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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 10, 1998
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OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 1-9210 95-4035997
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(310) 208-8800
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Completion of Elk Hills Naval Petroleum Reserve Acquisition. This report
supplements the prior Report of Occidental Petroleum Corporation ("Occidental")
on Form 8-K dated January 31, 1998 (Date of earliest event reported), and filed
with the Securities and Exchange Commission on February 10, 1998, pursuant to
which report Occidental has covenanted to file additional financial information
within 75 days from the consummation of the transaction. As previously reported,
on February 5, 1998, Occidental acquired the U.S. government's approximate 78
percent interest (the "Elk Hills Interest") in the Elk Hills Naval Petroleum
Reserve oil and gas fields (the "Elk Hills Field") for approximately $3.5
billion, as the successful bidder in a competitive auction of the assets. Upon
completion of the acquisition, Occidental became the operator of the Elk Hills
Field. Chevron remains the other unit interest holder.
The acquisition of the Elk Hills Interest was funded using a portion of the
proceeds from the divestiture of Occidental's wholly-owned subsidiary, MidCon
Corp. ("MidCon"), as described below, together with the proceeds of commercial
paper borrowings. The commercial paper will eventually be repaid from the
proceeds of sales of other nonstrategic assets or the issuance of other
securities.
The Elk Hills Field is about 35 miles west of Bakersfield, California, and
covers approximately 74 square miles. Occidental expects to book initial proved
reserves of approximately 300 million barrels of oil and 665 billion cubic feet
of natural gas from the Elk Hills Interest. Through the application of improved
drilling and field management techniques to develop fully Occidental's share of
the Elk Hills Field, reserves net to Occidental are expected ultimately to
exceed such numbers. Gross crude oil production averaged approximately 54,500
barrels of oil per day in January 1998, with corresponding gas sales averaging
144 million cubic feet ("MMcf") of gas per day after reinjection of 197 MMcf of
gas to maintain reservoir pressure. Corresponding natural gas liquids production
amounted to about 11,000 barrels per day. Gross crude oil production is
forecast, based on estimates prepared by Occidental's engineers, to rise to
65,000 barrels of oil per day in 1998 and may rise to more than 100,000 barrels
per day in the year 2000, while gross natural gas sales are expected to reach
380 MMcf per day in 1999. There can be no assurance, however, that Occidental
will actually achieve such production or sales levels.
Management does not believe that the historical operating results for the
Elk Hills Interest for the year ended September 30, 1997, and the pro forma
results reflected in the pro forma financial information included in Item 7 in
this report, are indicative of the expected future results, based on anticipated
future production enhancements in the Elk Hills Field, and the cost savings
management expects to realize from the elimination of redundant administrative
functions related to the acquisition of the Elk Hills Interest and the sale of
nonstrategic assets not reflected in the pro forma information.
ITEM 5. OTHER EVENTS
RECENT DEVELOPMENTS
Although the principal purpose of this report is to complete Occidental's
filing obligations with respect to the acquisition of the Elk Hills Interest, in
connection with the preparation of the pro forma financial statements reflecting
such acquisition, Occidental has also provided disclosure of the proposed
contribution of the Petrochemicals Business, as defined below under the caption
"Recent Developments -- Investment in Equistar Partnership," and certain other
recent transactions that closed in the first quarter, which may materially
impact Occidental's financial statements. Accordingly, set forth below is
disclosure regarding significant recent developments which will facilitate the
understanding of the presentation in the pro forma financial statements.
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Sale of MidCon
Prior to the purchase of the Elk Hills Interest, Occidental sold all of the
common stock of MidCon, through which it engaged in interstate and intrastate
natural gas transmission and marketing. The sale of MidCon to KN Energy, Inc.
closed effective January 31, 1998, for net proceeds to Occidental of
approximately $3.1 billion after certain expenses. As a result of this
transaction, Occidental classified MidCon and its subsidiaries as a discontinued
operation and recorded in the fourth quarter of 1997 an estimated after-tax
charge against earnings of approximately $750 million. The closing of the sale
of MidCon is included in the pro forma statement of financial position set forth
below in Item 7 of this report. Also included in the pro forma statement of
financial position is the effect on stockholders' equity of an after-tax benefit
of $38 million, reflecting the closing of the sale of MidCon.
