1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 1-9210
-------------------------
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4035997
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
10889 WILSHIRE BOULEVARD,
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip Code)
(310) 208-8800
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
10 1/8% Senior Notes due 2001 New York Stock Exchange
10 1/8% Senior Debentures due 2009 New York Stock Exchange
11 1/8% Senior Debentures due 2019 New York Stock Exchange
9 1/4% Senior Debentures due 2019 New York Stock Exchange
Oxy Capital Trust I 8.16% Trust Originated Preferred Securities New York Stock Exchange
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant on February 29, 2000 was approximately $5.9 billion, based on the
closing price on the New York Stock Exchange composite tape of $16.0625 per
share of Common Stock on February 29, 2000. Shares of Common Stock held by each
officer and director have been excluded from this computation in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not a conclusive determination for other purposes.
At February 29, 2000, there were approximately 368,109,960 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement filed in connection with
its April 28, 2000, Annual Meeting of Stockholders are incorporated by reference
into Part III.
2
TABLE OF CONTENTS
PART I PAGE
Items 1 and 2 Business and Properties 1
General 1
Segment Information 1
Oil and Gas Operations 1
Chemical Operations 5
Capital Expenditures 10
Employees 10
Environmental Regulation 10
Item 3 Legal Proceedings 10
Environmental Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Registrant 11
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations (Incorporating Item 7A) 13
1999 Business Environment 13
1999 Highlights 14
Income Summary 14
Divisional Operations 14
Special Items 16
Consolidated Operations - Revenues 17
Consolidated Operations - Expenses 17
Liquidity and Capital Resources 17
Acquisitions, Dispositions and Commitments 20
Derivative Activities 22
Taxes 23
Lawsuits, Claims, Commitments, Contingencies and Related Matters 23
Environmental Expenditures 23
Foreign Investments 24
2000 Outlook 25
Accounting Changes 26
Year 2000 Compliance 27
Safe Harbor Statement Regarding Outlook and Other
Forward-Looking Data 27
Report of Management 27
Item 8 Financial Statements and Supplementary Data 28
Report of Independent Public Accountants 28
Consolidated Statements of Operations 29
Consolidated Balance Sheets 30
Consolidated Statements of Stockholders' Equity 32
Consolidated Statements of Comprehensive Income 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34
Quarterly Financial Data (Unaudited) 58
Supplemental Oil and Gas Information 60
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 67
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 68
PART III
Item 10 Directors and Executive Officers of the Registrant 68
Item 11 Executive Compensation 68
Item 12 Security Ownership of Certain Beneficial Owners and Management 68
Item 13 Certain Relationships and Related Transactions 68
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 68
ii
3
PART I
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
GENERAL
Occidental Petroleum Corporation, a Delaware corporation ("Occidental"),
explores for, develops, produces and markets crude oil and natural gas and
manufactures and markets a variety of basic chemicals, including chlorine,
caustic soda, and ethylene dichloride ("EDC"), as well as specialty chemicals
and vinyls, including polyvinyl chloride ("PVC") resins and vinyl chloride
monomer ("VCM"). Occidental conducts its principal operations through its oil
and gas and chemical subsidiaries. Occidental also has an interest in
petrochemicals through its 29.5 percent ownership in the Equistar Chemicals, LP
petrochemical limited partnership ("Equistar"). Occidental's executive offices
are located at 10889 Wilshire Boulevard, Los Angeles, California 90024;
telephone (310) 208-8800.
Occidental was organized in April 1986 and, as the result of a
reorganization effective May 21, 1986, became the successor to a California
corporation of the same name organized in 1920. As used herein, the term
"Occidental" refers to Occidental alone or together with one or more of its
subsidiaries.
During 1999, Occidental continued its program to redeploy assets in its
worldwide oil and gas and chemical portfolio, including:
- -Exchanging its interests in both developed and undeveloped gas discoveries in
Bangladesh for interests in an oil producing property contiguous to Occidental's
interest in a producing operation in the Masila Block in Yemen.
- -Exchanging its interests in oil and gas producing properties in East Texas and
Louisiana for EOG Resources Inc.'s interests in Gulf of Mexico gas producing
properties where Occidental already has interests, and for producing properties
and exploration rights to more than 700,000 acres in California.
- -Agreeing to purchase, subject to government approval, ARCO Long Beach Company,
the operator of the Long Beach Unit in the Wilmington Field, California,
currently producing about 30,000 barrels of oil per day.
- -Purchasing Chevron's deep exploration rights to 19,800 acres in the Buena Vista
field adjacent to Occidental's exploration acreage in the Elk Hills field in
California.
- -Agreeing to sell, subject to government approval, its Peruvian producing
properties in Block 1-AB to Pluspetrol Peru Corporation.
- -Completing an alliance to enhance its vinyls business.
Other major developments in 1999 included the following:
- -Receiving proceeds for a $775 million settlement of a breach of contract
litigation with Chevron U.S.A. Inc.
- -Redeeming and repurchasing approximately $1 billion in high-cost debt and other
securities.
For additional information regarding these developments, see the
information appearing under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Legal Matters" elsewhere
in this report.
SEGMENT INFORMATION
Occidental's principal businesses constitute two industry segments, the
operations of which are described below. For information with respect to the
revenues, net income and assets of Occidental's industry segments and of its
operations in various geographic areas for each of the three years in the period
ended December 31, 1999, see Note 16 to the Consolidated Financial Statements of
Occidental ("Consolidated Financial Statements"), which are included in this
report, and the information appearing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in this report.
OIL AND GAS OPERATIONS
ACQUISITIONS AND DISPOSITIONS IN 2000
On March 1, 2000, Occidental entered into an agreement to sell its shares of
Canadian Occidental Petroleum Ltd. ("CanadianOxy") to CanadianOxy and Ontario
Teachers' Pension Plan Board for gross proceeds of approximately $1.2 billion
Canadian. Occidental expects the net after-tax proceeds from the sale to be
approximately $700 million U.S. Additionally, Occidental expects to transfer its
interest in two chemicals partnerships controlled by CanadianOxy to CanadianOxy,
and to acquire CanadianOxy's interest in Occidental's oil producing properties
in Ecuador. The closing is subject to the approval of CanadianOxy's shareholders
and, with respect to the purchase and sale of the assets, the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On March 7, 2000, Occidental Petroleum Corporation entered into an
agreement to acquire all of the common partnership interest in Altura Energy
Ltd. ("Altura"), - the largest oil producer in the state of Texas. Altura has
proved reserves of approximately 850 million barrels of oil equivalent, which
are located in the Permian Basin.
Occidental will pay approximately $1.2 billion to the sellers, affiliates
of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership
interest and will control the general partner which
1
4
manages, operates and controls 100 percent of the Altura assets. The partnership
will borrow approximately $2.4 billion, which will be recourse only to the
Altura assets. The sellers will retain a preferred limited partnership interest
and will be entitled to certain distributions from the partnership. The
partnership will loan approximately $2 billion to affiliates of the sellers,
evidenced by two notes, which will provide credit support to the partnership.
The transaction is valued at approximately $3.6 billion and is expected to close
by April 30, 2000.
Funds for Occidental's investment will be provided by the net after-tax
proceeds of $700 million from the consummation of the recently announced sale of
Occidental's equity interest in Canadian Occidental Petroleum Ltd., which is
scheduled to close in April. The remaining $500 million is expected to be funded
by the sale of various non-strategic assets before year-end.
As a result of the acquisition, Occidental's worldwide oil production is
expected to rise immediately to 417,000 barrels per day, a 36 percent increase
above the average for 1999. In addition, Occidental's worldwide proved reserves
are expected to increase by 63 percent to approximately 2.2 billion barrels, on
an oil-equivalent basis.
EXPLORATION AND PRODUCTION
GENERAL
Through its subsidiaries, including Occidental Oil and Gas Corporation, and its
approximate 29 percent equity interest in CanadianOxy, Occidental produces or
participates in the production of crude oil, condensate and natural gas in the
United States, Australia, Canada, Colombia, Ecuador, Nigeria, Oman, Pakistan,
Peru, Qatar, Russia and Yemen. Occidental is continuing its development programs
for certain existing fields in certain of these countries. Occidental is also
conducting exploration activities in several of these countries.
COMPARATIVE OIL AND GAS RESERVES AND PRODUCTION
Oil in millions of barrels; natural gas in billions of cubic feet
1999 1998 1997
====================================== ============================ ============================ ============================
OIL GAS TOTAL(a) OIL GAS TOTAL(a) OIL GAS TOTAL(a)
-------- -------- -------- -------- -------- -------- -------- -------- --------
U.S. Reserves 464 1,806 765 445 1,898 761 197 1,635 470
International Reserves(b) 573 86 587 621 251 663 703 823 840
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 1,037 1,892 1,352 1,066 2,149 1,424 900 2,458 1,310
======== ======== ======== ======== ======== ======== ======== ======== ========
U.S. Production 27 242 67 29 224 66 21 218 57
International Production 85 19 89 88 32 94 80 40 87
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 112 261 156 117 256 160 101 258 144
====================================== ======== ======== ======== ======== ======== ======== ======== ======== ========
(a) Natural gas volumes have been converted to equivalent barrels based on
energy content of 6,000 cubic feet ("Mcf") of gas to one barrel of oil.
Estimated average 1999 production attributable to the nonstrategic assets
sold and described above was approximately 41,000 barrels of oil per day
(including approximately 38,000 barrels per day attributable to
Occidental's Peruvian producing properties) and 288 million cubic feet
("MMcf") of gas per day.
(b) Includes the reserves of Occidental's producing properties in Peru. In
December 1999, Occidental entered into an agreement to sell its Peru
producing properties to Pluspetrol. The closing is subject to government
approval.
At December 31, 1999, Occidental's oil and gas reserve base, on an energy
equivalent barrel basis, was 1.352 billion equivalent barrels, compared with
1.424 billion barrels equivalent at December 31, 1998. In 1999 and 1998,
Occidental added sufficient oil and gas to its reserves to replace what it
produced. Occidental's consolidated worldwide net proved developed and
undeveloped reserves of crude oil (not including those of CanadianOxy) were
1.037 billion barrels at year-end 1999, compared with 1.066 billion barrels at
year-end 1998. Domestic reserves of crude oil were 464 million barrels at
year-end 1999, compared with 445 million barrels at year-end 1998, while
international crude oil reserves decreased to 573 million barrels from 621
million barrels at year-end 1998. Worldwide net crude oil reserve additions of
106 million barrels replaced 95 percent of its worldwide production of 112
million barrels. The calculation of reserve additions does not take into account
sales of approximately 24 million oil equivalent barrels of proved reserves
during 1999 nor the sale of reserves in Peru. Worldwide net proved developed and
undeveloped reserves of natural gas were approximately 1.9 trillion cubic feet
("Tcf") at year-end 1999, with 1.8 Tcf attributable to domestic operations.
Worldwide net proved developed and undeveloped natural gas reserves were about
2.1 Tcf in the previous year.
Net daily worldwide oil (and liquids) production in 1999 averaged 306,400
barrels per day, compared with 321,000 barrels per day in 1998, and net
worldwide natural gas production averaged 714 million cubic feet ("MMcf") per
day, compared with 703 MMcf per day in 1998. International operations accounted
for approximately 76 percent of Occidental's oil production, while approximately
93 percent of gas production came from the United States. On an oil equivalent
basis, Occidental produced 425,400 net barrels per day in 1999 from operations
in 10 countries, including the United States (not including CanadianOxy).
As a producer of crude oil and natural gas, Occidental competes with
numerous other producers, as well as with nonpetroleum energy producers. Crude
oil and natural gas are commodities that are sensitive to prevailing conditions
of supply and demand and generally are sold at posted or contract prices.
Occidental competes by acquiring contracts for the exploration of blocks in
areas with known oil and gas deposits and by the cost-efficient development and
2
5
production of its worldwide oil and gas reserves. Specific strategies include
the buying or selling of proved reserves and flexible and responsive marketing
techniques, particularly for natural gas. Occidental is also pursuing
opportunities to increase production through enhanced oil recovery projects,
similar to those in Elk Hills and Qatar, oil and gas exploration and strategic
acquisitions. Occidental's domestic oil and gas operations are affected by
federal, state and local laws and regulations relating to, among other things,
increases in taxes and royalties, production limits and environmental matters.
Portions of Occidental's oil and gas assets are located in countries
outside North America, some of which may be considered politically and
economically unstable. Occidental attempts to conduct its financial affairs so
as to mitigate its exposure against such risks and would expect to receive
compensation in the event of nationalization. At December 31, 1999, the carrying
value of Occidental's oil and gas assets in countries outside North America
aggregated approximately $1.717 billion, or approximately 24 percent of
Occidental's total assets at that date. Approximately $1.190 billion of such
assets were located in the Middle East, and approximately $324 million of such
assets were located in Latin America. Substantially all of the remainder was
located in Russia and Pakistan.
Set forth below in descending order of magnitude of balance sheet assets
are descriptions of the important production areas for Occidental. These
producing countries, representing approximately 93 percent of Occidental's oil
and gas assets, are the United States, Qatar, Yemen and Colombia. Following this
discussion is a description of other international operations. At the end of the
property description is a discussion of Occidental's interests in Canada and
elsewhere through its CanadianOxy investment.
UNITED STATES
Occidental produces crude oil and natural gas, principally in California, Texas,
the Gulf of Mexico, Kansas, Oklahoma, New Mexico and Alaska. Please refer to
page 1 for a discussion of the acquisition of Altura.
OIL PRODUCTION AND MARKETING
Net daily domestic total liquids production averaged approximately 72,800
barrels in 1999, compared with 81,000 barrels in 1998. The 1999 production is
net of approximately 11,137 barrels per day assigned pursuant to a pre-sale
agreement. Net daily domestic production of natural gas averaged 662 MMcf in
1999, compared with 614 MMcf in 1998.
Occidental's average sales price for domestic crude oil was $15.81 per
barrel in 1999, compared with $12.06 in the previous year. The average domestic
natural gas sales price in 1999 was $2.09 per Mcf, compared with $2.05 per Mcf
during 1998.
The acquisition of Elk Hills in 1998 significantly increased the quantity
and quality of Occidental's domestic reserves. At December 31, 1999, Occidental
had proved reserves from Elk Hills of approximately 301 million barrels of oil
and 654 billion cubic feet ("Bcf") of natural gas. Through exploration
opportunities and the application of improved drilling and field management
techniques to develop the field fully, Elk Hills reserves net to Occidental are
expected to exceed 1 billion oil equivalent barrels. Gross crude oil production
averaged approximately 61,000 barrels of oil per day in 1999, including natural
gas liquids production of 11,500 barrels per day, with gas sales averaging
approximately 368 MMcf of gas per day. Occidental is the operator of Elk Hills.
Chevron USA is the other unit interest holder.
In February 1998, Occidental entered into a fifteen-year contract with
Tosco Corporation ("Tosco") through which Tosco will purchase the majority of
Occidental's interest in the current gross oil production of Elk Hills at
market-related prices. Tosco will also purchase additional production as it
increases.
GAS PRODUCTION AND MARKETING
Occidental owns a large concentration of gas reserves and production in the
Hugoton area encompassing portions of Kansas, Oklahoma and Texas. Net production
from these fields averaged more than 172 MMcf of gas per day or approximately
one-third of the domestic total. Occidental has approximately 725 Bcf of gas
reserves and 5.3 million barrels of oil reserves in the Hugoton area. Together,
the Elk Hills and Hugoton fields accounted for 69 percent of Occidental's total
domestic oil and gas production on an energy equivalent barrels basis.
Occidental has an agreement to make available to certain parties, in
connection with a legal settlement, up to 49,500 million British thermal units
("MMBtu") of natural gas per day through 2010 at prices related to market.
Occidental has various agreements to supply certain gas marketing companies
with volumes ranging from 69,400 MMBtu down to 1,900 MMBtu per day from 2000
through 2003. Prices under the different agreements are based on energy
equivalent crude oil prices, market-sensitive prices or contract prices, some
with a yearly escalation provision.
QATAR
In October 1994, a unified agreement was approved authorizing Occidental to
implement a development plan to increase production and reserves from the Idd el
Shargi North Dome field ("ISND"). Under a production-sharing agreement,
Occidental is the operator of the field and will complete development of the
field's three main reservoirs. Gross production in 1999 averaged approximately
98,300 barrels per day under OPEC quotas, compared with approximately 118,100
net barrels per day for 1998. Average net interest production from the field in
1999 totaled approximately 57,800 barrels per day. Proved developed and
undeveloped project reserves are estimated by Occidental to be approximately 140
million barrels, compared with 227 million barrels at December 31, 1998. Each
year reserve estimates are based on Occidental's current percentage
3
6
share of production from the field pursuant to the terms of the production
sharing agreement. Occidental's share of production fluctuates as the market
price of the crude oil changes, going down as the market price of crude oil goes
up. In December 1997, Occidental entered a production-sharing agreement to
develop and operate as a satellite the Idd el Shargi South Dome field ("ISSD"),
15 miles south of the ISND field. In 1999, the ISSD field was connected to the
ISND field with an 18-inch pipeline and a field development program was
initiated with the drilling of three horizontal Shuaiba Reservoir wells.
Production began in the fourth quarter of 1999 and averaged 1,600 barrels of oil
per day gross at year-end. Net proved developed and undeveloped reserves for
ISSD are presently estimated by Occidental to be approximately 23.8 million
barrels.
YEMEN
Occidental owns a 38 percent working interest in the 310,000-acre Masila Block.
CanadianOxy is the operator, with a 52 percent working interest. Occidental's
net share under a production-sharing contract was 30,400 barrels per day in 1999
compared to 24,700 barrels per day in 1998. The increase in production in 1999
reflects the acquisition, effective September 1998, of Royal Dutch Shell's
interests in oil-producing properties in Yemen and Colombia complementary to
Occidental's existing properties in exchange for Occidental's interests in
undeveloped gas discoveries in Malaysia and the Philippines, plus approximately
$89 million in cash (collectively, the "Shell Exchange"). Occidental also
acquired a 28.6 percent working interest in the East Shabwa Block from Unocal
Yemen effective August 1999. Occidental's net share under a production-sharing
contract averaged 1,850 barrels per day in 1999.
COLOMBIA
Occidental conducts exploration and production operations in Colombia under five
contracts with Ecopetrol, the Colombian national oil company. These contracts
cover the producing Cano Limon area in the Llanos region of northeastern
Colombia, one exploration area in the Llanos fold belt and two exploration areas
in the Bogota basin. After giving effect to a government royalty, Occidental's
net share of existing production is 35 percent. All of Occidental's share of
production is exported through a trans-Andean pipeline system operated by
Ecopetrol that carries crude oil to an export terminal at Covenas. Occidental
has an ownership interest in the pipeline and marine terminal. The pipeline is
subject to attacks by insurgent groups, which disrupt the flow of oil. Gross
production from Occidental's Cano Limon area declined to approximately 125,000
barrels per day in 1999, compared with 135,000 barrels per day in 1998. The
reduction is due to a natural decline and terrorist activity. Occidental's net
share of production increased to 43,300 barrels per day in 1999, compared with
27,100 barrels per day in 1998, reflecting the Shell Exchange, effective
September 1998. Occidental is proceeding with plans to explore in the northern
25 percent of the Samore block in the Llanos fold belt along the edge of the
Llanos basin. Exploration and drilling is scheduled to begin later this year. As
a result of concerns raised by a tribe of indigenous people called the U'wa,
Occidental has voluntarily relinquished the southern 75 percent of the block.
OTHER INTERNATIONAL OPERATIONS
PRODUCING PROPERTIES
Occidental also has important oil and gas production assets in other areas of
the world. Set forth below are descriptions of Occidental's producing properties
in Ecuador, Oman, Pakistan and Russia. Occidental also has a number of
exploration areas under review, as discussed below, including a potentially
important gas discovery in Indonesia.
In Ecuador, Occidental operates the 494,000-acre Block 15, in the Oriente
Basin, under a production sharing agreement, converted in 1999 from a
risk-service contract. Six oil fields were discovered from 1985 to 1992. Net
production was approximately 15,300 barrels per day in 1999, compared with net
production of approximately 12,100 barrels per day in 1998. Future development
of the fields is contingent on expansion of the government-owned pipeline
system. Occidental has an 85 percent interest in the company that operates Block
15. The remaining 15 percent interest is held by CanadianOxy. Please see page 1
for a discussion of the acquisition of CanadianOxy's interest.
In Oman, Occidental is the operator, with a 65 percent working interest, of
Block 9, which contains the Safah field and six small fields along the southern
border of the block. Occidental's net share of production from the block in 1999
averaged approximately 14,650 barrels per day of crude oil, compared with 16,900
barrels per day in 1998.
In southern Pakistan, Occidental has working interests in the three Badin
Blocks, which vary from 25 to 30 percent. In 1999, the blocks produced a net
share of 5,700 barrels of oil per day and 45 MMcf of gas per day, compared to
5,308 barrels of oil per day and 39 MMcf of gas per day in 1998. Development
drilling should help maintain production at current rates. In addition,
Occidental holds exploration rights on contiguous blocks in the Central Indus
Gas Basin totaling 2.9 million acres. The blocks are under force majeure due to
tribal unrest.
In Russia, Occidental owns a 50 percent interest in a joint venture
company, Vanyoganneft, in the western Siberian oil basin. During 1999, gross
production averaged 53,600 barrels per day, compared with 57,450 barrels per day
in 1998. Approximately 54 percent of such oil was exported in 1999.
EXPLORATION PROPERTIES
In Indonesia, Occidental has a 22.9 percent interest in the Berau Block,
offshore Irian Jaya, where five major natural gas discoveries have been made by
Occidental and ARCO, the operator. The Berau Block discoveries, together with
ARCO's Wiriagar Block discovery, are
4
7
expected to contain sufficient natural gas to justify construction of a
multi-train liquid natural gas ("LNG") project slated for start-up in the next
several years. Certain fields in the Berau and Wiriagar Blocks, together with
the Muturi Block operated by British Gas, are expected to be unitized before
project approval, and Occidental expects to own an approximate 16 percent
interest in the overall project. The partners in this project, led by Pertamina,
the Indonesian national oil company, have already begun seeking buyers for the
LNG. This project will involve significant expenditures and several years will
be required to complete project development.
CANADA
Please see page 1 for a discussion of the sale of Occidental's interest in
CanadianOxy.
Occidental owns an approximate 29 percent interest in CanadianOxy, which is
accounted for as an equity investment. See Note 15 to the Consolidated Financial
Statements. In the normal course of operations, CanadianOxy sells and purchases
products and services to or from Occidental, all of which are at market prices.
During 1999 and 1998, such transactions were not material and at December 31,
1999 and 1998, there were no material amounts owing to or due from Occidental.
CanadianOxy produces crude oil, natural gas, natural gas liquids and sulfur
in Canada; owns a 7.23 percent interest in Syncrude Canada Ltd., which produces
synthetic crude oil from the oil sands of Northern Alberta; has interests in
producing oil and gas leases onshore and offshore in the United States, Yemen
(where CanadianOxy is operator), Nigeria and Australia; engages in exploration
activities in Canada, the United States, Yemen, Indonesia, Australia, Nigeria
and Colombia; and participates with Occidental in its operations in Ecuador.
CanadianOxy also conducts chemical operations in Canada, the United States and
Brazil. At December 31, 1999, Occidental's proportional interest in
CanadianOxy's worldwide net proved developed and undeveloped reserves aggregated
approximately 87 million barrels of crude oil, condensate and natural gas
liquids, 179 Bcf of natural gas and 55 million barrels of synthetic crude oil
recoverable from oil sands.
RESERVES, PRODUCTION AND RELATED INFORMATION
See Note 17 to the Consolidated Financial Statements and the information under
the caption "Supplemental Oil and Gas Information" in Item 8 of this report for
information with respect to Occidental's oil and gas reserves, the production
from and other changes in such reserves, the discounted present value of
estimated future net cash flows therefrom, certain costs and other financial and
statistical information regarding Occidental's oil and gas exploration and
production operations. Estimates of reserves have been made by Occidental
engineers and include reserves under which Occidental holds an economic interest
under service contracts and other arrangements. Occidental's crude oil reserves
include natural gas liquids and condensate. The reserves are stated after
applicable royalties. The definitions used are in accordance with applicable
Securities and Exchange Commission ("SEC") regulations. Accordingly, proved oil
and gas reserves are those estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty will be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Unless otherwise stated,
all references to reserves are made on a net basis. On May 13, 1999, Occidental
reported to the U.S. Department of Energy on Form EIA-28 the same proved oil and
gas reserves at December 31, 1998.
CHEMICAL OPERATIONS
GENERAL
Occidental conducts its chemical operations through Occidental Chemical
Corporation and its various subsidiaries and affiliates (collectively,
"OxyChem"). OxyChem is a leading chemical manufacturer, with interests in basic
chemicals, vinyls, petrochemicals and specialty products. OxyChem owns its
interest in petrochemicals through its Equistar investment. OxyChem's operations
are affected by cyclical factors in the general economic environment and by
specific chemical industry conditions. OxyChem businesses are highly integrated.
Chemicals from the chlor-alkali business are used by OxyChem's specialty
businesses, and OxyChem's chlorine is an important feedstock for its OxyVinyls,
LP ("OxyVinyls") partnership in the production of VCM and PVC. A substantial
portion of OxyChem's products are principally commodity in nature, i.e., they
are equivalent to products manufactured by others that are generally available
in the marketplace and are produced and sold in large volumes, primarily to
industrial customers for use as raw materials. Many of OxyChem's manufacturing
operations are integrated, and many of its products are both sold to others and
further processed by OxyChem into other chemical products. OxyChem's operations
also have been affected by environmental regulation and associated costs. See
the information appearing under the caption "Environmental Expenditures" in this
report.
STRATEGIC DEVELOPMENTS AND ALLIANCES
On May 15, 1998, OxyChem or its affiliates contributed interests in its
ethylene, propylene, ethylene oxide ("EO"), ethylene glycol ("EG") and EO
derivatives businesses (collectively, the "petrochemicals business") to
Equistar, in return for a 29.5 percent equity interest, receipt of approximately
$420 million in cash, and the assumption by Equistar of approximately $205
million of Occidental capital lease obligations and other liabilities. Lyondell
Petrochemical Company ("Lyondell") and Millennium Chemicals, Inc.
("Millennium"), through their respective subsidiaries, were the original
partners of Equistar. Lyondell owns 41 percent of Equistar and Occidental and
Millennium each own 29.5 percent.
5
8
The addition of the petrochemicals business made Equistar the largest
producer of ethylene in North America, with more than 11.4 billion pounds of
annual capacity. The transaction also includes a long-term agreement for
Equistar to supply the ethylene requirements (up to 2.55 billion pounds per
year) for OxyChem's chlor-alkali business and OxyVinyls' business.
Effective April 30, 1999, OxyChem and The Geon Company ("Geon") formed the
OxyVinyls partnership, combining the commodity PVC resin and VCM assets of both
companies, and two chlor-alkali and co-generation plants of OxyChem. At the same
time the partners formed a smaller partnership, PVC Powder Blends, LP, a powder
compounding business in which OxyChem owns a 10 percent interest.
OxyVinyls is headquartered in Dallas, Texas, with ownership shared between
OxyChem and Geon on a 76 percent and 24 percent basis, respectively. Its
financial results are reflected in Occidental's consolidated financial
statements.
OxyVinyls has annual capacities of 4.4 billion pounds of PVC resin, 4.8
billion pounds of VCM and 0.9 million electrochemical units of chlor-alkali
production.
Effective August 1, 1999, Occidental effectively acquired all of the
remaining ownership of INDSPEC Chemical Corporation ("INDSPEC"). INDSPEC is
engaged principally in the business of developing, producing and marketing
resorcinol, resorcinol-based resins and adhesives and resorcinol co-products.
The company, through its Petrolia, Pennsylvania plant, is a leading manufacturer
of resorcinol. Resorcinol is a binding agent principally used in tires and as a
flame retardant. INDSPEC is headquartered in Pittsburgh, Pennsylvania and has
380 employees. Annual sales are approximately $135 million.
In the fourth quarter of 1999, OxyChem wrote-down a portion of the assets
of its intermediate chemicals business to fair value.
Also in the fourth quarter of 1999, OxyChem wrote-down its equity
investments in certain foreign joint ventures. See the information appearing
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this report.
SPECIALTY CHEMICALS
OxyChem's specialty business, which includes INDSPEC, focuses on smaller-volume
specialty and intermediate chemical markets. OxyChem's specialty businesses
produce organic and inorganic compounds, intermediate chemicals and chlorinated
isocyanurates, as well as certain specialty resins and PVC film products that
were not contributed to the commodity business of OxyVinyls. Numerous specialty
performance chemicals are produced for the plastics, metal-plating, aerospace
and food-service industries.
6
9
PRINCIPAL PRODUCTS
OxyChem produces the following chemical products:
Principal Products Major Uses
---------------------------------------- ---------------------------------------------------------------
Basic Chemicals Chlor-alkali chemicals
Chlorine Raw material for vinyl chloride monomer, chemical
manufacturing, pulp and paper production, water treatment
Caustic soda Chemical manufacturing, pulp and paper production, cleaning
products
Potassium chemicals Glass, fertilizers, cleaning products, rubber
(including potassium hydroxide)
---------------------------------------- ---------------------------------------------------------------
Ethylene dichloride Raw material for vinyl chloride monomer
---------------------------------------- ---------------------------------------------------------------
Specialty Businesses Sodium silicates Soaps and detergents, catalysts, paint pigments
---------------------------------------- ---------------------------------------------------------------
Chrome chemicals Metal and wood treatments, leather tanning
---------------------------------------- ---------------------------------------------------------------
Chlorinated isocyanurates Swimming pool sanitation, household and industrial
disinfecting and sanitizing products
---------------------------------------- ---------------------------------------------------------------
Polyvinyl chloride ("PVC") Resins for flooring, medical gloves and other flexible vinyl
resin and films applications. Calendered films for automotive, packaging, and
consumer products
---------------------------------------- ---------------------------------------------------------------
Proprietary chemicals (chemical Agricultural, pharmaceutical, plastics, metal plating,
intermediates derived principally aerospace and food-service applications
from fluorine, chlorine and sulfur)
---------------------------------------- ---------------------------------------------------------------
Phenolic resins/molding compounds Automotive brake pistons, adhesives, carbonless copy paper,
electrical appliances, electrical wire insulation, and
bonded/coated abrasives
---------------------------------------- ---------------------------------------------------------------
Mercaptans Warning agents for natural gas and propane and agricultural
chemicals
---------------------------------------- ---------------------------------------------------------------
Antimony oxide Flame retardant synergist and catalysts
---------------------------------------- ---------------------------------------------------------------
Resorcinol Tire manufacture, wood adhesives and flame retardant synergist
---------------------------------------- ---------------------------------------------------------------
Vinyls (through its Vinyl chloride monomer ("VCM") Raw material for polyvinyl chloride
76 percent interest
in OxyVinyls)
---------------------------------------- ---------------------------------------------------------------
Polyvinyl chloride resin PVC pipe for municipal, plumbing and electrical uses. External
construction materials such as window and door profiles,
fencing, and decking. Flooring, medical and automotive
products, wire and cable insulation, and packaging.
---------------------------------------- ---------------------------------------------------------------
Petrochemicals (through Ethylene Raw material for production of polyethylene, vinyl chloride
its 29.5 percent monomer, ethylene glycols, ethylene oxide and ethylene oxide
interest in Equistar) derivatives
---------------------------------------- ---------------------------------------------------------------
Benzene Raw material for production of styrene, phenolic polymers and
nylon
---------------------------------------- ---------------------------------------------------------------
Propylene Raw material for production of polypropylene and acrylonitrile
---------------------------------------- ---------------------------------------------------------------
Ethylene glycols, ethylene oxide Polyester products, antifreeze, brake fluids
and ethylene oxide derivatives
---------------------------------------- ---------------------------------------------------------------
Polyethylene Grocery and trash bags, food packaging films, plastic bottles
and containers
---------------------------------------- ---------------------------------------------------------------
7
10
Based on statistics in chemical industry publications, Occidental believes
that during 1999, it was the largest merchant marketer of chlorine and caustic
soda and the largest producer of chrome chemicals in North America. Occidental
also has a 76 percent interest in OxyVinyls, the largest producer of PVC resins
and VCM in North America, and a 29.5 percent interest in Equistar, North
America's largest producer of ethylene and certain derivatives. In addition,
based on these publications, Occidental believes that it is the world's largest
producer of potassium hydroxide, chlorinated isocyanurate products, phenolic
molding compounds and resorcinol, the world's largest marketer of EDC, the
second-largest producer of antimony oxide and the third-largest producer of
mercaptan warning agents, and the second-largest producer of sodium silicates in
North America.
RAW MATERIALS
Nearly all raw materials utilized in OxyChem's operations are readily available
from a variety of sources. Most of OxyChem's key raw materials purchases are
made through short- and long-term contracts. OxyChem is not dependent on any
single nonaffiliated supplier for a material amount of its raw material or
energy requirements.
