10-Q 1 form10q-20102q.htm FORM 10-Q form10q-20102q.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010
 
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
_____________________
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
95-4035997
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
10889 Wilshire Boulevard
 
Los Angeles, California
90024
(Address of principal executive offices)
(Zip Code)
 
(310) 208-8800
(Registrant’s telephone number, including area code)
_____________________
 
Indicate by check mark whether the registrant (1) 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.        R Yes   £ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       R Yes £ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of "accelerated filer", "large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act):

Large Accelerated FilerR   Accelerated Filer£   Non-Accelerated Filer£   Smaller Reporting Company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   £ Yes  R No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Class
 
Outstanding at June 30, 2010
 
 
Common stock $.20 par value
 
812,243,611 shares
 

 
 
 
 
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
 
TABLE OF CONTENTS
 

         
PAGE
 
             
Part I
Financial Information
     
             
 
Item 1.
Financial Statements (unaudited)
     
             
   
Consolidated Condensed Balance Sheets —
     
     
June 30, 2010 and December 31, 2009
 
2
 
             
   
Consolidated Condensed Statements of Income —
     
     
Three and six months ended June 30, 2010 and 2009
 
4
 
             
   
Consolidated Condensed Statements of Cash Flows —
     
     
Six months ended June 30, 2010 and 2009
 
5
 
             
   
Notes to Consolidated Condensed Financial Statements
 
6
 
             
 
Item 2.
Management’s Discussion and Analysis of Financial
     
     
Condition and Results of Operations
 
19
 
             
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
28
 
             
 
Item 4.
Controls and Procedures
 
28
 
             
Part II
Other Information
     
             
 
Item 1.
Legal Proceedings
 
29
 
             
 
Item 2.
Share Repurchase Activities
 
29
 
             
 
Item 6.
Exhibits
 
30
 
 
 
1
 
 
 
PART I    FINANCIAL INFORMATION  
     
     
Item 1.
Financial Statements (unaudited)
 
     
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES  
CONSOLIDATED CONDENSED BALANCE SHEETS  
JUNE 30, 2010 AND DECEMBER 31, 2009  
(Amounts in millions)  
 
     
2010
   
2009
 
               
ASSETS
             
               
CURRENT ASSETS
             
               
Cash and cash equivalents
 
$
2,322
 
$
1,230
 
               
Trade receivables, net
   
4,335
   
4,142
 
               
Marketing and trading assets and other
   
872
   
1,203
 
               
Inventories
   
1,220
   
1,081
 
               
Prepaid expenses and other
   
440
   
430
 
               
Total current assets
   
9,189
   
8,086
 
               
INVESTMENTS IN UNCONSOLIDATED ENTITIES
   
1,786
   
1,732
 
               
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
             
depreciation, depletion and amortization of $21,205 at
             
June 30, 2010 and $19,486 at December 31, 2009
   
34,514
   
33,645
 
               
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET
   
770
   
766
 
               
TOTAL ASSETS
 
$
46,259
 
$
44,229
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
2
 
 
 
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES  
CONSOLIDATED CONDENSED BALANCE SHEETS  
JUNE 30, 2010 AND DECEMBER 31, 2009  
(Amounts in millions)  
 
     
2010
   
2009
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
               
CURRENT LIABILITIES
             
Current maturities of long-term debt
 
$
12
 
$
239
 
Accounts payable
   
3,952
   
3,379
 
Accrued liabilities
   
1,923
   
2,341
 
Domestic and foreign income taxes
   
72
   
28
 
Liabilities of discontinued operations
   
103
   
105
 
               
Total current liabilities
   
6,062
   
6,092
 
               
               
LONG-TERM DEBT, NET
   
2,511
   
2,557
 
               
DEFERRED CREDITS AND OTHER LIABILITIES
             
Deferred and other domestic and foreign income taxes
   
3,321
   
3,125
 
Long-term liabilities of discontinued operations
   
126
   
136
 
Other
   
3,327
   
3,160
 
     
6,774
   
6,421
 
               
STOCKHOLDERS' EQUITY
             
Common stock, at par value
   
177
   
177
 
Treasury stock
   
(4,172
)
 
(4,161
)
Additional paid-in capital
   
7,193
   
7,127
 
Retained earnings
   
28,083
   
26,534
 
Accumulated other comprehensive loss
   
(483
)
 
(596
)
Total equity attributable to common stock
   
30,798
   
29,081
 
Noncontrolling interest
   
114
   
78
 
Total equity
   
30,912
   
29,159
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
46,259
 
$
44,229
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
3
 
 
 
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF INCOME  
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009  
(Amounts in millions, except per-share amounts)  
 
   
Three months ended
 
Six months ended
 
   
June 30
 
June 30
 
   
2010
 
2009
 
2010
   
2009
 
REVENUES AND OTHER INCOME
                         
Net sales
 
$
4,761
 
$
3,687
 
$
9,532
 
$
6,760
 
Interest, dividends and other income
   
40
   
28
   
61
   
58
 
Gains (losses) on disposition of assets, net
   
(6
)
 
7
   
(5
)
 
7
 
     
4,795
   
3,722
   
9,588
   
6,825
 
COSTS AND OTHER DEDUCTIONS
                         
Cost of sales
   
2,432
   
2,059
   
4,874
   
4,123
 
Selling, general and administrative
                         
and other operating expenses
   
309
   
362
   
684
   
632
 
Taxes other than on income
   
127
   
110
   
250
   
215
 
Exploration expense
   
73
   
54
   
129
   
112
 
Interest and debt expense, net
   
32
   
32
   
70
   
59
 
     
2,973
   
2,617
   
6,007
   
5,141
 
Income before income taxes and other items
   
1,822
   
1,105
   
3,581
   
1,684
 
Provision for domestic and foreign
                         
income taxes
   
800
   
455
   
1,529
   
696
 
(Income) from equity investments
   
(59
)
 
(46
)
 
(124
)
 
(88
)
Income from continuing operations
   
1,081
   
696
   
2,176
   
1,076
 
Discontinued operations, net
   
(6
)
 
(2
)
 
(13
)
 
(5
)
Net income
   
1,075
   
694
   
2,163
   
1,071
 
Less: Net income attributable to noncontrolling
                         
interest
   
(12
)
 
(12
)
 