Asset Sales and Redeployment Program
Occidental has undertaken the asset sales described below as part of a
larger $4.7 billion asset redeployment program. These asset sales are part of
Occidental's program to sell certain nonstrategic assets in order to: (i)
improve average return on assets, (ii) repay debt incurred in connection with
the acquisition of the Elk Hills Interest, and (iii) fund Occidental's stock
repurchase program described below in this report. As a result of these
nonstrategic asset sales and the acquisition of the Elk Hills Interest, it is
expected that the oil and gas production of Occidental in the United States will
increase significantly. Estimated average 1997 production attributable to the
nonstrategic assets to be sold and described below was approximately 46,000
barrels of oil per day and 144 MMcf of gas per day.
In February 1998, Occidental sold its entire interest in an oil field
development project in Venezuela to Union Texas Petroleum for approximately $205
million in cash plus contingent payments of up to $90 million over six years
(not to exceed $15 million in any one year) based on future oil prices. In March
1998, Occidental sold certain Oklahoma oil and gas properties to Anadarko
Petroleum Corporation for approximately $120 million. Occidental expects to
record pretax gains on the two dispositions of approximately $100 million. The
pro forma information set forth below in Item 7 reflects the effects of these
two transactions, which closed in the first quarter of 1998. Occidental has also
announced additional transactions described in the following paragraph that have
not been included in the pro forma information in Item 7 that are expected to
close in the second quarter of 1998. Occidental expects to record a net gain on
these transactions.
Occidental has agreed to sell its natural gas properties in Oklahoma and
Kansas outside of the Hugoton field to ONEOK Resources Company for approximately
$135 million. In March 1998, Occidental agreed to sell the stock of its MC
Panhandle subsidiary, which owns certain natural gas interests in the West
Panhandle field in Texas, to Chesapeake Energy Corporation for approximately
$105 million. On April 15, 1998, Occidental completed the sale of certain
onshore properties in Louisiana and Mississippi to Petro-Hunt L.L.C. for
approximately $194 million. In March 1998, Occidental completed sales of
interests in the Austin Chalk area of Louisiana and in the Rocky Mountain region
to various buyers for an aggregate of approximately $62 million. Other smaller
packages of assets have been scheduled for disposition, and many of such sales
are pending or closed, for a total of 12 domestic oil and gas transactions.
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Investment in Equistar Partnership
On March 19, 1998, Occidental, Lyondell Petrochemical Company ("Lyondell")
and Millennium Chemicals Inc. ("Millennium") entered into a definitive master
transaction agreement ("MTA") to effect the proposed contribution of
Occidental's ethylene, propylene, ethylene oxide ("EO") and ethylene glycol
("EG") derivatives businesses (collectively, the "Petrochemicals Business") to a
joint venture limited partnership called Equistar Chemicals, LP ("Equistar"), in
return for a 29.5 percent interest in such partnership, receipt of $420 million
in cash and the assumption of $205 million of Occidental debt and other
liabilities by Equistar. Occidental does not expect to record a material gain or
loss on this transaction. Through their respective subsidiaries, Lyondell and
Millennium presently own Equistar. The Petrochemicals Business includes the
following:
(i) Olefins plants at Corpus Christi and Chocolate Bayou, Texas, and
Lake Charles, Louisiana, producing 3.65 billion pounds per year of
ethylene;
(ii) EO and EG derivatives plant located at Bayport, Texas, together
with Occidental's 50 percent ownership of PD Glycol, a limited partnership
which operates EO/EG plants at Beaumont, Texas (PD Glycol is a 50/50 joint
venture with Du Pont); and
(iii) A distribution system consisting of more than 950 miles of
ethylene/propylene pipelines in the U.S. Gulf Coast and two storage wells
in South Texas.
Following the closing of the transactions contemplated by the MTA, which is
expected to occur by mid-1998, Equistar will be owned 41 percent by Lyondell,
and Millennium and Occidental will each have a 29.5 percent share. Prior to
closing the parties must execute and deliver an Amended and Restated Partnership
Agreement, a Parent Agreement and an Asset Contribution Agreement (the
"Definitive Agreements") and certain other agreements. At closing, Equistar will
borrow approximately $500 million of additional debt in order to distribute cash
of $420 million to Occidental and $75 million to Millennium. The transaction
also includes a long-term agreement for Equistar to supply the ethylene
requirements (up to 2.55 billion pounds per annum) for Occidental's chlorovinyls
business.