PATENTS, TRADEMARKS AND PROCESSES
OxyChem owns and licenses a large number of patents and trademarks and uses a
variety of processes in connection with its operations, some of which are
proprietary and some of which are licensed. OxyChem does not regard its business
as being materially dependent on any single patent or trademark it owns or
licenses or any process it uses.
SALES AND MARKETING
OxyChem's products are sold primarily to industrial users or distributors
located in the United States, largely by its own sales force. OxyChem sells its
products principally at current market or current market-related prices through
short- and long-term sales agreements. Except for sales in the export market,
OxyChem generally does not use spot markets to sell products. No significant
portion of OxyChem's business is dependent on a single customer. In general,
OxyChem does not manufacture its products against a backlog of firm orders.
COMPETITION
The chemical business is very competitive. Since most of OxyChem's products are
commodity in nature, they compete primarily on the basis of price, quality
characteristics and timely delivery. Because OxyChem's products generally do not
occupy proprietary positions, OxyChem endeavors to be an efficient, low-cost
producer through the employment of modern, high-yield plants, equipment and
technology. OxyChem's size and the number and location of its plants also
produce competitive advantages, principally in its ability to meet customer
specifications and delivery requirements.
PROPERTIES
As of December 31, 1999, OxyChem, which is headquartered in Dallas, Texas,
operated 30 chemical product manufacturing facilities in the United States. Many
of the larger facilities are located in the Gulf Coast areas of Texas and
Louisiana. In addition, OxyChem operates 11 chemical product manufacturing
facilities in five foreign countries, with the largest investment in Brazil. A
number of additional facilities process, blend and store the chemical products.
OxyChem owns or leases an extensive fleet of railroad cars.
All of OxyChem's manufacturing facilities are owned or leased on a
long-term basis. The charts below list the principal facilities and plant
capacities of the basic chemicals group, specialty business group and OxyVinyls.
BASIC AND OXYVINYLS
Principal Products and Production Capacities at December 31, 1999(a)
Chlorine Caustic Soda Caustic Potash EDC
Plants (Tons) (Tons) (Tons) (millions of pounds)
- ------------------------ --------------------- -------------------- -------------------- --------------------
BASIC
Mobile, Alabama 48,000 75,000
Muscle Shoals, Alabama 154,000 242,000
Delaware City, Delaware 146,000 83,000 109,000
Convent, Louisiana 389,000 435,000 1,500
Taft, Louisiana 738,000 839,000
Niagara Falls, New York 335,000 371,000
Ingleside, Texas 602,000 669,000 1,500
- ------------------------ -------------------- -------------------- -------------------- --------------------
Total 2,412,000 2,397,000 426,000 3,000
======================== ==================== ==================== ==================== ====================
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
8
11
BASIC AND OXYVINYLS (continued)
Principal Products and Production Capacities at December 31, 1999(a)
Chlorine Caustic Soda VCM PVC Resins
Plants (Tons) (Tons) (millions of pounds) (millions of pounds)
- ------------------------ -------------------- -------------------- -------------------- --------------------
OXYVINYLS
Deer Park, Texas 377,000 422,000 1,200 540
Ingleside, Texas(b) 2,200
LaPorte, Texas 525,000 589,000 2,400
Pasadena, Texas 1,980
Louisville, Kentucky 590
Pedricktown, New Jersey 360
- ------------------------ -------------------- -------------------- -------------------- --------------------
Total 902,000 1,011,000 5,800 3,470
======================== ==================== ==================== ==================== ====================
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
(b) OxyMar, 50% with Marubeni
SPECIALTY BUSINESS
Principal Products and Production Capacities(a)
Plants Product Capacity(a) Volumes
- ------------------------------------------------------------ ------------------------------ ------------------------------
ACL; Missouri and Louisiana Chlorinated Isocyanurates 14 mm lbs
Intermediates; Ohio and New York Agricultural Chemicals Various
Chlorinated Toluenes Various
Chrome; North Carolina Chromic Acid 47,000 tons
Sodium Bichromate 118,000 tons
Durez; Ohio and New York Phenolic Resins and Compounds 174 mm lbs
INDSPEC; Pennsylvania Resorcinol 50 mm lbs
Laurel Industries; Texas Antimony Oxide 40 mm lbs
Natural Gas Odorizing; Texas Mercaptans 20 mm lbs
Silicates; Georgia/Ohio/Texas/Illinois/New Jersey/Alabama Sodium Silicates 729,000 tons
PVC; Pennsylvania PVC Resins 213 mm lbs
- ------------------------------------------------------------ ------------------------------ ------------------------------
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
INTERNATIONAL
Principal Products (in metric tons) and Production Capacities(a)
Basic
% Oxy Caustic Vinyl Chrome PVC Phenolic Phenolic
Country Location Ownership Chlorine Soda Film EDC Sulfate Resins Resins Compounds
- --------- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Brazil Cubatao 50% 253,000 284,000 142,000
Brazil Rio de Janeiro 100% 29,000
Chile Talcahuano 100% 51,000 57,000
Thailand Bangkok 49% 46,000 52,000 12,000 27,000
Belgium Genk 100% 20,000
Canada Ft. Erie, Ontario 100% 18,000 9,000
Canada Scotford, 76% 154,000
Alberta
Canada Niagara, Ontario 76% 256,000
- --------- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 350,000 393,000 29,000 142,000 12,000 437,000 38,000 9,000
========= ================= ========= ========= ========= ========= ========= ========= ========= ========= =========
(a) All of the volumes listed in the table above are based on estimated
capacities only. Actual results of production may differ materially from
capacities listed.
9
12
CAPITAL EXPENDITURES
Occidental's oil and gas operations, based on depletable resources, are capital
intensive, involving large-scale expenditures. In particular, in the search for
and development of new reserves, long lead times are often required. In
addition, Occidental's chemical business requires capital expenditures to remain
competitive and to comply with safety and environmental laws. Occidental's
capital expenditures for its ongoing businesses totaled approximately $601
million in 1999, $1.074 billion in 1998 and $1.549 billion in 1997, exclusive of
the acquisition cost of Elk Hills and the noncash consideration for other
acquisitions. The 1999 amount included capital expenditures aggregating $474
million for oil and gas, $116 million for chemical and $11 million for corporate
and other. Occidental's total capital expenditures, exclusive of acquisitions,
if any, for 2000 are expected to approximate $850 million, with $650 million
allocated to oil and gas operations and $200 million to chemical operations.
EMPLOYEES
Occidental and its subsidiaries employed 8,701 people at December 31, 1999, of
whom 6,203 were located in the United States. 1,953 were employed in oil and gas
operations and 5,974 in chemical operations. An additional 244 people were
employed at corporate headquarters and 63 at other Occidental subsidiaries. In
addition, 467 people were employed by Oxy Services, Inc., Occidental's shared
services subsidiary, and are currently based primarily in Dallas and Los
Angeles. Approximately 913 U.S.-based employees are represented by labor unions.
Occidental has a long-standing policy to ensure that fair and equal
employment opportunities are extended to all persons without regard to race,
color, religion, ethnicity, gender, national origin, disability, age, sexual
orientation, veteran status or any other legally impermissible factor.
Occidental maintains diversity and outreach programs.
ENVIRONMENTAL REGULATION
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining the
quality of the environment. Foreign operations are also subject to environmental
protection laws. Applicable U.S. laws include the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act, the Resource Conservation and Recovery Act,
as amended by the Hazardous and Solid Waste Amendments, and similar state
environmental laws. The laws that require or address environmental remediation
may apply retroactively to previous waste disposal practices and, in many cases,
the laws apply regardless of fault, legality of the original activities or
ownership or control of sites. Occidental is currently participating in
environmental assessments and cleanups under these laws at federal Superfund
sites, comparable state sites and other remediation sites, including Occidental
facilities and previously owned sites. Also, Occidental and certain of its
subsidiaries have been involved in a substantial number of governmental and
private proceedings involving historical practices at various sites, including,
in some instances, having been named as defendants, as potentially responsible
parties ("PRPs"), or as both defendants and PRPs under the federal Superfund
law. These proceedings seek remediation, funding for remediation, or both, and,
in some cases, compensation for alleged personal injury or property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental has accrued reserves for its environmental liabilities. As of
December 31, 1999 and 1998, Occidental had environmental reserves of
approximately $454 million and $578 million, respectively. Occidental provided
additional reserves of approximately $136 million in 1997 and $100 million in
1996 for costs associated with expected remediation efforts at a number of
sites. Occidental made no provision for additional environmental reserves in
1998 or 1999. The 1997 amount related to both the oil and gas and the chemical
divisions.
Occidental's estimated operating expenses in 1999 relating to compliance
with environmental laws and regulations governing ongoing operations were
approximately $64 million, compared with $70 million in 1998 and $93 million in
1997. In addition, capital expenditures for environmental compliance were $36
million in 1999, compared with $56 million in 1998 and $116 million in 1997. The
1999 amount included $19 million in the oil and gas division and $17 million in
the chemical division. Occidental presently estimates that divisional capital
expenditures for environmental compliance (including environmental control
facilities) will be in the range of $42 million for 2000 and in the range of $60
million for 2001.
ITEM 3 LEGAL PROCEEDINGS
Incorporated by reference herein is information regarding lawsuits, claims,
commitments, contingencies and related matters in Note 9 to the Consolidated
Financial Statements.
In December 1999, Occidental's subsidiary, OXY USA Inc. ("OXY USA") settled
its long-standing litigation with Chevron U.S.A. Inc. ("Chevron") for a cash
payment of $775 million from Chevron. The litigation arose from the 1982
termination by Gulf Oil Corp. (subsequently acquired by Chevron) of its merger
agreement with Oklahoma-based Cities Service Company (subsequently acquired by
Occidental). In 1996, a judgment in favor of OXY USA (formerly Cities Service)
was entered against Chevron by a state district court in Tulsa, Oklahoma. The
Oklahoma Supreme Court affirmed that judgment, and Chevron had filed a petition
with the U.S. Supreme Court. The petition was withdrawn upon settlement.
10
13
In 1997, Occidental was informed that the SEC would conduct a private,
formal investigation as a result of certain matters described in a May 12, 1997,
The Wall Street Journal article concerning Occidental's business dealings with
several foreign consultants. According to the SEC, the purpose of its
investigation is to determine whether Occidental may have violated the federal
securities laws, including the Foreign Corrupt Practices Act and the reporting
requirements of the Securities Exchange Act of 1934, as amended. That
investigation is ongoing. Occidental has cooperated with the SEC and has
produced documents in response to an SEC subpoena. Occidental also made those
documents available to the Internal Revenue Service in connection with an audit
covering the 1993-1995 tax years. This audit has been completed.
ENVIRONMENTAL PROCEEDINGS
In April 1998, a civil action was filed on behalf of the U.S. Environmental
Protection Agency ("EPA") against OxyChem relating to the Centre County Kepone
Superfund Site at State College, Pennsylvania. The lawsuit seeks approximately
$12 million in penalties and governmental response costs, a declaratory judgment
that OxyChem is a liable party under CERCLA, and an order requiring OxyChem to
carry out the remedy that is being performed by the site owner. In October 1998,
the U.S. District Court for the Middle District of Pennsylvania granted
OxyChem's motion to dismiss the United States' case. In December 1999, the
United States Court of Appeals for the Third Circuit reversed the dismissal and
remanded the case to the District Court. OxyChem is vigorously contesting the
United States' allegations and the proposed penalty.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Occidental's security holders during the
fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Age at
February 28,
Name 2000 Positions with Occidental and Subsidiaries and Five-Year Employment History
- ------------------------------ -------------- ------------------------------------------------------------------------------------
Dr. Ray R. Irani 65 Chairman of the Board of Directors and Chief Executive Officer since 1990; President
from 1984 to 1996; Chief Operating Officer from 1984-1990; Director since 1984;
member of Executive Committee.
Dr. Dale R. Laurance 54 President since 1996; Chairman and Chief Executive Officer of Occidental Oil and Gas
Corporation since 1999; 1990-1996, Executive Vice President and Senior Operating
Officer; 1984-1990, Executive Vice President--Operations; Director since 1990;
member of Executive Committee.
Stephen I. Chazen 53 Chief Financial Officer and Executive Vice President Corporate Development since
1999; 1994-1999, Executive Vice President--Corporate Development.
Donald P. de Brier 59 Executive Vice President, General Counsel and Secretary since 1993.
Richard W. Hallock 55 Executive Vice President--Human Resources since 1994.
J. Roger Hirl 68 Executive Vice President since 1984; Director since 1988; President and Chief
Executive Officer of Occidental Chemical Corporation since 1991.
John W. Morgan 46 Executive Vice President--Operations since 1998; 1991-1998, Vice President--
Operations.
Howard Collins 56 Vice President--Public Relations since 1993.
Samuel P. Dominick, Jr. 59 Vice President and Controller since 1991.
James R. Havert 58 Vice President and Treasurer since 1998; 1992-1998, Senior Assistant Treasurer.
Kenneth J. Huffman 55 Vice President--Investor Relations since 1991.
Anthony R. Leach 60 Vice President Finance since 1999; 1991-1999, Executive Vice President and Chief
Financial Officer.
Robert M. McGee 53 Vice President since 1994; President of Occidental International Corporation since
1991.
Richard A. Swan 52 Vice President--Health, Environment and Safety since 1995; 1991-1995, Director--
Investor Relations.
Aurmond A. Watkins, Jr. 57 Vice President--Tax since 1991.
The current term of office of each Executive Officer will expire at the April
27, 2000, organizational meeting of the Occidental Board of Directors or at such
time as his successor shall be elected.
11
14
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
RECENT PREFERRED STOCK CONVERSION AND REDEMPTION
In September 1999, Occidental redeemed all of the outstanding shares of its
$3.00 cumulative CXY-indexed convertible preferred stock. From the date
Occidental announced the redemption to the date of redemption, holders of
3,125,837 shares of such preferred stock converted their shares into
approximately 9.9 million shares of Occidental common stock.
TRADING PRICE RANGE AND DIVIDENDS
There is hereby incorporated by reference the quarterly financial data appearing
under the caption "Quarterly Financial Data" and the information appearing under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in this report.
Occidental's common stock was held by approximately 81,526 stockholders of
record at December 31, 1999, with an estimated 130,000 additional stockholders
whose shares were held for them in street name or nominee accounts. The common
stock is listed and traded principally on the New York Stock Exchange and also
is listed on certain foreign exchanges. The quarterly financial data on pages 58
and 59 of this report set forth the range of trading prices for the common stock
as reported on the composite tape of the New York Stock Exchange and quarterly
dividend information.
The quarterly dividend rate for the common stock is $.25 per share. On
February 10, 2000, a dividend of $.25 per share was declared on the common
stock, payable on April 15, 2000 to stockholders of record on March 10, 2000.
The declaration of future cash dividends is a business decision made by the
Board of Directors from time to time, and will depend on Occidental's financial
condition and other factors deemed relevant by the Board.
12
15
ITEM 6 SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA Occidental Petroleum Corporation
Dollar amounts in millions, except per-share amounts and Subsidiaries
For the years ended December 31, 1999 1998 1997 1996 1995
================================================================ ======== ======== ======== ======== ========
RESULTS OF OPERATIONS(a)
Net sales and operating revenues $ 7,610 $ 6,596 $ 8,016 $ 7,987 $ 8,389
Income from continuing operations $ 568 $ 325 $ 217 $ 514 $ 358
Net income(loss) $ 448 $ 363 $ (390) $ 668 $ 511
Effect of repurchase of Trust Preferred Securities $ 1 $ -- $ -- $ -- $ --
Preferred dividend requirements $ 7 $ 17 $ 88 $ 93 $ 93
Earnings(loss) applicable to common stock $ 442 $ 346 $ (478) $ 575 $ 418
Basic earnings per common share from
continuing operations $ 1.58 $ .88 $ .39 $ 1.30 $ .83
Basic earnings(loss) per common share $ 1.24 $ .99 $ (1.43) $ 1.77 $ 1.31
Diluted earnings(loss) per common share $ 1.24 $ .99 $ (1.43) $ 1.73 $ 1.31
Earnings before special items(b) $ 253 $ 104 $ 691 $ 643 $ 603
FINANCIAL POSITION(a)
Total assets $ 14,125 $ 15,252 $ 15,291 $ 14,981 $ 15,342
Long-term debt, net $ 4,368 $ 5,367 $ 4,925 $ 4,511 $ 4,819
Capital lease liabilities, net $ 27 $ 29 $ 235 $ 237 $ 259
Trust Preferred Securities $ 486 $ -- $ -- $ -- $ --
Stockholders' equity $ 3,523 $ 3,363 $ 4,286 $ 5,140 $ 4,630
Dividends per common share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
AVERAGE SHARES OUTSTANDING(thousands) 355,381 350,173 334,341 323,782 318,073
- ---------------------------------------------------------------- -------- -------- -------- -------- --------
(a) See Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Notes to Consolidated Financial Statements
for information regarding accounting changes, asset acquisitions and
dispositions, discontinued operations, and charges for asset write-downs,
litigation matters, environmental remediation and other costs and other
special items affecting comparability.
(b) Earnings before special items reflect adjustments to net income (loss) to
exclude the after-tax effect of certain infrequent transactions that may
affect comparability between years. See the Special Items table for the
specific nature of these items in 1999, 1998 and 1997. Management believes
the presentation of earnings before special items provides a meaningful
comparison of earnings between years to the readers of the consolidated
financial statements. Earnings before special items is not considered to
be an alternative to operating income in accordance with generally
accepted accounting principles.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (INCORPORATING ITEM 7A)
1999 BUSINESS ENVIRONMENT
OIL AND NATURAL GAS INDUSTRY
During the first quarter of 1999, worldwide crude oil supply continued to exceed
demand, with oil prices remaining at their lowest level in more than 40 years,
adjusted for inflation. This trend reversed in the second quarter mainly as a
result of production restraint by major exporting nations. Benchmark crude oil
prices rose from approximately $11 per barrel early in 1999 to approximately $27
per barrel by the fourth quarter. Currently, demand for crude oil is high
throughout the world, including the economically recovering Far East. Benchmark
crude oil prices in the range of $23 to $30 per barrel have been experienced in
early 2000.
CHEMICAL INDUSTRY
The chemical industry experienced an increase in product demand for most
commodities as many of the Asian economies began stabilizing and strong economic
growth continued in North America. Generally, growing product demand and limited
additions to production capacities resulted in prices for major commodity
chemicals improving throughout 1999, except for caustic soda prices, which
declined. However, higher oil and gas prices in the last half of 1999 had a
negative effect on chemical margins. Although general commodity chemical price
trends were positive from quarter to quarter during the year (except for caustic
soda), 1999 chemical results were adversely impacted by lower average caustic
soda and chlorine prices compared to average 1998 prices for these products.
Petrochemical prices continued to be depressed in 1999, and margins were
further eroded by an increase in feedstock costs, adversely impacting Equistar
Chemicals LP's (Equistar) contribution to chemical results.
13
16
Domestic chlorine demand was marginally higher in 1999 than 1998 due to the
strong vinyls market. Chlorine pricing was stable in the first half and improved
through the second half. Caustic soda prices declined through the first three
quarters due to soft demand but strengthened in the fourth quarter as domestic
and export markets improved, with resulting inventory reductions. North American
polyvinyl chloride (PVC) resin demand continued to grow from 1998 levels, with
domestic growth exceeding 7 percent. Demand was driven by a strong U.S. economy,
high consumer confidence and a robust housing market. Global PVC demand grew
faster than capacity expansions, which significantly improved PVC prices
throughout the year. Industry exports of PVC resin from North America had to be
reduced by more than 40 percent to satisfy strong domestic demand since plants
were essentially operating at capacity. In Asia, the economic crisis, which
reduced demand in 1998, began to stabilize, and a moderate rebound in PVC resin
demand occurred.
1999 HIGHLIGHTS
CHEVRON LITIGATION SETTLEMENT
In December, Occidental's subsidiary, OXY USA Inc. (OXY USA) settled its
long-standing litigation with Chevron U.S.A. Inc. (Chevron) for a cash payment
of $775 million from Chevron. The litigation arose from the 1982 termination by
Gulf Oil Corp. (subsequently acquired by Chevron) of its merger agreement with
Oklahoma-based Cities Service Company (subsequently acquired by Occidental). In
1996, a judgment in favor of OXY USA (formerly Cities Service) was entered
against Chevron by a state district court in Tulsa, Oklahoma. The Oklahoma
Supreme Court affirmed that judgment, and Chevron had filed a petition with the
U.S. Supreme Court. The petition was withdrawn upon settlement.
Occidental applied $722 million of proceeds from the settlement towards the
redemption and repurchase of debt securities (including premium, accrued
interest and expenses). This debt reduction is expected to result in a reduction
in interest expense of approximately $65 million per year.
OCCIDENTAL/GEON PVC PARTNERSHIP
Effective April 30, 1999, Occidental formed OxyVinyls, LP (OxyVinyls), a
partnership with The Geon Company (Geon) combining their PVC businesses and
creating North America's largest producer of PVC resins. Occidental's chemical
subsidiary, OxyChem, owns 76 percent of OxyVinyls, and Geon owns 24 percent.
OxyVinyls has annual capacities of 4.4 billion pounds of PVC resin, 4.8
billion pounds of vinyl chloride monomer (VCM) and 0.9 million electrochemical
units of chlor-alkali production. OxyVinyls comprises: OxyChem's commodity PVC
resin plant, its VCM plant, its 50 percent interest in the OxyMar VCM plant, two
chlor-alkali and co-generation plants in the Houston area, as well as five Geon
PVC resin plants and Geon's VCM plant.
Geon entered into a long-term PVC resin purchase agreement with OxyVinyls,
and Geon and OxyChem entered long-term VCM purchase agreements to serve their
specialty resin business.
As a result of the combination, OxyVinyls is expected to reduce operating
costs by approximately $80 million annually by year-end 2000. Approximately $40
million in savings were achieved in 1999.
In addition, a powder compounding products partnership was formed that is
owned 90 percent by Geon and 10 percent by Occidental. Occidental did not book a
significant gain or loss on these transactions.
OIL AND GAS ASSET SWAP WITH EOG RESOURCES
Occidental and EOG Resources, Inc. (EOG) exchanged certain oil and gas assets
that will enhance Occidental's programs to further focus exploration and
production activities and achieve cost savings through operational benefits.
Occidental received producing properties and exploration acreage in its
expanding California asset base, as well as producing properties in the western
Gulf of Mexico, near existing operations, in exchange for oil and gas production
and reserves in east Texas.
The exchange provides Occidental with significant growth opportunities in
California by increasing its land position from approximately 89,000 acres to
approximately 800,000 acres. An active exploration program is planned over the
next few years.
Occidental also farmed out Oklahoma panhandle properties to EOG, retaining
a carried interest, and expects to benefit from EOG's drilling program.
Occidental was not planning on drilling this acreage and, under this program,
EOG will fund all the capital and Occidental will share in the results.
INDSPEC ACQUISITION
In the third quarter of 1999, pursuant to a series of transactions, Occidental
acquired the remaining ownership of INDSPEC Chemical Corporation (INDSPEC)
through the issuance of approximately 3.2 million shares of Occidental common
stock at an estimated value of approximately $68 million and the assumption of
approximately $80 million of bank debt. As a result of the transactions,
Occidental now owns 100 percent of the stock of INDSPEC. INDSPEC is a leading
manufacturer of resorcinol, a bonding agent principally used in tires and as a
flame retardant.
INCOME SUMMARY
Occidental reported net income of $448 million ($1.24 per share) in 1999, on net
sales and operating revenues of $7.6 billion, compared with net income of $363
million ($.99 per share) in 1998, on net sales and operating revenues of $6.6
billion. Earnings before special items were $253 million in 1999 and $104
million in 1998.
DIVISIONAL OPERATIONS
The following discussion of Occidental's two operating divisions and corporate
items should be read in conjunction with Note 16 to the Consolidated Financial
Statements.
Divisional earnings exclude interest income, interest expense, unallocated
corporate expenses and
14
17
extraordinary items, but include gains and losses from dispositions of
divisional assets and results from equity investments.
Foreign income and other taxes and certain state taxes are included in
divisional earnings on the basis of operating results. U.S. federal income taxes
are not allocated to divisions except for amounts in lieu thereof that represent
the tax effect of operating charges resulting from purchase accounting
adjustments, and the tax effects resulting from major, infrequently occurring
transactions such as asset sales and legal settlements that relate to divisional
results. Prior years' divisional income has been restated to reflect these tax
allocations relating to major transactions. Divisional earnings in 1999 were
affected by $212 million from net charges allocated comprising $228 million of
charges and $16 million of credits in oil and gas and chemical, respectively.
The oil and gas amount included a charge related to the income on the Chevron
litigation settlement and a credit for losses on sales of assets. Divisional
earnings in 1998 were affected by $176 million from net charges comprising $202
million of charges and $26 million in credits in oil and gas and chemical,
respectively. Divisional earnings in 1997 benefited by $39 million from credits
allocated of $13 million and $26 million in oil and gas and chemical,
respectively.
The following table sets forth the sales and earnings of each operating
division and corporate items:
DIVISIONAL OPERATIONS
In millions
For the years ended December 31, 1999 1998 1997
========================================== ========= ========= =========
SALES
Oil and Gas $ 4,572 $ 3,621 $ 3,667
Chemical 3,038 2,975 4,349
--------- --------- ---------
$ 7,610 $ 6,596 $ 8,016
========================================== ========= ========= =========
EARNINGS(LOSS)
Oil and Gas $ 1,261 $ 590 $ 484
Chemical (52) 266 525
--------- --------- ---------
1,209 856 1,009
Unallocated corporate items
Interest expense, net (468) (451) (407)
Income taxes (68) (14) (60)
Trust Preferred Distributions (41) -- --
Other (64) (66) (325)
--------- --------- ---------
Income from continuing
operations 568 325 217
Discontinued operations, net -- 38 (607)
Extraordinary loss, net (107) -- --
Cumulative effect of changes in
accounting principles, net (13) -- --
--------- --------- ---------
Net income(loss) $ 448 $ 363 $ (390)
========================================== ========= ========= =========
OIL AND GAS
In millions, except as indicated 1999 1998 1997
========================================== ========= ========= =========
DIVISIONAL SALES $ 4,572 $ 3,621 $ 3,667
DIVISIONAL EARNINGS $ 1,261 $ 590 $ 484
EARNINGS BEFORE SPECIAL ITEMS(a) $ 835 $ 314 $ 694
AVERAGE SALES PRICES
CRUDE OIL PRICES(per barrel)
U.S. $ 15.81 $ 12.06 $ 18.72
Other Western Hemisphere $ 13.20 $ 8.78 $ 11.88
Eastern Hemisphere $ 15.86 $ 11.12 $ 17.21
GAS PRICES(per thousand cubic feet)
U.S. $ 2.09 $ 2.05 $ 2.39
Eastern Hemisphere $ 1.17 $ 2.03 $ 2.40
EXPENSED EXPLORATION(b) $ 75 $ 128 $ 119
CAPITAL EXPENDITURES
Development $ 302 $ 545 $ 815
Exploration $ 103 $ 140 $ 178
Acquisitions and other(c) $ 69 $ 66 $ 157
- ------------------------------------------ --------- --------- ---------
(a) Earnings before special items represents divisional earnings adjusted for
the effect of certain infrequent transactions that may affect comparability
between years. Earnings before special items is not considered to be an
alternative to operating income in accordance with generally accepted
accounting principles.
(b) Includes amounts previously shown in exploration capital expenditures.
(c) Excludes the $3.5 billion acquisition of the Elk Hills field in 1998.
Occidental explores for and produces oil and natural gas, domestically and
internationally. Occidental seeks long-term growth and improvement in
profitability and cash flow through a combination of improved operations in
existing fields, enhanced oil recovery (EOR) projects, selected exploration
opportunities and complementary property acquisitions.
Earnings before special items in 1999 were $835 million, compared with
earnings before special items of $314 million in 1998. The increase in earnings
before special items reflected the impact of higher worldwide crude oil prices,
lower operating and exploration costs, and higher natural gas volumes partially
offset by lower crude oil volumes.
Earnings before special items in 1998 were $314 million, compared with
earnings before special items of $694 million in 1997. The decrease primarily
reflected significantly lower worldwide crude oil prices and lower natural gas
prices, partially offset by increased crude oil production in the United States
and the Eastern Hemisphere.
Approximately 43 percent of oil and gas sales for 1999 were attributable to
oil and gas trading activity, compared with approximately 44 percent in 1998 and
33 percent for 1997. Occidental participates in oil and gas trading to enhance
its knowledge of the dynamics affecting price and supply/demand fundamentals in
order to optimize its long-term global marketing efforts. The results were not
significant.
The 1999 earnings included after-tax income of $488 million from the
Chevron litigation settlement and income of $11 million related to a contingent
payment on the 1998 sale of Occidental's interests in the Netherlands. The 1999
earnings also included charges
15
18
of $29 million after tax for the write-down of producing assets in Peru, $25
million for claims and settlements, $10 million for the closing of the oil and
gas offices in Bakersfield, California and $9 million for the write-down of an
investment in an office building. The 1998 results included net after-tax gains
on the sale of major nonstrategic assets of $317 million, as well as a pre-tax
$30 million charge for the write off of certain exploration projects and a $12
million reorganization charge.
The 1997 results included pre-tax charges of $210 million for the
write-down of various assets and other reserves.
CHEMICAL
In millions, except as indicated 1999 1998 1997
====================================== ========= ========= =========
DIVISIONAL SALES $ 3,038 $ 2,975 $ 4,349
DIVISIONAL EARNINGS(LOSS) $ (52) $ 266 $ 525
EARNINGS BEFORE SPECIAL ITEMS(a) $ 132 $ 296 $ 619
KEY PRODUCT INDEXES(1987 through
1990 average price = 1.0)
Chlorine 0.80 1.13 1.79
Caustic soda 0.66 1.02 .77
PVC commodity resins 0.70 .60 .83
KEY PRODUCT VOLUMES
Chlorine(thousands of tons) 3,142 2,983 3,201
Caustic soda(thousands of tons) 3,214 3,208 3,436
PVC commodity resins
(millions of pounds) 3,451 1,755 1,441
CAPITAL EXPENDITURES(b)
Basic chemicals $ 35 $ 126 $ 156
Vinyls $ 25 $ 34 $ 86
Petrochemicals $ -- $ 10 $ 40
Specialty businesses $ 50 $ 148 $ 106
Other $ 6 $ 3 $ 8
- -------------------------------------- --------- --------- ---------
(a) Earnings before special items represents divisional earnings adjusted for
the effect of certain infrequent transactions that may affect comparability
between years. Earnings before special items is not considered to be an
alternative to operating income in accordance with generally accepted
accounting principles.
(b) Excludes the formation of OxyVinyls and the acquisition of the balance of
INDSPEC.
Occidental's chemical division is highly integrated. Chemicals from the
chlor-alkali business are used in the specialty business and chlorine from
chlor-alkali is combined with ethylene from the Equistar petrochemical
partnership to produce PVC. Effective April 30, 1999, Occidental formed a
partnership with Geon and created an integrated vinyls partnership. As a result
of the combination, OxyVinyls is expected to reduce operating costs by
approximately $80 million annually by the end of 2000. Occidental has a 76
percent interest in OxyVinyls, the integrated PVC commodity resin partnership
formed in the alliance. In addition, in the third quarter of 1999, Occidental
acquired the remaining ownership of INDSPEC and now owns 100 percent of the
stock. (Both transactions are discussed further in the section titled
"Acquisitions, Dispositions and Commitments.")
Earnings before special items were $132 million in 1999, compared with $296
million in 1998. The decrease in earnings before special items primarily
reflected the impact of lower prices for chlorine and caustic soda, as well as
higher costs for ethylene and natural gas. The 1999 results included pre-tax
charges of $159 million for the write-down to realizable value of certain
chemical assets, $28 million for write-downs by Equistar, $9 million for claims
and settlements and a gain of $12 million related to the sale of a chemical
plant by Equistar. The 1998 earnings included pre-tax charges of $30 million
related to reorganization and other charges.
Earnings before special items were $296 million in 1998, compared with $619
million in 1997. The decrease in 1998 reflected lower margins for most of
OxyChem's key products, primarily due to lower sales prices. The 1997 earnings
included pre-tax charges of $94 million related to the write-down of various
assets.
OxyChem expects continued cost reductions through operating and
supply-chain efficiencies and benefits from consolidation of some administrative
functions as a result of the formation of OxyVinyls. In 1999, the partnership
reduced costs by capturing $40 million of benefits from rationalization of
operating assets, consolidation of administrative functions and achievement of
operating and supply-chain efficiencies.
Sales in 1999, compared with 1998, reflected the inclusion of revenues of
OxyVinyls from the Geon contributed businesses, offset by lower prices for
chlorine and caustic soda and the total year absence of revenues related to the
petrochemical assets contributed to the Equistar petrochemicals partnership in
May 1998.
