide (CO2) and power. Additionally, the MarketingIt also trades around its assets, including transportation and Other Midstream segmentstorage capacity, and invests in entities that conduct similar activities. The WESactivities such as Western Midstream segment owns gathering systems, plants and pipelines and earns revenue from fee-based and service-based contracts with Occidental and third parties.Partners, L.P. (WES).
The following table sets forth the sales and earnings of each operating segment and corporate items for the three and nine months ended September 30, 2019,2020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions | | 2020 | | 2019 | | 2020 | | 2019 |
Net sales (a) | | | | | | | | |
| Oil and Gas | | $ | 2,989 | | | $ | 3,993 | | | $ | 10,089 | | | $ | 9,062 | |
| Chemical | | 937 | | | 1,071 | | | 2,745 | | | 3,128 | |
| Midstream and Marketing | | 364 | | | 1,163 | | | 1,358 | | | 2,888 | |
| Eliminations | | (182) | | | (368) | | | (543) | | | (795) | |
| Total | | 4,108 | | | 5,859 | | | 13,649 | | | 14,283 | |
| Income (loss) from continuing operations | | | | | | | | |
Oil and Gas (b) | | (1,072) | | | 268 | | | (8,570) | | | 1,478 | |
| Chemical | | 178 | | | 207 | | | 472 | | | 680 | |
Midstream and Marketing (c) | | (2,791) | | | 400 | | | (4,085) | | | 1,010 | |
| Total | | (3,685) | | | 875 | | | (12,183) | | | 3,168 | |
| Unallocated corporate items | | | | | | | | |
| Interest expense, net | | (353) | | | (360) | | | (1,015) | | | (586) | |
Income tax benefit (expense) (d) | | 403 | | | (163) | | | 1,896 | | | (694) | |
Other items, net (e) | | (20) | | | (1,089) | | | (1,082) | | | (1,359) | |
| Income (loss) from continuing operations | | $ | (3,655) | | | $ | (737) | | | $ | (12,384) | | | $ | 529 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| millions | | 2019 | | 2018 | | 2019 | | 2018 |
Net sales (a) | | | | | | | | |
| Oil and Gas | | $ | 3,821 |
| | $ | 2,889 |
| | $ | 8,890 |
| | $ | 7,874 |
|
| Chemical | | 1,071 |
| | 1,185 |
| | 3,128 |
| | 3,515 |
|
| Marketing and Other Midstream | | 780 |
| | 1,367 |
| | 2,505 |
| | 2,359 |
|
WES Midstream (b) | | 383 |
| | — |
| | 383 |
| | — |
|
| Eliminations | | (368 | ) | | (225 | ) | | (795 | ) | | (686 | ) |
| | | $ | 5,687 |
| | $ | 5,216 |
| | $ | 14,111 |
| | $ | 13,062 |
|
| Income from continuing operations | | | | | | | | |
| Oil and Gas | | $ | 221 |
| | $ | 767 |
| | $ | 1,431 |
| | $ | 2,297 |
|
| Chemical | | 207 |
| | 321 |
| | 680 |
| | 936 |
|
| Marketing and Other Midstream | | 266 |
| | 1,698 |
| | 876 |
| | 2,127 |
|
WES Midstream (b) | | 134 |
| | — |
| | 134 |
| | — |
|
| | | $ | 828 |
|
| $ | 2,786 |
| | $ | 3,121 |
| | $ | 5,360 |
|
| Unallocated corporate items | | | | | | | | |
| Interest expense, net | | (360 | ) | | (92 | ) | | (586 | ) | | (275 | ) |
| Income tax expense | | (116 | ) | | (710 | ) | | (647 | ) | | (1,351 | ) |
Other items, net (c) | | (1,089 | ) | | (115 | ) | | (1,359 | ) | | (309 | ) |
| Income (loss) from continuing operations | | $ | (737 | ) | | $ | 1,869 |
| | $ | 529 |
| | $ | 3,425 |
|
(a) Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
(b) The WES Midstream segment results representIncludes $795 million in net asset sale losses for the period from August 8, 2019, the Merger date, through September 30, 2019.
(c) The three months ended September 30, 2019 includes merger-related costs of $924 million and amortized debt financing fees of $65 million. The nine months ended September 30, 20192020. Additionally, for the nine months ended September 30, 2020, includes merger-related$7.0 billion related to asset impairments and other charges partially offset by a $1.1 billion gain on the oil collars and calls.
