10-Q 1 oxy10q6302013.htm 10-Q OXY 10Q 6.30.2013


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, 2013
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
(State or other jurisdiction of
incorporation or organization)
 
95-4035997
(I.R.S. Employer
Identification No.)
 
 
 
10889 Wilshire Boulevard
Los Angeles, California
(Address of principal executive offices)
 
90024
(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, 2013
 
 
Common stock $.20 par value
 
805,763,948 shares
 




OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES


TABLE OF CONTENTS




 
 
 
 
PAGE
 
 
 
 
 
Part I
Financial Information
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
Item 4.
 
 
 
 
 
Part II
Other Information
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
Item 6.


1



PART I    FINANCIAL INFORMATION
 

Item 1.
Financial Statements (unaudited)

OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2013 AND DECEMBER 31, 2012
(Amounts in millions)

 
 
2013

 
2012

 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,069

 
$
1,592

 
 
 
 
 
 
 
Trade receivables, net
 
5,221

 
4,916

 
 
 
 
 
 
 
Inventories
 
1,340

 
1,344

 
 
 
 
 
 
 
Other current assets
 
1,229

 
1,640

 
 
 
 
 
 
 
Total current assets
 
10,859

 
9,492

 
 
 
 
 
 
 
INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
1,808

 
1,894

 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation, depletion and amortization of $30,536 at June 30, 2013 and $28,032 at December 31, 2012
 
53,949

 
52,064

 
 
 
 
 
 
 
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET
 
806

 
760

 
 
 
 
 
 
 
TOTAL ASSETS
 
$
67,422

 
$
64,210

 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 


2



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2013 AND DECEMBER 31, 2012
(Amounts in millions)

 
 
2013

 
2012

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
 
$
600

 
$
600

 
 
 
 
 
 
 
Accounts payable
 
5,274

 
4,708

 
 
 
 
 
 
 
Accrued liabilities
 
2,331

 
1,966

 
 
 
 
 
 
 
Domestic and foreign income taxes
 
29

 
16

 
 
 
 
 
 
 
Total current liabilities
 
8,234

 
7,290

 
 
 
 
 
 
 
LONG-TERM DEBT, NET
 
7,026

 
7,023

 
 
 
 
 
 
 
DEFERRED CREDITS AND OTHER LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Deferred domestic and foreign income taxes
 
6,658

 
6,039

 
 
 
 
 
 
 
Other
 
3,654

 
3,810

 
 
 
 
 
 
 
 
 
10,312

 
9,849

 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Common stock, at par value
 
178

 
178

 
 
 
 
 
 
 
Treasury stock
 
(5,113
)
 
(5,091
)
 
 
 
 
 
 
 
Additional paid-in capital
 
7,510

 
7,441

 
 
 
 
 
 
 
Retained earnings
 
39,634

 
37,990

 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
(456
)
 
(502
)
 
 
 
 
 
 
 
Total equity attributable to common stock
 
41,753

 
40,016

 
 
 
 
 
 
 
Noncontrolling interest
 
97

 
32

 
 
 
 
 
 
 
Total stockholders’ equity
 
41,850

 
40,048

 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
67,422

 
$
64,210

 
 
 
 
 
 
 
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, 2013 AND 2012
(Amounts in millions, except per-share amounts)

 
 
Three months ended June 30
 
 
   Six months ended June 30
 
 
 
2013

 
2012

 
2013

 
2012

REVENUES AND OTHER INCOME
 
 
 
 
 
 
 
 
Net sales
 
$
5,962

 
$
5,768

 
$
11,834

 
$
12,036

Interest, dividends and other income
 
28

 
24

 
63

 
39

Gain on sale of equity investment
 
131

 

 
131

 

 
 
6,121

 
5,792

 
12,028

 
12,075

COSTS AND OTHER DEDUCTIONS
 
 
 
 
 
 
 
 
Cost of sales
 
3,180

 
3,060

 
6,317

 
6,010

Selling, general and administrative and other operating expenses
 
495

 
335

 
888

 
769

Taxes other than on income
 
196

 
167

 
382

 
341

Exploration expense
 
78

 
96

 
128

 
194

Interest and debt expense, net
 
30

 
28

 
64

 
58

 
 
3,979

 
3,686

 
7,779

 
7,372

 
 
 
 
 
 
 
 
 
Income before income taxes and other items
 
2,142

 
2,106

 
4,249

 
4,703

Provision for domestic and foreign income taxes
 
(901
)
 
(875
)
 
(1,745
)
 
(2,014
)
Income from equity investments
 
86

 
101

 
182

 
203

Income from continuing operations
 
1,327

 
1,332

 
2,686

 
2,892

Discontinued operations, net
 
(5
)
 
(4
)
 
(9
)
 
(5
)
NET INCOME
 
$
1,322

 
$
1,328

 
$
2,677

 
$
2,887

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BASIC EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.65

 
$
1.64

 
$
3.33

 
$
3.56

Discontinued operations, net
 
(0.01
)
 

 
(0.01
)
 
(0.01
)
BASIC EARNINGS PER COMMON SHARE
 
$
1.64

 
$
1.64

 
$
3.32

 
$
3.55

 
 
 
 
 
 
 
 
 
DILUTED EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.64

 
$
1.64

 
$
3.33

 
$
3.56

Discontinued operations, net
 

 

 
(0.01
)
 
(0.01
)
DILUTED EARNINGS PER COMMON SHARE
 
$
1.64

 
$
1.64

 
$
3.32

 
$
3.55

 
 
 
 
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
 
$
0.64

 
$
0.54

 
$
1.28

 
$
1.08


 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.