The investment in Equistar is subject to satisfaction of certain conditions
precedent, including: (i) expiration or early termination of all applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
(ii) approval by Occidental's Board of Directors; (iii) execution of the
Definitive Agreements and other agreements; and (iv) the implementation by
Equistar of a larger credit facility. However, there can be no assurance that
such transaction will be consummated, or that, if consummated, the terms thereof
will not materially differ from the description set forth herein. The proposed
contribution of the Petrochemicals Business is included in the pro forma
information set forth below in Item 7 of this report; however, such pro forma
information does not reflect Occidental's equity share of Equistar's income.
Preferred Stock Conversion
In February 1998, Occidental called for redemption all 15,106,444
outstanding shares of its $3.875 voting and nonvoting Cumulative Convertible
Preferred Stock (the "Preferred Shares") on March 6, 1998, and March 13, 1998,
respectively. All the Preferred Shares were converted into approximately 33
million shares of common stock prior to the respective redemption dates. Since
dividends on the Preferred Shares were approximately $58 million per annum, the
conversion results in annual dividend savings to Occidental of approximately $25
million, assuming annual dividends of $1 per share on Occidental's common stock.
The effect of such conversion is reflected in the earnings per share computation
included in the pro forma results of operations set forth below in Item 7 of
this report.
Common Stock Repurchase Program
In October 1997, Occidental began a program to repurchase up to 40 million
shares of its common stock for approximately $1 billion. The repurchases are
made in the open market or in privately negotiated
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transactions at the discretion of Occidental's management, depending upon
financial and market conditions or as otherwise provided by the Securities and
Exchange Commission and New York Stock Exchange rules and regulations. Since the
commencement of the program in October 1997, approximately 20 million shares
have been repurchased, of which 16 million have been repurchased in 1998, taking
into account purchases settled through April 16. The current program is expected
to be completed in 1998. The effects of the common stock repurchase program have
not been reflected in the pro forma financial statements included under Item 7
of this report since the effect on income and earnings per share would not be
significant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
1. U.S. Department of Energy Naval Petroleum Reserve No. 1 Audited
Financial Statements for each of the fiscal years ending September 30,
1997, and September 30, 1996, together with the report of KPMG Peat Marwick
LLP thereon (the "Elk Hills Financial Statements") (attached as Exhibit
99.1 hereto).
(b) Pro forma financial information.
Although the principal purpose of this report is to complete Occidental's
filing obligations with respect to the acquisition of the Elk Hills Interest, in
connection with the preparation of the pro forma financial statements reflecting
such acquisition, Occidental has also provided disclosure of other recent
developments which may materially impact Occidental's financial statements.
However, Occidental has not reflected in such pro forma financial information
those recent transactions that are not expected to have a material impact on
Occidental's financial statements. The following unaudited pro forma financial
information has been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and gives effect to: (i) the closing of
the sale of Occidental's natural gas transmission and marketing business,
MidCon, to KN Energy, Inc. in January 1998; (ii) the purchase of the Elk Hills
Interest in February 1998; (iii) the sale of several nonstrategic assets in the
first quarter of 1998 for aggregate gross proceeds of $325 million; (iv) the
proposed contribution of Occidental's Petrochemicals Business, which is
anticipated to be consummated in mid-1998 (other than earnings from the
investment in Equistar) and (v) the conversion of the Preferred Shares. All of
these transactions have been reflected as if they had occurred for financial
position purposes on December 31, 1997, and for results of operations purposes
on January 1, 1997. Occidental's historical and pro forma results of operations
include pretax charges for special items of $478 million. The unaudited pro
forma financial information reflects the preliminary purchase price allocation,
which will be finalized when valuations are completed. The historical financial
information for Occidental has been derived from Occidental's audited financial
statements for the year ended December 31, 1997, incorporated by reference in
Occidental's Annual Report on Form 10-K for the period ended December 31, 1997
(the "Form 10-K"). The historical financial information for Elk Hills has been
derived from the Elk Hills Financial Statements included in this report. The
unaudited pro forma financial information should be read in conjunction with
Occidental's historical financial statements incorporated by reference in the
Form 10-K, and the Elk Hills Financial Statements. The pro forma information is
not necessarily indicative of the results that would have been obtained had the
transactions actually occurred on the dates specified. In addition, such pro
forma information does not purport to project Occidental's results of operations
or financial position as of any future date or for any future period.