(c) Includes $2.7 billion of other-than-temporary impairment of the WES equity investment for the three and nine months ended September 30, 2020. Additionally, for the nine months ended September 30, 2020, includes $1.4 billion of impairments related to the write-off of goodwill and a loss from an equity investment related to WES's write-off of its goodwill.
(d) Includes a valuation allowance on tax assets of $37 million for the three and nine months ended September 30, 2020.
(e) Includes $302 million in expenses related to Anadarko acquisition-related costs of $974and a $577 million and amortized debt financing fees of $122 million.loss on interest rate swaps for the nine months ended September 30, 2020.
Items Affecting ComparabilityITEMS AFFECTING COMPARABILITY
The following table sets forth items affecting the comparability of Occidental's earnings that either arose in connection with the MergerAcquisition or vary widely and unpredictably in nature, timing, and amountamount:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Oil and Gas | | | | | | | | |
| Asset impairments - domestic | | $ | (21) | | | $ | (285) | | | $ | (5,817) | | | $ | (285) | |
| Asset impairments - international | | — | | | (40) | | | (1,195) | | | (40) | |
| Asset sales losses, net - domestic | | (439) | | | — | | | (425) | | | — | |
| Asset sales losses, net - international | | (356) | | | — | | | (356) | | | — | |
| Rig termination and other - domestic | | (23) | | | — | | | (61) | | | — | |
| Rig termination and other - international | | (4) | | | — | | | (10) | | | — | |
| Oil collars gains | | 110 | | | 75 | | | 1,067 | | | 75 | |
| Total Oil and Gas | | (733) | | | (250) | | | (6,797) | | | (250) | |
| | | | | | | | |
| Midstream and Marketing | | | | | | | | |
| Goodwill and other asset impairment | | (2,729) | | | — | | | (4,194) | | | — | |
| Asset and equity investment sales gains (losses) | | (46) | | | 111 | | | (46) | | | 111 | |
| Total Midstream and Marketing | | (2,775) | | | 111 | | | (4,240) | | | 111 | |
| | | | | | | | |
| Corporate | | | | | | | | |
| Anadarko acquisition-related costs | | (5) | | | (924) | | | (302) | | | (974) | |
| Acquisition-related pension and curtailment gains | | — | | | 20 | | | 114 | | | 20 | |
| Bridge loan financing fees | | — | | | (65) | | | — | | | (122) | |
| Gains (losses) on interest rate swap | | 88 | | | (53) | | | (577) | | | (53) | |
| Gains on Berkshire Warrants | | — | | | 20 | | | 5 | | | 20 | |
| Total Corporate | | 83 | | | (1,002) | | | (760) | | | (1,109) | |
| | | | | | | | |
| Valuation allowance on tax assets | | (37) | | | — | | | (37) | | | — | |
| Tax effect of items affecting comparability | | 387 | | | 151 | | | 1,668 | | | 164 | |
| Loss from continuing operations | | (3,075) | | | (990) | | | (10,166) | | | (1,084) | |
| Discontinued operations, net taxes | | 80 | | | (15) | | | (1,335) | | | (15) | |
| Total | | $ | (2,995) | | | $ | (1,005) | | | $ | (11,501) | | | $ | (1,099) | |
OIL AND GAS SEGMENT
Oil and gas segment losses were $1.1 billion and $8.6 billion for the three and nine months ended September 30, 2019, and 2018:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| millions | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| | | | | | | | | |
| Oil and Gas | | | | | | | | |
| Asset impairments - domestic | | $ | (285 | ) |
| $ | — |
|
| $ | (285 | ) |
| $ | — |
|
| Asset impairments - international | | (40 | ) |
| (196 | ) |
| (40 | ) |
| (196 | ) |
| Oil collars gains | | 75 |
|
| — |
|
| 75 |
|
| — |