4



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Amounts in millions)

 
 
Three months ended June 30
 
 
   Six months ended June 30
 
 
 
2013

 
2012

 
2013

 
2012

Net income
 
$
1,322

 
$
1,328

 
$
2,677

 
$
2,887

Other comprehensive income (loss) items:
 
 
 
 
 
 
 
 
Foreign currency translation gains (losses)
 
1

 
(12
)
 
2

 
(8
)
Reclassification to income of realized foreign currency translation losses (a)
 
28

 

 
28

 

Pension and postretirement gains (b)
 
9

 
8

 
18

 
13

Unrealized gains (losses) on derivatives (c)
 
7

 
(2
)
 
1

 
12

Reclassification to income of realized losses (gains) on derivatives (d)
 
1

 
4

 
(3
)
 
(24
)
Other comprehensive income (loss), net of tax (e)
 
46

 
(2
)
 
46

 
(7
)
Comprehensive income
 
$
1,368

 
$
1,326

 
$
2,723

 
$
2,880

(a)
Included in the net gain on sale of the investment in Carbocloro, a Brazilian chemical facility.
(b)
Net of tax of $(6) and $(5) for the three months ended June 30, 2013 and 2012, respectively, and $(11) and $(8) for the six months ended June 30, 2013 and 2012.
(c)
Net of tax of $(4) and zero for the three months ended June 30, 2013 and 2012, respectively, and $(1) and $(8) for the six months ended June 30, 2013 and 2012.
(d)
Net of tax of zero and $(2) for the three months ended June 30, 2013 and 2012, respectively, and $2 and $15 for the six months ended June 30, 2013 and 2012.
(e)
There were no other comprehensive income (loss) items related to noncontrolling interests in 2013 and 2012.

The accompanying notes are an integral part of these consolidated financial statements.

5



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Amounts in millions)

 
 
2013

 
2012

 
CASH FLOW FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
2,677

 
$
2,887

 
Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
Discontinued operations, net
 
9

 
5

 
Depreciation, depletion and amortization of assets
 
2,562

 
2,172

 
Deferred income tax provision
 
635

 
794

 
Other noncash charges to income
 
218

 
109

 
Gain on sale of equity investment
 
(131
)
 

 
Undistributed earnings from equity investments
 
(31
)
 
(8
)
 
Dry hole expenses
 
77

 
166

 
Changes in operating assets and liabilities, net
 
227

 
(150
)
 
Operating cash flow from continuing operations
 
6,243

 
5,975

 
Operating cash flow from discontinued operations, net of taxes
 
(18
)
 
(17
)
 
Net cash provided by operating activities
 
6,225

 
5,958

 
CASH FLOW FROM INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
 
(4,280
)
 
(5,125
)
 
Payments for purchases of assets and businesses
 
(226
)
 
(1,081
)
 
Sale of equity investment, net
 
270

 

 
Other, net
 
(63
)
 
44

 
Net cash used by investing activities
 
(4,299
)
 
(6,162
)
 
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from long-term debt
 

 
1,736

 
Proceeds from issuance of common stock
 
24

 
58

 
Purchases of treasury stock
 
(28
)
 
(152
)
 
Contributions from noncontrolling interest
 
65

 

 
Cash dividends paid
 
(517
)
 
(813
)
 
Other, net
 
7

 
4

 
Net cash (used) provided by financing activities
 
(449
)
 
833

 
Increase in cash and cash equivalents
 
1,477

 
629

 
Cash and cash equivalents—beginning of period
 
1,592

 
3,781

 
Cash and cash equivalents—end of period
 
$
3,069

 
$
4,410

 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

6



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

June 30, 2013
1.
General

In these unaudited consolidated condensed financial statements, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries).  Occidental has made its disclosures in accordance with United States generally accepted accounting principles 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.  These 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, 2012.

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, 2013, and the consolidated statements of income, comprehensive income and cash flows for the three and six months ended June 30, 2013 and 2012, as applicable. The income and cash flows for the periods ended June 30, 2013 and 2012 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 2013 presentation.

2.
Asset Acquisitions, Dispositions and Other

In May 2013, Occidental sold its investment in Carbocloro, a Brazilian chemical facility. Occidental received net proceeds of approximately $270 million and recorded a pre-tax gain of $131 million.