The decrease in sales in 1998, compared with 1997, primarily reflected the
absence of sales related to the assets contributed to Equistar in May 1998, as
well as lower sales prices for most chemical products.
CORPORATE
Unallocated corporate other items in 1999 and 1998 included insurance dividend
income of $18 million and $9 million, respectively. Unallocated corporate other
items in 1997 included a charge to extinguish existing liabilities and
open-ended financial commitments under employment agreements with two senior
executives. Unallocated corporate other items in 1997 also included charges of
$136 million for environmental matters.
SPECIAL ITEMS
Special items are significant, infrequent items reflected in the Consolidated
Statements of Operations that may affect comparability between years. The
special items included in the 1999, 1998 and 1997 results are detailed below.
For further information, see Note 16 to the Consolidated Financial Statements
and the discussion above.
16
19
SPECIAL ITEMS
Benefit(Charge) In millions 1999 1998 1997
====================================== =========== =========== ===========
OIL AND GAS
Chevron litigation settlement(a) $ 488 $ -- $ --
Write-down of Peru
producing operations(a) (29) -- --
Write-down of various assets (9) (30) (140)
Claims, settlements,
reorganization and other (35) (12) (70)
Receipt of contingent payment 11 -- --
Gains on sales of major
nonstrategic assets(a) -- 317 --
- -------------------------------------- ----------- ----------- -----------
CHEMICAL
Write-down of various assets $ (159) $ -- $ (94)
Write-downs by Equistar (28) -- --
Gain on sale of chemical plant by
Equistar 12 -- --
Claims and settlements (9) -- --
Reorganization and other -- (30) --
- -------------------------------------- ----------- ----------- -----------
CORPORATE
Extraordinary loss on debt
redemption(a) $ (107) $ -- $ --
Insurance dividend 18 9 --
Changes in accounting
principles(a) (13) -- --
Discontinued operations(a) -- 38 143
Charge on MidCon sale(a) -- -- (750)
Environmental reserves -- -- (111)
Employment agreements -- -- (75)
- -------------------------------------- ----------- ----------- -----------
(a) These amounts are shown after-tax
CONSOLIDATED OPERATIONS--REVENUES
SELECTED REVENUE ITEMS
In millions 1999 1998 1997
============================================ ========== ========== ==========
Net sales and operating revenues $ 7,610 $ 6,596 $ 8,016
Interest, dividends and other income $ 913 $ 261 $ 88
Gains(losses) on disposition of assets, net $ (13) $ 546 $ (4)
Income(loss) from equity investments $ 41 $ (22) $ 1
- -------------------------------------------- ---------- ---------- ----------
The increase in sales in 1999, compared with 1998, primarily reflected
higher worldwide crude oil prices in the oil and gas division, and the inclusion
of revenues of OxyVinyls from the Geon contributed businesses, partially offset
by lower prices for chlorine and caustic soda and the absence of revenues
related to the petrochemical assets contributed to Equistar in May 1998 in the
chemical division.
The decrease in net sales in 1998, compared with 1997, reflected lower
worldwide crude oil prices in the oil and gas division and lower prices and
volumes for most chemical products and also reflected the absence of revenues
related to the assets contributed to Equistar offset, in part, by higher oil and
gas trading activity and higher oil volumes.
Interest, dividends and other income in 1999 included the favorable
litigation settlement of $775 million. Interest, dividends and other income in
1998 included, among other things, interest earned on a $1.4 billion note (the
$1.4 billion note receivable) received in exchange for a note previously issued
to Occidental by the MidCon Corp. ESOP Trust.
The pre-tax gains on disposition of assets in 1998 of $546 million included
the net pre-tax gains of $532 million on major nonstrategic assets sold as part
of an asset redeployment program.
The increase in income from equity investments in 1999, compared with 1998,
primarily reflected the impact of higher worldwide crude oil prices and improved
export prices for VCM.
The decrease in income from equity investments in 1998, compared with 1997,
reflected the impact of lower oil and gas prices as well as lower chemical
margins.
CONSOLIDATED OPERATIONS--EXPENSES
SELECTED EXPENSE ITEMS
In millions 1999 1998 1997
====================================== =========== =========== ===========
Cost of sales $ 5,059 $ 4,462 $ 5,060
Selling, general and administrative
and other operating expenses $ 645 $ 678 $ 797
Write-downs of assets $ 212 $ 30 $ 205
Environmental remediation $ -- $ -- $ 136
Minority interest $ 58 $ 1 $ --
Interest and debt expense, net $ 498 $ 559 $ 434
- -------------------------------------- ----------- ----------- -----------
The increase in cost of sales in 1999, compared with 1998, primarily
reflected higher costs related to oil and gas trading, the inclusion of cost of
sales related to the acquired Geon facilities and higher raw material and energy
costs in the chemical division. These were partially offset by the absence of
costs related to the petrochemical assets contributed to Equistar in May 1998
and cost reductions.
The decrease in cost of sales in 1998, compared with 1997, primarily
reflected lower energy and raw material costs in the chemical division as well
as the absence of costs related to the assets contributed to Equistar.
Selling, general and administrative and other operating expenses decreased
in 1999, compared with 1998 and 1997, reflecting ongoing cost reduction
programs. Selling, general and administrative and other operating expenses in
1997 reflected a portion of the asset write-downs and the charge to amend
certain employment agreements.
Environmental remediation included charges of $111 million in 1997 for
additional environmental reserves related to various existing sites.
The decrease in interest and debt expense in 1999, compared with 1998,
reflected lower outstanding debt levels partially offset by higher rates.
Interest and debt expense increased to $559 million in 1998 from $434 million in
1997, which primarily reflected the impact of higher debt levels.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
In millions 1999 1998 1997
=========== =========== ===========
NET CASH PROVIDED $ 1,044 $ 80 $ 1,397
17
20
The higher operating cash flow in 1999, compared with 1998, resulted from
higher earnings before special items. The improved earnings primarily reflected
the impact of higher worldwide crude oil prices. Other non-cash charges to
income were higher in 1999 compared with 1998, which reflected the non-cash
write-downs in the chemical and oil and gas divisions. See the "Special Items"
table above. Changes in operating assets and liabilities reflected lower net
working capital usage in 1999, compared with 1998. Other operating expenses in
1999 reflected lower payments for other operating uses such as litigation and
environmental costs. Included in total cash flow from operating activities in
1998 was cash used by discontinued operations of $244 million, which included
the negative effect of $250 million of receivables repurchased in connection
with the sale of MidCon.
The lower operating cash flow in 1998, compared with 1997, resulted from
lower earnings before special items. Reported earnings included the effect of
these special items, such as gains on sales of assets. The lower earnings
primarily reflected the impact of significantly lower worldwide crude oil and
chemical prices. Excluding the effect of income taxes, the impact of changes in
operating assets and liabilities on cash was slightly worse in 1998 compared
with 1997. Other operating items reflected higher payments in 1998 for
litigation and other related settlements. In addition, included in operating
activities was net cash used by operating activities of discontinued operations
of $244 million in 1998 compared with net cash provided by operating activities
of discontinued operations of $266 million in 1997. The 1998 cash used by
discontinued operations included the negative effect of $250 million of
receivables repurchased in connection with the sale of MidCon.
Other noncash charges in 1998 included a charge for the write off of an
investment in certain exploration properties, previously announced
reorganization expense accruals and other miscellaneous items. Other noncash
charges in 1997 mainly reflected the special charges taken in the fourth
quarter. See the "Special Items" table above. Each of the three years also
included charges for employee benefit plans and other items.
INVESTING ACTIVITIES
In millions 1999 1998 1997
=========== =========== ===========
NET CASH PROVIDED (USED) $ 1,591 $ (1,216) $ (1,505)
Included in investing activities was net cash used by investing activities
of discontinued operations of $6 million and $79 million in 1998 and 1997.
The 1999 amount included the proceeds from the $1.4 billion note receivable
and the $775 million proceeds from the Chevron litigation settlement. The 1999
amount reflected lower capital expenditures and also reflected net cash used of
$113 million in connection with the formation of OxyVinyls. The decrease in net
cash used in investing activities in 1998, compared with 1997, reflected lower
capital expenditures. The 1998 amount also reflected cash used of $3.5 billion
for the purchase of the Elk Hills field. The 1998 amount also included the
proceeds of $3.4 billion, primarily from the sale of MidCon and nonstrategic oil
and gas properties. Cash used in investing activities included Occidental's
capital expenditure program as discussed below.
CAPITAL EXPENDITURES
In millions 1999 1998 1997
====================================== =========== =========== ===========
Oil and Gas $ 474 $ 751 $ 1,150
Chemical 116 321 396
Corporate and other 11 2 3
----------- ----------- -----------
$ 601 $ 1,074 $ 1,549
====================================== =========== =========== ===========
In response to expected low oil and chemical prices early in the year,
Occidental reduced its capital-spending budget for 1999. However, oil and gas
continued to be allocated the major portion of the budget, with projects in Elk
Hills and Qatar receiving the highest priority. Total spending decreased in
1998, compared with 1997, due to lower development spending, and completion of
certain projects offset, in part, by spending at Elk Hills. The 1999 capital
expenditure amount excludes the formation of OxyVinyls and the acquisition of
the balance of INDSPEC. The 1998 capital expenditure amount does not include the
cost of the acquisition of the Elk Hills field for $3.5 billion.
Occidental's capital spending budget for 2000 is $850 million. Of the
total, approximately $650 million will be allocated to oil and gas, with Elk
Hills and Qatar again receiving the highest priority. The remainder will be
allocated to chemicals.
As part of the asset redeployment program, Occidental completed the sale in
1998 of various international and domestic nonstrategic oil and gas properties.
Occidental sold its entire interest in an oilfield development project in
Venezuela, the stock of the subsidiary which owned its oil and gas assets in the
Netherlands and the North Sea, as well as various domestic properties. Net
proceeds from all major nonstrategic oil and gas asset sales were $1.1 billion,
and the total net pre-tax gain was $532 million, which is included in the total
gain from disposition of assets of $546 million. Additionally, Occidental made a
cash payment of $89 million to Shell in connection with the exchange of certain
oil and gas interests.
The 1997 proceeds from the sale of businesses and disposals of property,
plant and equipment included the proceeds from the sale of a chlor-alkali
chemical plant located in Tacoma, Washington for approximately $102 million,
which included $97 million in cash and the balance in the buyer's convertible
preferred stock.
Also in 1997, Occidental purchased 28,000 shares of preferred stock of
Leslie's Poolmart, Inc. (Leslie's), a customer of OxyChem, for total
consideration of $28 million, which consisted of cash and the exchange of $10
million of Leslie's subordinated debentures held by Occidental. In 1999,
Occidental sold essentially all of its investment in Leslie's and recorded an
insignificant gain.
18
21
FINANCING ACTIVITIES
In millions 1999 1998 1997
=========== =========== ===========
NET CASH PROVIDED (USED) $ (2,517) $ 1,119 $ (37)
The 1999 amount reflected the use of the proceeds from the $1.4 billion
note receivable, $775 million from the Chevron litigation settlement and $508
million of net proceeds from the issuance of the Trust Preferred Securities to
repay outstanding debt.
The 1998 amount reflected net cash provided of $1.9 billion, primarily from
proceeds from borrowings, to fund a portion of the acquisition of the Elk Hills
field in February 1998. Included in financing activities was net cash provided
by financing activities of discontinued operations of $53 million in 1997.
Cash used for financing activities in 1998 and 1997 included $937 million
and $119 million, respectively, for the common stock repurchase program
announced in October 1997. Under the program, Occidental repurchased a total of
39.3 million shares, of which, 35.1 million shares were repurchased in 1998. In
1997, net proceeds from the issuance of long-term debt and other borrowings and
payments of capital lease liabilities totaled $400 million.
Occidental paid preferred and common stock dividends of $363 million in
1999, $387 million in 1998 and $422 million in 1997. The 1999 amount reflected
lower preferred dividends as all preferred stock had been redeemed or converted
into common stock by year-end 1999. The 1998 amount primarily reflected lower
preferred stock dividends as a result of preferred stock that was converted into
common stock in March 1998. In 1999, a total of 4,847,130 shares of CXY-indexed
convertible preferred stock were converted by the holders into 15,708,176 shares
of Occidental's common stock. The holders of the $3.875 preferred stock
converted all of the 15.1 million shares into 33.2 million shares of Occidental
common stock in March 1998. At the end of 1999, Occidental had no preferred
stock outstanding. However, the Trust Preferred Securities issued in January
1999 by Oxy Capital Trust I, a wholly-owned subsidiary of Occidental, remain
outstanding.
Occidental determined that it exhausted its accumulated earnings and
profits for tax purposes during 1998, and that a portion of common stock
dividends received by shareholders in 1998 and 1999 were returns of capital.
Occidental has a centralized cash-management system that funds the working
capital and capital expenditure requirements of its various subsidiaries. There
are no provisions under existing debt agreements that significantly restrict the
ability to move funds among operating entities.
ANALYSIS OF FINANCIAL POSITION
The changes in the following components of Occidental's balance sheet are
discussed below:
SELECTED BALANCE SHEET COMPONENTS
In millions 1999 1998
=================================================== =========== ===========
Trade receivables, net $ 559 $ 340
Receivables from joint ventures, partnerships
and other $ 215 $ 1,586
Equity investments $ 1,754 $ 1,959
Property, plant and equipment, net $ 10,029 $ 9,905
Current maturities of long-term debt and capital
lease liabilities $ 5 $ 1,400
Accounts payable $ 812 $ 613
Current obligation under natural gas delivery
commitment $ 122 --
Long-term debt, net $ 4,368 $ 5,367
Long-term obligation under natural gas delivery
commitment $ 411 $ 503
Minority interest $ 252 $ 5
Trust Preferred Securities $ 486 $ --
Stockholders' equity $ 3,523 $ 3,363
- --------------------------------------------------- ----------- -----------
The higher balance in receivables at December 31, 1999, compared with
December 31, 1998 reflected additional trade receivables resulting from the
consolidation of OxyVinyls. The balance in receivables from joint ventures,
partnerships and other at December 31, 1998 includes the $1.4 billion note
receivable that was collected in January 1999. The lower balance in equity
investments primarily reflected the removal of the equity investment in INDSPEC,
which is now fully consolidated, as well as dividends received from equity
investees. The increase in the net balance in property, plant and equipment
reflected the impact of capital spending, the INDSPEC acquisition and 100
percent of the value of property acquired in the transaction with Geon, offset
in part by depreciation, depletion and amortization.
Current maturities of long-term debt and capital lease liabilities
decreased reflecting the current portion of long-term debt that was paid in the
first quarter of 1999 using the proceeds of the $1.4 billion note receivable.
The balance in accounts payable at December 31, 1999 reflected additional
payables resulting from the accounting consolidation of OxyVinyls. The decrease
in long-term debt primarily reflected debt repaid following the receipt of the
proceeds of the Chevron litigation settlement, the funds from the Trust
Preferred Securities and improved 1999 cash flow. The table below presents
principal amounts by currency, including any sinking fund requirements, by year
of maturity for Occidental's long-term debt obligations, excluding $21 million
in unamortized discount, at December 31, 1999:
19
22
DEBT CURRENCY DENOMINATIONS AND INTEREST RATES
In millions of U.S. dollars, except rates
U.S. U.S. Canadian
Dollar Dollar Dollar
Year of Fixed Variable Variable Grand
Maturity Rate Rate Rate Total
============= ============== ============== ============== ==============
2001 $ 276 $ -- $ -- $ 276
2002 525 270 6 801
2003 514 -- -- 514
2004 325 -- -- 325
2005 314 -- 38 352
Thereafter 2,006 115 -- 2,121
-------------- -------------- -------------- --------------
Total $ 3,960 $ 385 $ 44 $ 4,389
============== ============== ============== ==============
Average
interest
rate 7.88% 5.99% 5.55% 7.64%
============= ============== ============== ============== ==============
The estimated fair value of Occidental's long-term debt at December 31,
1999 was $4.8 billion. Occidental has the option to call certain issues of
long-term debt prior to their maturity dates.
In April 1998, Occidental issued $250 million of 6.5 percent senior notes
due 2005, $200 million of 7.2 percent senior debentures due 2028 and $450
million of 6.4 percent senior notes due 2013. The 6.4 percent senior notes will
be mandatorily tendered in 2003 and then may be remarketed at the option of the
remarketing dealer. In October 1998, Occidental issued $270 million of
extendible notes with a 10-year final maturity and an initial coupon period
expiring in April 2000. At the end of such initial period, the notes will either
be automatically tendered, subject to the right of the holder not to tender, to
a remarketing agent for resale to the public, repurchased by Occidental if a
mutual agreement is not reached with the remarketing agent on the remarketing
spread, or redeemed at Occidental's option. In November 1998, Occidental issued
$200 million of 6.75 percent senior notes due 2002 and $400 million of 7.375
percent senior notes due 2008. The net proceeds were used to repay commercial
paper.
In January 1999, Occidental issued $525 million of 8.16 percent Trust
Preferred Securities due in 2039, and callable in 2004, for net proceeds of $508
million. The net proceeds were used to repay commercial paper. The Trust
Preferred Securities balance reflects the issuance of preferred securities net
of unamortized issue costs and repurchases.
In February 1999, Occidental issued $450 million of 7.65 percent senior
notes due 2006 and $350 million of 8.45 percent senior notes due 2029 for net
proceeds of approximately $792 million. The net proceeds were used for general
corporate purposes, which included the repayment of commercial paper and the
redemption of other debt.
In June 1999, Occidental registered a shelf registration statement for up
to $1 billion of its senior debt securities, subordinated debt securities,
preferred stock, depositary shares, preferred securities of two subsidiary
trusts and Occidental's guarantees of such preferred securities. Occidental may
issue, at its option, the entire $1 billion under its medium-term notes program,
which includes its Medium-Term Senior Notes, Series C and its Medium-Term
Subordinated Notes, Series A. At December 31, 1999, no amounts were drawn under
the program.
Also in June 1999, Occidental redeemed $68.7 million of its 11.125 percent
senior debentures due June 1, 2019, at a redemption price of 105.563 percent of
the principal amount thereof. Occidental recorded an after-tax extraordinary
loss of $3 million in the second quarter of 1999 related to the redemption.
In August 1999, Occidental called for redemption all of the outstanding
shares of its $3.00 cumulative CXY-indexed convertible preferred stock. From the
date Occidental announced the redemption to the date of redemption, holders of
3,125,837 shares of such preferred stock converted their shares into
approximately 9.9 million shares of Occidental common stock. Occidental redeemed
the remaining outstanding shares in September 1999.
Also in September 1999, Occidental redeemed $250 million of its 8.5 percent
medium-term notes due 2004 at par.
In December 1999, following the receipt of the proceeds from the Chevron
settlement, Occidental repurchased for cash, $240 million principal amount of
its 10.125 percent Senior Notes due November 15, 2001, and $138 million
principal amount of its 11.125 percent Senior Notes due August 1, 2010 and
redeemed all of OXY USA's $274 million principal amount of 7 percent debentures
due 2011, for a total of $722 million, including premium, expenses and accrued
interest. Occidental recorded an after-tax extraordinary loss of $104 million in
the fourth quarter of 1999 related to these transactions.
At December 31, 1999, Occidental had available approximately $2.1 billion
of committed credit lines, which are utilized, as needed, for daily operating
and other purposes. These lines of credit are primarily used to back up the
issuance of commercial paper.
Occidental expects to have sufficient cash in 2000 for its operating needs,
capital expenditure requirements, dividend payments and mandatory debt
repayments.
The long-term balance of the obligations under the natural gas delivery
commitment decreased from December 31, 1998 reflecting a portion of the
obligation that is due within one year and is shown as a current liability.
Minority interest at December 31, 1999 primarily reflects Geon's minority
interest in the net assets of OxyVinyls.
The increase in stockholders' equity primarily reflected net income
partially offset by dividends on common and preferred stock.
ACQUISITIONS, DISPOSITIONS AND COMMITMENTS
In December 1999, Occidental and EOG exchanged certain oil and gas assets.
Occidental received assets that will enhance its programs to further focus
exploration and production activities and achieve cost savings through
operational benefits.
Occidental received producing properties and exploration acreage in its
expanding California asset base, as well as producing properties in the western
Gulf
20
23
of Mexico near existing operations in exchange for oil and gas production and
reserves in east Texas.
The exchange provides Occidental with significant growth opportunities in
California by increasing its land position from approximately 89,000 acres to
approximately 800,000 acres. An active exploration program is planned over the
next few years.
Occidental also farmed out Oklahoma panhandle properties to EOG, retaining
a carried interest, and expects to benefit from EOG's drilling program.
Occidental was not planning on drilling this acreage and, under this program,
EOG will fund all the capital and Occidental will share in the results.
In December 1999, Occidental entered into an agreement to sell its
producing properties in Peru to Pluspetrol. The closing is subject to government
approval. In connection with this transaction, Occidental recorded an after-tax
charge of approximately $29 million to write-down the properties to their fair
values.
In the third quarter of 1999, pursuant to a series of transactions,
Occidental acquired the remaining ownership of INDSPEC through the issuance of
approximately 3.2 million shares of Occidental common stock at an estimated
value of approximately $68 million and the assumption of approximately $80
million of bank debt. As a result of the transactions, Occidental owns 100
percent of the stock of INDSPEC.
In the third quarter of 1999, Occidental acquired Unocal International
Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired
Occidental's properties in Bangladesh. The results, after tax benefits, did not
have a significant impact on earnings.
Effective April 30, 1999, Occidental and Geon formed two partnerships.
Occidental has a 76 percent interest in OxyVinyls, the PVC commodity resin
partnership, which is the larger of the partnerships, and a 10 percent interest
in a PVC powder compounding partnership. OxyVinyls also has entered into
long-term agreements to supply PVC resin to Geon and VCM to Occidental and Geon.
In addition, Occidental sold its pellet compounding plant in Pasadena, Texas and
its vinyl film assets in Burlington, New Jersey to Geon. As part of the
transaction, Geon received $104 million through the retention of working capital
and the distribution of cash from OxyVinyls, and OxyVinyls undertook
approximately $180 million in obligations, for certain Geon plant facilities,
which are treated as operating leases for accounting purposes. Occidental did
not record a significant gain or loss on the transaction.
In February 1998, Occidental acquired the U.S. government's approximate 78
percent interest in the Elk Hills Naval Petroleum Reserve oil and gas fields
(Elk Hills field) for approximately $3.5 billion. Occidental's results of
operations include the operations of the Elk Hills field from the date of
acquisition. This field is one of the 11 largest in the lower 48 states and
significantly increased the size and quality of Occidental's domestic reserves.
In February 1998, Occidental entered into a 15-year contract with Tosco
Corporation (Tosco) pursuant to which Tosco will purchase the majority of
Occidental's oil production from the Elk Hills field at market-related prices.
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
(EO), ethylene glycol and EO derivatives businesses to Equistar, in return for a
29.5 percent interest in the partnership, receipt of approximately $420 million
in cash and the assumption by Equistar of approximately $205 million of
Occidental capital lease liabilities. Occidental guaranteed $625 million of
Equistar's debt related to these amounts. Lyondell Petrochemical Company
(Lyondell) and Millennium Chemicals, Inc. (Millennium), through their respective
subsidiaries, were the original partners of Equistar. Lyondell owns 41 percent
of Equistar, and Occidental and Millennium each own 29.5 percent.
In 1998, Occidental completed a number of international and domestic asset
sales as part of an asset redeployment program. Net proceeds from all major
nonstrategic oil and gas asset sales were $1.1 billion, and the total net
pre-tax gain was $532 million, which is included in the total gains from
disposition of assets of $546 million.
Additionally in 1998, Occidental and the Royal Dutch/Shell Group (Shell)
exchanged Occidental's oil and gas interests in the Philippines and Malaysia for
Shell's oil and gas interests in Yemen and Colombia. Shell also received a cash
payment of approximately $89 million. No gain or loss was recorded on the
transaction. The transaction provided Occidental with developed reserves and
current production in exchange for discoveries that would have required long
lead time and significant capital for development.
Occidental completed the sale of all of the issued and outstanding shares
of common stock of MidCon Corp. (MidCon), its natural gas transmission and
marketing business, to K N Energy, Inc. (K N Energy), on January 31, 1998 for a
cash payment of $2.1 billion. The estimated net cash proceeds from the
transaction were approximately $1.7 billion. Additionally, K N Energy issued a
fixed-rate interest bearing note, which was repaid on January 4, 1999, to
Occidental in the amount of $1.4 billion, in exchange for a note previously
issued to Occidental by the MidCon Corp. ESOP Trust. MidCon retained
responsibility for certain Texas intrastate gas pipeline lease obligations to an
Occidental subsidiary. In connection with the sale, the Cumulative
MidCon-Indexed Convertible Preferred Stock was redeemed. Occidental had
classified MidCon and its subsidiaries as a discontinued operation and recorded
an estimated after-tax charge against earnings of $750 million in the fourth
quarter of 1997.
In November 1998, Occidental entered into a natural gas delivery commitment
for proceeds of $500 million, which obligates Occidental to deliver 263 billion
cubic feet of natural gas over a four-year period beginning in 2000. The imputed
interest rate in the transaction is approximately 6 percent. In connection with
this transaction, Occidental simultaneously entered into a natural gas price
swap with a third party based on identical volumes of natural gas and a delivery
schedule that corresponds to the natural gas delivery commitment. Under the
terms of the swap, Occidental will pay an
21
24
average fixed price of $2.27 per thousand cubic feet of gas and will receive a
floating price that will approximate market which mitigates Occidental's price
exposure. Occidental has the ability to satisfy the delivery commitment with
open market purchases and has not reduced its natural gas reserves for the
commitment.
In 1997, Occidental acquired certain oil and gas production and exploration
assets from Suemaur Exploration for approximately $50 million. These assets were
located onshore in south Texas adjacent to other Occidental properties.
In December 1995, Occidental entered into a transaction with Clark USA,
Inc. (Clark) under which Occidental agreed to deliver approximately 17.7 million
barrels of West Texas Intermediate-equivalent (WTI) oil over a six-year period.
Occidental has accounted for the consideration received in the transaction as
deferred revenue which is being amortized into revenue as WTI-equivalent oil is
produced and delivered during the term of the agreement. At December 31, 1999,
approximately 5.5 million barrels remain to be delivered.
Commitments at December 31, 1999 for major capital expenditures during 2000
and thereafter were approximately $143 million. Total capital expenditures for
2000 are estimated to be approximately $850 million.
DERIVATIVE ACTIVITIES
Occidental's market risk exposures relate primarily to commodity prices,
interest rates and foreign currency. Therefore, Occidental periodically uses
commodity futures contracts, options and swaps to hedge the impact of oil and
natural gas price fluctuations; uses interest rate swaps and futures contracts
to hedge interest rates on debt; and uses forward exchange contracts to hedge
the risk associated with fluctuations in foreign currency exchange rates.
Emerging Issues Task Force (EITF) Issue No. 98-10 "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities" was adopted in the
first quarter of 1999. Oil and gas trading contracts are measured at fair value
on the balance sheet date. Gains and losses on such contracts are recognized in
periodic income. Gains and losses on commodity futures contracts that qualify
for hedge accounting, essentially those associated with equity production or
purchases, are deferred until recognized as an adjustment to sales revenue or
purchase costs when the related transaction being hedged is finalized. Gains and
losses on foreign currency forward exchange contracts that hedge identifiable
future commitments are deferred until recognized when the related item being
hedged is settled. All other contracts are recognized in periodic income.
At December 31, 1999, Occidental was a party to commodity exchange and
over-the-counter forward obligations. The financial instruments held for
purposes other than trading expire during the period from January 2000 to
December 2003, and relate to the hedging of natural gas and crude oil prices.
The fair value of these instruments at December 31, 1999 was $35 million.
Offsetting the value of these instruments are related physical positions with a
$38 million loss. The principal components of these instruments and related
physical positions are the natural gas delivery commitment and the related
natural gas price swap discussed in Note 7. At December 31, 1999, the difference
between the carrying value and the fair value of these obligations was an
unrealized loss of approximately $3 million, which is currently deferred. Any
gain or loss will be recognized when the related transactions are finalized. The
financial instruments held or issued for trading purposes mostly expire in 2000.
The fair value of these instruments at December 31, 1999 was $42 thousand.
Offsetting the value of these instruments are related physical positions with a
$3 million loss. The approximate $3 million net loss was reflected in the
Consolidated Statements of Operations. The results of oil and gas trading
activities were not significant.
Interest rate swaps are entered into as part of Occidental's overall
strategy to maintain part of its debt on a floating-rate basis. Occidental has
outstanding interest rate swaps as of December 31, 1999 on fixed-rate debt for
notional amounts totaling $104 million, converting fixed-rate debt to
floating-rate debt. During 1999, an interest rate swap for a notional amount of
$96 million expired. The swap rate difference resulted in less than $1 million
of income in 1999 and approximately $2 million of expense in each of 1998 and
1997, compared to what interest expense would have been had the debt remained at
fixed rates. The impact of the swaps on the weighted average interest rates for
all debt in 1999, 1998 and 1997 was not significant. Occidental will continue
its strategy of maintaining part of its debt on a floating-rate basis.
The following table provides information on the interest rate swaps at
December 31, 1999:
INTEREST RATE SWAPS
In millions, except rates
Year of
Maturity
---------- Fair
2000 Value(a)
=================================================== =========== ===========
Interest rate swaps
Fixed to variable $ 104 $ (1)
Average receive rate(b) 5.75%
- --------------------------------------------------- ----------- -----------
(a) Represents estimated settlement value.
(b) Current variable pay rate at December 31, 1999 is 5.65 percent.
Many of Occidental's foreign oil and gas operations and foreign chemical
operations are located in countries whose currencies generally depreciate
against the U.S. dollar on a continuing basis. Generally, an effective currency
forward market does not exist for these countries; therefore, Occidental
attempts to manage its exposure primarily by balancing monetary assets and
liabilities and maintaining cash positions only at levels necessary for
operating purposes. Additionally, all of Occidental's oil and gas foreign
entities have the U.S. dollar as the functional currency since the cash flows
are mainly denominated in U.S. dollars. The effect of exchange rate transactions
in foreign currencies is included in periodic income. Foreign currencies that
are in a net liability position are thus protected from the unfavorable effects
of devaluation. However, in certain foreign chemical subsidiaries and equity
basis joint ventures where the local currency is the functional
22
25
currency, Occidental has exposure on joint-venture debt that is denominated in
U.S. dollars. Most of Occidental's 1997 foreign exchange devaluation was related
to its Thailand chemical joint ventures. For entities that have a net foreign
currency asset position, Occidental strives to maintain those positions at low
levels to mitigate exposure to currency devaluation. Brazil devalued its
currency, the real, in January 1999. The devaluation had an unfavorable pre-tax
income effect on Occidental in 1999 of approximately $13 million. The total net
foreign currency losses amount to $11 million. Additional foreign currency
translation losses amounted to $23 million net of tax and are included in other
comprehensive income.
At December 31, 1999, Occidental had one foreign currency forward exchange
contract that matures in 2000, hedging Canadian dollar denominated debt as shown
below:
FOREIGN CURRENCY RISK
In millions, except contract rate
Notional Contract Fair
Amount Rate Value(a)
====================================== ========== ========== ==========
Canadian dollar forward exchange
contract $ 38 1.4282 $ (.4)
- -------------------------------------- ---------- ---------- ----------
(a) Equivalent to the unrealized net gain (loss) on existing contracts.
TAXES
Deferred tax liabilities were $850 million at December 31, 1999, net of deferred
tax assets of $1.032 billion. The current portion of the deferred tax assets of
$145 million is included in prepaid expenses and other. The net deferred tax
assets are expected to be realized through future operating income and reversal
of taxable temporary differences.
LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
Occidental and certain of its subsidiaries have been named as defendants or as
potentially responsible parties (PRPs) in a substantial number of lawsuits,
claims and proceedings, including governmental proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
and corresponding state acts. These governmental proceedings seek funding,
remediation and, in some cases, compensation for alleged property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental is usually one of many companies in these proceedings, and has to
date been successful in sharing response costs with other financially sound
companies. Occidental has accrued reserves at the most likely cost to be
incurred in those proceedings where it is probable that Occidental will incur
remediation costs which can be reasonably estimated.
In December 1998, David Croucher and others filed suit in the Federal
District Court in Houston, Texas on behalf of persons claiming to have been
beneficiaries of the MidCon Employee Stock Ownership Plan (ESOP). The suit has
been certified as a class action. The plaintiffs allege that each of the U.S.
Trust Company of California (the ESOP Trustee) and the MidCon ESOP
Administrative Committee breached its fiduciary duty to the plaintiffs by
failing to properly value the securities held by the ESOP, and allege that
Occidental actively participated in such conduct. The plaintiffs claim that, as
a result of this alleged breach, the ESOP participants are entitled to an
additional aggregate distribution of at least $200 million and that Occidental
has been unjustly enriched and is liable for failing to make that distribution.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing lawsuits,
claims and proceedings, audits, commitments, contingencies and related matters.