|
| Total oil and gas | | $ | (250 | ) |
| $ | (196 | ) |
| $ | (250 | ) |
| $ | (196 | ) |
| | |
|
|
|
|
|
|
|
|
|
|
|
| Marketing and Other Midstream | |
|
|
|
|
|
|
|
|
|
|
|
| Asset and equity investment sales gains | | $ | 111 |
|
| $ | 902 |
|
| $ | 111 |
|
| $ | 902 |
|
| | |
|
|
|
|
|
|
|
|
|
|
|
| Corporate | |
|
|
|
|
|
|
|
|
|
|
|
| Anadarko merger-related costs | | $ | (924 | ) |
| $ | — |
|
| $ | (974 | ) |
| $ | — |
|
| Bridge loan financing fees | | (65 | ) |
| — |
|
| (122 | ) |
| — |
|
| Merger-related pension and other termination benefits | | 20 |
|
| — |
|
| 20 |
|
| — |
|
| Gains (losses) on interest rate swaps and warrants, net | | (33 | ) |
| — |
|
| (33 | ) |
| — |
|
| Total Corporate | | $ | (1,002 | ) |
| $ | — |
|
| $ | (1,109 | ) |
| $ | — |
|
| | |
|
|
|
|
|
|
|
|
|
|
|
| Tax effect of items affecting comparability | | 151 |
|
| (197 | ) |
| 164 |
|
| (197 | ) |
| Income from continuing operations | | (990 | ) | | 509 |
| | (1,084 | ) | | 509 |
|
| Discontinued operations | | (15 | ) | | — |
| | (15 | ) | | — |
|
| Total | | $ | (1,005 | ) |
| $ | 509 |
|
| $ | (1,099 | ) |
| $ | 509 |
|
Worldwide Effective Tax Rate
The following table sets forth the calculation of the worldwide effective tax rate:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| millions, except percentages | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Income (loss) from continuing operations before income taxes | | $ | (621 | ) | | $ | 2,579 |
| | $ | 1,176 |
| | $ | 4,776 |
|
| Income tax (expense) benefit | | | | | | | | |
| Federal and state | | 181 |
| | (362 | ) | | 69 |
| | (533 | ) |
| Foreign | | (297 | ) | | (348 | ) | | (716 | ) | | (818 | ) |
| Total income tax expense | | (116 | ) |
| (710 | ) | | (647 | ) | | (1,351 | ) |
| Income (loss) from continuing operations | | $ | (737 | ) | | $ | 1,869 |
| | $ | 529 |
| | $ | 3,425 |
|
| Worldwide effective tax rate | | (19 | )% | | 28 | % | | 55 | % | | 28 | % |
The decrease in the provision for income taxes for the three and nine months ended September 30, 2019 compared to the same periods in 2018, reflects lower pre-tax income, which is offset by an increase in tax as a result of merger-related costs for which Occidental received no tax benefit.
Oil and Gas Segment
Oil and Gas segment earnings were $221 million and $1.4 billion for the three and nine months ended September 30, 2019,2020, respectively, compared with segment earnings of $767$268 million and $2.3$1.5 billion, respectively, for the same periods in 2019. Excluding the impact of 2018. Theasset impairments and other charges, losses on sale and gains on the oil collars and calls, the decrease in earnings primarily reflected lower realized crude oil NGL and natural gas prices,prices. This decrease was partially offset by higher crude oil, NGL and natural gas sales volumes mostly due to added production from the Merger and increased production inAcquisition for the legacy Occidental Permian Resources business unit.
The following table sets forth the total sales volumes per day for oil NGL, and NGLs in thousands of barrels (MBBL) or millions of cubic feet per day for natural gas:gas (MMCF):
| | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2019 | | 2018 | | Three months ended September 30, | | Nine months ended September 30, |
| | | | | | | | | | | 2020 | | 2019 | | 2020 | | 2019 |
| Sales Volumes per Day | | | | | | | | | Sales Volumes per Day | |
| Oil (MBBL) | | | | | | | | | Oil (MBBL) | |
| United States | | 486 |
| | 256 |
| | 351 |