As previously reported, Edward Djerejian was elected Chairman of the Board of Directors on May 3, 2013, replacing Dr. Ray Irani. Dr. Irani submitted his resignation as a director, effective as of May 15, 2013 and ceased serving as an executive of Occidental. In addition, certain other employees and several consulting arrangements were terminated during the quarter. As a result of these developments and actions, Occidental recorded a $55 million pre-tax charge in the second quarter for the currently estimated costs of Dr. Irani's employment and post-employment benefits, and the termination of other employees and consulting arrangements.
  
Occidental owns a 50% interest in BridgeTex Pipeline Company, LLC (BridgeTex), which is a variable interest entity that Occidental consolidates. This investment is not material to Occidental's financial statements. At June 30, 2013 and December 31, 2012, the BridgeTex assets and liabilities mainly comprised property, plant and equipment and cash and cash equivalents. At June 30, 2013 and December 31, 2012, BridgeTex held approximately $93 million and $50 million, respectively, of money market funds classified as cash equivalents, which approximated fair value using Level 1 inputs.

3.
Accounting and Disclosure Changes

Offsetting Assets and Liabilities -  Beginning in the quarter ended March 31, 2013, Occidental adopted new disclosure requirements relating to its derivatives in accordance with rules issued by the Financial Accounting Standards Board (FASB) in December 2011 and January 2013. These new rules require tabular disclosures of the outstanding derivatives' gross and net fair values, now including those that are subject to a master netting or similar arrangement and qualify for net presentation, but are not offset in the consolidated balance sheet.

Reclassifications from Accumulated Other Comprehensive Income - Beginning in the quarter ended March 31, 2013, Occidental adopted new disclosure requirements for reporting amounts reclassified out of each component of accumulated other comprehensive income into the income statement in accordance with rules issued by the FASB in February 2013.

These new disclosures were not material to Occidental's financial statements.

7




4.
Supplemental Cash Flow Information

Occidental paid United States federal, state and foreign income taxes for continuing operations of approximately $0.8 billion and $1.3 billion during the six months ended June 30, 2013 and 2012, respectively. Interest paid totaled approximately $122 million and $95 million for the six months ended June 30, 2013 and 2012, respectively.

5.
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, 2013 and December 31, 2012 consisted of the following (in millions):

 
 
 
2013
 
 
 
2012
 
Raw materials
 
$
75

 
 
$
70

 
Materials and supplies
 
 
641

 
 
 
612

 
Finished goods
 
 
725

 
 
 
763

 
 
 
 
1,441

 
 
 
1,445

 
LIFO reserve
 
 
(101
)
 
 
 
(101
)
 
Total
 
$
1,340

 
 
$
1,344

 

6.
Environmental Liabilities and Expenditures

Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations related to improving or maintaining environmental quality.  

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, 2013, Occidental participated in or monitored remedial activities or proceedings at 161 sites.  The following table presents Occidental’s environmental remediation reserves as of June 30, 2013, the current portion of which is included in accrued liabilities ($80 million) and the remainder in deferred credits and other liabilities — other ($247 million).  The reserves are grouped as environmental remediation sites listed or proposed for listing by the United States 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
 
 
33

 
 
$
52

 
Third-party sites
 
 
76

 
 
 
74

 
Occidental-operated sites
 
 
22

 
 
 
121

 
Closed or non-operated Occidental sites
 
 
30

 
 
 
80

 
Total
 
 
161

 
 
$
327

 

8



As of June 30, 2013, Occidental’s environmental reserves exceeded $10 million each at 11 of the 161 sites described above, and 114 of the sites had reserves from zero to $1 million each.  Based on current estimates, Occidental expects to expend funds corresponding to approximately half of the current environmental reserves at the sites described above over the next three to four years and the balance at these sites over the subsequent 10 or more years.  Occidental believes its range of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites 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, 2012.  For management’s opinion with respect to environmental matters, refer to Note 7.

7.
Lawsuits, Claims, Commitments and Contingencies

OPC or certain of its subsidiaries are involved, 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 or other losses, punitive damages, civil penalties or injunctive or declaratory relief.  OPC or certain of its subsidiaries also are involved 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. Usually OPC or such subsidiaries are among many companies in these environmental proceedings and have to date been successful in sharing response costs with other financially sound companies.  Further, some lawsuits, claims and legal proceedings involve acquired assets with respect to which third parties retain liability or indemnify Occidental for conditions that existed prior to purchase.

Occidental accrues reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated.  Occidental has disclosed its reserve balances for environmental matters.  Reserve balances for other matters as of June 30, 2013 and December 31, 2012 were not material to Occidental's consolidated balance sheets.  Occidental also evaluates the amount of reasonably possible losses that it could incur as a result of the matters mentioned above.  Occidental has disclosed its range of reasonably possible additional losses for sites where it is a participant in environmental remediation.  Occidental believes that other reasonably possible losses that it could incur in excess of reserves accrued on the balance sheet would not be material to its consolidated financial position or results of operations.