(36
)
 
(21
)
NET INCOME ATTRIBUTABLE TO
                         
COMMON STOCK
 
$
1,063
 
$
682
 
$
2,127
 
$
1,050
 
                           
                           
BASIC EARNINGS PER COMMON SHARE
                         
(attributable to common stock)
                         
Income from continuing operations
 
$
1.31
 
$
0.84
 
$
2.63
 
$
1.30
 
Discontinued operations, net
   
   
   
(0.02
)
 
(0.01
)
BASIC EARNINGS PER COMMON SHARE
 
$
1.31
 
$
0.84
 
$
2.61
 
$
1.29
 
DILUTED EARNINGS PER COMMON SHARE
                         
(attributable to common stock)
                         
Income from continuing operations
 
$
1.31
 
$
0.84
 
$
2.63
 
$
1.30
 
Discontinued operations, net
   
   
   
(0.02
)
 
(0.01
)
DILUTED EARNINGS PER COMMON SHARE
 
$
1.31
 
$
0.84
 
$
2.61
 
$
1.29
 
DIVIDENDS PER COMMON SHARE
 
$
0.38
 
$
0.33
 
$
0.71
 
$
0.65
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
4
 
 
 
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS   
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009   
(Amounts in millions)   
 
     
2010
   
2009
 
CASH FLOW FROM OPERATING ACTIVITIES
             
Net income
 
$
2,163
 
$
1,071
 
Adjustments to reconcile net income to net cash provided by
             
operating activities:
             
Discontinued operations, net
   
13
   
5
 
Depreciation, depletion and amortization of assets
   
1,750
   
1,528
 
Deferred income tax provision
   
129
   
128
 
Other noncash charges to income
   
263
   
205
 
Losses (gains) on disposition of assets, net
   
5
   
(7
)
Income from equity investments
   
(124
)
 
(88
)
Dry hole and impairment expense
   
72
   
90
 
Changes in operating assets and liabilities, net
   
285
   
(555
)
Other operating, net
   
(217
)
 
(154
)
Operating cash flow from continuing operations
   
4,339
   
2,223
 
Operating cash flow from discontinued operations
   
(62
)
 
(22
)
Net cash provided by operating activities
   
4,277
   
2,201
 
CASH FLOW FROM INVESTING ACTIVITIES
             
Capital expenditures
   
(1,716
)
 
(1,902
)
Purchases of assets
   
(743
)
 
(534
)
Sale of assets
   
17
   
45
 
Equity investments and other, net
   
93
   
(51
)
Net cash used by investing activities
   
(2,349
)
 
(2,442
)
CASH FLOW FROM FINANCING ACTIVITIES
             
Proceeds from long-term debt
   
   
740
 
Payments of long-term debt
   
(299
)
 
(8
)
Proceeds from issuance of common stock
   
5
   
13
 
Purchases of treasury stock
   
(11
)
 
(9
)
Excess share-based tax benefits and other
   
7
   
5
 
Distributions to noncontrolling interest
   
   
(2
)
Cash dividends paid
   
(538
)
 
(520
)
Net cash (used) provided by financing activities
   
(836
)
 
219
 
Increase (decrease) in cash and cash equivalents
   
1,092
   
(22
)
Cash and cash equivalents—beginning of period
   
1,230
   
1,777
 
Cash and cash equivalents—end of period
 
$
2,322
 
$
1,755
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
5
 
 

OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
June 30, 2010
 
1.
General
 
     
 
In these unaudited consolidated condensed financial statements, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), and/or one or more entities in which it owns a majority voting interest (subsidiaries). Occidental has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, and condensed or omitted, as permitted by the Securities and Exchange Commission’s rules and regulations, certain information and disclosures normally included in consolidated financial statements and the notes.  The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in Occidental’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
     
 
In the opinion of Occidental’s management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Occidental’s consolidated financial position as of June 30, 2010, and the consolidated statements of income and cash flows for the three and six months ended June 30, 2010 and 2009, as applicable. The income and cash flows for the periods ended June 30, 2010 and 2009 are not necessarily indicative of the income or cash flows to be expected for the full year.
 
     
 
Certain financial statements and notes for the prior year have been reclassified to conform to the 2010 presentation.
 
     
2.
Asset Acquisitions, Dispositions and Other Transactions
 
     
 
In January 2010, Occidental and its partners signed a technical service contract with the government of Iraq to develop the Zubair Field in Iraq.
 
     
 
During the six months ended June 30, 2010, Occidental acquired various interests in domestic oil and gas properties for approximately $460 million.  Occidental also obtained a ten-year extension for its hydrocarbon concessions in the Santa Cruz province of Argentina.
 
     
3.
Accounting and Disclosure Changes
 
     
 
Fair Value Measurements – Beginning in the quarter ended March 31, 2010, Occidental enhanced its fair value measurement disclosures as a result of adopting new disclosure requirements issued by the Financial Accounting Standards Board (FASB) in January 2010. The new rules require interim and year-end disclosures of: (i) fair value measurements by classes of assets and liabilities; (ii) valuation techniques and inputs used for Level 2 or 3 fair value measurements; and (iii) significant transfers into and out of Level 1 and 2 measurements and the reasons for the transfers.
 
     
 
Variable Interest Entities – Beginning January 1, 2010, Occidental modified its method of assessing the consolidation of variable interest entities as a result of adopting new accounting requirements issued by the FASB in June 2009.  This new rule had no impact on Occidental’s financial statements upon adoption and will require assessment on an ongoing basis.
 
 
 
6
 
 

4.
Comprehensive Income
 
     
 
The following table presents Occidental’s comprehensive income (loss) for the three and six months ended June 30, 2010 and 2009 (in millions):
 

     
Periods ended June 30
 
     
Three months
 
Six months
 
     
2010
 
2009
 
2010
 
2009
 
 
Net income attributable to common stock
 
$
1,063
 
$
682
 
$
2,127
 
$
1,050
 
 
Other comprehensive income (loss) items
                         
 
Foreign currency translation adjustments
   
(1
)
 
17
   
(4
)
 
18
 
 
Pension and post-retirement adjustments
   
6
   
6
   
13
   
12
 
 
Unrealized gains (losses) on derivatives
   
37
   
(81
)
 
60
   
(46
)
 
Reclassification of realized losses (gains) on derivatives and securities
    23     12     44     (22
)
 
Other comprehensive income (loss), net of tax
   
65
   
(46
)
 
113
   
(38
)
 
Comprehensive income attributable to common stock
 
$
1,128
 
$
636
 
$
2,240
 
$
1,012
 

 
There were no “other comprehensive income (loss) items” or changes to equity other than net income related to noncontrolling interests for the three and six months ended June 30, 2010 and 2009.
 