| | 241 |
| United States | | 508 | | | 486 | | | 591 | | | 351 | |
| Middle East | | 120 |
| | 154 |
| | 133 |
| | 138 |
| |
| Middle East / Africa | | Middle East / Africa | | 108 | | | 117 | | | 125 | | | 97 | |
| Latin America | | 35 |
| | 31 |
| | 33 |
| | 31 |
| Latin America | | 36 | | | 35 | | | 34 | | | 33 | |
| NGL (MBBL) | | | | | | | | | NGL (MBBL) | |
| United States | | 168 |
| | 73 |
| | 112 |
| | 65 |
| United States | | 212 | | | 168 | | | 224 | | | 112 | |
| Middle East | | 33 |
| | 34 |
| | 33 |
| | 30 |
| |
| Middle East / Africa | | Middle East / Africa | | 36 | | | 34 | | | 37 | | | 34 | |
| Natural Gas (MMCF) | | | | | | | | | Natural Gas (MMCF) | |
| United States | | 1,085 |
| | 332 |
| | 633 |
| | 315 |
| United States | | 1,439 | | | 1,085 | | | 1,609 | | | 633 | |
| Middle East | | 550 |
| | 552 |
| | 540 |
| | 504 |
| Middle East | | 520 | | | 550 | | | 537 | | | 540 | |
| Latin America | | 8 |
| | 6 |
| | 7 |
| | 6 |
| Latin America | | 7 | | | 8 | | | 7 | | | 7 | |
Total Continuing Operations Volumes (MBOE) (a) | | 1,116 |
| | 696 |
| | 859 |
| | 643 |
| Total Continuing Operations Volumes (MBOE) (a) | | 1,228 | | | 1,114 | | | 1,370 | | | 824 | |
| Discontinued Operations - Africa | | 41 |
| | — |
| | 14 |
| | — |
| |
| Discontinued & Exited Operations | | Discontinued & Exited Operations | | 28 | | | 43 | | | 28 | | | 49 | |
Total Sales Volumes (MBOE) (a) | | 1,157 |
| | 696 |
| | 873 |
| | 643 |
| Total Sales Volumes (MBOE) (a) | | 1,256 | | | 1,157 | | | 1,398 | | | 873 | |
(a) Natural gas volumes have been converted to BOEbarrels of oil equivalent (BOE) based on energy content of six MCF of gas to one barrel of oil. Barrels of oil equivalent does not necessarily result in price equivalence.
Average daily sales volumes from continuing operations were 1,116 MBOE for the
third quarter of 2019, compared to 696 MBOE for the third quarter of 2018.
The increase in average daily sales volumes from continuing operations of 420 MBOE is primarily due to 377 MBOE in acquired production from the Merger including 163 MBOE in DJ Basin, 90 MBOE in the Gulf114 thousands of Mexico, and 90 MBOE in the Delaware Basin as well as an increasebarrels of 75 MBOE, or 33 percent, in the legacy Occidental Permian Resources business unit as a result of increased drilling and well productivity.
Average daily sales volumes from continuing operationsoil equivalent (MBOED) for the first ninethree months of 2019 were 859 MBOEended September 30, 2020, compared to 643 MBOE for the same period in 2018.2019, reflected a full quarter of production associated with the assets acquired from the Acquisition partially offset by declines in Permian Resources and Permian EOR due to capital reductions. The increase in average daily sales volumes from continuing operations for the nine months ended September 30, 2020, compared to the same period in 2019, of 216 MBOE is primarily 546 MBOED reflected a full nine months of production associated with the assets acquired from the Acquisition partially offset by declines in Permian Resources and Permian EOR due to capital reductions.
127 MBOE in acquired production from the Merger including 55 MBOE in DJ Basin, 30 MBOE in the Gulf of Mexico and 30 MBOE in the Delaware Basin as well as an increase of 83 MBOE, or 41 percent, in the legacy Occidental Permian Resources business unit from increased drilling and well productivity, and Al Hosn, which increased by 11 MBOE, or 16 percent, due to the expansion of capacity and improved plant performance.