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1. Unaudited Pro Forma Results of Operations of Occidental for the year
ended December 31, 1997, reflecting the acquisition of the Elk Hills Interest
and certain other recent significant developments described therein.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS
OCCIDENTAL ELK HILLS
HISTORICAL HISTORICAL OCCIDENTAL
FOR THE YEAR ENDED FOR THE YEAR ENDED PRO FORMA PRO
DECEMBER 31, 1997 SEPTEMBER 30, 1997 ADJUSTMENTS FORMA
- ---------------------------------------- ------------------ ------------------ ----------- ----------
(IN MILLIONS, EXCEPT PER-SHARE DATA)
Revenues................................ $ 8,101 $ 475 $ (1,821)(1) $ 6,755(2)
Costs and other deductions
Cost of sales......................... 5,844 110 (1,479)(3) 4,475
Selling, general and administrative
and other operating expenses........ 1,295 41 (51)(4) 1,285
Interest and debt expense, net........ 434 -- 65(5) 499
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7,573 151 (1,465) 6,259
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Income (loss) from continuing operations
before taxes.......................... 528(6) 324 (356) 496(6)
Provision for domestic and foreign
income and other taxes................ 311 -- (12)(7) 299
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Income (loss) from continuing
operations............................ 217 324 (344) 197
Preferred dividend requirements......... 88 -- (58)(8) 30
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Earnings (loss) from continuing
operations applicable to common
stock................................. $ 129 $ 324 $ (286) $ 167
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Basic earnings (loss) per common share
from continuing operations............ $ .39 $ .46
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Average shares outstanding (in
thousands)............................ 334,341 367,528(8)
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Diluted earnings (loss) per common share
from continuing operations............ $ .39 $ .46
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Average shares outstanding (in
thousands)............................ 334,916 368,103(8)
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(1) Reflects (a) $75 million of interest income on a $1.4 billion note received
from KN Energy, Inc. as partial payment for their purchase of MidCon; also
eliminates the historical revenues of (b) $1.803 billion from Occidental's
Petrochemicals Business, (c) $69 million from an oil field development in
Venezuela, and (d) $24 million from certain Oklahoma oil and gas properties.
(2) Does not reflect Occidental's equity share of Equistar's income. Audited
information for Equistar's predecessors was not available for 1997 to
determine Occidental's equity share of Equistar's income; however, based on
unaudited information, Occidental estimates that its equity share of
Equistar's income on a pretax basis would have been approximately $184
million.
(3) Reflects (a) $69 million of additional depreciation, depletion and
amortization expense to be recognized based on a preliminary purchase price
allocation for the purchase of the Elk Hills Interest and $38 million of
property tax expense expected to be incurred on the Elk Hills Interest; also
eliminates the historical cost of sales of (b) $1.53 billion from
Occidental's Petrochemicals Business, (c) $42 million from an oil field
development in Venezuela, and (d) $14 million from certain Oklahoma oil and
gas properties.
(4) Eliminates the historical selling, general and administration and other
operating expenses of (a) $43 million from Occidental's Petrochemicals
Business and (b) $8 million from an oil field development in Venezuela.
(5) Reflects the additional interest expected to be incurred on long-term debt
based on an estimated weighted average interest rate of approximately 7.45%
on all pro forma indebtedness at December 31, 1997.
(6) Includes pretax charges for special items of $478 million.
(7) Reflects a reduction in income tax expense as a result of decreased pro
forma pretax income in comparison to Occidental's historical pretax income
for the year ended December 31, 1997.
(8) Reflects the effect of the conversion of 15,106,444 outstanding shares of
Occidental's Preferred Shares in March 1998 into approximately 33 million
shares of common stock. Annual dividends on the Preferred Shares were
approximately $58 million.
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2. Unaudited Pro Forma Statement of Financial Position of Occidental as at
December 31, 1997, reflecting the acquisition of the Elk Hills Interest and
certain other recent significant developments.
UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION
OCCIDENTAL ELK HILLS OCCIDENTAL
HISTORICAL HISTORICAL(1) PRO FORMA PRO
DECEMBER 31, 1997 SEPTEMBER 30, 1997 ADJUSTMENTS FORMA
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(IN MILLIONS)
ASSETS
Current assets.......................... $ 1,916 $ 5 $ (186)(2) $ 1,735
Long-term receivables, net.............. 153 -- 1,386(3) 1,539
Equity investments...................... 921 -- 1,356(4) 2,277
Property, plant and equipment, net...... 8,590 482 988(5) 10,060
Other assets............................ 470 -- (24)(6) 446
Net assets of discontinued operations... 3,232 -- (3,232)(7) --
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$ 15,282 $ 487 $ 288 $ 16,057
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LIABILITIES AND EQUITY
Current liabilities..................... $ 1,870 $ -- $ 125(8) $ 1,995
Long-term debt, net..................... 4,925 -- 1,306(9) 6,231
Deferred and other domestic and foreign
income taxes.......................... 1,028 -- (165)(10) 863
Other deferred credits and other
liabilities........................... 3,173 -- (594)(11) 2,579
Stockholders' equity.................... 4,286 487 (384)(12) 4,389
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$ 15,282 $ 487 $ 288 $ 16,057
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(1) Reflects only those assets purchased by Occidental. Not included are
current assets of $529 million, current liabilities of $59 million,
noncurrent liabilities of $75 million, and stockholders' equity of $395
million.