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.  Although taxable years through 2009 for United States federal income tax purposes have been audited by the United States Internal Revenue Service (IRS) pursuant to its Compliance Assurance Program, subsequent taxable years are currently under review.  Additionally, in December 2012, Occidental filed United States federal refund claims for tax years 2008 and 2009 which are subject to IRS review. Taxable years from 2000 through the current year remain subject to examination by foreign and state government tax authorities in certain jurisdictions.  In certain of these jurisdictions, 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 believes that the resolution of outstanding tax matters would not have a material adverse effect on its consolidated financial position or results of operations.

OPC, its subsidiaries or both have indemnified various parties against specified liabilities 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, 2013, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.


9



8.
Retirement and Postretirement Benefit Plans

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, 2013 and 2012 (in millions):

Three months ended June 30
 
 
2013
 
 
 
2012
 
Net Periodic Benefit Costs
 
Pension
Benefit
 
Postretirement
Benefit
 
Pension
Benefit
 
Postretirement
Benefit
Service cost
 
$
3

 
 
$
7

 
 
$
3

 
 
$
6

 
Interest cost
 
 
7

 
 
 
10

 
 
 
7

 
 
 
11

 
Expected return on plan assets
 
 
(8
)
 
 
 

 
 
 
(8
)
 
 
 

 
Recognized actuarial loss
 
 
4

 
 
 
10

 
 
 
5

 
 
 
9

 
Total
 
$
6

 
 
$
27

 
 
$
7

 
 
$
26

 

Six months ended June 30
 
 
2013
 
 
 
2012
 
Net Periodic Benefit Costs
 
Pension
Benefit
 
Postretirement
Benefit
 
Pension
Benefit
 
Postretirement
Benefit
Service cost
 
$
7

 
 
$
14

 
 
$
6

 
 
$
13

 
Interest cost
 
 
13

 
 
 
21

 
 
 
14

 
 
 
22

 
Expected return on plan assets
 
 
(16
)
 
 
 

 
 
 
(16
)
 
 
 

 
Recognized actuarial loss
 
 
8

 
 
 
20

 
 
 
10

 
 
 
17

 
Total
 
$
12

 
 
$
55

 
 
$
14

 
 
$
52

 

Occidental contributed approximately $1 million and $2 million in the three-month periods ended June 30, 2013 and 2012, and approximately $2 million and $3 million in the six-month periods ended June 30, 2013 and 2012, respectively, to its defined benefit pension plans.

9.
Fair Value Measurements

Occidental has categorized its assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 — using quoted prices in active markets for identical assets or liabilities; Level 2 — using observable inputs, such as quoted prices for similar assets or liabilities; and Level 3 — using unobservable inputs.  Transfers between levels, if any, are reported at the end of each reporting period.

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 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:

Ø
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) bilateral financial commodity contracts, foreign exchange 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. These inputs are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace. Occidental generally classifies these measurements as Level 2.

10



Ø
Embedded commodity derivatives – Occidental values embedded commodity derivatives based on a market approach that considers various assumptions, including quoted forward commodity prices and market yield curves. The assumptions used include inputs that are observable and unobservable in the marketplace, and the fair value is designated as Level 3 within the valuation hierarchy.

Occidental generally uses an income approach to measure fair value when there is not a market-observable price for an identical or similar asset or liability.  This approach utilizes management’s judgments regarding expectations of projected cash flows, and discounts those cash flows using a risk-adjusted discount rate.

The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of June 30, 2013 and December 31, 2012 (in millions):

 
 
Fair Value Measurements at
 
 
 
 
 
 
June 30, 2013 Using
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(a) 
Total Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
246

 
$
326

 
$

 
$
(476
)
 
$
96

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
224

 
$
369

 
$

 
$
(529
)
 
$
64


 
 
Fair Value Measurements at
 
 
 
 
 
 
December 31, 2012 Using
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(a) 
Total Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
107

 
$
312

 
$

 
$
(301
)
 
$
118

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
99

 
$
398

 
$

 
$
(371
)
 
$
126

(a)
Represents the impact of netting assets, liabilities and collateral when a legal right of offset exists.

Fair Values — Nonrecurring
During the three months ended June 30, 2013 and 2012, Occidental did not have assets or liabilities measured at fair value on a non-recurring basis.

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 instruments’ maturities.  The estimated fair values of Occidental’s debt as of June 30, 2013 and December 31, 2012, were approximately $7.8 billion and $8.2 billion, respectively, and its carrying value at each date was $7.6 billion. Occidental classifies its debt as Level 1.


11



10.
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 cash-flow hedge treatment and management elects and documents such treatment.  Otherwise, any fair value gains or losses are recognized in earnings in the current period.

Occidental uses a variety of derivative instruments, including cash-flow hedges and derivative instruments not designated as hedging instruments, to establish, as of the date of production, the price it receives and to improve realized prices for oil and gas. Occidental only occasionally hedges its oil and gas production and, when it does, the volumes are usually insignificant. Additionally, Occidental's Phibro trading unit engages in trading activities using derivatives for the purpose of generating profits mainly from market price changes of commodities.