     
5.
Supplemental Cash Flow Information
 
     
 
Occidental paid U.S. federal, state and foreign income taxes of approximately $1.4 billion and $517 million during the six months ended June 30, 2010 and 2009, respectively.  Net payments for taxes included amounts related to discontinued operations of $44 million and $8 million for the six months ended June 30, 2010 and 2009, respectively.  Interest paid totaled approximately $83 million and $81 million for the six months ended June 30, 2010 and 2009, respectively.
 
     
6.
Inventories
 
     
 
A portion of inventories is valued under the LIFO method.  The valuation of LIFO inventory for interim periods is based on Occidental’s estimates of year-end inventory levels and costs.  Inventories as of June 30, 2010 and December 31, 2009 consisted of the following (in millions):
 

     
2010
 
2009
 
 
Raw materials
   
$
57
     
$
63
   
 
Materials and supplies
     
506
       
515
   
 
Finished goods
     
738
       
584
   
         
1,301
       
1,162
   
 
LIFO reserve
     
(81
)
     
(81
)
 
 
Total
   
$
1,220
     
$
1,081
   
 
 
7
 
 

7.
Environmental Liabilities and Expenditures
 
     
 
Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations relating to improving or maintaining environmental quality.  Occidental’s environmental compliance costs have generally increased over time and could continue to rise in the future.  Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.
 
     
 
The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites.  OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites.  Remedial activities may include one or more of the following:  investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal; or operation and maintenance of remedial systems.  The environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.
 
     
 
As of June 30, 2010, Occidental participated in or monitored remedial activities or proceedings at 169 sites.  The following table presents Occidental’s environmental remediation reserves as of June 30, 2010, the current portion of which is included in accrued liabilities ($84 million) and the remainder in deferred credits and other liabilities – other ($294 million).  The reserves are grouped as environmental remediation sites listed or proposed for listing by the U.S. Environmental Protection Agency on the CERCLA National Priorities List (NPL sites) and three categories of non-NPL sites — third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.
 

     
Number of Sites
 
Reserve Balance
(in millions)
 
 
NPL sites
   
40
     
$
54
   
 
Third-party sites
   
81
       
97
   
 
Occidental-operated sites
   
19
       
118
   
 
Closed or non-operated Occidental sites
   
29
       
109
   
 
Total
   
169
     
$
378
   


 
As of June 30, 2010, Occidental’s environmental reserves exceeded $10 million at 14 of the 169 sites described above, and 120 of the sites had reserves from $0 to $1 million each.  Occidental expects to expend funds corresponding to about half of the current environmental reserves over the next four years and the balance over the subsequent ten or more years.  Occidental believes its range of reasonably possible additional loss beyond those liabilities recorded for environmental remediation at the sites described above could be up to $375 million.  The status of Occidental’s involvement with the sites and related significant assumptions have not changed materially since December 31, 2009.  For management’s opinion with respect to environmental matters, refer to Note 8.
 
 
 
8
 
 

8.
Lawsuits, Claims, Commitments, Contingencies and Related Matters
 
     
 
OPC or certain of its subsidiaries are named, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.  OPC or certain of its subsidiaries also have been named in proceedings under CERCLA and similar federal, state, local and foreign environmental laws.  These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief; however, 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.  With respect to all such lawsuits, claims and proceedings, including environmental proceedings, Occidental accrues reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated.
 
     
 
Lawsuits filed in Nicaragua against Occidental Chemical Corporation (OxyChem) and other companies that once manufactured or used the pesticide dibromochloropropane (DBCP) claim damages of several billion dollars for alleged personal injuries.  In the opinion of management, the claims against OxyChem are without merit because, among other things, the DBCP it manufactured was never sold or used in Nicaragua.  Nicaraguan courts have entered judgments of approximately $900 million against four defendants, including OxyChem, which, if affirmed and ultimately enforced, would be shared equally among the defendants.  When the plaintiffs attempted to enforce one judgment in Miami, the federal district court granted summary judgment in favor of OxyChem and refused to enforce the judgment, finding the Nicaraguan court lacked personal jurisdiction because OxyChem DBCP was not used in Nicaragua, OxyChem did not have sufficient contacts with Nicaragua, and other grounds for dismissal.  Although the Plaintiffs have appealed that dismissal as to other defendants, the Plaintiffs have not appealed as to OxyChem.  OxyChem has no assets in Nicaragua and, in the opinion of management, no such Nicaraguan judgment would be enforceable in the United States.
 
     
 
During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions.  While the audits of corporate tax returns for taxable years through 2008 have concluded for U.S. federal income tax purposes, the 2009 and 2010 taxable years are currently under review by the U.S. Internal Revenue Service pursuant to its Compliance Assurance Program.  Taxable years from 2000 through 2009 remain subject to examination by foreign and state government tax authorities in certain jurisdictions.  In certain of these locations, tax authorities are in various stages of auditing Occidental’s income taxes.  During the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law.
 
     
 
Occidental has indemnified various parties against specified liabilities that those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental.  These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds.  As of June 30, 2010, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to future indemnity claims against it in connection with these transactions that would result in payments materially in excess of reserves.
 
     
 
The ultimate amount of losses and the timing of any such losses that OPC and its subsidiaries may incur resulting from currently outstanding lawsuits, claims and proceedings, audits, commitments, contingencies and related matters cannot be determined reliably at this time.  If these matters were ultimately resolved unfavorably at amounts substantially exceeding Occidental’s reserves, an outcome not currently expected, it is possible that such outcome could have a material adverse effect upon Occidental’s consolidated financial position or results of operations.  However, after taking into account reserves, management does not expect the ultimate resolution of any of these matters to have a material adverse effect upon Occidental’s consolidated financial position or results of operations.
 


