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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
OR
[_]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
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OCCIDENTAL PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4035997
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 208-8800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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
$3.00 Cumulative CXY-Indexed Convertible
Preferred Stock New York Stock Exchange
Common Stock New York Stock Exchange
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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 for 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]
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant on February 8, 1999 was approximately $5.6 billion, based on the
closing price on the New York Stock Exchange composite tape of $16.125 per
share of Common Stock on February 8, 1999. 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 8, 1999, there were 347,771,225 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement filed in connection
with its April 30, 1999, Annual Meeting of Stockholders are incorporated by
reference into Part III.
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TABLE OF CONTENTS
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PAGE
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PART I
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ITEMS 1 AND 2 Business and Properties................................... 1
General................................................... 1
Segment Information....................................... 1
Oil and Gas Operations.................................... 1
Chemical Operations....................................... 6
Capital Expenditures...................................... 11
Employees................................................. 11
Environmental Regulation.................................. 11
ITEM 3 Legal Proceedings......................................... 12
Environmental Proceedings................................. 13
ITEM 4 Submission of Matters to a Vote of Security Holders....... 13
Executive Officers of the Registrant...................... 13
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PART II
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ITEM 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 15
ITEM 6 Selected Financial Data................................... 16
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Incorporating Item
7A)....................................................... 16
1998 Business Environment................................. 16
1998 Significant Events................................... 17
Income Summary............................................ 18
Divisional Operations..................................... 18
Liquidity and Capital Resources........................... 23
Acquisitions and Commitments.............................. 28
Hedging Activities........................................ 28
Taxes..................................................... 30
Lawsuits, Claims, Commitments, Contingencies and Related
Matters................................................... 30
Environmental Expenditures................................ 30
1999 Outlook.............................................. 32
Accounting Changes........................................ 34
Year 2000 Compliance...................................... 35
Safe Harbor Statement Regarding Outlook and Other Forward-
Looking Data.............................................. 36
Report of Management...................................... 36
ITEM 8 Financial Statements and Supplementary Data............... 37
ITEM 9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................... 82
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PART III
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ITEM 10 Directors and Executive Officers of the Registrant........ 82
ITEM 11 Executive Compensation.................................... 82
Security Ownership of Certain Beneficial Owners and
ITEM 12 Management................................................ 82
ITEM 13 Certain Relationships and Related Transactions............ 82
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PART IV
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ITEM 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 82
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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, polyvinyl chloride ("PVC"), vinyl chloride monomer ("VCM") and
ethylene dichloride ("EDC"), as well as specialty chemicals. Occidental
conducts its principal operations through two subsidiaries, Occidental Oil and
Gas Corporation and Occidental Chemical Corporation. 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 1998, Occidental was involved in a major program to redeploy assets,
including:
. Acquiring the U.S. government's approximate 78 percent interest in the
Elk Hills Naval Petroleum Reserve in California ("Elk Hills") for
approximately $3.5 billion. Elk Hills is one of the 11 largest oil and
gas fields in the lower 48 states.
. Selling its MidCon Corp. natural gas transmission and marketing
subsidiary to K N Energy, Inc.
. Selling nonstrategic oil and gas assets in the United States, Venezuela
and the Netherlands for net proceeds of approximately $1.1 billion.
. Exchanging its interests in undeveloped gas discoveries in Malaysia and
the Philippines for current oil-producing properties in Colombia and
Yemen.
. Arranging alliances to enhance its vinyls and petrochemicals businesses.
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, 1998, see Note 17 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" in this report.
OIL AND GAS OPERATIONS
EXPLORATION AND PRODUCTION
GENERAL Through its subsidiaries, including Occidental Oil and Gas
Corporation, and its approximate 29 percent equity interest in Canadian
Occidental Petroleum Ltd. ("CanadianOxy"), Occidental produces or participates
in the production of crude oil, condensate and natural gas in the United
States, Bangladesh, Canada, Colombia, Ecuador, 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.
1
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RECENT DEVELOPMENTS The acquisition of Elk Hills significantly increased the
quantity and quality of Occidental's domestic reserves. At December 31, 1998,
Occidental booked initial proved reserves from Elk Hills of approximately 307
million barrels of oil and 708 billion cubic feet ("Bcf") of natural gas.
Through 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. Production is expected to increase
as the field is developed. Gross crude oil production averaged approximately
65,000 barrels of oil per day in 1998, including natural gas liquids
production of 8,300 barrels per day, with gas sales averaging approximately
227 million cubic feet of gas per day. Occidental recognized oil and gas
production from Elk Hills from the date of acquisition, February 5, 1998.
Occidental is the operator of Elk Hills. Chevron USA is the other unit
interest holder.
Occidental exchanged its interests in undeveloped gas discoveries in
Malaysia and the Philippines, together with approximately $89 million in cash,
for Royal Dutch Shell's interests in oil-producing properties in Colombia and
Yemen complementary to Occidental's existing properties (collectively, the
"Shell Exchange"). The Shell Exchange, which closed in September 1998,
increased Occidental's net oil production by approximately 46,000 barrels per
day.
COMPARATIVE OIL AND GAS RESERVES AND PRODUCTION
Oil in millions of barrels; natural gas in billions of cubic feet
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1998 1997 1996
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OIL GAS TOTAL(a) Oil Gas Total(a) Oil Gas Total(a)
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U.S. Reserves........... 445 1,898 761 197 1,635 470 203 1,744 494
International Reserves.. 621 251 663 703 823 840 694 840 834
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Total................. 1,066 2,149 1,424 900 2,458 1,310 897 2,584 1,328
===== ===== ===== ===== ===== ===== ===== ===== =====
U.S. Production......... 29 224 66 21 218 57 21 220 58
International
Production............. 88 32 94 80 40 87 84 42 91
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Total................. 117 256 160 101 258 144 105 262 149
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(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 1998 production attributable to the nonstrategic assets
sold and described above was approximately 46,000 barrels of oil per day
(including approximately 25,000 barrels per day attributable to the sale
of Occidental's Venezuela interest) and 230 million cubic feet ("MMcf")
of gas per day. Following these nonstrategic asset sales and the
acquisition of Elk Hills, Occidental's oil and gas production in the
United States increased significantly.
At December 31, 1998, Occidental's oil and gas reserve base, on an energy
equivalent barrel basis, was 1.42 billion equivalent barrels, compared with
1.31 billion barrels equivalent at December 31, 1997. In 1998 and 1997,
Occidental added more oil to its reserves than it produced. Occidental's
consolidated worldwide net proved developed and undeveloped reserves of crude
oil (not including those of CanadianOxy) were 1.066 billion barrels at year-
end 1998, compared with 900 million barrels at year-end 1997. Domestic
reserves of crude oil were 445 million barrels at year-end 1998, compared with
197 million barrels at year-end 1997, while international crude oil reserves
decreased to 621 million barrels from 703 million barrels at year-end 1997.
Worldwide net crude oil reserve additions of 453 million barrels more than
replaced its worldwide production of 117 million barrels. Elk Hills
constituted the single largest reserve addition. The calculation of reserve
additions does not take into account sales of approximately 330 million oil
equivalent barrels of proved reserves during 1998. Worldwide net proved
developed and undeveloped reserves of natural gas were approximately 2.1
trillion cubic feet ("Tcf") at year-end 1998, with 1.9 Tcf attributable to
domestic operations. Worldwide net proved developed and undeveloped natural
gas reserves were about 2.5 Tcf in the previous year.
Net daily worldwide oil production in 1998 averaged 321,000 barrels per day,
compared with 277,000 barrels per day in 1997, and net worldwide natural gas
production averaged 703 MMcf per day, compared with 706 MMcf per day in 1997.
International operations accounted for approximately 75 percent of
Occidental's oil production, while approximately 87 percent of gas production
came from the United States. On an oil equivalent basis, Occidental produced
438,200 net barrels per day in 1998 from operations in 11 countries, including
the United States (not including CanadianOxy).
2
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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. Among the methods that Occidental uses to compete are the acquisition
of contract exploration blocks in areas with known oil and gas deposits and
the cost-efficient development and 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, 1998, the
carrying value of Occidental's oil and gas assets in countries outside North
America aggregated approximately $1.973 billion, or approximately 13 percent
of Occidental's total assets at that date. Approximately $1.175 billion of
such assets were located in the Middle East, and approximately $480 million of
such assets were located in Latin America. Substantially all of the remainder
was located in Bangladesh, 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 90 percent of Occidental's oil and gas
assets, are the United States, Qatar, Yemen, Colombia and Peru. 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, Louisiana, New Mexico
and Alaska.
Oil Production and Marketing Net daily domestic total liquids production
averaged approximately 81,000 barrels in 1998, compared with 57,000 barrels in
1997. The 1998 production is net of approximately 10,400 barrels per day
assigned pursuant to a pre-sale agreement. Net daily domestic production of
natural gas averaged 614 MMcf in 1998, compared with 596 MMcf in 1997.
Occidental's average sales price for domestic crude oil was $12.06 per
barrel in 1998, compared with $18.72 in the previous year. The average
domestic natural gas sales price in 1998 was $2.05 per Mcf, compared with
$2.39 per Mcf during 1997.
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. Production from these fields averaged more than 184 MMcf
of gas per day or approximately one-third of the domestic total. Occidental
has approximately 775 Bcf of gas reserves and 4.2 million barrels of oil
reserves in the Hugoton area. Occidental continued exploration in the Chase
formation of the Hugoton field in 1998.
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 also has an agreement to supply fuel gas at market prices to a
CITGO refinery until 2003 to the extent that CITGO does not obtain such gas
from other sources.
3
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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 1999
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. Occidental also has agreements with
various public utility companies to provide approximately 19,100 MMBtu of
natural gas per day in 1999. The public utility agreements provide for market-
sensitive prices.
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. Average gross production increased from
approximately 89,900 net barrels per day for 1997 to approximately 118,100 net
barrels per day for 1998. Average net interest production from the field in
1998 totaled approximately 75,000 barrels per day. Proved developed and
undeveloped project reserves are presently estimated by Occidental to be
approximately 227 million barrels, compared with 206 million barrels at
December 31, 1997, an increase of 10 percent. In December 1997, Occidental
entered a production-sharing agreement to develop and operate as a satellite
the Idd el Shargi South Dome field, 15 miles south of the ISND field.
YEMEN Occidental owns a 38 percent working interest (after completion of the
Shell Exchange) 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 24,700 barrels per day in 1998 compared to 14,100 barrels
per day in 1997. The increase in production in 1998 reflects the Shell
Exchange effective September 1998.
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 one
exploration area in the Bogota basin. Occidental's interest in these contracts
is through its 75 percent ownership of the stock of a subsidiary that owns the
company conducting operations in Colombia and Shell's 20 percent net interest
through the Shell Exchange. 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 periodically subject to attacks by insurgent groups,
which, from time to time, disrupt the flow of oil. Gross production from
Occidental's Cano Limon area declined to approximately 135,000 barrels per day
in 1998, compared with 160,000 barrels per day in 1997. The reduction is due
to a natural decline and terrorist activity. Occidental's net share of
production increased to 27,100 barrels per day in 1998, compared with 24,300
barrels per day in 1997, reflecting the Shell Exchange, effective September
1998.
As a result of concerns raised by a tribe of indigenous people called the
U'wa, Occidental is in the process of voluntarily relinquishing 75 percent of
the southern Samore exploration block (subject to government approval), but is
proceeding with plans to explore in the northern 25 percent. The Samore block
is in the Llanos fold belt along the edge of the Llanos basin. The U'wa
situation has no impact on Occidental's existing production at Cano Limon.
PERU Occidental conducts exploration and production activities under three
separate service contracts with the Peruvian government. One contract, in
which Occidental has all the interest, covers continuing production operations
in the northern jungle and provides for Occidental to receive, as compensation
for its services, fees based on barrels of production that vary with the value
of a "basket" of international oils. All production is delivered to Perupetro,
the Peruvian national oil company. Net production from the northern jungle
block averaged approximately 48,200 barrels per day in 1998, compared to
49,500 barrels per day in 1997.
Occidental also owns a 50 percent interest in the northern jungle
exploration Block 64 totaling 4.4 million acres and a 100 percent interest in
the 859,000-acre offshore Block Z-3 along the northern coast of Peru. The
northern jungle Block 64, operated by another company, has ceased operations
due to a force majeure condition pending resolution of problems with
indigenous people.
4
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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 Bangladesh, 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 early 1995, Occidental signed production-sharing contracts to explore
three contiguous blocks in Bangladesh comprising a 3.4-million-acre area in
the gas-producing northeastern region. Three wells were drilled in the
Jalalabad field and a production facility and pipeline constructed to deliver
a contractual rate of 100 MMcf per day. Production began in February 1999.
Occidental owns a 50 percent working interest in the Jalalabad field. During
1998, Occidental negotiated an extension of the exploration period for the
three exploration blocks and drilled one exploration well which discovered a
very large gas accumulation.
In Ecuador, Occidental operates the 494,000-acre Block 15, in the Oriente
Basin, under a risk-service contract. Six oil fields were discovered from 1985
to 1992. Due to pipeline restrictions, gross production declined to
approximately 12,100 barrels per day in 1998, compared with gross production
of approximately 14,600 barrels per day in 1997. Future development of the
fields is contingent on expansion of the government-owned pipeline system.
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 1998 averaged approximately 16,900 barrels per day of crude oil,
compared with 14,400 barrels per day in 1997.
In southern Pakistan, Occidental has a 30 percent working interest in the
three Badin Blocks, which in 1998 produced a net share of 5,308 barrels of oil
per day and 39 MMcf of gas per day, compared to 6,600 barrels of oil per day
and 38 MMcf of gas per day in 1997. Recent exploration resulted in four oil
and gas discoveries that will 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 Central Indus Gas
Basin blocks have ceased operations as a result of a declaration of 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 1998, gross production
averaged 57,700 barrels per day, compared with 54,000 barrels per day in 1997.
Approximately 48 percent of such oil was exported in 1998.
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 expected to
contain enough 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 Pertimina, the
Indonesian national oil company, have already begun marketing the LNG. This
project will involve significant expenditures and several years will be
required to complete project development.
In addition, during 1998 Occidental acquired new exploration blocks in the
United States Gulf of Mexico, Colombia and Oman. During 1999, exploration
expenditures are planned for these areas as well as for previously acquired
blocks in Bangladesh, Pakistan, Peru and Elk Hills in the United States.
CANADA 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 1997 and 1998, such transactions
were not material and at December 31, 1998 and 1997, there were no material
amounts owing to or due from Occidental.
5
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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 tar sands of Northern Alberta; has
interests in producing oil and gas leases onshore and offshore in the United
States and Yemen (where CanadianOxy is operator); engages in exploration
activities in Canada, the United States, Indonesia, Australia, Nigeria and
Colombia; and participates with Occidental in its operations in Ecuador.
CanadianOxy also conducts chemical operations in Canada and the United States.
At December 31, 1998, Occidental's proportional interest in CanadianOxy's
worldwide net proved developed and undeveloped reserves aggregated
approximately 83 million barrels of crude oil, condensate and natural gas
liquids, 187 Bcf of natural gas and 50 million barrels of synthetic crude oil
recoverable from tar sands.
RESERVES, PRODUCTION AND RELATED INFORMATION See Note 18 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 June 1, 1998,
Occidental reported to the U.S. Department of Energy on Form EIA-28 the same
proved oil and gas reserves at December 31, 1997.
CHEMICAL OPERATIONS
GENERAL Occidental conducts its chemical operations through Occidental
Chemical Corporation and its various subsidiaries and affiliates
(collectively, "OxyChem"). OxyChem manufactures and markets a variety of basic
chemicals, including chlorine, caustic soda, PVC, VCM and EDC, as well as
specialty chemicals. OxyChem also owns an 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, both vertically and
horizontally. Chemicals from the chlorovinyls business are used by OxyChem's
specialty businesses, and OxyChem's chlorine is an important feedstock for PVC
and VCM production. OxyChem's operations also have been affected by
environmental regulation and associated costs. See the information appearing
under the caption "Environmental Regulation" in this report.
RECENT DEVELOPMENTS AND STRATEGIC ALLIANCES On May 15, 1998, OxyChem or its
affilitates contributed interests in its ethylene, propylene, ethylene oxide
("EO"), and 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.
The contributed assets included the following: olefins plants at Corpus
Christi and Chocolate Bayou, Texas, and a leasehold interest in an olefins
plant at Lake Charles, Louisiana, collectively having a capacity of
3.65 billion pounds of ethylene per year; EO, EG and EO derivatives plant
located at Bayport, Texas, together with Occidental's 50 percent ownership of
PD Glycol, a limited partnership which operates an EO/EG plant at Beaumont,
Texas (PD Glycol is a 50/50 joint venture with Du Pont); and a distribution
system consisting of
6
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more than 950 miles of ethylene/propylene pipelines in the U.S. Gulf Coast and
three storage wells in south Texas. The addition of the petrochemicals
business made Equistar the second-largest producer of ethylene in the world,
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 chlorovinyls
business.
In December 1998, to strengthen further its PVC and VCM position, OxyChem
signed a definitive agreement with The Geon Company ("Geon"), which provided,
among other things, for the formation of two limited partnerships. One
partnership, named "Oxy Vinyls, LP," will produce and market PVC suspension
and mass resins, along with VCM. In addition, Oxy Vinyls, LP, will produce
chlor-alkali products and will be North America's largest PVC and VCM
producer. OxyChem and Geon plan to contribute to Oxy Vinyls, LP certain PVC
resin and VCM plants and a certain chlor-alkali facility. Oxy Vinyls, LP will
also enter into long-term VCM and PVC supply agreements with Geon. OxyChem
will own 76 percent of Oxy Vinyls, LP. OxyChem and Geon also agreed to form a
PVC compounding partnership that will be named "PVC Powder Blends, LP."
OxyChem will own 10 percent of this partnership. This joint venture
transaction is expected to close in the second quarter of 1999, following
receipt of approvals from Occidental's Board of Directors and Geon's
shareholders and satisfaction of other customary closing conditions.
CHLOROVINYL PRODUCTS 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.
In January 1998, OxyChem completed the 450-million-pound-per-year PVC
expansion at Pasadena, Texas, permitting continued growth in the major PVC
markets, including pipe, vinyl siding and building profiles, and flooring.
This plant is one of the assets that will be contributed to Oxy Vinyls, LP in
connection with the closing of the Geon joint venture transaction.
SPECIALTY CHEMICALS The Specialty Business Group focuses on smaller-volume
specialty and intermediate chemical markets. OxyChem's specialty businesses
produce organic and inorganic compounds, sophisticated intermediate chemicals
and chlorinated isocyanurates. 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 and pesticides, and also in pharmaceuticals. During 1998,
some of these businesses were negatively affected by the economic situation in
the Far East, but markets for these specialty products are generally less
cyclical than the markets for large-volume commodity chemicals. As part of a
strategic evaluation of these businesses, in early 1999 OxyChem divided its
specialty businesses into two categories, industrial-specialty and
performance-based products, to manage the specialty businesses more
effectively and to develop them consistent with the nature and requirements of
the markets they serve.
7
<PAGE>
PRINCIPAL PRODUCTS OxyChem produces the following chemical products:
<TABLE>
<CAPTION>
Principal Products Major Uses
------------------------------------ ------------------------------------
<C> <C> <S>
Chlorovinyls Chlor-alkali chemicals
Chlorine........................... Raw material for polyvinyl chloride,
chemical manufacturing, pulp and
paper production, water treatment
Caustic soda...................... Chemical manufacturing, pulp and
paper production, cleaning products
Potassium chemicals (including
potassium hydroxide)............. Glass, fertilizers, cleaning
products, rubber
Ethylene dichloride................. Raw material for vinyl chloride
monomer
Vinyl chloride monomer.............. Raw material for polyvinyl chloride
Polyvinyl chloride.................. Calendering and film, pipe, wire
insulation, flooring, footwear,
bottles, siding, windows, door
frames and other home construction
products
------------------------------------
Specialty Businesses Sodium silicates.................... Soaps and detergents, catalysts,
paint pigments
Chrome chemicals.................... Metal and wood treatments, leather
tanning pool chemicals (chlorinated
isocyanurates)
Swimming pool sanitation, household
and industrial disinfecting and
sanitizing products
Proprietary chemicals (chemical
intermediates derived principally
from fluorine, chlorine and
sulfur)............................ Agricultural, pharmaceutical,
plastics, metal plating, aerospace
and food-service applications
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
------------------------------------
Petrochemicals (through
its 29.5 percent interest
in Equistar) Ethylene............................ Raw material for production of
polyethylene, vinyl chloride
monomer, ethylene glycols, ethylene
oxide and ethylene oxide
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 and
ethylene oxide derivatives......... Polyester products, antifreeze,
brake fluids
------------------------------------ ------------------------------------
</TABLE>
8
<PAGE>
Based on statistics in chemical industry publications, Occidental believes
that, during 1998: it was the largest U.S. merchant marketer of chlorine and
caustic soda; the third-largest producer of PVC resins in the U.S.; the
largest North American producer of chrome chemicals, potassium hydroxide,
chlorinated isocyanurate products, EDC and antimony oxide, and, through its
interest in INDSPEC, resorcinol; and the second-largest U.S. producer of VCM
(including production of its OxyMar affiliate), phenolic molding compounds,
sodium silicates and mercaptan warning agents. OxyChem maintains an interest
in petrochemicals through its 29.5 percent ownership of Equistar, the largest
North American producer of ethylene.
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, 1998, OxyChem, which is headquartered in Dallas,
Texas, operated 28 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 10 chemical product
manufacturing facilities in six 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
each of the Chlorovinyls Group, the Specialty Business Group and OxyChem's
international operations.