Several of these matters may involve substantial amounts, and if these were to
be ultimately resolved unfavorably to the full amount of their maximum potential
exposure, an event not currently anticipated, it is possible that such event
could have a material adverse effect upon Occidental's consolidated financial
position or results of operations. However, in management's opinion, after
taking into account reserves, it is unlikely that any of the foregoing matters
will have a material adverse effect upon Occidental's consolidated financial
position or results of operations.
ENVIRONMENTAL EXPENDITURES
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining the
quality of the environment. Foreign operations also are subject to environmental
protection laws. Costs associated with environmental compliance have increased
over time and may continue to rise in the future. Environmental expenditures,
related to current operations, are factored into the overall business planning
process. These expenditures are mainly considered an integral part of production
in manufacturing quality products responsive to market demand.
ENVIRONMENTAL REMEDIATION
The laws which require or address environmental remediation may apply
retroactively to previous waste disposal practices. And, in many cases, the laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Occidental is currently participating in environmental
assessments and cleanups under these laws at federal Superfund sites, comparable
state sites and other remediation sites, including Occidental facilities and
previously owned sites. Also, Occidental and certain of its subsidiaries have
been involved in a substantial number of governmental and private proceedings
involving historical practices at various sites including, in some instances,
having been named as defendants and/or as PRPs under the federal Superfund law.
These proceedings seek funding and/or remediation and, in some cases,
compensation for alleged personal injury or property damage, punitive damages
and civil penalties, aggregating substantial amounts.
23
26
Occidental does not consider the number of Superfund and comparable state
sites at which it has been notified that it has been identified as being
involved to be a relevant measure of exposure. Although the liability of a PRP,
and in many cases its equivalent under state law, may be joint and several,
Occidental is usually one of many companies cited as a PRP at these sites and
has, to date, been successful in sharing cleanup costs with other financially
sound companies. Also, many of these sites are still under investigation by the
Environmental Protection Agency (EPA) or the equivalent state agencies. Prior to
actual cleanup, the parties involved assess site conditions and responsibility
and determine the appropriate remedy. The majority of remediation costs are
incurred after the parties obtain EPA or equivalent state agency approval to
proceed. The ultimate future cost of remediation of certain of the sites for
which Occidental has been notified that it has been identified as being involved
cannot be reasonably determined at this time.
As of December 31, 1999, Occidental had been notified by the EPA or
equivalent state agencies or otherwise had become aware that it had been
identified as being involved at 127 Superfund or comparable state sites. (This
number does not include those sites where Occidental has been successful in
resolving its involvement.) The 127 sites include 34 former Diamond Shamrock
Chemical sites as to which Maxus Energy Corporation has retained all liability.
Of the remaining 93 sites, Occidental has denied involvement at 10 sites and has
yet to determine involvement in 20 sites. With respect to the remaining 63 of
these sites, Occidental is in various stages of evaluation, and the extent of
liability retained by Maxus Energy Corporation is disputed at 2 of these sites.
For 56 of these sites, where environmental remediation efforts are probable and
the costs can be reasonably estimated, Occidental has accrued reserves at the
most likely cost to be incurred. The 56 sites include 12 sites as to which
present information indicates that it is probable that Occidental's aggregate
exposure is insignificant. In determining the reserves, Occidental uses the most
current information available, including similar past experiences, available
technology, regulations in effect, the timing of remediation and cost-sharing
arrangements. For the remaining 7 of the 63 sites being evaluated, Occidental
does not have sufficient information to determine a range of liability, but
Occidental does have sufficient information on which to base the opinion
expressed above in the "Lawsuits, Claims, Commitments, Contingencies and Related
Matters" section of this Management's Discussion and Analysis. For management's
opinion on lawsuits and proceedings and on other environmental loss
contingencies, see the above noted section.
ENVIRONMENTAL COSTS
Occidental's costs, some of which may include estimates, relating to compliance
with environmental laws and regulations are shown below for each division:
In millions 1999 1998 1997
====================================== =========== =========== ===========
OPERATING EXPENSES
Oil and Gas $ 13 $ 15 $ 33
Chemical 51 55 60
----------- ----------- -----------
$ 64 $ 70 $ 93
=========== =========== ===========
REMEDIATION EXPENSES
Corporate $ -- $ -- $ 136
----------- ----------- -----------
$ -- $ -- $ 136
=========== =========== ===========
CAPITAL EXPENDITURES
Oil and Gas $ 19 $ 31 $ 85
Chemical 17 25 31
----------- ----------- -----------
$ 36 $ 56 $ 116
====================================== =========== =========== ===========
Operating expenses are incurred on a continual basis. Remediation expenses
relate to existing conditions caused by past operations and do not contribute to
current or future revenue generation. Capital expenditures relate to longer
lived improvements in facilities. Although total costs may vary in any one year,
over the long term, divisional operating and capital expenditures for
environmental compliance generally are expected to increase. As of December 31,
1999 and 1998, Occidental had environmental reserves of approximately $454
million and $578 million, respectively. The net decrease reflects payments for
remediation programs and settlement agreements.
Occidental manages its environmental remediation efforts through a wholly
owned subsidiary, Glenn Springs Holdings, Inc. (GSH). In 1998, GSH was given
full management authority over all remediation sites and reports directly to
Occidental's corporate management.
FOREIGN INVESTMENTS
Portions of Occidental's assets are located in countries outside North America,
some of which may be considered politically and economically unstable. These
assets and the related operations are subject to the risk of actions by
governmental authorities and insurgent groups. Occidental attempts to conduct
its financial affairs so as to mitigate its exposure against such risks and
would expect to receive compensation in the event of nationalization. At
December 31, 1999, the carrying value of Occidental's assets in countries
outside North America aggregated approximately $1.9 billion, or approximately 14
percent of Occidental's total assets at that date. Of such assets, approximately
$1.2 billion was located in the Middle East, approximately $480 million was
located in Latin America, and substantially all of the remainder were located in
Russia and Pakistan.
24
27
2000 OUTLOOK
ACQUISITIONS AND DISPOSITIONS IN 2000
On March 1, 2000, Occidental entered into an agreement to sell its shares of
Canadian Occidental Petroleum Ltd. ("CanadianOxy") to CanadianOxy and Ontario
Teachers' Pension Plan Board for gross proceeds of approximately $1.2 billion
Canadian. Occidental expects the net after-tax proceeds from the sale to be
approximately $700 million U.S. Additionally, Occidental expects to transfer its
interest in two chemicals partnerships controlled by CanadianOxy to CanadianOxy,
and to acquire CanadianOxy's interest in Occidental's oil producing properties
in Ecuador. The closing is subject to the approval of CanadianOxy's shareholders
and, with respect to the purchase and sale of the assets, the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On March 7, 2000, Occidental Petroleum Corporation entered into an
agreement to acquire all of the common partnership interest in Altura Energy
Ltd. ("Altura"), - the largest oil producer in the state of Texas. Altura has
proved reserves of approximately 850 million barrels of oil equivalent, which
are located in the Permian Basin.
Occidental will pay approximately $1.2 billion to the sellers, affiliates
of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership
interest and will control the general partner which manages, operates and
controls 100 percent of the Altura assets. The partnership will borrow
approximately $2.4 billion, which will be recourse only to the Altura assets.
The sellers will retain a preferred limited partnership interest and will be
entitled to certain distributions from the partnership. The partnership will
loan approximately $2 billion to affiliates of the sellers, evidenced by two
notes, which will provide credit support to the partnership. The transaction is
valued at approximately $3.6 billion and is expected to close by April 30, 2000.
Funds for Occidental's investment will be provided by the net after-tax
proceeds of $700 million from the consummation of the recently announced sale of
Occidental's equity interest in Canadian Occidental Petroleum Ltd., which is
scheduled to close in April. The remaining $500 million is expected to be funded
by the sale of various non-strategic assets before year-end.
As a result of the acquisition, Occidental's worldwide oil production is
expected to rise immediately to 417,000 barrels per day, a 36 percent increase
above the average for 1999. In addition, Occidental's worldwide proved reserves
are expected to increase by 63 percent to approximately 2.2 billion barrels, on
an oil-equivalent basis.
OIL AND NATURAL GAS
The petroleum industry is a highly competitive business subject to significant
volatility due to numerous external market forces. Crude oil and natural gas
prices are affected by market fundamentals such as weather, inventory levels,
competing fuel prices, overall demand and the availability of supply. In early
2000, production restraints were still being adhered to by major exporting
countries.
While fundamentals are a decisive factor affecting crude oil prices over
the long term, day-to-day prices may be more volatile due to futures trading on
the NYMEX and other exchanges that make it difficult to accurately predict oil
and natural gas prices; however, weather patterns do have a more immediate
effect particularly on natural gas prices. In the United States, the initially
mild 1999-2000 winter season reduced demand for natural gas resulting in
sufficient storage to meet all but extreme weather conditions. The average NYMEX
closing price for natural gas in 1999 was $2.27 per million British thermal
units (MMBTU).
In 2000, Occidental will focus on growing its core operations. Occidental
also will pursue selected growth opportunities through focused exploration, EOR
projects and high-return acquisitions.
CHEMICAL
Overall price improvement is expected in the chemical segment in 2000. However,
higher oil and gas prices will continue to have a negative effect on chemical
margins. Specific comments by sub-segment are given below.
CHLOR-ALKALI
Domestic chlorine demand increased 2 percent over 1998. However, new capacity
additions kept the overall industry-operating rate flat at 94 percent in 1999.
Caustic soda demand increased by 3 percent in 1999, resulting in market
conditions shifting from oversupply to a firm balance.
Heading into 2000, domestic demand for chlorine and caustic soda is
expected to grow approximately 2 percent, but industry capacity additions should
keep operating rates flat at 94 percent. Chlorine prices increased in the second
half due to strong global demand for EDC, continued strong domestic demand for
PVC and unplanned outages by some major suppliers. Caustic soda pricing also
entered 1999 on a downward trend but exited the year on an upward track as the
global economy recovered and inventories remained tight. Prices for chlorine and
caustic soda are expected to continue to improve in 2000 as announced price
improvements are realized in an environment of balanced market conditions.
VINYLS
Global operating rates, which improved in 1999, are expected to continue to
improve in 2000. Capacity is being added at a slower rate than demand growth,
resulting in a tightening of the supply and demand balance. North American
operating rates are expected to remain at maximum practical levels, as no major
North American expansions are expected to come on stream before the latter part
of 2001.
North American PVC resin demand is expected to continue to grow in 2000,
although at a somewhat slower rate than in 1999. Growth in construction is
expected to slow from near record levels set in 1999. However, with no
significant new capacity available and
25
28
with export volumes improving from historically low levels, PVC resin prices are
expected to improve from the levels achieved in 1999. Margins also are expected
to increase slightly as the spread between PVC resin prices and feedstock costs
widens.
OxyVinyls is the largest producer of commodity PVC resins in North America
and the third largest globally. The business is well positioned to continue to
expand and grow, with long-standing relationships with key industry leaders in
the major PVC resin markets including pipe, vinyl siding, window profiles, film
and sheet, medical products and flooring. A series of plant debottlenecks and
productivity gains is expected to support incremental growth.
PETROCHEMICALS
Product margins remained under pressure in 1999 as significant feedstock price
increases largely offset higher product prices. Industry forecasts project a
continuing difficult business environment in 2000 due to recent and upcoming
capacity additions. Equistar plans to maximize earnings and cash flow by
continuing to reduce working capital, achieving cost reductions and employing a
disciplined capital program.
SPECIALTY BUSINESSES
The Specialty Business Group focuses on smaller volume specialty and
intermediate chemical markets. OxyChem's specialty businesses produce organic
and inorganic compounds, intermediate chemicals and chlorinated isocyanurates as
well as certain specialty PVC resins and films which were not contributed to the
OxyVinyls partnership. Numerous specialty performance chemicals are produced for
the plastics, metal-plating, aerospace and food-service industries.
Intermediates are used primarily in agricultural applications, such as
herbicides, fungicides and insecticides, and also in pharmaceuticals. Overall,
markets for specialty products are generally less cyclical and volatile than
markets for large-volume commodity chemicals.
Given that the U.S. economy is expected to remain healthy and that the Far
East and Brazilian economic situations are expected to improve, earnings are
expected to improve in 2000 despite expected continued economic pressure on
intermediate chemicals.
ACCOUNTING CHANGES
EITF NO. 98-10
Effective January 1, 1999, Occidental adopted the provisions of EITF Issue No.
98-10--"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," which establishes accounting and reporting standards for certain
energy trading contracts. EITF Issue No. 98-10 requires that energy trading
contracts must be marked-to-market with gains and losses included in earnings
and separately disclosed in the financial statements or footnotes thereto. The
initial adoption of EITF Issue No. 98-10 resulted in a first quarter noncash
after-tax benefit of $2 million, recorded as a cumulative effect of a change in
accounting principle.
SOP NO. 98-5
Effective January 1, 1999, Occidental adopted the provisions of Statement of
Position 98-5--"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which
requires that costs of start-up activities, including organizational costs, be
expensed as incurred. The initial application of the statement resulted in a
charge to income for costs of previously capitalized start-up activities that
have not yet been fully amortized. The initial adoption of SOP 98-5 resulted in
a first quarter noncash after-tax charge of $15 million, net of $8 million in
taxes, which has been recorded as a cumulative effect of a change in accounting
principle.
SFAS NO. 137 AND 133
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133--"Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives in the statement of financial position and
measure those instruments at fair value. In 1999, the FASB issued SFAS No.
137--"Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No.
133," which defers the effective date of SFAS No. 133 for one year. Occidental
must implement SFAS No. 133 by the first quarter of 2001 and has not yet made a
final determination of its impact on the financial statements.
SFAS NO. 132
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
132--"Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement standardized the disclosure requirements for pensions and other
postretirement benefits and amends SFAS No. 87--"Employers' Accounting for
Pensions," SFAS No. 88--"Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans" and SFAS 106--"Employers' Accounting for
Postretirement Benefits Other Than Pensions." The provisions of SFAS 132 are
disclosure oriented and do not change the measurement or recognition of the
plans. Accordingly, the implementation of SFAS No. 132 did not have an impact on
Occidental's consolidated financial position or results of operations.
SFAS NO. 131
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131--"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for reporting and display of information about
operating segments. It supersedes or amends several FASB statements, most
notably, SFAS No. 14--"Financial Reporting for Segments of a Business
Enterprise." The implementation of SFAS No. 131 did not have an
26
29
impact on Occidental's consolidated financial position or results of operations.
However, 1997 segment results were restated to classify equity income into the
business segments and environmental remediation expenses to unallocated
corporate items.
SFAS NO. 130
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
130--"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The implementation of SFAS No. 130 did
not have an impact on Occidental's results of operations. The prior year
financial statements have been restated to conform to the new presentation.
Occidental's comprehensive income is primarily composed of net income or loss,
foreign currency translation adjustments and minimum pension liability
adjustments. Occidental's comprehensive income was $426 million in 1999, $345
million for 1998 and a loss of $389 million for 1997.
YEAR 2000 COMPLIANCE
The Y2K program employed a five-step process consisting of: 1) conducting a
company-wide inventory; 2) assessing Y2K compliance; 3) remediating
non-compliant software and hardware, particularly hardware that employed
embedded chips such as process controls; 4) testing remediated hardware and
software; and 5) certifying compliance.
The inventory and assessment activities continued throughout the Y2K
program as changes occurred. Overall remediation efforts were completed on
schedule and there were no significant adverse Y2K events.
Costs for Y2K efforts were not accumulated separately and much of the cost
was accounted for as part of normal operations. Overall, the costs for the total
Y2K program are less than the original budget estimate of $50 million, and are
estimated to be approximately $29 million. The Y2K costs did not have a
significant effect on Occidental's consolidated financial position or results of
operations.
Contingency plans that addressed a reasonably likely worst case scenario
were put in place. These plans addressed key systems and third parties that
presented potential significant risk to Occidental. The plans also addressed and
analyzed the resources necessary to restore operations in the event an
interruption occurred. No interruptions caused by third parties occurred. If
such interruptions occur in the future, the contingency plans will be activated.
However, this is believed to be very unlikely.
Because of these company-wide efforts, Occidental believes it took
appropriate actions to minimize the risk associated with Y2K to its operations
and financial condition. Occidental's operations moved into the year 2000
without interruption and the Y2K program has been considered a success.
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of this report, including Items 1 and 2 and the information appearing
under the caption Management's Discussion and Analysis of Financial Condition
and Results of Operations, contain forward-looking statements and involve risks
and uncertainties that could significantly affect expected results of
operations, liquidity and cash flows. Factors that could cause results to differ
materially include, but are not limited to: global commodity pricing
fluctuations; competitive pricing pressures; higher than expected costs
including feedstocks; the supply/demand considerations for Occidental's
products; any general economic recession domestically or internationally;
regulatory uncertainties; and not successfully completing any development of new
fields, expansion, capital expenditure, efficiency improvement, acquisition or
disposition. Forward-looking statements are generally accompanied by words such
as "estimate", "project", "predict", "believes" or "expect", that convey the
uncertainty of future events or outcomes. Occidental undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed might not occur.
REPORT OF MANAGEMENT
The management of Occidental Petroleum Corporation is responsible for the
integrity of the financial data reported by Occidental and its subsidiaries.
Fulfilling this responsibility requires the preparation and presentation of
consolidated financial statements in accordance with generally accepted
accounting principles. Management uses internal accounting controls,
corporate-wide policies and procedures and judgment so that such statements
reflect fairly the consolidated financial position, results of operations and
cash flows of Occidental.
27
30
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors, Occidental Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of
OCCIDENTAL PETROLEUM CORPORATION (a Delaware corporation) and consolidated
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, comprehensive income and cash
flows for each of the three years in the period ended December 31, 1999
(included on pages 29 through 57). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Occidental Petroleum
Corporation and consolidated subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the exhibit index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 3, 2000 (except with
respect to the matters discussed
in Note 18, as to which the
date is March 8, 2000)
28
31
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(In millions, except per-share amounts)
1999 1998 1997
================================================================== ======= ======= =======
REVENUES
Net sales and operating revenues
Oil and gas operations $ 4,572 $ 3,621 $ 3,667
Chemical operations 3,038 2,975 4,349
------- ------- -------
7,610 6,596 8,016
Interest, dividends and other income 913 261 88
Gains(losses) on disposition of assets, net (13) 546 (4)
Income(loss) from equity investments 41 (22) 1
------- ------- -------
8,551 7,381 8,101
------- ------- -------
COSTS AND OTHER DEDUCTIONS
Cost of sales 5,059 4,462 5,060
Selling, general and administrative and other operating expenses 645 678 797
Write-down of assets 212 30 205
Depreciation, depletion and amortization of assets 805 835 822
Environmental remediation -- -- 136
Minority interest 58 1 --
Exploration expense 75 128 119
Interest and debt expense, net 498 559 434
------- ------- -------
7,352 6,693 7,573
------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 1,199 688 528
Provision for domestic and foreign income and other taxes 631 363 311
------- ------- -------
INCOME FROM CONTINUING OPERATIONS 568 325 217
Discontinued operations, net -- 38 (607)
Extraordinary loss, net (107) -- --
Cumulative effect of changes in accounting principles, net (13) -- --
------- ------- -------
NET INCOME(LOSS) $ 448 $ 363 $ (390)
======= ======= =======
EARNINGS(LOSS) APPLICABLE TO COMMON STOCK $ 442 $ 346 $ (478)
======= ======= =======
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 1.58 $ .88 $ .39
Discontinued operations, net -- .11 (1.82)
Extraordinary loss, net (.30) -- --
Cumulative effect of changes in accounting principles, net (.04) -- --
------- ------- -------
BASIC EARNINGS(LOSS) PER COMMON SHARE $ 1.24 $ .99 $ (1.43)
======= ======= =======
DILUTED EARNINGS(LOSS) PER COMMON SHARE $ 1.24 $ .99 $ (1.43)
================================================================== ======= ======= =======
The accompanying notes are an integral part of these financial statements.
29
32
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(In millions, except share amounts)
1999 1998
=================================================================== ======== ========
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 214 $ 96
Trade receivables, net of reserves of $24 in 1999 and $23 in 1998 559 340
Receivables from joint ventures, partnerships and other 215 1,586
Inventories 503 500
Prepaid expenses and other 197 181
Federal income taxes receivable -- 92
-------- --------
TOTAL CURRENT ASSETS 1,688 2,795
-------- --------
LONG-TERM RECEIVABLES, NET 168 121
-------- --------
EQUITY INVESTMENTS 1,754 1,959
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and gas operations 11,816 11,690
Chemical operations 4,437 3,549
Corporate and other 1,451 1,440
-------- --------
17,704 16,679
Accumulated depreciation, depletion and amortization (7,675) (6,774)
-------- --------
10,029 9,905
OTHER ASSETS 486 472
-------- --------
$ 14,125 $ 15,252
=================================================================== ======== ========
The accompanying notes are an integral part of these financial statements.
30
33
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(In millions, except share amounts)
1999 1998
=================================================================================== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 5 $ 1,400
Notes payable 29 30
Accounts payable 812 613
Accrued liabilities 738 774
Dividends payable 93 91
Obligation under natural gas delivery commitment 122 --
Domestic and foreign income taxes 168 23
-------- --------
TOTAL CURRENT LIABILITIES 1,967 2,931
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND UNAMORTIZED DISCOUNT 4,368 5,367
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 995 825
Obligation under natural gas delivery commitment 411 503
Other 2,123 2,258
-------- --------
3,529 3,586
-------- --------
CONTINGENT LIABILITIES AND COMMITMENTS
MINORITY INTEREST 252 5
-------- --------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF OCCIDENTAL 486 --
-------- --------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, $1.00 par value;
authorized 50 million shares; outstanding shares:
1999--None and 1998--4,852,294; stated at liquidation value of $50 per share -- 243
Common stock, $.20 par value; authorized 500 million shares; outstanding shares:
1999--367,916,297 and 1998--347,721,914 73 69
Additional paid-in capital 3,787 3,814
Retained earnings(deficit) (286) (734)
Accumulated other comprehensive income (51) (29)
-------- --------
3,523 3,363
-------- --------
$ 14,125 $ 15,252
=================================================================================== ======== ========
The accompanying notes are an integral part of these financial statements.
31
34
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
Accum-
ulated
Non- Other
Redeemable ESOP Unearned Additional Compre- Retained
Preferred Preferred ESOP Common Paid-in hensive Earnings
Stock Stock Shares Stock Capital Income (Deficit)
============================== ========== ========= ========= ========== ======= ======== ========
BALANCE, DECEMBER 31, 1996 $ 1,325 $ 1,400 $(1,394) $ 66 $ 4,463 $ (12) $ (708)
Net income (loss) -- -- -- -- -- -- (390)
Other comprehensive income,
net of tax -- -- -- -- -- 1 --
Dividends on common stock -- -- -- -- (335) -- --
Dividends on preferred stock -- -- -- -- (88) -- --
Issuance of common stock -- -- -- -- 23 -- --
Release of ESOP shares -- -- 46 -- (29) -- --
Repurchase and retirement of
common stock -- -- -- (1) (118) -- --
Preferred stock conversions (200) -- -- 3 197 -- --
Exercises of options and
other, net -- -- -- -- 36 -- 1
- ------------------------------ ------- ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1997 $ 1,125 $ 1,400 $(1,348) $ 68 $ 4,149 $ (11) $(1,097)
Net income -- -- -- -- -- -- 363
Other comprehensive income,
net of tax -- -- -- -- -- (18) --
Dividends on common stock -- -- -- -- (354) -- --
Dividends on preferred stock -- -- -- -- (17) -- --
Issuance of common stock -- -- -- -- 28 -- --
Release/Retirement of
ESOP shares -- (1,400) 1,348 -- 52 -- --
Repurchase and retirement of
common stock -- -- -- (7) (930) -- --
Preferred stock conversions (882) -- -- 8 874 -- --
Exercises of options and
other, net -- -- -- -- 12 -- --
- ------------------------------ ------- ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1998 $ 243 $ -- $ -- $ 69 $ 3,814 $ (29) $ (734)
Net income -- -- -- -- -- -- 448
Other comprehensive income,
net of tax -- -- -- -- -- (22) --
Dividends on common stock -- -- -- -- (358) -- --
Dividends on preferred stock -- -- -- -- (7) -- --
Issuance of common stock -- -- -- 1 88 -- --
Preferred stock
conversions/redemptions (243) -- -- 3 240 -- --
Exercises of options and
other, net -- -- -- -- 10 -- --
- ------------------------------ ------- ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1999 $ -- $ -- $ -- $ 73 $ 3,787 $ (51) $ (286)
============================== ======= ======= ======= ======= ======= ======= =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
(In millions)
1999 1998 1997
================================================================= ===== ===== =====
Net income(loss) $ 448 $ 363 $(390)
Other comprehensive income items:
Foreign currency translation adjustments (23) (14) (20)
Minimum pension liability adjustment -- -- 17
Other 1 (4) 4
----- ----- -----
Other comprehensive income, net of tax (22) (18) 1
----- ----- -----
Comprehensive income $ 426 $ 345 $(389)
================================================================= ===== ===== =====
The accompanying notes are an integral part of these financial statements.
32
35
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In millions)
1999 1998 1997
===================================================================================== ======= ======= =======
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 568 $ 325 $ 217
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation, depletion and amortization of assets 805 835 822
Amortization of debt discount and deferred financing costs 12 22 11
Deferred income tax provision 183 275 (9)
Other noncash charges to income 275 10 426
(Gains) losses on disposition of assets, net and litigation settlement (762) (546) 4
(Income) loss from equity investments (41) 22 (1)
Exploration expense 75 128 119
Changes in operating assets and liabilities:
Decrease(increase) in accounts and notes receivable (269) 54 (125)
Decrease(increase) in inventories 27 (43) (20)
Decrease(increase) in prepaid expenses and other assets 13 (65) (75)
Increase(decrease) in accounts payable and accrued liabilities 90 (176) 13
Increase(decrease) in current domestic and foreign income taxes 263 (242) (66)
Other operating, net (195) (275) (185)
------- ------- -------
1,044 324 1,131
Operating cash flow from discontinued operations -- (244) 266
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,044 80 1,397
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (601) (1,074) (1,549)
Sale of businesses and disposal of property, plant and equipment, net 52 3,378 120
Proceeds from litigation settlement 775 -- --
Collection of note receivable 1,395 -- --
Buyout of operating leases (17) (41) (21)
Purchase of businesses, net (127) (3,528) (22)
Dividends from equity investments and other, net 114 55 46
------- ------- -------
1,591 (1,210) (1,426)
Investing cash flow from discontinued operations -- (6) (79)
------- ------- -------
NET CASH PROVIDED(USED) BY INVESTING ACTIVITIES 1,591 (1,216) (1,505)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 835 1,775 105
Net proceeds from (repayments of) commercial paper and revolving credit agreements (2,201) 811 667
Payments of long-term debt and capital lease liabilities (1,305) (679) (374)
Proceeds from issuance of common stock 21 29 21
Proceeds from issuance of trust preferred securities 508 -- --
Repurchase of trust preferred securities (21) -- --
Proceeds from gas sale commitment -- 500 --
Proceeds(payments) of notes payable, net 9 (4) 17
Repurchase of common stock -- (937) (119)
Cash dividends paid (363) (387) (422)
Other financing, net -- 11 15
------- ------- -------
(2,517) 1,119 (90)
Financing cash flow from discontinued operations -- -- 53
------- ------- -------
NET CASH PROVIDED(USED) BY FINANCING ACTIVITIES (2,517) 1,119 (37)
------- ------- -------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 118 (17) (145)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 96 113 258
------- ------- -------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 214 $ 96 $ 113
===================================================================================== ======= ======= =======
The accompanying notes are an integral part of these financial statements.
33
36
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Occidental
Petroleum Corporation, all entities where Occidental has majority ownership of
voting interests and Occidental's proportionate interests in oil and gas
exploration and production ventures. All material intercompany accounts and
transactions have been eliminated. Investments in less than majority-owned
enterprises, except for oil and gas exploration and production ventures, are
accounted for on the equity method (see Note 15).
In addition, certain financial statements, notes and supplementary data for
prior years have been changed to conform to the 1999 presentation.
NATURE OF OPERATIONS
Occidental is a multinational organization whose principal lines of business are
oil and gas exploration and production and chemicals. In oil and gas, Occidental
has active exploration and production in the United States including the Gulf of
Mexico and in eight other countries. Occidental's OxyChem subsidiary is a
leading chemical manufacturer, with interests in basic chemicals (principally
chlorine and caustic soda), vinyls, petrochemicals and specialty products.
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the consolidated financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts, generally not by
material amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of Occidental's financial
position and results of operations.
Included in the accompanying balance sheet is net property, plant and
equipment at a carrying value of approximately $10.0 billion as of December 31,
1999. These carrying values are based on Occidental's plans and intentions to
continue to operate, maintain and, where it is economically desirable, to expand
its businesses. If future economic conditions result in changes in management's
plans or intentions, the carrying values of the affected assets will be reviewed
again and any appropriate adjustments made.
Included in the accompanying consolidated balance sheet are deferred tax
assets of $1.032 billion as of December 31, 1999, the noncurrent portion of
which is netted against deferred income tax liabilities. Realization of these
assets is dependent upon Occidental generating sufficient future taxable income.
Occidental expects to realize the recorded deferred tax assets through future
operating income and reversal of taxable temporary differences.
The accompanying consolidated balance sheet includes assets of approximately
$1.9 billion as of December 31, 1999 relating to Occidental's operations in
countries outside North America. Some of these countries may be considered
politically and economically unstable. These assets and the related operations
are subject to the risk of actions by governmental authorities and insurgent
groups. Occidental attempts to conduct its financial affairs so as to mitigate
its exposure against such risks and would expect to receive compensation in the
event of nationalization.
Since Occidental's major products are commodities, significant changes in the
prices of oil and gas and chemical products could have a significant impact on
Occidental's results of operations for any particular year.
FOREIGN CURRENCY TRANSLATION
The functional currency applicable to all Occidental's foreign oil and gas
operations is the U.S. dollar since cash flows are denominated principally in
U.S. dollars. Occidental's chemical operations in Brazil use the real as the
functional currency. Brazil devalued the real in January 1999. The devaluation
had an unfavorable pre-tax income effect in 1999 on Occidental of approximately
$13 million. The effect of exchange-rate changes on transactions denominated in
nonfunctional currencies generated a loss of $11 million in 1999, a loss of $17
million in 1998 and a gain of approximately $7 million in 1997. The 1998 loss
was primarily due to the currency devaluation in Russia. The strength of the
U.S. dollar relative to the Canadian dollar negatively affected the foreign
currency translation adjustment in 1998. The currency devaluation in Thailand
and the strength of the U.S. dollar relative to other currencies negatively
affected the foreign currency translation adjustment and income from equity
investments in 1997.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid money-market mutual funds and bank
deposits with initial maturities of three months or less. Cash equivalents
totaled approximately $162 million and $58 million at December 31, 1999 and
1998, respectively.
TRADE RECEIVABLES
In 1992, Occidental entered into an agreement to sell, under a revolving sale
program, an undivided percentage ownership interest in a designated pool of
trade receivables, with limited recourse. Under this program, Occidental serves
as the collection agent with respect to the receivables sold. An interest in new
receivables is sold as collections
34
37
are made from customers. As of December 31, 1999 and 1998, Occidental had
received net cash proceeds totaling $360 million. Fees and expenses under this
program are included in selling, general and administrative and other operating
expenses. During the years ended December 31, 1999, 1998 and 1997, the cost of
this program amounted to approximately 5.5 percent, 5.9 percent and 5.9 percent,
respectively, of the weighted average amount of proceeds received.
INVENTORIES
Product and raw material inventories, except certain domestic chemicals, are
stated at cost determined on the first-in, first-out (FIFO) and average-cost
methods and did not exceed market value. The remaining product and raw material
inventories are stated at cost using the last-in, first-out (LIFO) method and
also did not exceed market value. Inventories of materials and supplies are
valued at cost or less (see Note 5).
PROPERTY, PLANT AND EQUIPMENT
Property additions and major renewals and improvements are capitalized at cost.
Interest costs incurred in connection with major capital expenditures are
capitalized and amortized over the lives of the related assets (see Note 16).
Depreciation and depletion of oil and gas producing properties is determined
principally by the unit-of-production method and is based on estimated
recoverable reserves. The unit-of-production method of depreciation, based on
estimated total productive life, also is used for certain chemical plant and
equipment. Depreciation of other plant and equipment has been provided primarily
using the straight-line method.
Oil and gas properties are accounted for using the successful-efforts method.