Cash-Flow Hedges
Occidental entered into financial swap agreements in November 2012 for the sale of a portion of its natural gas production in California. These swap agreements hedge 50 million cubic feet of natural gas per day beginning in January 2013 through March 2014 and qualify as cash-flow hedges. The weighted-average strike price of these swaps is $4.30.

Through March 31, 2012, Occidental held financial swap agreements related to the sale of 50 million cubic feet per day of its existing natural gas production from the Rocky Mountain region of the United States that qualified as cash-flow hedges at a weighted-average strike price of $6.07.

Occidental’s marketing and trading operations store natural gas purchased from third parties at Occidental’s North American leased storage facilities.  Derivative instruments are used to fix margins on the future sales of the stored volumes through March 31, 2014.  As of June 30, 2013 and December 31, 2012, Occidental had approximately 13 billion cubic feet and 20 billion cubic feet of natural gas held in storage, respectively.  As of June 30, 2013 and December 31, 2012, Occidental had cash-flow hedges for the forecast sale, to be settled by physical delivery, of approximately 15 billion cubic feet and 20 billion cubic feet of natural gas, respectively.

The following table presents the after-tax gains and losses recognized in, and reclassified to income from, Accumulated Other Comprehensive Income (AOCI) for derivative instruments classified as cash-flow hedges for the three and six months ended June 30, 2013 and 2012 (in millions):
 
 
 
 
 
 
Periods ended June 30
 
 
 
Three months
 
 
 
 
Six Months


 
2013
 
2012
 
2013
 
2012
Beginning Balance — AOCI
 
$
(17
)
 
$
(13
)
 
$
(7
)
 
$
1

Unrealized gains (losses) recognized in AOCI
 
7

 
(2
)
 
1

 
12

Losses reclassified to income
 
1

 
4

 
(3
)
 
(24
)
Ending Balance — AOCI
 
$
(9
)
 
$
(11
)
 
$
(9
)
 
$
(11
)

Occidental expects to reclassify an insignificant amount, based on the valuation as of June 30, 2013, of net after-tax derivative losses from AOCI into income during the next 12 months. The gains and losses reclassified to income were recognized in net sales, and the amount of the ineffective portion of cash-flow hedges was immaterial for the three months ended June 30, 2013 and 2012.


12



Derivatives Not Designated as Hedging Instruments
The following table summarizes Occidental’s net volumes resulting from outstanding commodity derivatives contracts not designated as hedging instruments, including both financial and physical derivative contracts as of June 30, 2013 and December 31, 2012.

 
 
Net Outstanding Position
 
 
Long / (Short)
Commodity
 
2013
 
2012
Oil (million barrels)
 
(23
)
 
(17
)
Natural gas (billion cubic feet)
 
(80
)
 
(217
)
Precious metals (million troy ounces)
 
1

 
1


A large majority of the volumes in the table above include contracts tied to index prices, for which there is no fair value. These contracts do not expose Occidental to changes in commodity prices.
 
In addition, Occidental typically has certain other commodity trading contracts, such as agricultural products, power and other metals, as well as foreign exchange contracts.  These contracts were not material to Occidental as of June 30, 2013 and December 31, 2012.

Occidental fulfills its short positions through its own production or by third-party purchase contracts. Subsequent to June 30, 2013, Occidental entered into purchase contracts for a substantial portion of the outstanding positions at quarter-end and has production capacity and the ability to enter into additional purchase contracts sufficient to satisfy the remaining positions.

Approximately $75 million and $88 million of net losses from derivatives not designated as hedging instruments were recognized in net sales for the three months ended June 30, 2013 and 2012, respectively.   Approximately $16 million and $36 million of net losses from derivatives not designated as hedging instruments were recognized in net sales for the six months ended June 30, 2013 and 2012, respectively.  

13



Fair Value of Derivatives
The following table presents the gross and net fair values of Occidental’s outstanding derivatives as of June 30, 2013 and December 31, 2012 (in millions):
 
 
 
Asset Derivatives
 
 
 
Liability Derivatives
 
 
June 30, 2013
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Cash-flow hedges (a)
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
$
5

 
Accrued liabilities
 
$
1

Long-term receivables and other assets, net
 

 
Deferred credits and other liabilities
 

 
 
 
 
5

 
 
 
1

Derivatives not designated as hedging instruments (a)
 
 
 

 
 
 
 
Commodity contracts
 
Other current assets
 
544

 
Accrued liabilities
 
573

Long-term receivables and other assets, net
 
23

 
Deferred credits and other liabilities
 
19

 
 
 
 
567

 
 
 
592

Total gross fair value
 
 
 
572

 
 
 
593

Less: counterparty netting and cash collateral (b) (d)
 
 
 
(476
)
 
 
 
(529
)
Total net fair value of derivatives
 
 
 
$
96

 
 