The following table presents information about Occidental's average realized prices and index prices:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Average Realized Prices | | | | | | | | |
| Oil ($/BBL) | | | | | | | | |
| United States | | $ | 38.22 | | $ | 54.90 | | $ | 35.27 | | $ | 53.27 |
| Middle East / Africa | | $ | 39.88 | | $ | 61.74 | | $ | 41.51 | | $ | 62.66 |
| Latin America | | $ | 41.26 | | $ | 54.98 | | $ | 38.20 | | $ | 58.00 |
| Total Worldwide | | $ | 38.67 | | $ | 56.43 | | $ | 36.44 | | $ | 56.10 |
| NGL ($/BBL) | | | | | | | | |
| United States | | $ | 14.62 | | $ | 13.91 | | $ | 11.19 | | $ | 15.20 |
| Middle East / Africa | | $ | 16.24 | | $ | 20.41 | | $ | 15.79 | | $ | 21.38 |
| Total Worldwide | | $ | 14.85 | | $ | 15.02 | | $ | 11.84 | | $ | 16.64 |
| Natural Gas ($/MCF) | | | | | | | | |
| United States | | $ | 1.18 | | $ | 1.25 | | $ | 1.09 | | $ | 1.05 |
| Latin America | | $ | 4.16 | | $ | 7.05 | | $ | 5.76 | | $ | 7.14 |
| Total Worldwide | | $ | 1.31 | | $ | 1.38 | | $ | 1.24 | | $ | 1.33 |
| | | | | | | | |
| Average Index Prices | | | | | | | | |
| WTI oil ($/BBL) | | $ | 40.93 | | $ | 56.45 | | $ | 38.32 | | $ | 57.06 |
| Brent oil ($/BBL) | | $ | 43.37 | | $ | 62.01 | | $ | 42.53 | | $ | 64.74 |
| NYMEX gas ($/MCF) | | $ | 1.94 | | $ | 2.27 | | $ | 1.92 | | $ | 2.72 |
| | | | | | | | |
| Average Realized Prices as Percentage of Average Index Prices | | | | | | | | |
| Worldwide oil as a percentage of average WTI | | 94 | % | | 100 | % | | 95 | % | | 98 | % |
| Worldwide oil as a percentage of average Brent | | 89 | % | | 91 | % | | 86 | % | | 87 | % |
| Worldwide NGL as a percentage of average WTI | | 36 | % | | 27 | % | | 31 | % | | 29 | % |
| Domestic natural gas as a percentage of average NYMEX | | 61 | % | | 55 | % | | 57 | % | | 39 | % |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Average Realized Prices | | | | | | | | |
| Oil ($/BBL) | | | | | | | | |
| United States | | $ | 54.90 |
| | $ | 56.36 |
| | $ | 53.27 |
| | $ | 59.38 |
|
| Middle East | | $ | 62.17 |
| | $ | 71.71 |
| | $ | 62.86 |
| | $ | 66.80 |
|
| Latin America | | $ | 54.98 |
| | $ | 69.94 |
| | $ | 58.00 |
| | $ | 64.90 |
|
| Total Worldwide | | $ | 56.26 |
| | $ | 62.67 |
| | $ | 56.02 |
| | $ | 62.29 |
|
| NGL ($/BBL) | | | | | | | | |
| United States | | $ | 13.91 |
| | $ | 31.82 |
| | $ | 15.20 |
| | $ | 29.38 |
|
| Middle East | | $ | 20.22 |
| | $ | 24.66 |
| | $ | 21.33 |
| | $ | 23.50 |
|
| Total Worldwide | | $ | 14.96 |
| | $ | 29.55 |
| | $ | 16.62 |
| | $ | 27.54 |
|
| Natural Gas ($/MCF) | | | | | | | | |
| United States | | $ | 1.25 |
| | $ | 1.58 |
| | $ | 1.05 |
| | $ | 1.70 |
|
| Latin America | | $ | 7.05 |
| | $ | 6.74 |
| | $ | 7.14 |
| | $ | 6.16 |
|
| Total Worldwide | | $ | 1.38 |
| | $ | 1.62 |
| | $ | 1.33 |
| | $ | 1.67 |
|
| | | | | | | | | |
| Average Index Prices | | | | | | | | |
| WTI oil ($/BBL) | | $ | 56.45 |
| | $ | 69.50 |
| | $ | 57.06 |
| | $ | 66.75 |
|
| Brent oil ($/BBL) | | $ | 62.01 |
| | $ | 75.97 |
| | $ | 64.74 |
| | $ | 72.68 |
|
| NYMEX gas ($/MCF) | | $ | 2.27 |
| | $ | 2.88 |
| | $ | 2.72 |
| | $ | 2.83 |
|
| | | | | | | | | |
| Average Realized Prices as Percentage of Average Index Prices | | | | | | | | |
| Worldwide oil as a percentage of average WTI | | 100 | % | | 90 | % | | 98 | % | | 93 | % |
| Worldwide oil as a percentage of average Brent | | 91 | % | | 82 | % | | 87 | % | | 86 | % |
| Worldwide NGL as a percentage of average WTI | | 27 | % | | 43 | % | | 29 | % | | 41 | % |
| Domestic natural gas as a percentage of average NYMEX | | 55 | % | | 55 | % | | 39 | % | | 60 | % |
Chemical SegmentCHEMICAL SEGMENT
Chemical segment earnings for the three months ended September 30, 2019, and 2018 were $207 million and $321 million, respectively. Compared to the third quarter of 2018, the third quarter of 2019 reflected a decline in realized caustic soda prices along with weaker vinyl margins, slightly offset by stronger export caustic soda demand. Chemical segment earnings for the nine months ended September 30, 2019, and 2018, were $680 million and $936 million, respectively. Compared to the same period in 2018, the nine months ended September 30, 2019, reflected lower realized caustic soda prices partially offset by favorable feedstock costs. The nine months earnings also reflected fees received under a pipeline easement agreement that was executed during the first quarter of 2019.