Costs of acquiring nonproducing acreage, costs of drilling successful
exploration wells and development costs are capitalized. Producing and
nonproducing properties are evaluated periodically and, if conditions warrant,
an impairment reserve is provided. Annually, a determination is made whether it
is probable that significant impairment of the carrying cost for individual
fields or groups of fields has occurred, considering a number of factors,
including profitability, political risk and Occidental's estimate of future oil
and gas prices. If impairment is believed probable, a further analysis is
performed using Occidental's estimate of future oil and gas prices to determine
any impairment to be recorded for specific properties. Annual lease rentals and
exploration costs, including geologic and geophysical costs and exploratory
dry-hole costs, are expensed as incurred.
At December 31, 1999 and 1998 corporate property, plant and equipment
included $1.2 billion for an intrastate gas pipeline owned by Occidental.
Accumulated depreciation, depletion and amortization included $407 million and
$377 million at December 31, 1999 and 1998, respectively, for such pipeline.
OTHER ASSETS
Other assets include tangible and intangible assets, certain of which are
amortized over the estimated periods to be benefited.
NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 consisted of short-term notes due to
financial institutions and other corporations. The weighted average interest
rate on short-term borrowings outstanding as of December 31, 1999 and 1998 was
11.2 percent and 11.1 percent, respectively. The notes payable balance at
December 31, 1999 and 1998 included high-rate notes denominated in Brazilian
reals.
ACCRUED LIABILITIES--CURRENT
Accrued liabilities include the following (in millions):
Balance at December 31, 1999 1998
================================================================================= ===== =====
Accrued payroll, commissions and related expenses $ 130 $ 103
Accrued interest expense $ 101 $ 106
- --------------------------------------------------------------------------------- ----- -----
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Reserves for estimated costs that relate to existing
conditions caused by past operations and that do not contribute to current or
future revenue generation are recorded when environmental remedial efforts are
probable and the costs can be reasonably estimated. In determining the reserves,
Occidental uses the most current information available, including similar past
experiences, available technology, regulations in effect, the timing of
remediation and cost-sharing arrangements. The environmental reserves are based
on management's estimate of the most likely cost to be incurred and are reviewed
periodically and adjusted as additional or new information becomes available.
Probable recoveries or reimbursements are recorded as an asset. The
environmental reserves are included in accrued liabilities and other noncurrent
liabilities and amounted to $88 million and $366 million, respectively, at
December 31, 1999 and $127 million and $451 million, respectively, at December
31, 1998.
Environmental reserves are discounted only when the aggregate amount of the
estimated costs for a specific site and the timing of cash payments are reliably
determinable. As of December 31, 1999 and 1998, reserves that were recorded on a
discounted basis were not material.
35
38
DISMANTLEMENT, RESTORATION AND RECLAMATION COSTS
The estimated future abandonment costs of oil and gas properties and removal
costs for offshore production platforms, net of salvage value, are accrued over
their operating lives. Such costs are calculated at unit-of-production rates
based upon estimated proved recoverable reserves and are taken into account in
determining depreciation, depletion and amortization. For all other operations,
appropriate reserves are provided when a decision is made to dispose of a
property, since Occidental makes capital renewal expenditures on a continual
basis while an asset is in operation. Reserves for dismantlement, restoration
and reclamation costs are included in accrued liabilities and in other
noncurrent liabilities and amounted to $3 million and $76 million, respectively,
at December 31, 1999 and $3 million and $98 million, respectively, at December
31, 1998.
DERIVATIVE ACTIVITIES
Occidental periodically uses commodity futures contracts, options and swaps to
hedge the impact of oil and natural gas price fluctuations and uses forward
exchange contracts to hedge the risk associated with fluctuations in foreign
currency exchange rates. Emerging Issues Task Force (EITF) Issue No. 98-10
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" was implemented in the first quarter of 1999. Oil and gas trading
contracts are measured at fair value on the balance sheet date. Gains and losses
on such contracts are recognized in periodic income. Except where a right of
setoff exists, gains are recognized as accrued receivables and losses are
recognized as accrued payables. Gains and losses on commodity futures contracts
that qualify for hedge accounting, essentially those associated with equity
production or purchases, are deferred until recognized as an adjustment to sales
revenue or purchase costs when the related transaction being hedged is
finalized. Accounting for these contracts will continue according to current
hedge policy until Statement of Financial Standard (SFAS) No. 133 - "Accounting
for Derivative Instruments and Hedging Activities" is adopted in 2001. Gains and
losses on foreign currency forward exchange contracts that hedge identifiable
future commitments are deferred until recognized when the related item being
hedged is settled. All other contracts are recognized in periodic income. The
cash flows from such contracts are included in operating activities in the
consolidated statements of cash flows.
Interest rate swaps and futures are entered into, from time to time, on
specific debt as part of Occidental's overall strategy to maintain part of its
debt on a floating-rate basis. Interest rate swaps outstanding at December 31,
1999 were not significant.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the years 1999, 1998 and 1997 included federal, foreign and
state income taxes of approximately $105 million, $212 million and $182 million,
respectively. Interest paid (net of interest capitalized) totaled approximately
$468 million, $491 million and $404 million for the years 1999, 1998 and 1997,
respectively. See Note 3 for detail of noncash investing and financing
activities regarding certain acquisitions.
NOTE 2 FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
COMMODITY FUTURES AND FORWARD CONTRACTS
Occidental's oil and gas segment engages in commodity derivative activity, both
for the purpose of hedging and trading activities. The resulting energy trading
contracts are measured at fair value on the balance sheet date. Gains and losses
on such contracts are recognized in periodic income. Gains and losses on
commodity futures contracts that qualify for hedge accounting, essentially those
associated with equity production or purchases, are deferred until recognized as
an adjustment to sales revenue or purchase costs when the related transaction
being hedged is finalized.
FORWARD EXCHANGE AND INTEREST RATE CONTRACTS
Occidental is engaged in both oil and gas and chemical activities
internationally. International oil and gas transactions are mainly denominated
in U.S. dollars; consequently, foreign currency exposure is not deemed material.
Many of Occidental's foreign oil and gas operations and foreign chemical
operations are located in countries whose currencies generally depreciate
against the U.S. dollar on a continuing basis. An effective currency forward
market does not exist for these countries; therefore, Occidental attempts to
manage its exposure primarily by balancing monetary assets and liabilities and
maintaining cash positions only at levels necessary for operating purposes.
Additionally, all of Occidental's oil and gas foreign entities have the U.S.
dollar as the functional currency since the cash flows are mainly denominated in
U.S. dollars. The effect of exchange rate transactions in foreign currencies is
included in periodic income. Foreign currencies which are in a net liability
position are thus protected from the unfavorable effects of devaluation. For
entities that have a net foreign currency asset position, Occidental attempts to
maintain those positions at low levels to mitigate exposure to currency
devaluation. At December 31, 1999, Occidental had one foreign currency forward
purchase exchange contract totaling $38 million which hedged foreign currency
denominated debt. This contract matures in 2000.
From time to time, Occidental enters into interest rate swaps and futures
contracts to hedge interest rates on debt. In November 1993, Occidental entered
into interest rate swaps on newly issued fixed-rate debt for notional amounts
totaling $530 million. This converted fixed-rate debt into variable-rate debt,
based on the London Interbank Offered Rate (LIBOR), with an interest rate of
5.65 percent at December 31, 1999. At December 31, 1999, $104 million notional
amount remains outstanding. The remaining agreements mature in November 2000.
Notional amounts do not
36
39
represent cash flow. Credit risk exposure, which is not material, is limited to
the net interest differentials. The swap rate difference resulted in less than
$1 million of income in 1999 and approximately $2 million of expense in each of
1998 and 1997, compared to what interest expense would have been had the debt
remained at fixed rates. The impact of the swaps on the weighted average
interest rates for all debt in 1999, 1998 and 1997 was not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Occidental values financial instruments as required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The carrying amounts of
cash and cash equivalents and short-term notes payable approximate fair value
because of the short maturity of those instruments. Occidental estimates the
fair value of its long-term debt based on the quoted market prices for the same
or similar issues or on the yields offered to Occidental for debt of similar
rating and similar remaining maturities. The estimated fair value of
Occidental's long-term debt at December 31, 1999 and 1998 was approximately $4.8
billion and approximately $5.7 billion, respectively, compared with a carrying
value of approximately $4.4 billion and approximately $5.4 billion,
respectively. The fair value of interest rate swaps and futures is the amount at
which they could be settled, based on estimates obtained from dealers. Based on
these estimates at December 31, 1999 and 1998, Occidental would pay
approximately $1 million and receive approximately $1 million, respectively, to
terminate its interest rate swap and futures agreements. Occidental will
continue its strategy of maintaining part of its debt on a floating-rate basis.
The carrying value of other on-balance sheet financial instruments
approximates fair value and the cost, if any, to terminate off-balance sheet
financial instruments is not significant.
Occidental values derivative financial instruments (a futures, forward, swap,
or option contract, or other financial instrument with similar characteristics)
as required by the SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments". The average fair value of
derivative financial instruments held or issued for trading purposes during 1999
was a $14 million loss. The fair value of these instruments at December 31, 1999
was $42 thousand. Offsetting the value of these instruments are related physical
positions with a $3 million loss. The approximate $3 million net loss was
reflected in the consolidated statements of operations. The gross value of these
positions has been reflected on the accompanying consolidated balance sheet as
$49 million of accrued receivables and $52 million of accrued liabilities. The
obligations' net positions, most of which expire in 2000, cover 10 billion cubic
feet of natural gas. No defaults are expected nor anticipated. The risk
portfolio is spread out over approximately 70 counterparties. The majority of
the exposure is with institutional banks and with market leaders in the
industry. Counterparty creditworthiness is reviewed before doing business with a
new counterparty and on an on-going basis. The derivative financial instruments
held for purposes other than trading expire during the period from January 2000
to December 2003 and relate to the hedging of natural gas and crude oil prices.
The fair value of these instruments at December 31, 1999 was $35 million.
Offsetting the value of these instruments are related physical positions with a
$38 million loss. The principal components of these instruments and related
physical positions are the natural gas delivery commitment and the related
natural gas price swap discussed in Note 7. At December 31, 1999, the difference
between the carrying value and the fair value of financial instruments held for
purposes other than trading was an unrealized loss of approximately $3 million,
which is currently deferred. Any gain or loss will be recognized when the
related transactions are finalized.
The results of oil and gas trading activities were not significant.
NOTE 3 BUSINESS COMBINATIONS, ASSET ACQUISITIONS AND DISPOSITIONS, AND
DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged certain oil
and gas assets. Occidental received assets that will enhance its programs to
further focus exploration and production activities and achieve cost savings
through operational benefits. Occidental received producing properties and
exploration acreage in its expanding California asset base, as well as producing
properties in the western Gulf of Mexico near existing operations in exchange
for oil and gas production and reserves in east Texas. Occidental also farmed
out Oklahoma panhandle properties to EOG and retained a carried interest.
In December 1999, Occidental entered into an agreement to sell its producing
properties in Peru to Pluspetrol. The closing is subject to government approval.
In connection with this transaction, Occidental recorded an after-tax charge of
approximately $29 million to write-down the properties to their fair values.
In the third quarter of 1999, pursuant to a series of transactions,
Occidental indirectly acquired the remaining ownership of INDSPEC Chemical
Corporation (INDSPEC) through the issuance of approximately 3.2 million shares
of Occidental common stock at an estimated value of approximately $68 million
and the assumption of approximately $80 million of bank debt. As a result of the
transactions, Occidental owns 100 percent of the stock of INDSPEC, which is a
leading manufacturer of resorcinol, a bonding agent principally used in tires
and as a flame retardant.
In the third quarter of 1999, Occidental acquired Unocal International
Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired
Occidental's properties in Bangladesh. The results, after tax benefits, did not
have a significant impact on earnings.
Effective April 30, 1999, Occidental and The Geon Company (Geon) formed two
partnerships. Occidental has a 76 percent interest in the polyvinyl chloride
(PVC) commodity resin partnership, (OxyVinyls), which is the larger of the
partnerships, and a 10 percent interest in a PVC powder compounding partnership.
OxyVinyls also has entered into
37
40
long-term agreements to supply PVC resin to Geon and vinyl chloride monomer
(VCM) to Occidental and Geon. In addition, as part of the transaction,
Occidental sold its pellet compounding plant in Pasadena, Texas and its vinyl
film assets in Burlington, New Jersey to Geon. As part of the transaction, Geon
received approximately $104 million through the retention of working capital and
the distribution of cash from OxyVinyls, and OxyVinyls undertook approximately
$180 million in obligations for certain Geon plant facilities, which are treated
as operating leases for accounting purposes. Occidental did not record a
significant gain or loss on the transaction.
In February 1998, Occidental acquired the U.S. government's approximate 78
percent interest in the Elk Hills Naval Petroleum Reserve oil and gas fields
(Elk Hills field) for approximately $3.5 billion. Occidental's results of
operations include the operations of the Elk Hills field from the date of
acquisition. Pro forma net income for the year ended December 31, 1998,
including historical Elk Hills results as if the acquisition had occurred at
January 1, 1998, would not have been materially different. Pro forma net income
for the year ended December 31, 1997, including historical Elk Hills results as
if the acquisition had occurred at January 1, 1997, would have been a loss of
$416 million (a loss of $1.51 per share). Pro forma revenues would have been
$7.4 billion and $8.6 billion for the years ended December 31, 1998 and 1997,
respectively. The pro forma calculations were made with historical operating
results for the Elk Hills field prior to ownership by Occidental and give effect
to certain adjustments including increased depreciation, depletion and
amortization to reflect the value assigned to Elk Hills property, plant and
equipment, increased interest expense assuming the acquisition was completely
financed, and income and property tax effects, but did not reflect anticipated
future production enhancements in the Elk Hills field and operational cost
improvements expected to be realized.
Additionally in 1998, Occidental and the Royal Dutch/Shell Group (Shell)
exchanged Occidental's oil and gas interests in the Philippines and Malaysia for
Shell's oil and gas interests in Yemen and Colombia. Shell also received a cash
payment of approximately $89 million. No gain or loss was recorded on the
transaction.
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
and ethylene glycol derivatives businesses (collectively, the petrochemicals
business) to a partnership called Equistar Chemicals LP (Equistar), in return
for a 29.5 percent interest in such partnership, receipt of approximately $420
million in cash and the assumption by Equistar of approximately $205 million of
Occidental capital lease liabilities. Occidental guaranteed $625 million of
Equistar's debt related to these amounts. Lyondell Petrochemical Company
(Lyondell) and Millennium Chemicals, Inc. (Millennium), through their respective
subsidiaries, were the original partners of Equistar. Lyondell owns 41 percent
of Equistar and Occidental and Millennium each own 29.5 percent. Occidental did
not record a gain or loss on the transaction.
In 1998, Occidental completed a number of international and domestic asset
sales as part of an asset redeployment program. The sale of major nonstrategic
oil and gas properties included Occidental's entire interest in an oilfield
development project in Venezuela, the stock of the subsidiary which owned its
oil and gas assets in the Netherlands and the North Sea, as well as various
domestic properties. Net proceeds from all major nonstrategic oil and gas asset
sales were $1.1 billion, and the total net pre-tax gain was $532 million, which
is included in the total gain from disposition of assets of $546 million.
Occidental completed the sale of all of the issued and outstanding shares of
common stock of MidCon, its natural gas transmission and marketing business, to
K N Energy, Inc. (K N Energy), on January 31, 1998 in return for a cash payment
of $2.1 billion. The estimated net cash proceeds from the transaction were
approximately $1.7 billion. Additionally, K N Energy issued a fixed-rate
interest bearing note, payable January 4, 1999, to Occidental in the amount of
$1.4 billion, in exchange for a note previously issued to Occidental by the
MidCon Corp. ESOP Trust (the Trust). The $1.4 billion note was repaid on January
4, 1999. MidCon also retained responsibility for certain Texas intrastate
pipeline lease obligations to an Occidental subsidiary. In connection with the
sale, the Cumulative MidCon-Indexed Convertible Preferred Stock (CMIC Preferred
Stock) was redeemed.
In the fourth quarter of 1997 Occidental classified MidCon and its
subsidiaries as a discontinued operation and recorded an estimated after-tax
charge against earnings of $750 million. The $607 million net loss in 1997 from
discontinued operations included the charge on the sale and $143 million in net
income from the operation for the year.
In 1997, Occidental sold a chlor-alkali chemical plant located in Tacoma,
Washington for approximately $102 million, which included $97 million in cash
and the balance in the buyer's convertible preferred stock. Also in 1997,
Occidental purchased 28,000 shares of preferred stock of Leslie's Poolmart, Inc.
(Leslie's), a customer of Occidental, for total consideration of $28 million,
which consisted of cash and the exchange of $10 million of Leslie's subordinated
debentures held by Occidental. In 1999, Occidental sold essentially all of its
investment in Leslie's and recorded an insignificant gain.
NOTE 4 EXTRAORDINARY LOSS AND ACCOUNTING CHANGES AND OTHER TRANSACTIONS
- --------------------------------------------------------------------------------
In December 1999, OXY USA settled its long-standing litigation with Chevron
U.S.A. Inc. (Chevron) for a cash payment of $775 million from Chevron. The
related pre-tax income of $775 million is reported as interest, dividends and
other income in the accompanying consolidated statements of operations.
Following the receipt of the proceeds from the Chevron settlement, Occidental
repurchased for cash, $240 million principal amount of its 10.125 percent Senior
Notes due November 15, 2001, and $138 million principal amount of its 11.125
percent Senior Notes due August 1, 2010 and redeemed all of OXY USA's $274
million principal amount of 7 percent debentures due 2011 for a total of $722
million, including premium, expenses and accrued interest.
38
41
Occidental recorded an after-tax extraordinary loss of $104 million in the
fourth quarter of 1999 related to the transactions. The 1999 total year results
included a net extraordinary loss of $107 million, which resulted from the early
extinguishment of high-cost debt.
The 1999 results included pre-tax charges of $159 million for the write-down
to realizable value of certain chemical assets, $28 million for write-downs by
Equistar and $9 million for various oil and gas assets.
In June 1999, Occidental redeemed $68.7 million of its 11.125 percent senior
debentures due June 1, 2019 and recorded an after-tax extraordinary loss of $3
million in the second quarter of 1999 related to the redemption.
Effective January 1, 1999, Occidental adopted the provisions of Statement of
Position 98-5--"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which
requires that costs of start-up activities, including organizational costs, be
expensed as incurred. The initial application of the statement resulted in a
charge to income for costs of previously capitalized start-up activities that
have not yet been fully amortized. The initial adoption of SOP 98-5 resulted in
a first quarter noncash after-tax charge of $15 million, net of $8 million in
taxes, which has been recorded as a cumulative effect of a change in accounting
principle.
Effective January 1, 1999, Occidental adopted the provisions of EITF Issue
No. 98-10--"Accounting for Contracts Involved in Energy Trading and Risk
Management Activities," which establishes accounting and reporting standards for
certain energy trading contracts. EITF Issue No. 98-10 requires that energy
trading contracts must be marked-to-market with gains and losses included in
earnings and separately disclosed in the financial statements or footnotes
thereto. The initial adoption of EITF Issue No. 98-10 resulted in a first
quarter noncash after-tax benefit of $2 million, recorded as a cumulative effect
of a change in accounting principle.
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
130--"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The implementation of SFAS No. 130 did
not have an impact on Occidental's results of operations. The prior year
financial statements have been restated to conform to the new presentation.
Occidental's comprehensive income is composed primarily of net income or loss,
foreign currency translation adjustments and minimum pension liability
adjustments. Occidental's comprehensive income was $426 million in 1999, $345
million in 1998 and a loss of $389 million in 1997.
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131--"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for reporting and display of information about
operating segments. It supersedes or amends several Financial Accounting
Standards Board (FASB) statements, most notably, SFAS No. 14--"Financial
Reporting for Segments of a Business Enterprise." The implementation of SFAS No.
131 did not have an impact on Occidental's consolidated financial position or
results of operations. Accordingly, 1997 segment disclosures have been restated.
NOTE 5 INVENTORIES
- --------------------------------------------------------------------------------
Inventories of approximately $246 million and $253 million were valued under the
LIFO method at December 31, 1999 and 1998, respectively. Inventories consisted
of the following (in millions):
Balance at December 31, 1999 1998
============================================================================== ===== =====
Raw materials $ 60 $ 38
Materials and supplies 167 184
Work in process 7 5
Finished goods 294 278
----- -----
528 505
LIFO reserve (25) (5)(a)
----- -----
TOTAL $ 503 $ 500
============================================================================== ===== =====
(a) In 1998, the total year LIFO liquidation credited to income was
approximately $4 million.
39
42
NOTE 6 LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following (in millions):
Balance at December 31, 1999 1998
============================================================================== ======= =======
OCCIDENTAL PETROLEUM CORPORATION
7.65% senior notes due 2006 $ 450 $ --
6.4% senior notes due 2013, subject to remarketing April 1, 2003 450 450
Medium-term notes due 2000 through 2008 (6.22% to 11% at December 31, 1999) 427 640
7.375% senior notes due 2008 400 400
8.45% senior notes due 2029 350 --
9.25% senior debentures due 2019, putable August 1, 2004 at par 300 300
10.125% senior debentures due 2009 276 276
Floating rate extendible notes due 2008 (6.78375% at December 31, 1999) 270 270
6.5% senior notes due 2005 250 250
6.75% senior notes due 2002 200 200
7.2% senior debentures due 2028 200 200
8.5% senior notes due 2001 150 150
8.75% medium-term notes due 2023 100 100
10.125% senior notes due 2001 90 330
11.125% senior debentures due 2019, callable June 1, 1999 at 105.563,
declining to par on June 1, 2009 75 144
11.125% senior notes due 2010 12 150
8.5% medium-term notes due 2004, called September 15, 1999 at par -- 250
Commercial paper -- 2,023
Revolving credits -- 105
------- -------
4,000 6,238
------- -------
OXY USA INC
5.7% to 7.8% unsecured notes due 2000 through 2007 48 50
7.2% unsecured notes due 2020 7 7
7% debentures due 2011, called December 22, 1999 at par -- 274
6.625% debentures due August 1, 1999, called May 17, 1999 at par -- 54
------- -------
55 385
------- -------
OTHER SUBSIDIARY DEBT
3.5% to 7.67% unsecured notes due 2000 through 2030 321 275
6% secured notes due 2000 through 2007 17 8
------- -------
338 283
------- -------
4,393 6,906
Less:
Unamortized discount, net (21) (141)
Current maturities (4) (1,398)
------- -------
TOTAL $ 4,368 $ 5,367
============================================================================== ======= =======
At December 31, 1999, $550 million of notes due in 2000 were classified as
non-current since it is management's intention to refinance this amount on a
long-term basis by issuing long-term debt. In addition, at December 31, 1999,
Occidental had available lines of committed bank credit of approximately $2.1
billion. Bank fees on these committed lines of credit ranged from 0.125 percent
to 0.150 percent.
At December 31, 1999, minimum principal payments on long-term debt, including
sinking fund requirements, subsequent to December 31, 2000 aggregated $4.389
billion, of which $276 million is due in 2001, $801 million in 2002, $514
million in 2003, $325 million in 2004, $352 million in 2005 and $2.121 billion
thereafter. Unamortized discount is generally being amortized to interest
expense on the effective interest method over the lives of the related issues.
At December 31, 1999, under the most restrictive covenants of certain
financing agreements, the capacity for the payment of cash dividends and other
distributions on, and for acquisitions of, Occidental's capital stock was
approximately $1.4 billion, assuming that such dividends, distributions and
acquisitions were made without incurring additional borrowings.
40
43
NOTE 7 ADVANCE SALE OF CRUDE OIL AND NATURAL GAS DELIVERY COMMITMENT
- --------------------------------------------------------------------------------
In December 1995, Occidental entered into a transaction with Clark USA, Inc.
(Clark) under which Occidental agreed to deliver approximately 17.7 million
barrels of West Texas Intermediate (WTI)-equivalent oil over a six-year period.
In exchange, Occidental received $100 million in cash and approximately 5.5
million shares of Clark common stock. Occidental has accounted for the
consideration received in the transaction as deferred revenue, which is being
amortized into revenue as WTI-equivalent oil is produced and delivered during
the term of the agreement. Reserves dedicated to the transaction are excluded
from the estimate of proved oil and gas reserves (see Supplemental Oil and Gas
Information). At December 31, 1999, 5.5 million barrels remain to be delivered.
In November 1998, Occidental entered into a natural gas delivery commitment
for proceeds of $500 million, which obligates Occidental to deliver 263 billion
cubic feet of natural gas over a four-year period beginning in 2000. The imputed
interest rate in the transaction is approximately 6 percent. In connection with
this transaction, Occidental simultaneously entered into a natural gas price
swap based on identical volumes of natural gas and a delivery schedule that
corresponds to the natural gas delivery commitment. Under the terms of the swap,
Occidental will pay an average fixed price of $2.27 per thousand cubic feet of
gas and will receive a floating price that will approximate market which
mitigates Occidental's price exposure. The fair value of this price swap is a
$38 million gain, which is offset by a $38 million loss applicable to the
related physical positions. This price swap is the principal component of the
fair value for derivative financial instruments disclosed in Note 2. Occidental
has the ability to satisfy the delivery commitment with open market purchases
and has not reduced its natural gas reserves for the commitment. At December 31,
1999, the future minimum delivery commitment under the contract expressed in
dollars and in volumes is as follows (dollars in millions, volumes in billions
of cubic feet):
VALUE VOLUMES
========================================================================= ======= =======
2000 $ 150 66
2001 150 66
2002 150 66
2003 147 65
------- -------
TOTAL 597 263
=======
Less:
Imputed interest (64)
Current portion (122)
-------
PRESENT VALUE OF NATURAL GAS DELIVERY COMMITMENT, NET OF CURRENT PORTION $ 411
========================================================================= =======
NOTE 8 LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The present value of net minimum capital lease payments, net of the current
portion, totaled $27 million and $29 million at December 31, 1999 and 1998,
respectively. These amounts are included in other liabilities.
Operating and capital lease agreements frequently include renewal and/or
purchase options and require Occidental to pay for utilities, taxes, insurance
and maintenance expense.
At December 31, 1999, future net minimum lease payments for capital and
operating leases (excluding oil and gas and other mineral leases) were the
following (in millions):
CAPITAL OPERATING
========================================================================= ========= =========
2000 $ 4 $ 81
2001 2 61
2002 1 42
2003 1 33
2004 1 21
Thereafter 40 161
--------- ---------
TOTAL MINIMUM LEASE PAYMENTS 49 $ 399
=========
Less:
Executory costs (2)
Imputed interest (19)
Current portion (1)
---------
PRESENT VALUE OF NET MINIMUM CAPITAL LEASE PAYMENTS, NET OF CURRENT PORTION $ 27
============================================================================= =========
Rental expense for operating leases, net of sublease rental income, was $93
million in 1999, $106 million in 1998 and $113 million in 1997. Rental expense
was net of sublease income of $9 million in 1999, $10 million in 1998 and $10
million in 1997. At December 31, 1999, sublease rental amounts included in the
future operating lease payments totaled $108 million, as follows (in millions):
2000--$9, 2001--$9, 2002--$7, 2003--$7, 2004--$7 and 2005 and thereafter--$69.
41
44
Occidental has guaranteed the residual value of certain leased assets of
approximately $152 million. If the assets are not purchased at the end of the
lease-term, Occidental would be obligated to pay any deficiency between the fair
value of the assets and the guaranteed residual; however, Occidental does not
expect to make payments under this provision.
Included in the 1999 and 1998 property, plant and equipment accounts were $59
million and $60 million, respectively, of property leased under capital leases
and $52 million and $49 million, respectively, of related accumulated
amortization.
NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
- --------------------------------------------------------------------------------
Occidental and certain of its subsidiaries have been named as defendants or as
potentially responsible parties in a substantial number of lawsuits, claims and
proceedings, including governmental proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and
corresponding state acts. These governmental proceedings seek funding,
remediation and, in some cases, compensation for alleged property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental is usually one of many companies in these proceedings, and has to
date been successful in sharing response costs with other financially sound
companies. Occidental has accrued reserves at the most likely cost to be
incurred in those proceedings where it is probable that Occidental will incur
remediation costs which can be reasonably estimated.
In December 1998, David Croucher and others filed suit in the Federal
District Court in Houston, Texas on behalf of persons claiming to have been
beneficiaries of the MidCon Employee Stock Ownership Plan (ESOP). The suit has
been certified as a class action. The plaintiffs allege that each of the U.S.
Trust Company of California (the ESOP Trustee) and the MidCon ESOP
Administrative Committee breached its fiduciary duty to the plaintiffs by
failing to properly value the securities held by the ESOP, and allege that
Occidental actively participated in such conduct. The plaintiffs claim that, as
a result of this alleged breach, the ESOP participants are entitled to an
additional aggregate distribution of at least $200 million and that Occidental
has been unjustly enriched and is liable for failing to make that distribution.
During the course of its operations, Occidental is subject to audit by taxing
authorities for varying periods in various tax jurisdictions.
At December 31, 1999, commitments for major capital expenditures during 2000
and thereafter were approximately $143 million.
Occidental has entered into agreements providing for future payments to
secure terminal and pipeline capacity, drilling services, electrical power,
steam and certain chemical raw materials. At December 31, 1999, the net present
value of the fixed and determinable portion of the obligations under these
agreements, which were used to collateralize financings of the respective
suppliers, aggregated $144 million, which was payable as follows (in millions):
2000--$17, 2001--$16, 2002--$15, 2003--$14, 2004--$13 and 2005 through
2016--$69. Payments under these agreements, including any variable component,
were $20 million in 1999, $19 million in 1998 and $16 million in 1997.
Occidental has certain other commitments under contracts, guarantees and
joint ventures, and certain other contingent liabilities.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing lawsuits,
claims and proceedings, audits, commitments, contingencies and related matters.
Several of these matters may involve substantial amounts, and if these were to
be ultimately resolved unfavorably to the full amount of their maximum potential
exposure, an event not currently anticipated, it is possible that such event
could have a material adverse effect upon Occidental's consolidated financial
position or results of operations. However, in management's opinion, after
taking into account reserves, it is unlikely that any of the foregoing matters
will have a material adverse effect upon Occidental's consolidated financial
position or results of operations.
NOTE 10 DOMESTIC AND FOREIGN INCOME AND OTHER TAXES
- --------------------------------------------------------------------------------
The domestic and foreign components of income(loss) from continuing operations
before domestic and foreign income and other taxes were as follows (in
millions):
For the years ended December 31, Domestic Foreign Total
============================================== ======== ======== ========
1999 $ 473 $ 726 $ 1,199
======== ======== ========
1998 $ 388 $ 300 $ 688
======== ======== ========
1997 $ (184) $ 712 $ 528
============================================== ======== ======== ========
42
45
The provisions(credits) for domestic and foreign income and other taxes
consisted of the following (in millions):
U.S. State
For the years ended December 31, Federal and Local Foreign Total
================================= ========= ========= ========= =========
1999
Current $ 76 $ 26 $ 346 $ 448
Deferred 184 7 (8) 183
--------- --------- --------- ---------
$ 260 $ 33 $ 338 $ 631
================================= ========= ========= ========= =========
1998
Current $ (113) $ 23 $ 178 $ 88
Deferred 249 29 (3) 275
--------- --------- --------- ---------
$ 136 $ 52 $ 175 $ 363
================================= ========= ========= ========= =========
1997
Current $ 52 $ 28 $ 240 $ 320
Deferred (12) (23) 26 (9)
--------- --------- --------- ---------
$ 40 $ 5 $ 266 $ 311
================================= ========= ========= ========= =========
The following is a reconciliation, stated as a percentage of pre-tax income,
of the U.S. statutory federal income tax rate to Occidental's effective tax rate
on income(loss) from continuing operations:
For the years ended December 31, 1999 1998 1997
=================================================== ==== ==== ====
U.S. federal statutory tax rate 35% 35% 35%
Operations outside the United States(a) 12 15 22
State taxes, net of federal benefit 2 5 1
Capital loss benefit -- (5) --
Nondeductible depreciation and other expenses -- -- 2
Other 4 3 (1)
---- ---- ----
Tax rate provided by Occidental 53% 53% 59%
=================================================== ==== ==== ====
(a) Included in these figures is the impact of not providing U.S. taxes on
the unremitted earnings of certain foreign subsidiaries. The effect of
this is to reduce the U.S. federal tax rate by approximately 7 percent in
1999, 6 percent in 1998 and 13 percent in 1997.
