10-Q 1 oxy10q9302013.htm 10-Q OXY 10Q 9.30.2013


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 September 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 September 30, 2013
 
 
Common stock $.20 par value
 
806,059,898 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
SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(Amounts in millions)

 
 
2013

 
2012

 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,771

 
$
1,592

 
 
 
 
 
 
 
Trade receivables, net
 
5,653

 
4,916

 
 
 
 
 
 
 
Inventories
 
1,328

 
1,344

 
 
 
 
 
 
 
Other current assets
 
1,186

 
1,640

 
 
 
 
 
 
 
Total current assets
 
11,938

 
9,492

 
 
 
 
 
 
 
INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
1,713

 
1,894

 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation, depletion and amortization of $31,844 at September 30, 2013 and $28,032 at December 31, 2012
 
55,027

 
52,064

 
 
 
 
 
 
 
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET
 
759

 
760

 
 
 
 
 
 
 
TOTAL ASSETS
 
$
69,437

 
$
64,210

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


2



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 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
 
5,671

 
4,708

 
 
 
 
 
 
 
Accrued liabilities
 
2,488

 
1,966

 
 
 
 
 
 
 
Domestic and foreign income taxes
 
83

 
16

 
 
 
 
 
 
 
Total current liabilities
 
8,842

 
7,290

 
 
 
 
 
 
 
LONG-TERM DEBT, NET
 
6,961

 
7,023

 
 
 
 
 
 
 
DEFERRED CREDITS AND OTHER LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Deferred domestic and foreign income taxes
 
7,048

 
6,039

 
 
 
 
 
 
 
Other
 
3,618

 
3,810

 
 
 
 
 
 
 
 
 
10,666

 
9,849

 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Common stock, at par value
 
178

 
178

 
 
 
 
 
 
 
Treasury stock
 
(5,148
)
 
(5,091
)
 
 
 
 
 
 
 
Additional paid-in capital
 
7,508

 
7,441

 
 
 
 
 
 
 
Retained earnings
 
40,700

 
37,990

 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
(448
)
 
(502
)
 
 
 
 
 
 
 
Total equity attributable to common stock
 
42,790

 
40,016

 
 
 
 
 
 
 
Noncontrolling interest
 
178

 
32

 
 
 
 
 
 
 
Total stockholders’ equity
 
42,968

 
40,048

 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
69,437

 
$
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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(Amounts in millions, except per-share amounts)

 
 
Three months ended September 30
 
 
Nine months ended September 30
 
 
 
2013

 
2012

 
2013

 
2012

REVENUES AND OTHER INCOME
 
 
 
 
 
 
 
 
Net sales
 
$
6,449

 
$
5,965

 
$
18,283

 
$
18,001

Interest, dividends and other income
 
26

 
26

 
89

 
65

Gain on sale of equity investment
 

 

 
131

 

 
 
6,475

 
5,991

 
18,503

 
18,066

COSTS AND OTHER DEDUCTIONS
 
 
 
 
 
 
 
 
Cost of sales
 
3,214

 
3,176

 
9,531

 
9,186

Selling, general and administrative and other operating expenses
 
459

 
394

 
1,347

 
1,163

Taxes other than on income
 
186

 
172

 
568

 
513

Exploration expense
 
68

 
69

 
196

 
263

Interest and debt expense, net
 
29

 
36

 
93

 
94

 
 
3,956

 
3,847

 
11,735

 
11,219

 
 
 
 
 
 
 
 
 
Income before income taxes and other items
 
2,519

 
2,144

 
6,768

 
6,847

Provision for domestic and foreign income taxes
 
(1,037
)
 
(855
)
 
(2,782
)
 
(2,869
)
Income from equity investments
 
106

 
90

 
288

 
293

Income from continuing operations
 
1,588

 
1,379

 
4,274

 
4,271

Discontinued operations, net
 
(5
)
 
(4
)
 
(14
)
 
(9
)
NET INCOME
 
$
1,583

 
$
1,375

 
$
4,260

 
$
4,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BASIC EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.97

 
$
1.70

 
$
5.30

 
$
5.26

Discontinued operations, net
 
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.01
)
BASIC EARNINGS PER COMMON SHARE
 
$
1.96

 
$
1.69

 
$
5.28

 
$
5.25

 
 
 
 
 
 
 
 
 
DILUTED EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.97

 
$
1.70

 
$
5.30

 
$
5.26

Discontinued operations, net
 
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.01
)
DILUTED EARNINGS PER COMMON SHARE
 
$
1.96

 
$
1.69

 
$
5.28

 
$
5.25

 
 
 
 