9
<PAGE>
CHLOROVINYLS
Principal Products and Production Capacities(a)
<TABLE>
<CAPTION>
PVC
Caustic Caustic EDC VCM PVC Resins Compounds
Chlorine Soda Potash (millions of (millions of (millions of (millions of
Plants (Tons) (Tons) (Tons) pounds) pounds) pounds) pounds)
- ------------------------ --------- --------- --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mobile, Alabama......... 46,000 72,000
Muscle Shoals, Alabama.. 146,000 228,000
Delaware City,
Delaware............... 146,000 87,000 105,000
Convent, Louisiana...... 378,000 423,000 1,500
Taft, Louisiana......... 715,000 819,000
Burlington North,
New Jersey(c).......... 120
Niagara Falls,
New York............... 335,000 370,000
Pottstown,
Pennsylvania........... 213
Deer Park, Texas(c)..... 397,000 388,000 1,200
Ingleside, Texas(c)..... 602,000 668,000 1,500 2,100(b)
LaPorte, Texas(c)....... 527,000 648,000
Pasadena, Texas(c)...... 1,800
- ------------------------ --------- --------- --------- --------- --------- --------- ---------
Total 3,292,000 3,403,000 405,000 3,000 3,300 2,013 120
======================== ========= ========= ========= ========= ========= ========= =========
</TABLE>
(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
(c) These facilities will be contributed to Oxy Vinyls, LP or Geon, upon
closing of the Geon joint venture transactions.
SPECIALTY BUSINESS
Principal Products and Production Capacities(a)
<TABLE>
<CAPTION>
Capacity(a)
Plants Product Volumes
---------------------------- ----------------------------- ------------
<S> <C> <C>
ACL; Missouri and Louisiana Chlorinated Isocyanurates 14 mm lbs
Ashtabula; Ohio/New York Agricultural Chemicals Various
Chlorinated Toluenes Various
Chrome; North Carolina Chromic Acid 47,000 tons
Bichromate 114,000 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 Mercaptan 20 mm lbs
Silicates; Georgia Sodium Silicates 695,000 tons
</TABLE>
(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.
10
<PAGE>
INTERNATIONAL
Principal Products (in metric tons) and Production Capacities(a)
<TABLE>
<CAPTION>
Basic
% Oxy Caustic Vinyl Chrome PVC Phenolic Phenolic
Country Location Ownership Chlorine Soda Film EDC Sulfate Resins Resins Compounds
------- ---------- --------- -------- ------- ------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brazil Cubatao 50% 245,000 275,300 140,000
Brazil Rio de 100% 29,000
Janeiro
Chile Talcahuano 100% 51,000 57,000
Thailand Bangkok 49% 44,000 48,000 12,000 22,500
Belgium Genk 100% 20,000
Singapore 50% 17,400
Canada Ft. Erie, 100% 18,400 7,700
Ontario
- ------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total 340,000 380,300 29,000 140,000 12,000 22,500 38,400 25,100
========================= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(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.
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 $1.074 billion in 1998, $1.549 billion in 1997 and $1.038
billion in 1996, exclusive of the acquisition cost of Elk Hills and the
noncash consideration for other acquisitions. The 1998 amount included capital
expenditures aggregating $751 million for oil and gas, $321 million for
chemical and $2 million for corporate and other. Occidental's total capital
expenditures, exclusive of acquisitions, if any, for 1999 are expected to
approximate $350 million, with $275 million of the expenditures allocated to
oil and gas operations.
EMPLOYEES
Occidental and its subsidiaries employed a total of 9,190 persons at
December 31, 1998, of whom 6,370 were located in the United States. 2,600 were
employed in oil and gas operations and 5,850 in chemical operations. An
additional 290 persons were employed at corporate headquarters. In addition,
450 persons were employed by Oxy Services, Inc., Occidental's newly created
shared services subsidiary, and are currently based primarily in Dallas and
Los Angeles. Approximately 1,051 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 increasingly
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 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
11
<PAGE>
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, 1998 and 1997, Occidental had environmental reserves of
approximately $499 million and $567 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. The 1997 amount related to both the oil and gas and the chemical
divisions. The 1996 amount related primarily to the chemical division.
Occidental's estimated operating expenses in 1998 relating to compliance
with environmental laws and regulations governing ongoing operations were
approximately $70 million, compared with $93 million in 1997 and $100 million
in 1996. The 1998 amount included $55 million in the chemical division and $15
million in the oil and gas division. In addition, capital expenditures for
environmental compliance were $56 million in 1998, compared with $116 million
in 1997 and $81 million in 1996. The 1998 amount included $31 million in the
oil and gas division and $25 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 $40 million for 1999 and in the range of $65 million for 2000.
ITEM 3 LEGAL PROCEEDINGS
There is incorporated by reference herein the information regarding
lawsuits, claims, commitments, contingencies and related matters in Note 10 to
the Consolidated Financial Statements.
In 1996, a judgment of $742 million was entered in favor of Occidental's OXY
USA Inc. subsidiary against Chevron USA by the state district court in Tulsa,
Oklahoma. The unanimous verdict was for approximately $229 million in
compensatory damages for breach of a 1982 merger agreement and interest on
these damages from 1982 to the date of judgment. Chevron appealed the decision
to the Oklahoma Supreme Court, and, in connection with that appeal, obtained
an appeal bond in the amount of $890 million to secure payment of the judgment
and interest thereon as required by Oklahoma law. On March 2, 1999, the
Oklahoma Supreme Court affirmed the trial court judgement in all respects. As
of March 2, 1999, the total amount of the award had increased to approximately
$935 million.
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. In November 1998,
Occidental also made those documents available to the Internal Revenue Service
in connection with an audit covering the 1993-1995 tax years.
On January 28 and 29, 1998, two shareholder derivative actions were filed
(and subsequently consolidated) in Los Angeles Superior Court by The Teachers'
Retirement System of Louisiana and by Rita Edelson, Paul Klingenstein and
Clayton J. Steenson against the Board of Directors of Occidental and
Occidental, as a nominal defendant, with respect to the payments made in 1997
to Occidental's Chairman and its President in connection with the
restructuring of their respective employment agreements. The complaints
alleged, among other things,
12
<PAGE>
corporate waste, breach of fiduciary duty and unjust enrichment. The
plaintiffs sought, among other things, compensatory damages and equitable and
declaratory relief and to impose a constructive trust on the 1997 payments. On
February 5, 1999, the Superior Court approved a settlement of the action under
which the Board of Directors adopted certain corporate governance policies.
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. The court denied
the government's motion for partial reconsideration of the dismissal in
November 1998. In February 1999, the United States filed an appeal to the
United States Court of Appeals for the Third Circuit.
In October 1998, OxyChem received an administrative complaint filed by
Region III of the EPA with respect to OxyChem's former manufacturing plant at
Belle, West Virginia. The complaint alleges that OxyChem violated various
hazardous waste management rules in 1994 and 1995 and demands civil penalties
of approximately $245,000. OxyChem intends to contest vigorously the alleged
violations and the proposed penalties. The EPA has reduced its penalty demand
to approximately $97,000.
In 1997, OxyChem received a proposed "Order on Consent" from the New York
State Department of Environmental Conservation ("NYDEC") involving its chlor-
alkali facility in Niagara Falls, New York. The NYDEC alleges a violation of
statutory reporting requirements regarding a chemical spill at the facility
that allegedly caused a further violation of water quality standards, and
seeks an administrative penalty of $100,000. OxyChem is vigorously contesting
the alleged violations and the proposed administrative penalty. The NYDEC has
reduced its penalty demand to $66,000 and has instituted a formal hearing
process.
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 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Age at
February 28, Positions with Occidental and Subsidiaries
Name 1999 and Five-Year Employment History
-------------------- ------------ --------------------------------------------
<C> <C> <S>
Dr. Ray R. Irani 64 Chairman of the Board of Directors and Chief
Executive Officer since 1990; President from
1984 to 1996; 1984-1990, Chief Operating
Officer; Director since 1984; 1983-January
1991, Chief Executive Officer of Occidental
Chemical Corporation ("Occidental Chemical");
Chairman of the Board of CanadianOxy since
1987; member of Executive Committee.
Dr. Dale R. Laurance 53 President and Senior Operating Officer 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.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Age at Positions with Occidental and
February 28, Subsidiaries and Five-Year Employment
Name 1999 History
----------------------- ------------ -----------------------------------------
<C> <C> <S>
Stephen I. Chazen 52 Chief Financial Officer and Executive
Vice President Corporate Development
since 1999; 1994-1999, Executive Vice
President -- Corporate Development; 1990-
1994, Managing Director, Merrill Lynch &
Co. Incorporated.
Donald P. de Brier 58 Executive Vice President, General Counsel
and Secretary since 1993; 1989-1993,
General Counsel and member of the
Management Committee of BP Exploration
and Production Company.
Richard W. Hallock 54 Executive Vice President -- Human
Resources since 1994; 1993-1994,
Director, Worldwide Total Compensation of
IBM; 1990-1993, various other human
resources positions with IBM.
David A. Hentschel 65 Executive Vice President since 1997;
1998-1999, Chairman and Chief Executive
Officer of Occidental Oil and Gas
Corporation; 1995-1997, President and
Chief Executive Officer of Canadian
Occidental Petroleum Corporation; 1986-
1993, Chairman and Chief Executive
Officer of Occidental Oil and Gas
Corporation; 1986-1993, Executive Vice
President.
J. Roger Hirl 67 Executive Vice President since 1984;
Director since 1988; President and Chief
Executive Officer of Occidental Chemical
since 1991; 1983-1991, President and
Chief Operating Officer of Occidental
Chemical.
John W. Morgan 45 Executive Vice President Operations since
1998; 1991-1998, Vice President --
Operations; 1984-1991, Director --
Operations.
Howard Collins 55 Vice President -- Public Relations since
1993; 1986-1993, Director -- Public
Relations.
Samuel P. Dominick, Jr. 58 Vice President and Controller since 1991;
1990-1991, Assistant Controller --
Internal Audit; 1985-1990, Director of
Internal Audit.
James R. Havert 57 Vice President Treasurer since 1998;
1992-1998, Senior Assistant Treasurer.
Kenneth J. Huffman 54 Vice President -- Investor Relations
since 1991; 1989-1991, Vice President --
Finance, American Exploration Company.
Anthony R. Leach 59 Vice President Finance since 1999; 1991-
1999, Executive Vice President and Chief
Financial Officer since 1991; 1984-1991,
Vice President and Controller.
Robert M. McGee 52 Vice President since 1994; President of
Occidental International Corporation
since 1991; 1981-1991, Senior Executive
Vice President of Occidental
International Corporation.
Richard A. Swan 51 Vice President -- Health, Environment and
Safety since 1995; 1991-1995, Director --
Investor Relations.
Aurmond A. Watkins, Jr. 56 Vice President -- Tax since 1991; 1986-
1991, Director-- Taxes.
</TABLE>
The current term of office of each Executive Officer will expire at the
April 29, 1999, organizational meeting of the Occidental Board of Directors or
at such time as his successor shall be elected.
14
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
RECENT PREFERRED STOCK CONVERSION Occidental gave notice to redeem all
15,106,444 outstanding shares of its $3.875 voting and nonvoting Cumulative
Convertible Preferred Stock by March 13, 1998. Before such time all holders
elected to convert all of the preferred stock, causing the issuance of
approximately 33.2 million shares of common stock. Assuming dividends on the
preferred shares of approximately $58 million per annum, the conversion
resulted in annual dividend savings to Occidental of approximately $25
million.
COMMON STOCK REPURCHASE PROGRAM In September 1998, Occidental completed its
stock purchase program through the repurchase of 39.3 million shares of
Occidental's common stock for a total cost of approximately $1.06 billion.
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 -- Liquidity and Capital Resources" in this report. Occidental's
common stock was held by approximately 88,896 stockholders of record at
December 31, 1998, with an estimated 135,000 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 various foreign exchanges identified in this report. The quarterly
financial data on pages 72 and 73 of this report sets forth the range of
trading prices for the common stock as reported on the composite tape and
quarterly dividend information of the New York Stock Exchange.
The quarterly dividend rate for the common stock is $.25 per share. On
February 18, 1999, a dividend of $.25 per share was declared on the common
stock, payable on April 15, 1999 to stockholders of record on March 10, 1999.
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.
RECENT SALES OF UNREGISTERED SECURITIES During the previous three years
commencing January 1, 1996, Occidental sold the following securities which
were not initially registered under the Securities Act of 1933, as amended
(the "Act"). In August 1996, Occidental issued approximately 5,512,355 shares
of Occidental common stock to acquire Laurel Industries, Inc. ("Laurel") and
Natural Gas Odorizing, Inc. ("NGO"), two specialty chemical companies. The
shares of common stock were issued in reliance on the exemption from
registration under Section 4(2) of the Act, and the rules promulgated under
the Act, as transactions not involving a public offering. Each purchaser
stated that it was its intent to acquire the securities for investment
purposes. In each case, the purchaser had access to Occidental's public
financial information. Appropriate restrictive legends were, in each case,
affixed to the stock certificates issued in each transaction. The shares of
common stock issued in the Laurel and NGO transactions were subsequently
registered for resale in secondary offering Registration Statements on Form S-
3 filed with the SEC.
15
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Dollar amounts in millions, except per-share amounts
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996 1995 1994
- -------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS(a)
Net sales and operating
revenues..................... $ 6,596 $ 8,016 $ 7,987 $ 8,389 $ 7,128
Income(loss) from continuing
operations................... $ 325 $ 217 $ 514 $ 358 $ (223)
Net income(loss).............. $ 363 $ (390) $ 668 $ 511 $ (36)
Preferred dividend
requirements................. $ 17 $ 88 $ 93 $ 93 $ 76
Earnings(loss) applicable to
common stock................. $ 346 $ (478) $ 575 $ 418 $ (112)
Basic earnings(loss) per
common share from continuing
operations................... $ .88 $ .39 $ 1.30 $ .83 $ (.96)
Basic earnings(loss) per
common share................. $ .99 $ (1.43) $ 1.77 $ 1.31 $ (.36)
Diluted earnings(loss) per
common share................. $ .99 $ (1.43) $ 1.73 $ 1.31 $ (.36)
Earnings before special
items(b)..................... $ 104 $ 691 $ 643 $ 603 $ 52
FINANCIAL POSITION(a)
Total assets.................. $ 15,252 $ 15,291 $ 14,981 $ 15,342 $ 15,376
Long-term debt, net........... $ 5,367 $ 4,925 $ 4,511 $ 4,819 $ 5,816
Capital lease liabilities,
net.......................... $ 29 $ 235 $ 237 $ 259 $ 291
Stockholders' equity.......... $ 3,363 $ 4,286 $ 5,140 $ 4,630 $ 4,457
Dividends per common share.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
AVERAGE SHARES OUTSTANDING
(thousands).................... 350,173 334,341 323,782 318,073 310,806
- -------------------------------- -------- -------- -------- -------- --------
</TABLE>
(a) See Management's Discussion and Analysis 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 1998, 1997 and 1996. For the years
ended December 31, 1998, 1997, 1996, 1995 and 1994, these special items
aggregated charges (benefits) of ($259) million, $1.081 billion, which
includes the $750 million charge on the MidCon sale reported in
discontinued operations, ($25) million, $92 million and $88 million,
respectively. 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)
1998 BUSINESS ENVIRONMENT
OIL AND NATURAL GAS INDUSTRY During 1998, worldwide crude oil supply continued
to exceed demand, resulting in a decrease in worldwide crude oil prices to
their lowest level in at least 40 years, adjusted for inflation. Among the
causal factors were a sustained drop in demand from economically depressed Far
East countries, mild weather throughout the Northern Hemisphere and continued
high levels of crude oil production from petroleum exporting countries.
Without production restraint by major exporting nations, supply may continue
to exceed demand and contribute to continued low oil prices.
During 1998, several large oil companies announced mergers, designed in part
to reduce operating costs and enhance their ability to invest in world-scale
exploration and development projects. Additional consolidation within the
industry appears possible. In response to historically low oil prices, the
industry in general is adjusting
16
<PAGE>
by cutting back exploration and project development, reducing personnel,
liquidating marginal properties and shutting-in uneconomic properties.
Occidental has reduced its 1999 capital expenditures and taken steps to reduce
operating costs.
The generally mild winter of 1997-1998 reduced demand and as a result gas
storage inventory increased to record levels entering the 1998-1999 heating
season. Domestic natural gas price averages trended lower in 1998 as a result.
Continued mild weather late in 1998 has kept downward pressure on prices. The
average NYMEX closing price of natural gas in 1998 was $2.11 per million
British thermal units (BTU) and the current estimate for 1999 is under $2.00
per million BTU.
CHEMICAL INDUSTRY The chemical industry experienced excess production capacity
and a slowdown in product demand, causing prices to fall for most commodities
throughout 1998. International sales and demand were weakened by continued
economic troubles in the Far East, the strong U.S. dollar and increased intra-
region supply and trade.
Chlorine demand was lower in 1998 than 1997 and prices for chlorine
continued to fall throughout most of the year. In 1998, caustic soda prices
generally increased into the second quarter, but then declined as domestic and
international supply grew too large to sustain them. Average caustic soda
prices were higher in 1998, compared with 1997. North American polyvinyl
chloride (PVC) demand continued to grow from 1997 levels, with domestic growth
rates exceeding five percent. Continued growth was driven by a strong U.S.
economy, high consumer confidence and a robust housing market. However,
substantial declines in PVC usage throughout much of Asia contributed to
global demand growth rate of less than 1 percent. PVC resin prices declined in
1998 as global capacity additions exceeded demand.
1998 SIGNIFICANT EVENTS
ELK HILLS FIELD ACQUISITION On February 5, 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 increases the size and quality of
Occidental's domestic reserves. Occidental believes it will be able to
increase the field's recoverable reserves and add annual production of oil and
gas through the application of improved drilling and field management
techniques. Concurrently, operating costs have been reduced significantly to
enhance the field's high profit margin potential.
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.
EQUISTAR PARTNERSHIP In May 1998, Occidental contributed its ethylene,
propylene, ethylene oxide (EO), ethylene glycol and EO derivatives businesses
to a partnership called Equistar Chemicals, LP (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 the 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.
Following the closing of the transaction, the assets and liabilities
transferred to the partnership (primarily property, plant and equipment,
inventories and capital lease liabilities) were removed from the balance sheet
and an equity investment was recorded. Thereafter, revenues and costs
associated with the assets contributed are not reflected in the income
statement, but Occidental records its proportionate share of the partnership's
results through equity income. Occidental did not record a gain or loss on the
transaction.
17
<PAGE>
SALE AND EXCHANGE OF ASSETS 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 pretax 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 gives Occidental developed reserves and current
production in exchange for discoveries that would have required long lead time
and significant capital for development.
MIDCON SALE 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.
Occidental sold the shares to K N Energy 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 (the $1.4 billion note receivable), in exchange for a note
previously issued to Occidental by the MidCon Corp. ESOP Trust. The note was
repaid on January 4, 1999. 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.
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.
COMMON STOCK REPURCHASE 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.
CONVERSION OF PREFERRED 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.
INCOME SUMMARY
Occidental reported net income of $363 million ($.99 per share) in 1998, on
net sales and operating revenues of $6.6 billion, compared with a net loss of
$390 million ($1.43 per share) in 1997, on net sales and operating revenues of
$8.0 billion. Earnings before special items were $104 million in 1998 and $691
million in 1997.
DIVISIONAL OPERATIONS
The following discussion of Occidental's two operating divisions and
corporate items should be read in conjunction with Note 17 to the Consolidated
Financial Statements.
Divisional earnings exclude interest income, interest expense, unallocated
corporate expenses and 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. Divisional earnings in 1998 benefited by $38 million
from credits allocated of $12 million and $26 million 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. Divisional earnings in 1996 benefited by $41 million
from net credits allocated of $15 million and $26 million in oil and gas and
chemical, respectively.
18
<PAGE>
The following table sets forth the sales and earnings of each operating
division and corporate items:
DIVISIONAL OPERATIONS
In millions
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
----------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
SALES
Oil and Gas.......................................... $3,621 $3,667 $3,680
Chemical............................................. 2,975 4,349 4,307
------ ------ ------
$6,596 $8,016 $7,987
===================================================== ====== ====== ======
EARNINGS(LOSS)
Oil and Gas.......................................... $ 804 $ 484 $ 536
Chemical............................................. 266 525 783
------ ------ ------
1,070 1,009 1,319
Unallocated corporate items
Interest expense, net.............................. (451) (407) (454)
Income taxes....................................... (228) (60) (109)
Other.............................................. (66) (325) (242)
------ ------ ------
Income from continuing operations.................... 325 217 514
Discontinued operations, net......................... 38 (607) 184
Extraordinary loss, net.............................. -- -- (30)
------ ------ ------
Net income(loss)..................................... $ 363 $ (390) $ 668
===================================================== ====== ====== ======
</TABLE>
OIL AND GAS
In millions, except as indicated
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
DIVISIONAL SALES....................................... $3,621 $3,667 $3,680
DIVISIONAL EARNINGS.................................... $ 804 $ 484 $ 536
EARNINGS BEFORE SPECIAL ITEMS(a) ...................... $ 314 $ 694 $ 641
AVERAGE SALES PRICES
CRUDE OIL PRICES (per barrel)
U.S................................................ $12.06 $18.72 $18.98
Other Western Hemisphere........................... $ 8.78 $11.88 $12.66
Eastern Hemisphere................................. $11.12 $17.21 $17.66
GAS PRICES (per thousand cubic feet)
U.S................................................ $ 2.05 $ 2.39 $ 2.11
Eastern Hemisphere................................. $ 2.03 $ 2.40 $ 2.23
EXPENSED EXPLORATION(b) ............................... $ 128 $ 119 $ 120
CAPITAL EXPENDITURES
Development.......................................... $ 545 $ 815 $ 540
Exploration.......................................... $ 140 $ 178 $ 165
Acquisitions and other(c) ........................... $ 66 $ 157 $ 57
------------------------------------------------------- ------ ------ ------
</TABLE>
(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.
19
<PAGE>
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 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 44 percent of oil and gas sales for 1998 were attributable to
oil and gas trading activity, compared with approximately one-third for 1997
and 1996. 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 1998 results included net pretax gains on the sale of major nonstrategic
assets of $532 million, as well as a $30 million charge for the write-off of
certain exploration projects and a $12 million reorganization charge.
The 1997 results included pretax charges of $210 million for the write-down
of various assets and other reserves. For additional information see Note 3 to
the Consolidated Financial Statements.
The 1996 results included a $105 million charge for the write-down of
Occidental's investment in an oil and gas project in the Republic of Komi in
the former Soviet Union.