 
9
 
 

9.
Retirement Plans and Postretirement Benefits
 
     
 
The following table sets forth the components of the net periodic benefit costs for Occidental’s defined benefit pension and postretirement benefit plans for the three and six months ended June 30, 2010 and 2009 (in millions):
 


 
Three months ended June 30
 
2010
 
2009
 
 
Net Periodic Benefit Costs
 
Pension
Benefit
 
Postretirement
Benefit
 
Pension
Benefit
 
Postretirement
Benefit
 
 
Service cost
 
$
5
   
$
4
   
$
4
   
$
4
   
 
Interest cost
   
7
     
11
     
7
     
10
   
 
Expected return on plan assets
   
(8
)
   
     
(7
)
   
   
 
Amortization of prior service cost
   
1
     
     
     
   
 
Recognized actuarial loss
   
3
     
7
     
4
     
6
   
 
Total
 
$
8
   
$
22
   
$
8
   
$
20
   

 
Six months ended June 30
 
2010
 
2009
 
 
Net Periodic Benefit Costs
 
Pension
Benefit
 
Postretirement
Benefit
 
Pension
Benefit
 
Postretirement
Benefit
 
 
Service cost
 
$
9
   
$
9
   
$
8
   
$
8
   
 
Interest cost
   
15
     
22
     
14
     
20
   
 
Expected return on plan assets
   
(16
)
   
     
(13
)
   
   
 
Amortization of prior service cost
   
1
     
     
     
   
 
Recognized actuarial loss
   
6
     
13
     
8
     
11
   
 
Total
 
$
15
   
$
44
   
$
17
   
$
39
   


 
Occidental contributed $3 million in the three month periods ended June 30, 2010 and 2009, and $5 million in each of the six month periods then ended, to its defined benefit pension plans.
 
       
       
10.
Fair Value Measurements
 
       
 
Occidental has categorized its assets and liabilities that are measured at fair value, based on the priority of the inputs to the valuation techniques, in a three-level fair value hierarchy: Level 1 – using quoted prices in active markets for identical assets or liabilities; Level 2 – using observable inputs other than quoted prices; and Level 3 – using unobservable inputs.
 
       
 
Fair Values – Recurring
 
 
Occidental primarily applies the market approach for recurring fair value measurements, maximizes its use of observable inputs and minimizes its use of unobservable inputs. Occidental utilizes the mid-point price between bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value. In addition to using market data, Occidental makes assumptions in valuing its assets and liabilities, including assumptions about risk and the risks inherent in the inputs to the valuation technique.  For assets and liabilities carried at fair value, Occidental measures fair value using the following methods:
 
       
   
Trading equity securities – Quoted prices in active markets exist and are used to provide fair values for these instruments. These securities are classified as Level 1.
 
 
 
10
 
 

   
Commodity derivatives – Occidental values exchange-cleared commodity derivatives using closing prices provided by the exchange as of the balance sheet date.  These derivatives are classified as Level 1. Over-the-Counter (OTC) financial commodity contracts, options and physical commodity forward purchase and sale contracts are generally valued using quotations provided by brokers or industry-standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility factors, credit risk and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.  Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace. Occidental classifies these measurements as Level 2.
 
       
 
The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of June 30, 2010 and December 31, 2009 (in millions):
 

     
Fair Value Measurements at
June 30, 2010 Using
             
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(a)
Total Fair
Value
 
 
Assets:
                               
 
Trading equity securities – natural resources industry
 
$
84
 
$
 
$
 
$
 
$
84
 
 
Commodity derivatives
   
282
   
654
   
   
(636
)
 
300
 
 
Total assets
 
$
366
 
$
654
 
$
 
$
(636
)
$
384
 
 
Liabilities:
                               
 
Commodity derivatives
 
$
198
 
$
856
 
$
 
$
(673
)
$
381
 
 
Total liabilities
 
$
198
 
$
856
 
$
 
$
(673
)
$
381
 

     
Fair Value Measurements at
December 31, 2009 Using
             
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(a)
Total Fair
Value
 
 
Assets:
                               
 
Trading equity securities – natural resources industry
 
$
230
 
$
 
$
 
$
 
$
230
 
 
Commodity derivatives
   
243
   
612
   
   
(645
)
 
210
 
 
Total assets
 
$
473
 
$
612
 
$
 
$
(645
)
$
440
 
 
Liabilities:
                               
 
Commodity derivatives
 
$
280
 
$
920
 
$
 
$
(665
)
$
535
 
 
Total liabilities
 
$
280
 
$
920
 
$
 
$
(665
)
$
535
 
   
 
(a)
Represents the impact of netting assets, liabilities and collateral when a legal right of offset exists.
 

 
Fair Values - Nonrecurring
 
 
During the three and six months ended June 30, 2010 and 2009, Occidental did not have any assets or liabilities measured at fair value on a non-recurring basis.
 
 
 
11
 
 

 
Other Financial Instruments
 
 
The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than fixed-rate debt, approximate fair value.  The cost, if any, to terminate off-balance-sheet financial instruments is not significant.  Occidental estimates the fair value of fixed-rate debt based on the quoted market prices for those instruments or on quoted market yields for similarly rated debt instruments, taking into account such similar instruments’ maturities.  The estimated fair values of Occidental’s debt, as of June 30, 2010 and December 31, 2009, were approximately $2.9 billion and $3.1 billion, respectively, compared to carrying values of $2.5 billion and $2.8 billion, respectively.
 
     
11.
Derivatives
 
     
 
Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty.  Occidental applies hedge accounting when transactions meet specified criteria for such treatment. If a derivative does not qualify or is not designated and documented as a hedge, any fair value gains or losses are recognized in earnings in the current period.
 
     
 
Occidental has used derivatives to reduce its long-term exposure to price volatility on a small portion of its oil and gas production. Through its low-risk marketing and trading activities and within its established policy controls and procedures, Occidental has also used derivative instruments, including a combination of short-term futures, forwards, options and swaps, to improve realized prices for its oil and gas.  Additionally, Occidental, through its Phibro trading unit, engages in trading activities using derivatives for the purpose of generating profits mainly from market price changes of commodities, in part using similar derivative instruments.
 