(2) Reflects (a) a preliminary purchase price allocation to current assets of
$3 million for the Elk Hills Interest; also eliminates the historical
current assets of (b) $288 million of Occidental's Petrochemicals Business,
(c) $30 million of an oil field development in Venezuela, and (d) other
related reclassifications.
(3) Reflects the receipt of a note receivable from KN Energy, Inc. in
conjunction with Occidental's sale of MidCon.
(4) Reflects an equity investment to be received as proceeds from the proposed
contribution of Occidental's Petrochemicals Business.
(5) Reflects (a) a preliminary purchase price allocation to net property, plant
and equipment of $3.035 billion for the Elk Hills Interest; also eliminates
the historical net property, plant and equipment, of (b) $1.83 billion of
Occidental's Petrochemicals Business, (c) $172 million of an oil field
development in Venezuela, and (d) $45 million of certain Oklahoma oil and
gas properties.
(6) Eliminates historical other assets of Occidental's Petrochemicals Business.
(7) Eliminates historical net assets of MidCon to reflect the sale thereof.
(8) Reflects (a) additional liabilities due to the reclassification of $187
million of long-term deferred taxes and $54 million of other deferred
credits and other liabilities into current taxes in conjunction with
Occidental's closing of the sale of MidCon, (b) $36 million for taxes on
gains on the sales of an oil field development in Venezuela and certain
Oklahoma oil and gas properties; also eliminates the historical current
liabilities of (c) $136 million of Occidental's Petrochemicals Business,
and (d) $16 million of an oil field development in Venezuela.
(9) Reflects the net effect of (a) borrowings primarily for the acquisition of
the Elk Hills Interest, reduced by (b) cash proceeds of $1.846 billion from
the sale of MidCon, and (c) net cash proceeds of $623 million from the sale
of an oil development field in Venezuela, the sale of certain Oklahoma oil
and gas properties, and the proposed contribution of Occidental's
Petrochemicals Business.
(10) Reflects a reduction in long-term deferred taxes to reclassify them into
current taxes in conjunction with Occidental's closing of the sale of
MidCon.
(11) Reflects (a) a reclassification of other deferred credits and other
liabilities to long-term debt in the amount of $250 million, (b) the
reclassification of $54 million of other deferred credits and other
liabilities into current taxes, (c) the effect of a $60 million pretax
benefit, reflecting the closing of the sale of MidCon, and (d) the
elimination of the historical other deferred credits and other liabilities
of $230 million of Occidental's Petrochemicals Business.
(12) Reflects (a) an after-tax benefit of $38 million, reflecting the closing of
the sale of MidCon, (b) an after-tax gain of $48 million on the sale of
certain Oklahoma oil and gas properties, (c) an after-tax gain of $17
million on the sale of an oil field development in Venezuela, and (d) the
elimination of the historical equity of $487 million for the Elk Hills
Interest.
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(c) Exhibits.
10.4. Grant of Option Agreement, executed October 5, 1997, between the U.S.
Department of Energy (the "DOE") and Occidental, including, as an attachment
thereto, the Purchase and Sale Agreement between the DOE and Occidental (filed
as Exhibit 10.1 of the Quarterly Report on Form 10-Q of Occidental for the
fiscal quarter ended September 30, 1997, File No. 1-9210, and incorporated
herein by this reference).
23.1. Consent of KPMG Peat Marwick LLP.
99.1. Elk Hills Financial Statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
(Registrant)
DATE: April 20, 1998 S. P. Dominick, Jr.
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S. P. Dominick, Jr., Vice President
and Controller
(Chief Accounting and Duly Authorized
Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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23.1 Consent of KPMG Peat Marwick LLP.
99.1 Elk Hills Financial Statements.