CHEMICAL
In millions, except as indicated
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
DIVISIONAL SALES...................................... $2,975 $4,349 $4,307
DIVISIONAL EARNINGS................................... $ 266 $ 525 $ 783
EARNINGS BEFORE SPECIAL ITEMS(a) ..................... $ 296 $ 619 $ 618
KEY PRODUCT INDEXES (1987 through 1990 average price =
1.0)
Chlorine............................................ 1.13 1.79 1.36
Caustic soda........................................ 1.02 .77 1.16
PVC commodity resins................................ .60 .83 .80
KEY PRODUCT VOLUMES
Chlorine (thousands of tons)........................ 2,983 3,201 3,254
Caustic soda (thousands of tons).................... 3,208 3,436 3,401
PVC commodity resins (millions of pounds)........... 1,755 1,441 1,279
CAPITAL EXPENDITURES
Basic chemicals..................................... $ 126 $ 156 $ 102
Vinyls.............................................. 34 86 75
------ ------ ------
Chlorovinyls...................................... $ 160 $ 242 $ 177
Petrochemicals...................................... $ 10 $ 40 $ 41
Specialty businesses................................ $ 148 $ 106 $ 39
Other............................................... $ 3 $ 8 $ 5
------------------------------------------------------ ------ ------ ------
</TABLE>
(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.
Occidental's chemical division (OxyChem) is highly integrated, both
vertically and horizontally. Chemicals from the chlorovinyls business are used
in the specialty business and chlorine from chlorovinyls is combined
20
<PAGE>
with ethylene from the Equistar petrochemical partnership to produce PVC. In
December 1998, Occidental signed a definitive agreement to form a strategic
alliance with The Geon Company (Geon) in an effort to create synergies for its
chlorovinyls business. The agreement is discussed further in the section
titled 1999 Outlook.
Earnings before special items were $296 million in 1998, compared with $619
million in 1997. The decrease reflected lower margins for most of OxyChem's
key products, primarily due to lower sales prices. The 1998 earnings included
pretax charges of $30 million related to reorganization and other charges.
OxyChem expects to reduce costs through operating and supply-chain
efficiencies and benefits from consolidation of some administrative functions
as a result of the Equistar partnership. OxyChem also expects to achieve
similar synergies as a result of the alliance planned with Geon in 1999. In
addition, OxyChem continues to aggressively reduce operating and
administrative costs in each of its businesses.
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.
The 1997 earnings included pretax charges of $94 million related to the
write-down of various assets. Included in the 1996 results was a $170 million
pretax gain related to favorable litigation settlements and the related state
tax effects.
CORPORATE Unallocated corporate other items in 1998 included an insurance
dividend of $9 million. 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 and 1996 also included charges of $136 million and $100
million, respectively, for environmental matters.
The increase in income taxes in 1998, compared with 1997, was primarily due
to asset sales. The 1996 income tax amount included a benefit of approximately
$100 million primarily from a reduction in the deferred tax asset valuation
allowance due to the realization of benefits from operating loss and credit
carryforwards in the United States and Peru.
21
<PAGE>
SPECIAL ITEMS
Special items are infrequent transactions that may affect comparability
between years. The special items included in the 1998, 1997 and 1996 results
are detailed below. For further information, see Note 3 and Note 17 to the
Consolidated Financial Statements and the discussion above.
SPECIAL ITEMS
Benefit (Charge) in millions
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
OIL AND GAS
Gains on sales of major nonstrategic assets........... $ 532 $ -- $ --
Write-down of various assets.......................... (30) (140) (105)
Litigation, reorganization and other.................. (12) (70) --
-------------------------------------------------------- ----- ----- -----
CHEMICAL
Reorganization and other.............................. (30) -- --
Write-down of various assets.......................... -- (94) --
Favorable litigation settlements...................... -- -- 170
-------------------------------------------------------- ----- ----- -----
CORPORATE
Insurance dividend.................................... 9 -- --
Discontinued operations............................... 38 143 184
Charge on MidCon sale(a) ............................. -- (750) --
Environmental reserves................................ -- (111) (75)
Employment agreements................................. -- (75) --
Tax reserve reversal.................................. -- -- 100
Extraordinary loss on debt redemption(a).............. -- -- (30)
-------------------------------------------------------- ----- ----- -----
</TABLE>
(a) These amounts are shown after-tax.
CONSOLIDATED OPERATIONS--REVENUES
SELECTED REVENUE ITEMS
In millions
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net sales and operating revenues..................... $6,596 $8,016 $7,987
Interest, dividends and other income................. $ 261 $ 88 $ 244
Gains(losses) on disposition of assets, net.......... $ 546 $ (4) $ 11
Income(loss) from equity investments................. $ (22) $ 1 $ 70
----------------------------------------------------- ------ ------ ------
</TABLE>
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. Net sales and operating
revenues remained about the same in 1997, compared with 1996, for both
operating divisions.
Interest, dividends and other income in 1998 included, among other things,
interest earned on the $1.4 billion note receivable. In 1996, interest,
dividends and other income included the gain of $170 million related to
favorable litigation settlements.
The pretax gains on disposition of assets in 1998 of $546 million, reflected
the net pretax gains of $532 million on major nonstrategic assets sold as part
of an asset redeployment program.
22
<PAGE>
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. The decrease in income from equity investments in 1997, compared with
1996, reflected lower income primarily from chemical investments and the
effect of currency devaluations in chemical joint ventures in Thailand.
CONSOLIDATED OPERATIONS--EXPENSES
SELECTED EXPENSE ITEMS
In millions
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Cost of sales......................................... $4,462 $5,060 $5,060
Selling, general and administrative and other
operating expenses................................... $ 709 $1,002 $ 933
Environmental remediation............................. $ -- $ 136 $ 100
Interest and debt expense, net........................ $ 559 $ 434 $ 482
------------------------------------------------------ ------ ------ ------
</TABLE>
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 in 1997
reflected a portion of the asset write-downs and the charge to amend certain
employment agreements. Selling, general and administrative and other operating
expenses in 1996 included the charge for the write-down of the oil and gas
project in the Republic of Komi.
Environmental remediation included charges of $111 million in 1997 and $75
million in 1996 for additional environmental reserves related to various
existing sites.
Interest and debt expense increased to $559 million in 1998 from $434
million in 1997 which primarily reflected the impact of higher debt levels.
However, overall net interest expense, which reflected interest income, was
$451 million in 1998. Most of the interest income resulted from the $1.4
billion note receivable. The decrease in interest and debt expense from 1996
to 1997 primarily reflected lower outstanding average debt levels and lower
average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
In millions
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net cash provided....................................... $ 80 $1,397 $1,987
-------------------------------------------------------- ------ ------ ------
</TABLE>
The lower operating cash flow in 1998, compared with 1997, resulted from
lower earnings before 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 and $398 million in 1996. 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. Other noncash charges of $298
million in 1996 primarily reflected the $105 million charge for the write-
23
<PAGE>
down of Occidental's investment in Komi, additional environmental reserves and
various miscellaneous items. Each of the three years also included charges for
employee benefit plans and other items.
The lower operating cash flow in 1997, compared with 1996, reflects lower
income from continuing operations, higher working capital usage and lower cash
flow from discontinued operations.
Operating assets and liabilities reflect generally higher working capital
usage in 1997, compared with 1996, and the absence of items that were of
benefit in 1996 including the sale of $100 million of accounts receivable and
proceeds from litigation settlements.
INVESTING ACTIVITIES
In millions
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net cash used..................................... $(1,216) $(1,505) $ (979)
-------------------------------------------------- ------- ------- -------
</TABLE>
Included in investing activities was net cash used by investing activities
of discontinued operations of $6 million, $79 million and $223 million in
1998, 1997 and 1996, respectively. 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.
The increase in net cash used in investing activities in 1997, compared with
1996, primarily reflects the increase in capital expenditures and lower
proceeds from disposals of property, plant and equipment.
Net cash used in investing activities included Occidental's capital
expenditure program as discussed below.
CAPITAL EXPENDITURES
In millions
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Oil and Gas............................................. $ 751 $1,150 $ 762
Chemical................................................ 321 396 262
Corporate and other..................................... 2 3 14
------ ------ ------
$1,074 $1,549 $1,038
======================================================== ====== ====== ======
</TABLE>
The spending in the oil and gas business continues to be the major part of
Occidental's capital expenditure program. However, total spending decreased in
1998, compared with 1997, due to lower development spending, completion of
certain projects offset, in part, by spending at Elk Hills. The 1998 capital
expenditure amount does not include the cost of the acquisition of the Elk
Hills field for $3.5 billion.
In response to low oil and chemical prices, Occidental has reduced its
capital spending budget to $350 million for 1999. Of the total, approximately
$275 million will be allocated to oil and gas, with Elk Hills and Qatar
receiving the highest priority, and the remainder will be allocated to
chemicals. Notwithstanding the reduced spending, oil production is expected to
remain at approximately the same level in 1999 as in 1998. However, gas
production is expected to increase in 1999, compared with 1998.
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 pretax 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.
24
<PAGE>
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.
The 1996 proceeds from the sale of businesses and disposals of property,
plant and equipment included the sale of a subsidiary which engaged in onshore
drilling and servicing of oil and gas wells and the sale of Occidental's
royalty interest in the Congo.
FINANCING ACTIVITIES
In millions
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net cash provided (used).......................... $ 1,119 $ (37) $(1,330)
-------------------------------------------------- ------- ------- -------
</TABLE>
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 and net cash used of $88 million in 1996.
Cash used for financing activities in 1998 and 1997 included $937 million
and $119 million used for the common stock repurchase program, respectively.
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.
In 1996, payments of long-term debt and capital lease liabilities and net
proceeds from borrowings totaled $860 million.
Occidental paid preferred and common stock dividends of $387 million in
1998, $422 million in 1997 and $415 million in 1996. The 1998 amount primarily
reflected lower preferred stock dividends as a result of preferred stock that
was converted into common stock in March 1998.
Occidental has determined that it exhausted its accumulated earnings and
profits for tax purposes during 1998 and that common stock dividends received
by shareholders in 1998, with the exception of those received in the first
quarter of 1998, were returns of capital. It is likely that common and
preferred stock dividends to be received in 1999 may also be 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.
25
<PAGE>
ANALYSIS OF FINANCIAL POSITION The changes in the following components of
Occidental's balance sheet are discussed below:
SELECTED BALANCE SHEET COMPONENTS
In millions
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------- ------ ------
<S> <C> <C>
Trade receivables, net....................................... $ 340 $ 603
Receivables from joint ventures, partnerships and other...... $1,586 $ 210
Prepaid expenses and other assets............................ $ 181 $ 386
Equity investments........................................... $1,959 $ 921
Property, plant and equipment, net........................... $9,905 $8,590
Current maturities of long-term debt and capital lease
liabilities................................................. $1,400 $ 6
Long-term debt, net.......................................... $5,367 $4,925
Obligation under natural gas delivery commitment............. $ 503 $ --
Other deferred credits and other liabilities................. $2,263 $3,173
Stockholders' equity......................................... $3,363 $4,286
------------------------------------------------------------- ------ ------
</TABLE>
Trade receivables decreased due to an additional $110 million in receivables
sold in 1998 as part of the accounts receivable sale program. In addition,
receivables decreased as a result of asset sales. Receivables from joint
ventures, partnerships and other includes the $1.4 billion note receivable at
December 31, 1998. The decrease in prepaid expenses and other assets reflected
a reduction in the current portion of deferred tax assets. The increase in the
balance in equity investments at December 31, 1998 reflects the recording of
Occidental's interest in Equistar. The increase in the balance of net
property, plant and equipment reflected the acquisition of the Elk Hills field
offset, in part, by property, plant and equipment contributed to Equistar and
the sale of various nonstrategic oil and gas properties.
Current maturities of long-term debt and capital lease liabilities increased
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
increase in long-term debt reflected increased commercial paper borrowings to
fund a portion of the acquisition of the Elk Hills field. 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 $141 million in unamortized discount, at December 31, 1998:
DEBT CURRENCY DENOMINATIONS AND INTEREST RATES
In millions of U.S. dollars, except rates
<TABLE>
<CAPTION>
U.S. U.S. Canadian
Dollar Dollar Dollar
Fixed Variable Variable Grand
Year of Maturity Rate Rate Rate Total
- ---------------------------------------------- ------ -------- -------- ------
<S> <C> <C> <C> <C>
2000.......................................... $ 188 $ 96 $ 35 $ 319
2001.......................................... 412 104 -- 516
2002.......................................... 506 734 5 1,245
2003.......................................... 64 -- -- 64
2004.......................................... 580 -- -- 580
Thereafter.................................... 2,399 385 -- 2,784
------ ------ ------ ------
Total....................................... $4,149 $1,319 $ 40 $5,508
====== ====== ====== ======
Average interest rate......................... 8.91% 5.69% 5.60% 8.10%
============================================== ====== ====== ====== ======
</TABLE>
The estimated fair value of Occidental's long-term debt at December 31, 1998
was $5.7 billion. Occidental has the option to call certain issues of long-
term debt prior to their maturity dates.
26
<PAGE>
In April 1998, Occidental issued $250 million of 6.5 percent of 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, or repurchased by
Occidental if a mutual agreement is not reached with the remarketing agent on
the remarketing spread. 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, a subsidiary trust of Occidental issued $525 million of
8.16 percent Trust Preferred Securities due in 2039, and callable in 2004, for
net proceeds of $507 million. The net proceeds were used to repay commercial
paper.
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 will be used for
general corporate purposes which may include, but are not limited to, the
repayment of commercial paper and the redemption of other debt.
Based on the above financings, Occidental's average interest rates are
expected to trend upward as commercial paper has been largely replaced with
fixed-rate long-term debt at slightly higher rates.
At December 31, 1998, Occidental had available approximately $1.5 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. Following the receipt of the proceeds from the
$1.4 billion note receivable and the issuance of the Trust Preferred
Securities, available committed credit lines increased to $2.3 billion at
January 31, 1999.
Occidental expects to have sufficient cash in 1999 for its operating needs,
capital expenditure requirements, dividend payments and debt repayments.
Assuming that oil and gas and chemical prices would remain at current levels,
Occidental has taken specific actions to mitigate the impact of lower prices
on cash flow. In January, Occidental increased its borrowing capacity to $3.6
billion by issuing Trust Preferred Securities. Additionally, Occidental has
replaced variable rate commercial paper with fixed-rate long-term debt.
Finally, Occidental has made significant targeted reductions in its 1999
planned capital expenditure program to $350 million, more than a 65 percent
reduction from 1998 levels, without any expectation of reduced oil and gas
production in the near term. Taken together, these actions have considerably
improved Occidental's borrowing capacity and provided additional financial
flexibility to deal with unexpected economic events.
The obligation under the natural gas delivery commitment amount relates to a
transaction in November 1998 discussed below.
Other deferred credits and other liabilities decreased, reflecting the
payment of amounts associated with the sale of MidCon and the assumption by
Equistar of approximately $205 million of capital lease liabilities. The
decrease in stockholders' equity primarily reflected amounts paid to
repurchase common stock and dividends on common and preferred stock offset, in
part, by net income for the year.
27
<PAGE>
ACQUISITIONS AND COMMITMENTS
In February 1998, Occidental acquired the Elk Hills field for approximately
$3.5 billion as discussed earlier.
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
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 1996, Occidental acquired three specialty chemical producers in separate
transactions for approximately $149 million through the issuance of
approximately 5.5 million shares of Occidental common stock, with a value of
approximately $130 million, and the balance paid in cash. The acquisitions
included a producer of antimony oxide, a producer of mercaptan-based warning
agents for use in natural gas and propane and a producer of sodium silicates.
These acquisitions have been accounted for by the purchase method.
Accordingly, the cost of each acquisition was allocated to the assets
acquired, goodwill and liabilities assumed based upon their estimated
respective fair values.
In 1996, Occidental completed its acquisition of a 64 percent equity
interest (on a fully-diluted basis) in INDSPEC Chemical Corporation (INDSPEC)
for approximately $92 million through the issuance of approximately 3.3
million shares of Occidental common stock, with a value of approximately $87
million, and the balance paid in cash. INDSPEC is the world's largest producer
of resorcinol, which is used to manufacture rubber tires, engineered wood
products, agricultural chemicals and fire-retardant plastic additives. Under
the terms of the acquisition agreement, INDSPEC's management and employees
have retained voting control of INDSPEC.
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, 1998, approximately 8.8 million barrels remain to be delivered.
Commitments at December 31, 1998 for major capital expenditures during 1999
and thereafter were approximately $332 million. Total capital expenditures for
1999 are estimated to be approximately $350 million.
HEDGING 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.
Occidental does not engage in activities using complex or highly leveraged
instruments. Gains and losses on commodity futures contracts 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. In addition, the oil
and gas division engages in oil and gas trading activity, the results of which
are included in periodic income.
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<PAGE>
At December 31, 1998, Occidental was a party to exchange trades and over-
the-counter forward obligations, most of which expire in 1999, related to the
selling price of natural gas. The obligations cover 20.1 billion cubic feet of
natural gas. The fair market value of the obligations was approximately $2
million.
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, 1998 on fixed-rate debt for
notional amounts totaling $200 million, converting fixed-rate debt to
floating-rate debt. During 1998, an interest rate swap for a notional amount
of $330 million expired. The swap rate difference resulted in approximately
$2 million, $2 million and $1 million of additional interest expense in 1998,
1997 and 1996, respectively, 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 1998, 1997 and 1996 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, 1998:
INTEREST RATE SWAPS
In millions, except rates
<TABLE>
<CAPTION>
Year of
Maturity
------------ Fair
1999 2000 Value(a)
------------------------------------------------------ ----- ----- --------
<S> <C> <C> <C>
Interest rate swaps
Fixed to variable................................... $ 96 $ 104 $ 1
Average receive rate(b)............................. 5.56% 5.75%
------------------------------------------------------ ----- ----- -----
</TABLE>
(a) Represents estimated settlement value.
(b) Current variable pay rate at December 31, 1998 is 6.40 percent.
In December 1997, Occidental entered into two fixed-rate interest rate locks
for a total notional amount of $400 million with a settlement date of March
1998. The interest rate locks were entered into to fix the interest rate on
the expected issuance of long-term debt in 1998. The fixed reference rate was
between 5.84 percent and 5.87 percent. The interest rate locks were settled in
March 1998 for a payment by Occidental of $5.8 million.
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, almost 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 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. Through
February 15, 1999, the devaluation had an unfavorable pretax income effect on
Occidental of approximately $9 million.
At December 31, 1998, 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
<TABLE>
<CAPTION>
Notional Contract Fair
Amount Rate Value(a)
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Canadian dollar forward exchange contracts..... $ 38 1.4282 $ (2.5)
----------------------------------------------- ------ ------ -------
</TABLE>
(a)Equivalent to the unrealized net gain(loss) on existing contracts.
29
<PAGE>
TAXES
Deferred tax liabilities were $715 million at December 31, 1998, net of
deferred tax assets of $1.0 billion. The current portion of the deferred tax
assets of $110 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 a purported class action
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 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. See Note 10 to the Consolidated
Financial Statements.
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
30
<PAGE>
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.
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 involved cannot be reasonably determined at
this time.
As of December 31, 1998, 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 169 Superfund or comparable state sites. (This
number does not include those sites where Occidental has been successful in
resolving its involvement.) The 169 sites include 63 former Diamond Shamrock
Chemical sites as to which Maxus Energy Corporation has retained all
liability, and 2 sites at which the extent of such retained liability is
disputed. Of the remaining 104 sites, Occidental has denied involvement at 15
sites and has yet to determine involvement in 17 sites. With respect to the
remaining 72 of these sites, Occidental is in various stages of evaluation.
For 64 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 64 sites include 14 sites as to which
present information indicates that it is probable that Occidental's aggregate
exposure is immaterial. 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 8 of the 72 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:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
-------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
OPERATING EXPENSES
Oil and Gas................................................. $ 15 $ 33 $ 41
Chemical.................................................... 55 60 59
---- ---- ----
$ 70 $ 93 $100
==== ==== ====
REMEDIATION EXPENSES
Corporate................................................... $ -- $136 $100
---- ---- ----
$ -- $136 $100
==== ==== ====
CAPITAL EXPENDITURES
Oil and Gas................................................. $ 31 $ 85 $ 54
Chemical.................................................... 25 31 27
---- ---- ----
$ 56 $116 $ 81
============================================================== ==== ==== ====
</TABLE>
31
<PAGE>
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, 1998 and 1997, Occidental had environmental reserves of approximately $499
million and $567 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 environmental sites and reports directly to
Occidental's corporate management.
During the year, GSH made an overall assessment of all environmental sites.
With respect to certain sites, GSH concluded that a different strategy could
be pursued which could result in more effective management of the remediation
effort. As a result, GSH transferred the responsibility for these sites to a
subsidiary, in which a remediation consulting firm has an equity interest. The
consulting firm's equity interest in the subsidiary is designed to motivate
the consulting firm to manage the remediation efforts more effectively.
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, 1998, the carrying value of Occidental's
assets in countries outside North America aggregated approximately $2.2
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 $682 million was located in Latin America, and
substantially all of the remainder were located in Bangladesh, Russia and
Pakistan.
1999 OUTLOOK
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. 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. As a result, Occidental is unable to
accurately predict oil and natural gas prices.
However, in response to current depressed prices, the oil and gas capital
budget for 1999 will be substantially less than the 1998 level and directed
primarily at production maintenance and low-cost, high-margin development
projects and selected exploration opportunities and obligations.
With the integration of the Elk Hills field into domestic operations,
completion of the exchange of assets with Shell and the sale of major
nonstrategic assets in 1998, Occidental will focus on growing its core
operations in the United States, Latin America and the Middle East. Occidental
also will pursue selected growth opportunities through focused exploration,
EOR projects and high-return acquisitions.
CHEMICAL
CHLOROVINYLS Due to reduced demand, the domestic chlor-alkali industry
operated at only 95 percent of capacity in 1998. The industry added 400,000
tons, or 2.9 percent of new capacity in 1998, and is expected to add another
660,000 tons, or 4.6 percent in 1999.
32
<PAGE>
Chlorine markets will continue to experience pressure from various
environmental groups and regulatory authorities seeking alternatives to, or
substitutes for, compounds containing chlorine. While there has been less
demand for chlorine in some market segments, such as pulp and paper, demand
from the PVC industry has generally more than offset those reductions.