     
 
Cash-Flow Hedges
 
 
As of June 30, 2010 and December 31, 2009, Occidental held a series of collar agreements that qualify as cash-flow hedges for the sale of approximately 2 percent of its crude oil production.  These agreements continue to the end of 2011.  The following table presents the daily quantities and weighted-average strike prices of Occidental's collar positions as of June 30, 2010 and December 31, 2009:
 

 
Crude Oil – Collars
 
Daily Volume (barrels)
 
Average Floor
 
Average Cap
 
 
July 2010 
             
 
December 2010 (a)
 
12,000
 
$33.00
 
$46.35
 
 
January 2011 
             
 
December 2011 (a)
 
12,000
 
$32.92
 
$46.27
 

 
 
In 2009, Occidental entered into financial swap agreements related to the sale of a portion of its natural gas production from the Rockies that qualify as cash-flow hedges. The following table presents the daily quantities and weighted-average prices that will be received by Occidental as of June 30, 2010 and December 31, 2009:
 

 
Natural Gas – Swaps
 
Daily Volume (cubic feet)
 
Average Price
 
 
July 2010 – December 2010 (a)
 
40 million
 
$5.03
 
 
December 2010 – March 2012 (a)
 
50 million
 
$6.07
 
   
 
(a)
At December 31, 2009, these contracts were outstanding with the same daily volumes and terms indicated and also covered the period from January 1, 2010 to June 30, 2010.
 

 
Occidental’s marketing and trading operations store natural gas purchased from third parties at Occidental’s leased storage facilities.  Derivative instruments are used to fix margins on the future sales of the stored volumes.  These derivative agreements continue through April 2011.  As of June 30, 2010 and December 31, 2009, Occidental had approximately 20 billion cubic feet and 28 billion cubic feet of natural gas held in storage, respectively. As of June 30, 2010 and December 31, 2009, Occidental had designated the forecasted sale of approximately 11 billion cubic feet and 24 billion cubic feet of natural gas from storage as cash-flow hedges, respectively.
 
 
 
12
 
 

 
The following table presents the pre-tax gains and losses recognized in, and reclassified from, Accumulated Other Comprehensive Income (AOCI) and recognized in income (net sales), including any hedge ineffectiveness, for derivative instruments classified as cash-flow hedges for the three and six months ended June 30, 2010 and 2009 (in millions):
 
 
     
Periods ended June 30
 
     
Three Months
 
Six Months
 
 
Commodity Contracts
   
2010
   
2009
   
2010
   
2009
 
 
Unrealized gains (losses) recognized in AOCI –
                         
 
effective portion
 
$
58
 
$
(127
)
$
95
 
$
(72
)
 
Amount of (gains) losses reclassified from AOCI
                         
 
into income – effective portion
 
$
31
 
$
18
 
$
63
 
$
(36
)
 
(Losses) gains recognized in income –
                         
 
ineffective portion
 
$
(1
)
$
6
 
$
1
 
$
9
 

 
The following table summarizes net after-tax derivative activity recorded in AOCI for the three and six months ended June 30, 2010 and 2009 (in millions):
 

     
Periods ended June 30
 
     
Three Months
 
Six Months
 
       
2010
   
2009
   
2010
   
2009
 
 
Beginning balance
 
$
(183
)
$
(149
)
$
(227
)
$
(150
)
 
Unrealized gains (losses) from changes in cash flow
                         
 
hedges
   
37
   
(81
)
 
60
   
(46
)
 
Losses (gains) reclassified to income
   
19
   
12
   
40
   
(22
)
 
Ending balance
 
$
(127
)
$
(218
)
$
(127
)
$
(218
)

 
 
During the next twelve months, Occidental expects that approximately $75 million of net after-tax derivative losses included in AOCI, based on their valuation as of June 30, 2010, will be reclassified into income.
 
     
 
Derivatives Not Designated as Hedging Instruments
 
 
Occidental’s third-party marketing and trading activities focus on purchasing crude oil and natural gas for resale from partners, producers and third parties whose oil and gas supply is located near the midstream and marketing assets, such as pipelines, processing plants and storage facilities, that are owned or leased by Occidental.  These purchases allow Occidental to aggregate volumes to maximize prices received for Occidental’s production.  The aggregate volumes and durations of these third-party marketing and trading purchase and sales contracts generally approximate each other.  In addition, Occidental’s Phibro trading unit uses derivative instruments, including forward purchases and sales for physical delivery, futures, swaps and options, in its strategy to profit from market price changes.
 
 
 
13
 
 

 
The following table presents gross volumes of Occidental’s commodity derivatives not designated as hedging instruments as of June 30, 2010 and December 31, 2009:
 

     
Volumes
 
 
Commodity
 
2010
 
2009
 
 
Occidental’s production sales contracts
             
 
Crude oil (million barrels)
 
10
   
9
   
                 
 
Third-party marketing and trading activities
             
 
Purchase contracts
             
 
Crude oil (million barrels)
 
147
   
161
   
 
Natural gas (billion cubic feet)
 
1,230
   
1,391
   
                 
 
Sales contracts
             
 
Crude oil (million barrels)
 
147
   
182
   
 
Natural gas (billion cubic feet)
 
1,296
   
1,561
   


 
In addition, Occidental has certain other commodity trading contracts, including agricultural products, metals, precious metals, electricity and foreign exchange contracts, which were not material to Occidental as of June 30, 2010 and December 31, 2009.
 
     
 
Approximately $10 million and $24 million of net gains from derivatives not designated as hedging instruments were recognized in net sales for the three months ended June 30, 2010 and 2009, respectively.  Approximately $53 million of net gains and $39 million of net losses from derivatives not designated as hedging instruments were recognized in net sales for the six months ended June 30, 2010 and 2009, respectively.
 