Marketing and Other Midstream Segment
Marketing and Other Midstream segment earnings were $266 million for the three months ended September 30, 2019, compared with earnings of $1.7 billion for the same period of 2018. Marketing and Other Midstream earnings were $876 million for the nine months ended September 30, 2019, compared with earnings of $2.1 billion for the same period of 2018. Earnings for the three and nine months ended September 30, 2018 included2020 were $178 million and $472 million, respectively, compared to $207 million and $680 million, respectively, for the same periods in 2019. Compared to the same periods in 2019, the three and nine months ended September 30, 2020 reflected lower realized caustic soda prices and overall lower sales volumes as a $902result of the COVID-19 pandemic, partially offset by lower natural gas costs and lower plant spending.
MIDSTREAM AND MARKETING SEGMENT
Midstream and marketing segment loss for the three and nine months ended September 30, 2020, was $2.8 billion and $4.1 billion, respectively, compared with earnings of $400 million gain fromand $1.0 billion, respectively, for the sale of non-core domestic midstream assets.same periods in 2019. Excluding this gain on sale,the asset impairments and related charges, the decrease in earnings was attributablemidstream and marketing results, compared to the same periods in 2019, primarily reflects lower marketing margins duefrom the tightening of the Midland to decreased crude oil price spreads, lower NGL prices impacting gas processingMEH differentials and lower pipeline income due tofollowing the sale of non-core domestic midstream assetsthe Plains equity investment in the third quarter of 2018.
WES Midstream Segment
WES Midstream segment earnings from the Merger date to2019. The nine months ended September 30, 2020, compared to the same period in 2019, was $134also reflected lower sulfur prices impacting Al Hosn Gas and increased fees related to minimum commitments associated with the assets acquired in the Acquisition.
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| millions, except percentages | | 2020 | | 2019 | | 2020 | | 2019 |
| Income (loss) from continuing operations before income taxes | | $ | (4,058) | | $ | (574) | | $ | (14,280) | | $ | 1,223 |
| Income tax (expense) benefit | | | | | | | | |
| Federal and state | | 511 | | 181 | | 2,178 | | 69 |
| Foreign | | (108) | | (344) | | (282) | | (763) |
| Total income tax (expense) benefit | | 403 | | (163) | | 1,896 | | (694) |
| Income (loss) from continuing operations | | $ | (3,655) | | $ | (737) | | $ | (12,384) | | $ | 529 |
| Worldwide effective tax rate | | 10% | | (28)% | | 13% | | 57% |
The difference between the 10 percent effective tax rate for income from continuing operations for the three months ended September 30, 2020, and the 21 percent U.S. federal statutory tax rate is primarily driven by the other-than-temporary impairment of the equity method goodwill associated with the WES investment and the loss recorded to remeasure the held for sale Colombian oil and gas assets for which Occidental receives no tax benefit. The difference between the 13 percent effective tax rate for income from continuing operations for the nine months ended September 30, 2020, and the U.S. federal statutory tax rate is primarily driven by the impairment of the WES goodwill and certain international assets, for which the company receives no tax benefit.
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (hereafter, CARES Act), an economic stimulus package in response to the COVID-19 pandemic. The CARES Act contains several corporate income tax provisions, including provisions allowing for immediate refund of remaining unutilized AMT credits as well as allowing a 5-year carryback of net operating losses generated in tax years 2018, 2019 and 2020. For the nine months ended September 30, 2020, Occidental received approximately $195 million of cash refunds as a result of the aforementioned AMT credit and NOL carryback provisions. Occidental does not currently expect the various provisions of the CARES Act to have a material effect on current income attributabletax expense or the realizability of deferred income tax assets. Occidental will continue to noncontrolling interests was $42 million.monitor additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service.