Overall, chlorine prices in 1998 were significantly lower than average 1997
prices. Prices for caustic soda increased in 1998 compared with 1997. Chlorine
prices are expected to remain soft in 1999, and caustic prices are expected to
weaken due to the increased supply.
A 450-million-pound-per-year PVC expansion at Pasadena, Texas was brought on
line in 1998 as a result of OxyChem's strategy to maximize the benefits of the
vertical integration of its chlorovinyl business. The business is well
positioned to continue to expand and grow, with long standing relationships
with key industry leaders in the major PVC markets including pipe, vinyl
siding and building profiles and flooring.
To further strengthen its PVC and vinyl chloride monomer (VCM) position,
OxyChem, in December 1998, signed a definitive agreement with Geon providing,
among other things, for the formation of two partnerships. OxyChem expects
that the Geon alliance will create synergies for its chlorovinyls business.
OxyChem will have a 76 percent controlling interest in a PVC partnership which
is the larger of the partnerships and a 10 percent interest in a compound
partnership. OxyChem's interest represents an increase in its chlorovinyls
capacity compared to its existing contributed PVC/VCM assets. The PVC
partnership will also enter into long-term agreements to supply PVC and VCM to
Geon's compounding operations. The transaction is consistent with Occidental's
overall asset redeployment strategy to increase its return on assets. The
transaction is expected to close in the second quarter of 1999, following
satisfaction of closing conditions, including approval from Occidental's Board
of Directors and Geon shareholders. Occidental does not expect to record a
gain or loss on the transaction.
For 1999, global PVC operating rates are expected to decline further as
additional capacity is added in the Asia-Pacific and Latin American regions.
North American operating rates are anticipated to mirror 1998 levels, with
North American demand growth being offset by reduced exports into Latin
America as a result of slower economic growth and new capacity in that region.
PETROCHEMICALS In May 1998, Occidental joined the Equistar partnership.
Equistar is the largest North American producer of ethylene and polyethylene
and is also one of the world's leading producers of ethylene co-products and
derivatives. The transaction is consistent with Occidental's overall asset
redeployment strategy to increase its return on assets. Occidental remains in
the petrochemical business through its partnership interest.
SPECIALTY BUSINESSES OxyChem's specialty businesses produce organic and
inorganic compounds, sophisticated intermediate chemicals and chlorinated
isocyanurates. Numerous specialty performance chemicals are produced for the
plastics, metal-plating, aerospace and food-service industries. Sophisticated
intermediates are used primarily in agricultural applications, such as
herbicides and pesticides, and also in pharmaceuticals. During 1998, some of
them were negatively affected by the economic situation in the Far East, but
markets for these specialty products are generally less cyclical than the
markets for large-volume commodity chemicals. As part of a strategic
evaluation of these businesses in early 1999, OxyChem divided them into two
categories: industrial-specialty and performance-based products in order to
manage them more effectively and to develop these businesses consistent with
the nature and requirements of the markets they serve.
33
<PAGE>
ACCOUNTING CHANGES
EITF NO. 98-10 In November 1998, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) reached a consensus on 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. The consensus requires that energy
trading contracts be marked to market with gains and losses included in
earnings and separately disclosed in the financial statements or footnotes
thereto. Occidental will implement EITF No. 98-10 in the first quarter of 1999
and has not yet made a final determination of its impact on the financial
statements.
SOP NO. 98-5 In April 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position No. 98-5--"Reporting on the
Costs of Start-Up Activities" (SOP 98-5), which would require that costs of
start-up activities be expensed as incurred. In addition, start-up costs that
are currently capitalized must be written off when SOP 98-5 is adopted.
Occidental will implement SOP 98-5 effective January 1, 1999, and expects to
record a charge of $14 million, which is net of a $8 million income tax
benefit to reflect the cumulative effect of this change in accounting
principle.
SFAS NO. 133 In June 1998, the FASB issued Statement of Financial Accounting
Standard (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. Occidental must implement SFAS No. 133 by the
first quarter of 2000 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. The prior disclosures for 1997 and 1996 have been changed to
conform to the new disclosure requirements.
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
impact on Occidental's consolidated financial position or results of
operations. However, 1997 and 1996 segment results have been 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 $345 million for
1998, a loss of $389 million for 1997 and income of $670 million for 1996.
34
<PAGE>
YEAR 2000 COMPLIANCE
Most existing computer systems use only the last two digits to identify a
year. Consequently, as the year 2000 approaches, many systems do not yet
recognize the difference in a year that begins with "20" instead of "19".
This, as well as other date related processing issues, may cause systems to
fail or malfunction unless corrected.
Occidental's program to address Year 2000 (Y2K) issues began in 1997. In
addressing the issues Occidental has 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
employs embedded chips such as process controls; 4) testing remediated
hardware and software; and 5) certifying Y2K compliance.
Personnel from operations and from functional disciplines, as well as
information technology professionals, are involved in the process. Outside
consultants have also been retained to participate in the inventory and
assessment process. A Y2K corporate-level manager was appointed to oversee and
provide consistency to the overall process, provide support resources on a
company-wide basis and minimize duplication of efforts. In addition, a
committee of senior corporate executives provides oversight through an
extensive monthly status review of project elements. Additionally, a report is
made to Occidental's Board of Directors on Y2K status at each board meeting.
Inventory and assessment activities are virtually complete. This data is
continuously updated as new information becomes available and Occidental
expects this to continue throughout the Y2K effort. Overall remediation
efforts are estimated at approximately 70 percent complete. The coincidental
replacement of several major existing systems is on schedule to be completed
prior to January 1, 2000; these efforts began before the Y2K efforts were
initiated and the timing for completion of these projects has not been
accelerated as a result of Y2K issues.
Costs for Y2K efforts are not being accumulated separately. Much of the cost
is being accounted for as part of normal operating budgets. Overall, the costs
are estimated to be approximately $50 million including amounts incurred to
date. Most of the cost is associated with the remediation of various process
control and field systems (systems that utilize embedded computer chip
technology). Overall, the costs are not expected to have a significant effect
on Occidental's consolidated financial position or results of operations.
The risks associated with the Y2K issue can be substantial from the
standpoint of reliance on third parties. Communication with customers,
suppliers and equity partners to determine the extent of their Y2K efforts,
including selected site visits, is an integral part of the program.
Occidental, like most companies, is reliant on third parties for a wide
variety of goods and services from raw materials to electricity. Occidental's
efforts include addressing the "supply chain" issues to minimize the potential
impact of a major supplier (or customer) experiencing a Y2K problem that would
adversely affect Occidental.
Because of these company-wide efforts, Occidental believes that appropriate
actions are being taken to minimize the risk to its operations and financial
condition.
Contingency plans that address a reasonably likely worst case scenario are
approximately 10 percent complete. These plans will address key systems and
third parties that present potential significant risk and will analyze the
strategies and resources necessary to restore operations in the unlikely event
that an interruption does occur. The plans will also outline a recovery
program detailing the necessary participants, processes and equipment needed
to restore operations. Contingency plans are expected to be finalized during
the third quarter of 1999.
35
<PAGE>
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.
36
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Statements and Supplementary Data:
Report of Independent Public Accountants................................ 38
Consolidated Statements of Operations................................... 39
Consolidated Balance Sheets............................................. 40
Consolidated Statements of Stockholders' Equity......................... 42
Consolidated Statements of Comprehensive Income......................... 42
Consolidated Statements of Cash Flows................................... 43
Notes to Consolidated Financial Statements.............................. 44
Quarterly Financial Data (Unaudited).................................... 72
Supplemental Oil and Gas Information.................................... 74
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts.......................... 81
</TABLE>
37
<PAGE>
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, 1998 and 1997, 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, 1998 (included on pages 39
through 71). 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 generally accepted auditing
standards. 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, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
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 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 19, 1999
(except with respect
to the matter
discussed in Note 19,
as to which the date
is March 2, 1999)
38
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
In millions, except per-share amounts
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
- ------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues
Oil and gas operations............................. $3,621 $3,667 $3,680
Chemical operations................................ 2,975 4,349 4,307
------ ------ ------
6,596 8,016 7,987
Interest, dividends and other income................. 261 88 244
Gains (losses) on disposition of assets, net......... 546 (4) 11
Income (loss) from equity investments................ (22) 1 70
------ ------ ------
7,381 8,101 8,312
------ ------ ------
COSTS AND OTHER DEDUCTIONS
Cost of sales........................................ 4,462 5,060 5,060
Selling, general and administrative and other
operating expenses.................................. 709 1,002 933
Depreciation, depletion and amortization of assets... 835 822 761
Environmental remediation............................ -- 136 100
Exploration expense.................................. 128 119 120
Interest and debt expense, net....................... 559 434 482
------ ------ ------
6,693 7,573 7,456
------ ------ ------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES......... 688 528 856
Provision for domestic and foreign income and other
taxes................................................. 363 311 342
------ ------ ------
INCOME FROM CONTINUING OPERATIONS...................... 325 217 514
Discontinued operations, net........................... 38 (607) 184
Extraordinary loss, net................................ -- -- (30)
------ ------ ------
NET INCOME(LOSS)....................................... $ 363 $ (390) $ 668
====== ====== ======
EARNINGS(LOSS) APPLICABLE TO COMMON STOCK.............. $ 346 $ (478) $ 575
====== ====== ======
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations.................... $ .88 $ .39 $ 1.30
Discontinued operations, net......................... .11 (1.82) .56
Extraordinary loss, net.............................. -- -- (.09)
------ ------ ------
BASIC EARNINGS(LOSS) PER COMMON SHARE.................. $ .99 $(1.43) $ 1.77
====== ====== ======
DILUTED EARNINGS(LOSS) PER COMMON SHARE................ $ .99 $(1.43) $ 1.73
======================================================= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In millions, except share amounts
<TABLE>
<CAPTION>
Assets at December 31, 1998 1997
- ------------------------------------------------------------- ------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................. $ 96 $ 113
Trade receivables, net of reserves of $23 in 1998 and $24
in 1997................................................... 340 603
Receivables from joint ventures, partnerships and other.... 1,586 210
Inventories................................................ 500 604
Prepaid expenses and other................................. 181 386
Federal income taxes receivable............................ 92 9
------- -------
TOTAL CURRENT ASSETS..................................... 2,795 1,925
------- -------
LONG-TERM RECEIVABLES, NET................................... 121 153
------- -------
EQUITY INVESTMENTS........................................... 1,959 921
------- -------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and gas operations..................................... 11,690 9,039
Chemical operations........................................ 3,549 6,077
Corporate and other........................................ 1,440 1,441
------- -------
16,679 16,557
Accumulated depreciation, depletion and amortization....... (6,774) (7,967)
------- -------
9,905 8,590
OTHER ASSETS................................................. 472 470
------- -------
NET ASSETS OF DISCONTINUED OPERATIONS........................ -- 3,232
------- -------
$15,252 $15,291
============================================================= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In millions, except share amounts
<TABLE>
<CAPTION>
Liabilities and Equity at December 31, 1998 1997
- -------------------------------------------------------------- ------- -------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease
liabilities................................................ $ 1,400 $ 6
Notes payable............................................... 30 35
Accounts payable............................................ 613 717
Accrued liabilities......................................... 774 957
Dividends payable........................................... 91 106
Domestic and foreign income taxes........................... 23 58
------- -------
TOTAL CURRENT LIABILITIES................................. 2,931 1,879
------- -------
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND UNAMORTIZED
DISCOUNT..................................................... 5,367 4,925
------- -------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes........ 825 1,028
Obligation under natural gas delivery commitment............ 503 --
Other....................................................... 2,263 3,173
------- -------
3,591 4,201
------- -------
CONTINGENT LIABILITIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, $1.00 par value; authorized
50 million shares; outstanding shares:
1998--4,852,294 and 1997--22,491,478; stated at
liquidation value of $50 per share....................... 243 1,125
ESOP preferred stock, $1.00 par value; authorized and
outstanding shares:
1997--1,400,000........................................... -- 1,400
Unearned ESOP shares........................................ -- (1,348)
Common stock, $.20 par value; authorized 500 million shares;
outstanding shares:
1998--347,721,914 and 1997--341,126,546................... 69 68
Additional paid-in capital.................................. 3,814 4,149
Retained earnings(deficit).................................. (734) (1,097)
Accumulated other comprehensive income...................... (29) (11)
------- -------
3,363 4,286
------- -------
$15,252 $15,291
============================================================== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In millions
<TABLE>
<CAPTION>
Non- Accumulated
Redeemable ESOP Unearned Additional Other Retained
Preferred Preferred ESOP Common Paid-in Comprehensive Earnings
Stock Stock Shares Stock Capital Income (Deficit)
- ------------------------ ---------- --------- -------- ------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $ 1,325 $ -- $ -- $ 64 $ 4,631 $ (14) $(1,376)
Net income............. -- -- -- -- -- -- 668
Other comprehensive
income, net of tax.... -- -- -- -- -- 2 --
Dividends on common
stock................. -- -- -- -- (325) -- --
Dividends on preferred
stock................. -- -- -- -- (93) -- --
Issuance of common
stock................. -- -- -- 2 240 -- --
Issuance of preferred
stock................. -- 1,400 (1,394) -- (6) -- --
Exercises of options
and other, net........ -- -- -- -- 16 -- --
- ------------------------ ------- ------- ------- ------- ------- ------- -------
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)
======================== ======= ======= ======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In millions
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
- ----------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Net income(loss)........................................... $ 363 $(390) $ 668
Other comprehensive income items:
Foreign currency translation adjustments............... (14) (20) (6)
Minimum pension liability adjustment................... -- 17 8
Other.................................................. (4) 4 --
----- ----- -----
Other comprehensive income, net of tax................... (18) 1 2
----- ----- -----
Comprehensive income....................................... $ 345 $(389) $ 670
=========================================================== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
- ------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations, after
extraordinary loss, net............................. $ 325 $ 217 $ 484
Adjustments to reconcile income to net cash provided
by operating activities:
Extraordinary loss, net............................ -- -- 30
Depreciation, depletion and amortization of
assets............................................ 835 822 761
Amortization of debt discount and deferred
financing costs................................... 22 11 7
Deferred income tax provision...................... 275 (9) (3)
Other noncash charges to income.................... 10 426 298
(Gains) losses on disposition of assets, net....... (546) 4 (11)
(Income) loss from equity investments.............. 22 (1) (70)
Exploration expense................................ 128 119 120
Changes in operating assets and liabilities:
Decrease(increase) in accounts and notes
receivable........................................ 54 (125) 201
Decrease(increase) in inventories.................. (43) (20) (32)
Increase in prepaid expenses and other assets...... (65) (75) (6)
Increase(decrease) in accounts payable and accrued
liabilities....................................... (176) 13 (65)
Increase(decrease) in current domestic and foreign
income taxes...................................... (242) (66) 39
Other operating, net................................. (275) (185) (164)
------ ------ ------
324 1,131 1,589
Operating cash flow from discontinued operations..... (244) 266 398
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 80 1,397 1,987
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures................................. (1,074) (1,549) (1,038)
Sale of businesses and disposal of property, plant
and equipment, net.................................. 3,378 120 260
Buyout of operating leases........................... (41) (21) --
Purchase of businesses, net.......................... (3,528) (22) (18)
Dividends from equity investments and other, net..... 55 46 40
------ ------ ------
(1,210) (1,426) (756)
Investing cash flow from discontinued operations..... (6) (79) (223)
------ ------ ------
NET CASH USED BY INVESTING ACTIVITIES.............. (1,216) (1,505) (979)
------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt......................... 1,783 107 65
Net proceeds from commercial paper and revolving
credit agreements................................... 811 667 645
Payments of long-term debt and capital lease
liabilities......................................... (679) (374) (1,570)
Proceeds from issuance of common stock............... 29 21 25
Proceeds from gas sale commitment.................... 500 -- --
Proceeds (payments) of notes payable, net............ (4) 17 (1)
Repurchase of common stock........................... (937) (119) --
Cash dividends paid.................................. (387) (422) (415)
Other financing, net................................. 3 13 9
------ ------ ------
1,119 (90) (1,242)
Financing cash flow from discontinued operations..... -- 53 (88)
------ ------ ------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES... 1,119 (37) (1,330)
------ ------ ------
DECREASE IN CASH AND CASH EQUIVALENTS.................. (17) (145) (322)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR........... 113 258 580
------ ------ ------
CASH AND CASH EQUIVALENTS--END OF YEAR................. $ 96 $ 113 $ 258
======================================================= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
NATURE OF OPERATIONS Occidental is a multinational organization whose
principal lines of business are oil and gas exploration and production and
chemicals. Internationally, Occidental has oil and gas production in 9
countries and exploration projects in 11 countries. Additionally, Occidental
has oil and gas exploration and production in the United States, including the
Gulf of Mexico. Occidental also is a large chemical producer, with interests
in chlorovinyls (basic chemicals and polymers and plastics), specialty
chemicals and a petrochemical partnership.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Occidental Petroleum Corporation, all subsidiaries where the
Company has majority ownership of voting stock and Occidental's proportionate
interests in oil and gas exploration and production ventures (Occidental). 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).
The consolidated financial statements have been restated to reflect the
natural gas transmission and marketing business as a discontinued operation as
further discussed in Note 4. Unless indicated otherwise, all financial
information in the Notes to Consolidated Financial Statements excludes
discontinued operations.
In addition, certain financial statements, notes and supplementary data for
prior years have been changed to conform to the 1998 presentation.
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 $9.9 billion as of December 31,
1998. 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 $1.0 billion as of December 31, 1998, 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
$2.2 billion as of December 31, 1998 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.
44
<PAGE>
FOREIGN CURRENCY TRANSLATION The functional currency applicable to
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. Through February 15, 1999, the devaluation had an
unfavorable pretax income effect on Occidental of approximately $9 million.
The effect of exchange-rate changes on transactions denominated in
nonfunctional currencies generated a loss of $17 million in 1998, a gain of
approximately $7 million in 1997 and a loss of approximately $3 million in
1996. 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 $58 million and $50 million at
December 31, 1998 and 1997, 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 are
made from customers. As of December 31, 1998 and 1997, Occidental had received
net cash proceeds totaling $360 million and $600 million, respectively. The
reduction from 1997, reflected the cash repaid of $350 million as a
consequence of receivables removed from the program related to the MidCon and
Equistar Chemicals, LP (Equistar) transactions, offset by cash received of
$110 million related to receivables added to the program. Fees and expenses
under this program are included in selling, general and administrative and
other operating expenses. During the years ended December 31, 1998, 1997 and
1996, the cost of this program amounted to approximately 5.9 percent, 5.9
percent and 5.8 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 6).
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 17). 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, 1998 and 1997 corporate property, plant and equipment
included $1.2 billion for an intrastate gas pipeline owned by Occidental.
Accumulated depreciation, depletion and amortization included $377 million and
$353 million at December 31, 1998 and 1997, respectively, for such pipeline.
45
<PAGE>
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, 1998 and 1997 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,
1998 and 1997 was 11.1 percent and 10.2 percent, respectively. The notes
payable balance at December 31, 1998 and 1997 included high-rate notes
denominated in Brazilian reals.
ACCRUED LIABILITIES--CURRENT Accrued liabilities include the following (in
millions):
<TABLE>
<CAPTION>
Balance at December 31, 1998 1997
------------------------------------------------------------------ ---- ----
<S> <C> <C>
Accrued payroll, commissions and related expenses................. $103 $116
Accrued interest expense.......................................... $106 $ 90
------------------------------------------------------------------ ---- ----
</TABLE>
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 $120 million and $379 million, respectively, at December 31, 1998 and $117
million and $450 million, respectively, at December 31, 1997.
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, 1998 and 1997, reserves that were
recorded on a discounted basis were not material.
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 environmental sites and reports directly to
Occidental's corporate management.
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 $9 million and $132 million,
respectively, at December 31, 1998 and $11 million and $202 million,
respectively, at December 31, 1997.
HEDGING 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. Gains and losses on
commodity futures contracts 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. 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 and to fix interest rates on anticipated future
debt issuances.
46
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION Cash payments during the years 1998, 1997
and 1996 included federal, foreign and state income taxes of approximately
$212 million, $182 million and $216 million, respectively. Interest paid (net
of interest capitalized) totaled approximately $491 million, $404 million and
$486 million for the years 1998, 1997 and 1996, respectively. See Note 4 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 has,
from time to time, engaged in some form of commodity derivative activity,
generally limited to hedging arrangements. The oil and gas division engages in
oil and gas trading activity the results of which are included in periodic
income.
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, almost 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, 1998, 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 interest
rates ranging from 6.35 percent to 6.43 percent at December 31, 1998. At
December 31, 1998, $200 million notional amount remains outstanding. The
remaining agreements mature at various dates through 2000. Notional amounts do
not represent cash flow. Credit risk exposure, which is not material, is
limited to the net interest differentials. The swap rate difference resulted
in approximately $2 million, $2 million and $1 million of additional interest
expense in 1998, 1997 and 1996, respectively, 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 1998, 1997
and 1996 was not significant.
In December 1997, Occidental entered into two fixed-rate interest rate locks
for a total notional amount of $400 million with a settlement date of March
1998. The interest rate locks were entered into to fix the interest rate on
the expected issuance of long-term debt in 1998. The fixed reference rate was
between 5.84 percent and 5.87 percent. The interest rate locks were settled in
March 1998 for a payment by Occidental of $5.8 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS Occidental values financial instruments as
required by Statement of Financial Accounting Standards (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, 1998 and 1997 was approximately
$5.7 billion and approximately $5.4 billion, respectively, compared with a
carrying value of approximately $5.4 billion and approximately $4.9 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, 1998 and 1997, Occidental would
receive approximately
47
<PAGE>
$1 million and would be required to pay approximately $9 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.
NOTE 3 1997 SPECIAL CHARGES
- -------------------------------------------------------------------------------
In the fourth quarter of 1997, Occidental announced its intent to sell
nonstrategic oil and gas and chemical assets. Also, a decision was made to
idle certain facilities. In connection with these decisions, and the
impairment of certain properties, certain oil and gas and chemical assets were
written down. The related charges for these write-downs amounting to $222
million are included in cost of sales and selling, general and administrative
and other operating expenses in the accompanying consolidated statement of
operations. The asset write-downs included the Austin Chalk oil and gas
property for $88 million and the Garden Banks oil and gas property for $44
million. The operating results from these properties were not significant.