 
 
14
 
 

 
Fair Value of Derivatives
 
 
The following table presents the gross fair value of Occidental’s outstanding derivatives as of June 30, 2010 and December 31, 2009 (in millions):
 
 
     
Asset Derivatives
       
Liability Derivatives
       
 
June 30, 2010
 
Balance Sheet Location
 
Fair Value
 
 Balance Sheet Location
 
Fair Value
 
 
Cash-flow hedges (a)
                     
 
Commodity contracts
 
Marketing and trading assets and other
 
$
21
 
Accrued liabilities
 
$
139
 
   
Long-term receivables and other assets, net
   
17
 
Deferred credits and other liabilities
   
75
 
           
38
       
214
 
                         
 
Derivatives not designated as hedging instruments (a)
                     
 
Commodity contracts
 
Marketing and trading assets and other
   
834
 
Accrued liabilities
   
775
 
   
Long-term receivables and other assets, net
   
64
 
Deferred credits and other liabilities
   
65
 
           
898
       
840
 
 
Total gross fair value
       
936
       
1,054
 
 
Less: counterparty netting and cash collateral (b)
       
(636
)
     
(673
)
 
Total net fair value
     
$
300
     
$
381
 

     
Asset Derivatives
       
Liability Derivatives
       
 
December 31, 2009
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
 
Cash-flow hedges (a)
                     
 
Commodity contracts
 
Marketing and trading assets and other
 
$
2
 
Accrued liabilities
 
$
168
 
   
Long-term receivables and other assets, net
   
5
 
Deferred credits and other liabilities
   
174
 
           
7
       
342
 
                         
 
Derivatives not designated as hedging instruments (a)
                     
 
Commodity contracts
 
Marketing and trading assets and other
   
776
 
Accrued liabilities
   
789
 
   
Long-term receivables and other assets, net
   
72
 
Deferred credits and other liabilities
   
69
 
           
848
       
858
 
 
Total gross fair value
       
855
       
1,200
 
 
Less: counterparty netting and cash collateral (c)
       
(645
)
     
(665
)
 
Total net fair value
     
$
210
     
$
535
 
    
 
(a)
The above fair values are presented at gross amounts, including when the derivatives are subject to master netting arrangements and qualify for net presentation in the consolidated balance sheet.
 
 
(b)
As of June 30, 2010, collateral received of $53 million has been netted against derivative assets and collateral paid of $90 million has been netted against derivative liabilities.
 
 
(c)
As of December 31, 2009, collateral received of $23 million has been netted against derivative assets and collateral paid of $43 million has been netted against derivative liabilities.
 
 
 
See Note 10 for fair value measurement disclosures on derivatives.
 
 
 
15
 
 

 
Credit Risk
 
 
A majority of Occidental’s derivative transactions are exchange-traded contracts, which are subject to nominal credit risk as a significant portion of these transactions are executed on a daily margin basis.  Collateral of $178 million and $222 million deposited by Occidental for such contracts with clearing houses and brokers, which has not been reflected in the derivative fair value tables, is included in the marketing and trading assets and other balance as of June 30, 2010 and December 31, 2009, respectively.
 
     
 
In addition, Occidental executes a portion of its derivative transactions in the OTC market.  Occidental is subject to counterparty credit risk to the extent the counterparty to the derivatives is unable to meet its settlement commitments.  Occidental manages this credit risk by selecting counterparties that it believes to be financially strong, by spreading the credit risk among many such counterparties, by entering into master netting arrangements with the counterparties and by requiring collateral as appropriate.  Occidental actively monitors the creditworthiness of each counterparty and records valuation adjustments to reflect counterparty risk, if necessary.  Certain of Occidental's OTC derivative instruments contain credit risk contingent features, primarily tied to credit ratings for Occidental or its counterparties, which may affect the amount of collateral that each would need to post.  As of June 30, 2010 and December 31, 2009, Occidental had a net liability of $246 million and $350 million, respectively, for which the amount of collateral posted was not material.  Occidental believes that if it had received a one-notch reduction in its credit rating, it would not have resulted in a material change in its collateral-posting requirements as of June 30, 2010 and December 31, 2009.
 
     
12.
Industry Segments
 
     
 
Occidental conducts its continuing operations through three segments: (1) oil and gas; (2) chemical; and (3) midstream, marketing and other (midstream and marketing).  The oil and gas segment explores for, develops, produces and markets crude oil, including natural gas liquids (NGLs) and condensate, as well as natural gas.  The chemical segment manufactures and markets basic chemicals, vinyls and other chemicals.  The midstream and marketing segment gathers, treats, processes, transports, stores, purchases and markets crude oil (including NGLs and condensate), natural gas, CO2 and power.  The segment also trades around its assets, including pipelines and storage facilities, and trades commodities and securities.
 
     
 
Segment earnings generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income from the segments’ equity investments.
 
 
 
16
 
 

 
The following table presents Occidental’s industry segment and corporate disclosures (in millions):
 

             
Midstream,
 
Corporate
     
             
Marketing
 
and
     
     
Oil and Gas
 
Chemical
 
and Other
 
Eliminations
 
Total
 
 
Six months ended
                               
 
June 30, 2010
                               
                                   
 
Net sales
 
$
7,322
 
$
1,969
 
$
605
 
$
(364
)(a)
$
9,532
 
                                   
 
Pretax operating profit (loss)
 
$
3,708
 
$
138
 
$
107
 
$
(248
)(b)
$
3,705
 
 
Income taxes
   
   
   
   
(1,529
)(c)
 
(1,529
)
 
Discontinued operations, net
   
   
   
   
(13
)
 
(13
)
 
Net income attributable to
                               
 
noncontrolling interest
   
(36
)
 
   
   
   
(36
)
 
Net income (loss) attributable to common stock
 
$
3,672
 
$
138
 
$
107
 
$
(1,790
)
$
2,127
 
                                   
 
Six months ended
                               
 
June 30, 2009
                               
                                   
 
Net sales
 
$
4,863
 
$
1,603
 
$
478
 
$
(184
)(a)
$
6,760
 
                                   
 
Pretax operating profit (loss)
 
$
1,649
 
$
284
 
$
77
 
$
(238
)(b)
$
1,772
 
 
Income taxes
   
   
   
   
(696
)(c)
 
(696
)
 
Discontinued operations, net
   
   
   
   
(5
)
 
(5
)
 
Net income attributable to
                               
 
noncontrolling interest
   
(21
)
 
   
   
   
(21
)
 
Net income (loss) attributable to common stock
 
$
1,628
 
$
284
 
$
77
 
$
(939
)
$
1,050
 
   
 
(a)
Intersegment sales are generally made at prices approximating those that the selling entity is able to obtain in third-party transactions.
 
 
(b)
Includes net interest expense, administration expense, environmental remediation and other pre-tax items.
 
 
(c)
Includes all foreign and domestic income taxes from continuing operations.
 