 
$
64

 
 
 
Asset Derivatives
 
 
 
Liability Derivatives
 
 
December 31, 2012
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Cash-flow hedges (a)
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
$
11

 
Accrued liabilities
 
$
1

Long-term receivables and other assets, net
 

 
Deferred credits and other liabilities
 
1

 
 
 
 
11

 
 
 
2

Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
386

 
Accrued liabilities
 
479

Long-term receivables and other assets, net
 
22

 
Deferred credits and other liabilities
 
16

 
 
 
 
408

 
 
 
495

Total gross fair value
 
 
 
419

 
 
 
497

Less: counterparty netting and cash collateral (c) (d)
 
 
 
(301
)
 
 
 
(371
)
Total net fair value of derivatives
 
 
 
$
118

 
 
 
$
126

(a)
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, 2013, collateral received of $37 million has been netted against derivative assets and collateral paid of $90 million has been netted against derivative liabilities.
(c)
As of December 31, 2012, collateral received of $25 million has been netted against derivative assets and collateral paid of $95 million has been netted against derivative liabilities.
(d)
Select clearinghouses and brokers require Occidental to post an initial margin deposit. Collateral, mainly for initial margin, of $94 million and $116 million deposited by Occidental, has not been reflected in these derivative fair value tables, but is included in the other current assets balance as of June 30, 2013 and December 31, 2012, respectively.

See Note 9 for fair value measurement disclosures on derivatives.

14



Credit Risk
A substantial portion of Occidental’s derivative transaction volume is executed through exchange-traded contracts, which are subject to minimal credit risk as a significant portion of these transactions is settled on a daily margin basis with select clearinghouses and brokers.  Occidental executes the rest 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, 2013 and December 31, 2012, Occidental had a net liability of $25 million and $34 million, respectively, which are net of collateral posted of $12 million and $64 million, respectively.  Occidental believes that if it had received a one-notch reduction in its credit ratings, it would not have resulted in a material change in its collateral-posting requirements as of June 30, 2013 and December 31, 2012.

11.
Industry Segments

Occidental conducts its 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 and produces oil and condensate, natural gas liquids (NGL) and natural gas.  The chemical segment mainly manufactures and markets basic chemicals and vinyls.  The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power.  It also trades around its assets, including transportation and storage capacity, and trades oil, NGLs, gas and other commodities. The segment also invests in entities that conduct similar activities.

Earnings of industry segments 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 segment equity investments. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.


15



The following tables present Occidental’s industry segment and corporate disclosures (in millions):
 
 
 
 
 
 
Midstream
 
Corporate
 
 
 
 
 
 
 
 
and
 
and
 
 
 
 
Oil and Gas
 
Chemical
 
Marketing
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
4,721

 
$
1,187

 
$
269

 
$
(215
)
 
$
5,962

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
2,100

 
$
275

(a) 
$
48

 
$
(195
)
(b) 
$
2,228

Income taxes
 

 

 

 
(901
)
(c) 
(901
)
Discontinued operations, net
 

 

 

 
(5
)

(5
)
Net income (loss)
 
$
2,100

 
$
275

 
$
48

 
$
(1,101
)
 
$
1,322

 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
 
 
 
 
 
 
 
 
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
4,495

 
$
1,172

 
$
262

 
$
(161
)
 
$
5,768

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
2,043

 
$
194

 
$
77

 
$
(107
)
(b) 
$
2,207

Income taxes
 

 

 

 
(875
)
(c) 
(875
)
Discontinued operations, net
 

 

 

 
(4
)
 
(4
)
Net income (loss)
 
$
2,043

 
$
194

 
$
77

 
$
(986
)
 
$
1,328


 
 
 
 
 
 
Midstream
 
Corporate
 
 
 
 
 
 
 
 
and
 
and
 
 
 
 
Oil and Gas
 
Chemical
 
Marketing
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Six months ended
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
9,161

 
$
2,362

 
$
722

 
$
(411
)
 
$
11,834

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
4,020

 
$
434

(a) 
$
263

 
$
(286
)
(b) 
$
4,431

Income taxes
 

 

 

 
(1,745
)
(c) 
(1,745
)
Discontinued operations, net
 

 

 

 
(9
)
 
(9
)
Net income (loss)
 
$
4,020

 
$
434

 
$
263

 
$
(2,040
)
 
$
2,677

 
 
 
 
 
 
 
 
 
 
 
Six months ended
 
 
 
 
 
 
 
 
 
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
9,397

 
$
2,320

 
$
655

 
$
(336
)
 
$
12,036

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
4,547

 
$
378

 
$
208

 
$
(227
)
(b) 
$
4,906

Income taxes
 

 

 

 
(2,014
)
(c) 
(2,014
)
Discontinued operations, net
 

 

 

 
(5
)
 
(5
)
Net income (loss)
 
$
4,547

 
$
378

 
$
208

 
$
(2,246
)
 
$
2,887

(a)
The three- and six-month periods ended June 30, 2013 include a $131 million pre-tax gain for the sale of an investment in Carbocloro, a Brazilian chemical facility.
(b)
Includes unallocated net interest expense, administration expense, environmental remediation and other pre-tax items. The three- and six-month periods ended June 30, 2013 include a $55 million pre-tax charge for the currently estimated cost related to employment and post-employment benefits for Occidental's former Executive Chairman and termination of certain other employees and consulting arrangements.
(c)
Includes all foreign and domestic income taxes from continuing operations.