The total year 1997 special charges were $490 million, which included the
write-downs mentioned above as well as additional environmental and other
reserves and a charge to amend certain employment agreements with two senior
executives.
NOTE 4 BUSINESS COMBINATIONS, ASSET ACQUISITIONS AND DISPOSITIONS, AND
DISCONTINUED OPERATIONS
- -------------------------------------------------------------------------------
On February 5, 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.
In 1998, Occidental completed a number of 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 pretax gain was $532 million which is included in
the total gain from disposition of assets of $546 million.
Additionally, 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 the Equistar partnership, 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 obligations and other liabilities. Occidental guaranteed
48
<PAGE>
$625 million of Equistar's debt related to the 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.
Following the closing of the transaction, the assets and liabilities
transferred to the partnership (primarily property, plant and equipment,
inventories and capital lease liabilities) were removed from the balance sheet
and an equity investment was recorded. Thereafter, revenues and costs
associated with the assets contributed are not reflected in the income
statement, but Occidental records its proportionate share of the partnership's
results through equity income. Occidental did not record a gain or loss on the
transaction.
To further strengthen its polyvinyl chloride (PVC) and vinyl chloride (VCM)
position, Occidental, in December 1998, signed a definitive agreement with
Geon providing, among other things, for the formation of two partnerships.
Occidental will have a 76 percent controlling interest in a PVC partnership
which is the larger of the partnerships and a 10 percent interest in a
compound partnership. Its interest represents an increase in its chlorovinyls
capacity compared to its existing contributed PVC/VCM assets. The PVC
partnership will also enter into long-term agreements to supply PVC and VCM to
Geon's compounding operations. The transaction is expected to close in the
second quarter of 1999, following satisfaction of closing conditions,
including approval from Occidental's Board of Directors and Geon shareholders.
Occidental does not expect to record a gain or loss on the transaction.
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. As of December 31, 1997, the
operating assets and liabilities of MidCon were reclassified as net assets of
discontinued operations on the balance sheet and consisted of current assets
of $428 million; net property, plant and equipment of $5.5 billion; other
assets of $64 million; current liabilities of $442 million and long-term
liabilities of $2.4 billion.
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 addition, in the second quarter of 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 1996, Occidental acquired three specialty chemical producers in separate
transactions for approximately $149 million through the issuance of
approximately 5.5 million shares of Occidental common stock, with a value of
approximately $130 million, and the balance paid in cash. The acquisitions
included a producer of antimony oxide, a producer of mercaptan-based warning
agents for use in natural gas and a producer of sodium silicates. These
acquisitions have been accounted for by the purchase method. Accordingly, the
cost of each acquisition was allocated to the assets acquired, goodwill and
liabilities assumed based upon their estimated respective fair values.
49
<PAGE>
In 1996, Occidental completed its acquisition of a 64 percent equity
interest (on a fully-diluted basis) in INDSPEC Chemical Corporation (INDSPEC)
for approximately $92 million through the issuance of approximately 3.3
million shares of Occidental common stock, with a value of approximately $87
million, and the balance paid in cash. INDSPEC is the world's largest producer
of resorcinol, which is used to manufacture rubber tires, engineered wood
products, agricultural chemicals and fire-retardant plastic additives. Under
the terms of the agreement, INDSPEC's management and employees have retained
voting control of INDSPEC.
In 1996, Occidental completed the sale of its subsidiary which engaged in
onshore drilling and servicing of oil and gas wells for approximately $32
million. Also in 1996, certain assets of an international phosphate fertilizer
trading operation were sold for approximately $20 million in interest-bearing
notes and sold its royalty interest in the Congo for $215 million to the
Republic of the Congo.
NOTE 5 EXTRAORDINARY LOSS AND ACCOUNTING CHANGES
- -------------------------------------------------------------------------------
The 1996 results included a net extraordinary loss of $30 million, which
resulted from the early extinguishment of debt.
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 $345 million in
1998, a loss of $389 million in 1997 and income of $670 million in 1996.
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 and 1996 segment disclosures have
been restated. See Note 17 for the required disclosures.
In November 1998, the Emerging Issues Task Force (EITF) of the FASB reached
a consensus on 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. The consensus
requires that energy trading contracts be marked to market with gains and
losses included in earnings and separately disclosed in the financial
statements or footnotes thereto. Occidental will implement EITF No. 98-10 in
the first quarter of 1999.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-5--"Reporting on the Costs of
Start-Up Activities" (SOP 98-5), which would require that costs of start-up
activities be expensed as incurred. In addition, start-up costs that are
currently capitalized must be written off when SOP 98-5 is adopted. Occidental
will implement SOP 98-5 effective January 1, 1999, and expects to record a
charge of $14 million, which is net of a $8 million income tax benefit to
reflect the cumulative effect of this change in accounting principle.
50
<PAGE>
NOTE 6 INVENTORIES
- -------------------------------------------------------------------------------
Inventories of approximately $253 million and $243 million were valued under
the LIFO method at December 31, 1998 and 1997, respectively. Inventories
consisted of the following (in millions):
<TABLE>
<CAPTION>
Balance at December 31, 1998 1997
------------------------------------------------------------- ---- ----
<S> <C> <C>
Raw materials................................................ $ 38 $102
Materials and supplies....................................... 184 189
Work in process.............................................. 5 22
Finished goods............................................... 278 342
---- ----
505 (a) 655
LIFO reserve................................................. (5)(b) (51)
---- ----
TOTAL........................................................ $500 $604
============================================================= ==== ====
</TABLE>
(a) The 1998 amount excludes inventory transferred to Equistar in 1998.
(b) The 1998 LIFO reserve decreased due to the impact of lower
ethylene costs. In 1998, the total year LIFO liquidation credited
to income was approximately $4 million.
NOTE 7 LONG-TERM DEBT
- -------------------------------------------------------------------------------
Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
Balance at December 31, 1998 1997
----------------------------------------------------------- ------ ------
<S> <C> <C>
OCCIDENTAL PETROLEUM CORPORATION
5.4695% to 6.3702% commercial paper...................... $2,023 $1,079
6.02% to 11% medium-term notes due 1999 through 2008..... 640 1,096
6.4% senior notes due 2013, subject to remarketing on
April 1, 2003........................................... 450 --
7.375% senior notes due 2008............................. 400 --
10.125% senior notes due 2001............................ 330 330
9.25% senior debentures due 2019, putable August 1, 2004
at par.................................................. 300 300
10.125% senior debentures due 2009....................... 276 276
6.0125% floating rate extendible notes due 2008.......... 270 --
8.5% medium-term notes due 2004, callable September 15,
1999 at par............................................. 250 250
6.5% senior notes due 2005............................... 250 --
6.75% senior notes due 2002.............................. 200 --
7.2% senior debentures due 2028.......................... 200 --
8.5% senior notes due 2001............................... 150 150
11.125% senior notes due 2010............................ 150 150
11.125% senior debentures due 2019, callable June 1, 1999
at 105.563.............................................. 144 144
5.6351% to 6.269% revolving credits...................... 105 235
8.75% medium-term notes due 2023......................... 100 100
10.42% senior notes due 2003, called December 1998 at
par..................................................... -- 50
------ ------
6,238 4,160
------ ------
OXY USA INC.
7% debentures due 2011, callable anytime at par.......... 274 274
6.625% debentures due 1999, callable anytime at par (Note
16)..................................................... 54 55
5.7% to 7.8% unsecured notes due 1999 through 2007....... 50 53
7.2% unsecured notes due 2020 (Note 16).................. 7 7
------ ------
385 389
------ ------
OTHER SUBSIDIARY DEBT
3.3% to 7.67% unsecured notes due 1999 through 2030...... 275 513
6% secured notes due 1999 through 2007................... 8 8
------ ------
283 521
------ ------
6,906 5,070
Less:
Unamortized discount, net................................ (141) (140)
Current maturities....................................... (1,398) (5)
------ ------
TOTAL...................................................... $5,367 $4,925
=========================================================== ====== ======
</TABLE>
51
<PAGE>
At December 31, 1998, $995 million of notes and commercial paper due in 1999
were classified as non-current since it is management's intention to refinance
this amount on a long-term basis, utilizing the net proceeds from the
financings completed in January and February 1999 as described in Note 19.
At December 31, 1998, minimum principal payments on long-term debt,
including sinking fund requirements, subsequent to December 31, 1999
aggregated $5.508 billion, of which $319 million is due in 2000, $516 million
in 2001, $1.245 billion in 2002, $64 million in 2003, $580 million in 2004 and
$2.784 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, 1998, 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 $635 million, assuming that such dividends, distributions and
acquisitions were made without incurring additional borrowings. The issuance,
in January 1999, of the $525 million of 8.16 percent Trust Preferred
Securities increased dividend capacity to approximately $1.1 billion.
At December 31, 1998, Occidental had available lines of committed bank
credit of approximately $1.5 billion. Following the receipt of the proceeds
from the $1.4 billion note receivable and the issuance of the Trust Preferred
Securities, available credit increased to approximately $2.3 billion at
January 31, 1999. Bank fees on these committed lines of credit ranged from
0.075 percent to 0.125 percent.
NOTE 8 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, 1998, 8.8 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.
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, 1998, 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):
<TABLE>
<CAPTION>
VALUE VOLUMES
------------------------------------------------------------ ----- -------
<S> <C> <C>
2000........................................................ $150 66
2001........................................................ 150 66
2002........................................................ 150 66
2003........................................................ 147 65
---- ----
TOTAL....................................................... 597 263
====
Less:
Imputed interest.......................................... (94)
Current portion........................................... --
----
PRESENT VALUE OF NATURAL GAS DELIVERY COMMITMENT, NET OF
CURRENT PORTION............................................ $503
============================================================ ====
</TABLE>
52
<PAGE>
NOTE 9 LEASE COMMITMENTS
- -------------------------------------------------------------------------------
The present value of net minimum capital lease payments, net of the current
portion, totaled $29 million and $235 million at December 31, 1998 and 1997,
respectively. These amounts are included in other liabilities. The lower 1998
amount, primarily reflected capital lease liabilities transferred to Equistar.
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, 1998, future net minimum lease payments for capital and
operating leases (excluding oil and gas and other mineral leases) were the
following (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------------------------------------------------------- ------- ---------
<S> <C> <C>
1999..................................................... $ 4 $ 65
2000..................................................... 4 55
2001..................................................... 2 52
2002..................................................... 1 33
2003..................................................... 1 25
Thereafter............................................... 41 186
---- ----
TOTAL MINIMUM LEASE PAYMENTS............................. 53 $416
====
Less:
Executory costs........................................ (2)
Imputed interest....................................... (21)
Current portion........................................ (1)
----
PRESENT VALUE OF NET MINIMUM CAPITAL LEASE PAYMENTS, NET
OF CURRENT PORTION...................................... $ 29
========================================================= ====
</TABLE>
Rental expense for operating leases, net of sublease rental income, was $106
million in 1998, $113 million in 1997 and $114 million in 1996. Rental expense
was net of sublease income of $10 million in 1998, $10 million in 1997 and $7
million in 1996. At December 31, 1998, sublease rental amounts included in the
future operating lease payments totaled $117 million, as follows (in
millions): 1999--$11, 2000--$8, 2001--$8, 2002--$7, 2003--$7 and 2004 and
thereafter--$76.
Included in the 1998 and 1997 property, plant and equipment accounts were
$60 million and $410 million, respectively, of property leased under capital
leases and $49 million and $156 million, respectively, of related accumulated
amortization.
NOTE 10 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 a purported class action
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 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.
53
<PAGE>
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
At December 31, 1998, commitments for major capital expenditures during 1999
and thereafter were approximately $332 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, 1998, the net
present value of the fixed and determinable portion of the obligations under
these agreements aggregated $76 million, which was payable as follows (in
millions): 1999--$12, 2000--$9, 2001--$9, 2002--$8, 2003--$8 and 2004 through
2014--$30. Payments under these agreements, including any variable component,
were $19 million in 1998, $16 million in 1997 and $18 million in 1996.
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 11 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):
<TABLE>
<CAPTION>
For the years ended December 31, Domestic Foreign Total
----------------------------------------------------- -------- ------- -----
<S> <C> <C> <C>
1998................................................. $ 388 $ 300 $ 688
===== ===== =====
1997................................................. $(184) $ 712 $ 528
===== ===== =====
1996................................................. $ 254 $ 602 $ 856
===================================================== ===== ===== =====
</TABLE>
The provisions(credits) for domestic and foreign income and other taxes
consisted of the following (in millions):
<TABLE>
<CAPTION>
State
U.S. and
For the years ended December 31, Federal Local Foreign Total
----------------------------------------------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
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
=============================================== ===== ===== ===== =====
1996
Current...................................... $ 67 $ 21 $ 257 $ 345
Deferred..................................... (6) 2 1 (3)
----- ----- ----- -----
$ 61 $ 23 $ 258 $ 342
=============================================== ===== ===== ===== =====
</TABLE>
54
<PAGE>
The following is a reconciliation, stated as a percentage of pretax income,
of the U.S. statutory federal income tax rate to Occidental's effective tax
rate on income(loss) from continuing operations:
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
----------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate............................ 35% 35% 35%
Operations outside the United States(a).................... 15 22 16
State taxes, net of federal benefit........................ 5 1 2
Capital loss benefit....................................... (5) -- --
Nondeductible depreciation and other expenses.............. -- 2 2
Reduction in deferred tax asset valuation allowance........ -- -- (12)
Other...................................................... 3 (1) (3)
--- --- ---
Tax rate provided by Occidental............................ 53% 59% 40%
=========================================================== === === ===
</TABLE>
(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 6 percent in 1998, 13 percent in 1997 and 6 percent
in 1996.
The tax effects of temporary differences and carryforwards resulting in
deferred income taxes at December 31, 1998 and 1997 were as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
DEFERRED DEFERRED Deferred Deferred
Items resulting in temporary TAX TAX Tax Tax
differences and carryforwards ASSETS LIABILITIES Assets Liabilities
--------------------------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Property, plant and equipment
differences..................... $ 215 $ 938 $ 172 $1,542
Discontinued operations--loss
accruals and sale............... -- -- 147 165
Equity investments including
partnerships.................... -- 698 -- 118
Environmental reserves........... 194 -- 255 --
Postretirement benefit accruals.. 147 -- 154 --
State income taxes............... 82 -- 74 --
Tax credit carryforwards......... 85 -- 165 --
All other........................ 364 103 425 208
------ ------ ------ ------
Subtotal....................... 1,087 1,739 1,392 2,033
Valuation allowance.............. (63) -- (82) --
------ ------ ------ ------
Total deferred taxes............. $1,024 $1,739 $1,310 $2,033
================================= ====== ====== ====== ======
</TABLE>
Included in total deferred tax assets was a current portion aggregating $110
million and $305 million as of December 31, 1998 and 1997, respectively, that
was reported in prepaid expenses and other.
A deferred tax liability of approximately $80 million at December 31, 1998
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 were net of an income tax charge of less than $1 million
in 1998, $10 million in 1997 and $6 million in 1996.
The foreign currency translation adjustment credited directly to accumulated
other comprehensive income was net of an income tax benefit of $6 million in
both 1998 and 1997 and $2 million in 1996.
The extraordinary loss that resulted from the early extinguishment of debt
was reduced by an income tax benefit of $16 million in 1996.
Discontinued operations included income tax charges of $21 million in 1998,
$240 million in 1997 and $112 million in 1996.
55
<PAGE>
At December 31, 1998, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $85 million
available to reduce future income taxes. The alternative minimum tax credit
carryforward does not expire.
NOTE 12 NONREDEEMABLE PREFERRED STOCK, ESOP PREFERRED STOCK AND COMMON STOCK
- -------------------------------------------------------------------------------
The following is an analysis of nonredeemable preferred stock and common
stock (shares in thousands):
<TABLE>
<CAPTION>
Nonredeemable
Preferred Common
Stock Stock
------------------------------------------------------ ------------- -------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995............................ 26,495 318,711
Issued.............................................. -- 10,145
Options exercised and other, net.................... (2) 372
------- -------
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
====================================================== ======= =======
</TABLE>
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 are convertible into Occidental common
stock in accordance with a conversion formula that is indexed to the market
price of the common shares of CanadianOxy. The shares of CXY-indexed
convertible preferred stock are redeemable on or after January 1, 1999, in
whole or in part, at the option of Occidental, at a redemption price of $51.50
per share declining ratably to $50.00 per share on or after January 1, 2004,
in each case plus accumulated and unpaid dividends to the redemption date. 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. As of December 31,
1998, the aggregate number of shares of Occidental common stock issuable upon
conversion of all of the remaining outstanding shares of the CXY-indexed
convertible preferred stock was 10,471,250, based on the conversion ratio then
in effect of 2.16.
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 February 1998, Occidental announced its
intention to redeem in March 1998, all of the 15.1 million shares of its
$3.875 preferred stock. Prior to the redemption date the holders of the $3.875
preferred stock converted the 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 the CMIC Preferred Stock was redeemed.
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.
56
<PAGE>
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 1998, options for 1,198,199 shares
became exercisable, and options for 4,400,382 shares were exercisable at
December 31, 1998 at a weighted-average exercise price of $24.07. Generally,
these options vest over three years with a maximum term of ten years and one
month. At December 31, 1998, options with stock appreciation rights (SAR) for
668,000 shares were outstanding, all of which options were exercisable.
The following is a summary of stock option transactions during 1998, 1997
and 1996 (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------------------------ ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE....... 6,769 $23.274 5,952 $22.637 5,481 $22.263
Granted or issued....... 2,443 $26.032 1,789 $25.058 1,335 $24.375
Exercised............... (605) $22.310 (845) $22.219 (483) $21.276
Canceled or expired..... (438) $25.222 (127) $25.582 (381) $24.958
------- ------- -------
ENDING BALANCE.......... 8,169 $24.065 6,769 $23.274 5,952 $22.637
======= ======= =======
OPTIONS EXERCISABLE AT
YEAR-END............... 4,400 4,005 3,589
======================== ======= ======= =======
</TABLE>
For options outstanding at December 31, 1998 the exercise prices were
between $17.75 and $29.625 and the weighted-average remaining contractual life
was approximately 7 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 1998, 85,451 shares were
awarded 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 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 on a peer company comparison of
total stockholder return for such period. Based on Occidental's ranking among
its peers, 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 1998, 134,705 shares were awarded 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. These options expire 10
years from the grant date and have no value unless and until one of the
following events occur, at which time the grants become fully vested and
exercisable: for twenty consecutive trading days, the New York Stock Exchange
closing price of the common stock must be a) $30 or more per share within the
first three years after grant date; b) $35 or more per share after the third
year and through the fifth year; or c) $40 or more per share from the sixth
year until expiration. None of the options were exercisable in 1997 or 1998.
Any income effect will be recognized at the time the options are exercisable.
57
<PAGE>
Under the 1995 Stock Incentive Plan, a total of approximately 15,000,000
shares may be awarded. At December 31, 1998, 4,250,861 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.
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 $354 million
in 1998, a loss of $396 million in 1997, and net income of $666 million in
1996. Basic and diluted earnings per share would have been $.96 for 1998, a
loss of $1.44 for 1997 and would not have changed for 1996. 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 1998, 1997 and 1996, respectively: dividend
yield of 3.84, 3.94 and 4.20 percent; expected volatility of 22.91, 22.36 and
23.92 percent; risk-free rate of return 5.45, 6.27 and 6.79 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 3,500, 3,500, and 3,250 shares of common stock were awarded
during 1998, 1997 and 1996, respectively. At December 31, 1998, 39,750 shares
of common stock were available for the granting of future awards.
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. As a
result, earnings per share for 1996 were restated as indicated below. Basic
earnings per share was computed by dividing net income, less preferred
dividend requirements, 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 adoption of SFAS No. 128 did not change the previously
reported fully diluted earnings per share for 1996.
58
<PAGE>
The following is a calculation of earnings per share for the years ended
December 31 (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ----------------------------- ------------------------------
PER- Per- Per-
SHARE Share Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
- ------------------------ --------- ------- --------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER
- ------------------
SHARE:
-----
Income from continuing
operations............. $ 324,588 $ 216,970 $ 514,088
Preferred stock
dividends.............. (16,516) (87,736) (92,701)
--------- --------- ---------
Earnings from continuing
operations applicable
to common stock........ 308,072 350,173 $ .88 129,234 334,341 $ .39 421,387 323,782 $ 1.30
Discontinued operations,
net.................... 38,400 .11 (606,625) (1.82) 183,733 .56
Extraordinary loss,
net.................... -- -- -- -- (29,836) (0.09)
--------- --------- --------- --------- --------- ---------
Earnings(loss)
applicable to common
stock.................. $ 346,472 $ .99 $(477,391) $ (1.43) $ 575,284 $ 1.77
========= ========= ========= ========= ========= =========
DILUTED EARNINGS PER
- --------------------
SHARE:
-----
Earnings from continuing
operations applicable
to common stock........ $ 308,072 350,173 $ 129,234 334,341 $ 421,387 323,782
Dilutive effect of
exercise of options
outstanding............ -- 428 -- 575 -- 363
Dilutive effect of
convertible preferred
stock.................. -- -- -- -- 34,164 28,068
--------- ------- --------- -------- --------- ---------
Earnings from continuing
operations applicable
to common stock........ 308,072 350,601 $ .88 129,234 334,916 $ .39 455,551 352,213 $ 1.29
Discontinued operations,
net.................... 38,400 .11 (606,625) (1.82) 183,733 .52
Extraordinary loss,
net.................... -- -- -- -- (29,836) (0.08)
--------- --------- --------- --------- --------- ---------
Earnings(loss)
applicable to common
stock.................. $ 346,472 $ .99 $(477,391) $ (1.43) $ 609,448 $ 1.73
======================== ========= ========= ========= ========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Stock Options
Number of shares............ 1,661 508 1,188
Price range................. $24.375-$29.625 $26.000-$29.625 $24.875-$29.625
Expiration range............ 8/20/99-12/1/07 8/21/98-12/1/07 3/31/97-8/18/00
Convertible Preferred Stock
$3.875
Number of shares............ -- 33,186 33,186
Dividends paid.............. $ -- $ 58,538 $ 58,538
Convertible Preferred Stock
$3.00
Number of shares............ 10,471 19,954 --
Dividends paid.............. $ 16,516 $ 29,199 $ --
- ------------------------------ --------------- --------------- ---------------
</TABLE>
59
<PAGE>
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 $49 million in 1998 and $53 million in
both 1997 and 1996 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 $75 million in
1998, $79 million in 1997 and $89 million in 1996.