The tax effects of temporary differences and carryforwards resulting in
deferred income taxes at December 31, 1999 and 1998 were as follows (in
millions):
1999 1998
---------------------------- -----------------------------
DEFERRED DEFERRED Deferred Deferred
TAX TAX Tax Tax
Items resulting in temporary differences and carryforwards ASSETS LIABILITIES Assets Liabilities
=========================================================== =========== =========== ============ ===========
Property, plant and equipment differences $ 190 $ 695 $ 215 $ 938
Equity investments including partnerships -- 1,046 -- 698
Environmental reserves 152 -- 194 --
Postretirement benefit accruals 140 -- 147 --
State income taxes 95 -- 82 --
Tax credit carryforwards 60 -- 85 --
All other 427 141 364 103
----------- ----------- ----------- -----------
Subtotal 1,064 1,882 1,087 1,739
Valuation allowance (32) -- (63) --
----------- ----------- ----------- -----------
Total deferred taxes $ 1,032 $ 1,882 $ 1,024 $ 1,739
=========================================================== =========== =========== =========== ===========
Included in total deferred tax assets was a current portion aggregating $145
million and $110 million as of December 31, 1999 and 1998, respectively, that
was reported in prepaid expenses and other.
A deferred tax liability of approximately $120 million at December 31, 1999
has not been recognized for temporary differences related to Occidental's
investment in certain foreign subsidiaries primarily as a result of unremitted
earnings of consolidated subsidiaries, as it is Occidental's intention,
generally, to reinvest such earnings permanently.
The pension liability adjustments recorded directly to accumulated other
comprehensive income in 1997 was net of an income tax charge of $10 million.
43
46
The foreign currency translation adjustment included in other comprehensive
income was net of an income tax charge of $5 million in 1999 and a benefit of $6
million in both 1998 and 1997.
The extraordinary loss that resulted from the early extinguishment of debt
was reduced by an income tax benefit of $61 million in 1999.
The cumulative effect of changes in accounting principles in 1999 was reduced
by an income tax benefit of $7 million.
Discontinued operations included income tax charges of $21 million in 1998
and $240 million in 1997.
At December 31, 1999, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $60 million
available to reduce future income taxes. The alternative minimum tax credit
carryforward does not expire.
NOTE 11 NONREDEEMABLE PREFERRED STOCK, ESOP PREFERRED STOCK AND COMMON STOCK
- --------------------------------------------------------------------------------
The following is an analysis of nonredeemable preferred stock and common stock
(shares in thousands):
Nonredeemable
Preferred Common
Stock Stock
============================================================== ============= =============
BALANCE, DECEMBER 31, 1996 26,493 329,228
Issued -- 1,079
Preferred stock conversions (4,002) 14,276
Repurchase program -- (4,148)
Options exercised and other, net -- 692
- -------------------------------------------------------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 22,491 341,127
Issued -- 1,246
Preferred stock conversions (17,639) 40,098
Repurchase program -- (35,142)
Options exercised and other, net -- 393
- -------------------------------------------------------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 4,852 347,722
Issued -- 4,610
Preferred stock conversions/redemptions (4,852) 15,708
Options exercised and other, net -- (124)
- -------------------------------------------------------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 -- 367,916
============================================================== ============= =============
NONREDEEMABLE PREFERRED STOCK
Occidental has authorized 50,000,000 shares of preferred stock with a par value
of $1.00 per share. In February 1994, Occidental issued 11,388,340 shares of
$3.00 cumulative CXY-indexed convertible preferred stock in a public offering
for net proceeds of approximately $557 million. The shares were convertible into
Occidental common stock in accordance with a conversion formula that was indexed
to the market price of the common shares of Canadian Occidental Petroleum Ltd.
("CanadianOxy"). In August 1999, Occidental called for redemption all of the
outstanding shares of such preferred stock. From the date Occidental announced
the redemption to the date of redemption, holders of 3,125,837 shares of such
preferred stock converted their shares into approximately 9.9 million shares of
Occidental common stock. Occidental redeemed the remaining outstanding shares of
such preferred stock in September 1999. In 1999, in total, 4,847,130 shares of
CXY-indexed convertible preferred stock were converted by the holders into
15,708,176 shares of Occidental's common stock. In 1998 and 1997, 2,532,740
shares and 4,001,691 shares of CXY-indexed convertible preferred stock were
converted by the holders into 6,911,913 shares and 14,275,974 shares of
Occidental's common stock, respectively.
In February 1993, Occidental issued 11,500,000 shares of $3.875 cumulative
convertible preferred stock. In December 1994, Occidental issued 3,606,484
shares of $3.875 cumulative convertible voting preferred stock in connection
with the Placid acquisition. In response to Occidental's redemption of the
$3.875 preferred stock in March 1998, the holders thereof converted all of the
outstanding 15.1 million shares into 33.2 million shares of Occidental common
stock.
ESOP PREFERRED STOCK
In November 1996, Occidental established the MidCon Corp. Employee Stock
Ownership Plan (MidCon ESOP) for the benefit of employees of MidCon. Pursuant to
the MidCon ESOP, Occidental issued 1.4 million shares of its CMIC Preferred
Stock to the MidCon Corp. ESOP Trust. In conjunction with the sale of MidCon in
1998 the CMIC Preferred Stock was redeemed.
44
47
COMMON STOCK REPURCHASE PROGRAM
In 1998, Occidental completed the common stock repurchase program announced in
October 1997. Under the program, 39.3 million shares were repurchased and
retired for a total cost of $1.06 billion of which 35.1 million shares were
repurchased and retired in 1998 at a cost of $937 million.
STOCK INCENTIVE PLANS
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Options to purchase common stock of Occidental have been granted to officers and
employees under stock option plans adopted in 1987 and 1995. During 1999,
options for 1,663,653 shares became exercisable, and options for 5,761,042
shares were exercisable at December 31, 1999 at a weighted-average exercise
price of $23.25. Generally, these options vest over three years with a maximum
term of ten years and one month. At December 31, 1999, options with stock
appreciation rights (SAR) for 568,000 shares were outstanding, all of which were
exercisable.
The following is a summary of stock option transactions during 1999, 1998 and
1997 (shares in thousands):
1999 1998 1997
-------------------------- -------------------------- --------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
====================== ====== ============== ====== ============== ====== ==============
BEGINNING BALANCE 8,169 $ 24.065 6,769 $ 23.274 5,952 $ 22.637
Granted or issued 5,221 $ 19.577 2,443 $ 26.032 1,789 $ 25.058
Exercised (7) $ 17.750 (605) $ 22.310 (845) $ 22.219
Canceled or expired (350) $ 26.874 (438) $ 25.222 (127) $ 25.582
------ ------ ------
ENDING BALANCE 13,033 $ 23.249 8,169 $ 24.065 6,769 $ 23.274
====== ====== ======
OPTIONS EXERCISABLE
AT YEAR-END 5,761 4,400 4,005
====================== ====== ====== ======
For options outstanding at December 31, 1999 the exercise prices were
between $14.875 and $29.0625 and the weighted-average remaining contractual life
was approximately 8 years.
RESTRICTED STOCK AWARDS
Pursuant to the 1995 Incentive Stock Plan, employees may be awarded Occidental
restricted common stock at the par value of $.20 per share, with such shares
vesting after four years (five years for awards issued prior to December 1995)
or earlier under certain conditions. The related expense is amortized over the
vesting period. In 1999, 223,902 shares were awarded at a weighted-average
grant-date value of $20.563 per share; 85,451 shares were awarded in 1998 at a
weighted-average grant-date value of $28.519 per share; 149,885 shares were
awarded in 1997 at a weighted-average grant-date value of $23.375 per share;
171,649 shares were awarded in 1996 at a weighted-average grant-date value of
$21.431 per share; and 21,339 shares were awarded in 1995 at a weighted-average
grant-date value of $20.875 per share.
PERFORMANCE STOCK AWARDS AND OPTIONS
Performance stock awards were made to various executive officers in January
1997, 1998 and 1999 pursuant to the 1995 Incentive Stock Plan. The number of
shares of common stock to be received, under these awards, by such officers at
the end of the performance period will depend on the attainment of performance
objectives based either on a peer company comparison of total stockholder return
for such period, or in the case of divisional employees, a combination of total
stockholder return and return on assets of the division. The grantees will
receive shares of common stock in an amount ranging from zero to 175 percent of
the Target Share Award (as such amount is defined in the grant). The shares vest
or fail to vest by the end of the four-year performance term. In 1999, 502,531
shares were awarded at a weighted-average grant-date value of $16.875 per share;
134,705 shares were awarded in 1998 at a weighted-average grant-date value of
$29.3125 per share; 97,832 shares were awarded in 1997 at a weighted-average
grant-date value of $23.375 per share; and 101,630 shares were awarded in 1996
at a weighted-average grant-date value of $21.375 per share.
In 1997, 4,655,000 Performance Stock Options were granted to certain
executive officers at an exercise price of $25.375. Under the terms of these
grants, as amended in 1999, these options expire 10 years from the grant date
and will become vested upon the earlier of the following events occurring, at
which time the grants become fully vested and exercisable: (a) for twenty
consecutive trading days, the New York Stock Exchange closing price of
Occidental common stock must be $25 or more per share; or (b) July 2, 2002. As
of December 31, 1999, none of the options were exercisable.
Under the 1995 Stock Incentive Plan, a total of approximately 25,000,000
shares may be awarded. At December 31, 1999, 7,942,501 shares were available for
the granting of all future awards under these plans, all of which were available
to issue stock options, SARs, restricted stocks and performance stock awards.
45
48
Occidental accounts for these plans under Accounting Principles Board Opinion
No. 25. Had the compensation expense for these plans been determined in
accordance with SFAS No. 123--"Accounting for Stock Based Compensation" (SFAS
No. 123), Occidental's pro forma net income would have been $439 million in
1999, $358 million in 1998 and a loss of $394 million in 1997. Basic and diluted
earnings per share would have been $1.22 for 1999, $.97 for 1998 and a loss of
$1.44 for 1997. The method of accounting under SFAS No. 123 has not been applied
to options granted prior to January 1, 1995; therefore, the resulting pro forma
compensation expense may not be representative of that to be expected in future
years. The fair value of each option grant, for pro forma calculation purposes,
is estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively: dividend yield of 4.60, 3.84 and 3.99 percent; expected volatility
of 23.57, 22.91 and 22.37 percent; risk-free rate of return 5.86, 5.45 and 6.31
percent; and expected lives of 5 years.
1996 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
Under the 1996 Restricted Stock Plan for Non-Employee Directors, each
non-employee Director of the Company will receive awards of restricted common
stock each year as additional compensation for their services as a member of the
Board of Directors. A maximum of 50,000 shares of common stock may be awarded
under the Directors Plan and 18,800, 3,500, and 3,500 shares of common stock
were awarded during 1999, 1998 and 1997, respectively. At December 31, 1999,
20,950 shares of common stock were available for the granting of future awards.
NOTE 12 TRUST PREFERRED SECURITIES
- -------------------------------------------------------------------------------
In January 1999, Oxy Capital Trust I, a wholly-owned subsidiary of Occidental,
issued 21,000,000 shares of 8.16 percent Trust Originated Preferred Securities
(Trust Preferred Securities) to the public and 649,485 shares of Trust
Originated Common Securities (Common Securities) to Occidental. The proceeds of
such issuances were invested by Oxy Capital Trust I in $541.2 million aggregate
principal amount of Occidental's 8.16 percent Subordinated Deferrable Interest
Notes due 2039 (Trust Subordinated Notes). The Trust Subordinated Notes
represent the sole assets of Oxy Capital Trust I. The Trust Subordinated Notes
mature on January 20, 2039, bear interest at the rate of 8.16 percent payable
quarterly and are redeemable in whole, or in part, by Occidental beginning on
January 20, 2004 at 100 percent of the principal amount thereof, plus any
accrued and unpaid interest to the redemption date. The Trust Subordinated Notes
are unsecured obligations of Occidental and are junior in right of payment to
all present and future senior indebtedness of Occidental and are also
effectively subordinate to certain indebtedness of Occidental's consolidated
subsidiaries. Occidental may defer interest payments on the Trust Subordinated
Notes from time to time for a period not exceeding twenty consecutive quarters.
However, any unpaid quarterly interest payments on the Trust Subordinated Notes
will continue to accrue interest at 8.16 percent per annum.
Holders of the Trust Preferred Securities and Common Securities are entitled
to cumulative cash distributions at an annual rate of 8.16 percent of the
liquidation amount of $25 per security. The Trust Preferred Securities and
Common Securities will be redeemed upon repayment of the Trust Subordinated
Notes. If Occidental defers interest payments on the Trust Subordinated Notes,
Oxy Capital Trust I will defer distributions on the Trust Preferred Securities
and Common Securities during any deferral period. However, any unpaid quarterly
distributions on the Trust Preferred Securities and Common Securities will
continue to accrue with interest at 8.16 percent per annum.
Occidental has guaranteed, on a subordinated basis, distributions and other
payments due on the Trust Preferred Securities (the Guarantee). The Guarantee,
when taken together with Occidental's obligations under the Trust Subordinated
Notes and the indenture pursuant to which the Trust Subordinated Notes were
issued and Occidental's obligations under the Amended and Restated Declaration
of Trust governing Oxy Capital Trust I, provides a full and unconditional
guarantee of amounts due on the Trust Preferred Securities.
The Trust Subordinated Notes and the related Oxy Capital Trust I investment
in the Trust Subordinated Notes have been eliminated in consolidation and the
Trust Preferred Securities are reported as Occidental Obligated Mandatorily
Redeemable Trust Preferred Securities of a Subsidiary Trust Holding Solely
Subordinated Notes of Occidental in the accompanying consolidated financial
statements. Distributions on the Trust Preferred Securities are reported under
the caption minority interest in the statement of operations. Total net proceeds
to Occidental were $508 million. The balance reflected in the accompanying
consolidated financial statements at December 31, 1999 is net of issue costs and
also reflects amortization of a portion of the issue costs, and the repurchase
during 1999 of 937,436 shares with a liquidation value of $23.4 million.
46
49
NOTE 13 EARNINGS PER SHARE
- --------------------------------------------------------------------------------
In 1997, Occidental adopted SFAS No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share. Basic
earnings per share was computed by dividing net income, less preferred dividend
requirements, plus the effect of repurchase of Trust Preferred Securities by the
weighted average number of common shares outstanding during each year. The
computation of diluted earnings per share further assumes the dilutive effect of
stock options and the conversion of preferred stocks.
The following is a calculation of earnings per share for the years ended
December 31 (in millions, except per-share amounts):
1999 1998 1997
---------------------------- --------------------------- ---------------------------
PER- Per- Per-
SHARE Share Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
============================= ======= ======= ======= ======= ======= ======= ======= ======= =======
BASIC EARNINGS PER SHARE
Income from continuing
operations $ 568.4 $ 324.6 $ 217.0
Effect of repurchase of
Trust Preferred Sec. 1.4 -- --
Preferred stock dividends (7.2) (16.5) (87.8)
------- ------- -------
Earnings from continuing
operations applicable to
common stock 562.6 355.4 $ 1.58 308.1 350.2 $ .88 129.2 334.3 $ .39
Discontinued operations, net -- -- 38.4 .11 (606.6) (1.82)
Extraordinary loss, net (107.4) (.30) -- -- -- --
Cumulative effect of
changes in accounting
principles, net (13.4) (.04) -- -- -- --
------- ------- ------- ------- ------- -------
Earnings(loss) applicable to
common stock $ 441.8 $ 1.24 $ 346.5 $ .99 $(477.4) $ (1.43)
======= ======= ======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Earnings from continuing
operations applicable to
common stock $ 562.6 355.4 $ 308.1 350.2 $ 129.2 334.3
Dilutive effect of exercise
of options outstanding -- .1 -- .4 -- .6
------- ------ ------- ------ ------- -------
Earnings from continuing
operations applicable to
common stock 562.6 355.5 $ 1.58 308.1 350.6 $ .88 129.2 334.9 $ .39
Discontinued operations, net -- -- 38.4 .11 (606.6) (1.82)
Extraordinary loss, net (107.4) (.30) -- -- -- --
Cumulative effect of
changes in accounting
principles, net (13.4) (.04) -- -- -- --
------ ------- ------- ------- ------- -------
Earnings(loss) applicable to
common stock $ 441.8 $ 1.24 $ 346.5 $ .99 $(477.4) $ (1.43)
============================= ======= ======= ======= ======= ======= =======
The following items were not included in the computation of diluted
earnings per share because their effect was anti-dilutive for the years ended
December 31:
1999 1998 1997
======================================== ================== ================== ==================
Stock Options
Number of shares 4.6 1.7 .5
Price range $ 21.25-$29.625 $ 24.375-$29.625 $ 26.000-$29.625
Expiration range 1/14/00-7/8/08 8/20/99-12/1/07 8/21/98-12/1/07
Convertible Preferred Stock $3.875
Number of shares -- -- 33.2
Dividends paid $ -- $ -- $ 58.5
Convertible Preferred Stock $3.00
Number of shares -- 10.5 20.0
Dividends paid $ -- $ 16.5 $ 29.2
- ---------------------------------------- ------------------ ------------------ ------------------
47
50
NOTE 14 RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
Occidental has various defined contribution retirement plans for its salaried,
domestic union and nonunion hourly, and certain foreign national employees that
provide for periodic contributions by Occidental based on plan-specific
criteria, such as base pay, age level and/or employee contributions. Occidental
contributed and expensed $46 million in 1999 and $49 million in 1998 and $53
million in 1997 under the provisions of these plans.
Occidental provides medical and dental benefits and life insurance coverage
for certain active, retired and disabled employees and their eligible
dependents. The benefits generally are funded by Occidental as the benefits are
paid during the year. The cost of providing these benefits is based on claims
filed and insurance premiums paid for the period. The total benefit costs
including the postretirement costs were approximately $67 million in 1999, $75
million in 1998 and $79 million in 1997.
Pension costs for Occidental's defined benefit pension plans, determined by
independent actuarial valuations, are generally funded by payments to trust
funds, which are administered by independent trustees.
The following table sets forth the components of the net periodic benefit
costs for Occidental's defined benefit pension and postretirement benefit plans
for 1999, 1998 and 1997 (in millions):
Pension Benefits Postretirement Benefits
------------------------ ------------------------
For the years ended December 31, 1999 1998 1997 1999 1998 1997
=================================================== ==== ==== ==== ==== ==== ====
Service cost--benefits earned during the period $ 4 $ 5 $ 8 $ 5 $ 5 $ 6
Interest cost on benefit obligation 24 22 25 25 25 27
Expected return on plan assets (19) (17) (20) -- -- --
Amortization of net transition obligation 1 1 1 -- -- --
Amortization of prior service cost 3 3 3 1 1 1
Recognized actuarial gain (11) (5) (4) (1) (2) --
Curtailment(gains) and settlement costs (1) 4 (1) (4) -- (3)
---- ---- ---- ---- ---- ----
Net periodic benefit cost $ 1 $ 13 $ 12 $ 26 $ 29 $ 31
=================================================== ==== ==== ==== ==== ==== ====
Occidental recorded adjustments to accumulated other comprehensive income
of credits of less than $1 million in both 1999 and 1998, and $17 million in
1997, to reflect the net-of-tax difference between the additional liability
required under pension accounting provisions and the corresponding intangible
asset.
Occidental's defined benefit pension and postretirement benefit plans are
accrued based on various assumptions and discount rates, as described below. The
actuarial assumptions used could change in the near term as a result of changes
in expected future trends and other factors which, depending on the nature of
the changes, could cause increases or decreases in the liabilities accrued.
The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation for Occidental's defined benefit
pension and postretirement benefit plans (in millions):
Pension Benefits Postretirement Benefits
----------------------- -----------------------
1999 1998 1999 1998
====================================================== ======== ======== ======== ========
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation -- beginning of year $ 241 $ 311 $ 344 $ 337
Service cost--benefits earned during the period 4 5 5 5
Interest cost on projected benefit obligation 24 22 25 25
Actuarial(gain) loss (22) 14 8 26
Foreign currency exchange rate changes (12) (4) -- --
Benefits paid (19) (48) (38) (35)
Businesses acquired 45(b) -- 32(b) --
Divestitures -- (59)(a) -- (14)(a)
Curtailments and settlements -- -- (4) --
-------- -------- -------- --------
Benefit obligation -- end of year $ 261 $ 241 $ 372 $ 344
====================================================== ======== ======== ======== ========
(a) Primarily relates to Equistar.
(b) Primarily relates to INDSPEC.
48
51
The following table sets forth the reconciliation of the beginning and
ending balances of the fair value of plan assets for Occidental's defined
benefit pension plans (in millions):
Pension Benefits
----------------------
1999 1998
============================================================= ======== ========
CHANGES IN PLAN ASSETS:
Fair value of plan assets -- beginning of year $ 234 $ 296
Actual return on plan assets 8 35
Foreign currency exchange rate changes (4) (1)
Employer contribution 7 21
Benefits paid (19) (48)
Businesses acquired(sold) 28(b) (69)(a)
-------- --------
Fair value of plan assets -- end of year $ 254 $ 234
============================================================= ======== ========
(a) Primarily relates to Equistar.
(b) Primarily relates to INDSPEC.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for defined benefit pension plans with accumulated benefit
obligations in excess of plan assets were $60 million, $58 million and $23
million, respectively, as of December 31, 1999 and $60 million, $54 million and
$30 million, respectively, as of December 31, 1998.
The weighted average discount rate used in determining the benefit
obligations was 7.75 percent as of December 31, 1999 and 7.0 percent as of
December 31, 1998. The weighted average rate of increase in future compensation
levels used in determining the benefit obligations was approximately 4.5 percent
in 1999 and 5.0 percent in 1998. The expected weighted average long-term rate of
return on assets was 9 percent in 1999 and 8 percent in 1998.
The postretirement benefit obligation was determined by application of the
terms of medical and dental benefits and life insurance coverage, including the
effect of established maximums on covered costs, together with relevant
actuarial assumptions and health care cost trend rates projected at a Consumer
Price Index (CPI) increase of 3.0 percent and 2.5 percent as of December 31,
1999 and 1998, respectively (beginning in 1993, participants other than certain
union employees pay for all medical cost increases in excess of increases in the
CPI). For certain union employees, the health care cost trend rates were
projected at annual rates ranging ratably from 7.5 percent in 1999 to 5.0
percent through the year 2004 and level thereafter. A 1 percent increase or a 1
percent decrease in these assumed health care cost trend rates would result in
an increase of $12 million or a reduction of $10 million, respectively, in the
postretirement benefit obligation as of December 31, 1999. The annual service
and interest costs would not be materially affected by these changes.
The following table sets forth the funded status and amounts recognized in
Occidental's consolidated balance sheets for the defined benefit pension and
postretirement benefit plans at December 31, 1999 and 1998 (in millions):
Pension Benefits Postretirement Benefits
----------------------- -----------------------
Balance at December 31, 1999 1998 1999 1998
================================================= ========= ========= ========= =========
Funded status $ (7) $ (7) $ (372) $ (344)
Unrecognized net transition obligation 2 4 -- --
Unrecognized prior service cost 3 5 10 1
Unrecognized net(gain) loss (5) 3 (35) (45)
--------- --------- --------- ---------
Net amount recognized $ (7) $ 5 $ (397) $ (388)
========= ========= ========= =========
Prepaid benefit cost $ 37 $ 34 $ -- $ --
Accrued benefit liability (44) (31) (397) (388)
Intangible asset -- 2 -- --
--------- --------- --------- ---------
Net amount recognized $ (7) $ 5 $ (397) $ (388)
================================================= ========= ========= ========= =========
49
52
NOTE 15 INVESTMENTS
- --------------------------------------------------------------------------------
Investments in entities, other than oil and gas exploration and production
companies, in which Occidental has a voting stock interest of at least 20
percent, but not more than 50 percent, and certain partnerships are accounted
for on the equity method. At December 31, 1999, Occidental's equity investments
consisted of a 29.5 percent interest in Equistar acquired in May 1998, an
investment of approximately 29 percent in the common shares of CanadianOxy and
various chemical partnerships and joint ventures. Equity investments paid
dividends of $100 million, $69 million and $50 million to Occidental in 1999,
1998 and 1997, respectively. Cumulative undistributed earnings since
acquisition, in the amount of $201 million, of 50-percent-or-less-owned
companies have been accounted for by Occidental under the equity method. At
December 31, 1999 and 1998, Occidental's investment in equity investees exceeded
the historical underlying equity in net assets by approximately $155 million and
$212 million, respectively, which is being amortized into income over periods
not exceeding 40 years. The aggregate market value of the investment in
CanadianOxy, based on the quoted market price for CanadianOxy common shares, was
$794 million at December 31, 1999, compared with an aggregate book value of $233
million.
Occidental and its subsidiaries' purchases from certain chemical
partnerships, in which it has investments, were $860 million, $350 million and
$232 million in 1999, 1998 and 1997, respectively. Occidental and its
subsidiaries' sales to certain chemical partnerships, in which it has
investments, were $251 million, $266 million and $328 million, in 1999, 1998 and
1997, respectively.
The following table presents Occidental's proportional interest in the
summarized financial information of its equity method investments (in millions):
For the years ended December 31, 1999 1998 1997
===================================================== ======== ======== ========
Revenues $ 2,491 $ 2,118 $ 959
Costs and expenses 2,450 2,140 958
-------- -------- --------
Net income (loss) $ 41 $ (22) $ 1
===================================================== ======== ======== ========
Balance at December 31, 1999 1998
===================================================== ======== ========
Current assets $ 680 $ 602
Noncurrent assets $ 2,890 $ 3,075
Current liabilities $ 483 $ 449
Noncurrent liabilities $ 1,632 $ 1,679
Stockholders' equity $ 1,455 $ 1,549
- ----------------------------------------------------- -------- --------
Investments also include certain cost method investments, in which
Occidental owns less than 20 percent of the voting stock. At December 31, 1999,
these investments consisted primarily of the shares in Clark (see Note 7).
NOTE 16 INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
- --------------------------------------------------------------------------------
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131--"Disclosures about Segments of an Enterprise and Related Information."
Occidental has identified two reportable segments through which it conducts its
continuing operations: oil and gas and chemical. The factors for determining the
reportable segments were based on the distinct nature of their operations. They
are managed as separate business units because each requires and is responsible
for executing a unique business strategy. The oil and gas segment explores for,
develops, produces and markets crude oil and natural gas domestically and
internationally. The chemical segment is a highly integrated business that
manufactures and markets, domestically and internationally, basic chemicals,
specialty chemicals and vinyls. Additionally, it has an investment in a
petrochemical partnership.
Earnings of industry segments and geographic areas exclude interest income,
interest expense, environmental remediation expenses, unallocated corporate
expenses, discontinued operations, cumulative effect of changes in accounting
principles and extraordinary items, but include income from equity investments
and gains from dispositions of segment and geographic area assets. Intersegment
sales and transfers between geographic areas are made at prices approximating
current market values.
Foreign income and other taxes and certain state taxes are included in
segment earnings on the basis of operating results. U.S. federal income taxes
are not allocated to segments except for amounts in lieu thereof that represent
the tax effect of operating charges resulting from purchase accounting
adjustments, which arose from the implementation in 1992 of SFAS No. 109 -
"Accounting for Income Taxes", and the tax effects resulting from major,
infrequently occurring transactions such as asset sales and legal settlements
that relate to segment results. Prior years' segment income has been restated to
reflect these tax allocations relating to major transactions.
Identifiable assets are those assets used in the operations of the
segments. Corporate assets consist of cash, short-term investments, certain
corporate receivables, an intrastate pipeline, other assets and net assets of
discontinued operations.
50
53
INDUSTRY SEGMENTS
In millions
Oil and Gas Chemical Corporate Total
================================================================== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1999
Net sales $ 4,572(a) $ 3,038(b) $ -- $ 7,610
=========== =========== =========== ===========
Pretax operating profit(loss)(c) $ 1,835 $ (38) $ (598)(e) $ 1,199
Income taxes (574) (14) (43)(f) (631)
Extraordinary loss, net -- -- (107) (107)
Cumulative effect of changes in accounting principles, net -- -- (13) (13)
----------- ----------- ----------- -----------
Net income(loss)(d) $ 1,261(g) $ (52)(h) $ (761)(i) $ 448
=========== =========== =========== ===========
Investment in unconsolidated subsidiaries $ 119 $ 1,388 $ 247 $ 1,754
=========== =========== =========== ===========
Property, plant and equipment additions, net(j) $ 474 $ 116 $ 11 $ 601
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 577 $ 190 $ 38 $ 805
=========== =========== =========== ===========
Total assets $ 7,271 $ 5,346 $ 1,508(k) $ 14,125
================================================================== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1998
Net sales $ 3,621(a) $ 2,975(l) $ -- $ 6,596
=========== =========== =========== ===========
Pretax operating profit(loss)(c) $ 980 $ 262 $ (554)(e) $ 688
Income taxes (390) 4 23(f) (363)
Discontinued operations, net -- -- 38 38
----------- ----------- ----------- -----------
Net income(loss)(d) $ 590(m) $ 266(n) $ (493)(o) $ 363
=========== =========== =========== ===========
Investment in unconsolidated subsidiaries $ 120 $ 1,586 $ 253 $ 1,959
=========== =========== =========== ===========
Property, plant and equipment additions, net(j) $ 751 $ 321 $ 2 $ 1,074
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 603 $ 199 $ 33 $ 835
=========== =========== =========== ===========
Total assets $ 7,570 $ 4,799 $ 2,883(k) $ 15,252
================================================================== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1997
Net sales $ 3,667(a) $ 4,349(p) $ -- $ 8,016
=========== =========== =========== ===========
Pretax operating profit(loss)(c) $ 747 $ 551 $ (770)(e) $ 528
Income taxes (263) (26) (22)(f) (311)
Discontinued operations, net -- -- (607) (607)
----------- ----------- ----------- -----------
Net income(loss)(d) $ 484(q) $ 525(r) $ (1,399)(s) $ (390)
=========== =========== =========== ===========
Investment in unconsolidated subsidiaries $ 222 $ 383 $ 316 $ 921
=========== =========== =========== ===========
Property, plant and equipment additions, net(j) $ 1,150 $ 396 $ 3 $ 1,549
=========== =========== =========== ===========
Depreciation, depletion and amortization $ 528 $ 261 $ 33 $ 822
=========== =========== =========== ===========
Total assets $ 4,789 $ 5,486 $ 5,016(k) $ 15,291
================================================================== =========== =========== =========== ===========
See footnotes on following page.
51
54
(a) Oil sales represented, approximately 71 percent, 76 percent and 79 percent
of net sales for the periods ending December 31, 1999, 1998 and 1997,
respectively. Gas sales accounted for the remainder. Additionally, oil and
gas trading activities accounted for approximately 43 percent of net sales
in 1999, approximately 44 percent of net sales in 1998 and approximately 33
percent in 1997.
(b) Of total product sales, approximately 33 percent were in basic chemicals,
47 percent in vinyls and 21 percent in specialty chemicals prior to
intercompany eliminations.
(c) Research and development costs were $20 million in 1999, $18 million in
1998 and $16 million in 1997.
(d) Segment earnings include charges and credits in lieu of U.S. federal income
taxes. In 1999, the amounts allocated to the segments were a charge of $228
million and credits of $16 million in oil and gas and chemical,
respectively. In 1998, the amounts allocated to the segments were charges
of $202 million and credits of $26 million in oil and gas and chemical,
respectively. In 1997, the amounts allocated to the segments were credits
of $13 million and $26 million in oil and gas and chemical, respectively.
1999 and 1998 reflect allocation of taxes to segments for major,
infrequently occurring transactions.
(e) Includes unallocated net interest expense, administration expense,
environmental remediation expense, pipeline lease income, pipeline
depreciation expense and other items.
(f) Includes unallocated income taxes.
(g) Includes a net after-tax gain of $488 million related to a litigation
settlement with Chevron and $11 million related to the receipt of a
contingent payment partially offset by a charge of $9 million for the
write-down of various assets, $25 million for claims and settlements, $10
million for the closing of the oil and gas offices in Bakersfield,
California and a $29 million, net after-tax charge for the write-down of
Occidental's Peru producing assets.
(h) Includes pre-tax charges of $159 million for the write-down of various
assets, $28 million for write-downs by Equistar, $9 million for claims and
settlements and a gain of $12 million related to the sale of a chemical
plant by Equistar.
(i) Includes a pre-tax gain of $18 million related to an insurance dividend.
(j) Excludes acquisitions of other businesses and formation of OxyVinyls, $976
million in chemical in 1999, $3.5 billion in oil and gas in 1998 and $29
million in chemical in 1997. Includes capitalized interest of $4 million in
1999, $16 million in 1998 and $14 million in 1997.
(k) Includes the net assets of an intrastate pipeline. At December 31, 1998,
this amount also includes a note receivable of approximately $1.4 billion.
At December 31, 1997, this amount also includes the net assets of
discontinued operations of approximately $3.2 billion.
(l) Of total product sales, approximately 39 percent were in basic chemicals,
25 percent in vinyls, 17 percent in petrochemicals and 20 percent in
specialty chemicals prior to intercompany eliminations.
(m) Includes net after-tax gains of approximately $317 million from the sale of
major nonstrategic oil and gas properties, as part of an asset redeployment
program, a pre-tax $30 million charge for the write off of certain
exploration projects and a $12 million pre-tax reorganization charge.
(n) Includes $30 million pre-tax for reorganization and other charges.