16



12.
Earnings Per Share

Occidental’s instruments containing rights to nonforfeitable dividends granted in stock-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, net of income allocated to participating securities, 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 reflects the additional 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, 2013 and 2012:

 
 
Periods ended June 30
 
 
 
Three months
 
 
 
Six months
 
(in millions, except per-share amounts)
 
2013

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1,327

 
$
1,332

 
$
2,686

 
$
2,892

Discontinued operations, net
 
(5
)
 
(4
)
 
(9
)
 
(5
)
Net income
 
1,322

 
1,328

 
2,677

 
2,887

Less: Net income allocated to participating securities
 
(3
)
 
(2
)
 
(5
)
 
(4
)
Net income, net of participating securities
 
$
1,319

 
$
1,326

 
$
2,672

 
$
2,883

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares
 
804.9

 
810.3

 
804.8

 
810.4

 
 
 
 
 
 
 
 
 
Basic EPS
 
$
1.64

 
$
1.64

 
$
3.32

 
$
3.55

 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, net of participating securities
 
$
1,319

 
$
1,326

 
$
2,672

 
$
2,883

Weighted average number of basic shares
 
804.9

 
810.3

 
804.8

 
810.4

Dilutive effect of potentially dilutive securities
 
0.5

 
0.7

 
0.5

 
0.8

Total diluted weighted average common shares
 
805.4

 
811.0

 
805.3

 
811.2

 
 
 
 
 
 
 
 
 
Diluted EPS
 
$
1.64

 
$
1.64

 
$
3.32

 
$
3.55



17



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Results of Operations
 
In this report, “Occidental” means Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental reported net income of $1.3 billion for the second quarter of 2013 on net sales of $6.0 billion, compared to net income of $1.3 billion on net sales of $5.8 billion for the same period of 2012.  Diluted earnings per share (EPS) were $1.64 for the second quarter of 2013 and 2012.  Occidental reported net income of $2.7 billion for the first six months of 2013 on net sales of $11.8 billion, compared to net income of $2.9 billion on net sales of $12.0 billion for the same period of 2012.  Diluted EPS were $3.32 for the six months of 2013, compared to $3.55 for the same period of 2012.  

Net income for the three months ended June 30, 2013, compared to the same period of 2012, reflected higher domestic realized prices for oil and natural gas, lower oil and gas segment operating costs and higher liquids volumes, partially offset by higher oil and gas segment depreciation, depletion and amortization (DD&A) rates, lower Middle East/North Africa realized oil prices, higher equity compensation expense due to Occidental's improved stock price and higher energy prices for the chemical segment. Net income for the six months ended June 30, 2013, compared to the same period of 2012, reflected lower worldwide oil and natural gas liquids (NGL) prices, higher oil and gas segment DD&A rates, higher energy prices for the chemical segment and higher equity compensation expense due to Occidental's improved stock price, partially offset by higher domestic gas prices and lower oil and gas segment operating costs.

Income for the three and six months ended June 30, 2013 included an after-tax gain of $85 million from the sale of Occidental's investment in Carbocloro, a Brazilian chemical facility, and a $34 million after-tax charge for the currently estimated cost related to employment and post-employment benefits for Occidental's former Executive Chairman and termination of certain other employees and consulting arrangements.

Selected Income Statement Items

Net sales for the three months ended June 30, 2013, of $6.0 billion, compared to $5.8 billion for the same period of 2012, reflected higher domestic realized prices for oil and natural gas and higher liquids volumes, partially offset by lower Middle East/North Africa realized oil prices. Net sales for the six months ended June 30, 2013, of $11.8 billion, compared to $12.0 billion for the same period of 2012, reflected lower worldwide oil and NGL prices, partially offset by higher domestic gas prices.

Cost of sales for the three and six months ended June 30, 2013, compared to the same periods in 2012, reflected higher oil and gas segment DD&A rates and higher chemical segment energy and feedstock costs, partially offset by lower oil and gas segment operating costs. Selling, general and administrative and other operating expenses for the three and six months ended June 30, 2013, compared to the same periods in the prior year, reflected higher equity compensation expense due to Occidental's improved stock price and the currently estimated cost related to employment and post-employment benefits for Occidental's former Executive Chairman and termination of certain other employees and consulting arrangements.
The decrease in the provision for domestic and foreign income taxes for the six months ended June 30, 2013, compared to the same period of 2012, was due to lower pre-tax income in 2013 and a lower effective tax rate, which included a benefit resulting from the relinquishment of an international exploration block.