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 1998, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
---------------- ----------------
For the years ended December 31, 1998 1997 1996 1998 1997 1996
---------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the
period................................. $ 5 $ 8 $ 9 $ 5 $ 6 $ 6
Interest cost on benefit obligation..... 22 25 23 25 27 29
Expected return on plan assets.......... (17) (20) (18) -- -- --
Amortization of net transition
obligation............................. 1 1 1 -- -- --
Amortization of prior service cost...... 3 3 1 1 1 2
Recognized actuarial (gain) loss........ (5) (4) 7 (2) -- --
Curtailment and settlement costs........ 4 (1) -- -- (3) --
---- ---- ---- ---- ---- ----
Net periodic benefit cost............... $ 13 $ 12 $ 23 $ 29 $ 31 $ 37
======================================== ==== ==== ==== ==== ==== ====
</TABLE>
In 1998, 1997 and 1996, Occidental recorded adjustments to accumulated other
comprehensive income of credits of less than $1 million, $17 million and $8
million, respectively, 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.
60
<PAGE>
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):
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
--------------------- ----------------
1998 1997 1998 1997
---------------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation -- beginning of
year............................. $ 311 $ 321 $ 337 $ 377
Service cost--benefits earned
during the period.............. 5 8 5 6
Interest cost on projected
benefit obligation............. 22 25 25 27
Actuarial (gain) loss........... 14 4 26 (36)
Foreign currency exchange rate
changes........................ (4) (8) -- --
Benefits paid................... (48) (27) (35) (34)
Businesses acquired............. -- 3 -- --
Divestitures.................... (59)(a) (10) (14) --
Curtailments and settlements.... -- (5) -- (3)
-------- -------- ------- -------
Benefit obligation -- end of
year............................. $ 241 $ 311 $ 344 $ 337
================================== ======== ======== ======= =======
</TABLE>
(a) Primarily relates to Equistar.
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):
<TABLE>
<CAPTION>
Pension
Benefits
-------------
1998 1997
-------------------------- ---- ----
<S> <C> <C>
CHANGES IN PLAN ASSETS:
Fair value of plan assets
-- beginning of year..... $296 $264
Actual return on plan
assets................. 35 42
Foreign currency
exchange rate changes.. (1) (4)
Employer contribution... 21 34
Benefits paid........... (48) (27)
Divestitures............ (69)(a) (10)
Settlements............. -- (3)
---- ----
Fair value of plan assets
-- end of year........... $234 $296
========================== ==== ====
</TABLE>
(a) Primarily relates to Equistar.
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, $54 million and
$30 million, respectively, as of December 31, 1998 and $99 million, $93
million and $65 million, respectively, as of December 31, 1997.
The weighted average discount rate used in determining the benefit
obligations was 7.0 percent as of December 31, 1998 and 7.5 percent as of
December 31, 1997. The weighted average rate of increase in future
compensation levels used in determining the benefit obligations was
approximately 5 percent in both 1998 and 1997. The expected weighted average
long-term rate of return on assets was 8 percent in both 1998 and 1997.
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 2.5 percent and 3 percent as of December 31,
1998 and 1997, respectively (beginning in 1993, participants other than
certain union employees pay for all medical cost increases in excess of
increases in the
61
<PAGE>
CPI). For certain union employees, the health care cost trend rates were
projected at annual rates ranging ratably from 8 percent in 1998 to 5 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 $11 million or a reduction of $9 million, respectively, in the
postretirement benefit obligation as of December 31, 1998. 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, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
------------ ----------------
Balance at December 31, 1998 1997 1998 1997
-------------------------------------------- ----- ----- ------- -------
<S> <C> <C> <C> <C>
Funded status............................... $ (7) $ (14) $ (344) $ (337)
Unrecognized net transition obligation...... 4 5 -- --
Unrecognized prior service cost............. 5 7 1 2
Unrecognized net (gain) loss................ 3 7 (45) (73)
----- ----- ------- -------
Net amount recognized....................... $ 5 $ 5 $ (388) $ (408)
===== ===== ======= =======
Prepaid benefit cost........................ $ 34 $ 37 $ -- $ --
Accrued benefit liability................... (31) (36) (388) (408)
Intangible asset............................ 2 3 -- --
Accumulated other comprehensive income...... -- 1 -- --
----- ----- ------- -------
Net amount recognized....................... $ 5 $ 5 $ (388) $ (408)
============================================ ===== ===== ======= =======
</TABLE>
During 1998, certain defined benefit pension plans were transferred to the
acquirers of various businesses, including Equistar, and one defined benefit
pension plan was terminated resulting in reductions of $87 million in the
benefit obligation and $96 million in the fair value of plan assets.
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, 1998, 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 $69 million, $50 million and $48 million to
Occidental in 1998, 1997 and 1996, respectively. Cumulative undistributed
earnings since acquisition, in the amount of $203 million, of 50-percent-or-
less-owned companies have been accounted for by Occidental under the equity
method. At December 31, 1998 and 1997, Occidental's investment in equity
investees exceeded the historical underlying equity in net assets by
approximately $212 million and $226 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 $420 million at December 31, 1998,
compared with an aggregate book value of $217 million.
Occidental and its subsidiaries' purchases from certain chemical
partnerships were $350 million, $232 million and $183 million in 1998, 1997
and 1996, respectively. Occidental and its subsidiaries' sales to certain
chemical partnerships were $266 million, $328 million and $245 million, in
1998, 1997 and 1996, respectively.
62
<PAGE>
The following table presents Occidental's proportional interest in the
summarized financial information of its equity method investments (in
millions):
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Revenues.............................................. $2,118 $ 959 $ 849
Costs and expenses.................................... 2,140 958 779
------ ------ ------
Net income (loss)..................................... $ (22) $ 1 $ 70
====================================================== ====== ====== ======
<CAPTION>
Balance at December 31, 1998 1997
------------------------------------------------------ ------ ------
<S> <C> <C> <C>
Current assets........................................ $ 602 $ 297
Noncurrent assets..................................... $3,075 $1,564
Current liabilities................................... $ 449 $ 252
Noncurrent liabilities................................ $1,679 $1,113
Stockholders' equity.................................. $1,549 $ 496
------------------------------------------------------ ------ ------
</TABLE>
Investments also include certain cost method investments, in which
Occidental owns less than 20 percent of the voting stock. At December 31,
1998, these investments consisted primarily of the shares in Clark (see
Note 8).
NOTE 16 SUMMARIZED FINANCIAL INFORMATION OF WHOLLY-OWNED SUBSIDIARY
- -------------------------------------------------------------------------------
Occidental has guaranteed the payments of principal of, and interest on,
certain publicly traded debt securities of its subsidiary, OXY USA Inc. (OXY
USA).
The following table presents summarized financial information for OXY USA
(in millions):
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Revenues............................................ $1,120 $1,004 $ 982
Costs and expenses.................................. 927 1,004 882
------ ------ ------
Net income.......................................... $ 193 $ -- $ 100
==================================================== ====== ====== ======
<CAPTION>
Balance at December 31, 1998 1997
---------------------------------------------------- ------ ------
<S> <C> <C> <C>
Current assets...................................... $ 67 $ 150
Intercompany receivable............................. $ 170 $ 29
Noncurrent assets................................... $1,673 $2,024
Current liabilities................................. $ 237 $ 259
Interest bearing note to parent..................... $ 73 $ 89
Noncurrent liabilities.............................. $ 909 $1,106
Stockholders' equity................................ $ 691(a) $ 749
---------------------------------------------------- ------ ------
</TABLE>
(a) Reflects a dividend of $268 million and a capital contribution of $17
million in 1998.
63
<PAGE>
NOTE 17 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, a
variety of chlorovinyls (basic chemicals and polymers and plastics), specialty
chemicals and participates in a petrochemical partnership.
Earnings of industry segments and geographic areas exclude interest income,
interest expense, environmental remediation expenses, unallocated corporate
expenses, discontinued operations 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.
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.
64
<PAGE>
INDUSTRY SEGMENTS
In millions
<TABLE>
<CAPTION>
Oil and
Gas Chemical Corporate Total
- --------------------------------- ------- -------- --------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Net sales...................... $ 3,621 (a) $ 2,975 (b) $ -- $ 6,596
======= ======= ======= =======
Pretax operating
profit(loss)(c,d)............. $ 980 $ 262 $ (554)(e) $ 688
Income taxes................... (176) 4 (191)(f) (363)
Discontinued operations, net... -- -- 38 38
------- ------- ------- -------
Net income(loss)............... $ 804 (g) $ 266 (h) $ (707)(i) $ 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 (l) $ -- $ 8,016
======= ======= ======= =======
Pretax operating
profit(loss)(c,d)............. $ 747 $ 551 $ (770)(e) $ 528
Income taxes................... (263) (26) (22)(f) (311)
Discontinued operations, net... -- -- (607) (607)
------- ------- ------- -------
Net income(loss)............... $ 484 (m) $ 525 (n) $(1,399)(o) $ (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
================================= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1996
Net sales...................... $ 3,680 (a) $ 4,307 (p) $ -- $ 7,987
======= ======= ======= =======
Pretax operating
profit(loss)(c,d)............. $ 795 $ 798 $ (737)(e) $ 856
Income taxes................... (259) (15) (68)(f) (342)
Discontinued operations, net... -- -- 184 184
Extraordinary loss............. -- -- (30) (30)
------- ------- ------- -------
Net income(loss)............... $ 536 (q) $ 783 (r) $ (651)(s) $ 668
======= ======= ======= =======
Investment in unconsolidated
subsidiaries.................. $ 272 $ 437 $ 276 $ 985
======= ======= ======= =======
Property, plant and equipment
additions, net(j)............. $ 762 $ 262 $ 14 $ 1,038
======= ======= ======= =======
Depreciation, depletion and
amortization.................. $ 493 $ 236 $ 32 $ 761
======= ======= ======= =======
Total assets................... $ 4,496 $ 5,429 $ 5,056 (k) $14,981
================================= ======= ======= ======= =======
</TABLE>
(footnotes on following page)
65
<PAGE>
(a) Oil sales represented approximately 76 percent, 79 percent and 78 percent
of net sales for the periods ending December 31, 1998, 1997 and 1996,
respectively. Gas sales accounted for the remainder. Additionally, oil
and gas trading activities accounted for approximately 44 percent of net
sales in 1998 and approximately one-third in both 1997 and 1996.
(b) Product sales were approximately 63 percent in chlorovinyls, 17 percent
in petrochemicals and 20 percent in specialty chemicals.
(c) Research and development costs were $18 million in 1998 and $16 million
in both 1997 and 1996.
(d) Divisional earnings include charges and credits in lieu of U.S. federal
income taxes. In 1998, the amounts allocated to the divisions were
credits of $12 million and $26 million in oil and gas and chemical,
respectively. In 1997, the amounts allocated to the divisions were
credits of $13 million and $26 million in oil and gas and chemical,
respectively. In 1996, the amounts allocated to the divisions were
credits of $15 million and $26 million in oil and gas and chemical,
respectively.
(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 net pretax gains of approximately $532 million from the sale of
major nonstrategic oil and gas properties, as part of an asset
redeployment program, a $30 million charge for the write-off of certain
exploration projects and a $12 million reorganization charge.
(h) Includes $30 million for reorganization and other charges.
(i) Includes an after-tax $38 million benefit which reflects the closing of
the sale of MidCon and the finalization of the discontinued operations
reserve.
(j) Excludes acquisitions of other businesses of $3.5 billion in oil and gas
in 1998, $29 million in chemical in 1997 and $58 million in chemical in
1996. Includes capitalized interest of $16 million in 1998, $14 million
in 1997 and $5 million in 1996.
(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 and 1996, this amount also includes the net
assets of discontinued operations of approximately $3.2 billion and $3.3
billion, respectively.
(l) Product sales were approximately 51 percent in chlorovinyls, 41 percent
in petrochemicals and 14 percent in specialty chemicals.
(m) Includes pretax charges of $210 million for the write-down of various
nonstrategic and impaired assets and related costs and other reserves.
(n) Includes pretax charges of $94 million related to the write-down of
various idled assets.
(o) Includes a pretax 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.
(p) Product sales were approximately 50 percent in chlorovinyls, 39 percent
in petrochemicals and 13 percent in specialty chemicals, prior to
intercompany elimination.
(q) Includes a charge of $105 million for the write-down of an investment in
the Republic of Komi.
(r) Includes a pretax gain of $170 million related to favorable litigation
settlements and the related state tax effects.
(s) Includes a $100 million reduction in the deferred tax asset valuation
allowance and a pretax charge of $75 million for additional environmental
matters.
GEOGRAPHIC AREAS
In millions
<TABLE>
<CAPTION>
Property, plant and
Net sales(a) equipment, net
-------------------- --------------------
For the years ended December 31, 1998 1997 1996 1998 1997 1996
------------------------------------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States....................... $5,244 $6,245 $6,196 $8,162 $6,711 $6,706
Qatar............................... 426 464 386 790 657 390
Yemen............................... 123 126 128 183 102 121
Peru................................ 112 176 201 110 128 100
Colombia............................ 142 200 276 89 101 114
Other Foreign....................... 549 805 800 571 891 765
------ ------ ------ ------ ------ ------
Total............................... $6,596 $8,016 $7,987 $9,905 $8,590 $8,196
==================================== ====== ====== ====== ====== ====== ======
</TABLE>
(a)Sales are shown by individual country based on the location of the
entity making the sale.
66
<PAGE>
NOTE 18 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):
<TABLE>
<CAPTION>
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
---------------------------------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
================================== ======= ======= ======= =======
DECEMBER 31, 1996
Proved properties............... $ 4,695 $ 1,891 $ 1,274 $ 7,860
Unproved properties............. 64 33 97 194
------- ------- ------- -------
TOTAL PROPERTY COSTS(a)......... 4,759 1,924 1,371 8,054
Support facilities.............. 11 125 54 190
------- ------- ------- -------
TOTAL CAPITALIZED COSTS......... 4,770 2,049 1,425 8,244
Accumulated depreciation,
depletion and amortization..... (2,760) (1,554) (522) (4,836)
------- ------- ------- -------
NET CAPITALIZED COSTS............. $ 2,010 $ 495 $ 903 $ 3,408
======= ======= ======= =======
Share of equity investees' net
capitalized costs(b)............. $ 76 $ 80 $ 152 $ 308
================================== ======= ======= ======= =======
</TABLE>
(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.
67
<PAGE>
Costs incurred relating to oil and gas producing activities, whether
capitalized or expensed, were as follows (in millions):
<TABLE>
<CAPTION>
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
------------------------------------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
===================================== ====== ====== ====== ======
DECEMBER 31, 1996
Acquisition of properties
Proved........................... $ 8 $ -- $ 28 $ 36
Unproved......................... 9 -- -- 9
Exploration costs.................. 30 55 80 165
Development costs.................. 212 118 244 574
------ ------ ------ ------
$ 259 $ 173 $ 352 $ 784
====== ====== ====== ======
Share of equity investees' costs..... $ 35 $ 36 $ 54 $ 125
===================================== ====== ====== ====== ======
</TABLE>
68
<PAGE>
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):
<TABLE>
<CAPTION>
United Other Western Eastern Total
States Hemisphere(a) Hemisphere Worldwide
- --------------------------------- ------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
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......... $ -- $ (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......... $ 8 $ (4) $ 25 $ 29
================================= ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31,
1996
Revenues....................... $ 906 $ 571 $ 912(b) $2,389
Production costs............... 241 157 184 582
Exploration expenses........... 25 28 67 120
Other operating expenses....... 49 51 124 224
Other expense--write-down of
investment in Komi............ -- -- 105 105
Depreciation, depletion and
amortization.................. 234(c) 83 164 481
------ ------ ------ ------
PRETAX INCOME.................. 357 252 268 877
Income tax expense(d).......... 81 89 169(b) 339
------ ------ ------ ------
RESULTS OF OPERATIONS.......... $ 276 $ 163 $ 99 $ 538
====== ====== ====== ======
Share of equity investees'
results of operations......... $ 8 $ 3 $ 25 $ 36
================================= ====== ====== ====== ======
</TABLE>
(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 a credit of $12 million, $13 million and $15 million in 1998,
1997 and 1996, respectively, under the method of allocating amounts in
lieu of taxes.
(d) U.S. federal income taxes reflect expense allocations related to oil and
gas activities, including allocated interest and corporate overhead.
Foreign income taxes were included in geographic areas on the basis of
operating results.
69
<PAGE>
RESULTS PER UNIT OF PRODUCTION (Unaudited)
<TABLE>
<CAPTION>
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
- --------------------------------------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues from net production
Oil ($/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
======================================= ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenues from net production
Oil ($/bbl.)....................... $18.98 $12.66 $17.66(a) $15.70
====== ====== ====== ======
Natural gas ($/Mcf)................ $ 2.11 $ -- $ 2.23 $ 2.13
====== ====== ====== ======
Barrel of oil equivalent
($/bbl.)(b,c)....................... $15.20 $12.23 $20.31(a) $15.80
Production costs..................... 4.05 3.37 4.09 3.85
Exploration expenses................. .42 .59 1.49 .79
Other operating expenses............. .82 1.10 2.76 1.48
Other expense--write-down of
investment in Komi.................. -- -- 2.35 .70
Depreciation, depletion and
amortization........................ 3.93 1.78 3.65 3.19
------ ------ ------ ------
PRETAX INCOME........................ 5.98 5.39 5.97 5.79
Income tax expense................... 1.36 1.91 3.76(a) 2.24
------ ------ ------ ------
RESULTS OF OPERATIONS................ $ 4.62 $ 3.48 $ 2.21 $ 3.55
======================================= ====== ====== ====== ======
</TABLE>
(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 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.
70
<PAGE>
NOTE 19 SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
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
$507 million. The securities will be recorded outside of equity and other
liabilities as a separate line on the balance sheet. The proceeds were used to
repay commercial paper.
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 will be used for
general corporate purposes, which may include, but is not limited to, the
repayment of maturing commercial paper and the redemption of other debt.
On March 2, 1999, the Oklahoma Supreme Court upheld a $742 million lower-
court judgment in favor of Occidental against a unit of Chevron Corporation
(Chevron) involving a breach of a 1982 merger agreement between Gulf Oil
Corp., which was purchased by Chevron, and Cities Service Co., now OXY USA,
which was purchased by Occidental. With interest accrued since the date of the
lower-court award, the amount of the judgment is approximately $935 million at
March 2, 1999. Chevron stated they would seek further review of the case in
the courts.
71
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
1998 QUARTERLY FINANCIAL DATA (Unaudited)
In millions, except per-share amounts
<TABLE>
<CAPTION>
Three months ended MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C>
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.............. $ 232 $ 380 $ 156 $ 36
Chemical................. 158 60 62 (14)
--------- --------- --------- ---------
390 440 218 22
Unallocated corporate items
Interest expense, net.... (112) (118) (106) (115)
Income taxes............. (126) (116) (49) 63
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
=========================== ========= ========= ========= =========
</TABLE>
(a) Includes net pretax gains of approximately $105 million, $290 million
and $137 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.
72
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
1997 QUARTERLY FINANCIAL DATA (Unaudited)
In millions, except per-share amounts
<TABLE>
<CAPTION>
Three months ended March 31 June 30 September 30 December 31
- --------------------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Divisional net sales
Oil and Gas.................... $ 842 $ 1,055 $ 883 $ 887
Chemical....................... 1,075 1,103 1,124 1,047
------- ------- ------- -------
Net sales........................ $ 1,917 $ 2,158 $ 2,007 $ 1,934
======= ======= ======= =======
Gross profit..................... $ 589 $ 554 $ 560 $ 469
======= ======= ======= =======
Divisional earnings(loss)
Oil and Gas.................... $ 247 $ 144 $ 144 $ (51)
Chemical....................... 98 196 215 16
------- ------- ------- -------
345 340 359 (35)
Unallocated corporate items
Interest expense, net.......... (101) (101) (100) (105)
Income taxes................... (85) (62) (17) 104
Other.......................... (32) (39) (112) (142)
------- ------- ------- -------
Income(loss) from continuing
operations...................... 127 138 130 (178)
Discontinued operations, net..... 52 20 27 (706)
------- ------- ------- -------
Net income(loss) $ 179 $ 158 $ 157 (a) $ (884)(b)
======= ======= ======= =======
Basic earnings per common share
Income(loss) from continuing
operations.................... $ .32 $ .35 $ .32 $ (.58)
Discontinued operations, net... .16 .06 .08 (2.07)
------- ------- ------- -------
Basic earnings(loss) per common
share........................... $ .48 $ .41 $ .40 $ (2.65)
======= ======= ======= =======
Diluted earnings per common share
Income(loss) from continuing
operations.................... $ .31 $ .34 $ .31 $ (.58)
Discontinued operations, net... .15 .05 .07 (2.07)
------- ------- ------- -------
Diluted earnings(loss) per common
share........................... $ .46 $ .39 $ .38 $ (2.65)
======= ======= ======= =======
Dividends per common share....... $ .25 $ .25 $ .25 $ .25
======= ======= ======= =======
Market price per common share
High........................... $26 3/4 $25 7/8 $26 1/4 $30 3/4
Low............................ $23 1/8 $21 3/4 $23 3/8 $25 7/8
================================= ======= ======= ======= =======
</TABLE>
(a) Includes a pretax charge of $75 million for the extinguishment of
existing liabilities and open-ended financial commitments under
employment agreements with two senior executives.
(b) Includes pretax charges of $210 million for the write-down of various
nonstrategic and impaired assets including assets expected to be sold and
related costs in the oil and gas division, $94 million related to the
write-down of various idled assets in the chemical division, $111 million
for additional environmental matters in unallocated corporate other items
and an after-tax charge of $750 million for the discontinued natural gas
transmission business.