(o) Includes an after-tax $38 million benefit which reflects the closing of the
sale of MidCon and the finalization of the discontinued operations reserve.
(p) Of total product sales, approximately 32 percent were in basic chemicals,
41 percent in petrochemicals, 20 percent in vinyls and 14 percent in
specialty chemicals prior to intercompany eliminations.
(q) Includes pre-tax charges of $210 million for the write-down of various
nonstrategic and impaired assets and related costs and other reserves.
(r) Includes pre-tax charges of $94 million related to the write-down of
various idled assets.
(s) Includes a pre-tax charge of $75 million for the extinguishment of existing
liabilities and open-ended financial commitments under employment
agreements with two senior executives, $111 million for environmental
accruals, and an after-tax charge of $750 million for the discontinued
natural gas transmission business.
GEOGRAPHIC AREAS
In millions
Net sales(a) Property, plant and equipment, net
------------------------------------ ------------------------------------
For the years ended December 31, 1999 1998 1997 1999 1998 1997
================================ ======== ======== ======== ======== ======== ========
United States $ 5,847 $ 5,244 $ 6,245 $ 8,504 $ 8,162 $ 6,711
Qatar 507 426 464 794 790 657
Yemen 254 123 126 222 183 102
Peru(b) 110 112 176 17 110 128
Colombia 329 142 200 78 89 101
Oman 116 93 142 88 101 94
Russia 111 83 124 72 82 77
Other Foreign 336 373 539 254 388 720
-------- -------- -------- -------- -------- --------
Total $ 7,610 $ 6,596 $ 8,016 $ 10,029 $ 9,905 $ 8,590
================================ ======== ======== ======== ======== ======== ========
(a) Sales are shown by individual country based on the location of the entity
making the sale.
(b) In December 1999, Occidental entered into an agreement to sell its Peru
producing properties to Pluspetrol. The closing is subject to government
approval.
52
55
NOTE 17 COSTS AND RESULTS OF OIL AND GAS PRODUCING ACTIVITIES
- --------------------------------------------------------------------------------
Capitalized costs relating to oil and gas producing activities and related
accumulated depreciation, depletion and amortization, were as follows (in
millions):
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
==================================================================== ========== ========== ========== ==========
DECEMBER 31, 1999
Proved properties $ 5,959 $ 1,580 $ 2,141 $ 9,680
Unproved properties 1,771 25 45 1,841
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 7,730 1,605 2,186 11,521
Support facilities 23 94 72 189
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 7,753 1,699 2,258 11,710
Accumulated depreciation, depletion and amortization (2,813) (1,500) (1,006) (5,319)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 4,940 $ 199 $ 1,252 $ 6,391
========== ========== ========== ==========
Share of equity investees' net capitalized costs(b) $ 94 $ 337 $ 94 $ 525
==================================================================== ========== ========== ========== ==========
DECEMBER 31, 1998
Proved properties $ 5,821 $ 1,571 $ 2,015 $ 9,407
Unproved properties 1,749 9 58 1,816
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 7,570 1,580 2,073 11,223
Support facilities 16 141 69 226
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 7,586 1,721 2,142 11,449
Accumulated depreciation, depletion and amortization (2,561) (1,401) (812) (4,774)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 5,025 $ 320 $ 1,330 $ 6,675
========== ========== ========== ==========
Share of equity investees' net capitalized costs(b) $ 50 $ 150 $ 112 $ 312
==================================================================== ========== ========== ========== ==========
DECEMBER 31, 1997
Proved properties $ 4,806 $ 1,765 $ 1,801 $ 8,372
Unproved properties 71 12 80 163
---------- ---------- ---------- ----------
TOTAL PROPERTY COSTS(a) 4,877 1,777 1,881 8,535
Support facilities 13 143 60 216
---------- ---------- ---------- ----------
TOTAL CAPITALIZED COSTS 4,890 1,920 1,941 8,751
Accumulated depreciation, depletion and amortization (2,916) (1,390) (685) (4,991)
---------- ---------- ---------- ----------
NET CAPITALIZED COSTS $ 1,974 $ 530 $ 1,256 $ 3,760
========== ========== ========== ==========
Share of equity investees' net capitalized costs(b) $ 84 $ 432 $ 133 $ 649
==================================================================== ========== ========== ========== ==========
(a) Includes costs related to leases, exploration costs, lease and well
equipment, pipelines and terminals, gas plants and other equipment.
(b) Excludes amounts applicable to synthetic fuels.
53
56
Costs incurred relating to oil and gas producing activities, whether
capitalized or expensed, were as follows (in millions):
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
=================================================== ========== ========== ========== ==========
DECEMBER 31, 1999
Acquisition of properties
Proved $ 26 $ -- $ 22 $ 48
Unproved 16 -- 2 18
Exploration costs 66 11 26 103
Development costs 126 12 164 302
---------- ---------- ---------- ----------
$ 234 $ 23 $ 214 $ 471
========== ========== ========== ==========
Share of equity investees' costs $ 18 $ 39 $ 45 $ 102
=================================================== ========== ========== ========== ==========
DECEMBER 31, 1998
Acquisition of properties
Proved $ 1,834 $ -- $ 26 $ 1,860
Unproved 1,709 -- 2 1,711
Exploration costs 32 24 84 140
Development costs 169 35 341 545
---------- ---------- ---------- ----------
$ 3,744 $ 59 $ 453 $ 4,256
========== ========== ========== ==========
Share of equity investees' costs $ 46 $ 62 $ 66 $ 174
=================================================== ========== ========== ========== ==========
DECEMBER 31, 1997
Acquisition of properties
Proved $ 50 $ -- $ 50 $ 100
Unproved 41 -- -- 41
Exploration costs 19 37 122 178
Development costs 270 102 443 815
---------- ---------- ---------- ----------
$ 380 $ 139 $ 615 $ 1,134
========== ========== ========== ==========
Share of equity investees' costs $ 35 $ 514 $ 51 $ 600
=================================================== ========== ========== ========== ==========
54
57
The results of operations of Occidental's oil and gas producing activities,
which exclude oil and gas trading activities and items such as asset
dispositions, corporate overhead and interest, were as follows (in millions):
Other
United Western Eastern Total
States Hemisphere(a) Hemisphere Worldwide
============================================================== ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
Revenues $ 1,011 $ 450 $ 1,042(b) $ 2,503
Production costs 218 92 142 452
Exploration expenses 40 9 26 75
Other operating expenses 49 44 77 170
Other expense--asset write-downs -- 44 -- 44
Depreciation, depletion and amortization 290(c) 57 207 554
---------- --------- ---------- ----------
PRETAX INCOME 414 204 590 1,208
Income tax expense(d) 34 81 251(b) 366
---------- --------- ---------- ----------
RESULTS OF OPERATIONS $ 380 $ 123 $ 339 $ 842
========== ========= ========== ==========
Share of equity investees' results of operations(e) $ (1) $ (11) $ 33 $ 21
============================================================== ========== ========= ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues $ 860 $ 280 $ 818(b) $ 1,958
Production costs 242 106 168 516
Exploration expenses 43 26 59 128
Other operating expenses 79 36 98 213
Other expense--asset write-downs -- -- 30 30
Depreciation, depletion and amortization 285(c) 68 239 592
---------- --------- ---------- ----------
PRETAX INCOME 211 44 224 479
Income tax expense(d) -- 25 145(b) 170
---------- --------- ---------- ----------
RESULTS OF OPERATIONS $ 211 $ 19 $ 79 $ 309
========== ========= ========== ==========
Share of equity investees' results of operations(e) $ -- $ (28) $ 18 $ (10)
============================================================== ========== ========= ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1997
Revenues $ 920 $ 478 $ 969(b) $ 2,367
Production costs 246 154 172 572
Exploration expenses 17 19 83 119
Other operating expenses 50 49 105 204
Other expense--asset write-downs 132 -- -- 132
Depreciation, depletion and amortization 246(c) 85 178 509
---------- --------- ---------- ----------
PRETAX INCOME 229 171 431 831
Income tax expense(d) 46 56 206(b) 308
---------- --------- ---------- ----------
RESULTS OF OPERATIONS $ 183 $ 115 $ 225 $ 523
========== ========= ========== ==========
Share of equity investees' results of operations(e) $ 8 $ (4) $ 25 $ 29
============================================================== ========== ========= ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
receives an agreed-upon fee per barrel of crude oil produced.
(b) Revenues and income tax expense include taxes owed by Occidental but paid
by governmental entities on its behalf.
(c) Includes credits of $8 million in 1999, $12 million in 1998 and $13 million
in 1997, under the method of allocating amounts in lieu of taxes.
(d) U.S. federal income taxes reflect expense allocations related to oil and
gas activities, including allocated interest and corporate overhead.
Foreign income taxes were included in geographic areas on the basis of
operating results.
(e) Equity investee results of operations are reflected in the geographic area
in which the producing operation is located.
55
58
RESULTS PER UNIT OF PRODUCTION (Unaudited)
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
================================================================ ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
Revenues from net production
Oil ($/bbl.) $ 16.56 $ 12.84 $ 20.32(a) $ 17.06
========== ========== ========== ==========
Natural gas ($/Mcf) $ 2.09 $ -- $ 1.17 $ 2.02
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 14.24 $ 12.84 $ 19.66(a) $ 15.74
Production costs 3.07 2.63 2.68 2.84
Exploration expenses .56 .25 .50 .47
Other operating expenses .69 1.25 1.45 1.07
Other expense--asset write-downs -- 1.25 -- .28
Depreciation, depletion and amortization 4.09 1.63 3.90 3.48
---------- ---------- ---------- ----------
PRETAX INCOME 5.83 5.83 11.13 7.60
Income tax expense .48 2.30 4.73(a) 2.30
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 5.35 $ 3.53 $ 6.40 $ 5.30
================================================================ ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues from net production
Oil ($/bbl.) $ 11.79 $ 8.48 $ 13.43(a) $ 11.65
========== ========== ========== ==========
Natural gas ($/Mcf) $ 2.05 $ -- $ 2.03 $ 2.04
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 12.11 $ 8.48 $ 13.41(a) $ 11.87
Production costs 3.41 3.21 2.75 3.13
Exploration expenses .61 .79 .98 .78
Other operating expenses 1.11 1.09 1.61 1.29
Other expense--asset write-downs -- -- .49 .18
Depreciation, depletion and amortization 4.01 2.06 3.91 3.59
---------- ---------- ---------- ----------
PRETAX INCOME 2.97 1.33 3.67 2.90
Income tax expense -- .75 2.37(a) 1.03
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 2.97 $ .58 $ 1.30 $ 1.87
================================================================ ========== ========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1997
Revenues from net production
Oil ($/bbl.) $ 18.72 $ 11.88 $ 17.21(a) $ 15.37
========== ========== ========== ==========
Natural gas ($/Mcf) $ 2.39 $ -- $ 2.40 $ 2.39
========== ========== ========== ==========
Barrel of oil equivalent ($/bbl.)(b,c) $ 15.59 $ 11.57 $ 20.45(a) $ 16.02
Production costs 4.17 3.73 3.63 3.87
Exploration expenses .29 .47 1.74 .80
Other operating expenses .84 1.18 2.22 1.38
Other expense--asset write-downs 2.24 -- -- .89
Depreciation, depletion and amortization 4.17 2.07 3.75 3.45
---------- ---------- ---------- ----------
PRETAX INCOME 3.88 4.12 9.11 5.63
Income tax expense .77 1.35 4.36(a) 2.09
---------- ---------- ---------- ----------
RESULTS OF OPERATIONS $ 3.11 $ 2.77 $ 4.75 $ 3.54
================================================================ ========== ========== ========== ==========
(a) Revenues and income tax expense include taxes owed by Occidental but paid
by governmental entities on its behalf; however, oil revenues from net
production per barrel, as shown in the "Management's Discussion and
Analysis", excludes these taxes.
(b) Natural gas volumes have been converted to equivalent barrels based on
energy content of six Mcf of gas to one barrel of oil.
(c) Revenues from net production exclude royalty payments and other
adjustments.
56
59
NOTE 18 SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
On March 1, 2000, Occidental entered into an agreement to sell its shares of
CanadianOxy to CanadianOxy and Ontario Teachers' Pension Plan Board for gross
proceeds of approximately $1.2 billion Canadian. Occidental expects the net
after-tax proceeds from the sale to be approximately $700 million U.S.
Additionally, Occidental expects to transfer its interest in two chemicals
partnerships controlled by CanadianOxy to CanadianOxy, and to acquire
CanadianOxy's interest in Occidental's oil producing properties in Ecuador. The
closing is subject to the approval of CanadianOxy's shareholders and, with
respect to the purchase and sale of the assets, the expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On March 7, 2000, Occidental Petroleum Corporation entered into an agreement
to acquire all of the common partnership interest in Altura Energy Ltd.
("Altura"), - the largest oil producer in the state of Texas. Altura has proved
reserves of approximately 850 million barrels of oil equivalent, which are
located in the Permian Basin.
Occidental will pay approximately $1.2 billion to the sellers, affiliates
of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership
interest and will control the general partner which manages, operates and
controls 100 percent of the Altura assets. The partnership will borrow
approximately $2.4 billion, which will be recourse only to the Altura assets.
The sellers will retain a preferred limited partnership interest and will be
entitled to certain distributions from the partnership. The partnership will
loan approximately $2 billion to affiliates of the sellers, evidenced by two
notes, which will provide credit support to the partnership. The transaction is
valued at approximately $3.6 billion and is expected to close by April 30, 2000.
57
60
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
1999 QUARTERLY FINANCIAL DATA (Unaudited)
(In millions, except per-share amounts)
Three months ended MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
================================================================== ============ ============ ============ ============
Divisional net sales
Oil and gas $ 746 $ 944 $ 1,265 $ 1,617
Chemical 598 703 848 889
------------ ------------ ------------ ------------
Net sales $ 1,344 $ 1,647 $ 2,113 $ 2,506
============ ============ ============ ============
Gross profit $ 257 $ 367 $ 513 $ 664
============ ============ ============ ============
Divisional earnings (loss)
Oil and gas $ 63 $ 165 $ 279 $ 754
Chemical 9 29 40 (130)
------------ ------------ ------------ ------------
72 194 319 624
Unallocated corporate items
Interest expense, net (116) (123) (118) (111)
Income taxes 3 (27) (41) (3)
Trust preferred distributions (9) (10) (11) (11)
Other (7) (22) (23) (12)
------------ ------------ ------------ ------------
Income(loss) before extraordinary items and effect of changes in
accounting principles (57) 12 126 487
Extraordinary loss, net -- (3) -- (104)
Cumulative effect of changes in accounting principles, net (13) -- -- --
------------ ------------ ------------ ------------
Net income(loss) $ (70) $ 9(b) $ 126(c) $ 383(a)
============ ============ ============ ============
Basic earnings per common share
Income(loss) before extraordinary items and effect of
changes in accounting principles $ (.17) $ .03 $ .35 $ 1.33
Extraordinary loss, net -- (.01) -- (.29)
Cumulative effect of changes in accounting principles, net (.04) -- -- --
------------ ------------ ------------ ------------
Basic earnings(loss) per common share $ (.21) $ .02 $ .35 $ 1.04
============ ============ ============ ============
Diluted earnings per common share
Income(loss) before extraordinary items and effect of
changes in accounting principles $ (.17) $ .03 $ .35 $ 1.33
Extraordinary loss, net -- (.01) -- (.29)
Cumulative effect of changes in accounting principles, net (.04) -- -- --
------------ ------------ ------------ ------------
Diluted earnings(loss) per common share $ (.21) $ .02 $ .35 $ 1.04
============ ============ ============ ============
Dividends per common share $ .25 $ .25 $ .25 $ .25
============ ============ ============ ============
Market price per common share
High $ 18 1/4 $ 22 1/4 $ 23 13/16 $ 24 3/16
Low $ 14 3/4 $ 18 1/16 $ 19 $ 19 15/16
================================================================= ============ ============ ============ ============
(a) Includes net after-tax gains of $488 million for a favorable litigation
settlement, and charges of $29 million (after-tax benefits) related to the
sale of Occidental's Peru producing assets, and pre-tax charges of $34
million for claims and settlements, $28 million for Occidental's share of
asset write-downs in Equistar and asset write-downs of $168 million.
(b) Includes $12 million gain on the sale of a chemical plant by Equistar.
(c) Includes net pre-tax gains of $11 million related to the receipt of a
contingent payment and a $10 million charge for the closing of the oil and
gas offices in Bakersfield, California.
58
61
] OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
1998 QUARTERLY FINANCIAL DATA (Unaudited)
(In millions, except per-share amounts)
Three months ended March 31 June 30 September 30 December 31
============================================================= ============ ============ ============ ============
Divisional net sales
Oil and gas $ 740 $ 739 $ 1,030 $ 1,112
Chemical 960 804 631 580
----------- ------------ ------------ ------------
Net sales $ 1,700 $ 1,543 $ 1,661 $ 1,692
=========== ============ ============ ============
Gross profit $ 434 $ 343 $ 289 $ 261
=========== ============ ============ ============
Divisional earnings (loss)
Oil and gas $ 184 $ 266 $ 103 $ 37
Chemical 158 60 62 (14)
----------- ------------ ------------ ------------
342 326 165 23
Unallocated corporate items
Interest expense, net (112) (118) (106) (115)
Income taxes (78) (2) 4 62
Other (13) (20) (25) (8)
----------- ------------ ------------ ------------
Income(loss) from continuing operations 139 186 38 (38)
Discontinued operations, net 38 -- -- --
----------- ------------ ------------ ------------
Net income(loss)(a) $ 177(b) $ 186(c) $ 38(d) $ (38)
=========== ============ ============ ============
Basic earnings per common share
Income(loss) from continuing operations $ .39 $ .51 $ .10 $ (.12)
Discontinued operations, net .11 -- -- --
----------- ------------ ------------ ------------
Basic earnings(loss) per common share $ .50 $ .51 $ .10 $ (.12)
=========== ============ ============ ============
Diluted earnings per common share
Income(loss) from continuing operations $ .38 $ .49 $ .10 $ (.12)
Discontinued operations, net .11 -- -- --
----------- ------------ ------------ ------------
Diluted earnings(loss) per common share $ .49 $ .49 $ .10 $ (.12)
=========== ============ ============ ============
Dividends per common share $ .25 $ .25 $ .25 $ .25
=========== ============ ============ ============
Market price per common share
High $ 30 7/16 $ 30 $ 27 3/8 $ 22 3/8
Low $ 24 5/8 $ 24 13/16 $ 17 9/16 $ 16 5/8
============================================================== ============ ============ ============= ============
(a) Includes net after-tax gains of approximately $57 million, $177 million and
$83 million for the first, second and third quarters of 1998, respectively,
from the sale of major nonstrategic oil and gas properties, as part of an
asset redeployment program.
(b) Includes an after-tax $38 million benefit which reflects the closing of the
sale of MidCon and the finalization of the discontinued operations reserve.
(c) Includes $30 million for reorganization and other charges in the chemical
division.
(d) Includes a $30 million charge for the write off of certain exploration
projects and a $12 million reorganization charge for the oil and gas
division.
59
62
SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)
The following tables set forth Occidental's net interests in quantities of
proved developed and undeveloped reserves of crude oil, condensate and natural
gas and changes in such quantities. Crude oil reserves (in millions of barrels)
include condensate. The reserves are stated after applicable royalties.
Estimates of reserves have been made by Occidental engineers. These estimates
include reserves in which Occidental holds an economic interest under service
contracts and other arrangements.
RESERVES
Oil in millions of barrels, natural gas in billions of cubic feet
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
-------------- -------------- -------------- --------------
Oil Gas Oil(a) Gas Oil Gas Oil Gas
======================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROVED DEVELOPED AND UNDEVELOPED RESERVES
BALANCE AT DECEMBER 31, 1996 203 1,744 354 -- 340 840 897 2,584
Revisions of previous estimates (1) 23 3 -- 14 (2) 16 21
Improved recovery 11 -- -- -- 2 -- 13 --
Extensions and discoveries 6 58 -- -- 34 22 40 80
Purchases of proved reserves 1 38 -- -- 36 10 37 48
Sales of proved reserves (2) (10) -- -- -- (7) (2) (17)
Production (21) (218) (41) -- (39) (40) (101) (258)
- -------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 1997 197 1,635 316 -- 387 823 900 2,458
Revisions of previous estimates (6) 40 (21) -- (5) 20 (32) 60
Improved recovery 10 6 -- -- 49 -- 59 6
Extensions and discoveries 1 48 -- -- 27 81 28 129
Purchases of proved reserves 318 710 45 -- 35 -- 398 710
Sales of proved reserves (46) (317) (113) -- (11) (641) (170) (958)
Production (29) (224) (33) -- (55) (32) (117) (256)
- -------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 1998 445 1,898 194 -- 427 251 1,066 2,149
Revisions of previous estimates 2 111 78 -- (65) 12 15 123
Improved recovery 32 54 -- -- 9 -- 41 54
Extensions and discoveries 31 49 -- -- 9 -- 40 49
Purchases of proved reserves 3 66 -- -- 8 -- 11 66
Sales of proved reserves (22) (130) -- -- (2) (158) (24) (288)
Production (27) (242) (35) -- (50) (19) (112) (261)
- -------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
BALANCE AT DECEMBER 31, 1999(b) 464 1,806 237 -- 336 86 1,037 1,892
======================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES' RESERVES
December 31, 1996 5 47 14 77 20 30 39 154
===== ===== ==== ===== ===== ===== ===== =====
December 31, 1997 5 45 45 168 27 25 77 238
===== ===== ==== ===== ===== ===== ===== =====
December 31, 1998 5 49 44 138 34 -- 83 187
===== ===== ==== ===== ===== ===== ===== =====
DECEMBER 31, 1999 6 46 45 133 36 -- 87 179
======================================================== ===== ==== ===== ===== ===== ===== ===== =====
See footnotes on following page.
60
63
RESERVES (continued)
Oil in millions of barrels, natural gas in billions of cubic feet
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
-------------- -------------- -------------- --------------
Oil Gas Oil(a) Gas Oil Gas Oil Gas
======================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROVED DEVELOPED RESERVES
December 31, 1996 153 1,677 260 -- 213 205 626 1,882
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1997 151 1,571 235 -- 251 207 637 1,778
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1998 367 1,836 171 -- 306 190 844 2,026
===== ===== ===== ===== ===== ===== ===== =====
DECEMBER 31, 1999(b) 339 1,670 153 -- 245 61 737 1,731
======================================================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN EQUITY INVESTEES' RESERVES
December 31, 1996 4 41 13 69 15 25 32 135
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1997 4 31 38 140 21 20 63 191
===== ===== ===== ===== ===== ===== ===== =====
December 31, 1998 5 48 35 127 24 -- 64 175
===== ===== ===== ===== ===== ===== ===== =====
DECEMBER 31, 1999 5 41 36 115 21 -- 62 156
======================================================== ===== ===== ===== ===== ===== ===== ===== =====
(a) Portions of these reserves are being produced pursuant to exclusive service
contracts.
(b) Includes the reserves of Occidental's producing properties in Peru. In
December 1999, Occidental entered into an agreement to sell its Peru
producing properties to Pluspetrol. The closing is subject to government
approval.
STANDARDIZED MEASURE, INCLUDING YEAR-TO-YEAR CHANGES THEREIN, OF DISCOUNTED
FUTURE NET CASH FLOWS
For purposes of the following disclosures, estimates were made of quantities of
proved reserves and the periods during which they are expected to be produced.
Future cash flows were computed by applying year-end prices to Occidental's
share of estimated annual future production from proved oil and gas reserves,
net of royalties. Future development and production costs were computed by
applying year-end costs to be incurred in producing and further developing the
proved reserves. Future income tax expenses were computed by applying,
generally, year-end statutory tax rates (adjusted for permanent differences, tax
credits, allowances and foreign income repatriation considerations) to the
estimated net future pre-tax cash flows. The discount was computed by
application of a 10 percent discount factor. The calculations assumed the
continuation of existing economic, operating and contractual conditions at each
of December 31, 1999, 1998 and 1997. However, such arbitrary assumptions have
not necessarily proven to be the case in the past. Other assumptions of equal
validity would give rise to substantially different results.
61
64
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
In millions
Other
United Western Eastern Total
States Hemisphere(a) Hemisphere Worldwide
================================================================== ========== ========== ========== ==========
AT DECEMBER 31, 1999
Future cash flows $ 14,604 $ 3,619 $ 7,329 $ 25,552
Future costs
Production costs and other operating expenses (3,162) (754) (1,879) (5,795)
Development costs(b) (1,166) (185) (716) (2,067)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 10,276 2,680 4,734 17,690
Future income tax expense (2,306) (1,076) (345) (3,727)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 7,970 1,604 4,389 13,963
Ten percent discount factor (4,177) (624) (1,754) (6,555)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE 3,793 980 2,635 7,408
Share of equity investees' standardized measure 104 312 344 760
---------- ---------- ---------- ----------
$ 3,897 $ 1,292(c) $ 2,979 $ 8,168
================================================================== ========== ========== ========== ==========
AT DECEMBER 31, 1998
Future cash flows $ 7,898 $ 1,437 $ 4,346 $ 13,681
Future costs
Production costs and other operating expenses (3,199) (908) (1,788) (5,895)
Development costs(b) (652) (75) (718) (1,445)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 4,047 454 1,840 6,341
Future income tax expense (24) (159) (54) (237)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 4,023 295 1,786 6,104
Ten percent discount factor (1,900) (75) (760) (2,735)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE 2,123 220 1,026 3,369
Share of equity investees' standardized measure 50 150 112 312
---------- ---------- ---------- ----------
$ 2,173 $ 370 $ 1,138 $ 3,681
================================================================== ========== ========== ========== ==========
AT DECEMBER 31, 1997
Future cash flows $ 7,462 $ 3,335 $ 7,197 $ 17,994
Future costs
Production costs and other operating expenses (2,863) (1,661) (3,172) (7,696)
Development costs(b) (456) (230) (1,485) (2,171)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS BEFORE INCOME TAXES 4,143 1,444 2,540 8,127
Future income tax expense (1,246) (458) (249) (1,953)
---------- ---------- ---------- ----------
FUTURE NET CASH FLOWS 2,897 986 2,291 6,174
Ten percent discount factor (1,215) (352) (917) (2,484)
---------- ---------- ---------- ----------
STANDARDIZED MEASURE 1,682 634 1,374 3,690
Share of equity investees' standardized measure 89 202 179 470
---------- ---------- ---------- ----------
$ 1,771 $ 836 $ 1,553 $ 4,160
================================================================== ========== ========== ========== ==========
(a) Includes amounts applicable to operating interests in which Occidental
receives an agreed-upon fee per barrel of crude oil produced.
(b) Includes dismantlement and abandonment costs.
(c) Includes the expected value to be received from the sale of Occidental's
producing properties in Peru. In December 1999, Occidental entered into an
agreement to sell its Peru producing properties to Pluspetrol. The closing
is subject to government approval.
62
65
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
In millions
For the years ended December 31, 1999 1998 1997
======================================================================================= ======= ======= =======
BEGINNING OF YEAR $ 3,369 $ 3,690 $ 5,240
------- ------- -------
Sales and transfers of oil and gas produced, net of production costs and
other operating expenses (1,838) (925) (1,561)
Net change in prices received per barrel, net of production costs and other
operating expenses 7,712 (2,661) (2,071)
Extensions, discoveries and improved recovery, net of future production
and development costs 660 236 379
Change in estimated future development costs (299) 330 (455)
Revisions of quantity estimates (808) 390 132
Development costs incurred during the period 298 535 798
Accretion of discount 308 307 498
Net change in income taxes (1,694) 881 795
Purchases and sales of reserves in place, net (150) 625 92
Changes in production rates and other (150) (39) (157)
------- ------- -------
NET CHANGE 4,039 (321) (1,550)
------- ------- -------
END OF YEAR $ 7,408 $ 3,369 $ 3,690
======================================================================================= ======= ======= =======
The information set forth below does not include information with respect
to operations of equity investees.
The following table sets forth, for each of the three years in the period
ended December 31, 1999, Occidental's approximate average sales prices and
average production costs of oil and gas. Production costs are the costs incurred
in lifting the oil and gas to the surface and include gathering, treating,
primary processing, field storage, property taxes and insurance on proved
properties, but do not include depreciation, depletion and amortization,
royalties, income taxes, interest, general and administrative and other
expenses.
AVERAGE SALES PRICES AND AVERAGE PRODUCTION COSTS OF OIL AND GAS
Other
United Western Eastern
For the years ended December 31, States Hemisphere(a,b) Hemisphere(a)
============================================================ ========== ========== ==========
1999
Oil -- Average sales price ($/bbl.) $ 15.81 $ 13.20 $ 15.86
NGL -- Average sales price ($/Mcf) $ 17.64 $ -- $ --
Gas -- Average sales price ($/Mcf) $ 2.09 $ -- $ 1.17
Average oil and gas production cost ($/bbl.)(c) $ 3.07 $ 2.63 $ 2.68
- ------------------------------------------------------------ ---------- ---------- ----------
1998
Oil -- Average sales price ($/bbl.) $ 12.06 $ 8.78 $ 11.12
NGL -- Average sales price ($/Mcf) $ 13.14 $ -- $ --
Gas -- Average sales price ($/Mcf) $ 2.05 $ -- $ 2.03
Average oil and gas production cost ($/bbl.)(c) $ 3.41 $ 3.21 $ 2.75
- ------------------------------------------------------------ ---------- ---------- ----------
1997
Oil -- Average sales price ($/bbl.) $ 18.72 $ 11.88 $ 17.21
Gas -- Average sales price ($/Mcf) $ 2.39 $ -- $ 2.40
Average oil and gas production cost ($/bbl.)(c) $ 4.17 $ 3.73 $ 3.63
- ------------------------------------------------------------ ---------- ---------- ----------
(a) Sales prices include royalties with respect to certain of Occidental's
interests.
(b) Sales prices include fees received under service contracts.
(c) Natural gas volumes have been converted to equivalent barrels based on
energy content of six Mcf of gas to one barrel of oil.
63
66
The following table sets forth, for each of the three years in the period
ended December 31, 1999, Occidental's net productive and dry-exploratory and
development wells drilled.
NET PRODUCTIVE AND DRY-EXPLORATORY AND DEVELOPMENT WELLS DRILLED
Other
United Western Eastern Total
For the years ended December 31, States Hemisphere Hemisphere Worldwide
===================================================== ========== ========== ========== ==========
1999
Oil -- Exploratory 1.0 -- -- 1.0
Development 76.8 5.4 105.1 187.3
Gas -- Exploratory -- -- .5 .5
Development 13.4 -- 4.5 17.9
Dry -- Exploratory 1.9 -- -- 1.9
Development 13.3 -- 1.1 14.4
- ----------------------------------------------------- ---------- --------- ---------- ----------
1998
Oil -- Exploratory -- 0.2 1.1 1.3
Development 109.7 9.8 114.3 233.8
Gas -- Exploratory -- -- 1.8 1.8
Development 32.4 -- 2.3 34.7
Dry -- Exploratory .5 1.8 5.9 8.2
Development 14.5 -- 1.8 16.3
- ----------------------------------------------------- ---------- --------- ---------- ----------
1997
Oil -- Exploratory -- 2.3 1.0 3.3
Development 98.8 15.6 43.6 158.0
Gas -- Exploratory 1.2 -- 1.4 2.6
Development 76.0 -- 2.1 78.1
Dry -- Exploratory 5.6 -- 10.2 15.8
Development 18.1 1.0 1.1 20.2
- ----------------------------------------------------- ---------- --------- ---------- ----------
The following table sets forth, as of December 31, 1999, Occidental's
productive oil and gas wells (both producing wells and wells capable of
production). The numbers in parentheses indicate the number of wells with
multiple completions.
PRODUCTIVE OIL AND GAS WELLS
Other
United Western Eastern Total
Wells at December 31, 1999 States Hemisphere Hemisphere Worldwide
================================================= ============= ============= ============= =============
Oil -- Gross(a) 3,765 (50) 382 (--) 643 (72) 4,790 (122)
Net(b) 3,064 (29) 284 (--) 363 (47) 3,711 (76)
Gas -- Gross(a) 2,128 (28) -- (--) 33 (1) 2,161 (29)
Net(b) 1,762 (10) -- (--) 13 (1) 1,775 (11)
- ------------------------------------------------- ------------- ------------- ------------- -------------
(a) The total number of wells in which interests are owned or which are
operated under service contracts.
(b) The sum of fractional interests.
64
67
The following table sets forth, as of December 31, 1999, Occidental's
participation in exploratory and development wells being drilled.
PARTICIPATION IN EXPLORATORY AND DEVELOPMENT WELLS BEING DRILLED
Other
United Western Eastern Total
Wells at December 31, 1999 States Hemisphere Hemisphere Worldwide
============================================================ ========== ========== ========== ==========
Exploratory and development wells -- Gross 16 -- 4 20
Net 11 -- 2 13
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
At December 31, 1999, Occidental was participating in 52 pressure
maintenance and waterflood projects in the United States, 3 in Latin America, 17
in the Middle East and 2 in Russia.