 
 
17
 
 

13.
Earnings Per Share
 
     
 
Occidental’s instruments containing rights to nonforfeitable dividends granted in share-based payment transactions are considered participating securities prior to vesting, and therefore, have been included in the earnings allocations in computing basic and diluted EPS under the two-class method.
 
     
 
Basic EPS was computed by dividing net income attributable to common stock by the weighted-average number of common shares outstanding during each period, net of treasury shares and including vested but unissued shares and share units. The computation of diluted EPS further reflected the dilutive effect of stock options and unvested stock awards.
 
     
 
The following table presents the calculation of basic and diluted EPS for the three and six months ended June 30, 2010 and 2009:
 

     
Periods Ended June 30
 
     
Three months
 
Six months
 
 
(in millions, except per-share amounts)
   
2010
   
2009
   
2010
   
2009
 
 
Basic EPS
                         
 
Income from continuing operations
 
$
1,081
 
$
696
 
$
2,176
 
$
1,076
 
 
Less: Income from continuing operations attributable to noncontrolling interest
   
(12
)
 
(12
)
 
(36
)
 
(21
)
 
Income from continuing operations attributable to common stock
   
1,069
   
684
   
2,140
   
1,055
 
 
Discontinued operations
   
(6
)
 
(2
)
 
(13
)
 
(5
)
 
Net income attributable to common stock
   
1,063
   
682
   
2,127
   
1,050
 
 
Less: Net income allocated to participating securities
   
(1
)
 
(1
)
 
(3
)
 
(1
)
 
Net income attributable to common stock, net of participating securities
 
$
1,062
 
$
681
 
$
2,124
 
$
1,049
 
 
Weighted average number of basic shares
   
812.6
   
811.0
   
812.3
   
810.8
 
 
Basic EPS
 
$
1.31
 
$
0.84
 
$
2.61
 
$
1.29
 
                             
 
Diluted EPS
                         
 
Net income attributable to common stock, net of participating securities
 
$
1,062
 
$
681
 
$
2,124
 
$
1,049
 
 
Weighted average number of basic shares
   
812.6
   
811.0
   
812.3
   
810.8
 
 
Dilutive effect of potentially dilutive securities
   
1.2
   
3.0
   
1.4
   
2.9
 
 
Total diluted weighted average common shares
   
813.8
   
814.0
   
813.7
   
813.7
 
 
Diluted EPS
 
$
1.31
 
$
0.84
 
$
2.61
 
$
1.29
 
 
 
18
 
 

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
     
Consolidated Results of Operations  
     
Occidental (which means Occidental Petroleum Corporation (OPC) and/or one or more entities in which it owns a majority voting interest) reported net income of $1.1 billion for the second quarter of 2010 on net sales of $4.8 billion, compared to net income of $682 million on net sales of $3.7 billion for the same period of 2009.  Diluted earnings per share (EPS) were $1.31 for the second quarter of 2010 compared to $0.84 for the same period of 2009.  Occidental reported net income of $2.1 billion for the first six months of 2010 on net sales of $9.5 billion, compared to net income of $1.1 billion on net sales of $6.8 billion for the same period of 2009.  Diluted EPS were $2.61 and $1.29 for the first six months of 2010 and 2009, respectively.  
     
Net income for the three and six months ended June 30, 2010, compared to the same periods of 2009, reflected higher worldwide crude oil and natural gas prices and volumes, partially offset by caustic soda price erosion, higher taxes (largely a result of higher pretax income), higher chemical raw materials prices, trading losses in Phibro, Occidental’s trading unit, higher depreciation, depletion and amortization (DD&A) rates and higher oil and gas operating expenses, partly resulting from the effects of fully expensing CO2 costs in 2010.  
     
Net income for the six months ended June 30, 2009 included after-tax charges of $41 million for severance, railcar leases and rig termination costs.
 
     
Unless indicated otherwise, net income and EPS reflect net income attributable to common stock.  
     
Selected Income Statement Items  
     
The increase in net sales for the three and six months ended June 30, 2010, compared with the same periods of 2009, reflected higher worldwide crude oil and natural gas prices and volumes, and higher volumes in chemical segment products, partially offset by lower caustic soda prices.  
     
The increase in cost of sales for the three and six months ended June 30, 2010, compared with the same periods of 2009, reflected higher product volumes, raw materials costs, DD&A rates and oil and gas operating expenses, partly resulting from the effects of fully expensing CO2 costs in 2010, as well as third party product purchases in the midstream, marketing and other (midstream and marketing) segment.  
     
The increase in provision for domestic and foreign income taxes for the three and six months ended June 30, 2010 compared with the same periods of 2009, reflected higher pre-tax income and higher tax rates in 2010 than 2009, which included a tax benefit from the relinquishment of international exploration contracts during 2009.  
     
Selected Analysis of Financial Position  
     
See “Liquidity and Capital Resources” for discussion about the change in cash and cash equivalents.  The increase in trade receivables, net, reflected higher volumes during the second quarter of 2010, compared to the fourth quarter of 2009.  The decrease in marketing and trading assets and other reflected a decrease in trading securities held and timing of collections from joint venture partners.  The increase in inventories reflected higher third-party product marketing activity. The increase in property, plant and equipment reflected capital expenditures and purchases of assets, partially offset by DD&A.  
 
 
19
 
 
 
The decrease in current maturities of long-term debt reflected payments of amounts due on senior notes.  The increase in accounts payable reflected higher third-party product marketing and trading activity.  The decrease in accrued liabilities reflected payments made in the first six months of 2010 related to the Phibro trading unit acquisition and scheduled foreign contract payments.  The increase in deferred and other domestic and foreign income taxes reflected higher federal deferred taxes.  The increase in stockholders’ equity reflected net income for the first six months of 2010, partially offset by dividend payments.  
   
Segment Operations  
   
Occidental conducts its continuing operations through three segments: (1) oil and gas; (2) chemical; and (3) midstream and marketing.  The oil and gas segment explores for, develops, produces and markets crude oil, including natural gas liquids (NGLs) and condensate (together with NGLs, “liquids”), as well as natural gas.  The chemical segment manufactures and markets basic chemicals, vinyls and other chemicals.  The midstream and marketing segment gathers, treats, processes, transports, stores, purchases and markets crude oil (including liquids), natural gas, CO2 and power.  The segment also trades around its assets, including pipelines and storage capacity, and trades commodities and securities.  
   