Selected Analysis of Financial Position
 
See “Liquidity and Capital Resources” for discussion about the changes in cash and cash equivalents.
 
The increase in trade receivables, net, reflected higher domestic crude oil prices in the second quarter of 2013, compared to the fourth quarter of 2012, and the timing of settlements, partially offset by lower international crude oil lifting volumes and prices in the comparable periods. The decrease in other current assets was mainly due to the collection of an expected tax receivable during the second quarter. The increase in property, plant and equipment, net, reflected net capital expenditures of $4.2 billion, partially offset by DD&A.

The increase in accounts payable reflected higher domestic crude oil prices for the marketing and trading operations during the second quarter of 2013, compared to the fourth quarter of 2012, and the timing of payments at year end 2012 compared to the end of the second quarter of 2013. The increase in accrued liabilities was due to the accelerated

18



payout of the fourth quarter 2012 dividend during 2012, resulting in a lower year-end balance. The June 30, 2013 balance included the accrual of the second quarter 2013 dividend to be paid in the third quarter. The increase in deferred domestic and foreign income taxes was mainly due to accelerated tax depreciation of the capital expenditures in the first six months of 2013. The increase in stockholders' equity reflected net income for the first six months of 2013, partially offset by dividends.

Segment Operations
 
Occidental conducts its 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 and produces oil and condensate, NGLs and natural gas.  The chemical segment mainly manufactures and markets basic chemicals and vinyls.  The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power.  It also trades around its assets, including transportation and storage capacity, and trades oil, NGLs, gas and other commodities. The segment also invests in entities that conduct similar activities.

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, 2013 and 2012 (in millions):
 
 
 
 
 
 
 
Periods ended June 30
 
 
 
 
Three Months
 
 
 
Six Months
 
 
 
2013

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Net Sales (a)
 
 
 
 
 
 
 
 
Oil and Gas
 
$
4,721

 
$
4,495

 
$
9,161

 
$
9,397

Chemical
 
1,187

 
1,172

 
2,362

 
2,320

Midstream and Marketing
 
269

 
262

 
722

 
655

Eliminations
 
(215
)
 
(161
)
 
(411
)
 
(336
)
 
 
 
 
 
 
 
 
 
 
 
$
5,962

 
$
5,768

 
$
11,834

 
$
12,036

Segment Earnings (b)
 
 
 
 
 
 
 
 
Oil and Gas
 
$
2,100

 
$
2,043

 
$
4,020

 
$
4,547

Chemical
 
275

 
194

 
434

 
378

Midstream and Marketing
 
48

 
77

 
263

 
208

 
 
2,423

 
2,314

 
4,717

 
5,133

 
 
 
 
 
 
 
 
 
Unallocated Corporate Items (b)
 
 
 
 
 
 
 
 
Interest expense, net
 
(29
)
 
(25
)
 
(59
)
 
(53
)
Income taxes
 
(901
)
 
(875
)
 
(1,745
)
 
(2,014
)
Other expense, net
 
(166
)
 
(82
)
 
(227
)
 
(174
)
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
1,327

 
1,332

 
2,686

 
2,892

Discontinued operations, net
 
(5
)
 
(4
)
 
(9
)
 
(5
)
 
 
 
 
 
 
 
 
 
Net income
 
$
1,322

 
$
1,328

 
$
2,677

 
$
2,887

(a)
Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
(b)
Refer to “Significant Transactions and Events Affecting Earnings,” “Oil and Gas Segment,” “Chemical Segment,” “Midstream and Marketing Segment” and "Corporate" discussions that follow.


19



Significant Transactions and Events Affecting Earnings
 
The following table sets forth, for the three and six months ended June 30, 2013 and 2012, 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
 
 
 
2013

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Oil & Gas
 
 
 
 
 
 
 
 
No significant items affecting earnings
 
$

 
$

 
$

 
$

Total Oil and Gas
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Chemical
 
 
 
 
 
 
 
 
Carbocloro sale gain
 
$
131

 
$

 
$
131

 
$

Total Chemical
 
$
131

 
$

 
$
131

 
$

 
 
 
 
 
 
 
 
 
Midstream and Marketing
 
 
 
 
 
 
 
 
No significant items affecting earnings
 
$

 
$

 
$

 
$

Total Midstream and Marketing
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
Charge for former executives and consultants
 
$
(55
)
 
$

 
$
(55
)
 
$

Tax effect of pre-tax adjustments
 
(25
)
 

 
(25
)
 

Discontinued operations, net*
 
(5
)
 
(4
)
 
(9
)
 
(5
)
Total Corporate
 
$
(85
)
 
$
(4
)
 
$
(89
)
 
$
(5
)
 
 
 
 
 
 
 
 
 
Total
 
$
46

 
$
(4
)
 
$
42

 
$
(5
)
*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, 2013 and 2012 ($ in millions):
 
 
 
 
 
 
 
Periods ended June 30
 
 
 
 
Three Months
 
 
 
Six Months