The following table sets forth, as of December 31, 1999, Occidental's
holdings of developed and undeveloped oil and gas acreage.
OIL AND GAS ACREAGE
Other
United Western Eastern Total
Thousands of acres at December 31, 1999 States Hemisphere Hemisphere Worldwide
============================================================ ========== ========== ========== ==========
Developed(a) -- Gross(b) 2,458 109 12,605 15,172
Net(c) 1,365 102 5,963 7,430
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Undeveloped(d) -- Gross(b) 1,061 6,153 12,055 19,269
Net(c) 669 4,351 5,823 10,843
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
(a) Acres spaced or assigned to productive wells.
(b) Total acres in which interests are held.
(c) Sum of the fractional interests owned based on working interests, or shares
of production if under production-sharing agreements.
(d) Acres on which wells have not been drilled or completed to a point that
would permit the production of commercial quantities of oil and gas,
regardless of whether the acreage contains proved reserves.
The following table sets forth, for each of the three years in the period
ended December 31, 1999, Occidental's domestic oil and natural gas production.
OIL AND NATURAL GAS PRODUCTION -- DOMESTIC
Oil Production Natural Gas Production
Thousands of barrels per day Millions of cubic feet per day
----------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
===================================== ======= ======= ======= ======= ======= =======
California 44 41 1 286 149 --
Gulf of Mexico 9 11 12 106 122 138
Kansas 2 3 6 115 164 190
Louisiana -- 2 5 -- 17 39
Mississippi -- -- -- -- 1 5
New Mexico 2 2 2 35 35 28
Oklahoma 1 1 4 43 36 50
Texas 12 17 22 77 83 123
Wyoming -- -- -- -- 4 9
Other States 3 4 5 -- 3 14
------- ------- ------- ------- ------- -------
TOTAL 73 81 57 662 614 596
===================================== ======= ======= ======= ======= ======= =======
65
68
The following table sets forth, for each of the three years in the period
ended December 31, 1999, Occidental's international oil and natural gas
production.
OIL AND NATURAL GAS PRODUCTION -- INTERNATIONAL
Oil Production Natural Gas Production
Thousands of barrels per day Millions of cubic feet per day
------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
======================================= ======= ======= ======= ======= ======= =======
Bangladesh -- -- -- 8 -- --
Colombia 43 27 24 -- -- --
Ecuador 15 12 15 -- -- --
Netherlands -- -- -- -- 50 72
Oman 15 17 14 -- -- --
Pakistan 5 5 7 44 39 38
Peru 38 48 50 -- -- --
Qatar 58 75 45 -- -- --
Russia 27 29 26 -- -- --
Venezuela -- 2 25 -- -- --
Yemen 32 25 14 -- -- --
------- ------- ------- ------- ------- -------
TOTAL 233 240 220 52 89 110
======================================= ======= ======= ======= ======= ======= =======
66
69
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
================================================= ========== ========== ========== ========== ==========
1999
Allowance for doubtful accounts $ 23 $ 2 $ -- $ (1) $ 24
========== ========== ========== ========== ==========
Environmental $ 578 $ -- $ 11 $ (135)(a) $ 454
Foreign and other taxes, litigation and
other reserves 801 164 1 (109) 857
---------- ---------- ---------- ---------- ----------
$ 1,379 $ 164 $ 12 $ (244) $ 1,311(b)
================================================= ========== ========== ========== ========== ==========
1998
Allowance for doubtful accounts $ 24 $ 4 $ -- $ (5) $ 23
========== ========== ========== ========== ==========
Environmental $ 646 $ -- $ 9 $ (77)(a) $ 578
Foreign and other taxes, litigation and
other reserves 846 187 7 (239) 801
---------- ---------- ---------- ---------- ----------
$ 1,492 $ 187 $ 16 $ (316) $ 1,379(b)
================================================= ========== ========== ========== ========== ==========
1997
Allowance for doubtful accounts $ 24 $ 3 $ -- $ (3) $ 24
========== ========== ========== ========== ==========
Environmental $ 641 $ 136 $ 6 $ (137)(a) $ 646
Foreign and other taxes, litigation and
other reserves 879 94 16 (143)(a) 846
---------- ---------- ---------- ---------- ----------
$ 1,520 $ 230 $ 22 $ (280) $ 1,492(b)
================================================= ========== ========== ========== ========== ==========
(a) Primarily represents payments.
(b) Of these amounts, $155 million, $172 million and $170 million in 1999, 1998
and 1997, respectively, is classified as current.
67
70
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information regarding Occidental's
directors appearing under the caption "Election of Directors" in Occidental's
definitive proxy statement filed in connection with its April 28, 2000, Annual
Meeting of Stockholders (the "2000 Proxy Statement"). See also the list of
Occidental's executive officers and related information under "Executive
Officers of the Registrant" in Part I hereof.
ITEM 11 EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under the
captions "Executive Compensation" (excluding, however, the information appearing
under the subcaptions "Report of the Compensation Committee" and "Performance
Graphs") and "Election of Directors -- Information Regarding the Board of
Directors and Its Committees" in the 2000 Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information with respect to
security ownership appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2000 Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under the
caption "Election of Directors --Certain Relations and Related Transactions" in
the 2000 Proxy Statement.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) AND (2). FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference is made to the Index to Financial Statements and Related Information
under Item 8 in Part II hereof, where these documents are listed.
(a) (3). EXHIBITS
3.(i) Restated Certificate of Incorporation of Occidental, dated
November 12, 1999.
3.(ii)* Bylaws of Occidental, as amended through April 30, 1999 (filed
as Exhibit 3.(ii) to the Registration Statement on Form S-8 of
Occidental, File No. 333-78031.
4.1* Occidental Petroleum Corporation Credit Agreement, dated as of
March 20, 1997 (filed as Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Occidental for the quarterly period ended March 31,
1997, File No. 1-9210).
4.2* First Amendment dated as of August 31, 1998, amending that
certain Credit Agreement dated as of March 20, 1997, among
Occidental and the Banks named therein (filed as Exhibit 4.1 to
the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended September 30, 1998, File No. 1-9210).
4.3* Second Amendment dated as of March 15, 1999, amending that
certain Credit Agreement dated as of March 20, 1997, among
Occidental and the Banks named therein (filed as Exhibit 4.1 to
the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1999, File No. 1-9210).
4.4 Instruments defining the rights of holders of other long-term
debt of Occidental and its subsidiaries are not being filed
since the total amount of securities authorized under each of
such instruments does not exceed 10 percent of the total assets
of Occidental and its subsidiaries on a consolidated basis.
Occidental agrees to furnish a copy of any such instrument to
the Commission upon request. All of the Exhibits numbered 10.1
to 10.42 are management contracts and compensatory plans
required to be identified specifically as responsive to Item
601(b)(10)(iii)(A) of Regulation S-K pursuant to Item 14(c) of
Form 10-K.
10.1* Employment Agreement, dated May 14, 1997, between Occidental and
J. Roger Hirl (filed as Exhibit 10.1 to the Quarterly Report on
Form 10-Q of Occidental for the quarterly period ended June 30,
1997, File No. 1-9210).
- --------
* Incorporated herein by reference
68
71
10.2* Employment Agreement, dated as of September 11, 1997, between
Occidental and Dr. Ray R. Irani (filed as Exhibit 10.1 to the
Current Report on Form 8-K of Occidental dated October 6, 1997
(date of earliest event reported), File No. 1-9210).
10.3* Receipt and Acknowledgment, dated September 11, 1997, of Dr. Ray
R. Irani and Ghada Irani (filed as Exhibit 10.2 to the Current
Report on Form 8-K of Occidental dated October 6, 1997 (date of
earliest event reported), File No. 1-9210).
10.4* Employment Agreement, dated as of September 11, 1997, between
Occidental and Dr. Dale R. Laurance (filed as Exhibit 10.3 to
the Current Report on Form 8-K of Occidental dated October 6,
1997 (date of earliest event reported), File No. 1-9210).
10.5* Receipt and Acknowledgment, dated September 11, 1997, of Dr.
Dale R. Laurance and Lynda E. Laurance (filed as Exhibit 10.4 to
the Current Report on Form 8-K of Occidental dated October 6,
1997 (date of earliest event reported), File No. 1-9210).
10.6* Employment Agreement, dated as of April 4, 1994, between
Occidental and Stephen I. Chazen (filed as Exhibit 10.9 to the
Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 1997, File No. 1-9210).
10.7 Employment Agreement, dated April 3, 1998, between Occidental
and Donald P. de Brier.
10.8* Form of Indemnification Agreement between Occidental and each of
its directors and certain executive officers (filed as Exhibit B
to the Proxy Statement of Occidental for its May 21, 1987,
Annual Meeting of Stockholders, File No. 1-9210).
10.9* Occidental Petroleum Corporation Split Dollar Life Insurance
Program and Related Documents (filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended September 30, 1994, File No. 1-9210).
10.10* Occidental Petroleum Insured Medical Plan, as amended and
restated effective April 29, 1994, amending and restating the
Occidental Petroleum Corporation Executive Medical Plan (as
amended and restated effective April 1, 1993) (filed as Exhibit
10 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ending March 31, 1994, File No. 1-9210).
10.11* Occidental Petroleum Corporation 1978 Stock Option Plan (as
amended and restated effective May 21, 1987) (filed as Exhibit
28(a) to the Registration Statement on Form S-8 of Occidental,
File No. 33-14662).
10.12* Form of Nonqualified Stock Option Grant under Occidental
Petroleum Corporation 1978 Stock Option Plan (filed as Exhibit
10.19 to the Registration Statement on Form 8-B, dated June 26,
1986, of Occidental, File No. 1- 9210).
10.13* Form of Incentive Stock Option Grant under Occidental Petroleum
Corporation 1978 Stock Option Plan (filed as Exhibit 10.20 to
the Registration Statement on Form 8-B, dated June 26, 1986, of
Occidental, File No. 1- 9210).
10.14* Occidental Petroleum Corporation 1987 Stock Option Plan, as
amended through April 29, 1992 (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended March 31, 1992, File No. 1-9210).
10.15* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.2 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.16* Form of Nonqualified Stock Option Agreement, with Stock
Appreciation Right, under Occidental Petroleum Corporation 1987
Stock Option Plan (filed as Exhibit 10.3 to the Quarterly Report
on Form 10-Q of Occidental for the quarterly period ended March
31, 1992, File No. 1-9210).
10.17* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.4 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.18* Form of Incentive Stock Option Agreement, with Stock
Appreciation Right, under Occidental Petroleum Corporation 1987
Stock Option Plan (filed as Exhibit 10.5 to the Quarterly Report
on Form 10-Q of Occidental for the quarterly period ended March
31, 1992, File No. 1-9210).
10.19* Occidental Petroleum Corporation 1977 Executive Long-term
Incentive Stock Purchase Plan, as amended through December 10,
1992 (filed as Exhibit 10.20 to the Annual Report on Form 10-K
of Occidental for the fiscal year ended December 31, 1992, File
No. 1-9210).
- --------
* Incorporated herein by reference
69
72
10.20* Form of award letter utilized under Occidental Petroleum
Corporation 1977 Executive Long-term Incentive Stock Purchase
Plan (filed as Exhibit 10.21 to the Annual Report on Form 10-K
of Occidental for the fiscal year ended December 31, 1992, File
No. 1-9210).
10.21* Occidental Petroleum Corporation Incentive Compensation Plan,
effective as of October 28, 1991 (filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended September 30, 1991, File No. 1-9210).
10.22* Occidental Petroleum Corporation Deferred Compensation Plan (as
amended and restated effective as of January 1, 1999) (filed as
Exhibit 10.23 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended September 30, 1999, File No.
1-9210).
10.23* Occidental Petroleum Corporation Senior Executive Deferred
Compensation Plan (effective as of January 1, 1986, as amended
and restated effective as of January 1, 1996)(filed as Exhibit
10.24 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.24* Occidental Petroleum Corporation Senior Executive Supplemental
Life Insurance Plan (effective as of January 1, 1986, as amended
and restated effective as of January 1, 1996)(filed as Exhibit
10.25 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.25* Occidental Petroleum Corporation Senior Executive Supplemental
Retirement Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996) (filed as Exhibit
10.26 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.26* Amendment to Occidental Petroleum Corporation Senior Executive
Supplemental Retirement Plan (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended June 30, 1998, File No. 1-9210).
10.27* Occidental Petroleum Corporation Senior Executive Survivor
Benefit Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996) (filed as Exhibit
10.27 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.28 Occidental Petroleum Corporation 1995 Incentive Stock Plan, as
amended.
10.29* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.2 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
10.30* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.3 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
10.31* Form of Stock Appreciation Rights Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.4 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
10.32* Form of Restricted Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.5 to
the Registration Statement on Form S-8 of Occidental, File No.
33-64719).
10.33* Form of Performance Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.6 to
the Registration Statement on Form S-8 of Occidental, File No.
33-64719).
10.34* Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (as amended April 29, 1999) (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended June 30, 1999, File No. 1-9210).
10.35* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
June 30, 1999, File No. 1-9210).
10.36* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (filed as Exhibit 10.3 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
June 30, 1999, File No. 1-9210).
10.37* Form of Restricted Stock Option Assignment under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (filed as Exhibit 99.2 to the
Registration Statement on Form S-8 of Occidental, File No.
333-02901).
- --------
* Incorporated herein by reference
70
73
10.38* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 10.2 to the Current Report on Form 8-K of Occidental,
dated January 6, 1999 (date of earliest event reported), filed
January 6, 1999, File No. 1-9210, amends Form previously filed
as Exhibit 10.1 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719 and incorporated by reference as
Exhibit 10.39 to the Annual Report on Form 10-K of Occidental
for the fiscal year ended December 31, 1997, File No. 1-9210).
10.39* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 10.3 to the Current Report on Form 8-K of Occidental,
dated January 6, 1999 (date of earliest event reported), filed
January 6, 1999, File No. 1-9210, amends Form previously filed
as Exhibit 10.2 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719 and incorporated by reference as
Exhibit 10.40 to the Annual Report on Form 10-K of Occidental
for the fiscal year ended December 31, 1997, File No. 1-9210).
10.40* Occidental Petroleum Corporation 1988 Deferred Compensation Plan
(as amended and restated effective as of January 1, 1996) (filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Occidental for the fiscal quarter ended September 30, 1996, File
No. 1-9210).
10.41* Occidental Petroleum Corporation Supplemental Retirement Plan,
Amended and Restated Effective as of January 1, 1999 (filed as
Exhibit 10.1 to the Current Report on Form 8-K of Occidental,
dated January 6, 1999 (date of earliest event reported), filed
January 6, 1999, File No. 1-9210).
10.42* Form of 1997 Performance Stock Option Agreement under the 1995
Incentive Stock Plan of Occidental Petroleum Corporation (filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Occidental for the quarterly period ended June 30, 1997, File
No. 1-9210).
10.43 Form of Amendment to 1997 Performance Stock Option Agreement
under the 1995 Incentive Stock Plan of Occidental Petroleum
Corporation.
10.44* Master Transaction Agreement, dated May 15, 1998, by and among
Equistar Chemicals, LP, Occidental, Lyondell Petrochemical
Company and Millennium Chemicals Inc. (filed as Exhibit 10.1 to
the Current Report on Form 8-K of Occidental dated May 15, 1998
(date of earliest event reported), filed May 29, 1998, File No.
1-9210).
10.45* Amended and Restated Limited Partnership Agreement of Equistar
Chemicals, LP, dated May 15, 1998, by and among the partners
named therein (filed as Exhibit 10.2 to the Current Report on
Form 8-K of Occidental dated May 15, 1998 (date of earliest
event reported), filed May 29, 1998, File No. 1-9210).
10.46* Agreement and Plan of Merger and Asset Contribution, dated as of
May 15, 1998, by and among Equistar Chemicals, LP, Occidental
Petrochem Partner 1, Inc., Occidental Petrochem Partner 2, Inc.,
Oxy Petrochemicals Inc. and PDG Chemical Inc. (filed as Exhibit
10.3 to the Current Report on Form 8-K of Occidental dated May
15, 1998 (date of earliest event reported), filed May 29, 1998,
File No. 1-9210).
10.47* Amended and Restated Parent Agreement, dated as of May 15, 1998,
among Occidental Chemical Corporation, Oxy CH Corporation,
Occidental, Lyondell Petrochemical Company, Millennium Chemicals
Inc. and Equistar Chemicals, LP (filed as Exhibit 10.4 to the
Current Report on Form 8-K of Occidental dated May 15, 1998
(date of earliest event reported), filed May 29, 1998, File No.
1-9210).
12 Statement regarding computation of total enterprise ratios of
earnings to fixed charges for the five years ended December 31,
1999.
21 List of subsidiaries of Occidental at December 31, 1999.
23 Consent of Independent Public Accountants.
27 Financial data schedule of Occidental for the fiscal year ended
December 31, 1999 (included only in the copy of this report
filed electronically with the Securities and Exchange
Commission).
- --------
* Incorporated herein by reference
71
74
(b) REPORTS ON FORM 8-K
During the fourth quarter of 1999, Occidental filed the following Current
Reports on Form 8-K:
1. Current Report on Form 8-K dated October 19, 1999 (date of earliest
event reported), filed on October 20, 1999, for the purpose of reporting, under
Item 5, Occidental's results of operations for the third quarter ended September
30, 1999.
2. Current Report on Form 8-K dated November 18, 1999 (date of earliest
event reported), filed on November 19, 1999, for the purpose of reporting, under
Item 5, a settlement agreement between Occidental's OXY USA subsidiary and
Chevron U.S.A. Inc.
3. Current Report on Form 8-K dated November 30, 1999 (date of earliest
event reported), filed on December 1, 1999, for the purpose of reporting, under
Item 5, Occidental's announcement of two debt tender offers.
During the first quarter of 2000 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated January 25, 2000 (date of earliest
event reported), filed on January 26, 2000, for the purpose of reporting, under
Item 5, Occidental's results of operations for the fourth quarter and fiscal
year ended December 31, 1999.
2. Current Report on Form 8-K dated March 1, 2000 (date of earliest event
reported), filed on March 2, 2000, for the purpose of reporting, under Item 5,
the sale of Occidental's interest in Canadian Occidental Petroleum Ltd.
3. Current Report on Form 8-K dated March 7, 2000 (date of earliest event
reported), filed on March 15, 2000, for the purpose of reporting, under Items 2
and 7, the acquisition by Occidental of all the common partnership interest in
Altura Energy Ltd.
72
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
March 15, 2000 By: /s/ RAY R. IRANI
------------------------------------
Ray R. Irani
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RAY R. IRANI Chairman of the Board of March 15, 2000
- -------------------------------------- Directors and Chief
Ray R. Irani Executive Officer
/s/ STEPHEN I. CHAZEN Executive Vice President - March 15, 2000
- -------------------------------------- Corporate Development
Stephen I. Chazen and Chief Financial Officer
/s/ SAMUEL P. DOMINICK, JR. Vice President and March 15, 2000
- -------------------------------------- Controller (Chief
Samuel P. Dominick, Jr. Accounting Officer)
/s/ RONALD W. BURKLE Director March 15, 2000
- --------------------------------------
Ronald W. Burkle
/s/ JOHN S. CHALSTY Director March 15, 2000
- --------------------------------------
John S. Chalsty
/s/ EDWARD P. DJEREJIAN Director March 15, 2000
- --------------------------------------
Edward P. Djerejian
/s/ JOHN E. FEICK Director March 15, 2000
- --------------------------------------
John E. Feick
/s/ J. ROGER HIRL Director March 15, 2000
- --------------------------------------
J. Roger Hirl
/s/ JOHN W. KLUGE Director March 15, 2000
- --------------------------------------
John W. Kluge
/s/ DALE R. LAURANCE Director March 15, 2000
- --------------------------------------
Dale R. Laurance
73
76
SIGNATURE TITLE DATE
--------- ----- ----
/s/ IRVIN W. MALONEY Director March 15, 2000
- --------------------------------------
Irvin W. Maloney
/s/ RODOLFO SEGOVIA Director March 15, 2000
- --------------------------------------
Rodolfo Segovia
/s/ AZIZ D. SYRIANI Director March 15, 2000
- --------------------------------------
Aziz D. Syriani
/s/ ROSEMARY TOMICH Director March 15, 2000
- --------------------------------------
Rosemary Tomich
74
77
INDEX TO EXHIBITS
EXHIBITS
3.(I) Restated Certificate of Incorporation of Occidental, dated
November 12, 1999.
3.(II)* Bylaws of Occidental, as amended through April 30, 1999 (filed as
Exhibit 3.(ii) to the Registration Statement on Form S-8 of
Occidental, File No. 333-78031.
4.1* Occidental Petroleum Corporation Credit Agreement, dated as of
March 20, 1997 (filed as Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Occidental for the quarterly period ended March 31,
1997, File No. 1-9210).
4.2* First Amendment dated as of August 31, 1998, amending that certain
Credit Agreement dated as of March 20, 1997, among Occidental and
the Banks named therein (filed as Exhibit 4.1 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
September 30, 1998, File No. 1-9210).
4.3* Second Amendment dated as of March 15, 1999, amending that certain
Credit Agreement dated as of March 20, 1997, among Occidental and
the Banks named therein (filed as Exhibit 4.1 to the Quarterly
Report on Form 10-Q of Occidental for the quarterly period ended
March 31, 1999, File No. 1-9210).
4.4 Instruments defining the rights of holders of other long-term debt
of Occidental and its subsidiaries are not being filed since the
total amount of securities authorized under each of such
instruments does not exceed 10 percent of the total assets of
Occidental and its subsidiaries on a consolidated basis.
Occidental agrees to furnish a copy of any such instrument to the
Commission upon request. All of the Exhibits numbered 10.1 to
10.42 are management contracts and compensatory plans required to
be identified specifically as responsive to Item
601(b)(10)(iii)(A) of Regulation S-K pursuant to Item 14(c) of
Form 10-K.
10.1* Employment Agreement, dated May 14, 1997, between Occidental and
J. Roger Hirl (filed as Exhibit 10.1 to the Quarterly Report on
Form 10-Q of Occidental for the quarterly period ended June 30,
1997, File No. 1-9210).
10.2* Employment Agreement, dated as of September 11, 1997, between
Occidental and Dr. Ray R. Irani (filed as Exhibit 10.1 to the
Current Report on Form 8-K of Occidental dated October 6, 1997
(date of earliest event reported), File No. 1-9210).
10.3* Receipt and Acknowledgment, dated September 11, 1997, of Dr. Ray
R. Irani and Ghada Irani (filed as Exhibit 10.2 to the Current
Report on Form 8-K of Occidental dated October 6, 1997 (date of
earliest event reported), File No. 1-9210).
10.4* Employment Agreement, dated as of September 11, 1997, between
Occidental and Dr. Dale R. Laurance (filed as Exhibit 10.3 to the
Current Report on Form 8-K of Occidental dated October 6, 1997
(date of earliest event reported), File No. 1-9210).
10.5* Receipt and Acknowledgment, dated September 11, 1997, of Dr. Dale
R. Laurance and Lynda E. Laurance (filed as Exhibit 10.4 to the
Current Report on Form 8-K of Occidental dated October 6, 1997
(date of earliest event reported), File No. 1-9210).
10.6* Employment Agreement, dated as of April 4, 1994, between
Occidental and Stephen I. Chazen (filed as Exhibit 10.9 to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1997, File No. 1-9210).
10.7 Employment Agreement, dated April 3, 1998, between Occidental and
Donald P. de Brier.
10.8* Form of Indemnification Agreement between Occidental and each of
its directors and certain executive officers (filed as Exhibit B
to the Proxy Statement of Occidental for its May 21, 1987,
Annual Meeting of Stockholders, File No. 1-9210).
10.9* Occidental Petroleum Corporation Split Dollar Life Insurance
Program and Related Documents (filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended September 30, 1994, File No. 1-9210).
10.10* Occidental Petroleum Insured Medical Plan, as amended and restated
effective April 29, 1994, amending and restating the Occidental
Petroleum Corporation Executive Medical Plan (as amended and
restated effective April 1, 1993) (filed as Exhibit 10 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ending March 31, 1994, File No. 1-9210).
10.11* Occidental Petroleum Corporation 1978 Stock Option Plan (as
amended and restated effective May 21, 1987) (filed as Exhibit
28(a) to the Registration Statement on Form S-8 of Occidental,
File No. 33-14662).
- ---------------------
*Incorporated herein by reference
78
10.12* Form of Nonqualified Stock Option Grant under Occidental Petroleum
Corporation 1978 Stock Option Plan (filed as Exhibit 10.19 to the
Registration Statement on Form 8-B, dated June 26, 1986, of
Occidental, File No. 1- 9210).
10.13* Form of Incentive Stock Option Grant under Occidental Petroleum
Corporation 1978 Stock Option Plan (filed as Exhibit 10.20 to the
Registration Statement on Form 8-B, dated June 26, 1986, of
Occidental, File No. 1- 9210).
10.14* Occidental Petroleum Corporation 1987 Stock Option Plan, as
amended through April 29, 1992 (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended March 31, 1992, File No. 1-9210).
10.15* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.2 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.16* Form of Nonqualified Stock Option Agreement, with Stock
Appreciation Right, under Occidental Petroleum Corporation 1987
Stock Option Plan (filed as Exhibit 10.3 to the Quarterly Report
on Form 10-Q of Occidental for the quarterly period ended March
31, 1992, File No. 1-9210).
10.17* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1987 Stock Option Plan (filed as Exhibit
10.4 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended March 31, 1992, File No. 1-9210).
10.18* Form of Incentive Stock Option Agreement, with Stock Appreciation
Right, under Occidental Petroleum Corporation 1987 Stock Option
Plan (filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q
of Occidental for the quarterly period ended March 31, 1992, File
No. 1-9210).
10.19* Occidental Petroleum Corporation 1977 Executive Long-term
Incentive Stock Purchase Plan, as amended through December 10,
1992 (filed as Exhibit 10.20 to the Annual Report on Form 10-K of
Occidental for the fiscal year ended December 31, 1992, File No.
1-9210).
10.20* Form of award letter utilized under Occidental Petroleum
Corporation 1977 Executive Long-term Incentive Stock Purchase Plan
(filed as Exhibit 10.21 to the Annual Report on Form 10-K of
Occidental for the fiscal year ended December 31, 1992, File No.
1-9210).
10.21* Occidental Petroleum Corporation Incentive Compensation Plan,
effective as of October 28, 1991 (filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended September 30, 1991, File No. 1-9210).
10.22* Occidental Petroleum Corporation Deferred Compensation Plan (as
amended and restated effective as of January 1, 1999) (filed as
Exhibit 10.23 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended September 30, 1999, File No.
1-9210).
10.23* Occidental Petroleum Corporation Senior Executive Deferred
Compensation Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996)(filed as Exhibit 10.24
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1995, File No. 1-9210).
10.24* Occidental Petroleum Corporation Senior Executive Supplemental
Life Insurance Plan (effective as of January 1, 1986, as amended
and restated effective as of January 1, 1996)(filed as Exhibit
10.25 to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1995, File No. 1-9210).
10.25* Occidental Petroleum Corporation Senior Executive Supplemental
Retirement Plan (effective as of January 1, 1986, as amended and
restated effective as of January 1, 1996) (filed as Exhibit 10.26
to the Annual Report on Form 10-K of Occidental for the fiscal
year ended December 31, 1995, File No. 1-9210).
10.26* Amendment to Occidental Petroleum Corporation Senior Executive
Supplemental Retirement Plan (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Occidental for the quarterly
period ended June 30, 1998, File No. 1-9210).
10.27* Occidental Petroleum Corporation Senior Executive Survivor Benefit
Plan (effective as of January 1, 1986, as amended and restated
effective as of January 1, 1996) (filed as Exhibit 10.27 to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1995, File No. 1-9210).
10.28 Occidental Petroleum Corporation 1995 Incentive Stock Plan,
as amended.
10.29* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.2 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
- -------------------
*Incorporated herein by reference
79
10.30* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.3 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
10.31* Form of Stock Appreciation Rights Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as
Exhibit 99.4 to the Registration Statement on Form S-8 of
Occidental, File No. 33-64719).
10.32* Form of Restricted Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.5 to
the Registration Statement on Form S-8 of Occidental,
File No. 33-64719).
10.33* Form of Performance Stock Agreement under Occidental Petroleum
Corporation 1995 Incentive Stock Plan (filed as Exhibit 99.6 to
the Registration Statement on Form S-8 of Occidental,
File No. 33-64719).
10.34* Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (as amended April 29, 1999) (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended June 30, 1999, File No. 1-9210).
10.35* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee
Directors (filed as Exhibit 10.2 to the Quarterly Report on Form
10-Q of Occidental for the quarterly period ended June 30, 1999,
File No. 1-9210).
10.36* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee
Directors (filed as Exhibit 10.3 to the Quarterly Report on Form
10-Q of Occidental for the quarterly period ended June 30, 1999,
File No. 1-9210).
10.37* Form of Restricted Stock Option Assignment under Occidental
Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee
Directors (filed as Exhibit 99.2 to the Registration Statement on
Form S-8 of Occidental, File No. 333-02901).
10.38* Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
10.2 to the Current Report on Form 8-K of Occidental, dated
January 6, 1999 (date of earliest event reported), filed January
6, 1999, File No. 1-9210, amends Form previously filed as Exhibit
10.1 to the Registration Statement on Form S-8 of Occidental, File
No. 33-64719 and incorporated by reference as Exhibit 10.39 to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1997, File No. 1-9210).
10.39* Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 1995 Incentive Stock Plan (filed as Exhibit
10.3 to the Current Report on Form 8-K of Occidental, dated
January 6, 1999 (date of earliest event reported), filed January
6, 1999, File No. 1-9210, amends Form previously filed as Exhibit
10.2 to the Registration Statement on Form S-8 of Occidental, File
No. 33-64719 and incorporated by reference as Exhibit 10.40 to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1997, File No. 1-9210).
10.40* Occidental Petroleum Corporation 1988 Deferred Compensation Plan
(as amended and restated effective as of January 1, 1996) (filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q of Occidental
for the fiscal quarter ended September 30, 1996, File No. 1-9210).
10.41* Occidental Petroleum Corporation Supplemental Retirement Plan,
Amended and Restated Effective as of January 1, 1999 (filed as
Exhibit 10.1 to the Current Report on Form 8-K of Occidental,
dated January 6, 1999 (date of earliest event reported), filed
January 6, 1999, File No. 1-9210).
10.42* Form of 1997 Performance Stock Option Agreement under the 1995
Incentive Stock Plan of Occidental Petroleum Corporation (filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Occidental
for the quarterly period ended June 30, 1997, File No. 1-9210).
10.43 Form of Amendment to 1997 Performance Stock Option Agreement under
the 1995 Incentive Stock Plan of Occidental Petroleum Corporation.
10.44* Master Transaction Agreement, dated May 15, 1998, by and among
Equistar Chemicals, LP, Occidental, Lyondell Petrochemical Company
and Millennium Chemicals Inc. (filed as Exhibit 10.1 to the
Current Report on Form 8-K of Occidental dated May 15, 1998 (date
of earliest event reported), filed May 29, 1998, File No. 1-9210).
10.45* Amended and Restated Limited Partnership Agreement of Equistar
Chemicals, LP, dated May 15, 1998, by and among the partners named
therein (filed as Exhibit 10.2 to the Current Report on Form 8-K
of Occidental dated May 15, 1998 (date of earliest event
reported), filed May 29, 1998, File No. 1-9210).
10.46* Agreement and Plan of Merger and Asset Contribution, dated as of
May 15, 1998, by and among Equistar Chemicals, LP, Occidental
Petrochem Partner 1, Inc., Occidental Petrochem Partner 2, Inc.,
Oxy Petrochemicals Inc. and PDG Chemical Inc. (filed as
Exhibit 10.3 to the Current Report on Form 8-K of Occidental
dated May 15, 1998 (date of earliest event reported), filed
May 29, 1998, File No. 1-9210).
- --------------------
*Incorporated herein by reference
80
10.47* Amended and Restated Parent Agreement, dated as of May 15, 1998,
among Occidental Chemical Corporation, Oxy CH Corporation,
Occidental, Lyondell Petrochemical Company, Millennium Chemicals
Inc. and Equistar Chemicals, LP (filed as Exhibit 10.4 to the
Current Report on Form 8-K of Occidental dated May 15, 1998 (date
of earliest event reported), filed May 29, 1998, File No. 1-9210).
12 Statement regarding computation of total enterprise ratios of
earnings to fixed charges for the five years ended December 31,
1999.
21 List of subsidiaries of Occidental at December 31, 1999.
23 Consent of Independent Public Accountants.
27 Financial data schedule of Occidental for the fiscal year ended
December 31, 1999 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission).
- --------------------
* Incorporated herein by reference