Liquidity and Capital Resources | | |
| LIQUIDITY AND CAPITAL RESOURCES |
At September 30, 2019,2020, Occidental had $4.8approximately $1.9 billion in cash and cash equivalents, and $0.5 billion$65 million in restricted cash and restricted cash equivalents which was primarily associated with a benefits trustand $113 million of cash and cash equivalents included in assets held for former Anadarko employees that was funded as partsale. Refer to the Current Business Outlook section of the Merger. Restricted cash within the benefits trust will be made availableManagement’s Discussion and Analysis for actions Occidental has taken to Occidental as payments are made to former Anadarko employees. In the third quarter of 2019, Occidental initiated a voluntary severance program to align the size and composition of its workforce with its expected future operating and capital plans. Additional expenses associated with the program are expected to be incurred throughout the remainder of 2019 and through most of 2020. With a continued focus on capital and operational efficiencies, Occidental expects to fundimprove its liquidity needs, including future dividend payments, through cash on hand, cash generated from operations, monetization of non-core assets or investments and, if necessary, proceeds from other forms of capital issuance.
Operating cash flow from continuing operations was $5.4approximately $2.5 billion for the first nine months of 2019,2020, compared to $5.2approximately $5.5 billion for the same period of 2018.2019. The increasedecrease in operating cash flow from continuing operations mainly reflectedis primarily due to lower crude oil prices, higher production, which wasinterest expense and payments for Acquisition-related costs, partially offset by lowerhigher crude oil, pricesNGL and Merger-related costs.
Occidental’s net cash used by investing activities from continuing operations was $27.6approximately $2.4 billion for the first nine months of 2019,2020, compared to $1.7approximately $27.6 billion for the same period of 2018.2019. Capital expenditures for the first nine months of 2020 and 2019 were approximately $1.9 billion and $4.2 billion respectively, of which $3.8 billionsubstantially all was for the Oiloil and Gas segment, comparedgas segment. The decrease in capital expenditures is a result of management's decision to $3.6 billion forimprove near-term liquidity in response to lower oil prices resulting from the firstCOVID-19 pandemic. For the nine months of 2018, of which $3.2 billion was forended September 30, 2019, the Oil and Gas segment. The primary use of cash for investing activities was the cash portion of the MergerAcquisition consideration, net of the cash acquired in the Merger.Acquisition. Proceeds from the sale of assets and equity investments, net, included the sale of Anadarko's Mozambique LNG assets, as well as proceeds from the sale of Occidental's Plains All American Pipeline equity investment.
Occidental’s net cash providedused by financing activities from continuing operations was $24.7approximately $1.6 billion for the first nine months of 2019,2020, compared to $2.2approximately $24.7 billion cash usedprovided for the same period of 2018.2019. Cash used by financing activities for the first nine months of 2020 reflected the payment of dividends of $1.6 billion. Cash
provided by financing activities for the first nine months of 2019 mainly reflected the issuance of long-term debt of $21.6 billion and preferred shares of $10.0 billion to consummate the Merger.Acquisition. These proceeds were partially offset by the partial repayment of the term loansdebt and the payment$1.8 billion of dividends. The nine months ended September 30, 2019, and 2018, each included dividend payments of $1.8 billion.
As of September 30, 2019,2020, and as of the date of this filing, Occidental was in compliance with all covenants ofin its financing agreementsagreements. Occidental currently expects its cash on hand and had capacityfunds available under its RCF to be sufficient to meet its near-term debt maturities, operating expenditures and other obligations for the paymentnext 12 months from the date of cash dividendsthis filing. However, given the inherent uncertainty associated with the duration and other distributionsseverity of the COVID-19 pandemic and its resulting impact on oil demand, Occidental may need to seek additional liquidity sources, refinance debt maturities, or acquisitionsboth, to fund its operations.
For more information regarding upcoming debt maturities, liquidity-improvement initiatives and the impact of Occidental stock.the COVID-19 pandemic and challenging oil and gas demand environment on Occidental’s liquidity and capital resources, see the Current Business Outlook section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Environmental Liabilities and Expenditures
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| ENVIRONMENTAL LIABILITIES AND EXPENDITURES |
Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations related to improving or maintaining environmental quality. Occidental’s environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations as an integral part of its business planning process.
The laws that require or address environmental remediation, including CERCLA and similar federal, state, local and international laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OccidentalOPC 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.
Refer toSee Note 1211 - Environmental Liabilities and Expenditures, in the Notes to the Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q and to the Environmental Liabilities and Expenditures section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20182019 Form 10-K for additional information regarding Occidental’s environmental liabilities and expenditures.