73
<PAGE>
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
<TABLE>
<CAPTION>
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
------------ ------------- ------------ ------------
Oil Gas Oil(a) Gas Oil Gas Oil Gas
- ------------------------ ----- ----- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES
BALANCE AT DECEMBER 31,
1995................... 196 1,821 417 -- 317 639 930 2,460
Revisions of previous
estimates............ 11 26 (19) -- 77 200 69 226
Improved recovery..... 1 -- -- -- 18 -- 19 --
Extensions and
discoveries.......... 16 105 3 -- 11 40 30 145
Purchases of proved
reserves............. 1 18 -- -- -- 3 1 21
Sales of proved
reserves............. (1) (6) -- -- (46) -- (47) (6)
Production............ (21) (220) (47) -- (37) (42) (105) (262)
- ------------------------ ----- ----- ----- ----- ----- ----- ----- -----
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
======================== ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN
EQUITY INVESTEES'
RESERVES --
December 31, 1995..... 5 36 12 81 21 39 38 156
===== ===== ===== ===== ===== ===== ===== =====
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
======================== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
74
<PAGE>
RESERVES continued
Oil in millions of barrels, natural gas in billions of cubic feet
<TABLE>
<CAPTION>
Other
United Western Eastern Total
States Hemisphere Hemisphere Worldwide
----------- ------------ ----------- -----------
Oil Gas Oil(a) Gas Oil Gas Oil Gas
- ----------------------------- ----- ----- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED RESERVES
December 31, 1995.......... 149 1,747 283 -- 195 235 627 1,982
===== ===== ===== ===== ===== ===== ===== =====
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
============================= ===== ===== ===== ===== ===== ===== ===== =====
PROPORTIONAL INTEREST IN
EQUITY INVESTEES' RESERVES
December 31, 1995.......... 5 30 10 75 16 31 31 136
===== ===== ===== ===== ===== ===== ===== =====
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
============================= ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(a) Portions of these reserves are being produced pursuant to exclusive
service contracts.
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. The year end West Texas
Intermediate oil price was $12.05, $17.64 and $25.92 per barrel at
December 31, 1998, 1997 and 1996, respectively. Although the year end prices
used to calculate future cash flows could vary by producing area, a similar
pattern of decline was experienced on a worldwide basis. 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 pretax 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, 1998, 1997 and
1996. 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.
75
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
In millions
<TABLE>
<CAPTION>
United Other Western Eastern Total
States Hemisphere(a) Hemisphere Worldwide
- ----------------------------------- ------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
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
=================================== ======= ======= ======= =======
AT DECEMBER 31, 1996
Future cash flows................ $ 8,887 $ 4,642 $ 8,399 $21,928
Future costs
Production costs and other
operating expenses............ (3,296) (1,853) (3,139) (8,288)
Development costs(b)........... (514) (289) (1,184) (1,987)
------- ------- ------- -------
FUTURE NET CASH FLOWS BEFORE
INCOME TAXES.................... 5,077 2,500 4,076 11,653
Future income tax expense........ (1,646) (875) (457) (2,978)
------- ------- ------- -------
FUTURE NET CASH FLOWS............ 3,431 1,625 3,619 8,675
Ten percent discount factor...... (1,462) (555) (1,418) (3,435)
------- ------- ------- -------
STANDARDIZED MEASURE............. 1,969 1,070 2,201 5,240
Share of equity investees'
standardized measure............ 117 104 234 455
------- ------- ------- -------
$ 2,086 $ 1,174 $ 2,435 $ 5,695
=================================== ======= ======= ======= =======
</TABLE>
(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.
76
<PAGE>
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
In millions
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
- ---------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
BEGINNING OF YEAR................................... $ 3,690 $ 5,240 $ 3,590
------- ------- -------
Sales and transfers of oil and gas produced, net
of production costs and other operating
expenses......................................... (925) (1,561) (1,640)
Net change in prices received per barrel, net of
production costs and other operating expenses.... (2,661) (2,071) 2,604
Extensions, discoveries and improved recovery, net
of future production and development costs....... 236 379 576
Change in estimated future development costs...... 330 (455) (620)
Revisions of quantity estimates................... 390 132 863
Development costs incurred during the period...... 535 798 573
Accretion of discount............................. 307 498 305
Net change in income taxes........................ 881 795 (655)
Purchases and sales of reserves in place, net..... 625 92 (403)
Changes in production rates and other............. (39) (157) 47
------- ------- -------
NET CHANGE.......................................... (321) (1,550) 1,650
------- ------- -------
END OF YEAR......................................... $ 3,369 $ 3,690 $ 5,240
==================================================== ======= ======= =======
</TABLE>
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, 1998, 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
<TABLE>
<CAPTION>
Other
United Western Eastern
For the years ended December 31, States Hemisphere(a,b) Hemisphere(a)
- ------------------------------------------ ------ --------------- -------------
<S> <C> <C> <C>
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
------ ------ ------
1996
Oil--Average sales price ($/bbl.)....... $18.98 $12.66 $17.66
Gas--Average sales price ($/Mcf)........ $ 2.11 $ -- $ 2.23
Average oil and gas production cost
($/bbl.)(c)............................ $ 4.05 $ 3.73 $ 4.09
- ------------------------------------------ ------ ------ ------
</TABLE>
(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.
77
<PAGE>
The following table sets forth, for each of the three years in the period
ended December 31, 1998, Occidental's net productive and dry exploratory and
development wells drilled.
NET PRODUCTIVE AND DRY--EXPLORATORY AND DEVELOPMENT WELLS DRILLED
<TABLE>
<CAPTION>
Other
United Western Eastern Total
For the years ended Dercember 31, States Hemisphere Hemisphere Worldwide
- --------------------------------------------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
----- ----- ----- -----
1996
Oil-- Exploratory.......................... -- 2.8 3.6 6.4
Development.......................... 61.6 23.2 18.4 103.2
Gas-- Exploratory.......................... 2.6 -- 2.0 4.6
Development.......................... 103.2 -- 1.7 104.9
Dry-- Exploratory.......................... 5.5 2.5 6.2 14.2
Development.......................... 15.6 0.5 2.1 18.2
- --------------------------------------------- ----- ----- ----- -----
</TABLE>
The following table sets forth, as of December 31, 1998, 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
<TABLE>
<CAPTION>
Other
United Western Eastern Total
Wells at December 31, 1998 States Hemisphere Hemisphere Worldwide
- ------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oil-- Gross(a)................ 7,361 (126) 373 (--) 764 (76) 8,498 (202)
Net(b).................. 4,296 (52) 274 (--) 426 (48) 4,996 (100)
Gas-- Gross(a)................ 2,747 (74) -- (--) 40 (1) 2,787 (75)
Net(b).................. 2,003 (31) -- (--) 16 (1) 2,019 (32)
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
(a) The total number of wells in which interests are owned or which are
operated under service contracts.
(b) The sum of fractional interests.
78
<PAGE>
The following table sets forth, as of December 31, 1998, Occidental's
participation in exploratory and development wells being drilled.
PARTICIPATION IN EXPLORATORY AND DEVELOPMENT WELLS BEING DRILLED
<TABLE>
<CAPTION>
Other
United Western Eastern Total
Wells at December 31, 1998 States Hemisphere Hemisphere Worldwide
- --------------------------------------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Exploratory and development wells--
Gross................................ 12 -- 34 46
Net.................................. 8 -- 16 24
- --------------------------------------- ----- ----- ----- -----
</TABLE>
At December 31, 1998, Occidental was participating in 52 pressure
maintenance and waterflood projects in the United States, 3 in Latin America,
11 in the Middle East and 2 in Russia.
The following table sets forth, as of December 31, 1998, Occidental's
holdings of developed and undeveloped oil and gas acreage.
OIL AND GAS ACREAGE
<TABLE>
<CAPTION>
Other
United Western Eastern Total
Thousands of acres States Hemisphere Hemisphere Worldwide
- ----------------------------------------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Developed(a)-- Gross(b)................ 1,522 110 10,945 12,577
Net(c).................. 1,030 103 5,326 6,459
------ ------ ------ ------
Undeveloped(d)-- Gross(b)................ 1,232 10,151 16,362 27,745
Net(c).................. 766 7,117 8,003 15,886
- ----------------------------------------- ------ ------ ------ ------
</TABLE>
(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.
79
<PAGE>
The following table sets forth, for each of the three years in the period
ended December 31, 1998, Occidental's domestic oil and natural gas production.
OIL AND NATURAL GAS PRODUCTION--DOMESTIC
<TABLE>
<CAPTION>
Natural Gas
Oil Production Production
Thousands of Millions of
barrels per cubic feet per
day day
-------------- --------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
California........................................ 41 1 2 149 -- --
Gulf of Mexico.................................... 11 12 10 122 138 154
Kansas............................................ 3 6 6 164 190 186
Louisiana......................................... 2 5 6 17 39 43
Mississippi....................................... -- -- 1 1 5 3
New Mexico........................................ 2 2 3 35 28 24
Oklahoma.......................................... 1 4 4 36 50 52
Texas............................................. 17 22 21 83 123 126
Wyoming........................................... -- -- -- 4 9 9
Other States...................................... 4 5 4 3 14 4
--- --- --- --- --- ---
TOTAL............................................. 81 57 57 614 596 601
================================================== === === === === === ===
</TABLE>
The following table sets forth, for each of the three years in the period
ended December 31, 1998, Occidental's international oil and natural gas
production.
OIL AND NATURAL GAS PRODUCTION--INTERNATIONAL
<TABLE>
<CAPTION>
Natural Gas
Oil Production Production
Thousands of Millions of
barrels per cubic feet per
day day
-------------- --------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Colombia.......................................... 27 24 29 -- -- --
Congo............................................. -- -- 4 -- -- --
Ecuador........................................... 12 15 18 -- -- --
Netherlands....................................... -- -- -- 50 72 72
Oman.............................................. 17 14 13 -- -- --
Pakistan.......................................... 5 7 6 39 38 43
Peru.............................................. 48 50 54 -- -- --
Qatar............................................. 75 45 38 -- -- --
Russia............................................ 29 26 25 -- -- --
Venezuela......................................... 2 25 27 -- -- --
Yemen............................................. 25 14 15 -- -- --
--- --- --- --- --- ---
TOTAL............................................. 240 220 229 89 110 115
================================================== === === === === === ===
</TABLE>
80
<PAGE>
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
In millions
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts............. $ 24 $ 4 $ -- $ (5) $ 23
====== ====== ====== ====== ======
Environmental $ 567 $ -- $ 9 $ (77)(A) $ 499
Foreign and other
taxes, litigation and
other reserves....... 902 187 7 (239) 857
------ ------ ------ ------ ------
$1,469 $ 187 $ 16 $ (316) $1,356(B)
======================== ====== ====== ====== ====== ======
1997
Allowance for doubtful
accounts............. $ 24 $ 3 $ -- $ (3) $ 24
====== ====== ====== ====== ======
Environmental $ 562 $ 136 $ 6 $ (137)(a) $ 567
Foreign and other
taxes, litigation and
other reserves 935 94 16 (143)(a) 902
------ ------ ------ ------ ------
$1,497 $ 230 $ 22 $ (280) $1,469(a)
======================== ====== ====== ====== ====== ======
1996
Allowance for doubtful
accounts............. $ 19 $ 12 $ -- $ (7) $ 24
====== ====== ====== ====== ======
Environmental $ 578 $ 100 $ 11 $ (127)(a) $ 562
Foreign and other
taxes, litigation and
other reserves 931 65 24 (85)(a) 935
------ ------ ------ ------ ------
$1,509 $ 165 $ 35 $ (212) $1,497(b)
======================== ====== ====== ====== ====== ======
</TABLE>
(a) Primarily represents payments.
(b) Of these amounts, $172 million, $170 million and $204 million in 1998,
1997 and 1996, respectively, is classified as current.
81
<PAGE>
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 30,
1999, Annual Meeting of Stockholders (the "1999 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 1999 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 1999 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 1999 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.
82
<PAGE>
(A) (3). EXHIBITS
<TABLE>
<C> <S>
3.(i) (a)* Restated Certificate of Incorporation of Occidental, together
with all certificates amendatory thereof filed with the Secretary of
State of Delaware, as amended to date (filed as Exhibit 3.(i) to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1994, File No. 1-9210, except for Exhibit 3.(i)(b)
described below).
(b)* Certificate of Amendment of Restated Certificate of
Incorporation of Occidental dated April 25, 1997 (filed as Exhibit
3.(1)(b) to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1997, File No. 1-9210).
3.(ii)* Bylaws of Occidental, as amended through September 17, 1998 (filed as
Exhibit 3.(ii) to the Quarterly Report on Form 10-Q of Occidental for
the quarterly period ended September 30, 1998, File No. 1-9210).
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 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 10.51 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 as of May 13, 1997, between Occidental
and David A. Hentschel, together with the letter agreement, dated
February 25, 1999, between Occidental and Mr. Hentschel.
</TABLE>
- --------
*Incorporated herein by reference
83
<PAGE>
<TABLE>
<C> <S>
10.8* Termination of Consulting Agreement and Release, dated November 11,
1993, between OXY USA Inc. and George O. Nolley (filed as Exhibit 10.9
to the Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 1993, File No. 1-9210).
10.9* Form of Indemnification Agreement between Occidental and each of its
directors and certain executive officers (filed as Exhibit B to
Occidental's Proxy Statement for its May 21, 1987, Annual Meeting of
Stockholders, File No. 1-9210).
10.10* 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).
10.11* 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).
10.12* Occidental Petroleum Corporation 1978 Stock Option Plan (as amended and
restated effective May 21, 1987) (filed as Exhibit 28(a) to
Occidental's Registration Statement on Form S-8, File No. 33-14662).
10.13* 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).
10.14* 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).
10.15* 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).
10.16* 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).
10.17* 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).
10.18* 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).
10.19* 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).
10.20* 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).
10.21* 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).
10.22* 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).
</TABLE>
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*Incorporated herein by reference
84
<PAGE>
<TABLE>
<C> <S>
10.23* Occidental Petroleum Corporation 1988 Deferred Compensation Plan (as
amended and restated effective as of January 1, 1994)(filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended September 30, 1994, File No. 1-9210).
10.24* 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).
10.25* 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).
10.26* 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).
10.27* 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).
10.28* 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).
10.29* Occidental Petroleum Corporation 1995 Incentive Stock Plan, as amended
(filed as Exhibit A to the Proxy Statement of Occidental for its May 1,
1998, Annual Meeting of Stockholders, File No. 1-9210).
10.30* 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).
10.31* 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).
10.32* 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).
10.33* 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).
10.34* 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).
10.35* Occidental Petroleum Corporation 1996 Restricted Stock Plan for Non-
Employee Directors, effective April 26, 1996 (filed as Exhibit 99.1 to
the Registration Statement on Form S-8 of Occidental, File No. 333-
02901).
10.36* 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).
</TABLE>
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*Incorporated herein by reference
85
<PAGE>
<TABLE>
<C> <S>
10.37* 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).
10.38* 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).
10.39* Occidental Petroleum Corporation 1988 Deferred Compensation Plan (as
amended and restated effective as of January 1, 1996)(filed as Exhibit
10.2 to Occidental's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1996, File No. 1-9210).
10.40* 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).
10.41* 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).
10.42* Grant of option agreement, executed October 5, 1997, between the
Department of Energy and Occidental related to the purchase of the U.S.
Government's 78 percent interest in the Elk Hills field (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended September 30, 1997, File No. 1-9210).
10.43* Stock Purchase Agreement dated as of December 18, 1997, by and among
Occidental, as seller, and KN Energy, Inc., as buyer, together with the
exhibits thereto (filed as Exhibit 10.1 to the Current Report on Form
8-K of Occidental dated January 31, 1998 (date of earliest event
reported), filed February 10, 1998, File No. 1-9210).
10.44* Amendment No. 1 to Stock Purchase Agreement dated January 30, 1998,
between Occidental, as seller, and KN Energy, Inc., as buyer, together
with exhibit thereto (filed as Exhibit 10.2 to the Current Report on
Form 8-K of Occidental dated January 31, 1998 (date of earliest event
reported), filed February 10, 1998, File No. 1-9210).
10.45* Supplemental Agreement dated as of January 20, 1998, by and between
Occidental and KN Energy, Inc., together with the exhibits thereto
(filed as Exhibit 10.3 to the Current Report on Form 8-K of Occidental
dated January 31, 1998 (date of earliest event reported), filed
February 10, 1998, File No. 1-9210).
10.46* 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).
10.47* 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).
</TABLE>
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*Incorporated herein by reference
86
<PAGE>
<TABLE>
<C> <S>
10.48* 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).
10.49* 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, 1998.
21 List of subsidiaries of Occidental at December 31, 1998.
23 Consent of Independent Public Accountants.
27 Financial data schedule of Occidental for the fiscal year ended
December 31, 1998 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission).
</TABLE>
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*Incorporated herein by reference
(B) REPORTS ON FORM 8-K
During the fourth quarter of 1998, Occidental filed the following Current
Reports on Form 8-K:
1. Current Report on Form 8-K dated October 21, 1998 (date of earliest event
reported), filed on October 22, 1997, for the purpose of reporting, under Item
5, Occidental's results of operations for the third quarter ended September
30, 1998.
2. Current Report on Form 8-K dated November 16, 1998 (date of earliest
event reported), filed on November 20, 1998, for the purpose of reporting,
under Items 5 and 7, the completion of a securities offering, the highlights
of an analysts meeting and the filing of certain exhibits relating to the
securities offering.
During the first quarter of 1999 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated January 6, 1999 (date of earliest event
reported), filed on January 6, 1999, for the purpose of reporting, under Item
5, certain recent developments.
2. Current Report on Form 8-K dated January 13, 1999 (date of earliest event
reported), filed on January 20, 1999, for the purpose of reporting, under Item
5 and 7, the completion of a Trust Preferred securities offering and the
filing of certain exhibits to a registration statement relating thereto.
3. Current Report on Form 8-K/A dated January 20, 1999 (date of earliest
event reported), filed on January 22, 1999, for the purpose of reporting,
under Item 7, corrections to certain exhibits from the prior filing.
4. Current Report on Form 8-K dated January 26, 1999 (date of earliest event
reported), filed on January 27, 1999, for the purpose of reporting, under Item
5, Occidental's results of operations for the fourth quarter and fiscal year
ended December 31, 1998.
5. Current Report on Form 8-K dated February 5, 1999 (date of earliest event
reported), filed on February 10, 1999, for the purpose of reporting, under
Items 5 and 7, the completion of a debt offering and the filing of certain
exhibits to a registration statement relating thereto.
87
<PAGE>
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
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ray R. Irani Chairman of the Board of March 12, 1999
____________________________________ Directors and Chief
Ray R. Irani Executive Officer
/s/ Stephen I. Chazen Executive Vice President-- March 12, 1999
____________________________________ Corporate Development and
Stephen I. Chazen Chief Financial Officer
/s/ Samuel P. Dominick, Jr. Vice President and March 12, 1999
____________________________________ Controller (Chief
Samuel P. Dominick, Jr. Accounting Officer)
/s/ John S. Chalsty Director March 12, 1999
____________________________________
John S. Chalsty
/s/ Edward P. Djerejian Director March 12, 1999
____________________________________
Edward P. Djerejian
/s/ John E. Feick Director March 12, 1999
____________________________________
John E. Feick
/s/ J. Roger Hirl Director March 12, 1999
____________________________________
J. Roger Hirl
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John W. Kluge Director March 12, 1999
____________________________________
John W. Kluge
/s/ Dale R. Laurance Director March 12, 1999
____________________________________
Dale R. Laurance
/s/ Irvin W. Maloney Director March 12, 1999
____________________________________
Irvin W. Maloney
/s/ George O. Nolley Director March 12, 1999
____________________________________
George O. Nolley
/s/ Rodolfo Segovia Director March 12, 1999
____________________________________
Rodolfo Segovia
/s/ Aziz D. Syriani Director March 12, 1999
____________________________________
Aziz D. Syriani
/s/ Rosemary Tomich Director March 12, 1999
____________________________________
Rosemary Tomich
</TABLE>
89
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<C> <S>
3.(i) (a)* Restated Certificate of Incorporation of Occidental, together
with all certificates amendatory thereof filed with the Secretary of
State of Delaware, as amended to date (filed as Exhibit 3.(i) to the
Annual Report on Form 10-K of Occidental for the fiscal year ended
December 31, 1994, File No. 1-9210, except for Exhibit 3.(i)(b)
described below).
(b)* Certificate of Amendment of Restated Certificate of
Incorporation of Occidental dated April 25, 1997 (filed as Exhibit
3.(1)(b) to the Annual Report on Form 10-K of Occidental for the
fiscal year ended December 31, 1997, File No. 1-9210).
3.(ii)* Bylaws of Occidental, as amended through September 17, 1998 (filed as
Exhibit 3.(ii) to the Quarterly Report on Form 10-Q of Occidental for
the quarterly period ended September 30, 1998, File No. 1-9210).
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 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 10.51 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 as of May 13, 1997, between Occidental
and David A. Hentschel, together with the letter agreement, dated
February 25, 1999, between Occidental and Mr. Hentschel.
</TABLE>
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*Incorporated herein by reference
<PAGE>
<TABLE>
<C> <S>
10.8* Termination of Consulting Agreement and Release, dated November 11,
1993, between OXY USA Inc. and George O. Nolley (filed as Exhibit 10.9
to the Annual Report on Form 10-K of Occidental for the fiscal year
ended December 31, 1993, File No. 1-9210).
10.9* Form of Indemnification Agreement between Occidental and each of its
directors and certain executive officers (filed as Exhibit B to
Occidental's Proxy Statement for its May 21, 1987, Annual Meeting of
Stockholders, File No. 1-9210).
10.10* 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).
10.11* 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).
10.12* Occidental Petroleum Corporation 1978 Stock Option Plan (as amended and
restated effective May 21, 1987) (filed as Exhibit 28(a) to
Occidental's Registration Statement on Form S-8, File No. 33-14662).
10.13* 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).
10.14* 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).
10.15* 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).
10.16* 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).