The following table sets forth the sales and earnings of each operating segment and corporate items for the three and six months ended June 30, 2010 and 2009 (in millions):  
 
   
Periods Ended June 30
 
   
Three Months
 
Six Months
 
     
2010
   
2009
 
2010
   
2009
 
Net Sales (a)
                         
Oil and Gas
 
$
3,676
 
$
2,726
 
$
7,322
 
$
4,863
 
Chemical
   
1,013
   
811
   
1,969
   
1,603
 
Midstream, Marketing and Other
   
236
   
250
   
605
   
478
 
Eliminations
   
(164
)
 
(100
)
 
(364
)
 
(184
)
   
$
4,761
 
$
3,687
 
$
9,532
 
$
6,760
 
Segment Earnings (b)
                         
Oil and Gas (c)
 
$
1,853
 
$
1,083
 
$
3,672
 
$
1,628
 
Chemical
   
108
   
115
   
138
   
284
 
Midstream, Marketing and Other
   
13
   
63
   
107
   
77
 
     
1,974
   
1,261
   
3,917
   
1,989
 
                           
Unallocated Corporate Items
                         
Interest expense, net (b)
   
(22
)
 
(23
)
 
(58
)
 
(43
)
Income taxes
   
(800
)
 
(455
)
 
(1,529
)
 
(696
)
Other expense, net (b)
   
(83
)
 
(99
)
 
(190
)
 
(195
)
                           
Income from continuing operations (c)
   
1,069
   
684
   
2,140
   
1,055
 
Discontinued operations, net (b)
   
(6
)
 
(2
)
 
(13
)
 
(5
)
Net income (c)
 
$
1,063
 
$
682
 
$
2,127
 
$
1,050
 
    
(a)
Intersegment sales are generally made at prices approximating those that the selling entity is able to obtain in third-party transactions.
 
(b)
Refer to “Significant Items Affecting Earnings,” “Oil and Gas Segment,” “Chemical Segment,” “Midstream, Marketing and Other Segment” and “Corporate” discussions that follow.
 
(c)
Represents amounts attributable to common stock shown after deducting noncontrolling interest amounts of $12 million for each of the three month periods ended June 30, 2010 and 2009, and $36 million and $21 million for the six months ended June 30, 2010 and 2009, respectively.
 
 
 
20
 
 
 
Significant Transactions and Events Affecting Earnings
 
   
The following table sets forth, for the three and six months ended June 30, 2010 and 2009, the effects of significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount (in millions):
 

   
Periods Ended June 30
 
   
Three Months
 
Six Months
 
     
2010
   
2009
   
2010
   
2009
 
Oil & Gas
                         
Rig terminations
 
$
 
$
 
$
 
$
(8
)
Total Oil and Gas
 
$
 
$
 
$
 
$
(8
)
Chemical
                         
No significant items affecting earnings
 
$
 
$
 
$
 
$
 
Total Chemical
 
$
 
$
 
$
 
$
 
Midstream, Marketing and Other
                         
No significant items affecting earnings
 
$
 
$
 
$
 
$
 
Total Midstream, Marketing and Other
 
$
 
$
 
$
 
$
 
Corporate
                         
Severance accrual
 
$
 
$
(8
)
$
 
$
(40
)
Railcar leases
   
   
   
   
(15
)
Tax effect of pre-tax adjustments
   
   
3
   
   
22
 
Discontinued operations, net*
   
(6
)
 
(2
)
 
(13
)
 
(5
)
Total Corporate
 
$
(6
)
$
(7
)
$
(13
)
$
(38
)
Total
 
$
(6
)
$
(7
)
$
(13
)
$
(46
)
*Amounts shown after tax.
 

Worldwide Effective Tax Rate
 
   
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations for the three and six months ended June 30, 2010 and 2009 (in millions):
 

   
Periods Ended June 30
 
   
Three Months
 
Six Months
 
     
2010
   
2009
   
2010
   
2009
 
Oil & Gas earnings (a)
 
$
1,853
 
$
1,083
 
$
3,672
 
$
1,628
 
Chemical earnings
   
108
   
115
   
138
   
284
 
Midstream, Marketing and Other earnings
   
13
   
63
   
107
   
77
 
Unallocated corporate items
   
(105
)
 
(122
)
 
(248
)
 
(238
)
Pre-tax income (a)
   
1,869
   
1,139
   
3,669
   
1,751
 
Income tax expense
                         
Federal and state
   
329
   
148
   
636
   
160
 
Foreign
   
471
   
307
   
893
   
536
 
Total
   
800
   
455
   
1,529
   
696
 
                           
Income from continuing operations (a)
 
$
1,069
 
$
684
 
$
2,140
 
$
1,055
 
Worldwide effective tax rate
   
43%
   
40%
   
42%
   
40%
 
   
(a)
Represents amounts attributable to common stock shown after deducting noncontrolling interest amounts of $12 million for each of the three month periods ended June 30, 2010 and 2009, and $36 million and $21 million for the six months ended June 30, 2010 and 2009, respectively.
 

 
21
 
 
 
Oil and Gas Segment  
   
The following tables set forth the sales and production volumes of crude oil and liquids and natural gas per day for the three and six months ended June 30, 2010 and 2009.  The differences between the sales volumes and production per day are generally due to the timing of shipments at Occidental’s international locations where product is loaded onto tankers.  Sales at these locations are not recognized until title passes.  
 
   
Periods Ended June 30
 
   
Three Months
  Six Months
 
Sales Volumes per Day
   
2010
   
2009
   
2010
    2009  
Crude Oil and Liquids (MBBL)
                         
United States
   
269
   
267
   
269
   
271
 
Middle East/North Africa
   
219
   
206
   
206
   
200
 
Latin America (a)
   
68
   
85
   
72
   
88
 
                           
Natural Gas (MMCF)
                         
United States
   
681
   
621
   
678
   
621
 
Middle East
   
444
   
332
   
445
   
309
 
Latin America
   
47
   
49
   
45
   
49
 
Total sales volumes (MBOE) (b)
   
751
   
725
   
742
   
722
 
                           
Production per Day
                         
Crude Oil and Liquids (MBBL)