10.17* 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).
10.18* 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).
10.19* 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).
10.20* 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).
10.21* 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).
10.22* 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).
</TABLE>
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*Incorporated herein by reference
<PAGE>
<TABLE>
<C> <S>
10.23* Occidental Petroleum Corporation 1988 Deferred Compensation Plan (as
amended and restated effective as of January 1, 1994)(filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended September 30, 1994, File No. 1-9210).
10.24* 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).
10.25* 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).
10.26* 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).
10.27* 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).
10.28* 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).
10.29* Occidental Petroleum Corporation 1995 Incentive Stock Plan, as amended
(filed as Exhibit A to the Proxy Statement of Occidental for its May 1,
1998, Annual Meeting of Stockholders, File No. 1-9210).
10.30* 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).
10.31* 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).
10.32* 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).
10.33* 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).
10.34* 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).
10.35* Occidental Petroleum Corporation 1996 Restricted Stock Plan for Non-
Employee Directors, effective April 26, 1996 (filed as Exhibit 99.1 to
the Registration Statement on Form S-8 of Occidental, File No. 333-
02901).
10.36* 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).
</TABLE>
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*Incorporated herein by reference
<PAGE>
<TABLE>
<C> <S>
10.37* 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).
10.38* 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).
10.39* Occidental Petroleum Corporation 1988 Deferred Compensation Plan (as
amended and restated effective as of January 1, 1996)(filed as Exhibit
10.2 to Occidental's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1996, File No. 1-9210).
10.40* 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).
10.41* 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).
10.42* Grant of option agreement, executed October 5, 1997, between the
Department of Energy and Occidental related to the purchase of the U.S.
Government's 78 percent interest in the Elk Hills field (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Occidental for the
quarterly period ended September 30, 1997, File No. 1-9210).
10.43* Stock Purchase Agreement dated as of December 18, 1997, by and among
Occidental, as seller, and KN Energy, Inc., as buyer, together with the
exhibits thereto (filed as Exhibit 10.1 to the Current Report on Form
8-K of Occidental dated January 31, 1998 (date of earliest event
reported), filed February 10, 1998, File No. 1-9210).
10.44* Amendment No. 1 to Stock Purchase Agreement dated January 30, 1998,
between Occidental, as seller, and KN Energy, Inc., as buyer, together
with exhibit thereto (filed as Exhibit 10.2 to the Current Report on
Form 8-K of Occidental dated January 31, 1998 (date of earliest event
reported), filed February 10, 1998, File No. 1-9210).
10.45* Supplemental Agreement dated as of January 20, 1998, by and between
Occidental and KN Energy, Inc., together with the exhibits thereto
(filed as Exhibit 10.3 to the Current Report on Form 8-K of Occidental
dated January 31, 1998 (date of earliest event reported), filed
February 10, 1998, File No. 1-9210).
10.46* 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).
10.47* 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).
</TABLE>
- --------
*Incorporated herein by reference
<PAGE>
<TABLE>
<C> <S>
10.48* 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).
10.49* 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, 1998.
21 List of subsidiaries of Occidental at December 31, 1998.
23 Consent of Independent Public Accountants.
27 Financial data schedule of Occidental for the fiscal year ended
December 31, 1998 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission).
</TABLE>
- --------
*Incorporated herein by reference
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of May 13, 1997, by and between Occidental
Petroleum Corporation, a Delaware corporation (hereinafter referred to as
"Employer"), and David A. Hentschel (hereinafter referred to as "Employee").
WITNESSETH
----------
Employer hereby agrees to employ Employee, and Employee agrees to perform
services and to work for Employer, upon the following terms and conditions:
1. Duties - Employee shall serve in the capacity of Executive Vice
President, Occidental Petroleum Corporation, and Chairman and Chief Executive
Officer, Occidental Oil and Gas Corporation, or shall serve in such other
capacity and with such other duties for Employer or any of the subsidiaries of
Employer or any corporation affiliated with Employer (any such subsidiary or
affiliated corporation hereafter to be deemed Employer under this Agreement) as
may be designated by Employer.
<PAGE>
In performing his duties, Employee agrees to observe and follow the
policies and procedures established by the Employer, which are subject to change
by the Employer from time to time.
2. Term of Employment - The term of employment shall be at the discretion
of the Employer, but for a minimum of two (2) years, unless terminated prior
thereto in accordance with the provisions of this Agreement, commencing on June
1, 1997, and ending on May 31, 1999.
3. Compensation - In consideration for his services to be performed under
this Agreement, Employee shall receive, in addition to all other benefits
provided in this Agreement, an aggregate salary of six hundred fifty thousand
dollars ($650,000) per year, or such higher amount as Employer may approve from
time to time, payable by Employer in equal semimonthly installments or on such
basis as is generally established for principal executives of Employer from time
to time.
4. Participation in Benefit Programs - During the term of this Agreement,
Employee shall be entitled to participate
2
<PAGE>
in all benefit programs generally applicable to salaried employees of employer
in force or adopted by Employer from time to time, excluding Employer's
Retirement Plan (PRA), Savings Plan (PSA), Senior Executive Supplemental
Retirement Plan, and Supplemental Retirement Plan. Employee will be eligible to
participate in Employer's Senior Executive Survivor Benefit Plan. Employee will
be required to participate in the tax preparation program conducted by Arthur
Andersen LLP.
5. Compensation Plans - Employee shall be: i) eligible to participate in
Employer's Executive Incentive Compensation Plan according to its terms, and
shall receive a bonus under such Plan for the year 1997 of no less than three
hundred twenty-five thousand dollars ($325,000) payable in the first quarter of
1998; (ii) eligible to receive annual stock option grants under Employer's 1995
Incentive Stock Plan and, at such time as this Agreement is executed on behalf
of Employer, Employer's Compensation Committee shall have approved an option
grant to Employee of one hundred thirty thousand (130,000) fully vested shares
under such plan after Employee's execution of this Agreement and the
commencement of services pursuant to this Agreement as full and final
reimbursement to Employee for the loss of options held with his current
employer, (iii) at such
3
<PAGE>
time as this Agreement is executed on behalf of Employer, Employer's
Compensation Committee shall have approved a grant of restricted ($117,000) and
performance shares ($240,500) to Employee of an aggregate date of award value of
three hundred fifty-seven thousand five hundred dollars ($357,500) in January,
1998, under such Plan, and (iv) a signing bonus of one hundred thousand dollars
($100,000) payable on or before Employee's first day of employment. Employee's
participation in each of the foregoing Plans shall be in accordance with and
subject to all of the terms and conditions of such Plans.
6. Supplemental Retirement Payments - The following supplemental
retirement payment provisions are intended as full and final reimbursement to
Employee for his loss of a pension entitlement with his present employer and in
lieu of participation in Employer's qualified and unqualified retirement and
savings plans. Employee will have the opportunity to earn supplemental lifetime
retirement payments of $33,333 for each year of service completed (pro-rated by
month for partial years) to a maximum annual payment of $100,000. Any payments
earned will commence upon the retirement of Employee and, in the event payments
have commenced and Employee dies, payments will continue
4
<PAGE>
to his spouse, if then living, for the remainder of her life at 60% of the
amount paid to Employee.
7. Exclusivity of Services - Employee agrees to devote his full-time,
exclusive services to Employer hereunder, except for such time as Employee may
require in connection with his personal investments, which shall be minimal.
8. Vacation - Employee shall be entitled to a total of six (6) weeks of
paid vacation in each contract year. Employee agrees to follow Employer's
relevant policies and procedures for scheduling and taking such vacations.
9. Termination -
a. Cause - Notwithstanding the term of this Agreement, Employer may
discharge Employee and terminate this Agreement for cause, upon written notice,
in the event that Employee (i) shall willfully breach this Agreement, or (ii)
shall refuse to carry out any lawful order of Employer, or (iii) act in a
disloyal manner inimical to Employer. In any such event, Employer shall give
Employee notice of such cause and Employee
5
<PAGE>
shall have ten (10) days to cure such breach to the reasonable satisfaction of
Employer. Failing such cure, Employee shall thereupon not be entitled to any
further compensation from Employer other than any earned supplemental pension as
defined in Section 6.
b. Incapacity Or Other Inability To Perform - If, during the term of
this Agreement, Employee is prevented from fully performing his material duties
pursuant to this Agreement by reason of illness, disability or other incapacity
(unless incurred as a direct result of his assignments hereunder) or by reason
of any statute, law, ordinance, regulation, order, judgment or decree, Employer
may terminate this Agreement without liability (except as specified in Section
6) by written notice to Employee, but only in the event that such incapacity or
inability to perform shall aggregate not less than one hundred eighty (180) days
during any one contract year of the term of employment. Base salary will be
continued during any period of disability or inability to perform up to and
including one hundred eighty (180) days. Beyond one hundred eighty (180) days,
if Employee is unable to perform his material duties by reason of illness or
disability or other physical or mental incapacity, the Employee
6
<PAGE>
will be eligible for a disability payment of sixty percent (60%) of base pay
minus one hundred twenty thousand dollars ($120,000) per year through the
two-year minimum term of this Agreement.
c. Without Cause -
(1) Either party may terminate this Agreement without cause at
any time, by giving the other party not less than three (3) months prior written
notice of termination. Employer may terminate the employment of Employee without
cause at any time (including a time during such notice period); and in such
event, Employer shall compensate Employee (in lieu of said notice and continued
employment and, except for benefits specified in Section 6 and Subsection (2) of
this paragraph (c), in complete satisfaction of all of its obligations under
this Agreement) at his then current base salary rate and in the manner provided
in Section 3 for a period after termination equivalent to the lesser of
twenty-four (24) months or the remaining term of this Agreement.
(2) During the period Employee is entitled to compensation
pursuant to Subsection (1) of this paragraph (c),
7
<PAGE>
Employee shall continue to be eligible to (i) participate in all employee
benefit plans of Employer (except the short and long-term disability plans
unless Employee has already become eligible under such plans) in which he is
participating at the time of the notice, provided, however, Employee will not
accrue any additional supplemental retirement payments pursuant to Section 6,
and (ii) exercise all stock options previously granted to Employee under
Employer's 1995 Incentive Stock Plan, which options are or become exercisable
under the provisions of such Plan as though he were still a full time employee.
During the period, any award(s) to Employee under the 1995 Incentive Stock Plan
shall continue to vest in the same manner and in the same amounts as such
award(s) would have vested if Employee had continued as a full-time employee.
However, this employee benefits participation and stock plan vesting will
immediately cease if Employee accepts a full-time position with another company.
In the event any stock awards have not yet vested at the end of the period of
compensation and if not employed in a full-time position with another company,
then Employee will serve as a consultant at an annual compensation rate of
$75,000 for a period of time not to exceed that necessary to allow all stock
awards to vest. Employee understands and acknowledges that his
8
<PAGE>
receipt of stock under performance stock awards depends upon the company's
attainment of specified performance objectives and not merely the passage of
time.
10. Initial Relocation - Employee's relocation to Bakersfield, California,
shall be covered by and subject to Employer's existing written relocation policy
to the extent not already reimbursed by Employee's previous employer. This will
include the movement of household goods, plus any additional relocation benefits
as approved by the President and Senior Operating Officer. In the event Employee
relocates from Bakersfield at the request of Employer and has a loss on the
equity of his Bakersfield home, he will be reimbursed for any equity loss up to
a maximum of two hundred thousand dollars ($200,000).
11. Confidential Information - Employee agrees that he will not divulge to
any person, nor use to the detriment of Employer or any of its affiliates or
subsidiaries, nor use in any business competitive with or similar to any
business of Employer or any of its affiliates or subsidiaries, at any time
during employment by Employer or thereafter, any trade secrets or
9
<PAGE>
confidential information obtained during the course of his employment with
Employer, without first obtaining the written permission of Employer.
Employee agrees that, at the time of leaving the employ of Employer, he
will deliver to Employer and not keep or deliver to anyone else any and all
notes, notebooks, memoranda, documents and, in general, any and all material
relating to Employer's business.
12. Entire Agreement; Modification - This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof, and supersedes
all previous agreements, arrangements, and understandings, whether express or
implied, relating to the subject matter hereof. No other agreements, oral,
implied or otherwise, regarding the subject matter of this Agreement shall be
deemed to exist or bind either of the parties hereto. This Agreement cannot be
modified except by a writing signed by both parties.
13. Severability; Interpretation - If any provision of this Agreement is
illegal and unenforceable in whole or in part,
10
<PAGE>
the remainder of this Agreement shall remain enforceable to the extent permitted
by law. All references in this Agreement to Sections are to the sections of this
Agreement.
14. Governing Law - This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
15. Assignment - This Agreement shall be binding upon Employee, his heirs,
and executors and upon Employer, its successors and assigns.
16. Sole Contract - Employee represents and warrants to Employer that he
is not barred by or subject to any contractual or other obligation that would be
violated by the execution or performance of this Agreement.
17. No Waiver - The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver nor
deprive that party of the right to insist upon adherence to that term or any
other term of
11
<PAGE>
this Agreement. Any waiver or amendment to this Agreement must be in writing.
18. Withholdings - All compensation provided by Employer under this
Agreement is subject to any and all withholding by Employer as required by
applicable law.
19. Arbitration - All disputes between Employee (and his attorneys,
successors and assigns) and Employer (and its affiliates, stockholders,
directors, officers, employees, agents, successors and assigns) relating in any
manner whatsoever to the employment or termination of Employee, including all
contract and tort claims, claims based on applicable federal, state or local law
and claims under this Agreement other than claims under applicable workers'
compensation law and unemployment insurance claims ("Arbitrable Claims"), shall
be submitted to binding arbitration and judgment under the Commercial
Arbitration Rules of the American Arbitration Association for resolution.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable Claims, except, that Employer may seek
injunctive relief and damages for any breach of Section 11. Should the
arbitrator rule in Employee's favor on
12
<PAGE>
any dispute, Employer's maximum liability for any breach of this Agreement,
including, but not limited to, termination without cause and/or notice, shall be
no more than twenty-four (24) months compensation plus the benefits specified in
Section 6 and Subsection (2) of Section 9c at the rate set forth above. The
judgment on the award may be entered in any court having jurisdiction. The
parties to any arbitration under this paragraph shall bear the cost of the
arbitration and the fee of the neutral arbitrator in such manner as determined
by the arbitrator.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
OCCIDENTAL PETROLEUM CORPORATION
By: /s/ Dale R. Laurance
----------------------------
By: /s/ David A. Hentschel
----------------------------
David A. Hentschel
13
<PAGE>
10889 WILSHIRE BOULEVARD
(LOGO) OCCIDENTAL PETROLEUM CORPORATION LOS ANGELES, CALIFORNIA 90024
TELEPHONE (310) 443-6537
FACSIMILE (310) 443-6999
RICHARD W. HALLOCK
EXECUTIVE VICE PRESIDENT
HUMAN RESOURCES
February 25, 1999
Mr. David A. Hentschel
2121 South Yorktown, Unit 1204
Tulsa, OK 74114
Re: Employment Agreement, dated as of May 13, 1997, between
David A. Hentschel and Occidental Petroleum Corporation
-------------------------------------------------------
Dear Dave:
The purpose of this letter is to confirm certain matters concerning your
employment by Occidental.
Pursuant to Paragraph 2 of your Employment Agreement, the term of your
employment is at the discretion of Occidental, but, in any event, for a minimum
term of two years, ending on May 31, 1999. In its discretion, Occidental has
decided to extend the term of your Agreement through December 31, 1999. However,
pursuant to Paragraph 9(c)(1) of your Agreement, you are hereby notified that
your Agreement will terminate at the close of business on December 31, 1999.
Pursuant to Paragraph 1 of your Employment Agreement, your employer for the
remaining term of your employment will be OXY USA Inc. in Tulsa, Oklahoma. It is
anticipated that this assignment will require you to relocate to Tulsa. This
relocation will be covered by the equity loss provision of Paragraph 10 of your
Employment Agreement.
Following the termination of your employment on December 31, 1999, you will
be eligible to begin collecting supplemental retirement payments in accordance
with Paragraph 6 of your Employment Agreement. In addition, as provided in
Paragraph 9(c)(2) of your Employment Agreement, you will serve as a consultant
to the company from the date of your termination until any stock awards that
have not vested as of December 31, 1998 vest. For your services as a consultant,
you will receive $5,000 for each day you provide services; but, in any event,
not less than $75,000 per year.
<PAGE>
Mr. David A. Hentschel
February 25, 1999
Page 2
Please indicate your concurrence in the extension of the term of your
Employment Agreement and acknowledge receipt of the termination notice contained
in this letter by signing the enclosed duplicate original of this letter and
returning it to me. Except as provided above all other terms and conditions of
your Employment Agreement remain in full force and effect.
Best regards,
/s/ Richard W. Hallock
Richard W. Hallock
RWH:hpa
Enclosure
AGREED AND ACKNOWLEDGED
/s/ David A. Hentschel
- -----------------------
David A. Hentschel
Date: March 8, 1999
------------------
<PAGE>
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEARS ENDED DECEMBER 31, 1998
Amounts in millions, except ratios
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ----------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations(a) .......................... $ 400 $ 245 $ 486 $ 325 $ (236)
------ ------ ------ ------ ------
Add:
Provision (credit) for taxes on
income (other than foreign oil and
gas taxes).......................... 204 47 99 155 (59)
Interest and debt expense(b) ........ 576 446 492 591 586
Portion of lease rentals
representative of the interest
factor.............................. 36 39 38 43 50
------ ------ ------ ------ ------
816 532 629 789 577
------ ------ ------ ------ ------
Earnings before fixed charges............ $1,216 $ 777 $1,115 $1,114 $ 341
====== ====== ====== ====== ======
Fixed charges
Interest and debt expense including
capitalized interest(b) ............ $ 594 $ 462 $ 499 $ 595 $ 589
Portion of lease rentals
representative of the interest
factor.............................. 36 39 38 43 50
------ ------ ------ ------ ------
Total fixed charges.................. $ 630 $ 501 $ 537 $ 638 $ 639
====== ====== ====== ====== ======
Ratio of earnings to fixed charges....... 1.93 1.55 2.08 1.75 n/a(c)
========================================= ====== ====== ====== ====== ======
</TABLE>
(a) Includes (1) minority interest in net income of majority-owned subsidiaries
having fixed charges and (2) income from less-than-50-percent-owned equity
investments adjusted to reflect only dividends received.
(b) Includes proportionate share of interest and debt expense of 50-percent-
owned equity investments.
(c) Not computed due to less than one-to-one coverage. Earnings were inadequate
to cover fixed charges by $298 million in 1994.
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
The following is a list of the Registrant's subsidiaries at December 31,
1998, other than certain subsidiaries that did not in the aggregate constitute
a significant subsidiary.
<TABLE>
<CAPTION>
Jurisdiction
Name of Formation
- ---- ------------
<S> <C>
B & D Cogen Funding Corp........................................... Delaware
Glenn Springs Holdings, Inc........................................ Delaware
Laurel Industries, Inc............................................. Ohio
MC Leasing, Inc.................................................... Delaware
Natural Gas Odorizing, Inc......................................... Oklahoma
Occidental C.O.B. Partners......................................... Delaware
Occidental Chemical Chile, S.A.I. ................................. Chile
Occidental Chemical Corporation.................................... New York
Occidental Chemical Europe, S.A. .................................. Belgium
Occidental Chemical Holding Corporation............................ California
Occidental Chemical International, Inc............................. California
Occidental de Colombia, Inc........................................ Delaware
Occidental Energy Marketing, Inc................................... Delaware
Occidental Exploration and Production Company...................... California
Occidental International Exploration and Production Company........ California
Occidental International Holdings Ltd.............................. Bermuda
Occidental of Bangladesh Ltd....................................... Bermuda
Occidental of Elk Hills, Inc....................................... Delaware
Occidental of Oman, Inc............................................ Nevis
Occidental of Russia Ltd........................................... Bermuda
Occidental Oil and Gas Corporation................................. California
Occidental Peninsula, Inc.......................................... Delaware
Occidental Peninsula II, Inc....................................... Nevis
Occidental Peruana, Inc............................................ California
Occidental Petroleum (Pakistan), Inc............................... Delaware
Occidental Petroleum (South America), Inc.......................... Delaware
Occidental Petroleum Investment Co................................. California
Occidental Petroleum of Qatar Ltd.................................. Bermuda
Occidental Quimica do Brasil Ltda.................................. Brazil
Occidental Receivables, Inc........................................ California
Occidental Texas Pipeline, L.P..................................... Delaware
Occidental Tower Corporation....................................... Delaware
Oxy CH Corporation................................................. California
Oxy Chemical Corporation........................................... California
Oxy Durez Holding Company Ltd...................................... Canada
OXY USA Inc........................................................ Delaware
Oxy VCM Corporation................................................ Delaware
Oxy Westwood Corporation........................................... California
Oxychem (Canada), Inc.............................................. Canada
Occidental Petrochem Partner 2, Inc................................ Delaware
Repsol Occidental Corporation...................................... Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated February 19, 1999 (except with respect to the
matter discussed in Note 19, as to which the date is March 2, 1999), appearing
in Occidental Petroleum Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998, into Occidental Petroleum Corporation's previously
filed Registration Statements Nos. 33-5487, 33-5490, 33-14662, 33-23798, 33-
40054, 33-44791, 33-47636, 33-60492, 33-59395, 33-64719, 333-02901, 333-11897,
333-17879, 333-49207, 333-52053, 333-67385, 333-69303, 333-72719 and 333-
72721.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 363
<ALLOWANCES> 23
<INVENTORY> 500
<CURRENT-ASSETS> 2,795
<PP&E> 16,679
<DEPRECIATION> 6,774
<TOTAL-ASSETS> 15,252
<CURRENT-LIABILITIES> 2,931
<BONDS> 5,396
0
243
<COMMON> 69
<OTHER-SE> 3,051
<TOTAL-LIABILITY-AND-EQUITY> 15,252
<SALES> 6,596
<TOTAL-REVENUES> 7,381
<CGS> 5,269
<TOTAL-COSTS> 5,269
<OTHER-EXPENSES> 128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559
<INCOME-PRETAX> 710
<INCOME-TAX> 363
<INCOME-CONTINUING> 325
<DISCONTINUED> 38
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