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
 
$
0.64

 
$
0.54

 
$
1.92

 
$
1.62

 
 
 
 
 
 
 
 
 
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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(Amounts in millions)

 
 
Three months ended September 30
 
 
Nine months ended September 30
 
 
 
2013

 
2012

 
2013

 
2012

Net income
 
$
1,583

 
$
1,375

 
$
4,260

 
$
4,262

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

 

 
2

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

 

 
28

 

Pension and postretirement gains (b)
 
9

 
11

 
27

 
24

Unrealized (losses) gains on derivatives (c)
 

 
(2
)
 
1

 
10

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

 
(4
)
 
(24
)
Other comprehensive income, net of tax (e)
 
8

 
9

 
54

 
2

Comprehensive income
 
$
1,591

 
$
1,384

 
$
4,314

 
$
4,264

(a)
Included in the net gain on sale of the investment in Carbocloro, a Brazilian chemical facility.
(b)
Net of tax of $(5) and $(6) for the three months ended September 30, 2013 and 2012, respectively, and $(16) and $(14) for the nine months ended September 30, 2013 and 2012.
(c)
Net of tax of zero and $1 for the three months ended September 30, 2013 and 2012, respectively, and $(1) and $(7) for the nine months ended September 30, 2013 and 2012.
(d)
Net of tax of zero for each of the three months ended September 30, 2013 and 2012, and $2 and $14 for the nine months ended September 30, 2013 and 2012, respectively.
(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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(Amounts in millions)

 
 
2013

 
2012

 
CASH FLOW FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
4,260

 
$
4,262

 
Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
Discontinued operations, net
 
14

 
9

 
Depreciation, depletion and amortization of assets
 
3,896

 
3,320

 
Deferred income tax provision
 
1,016

 
1,255

 
Other noncash charges to income
 
258

 
139

 
Gain on sale of equity investment
 
(131
)
 

 
Undistributed earnings from equity investments
 
(40
)
 
(14
)
 
Dry hole expenses
 
115

 
221

 
Changes in operating assets and liabilities, net
 
445

 
(663
)
 
Operating cash flow from continuing operations
 
9,833

 
8,529

 
Operating cash flow from discontinued operations, net of taxes
 
(47
)
 
(30
)
 
Net cash provided by operating activities
 
9,786

 
8,499

 
CASH FLOW FROM INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
 
(6,551
)
 
(7,716
)
 
Payments for purchases of assets and businesses
 
(342
)
 
(1,164
)
 
Sale of equity investment, net
 
270

 

 
Other, net
 
3

 
9

 
Net cash used by investing activities
 
(6,620
)
 
(8,871
)
 
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from long-term debt
 

 
1,736

 
Payments of long-term debt
 
(66
)
 

 
Proceeds from issuance of common stock
 
27

 
61

 
Purchases of treasury stock
 
(64
)
 
(204
)
 
Contributions from noncontrolling interest
 
145

 

 
Cash dividends paid
 
(1,034
)
 
(1,252
)
 
Other, net
 
5

 
10

 
Net cash (used) provided by financing activities
 
(987
)
 
351

 
Increase (decrease) in cash and cash equivalents
 
2,179

 
(21
)
 
Cash and cash equivalents—beginning of period
 
1,592

 
3,781

 
Cash and cash equivalents—end of period
 
$
3,771

 
$
3,760

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

6



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 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 September 30, 2013, and the consolidated statements of income, comprehensive income and cash flows for the three and nine months ended September 30, 2013 and 2012, as applicable. The income and cash flows for the periods ended September 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 October 2013, Occidental sold a portion of its equity interest in the general partner of Plains All-American Pipeline, L.P. for approximately $1.4 billion, resulting in a pre-tax gain of approximately $1.0 billion.

In October 2013, the Board of Directors authorized the pursuit of the sale of a minority interest in the Middle East/North Africa operations and the pursuit of strategic alternatives for select assets, including oil and gas interests in the Williston Basin, Hugoton Field, Piceance Basin and other Rocky Mountain assets.

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.

Dr. Ray 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 second quarter. As a result of these developments and actions, Occidental recorded a $55 million pre-tax charge in the second quarter for the 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 September 30, 2013 and December 31, 2012, the BridgeTex assets and liabilities mainly comprised property, plant and equipment and cash and cash equivalents. At September 30, 2013 and December 31, 2012, BridgeTex held approximately $123 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 derivatives that are subject to a master netting or similar arrangement and qualify for net presentation, but are not offset in the consolidated balance sheet.


7



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.

4.
Supplemental Cash Flow Information

Occidental paid United States federal, state and foreign income taxes for continuing operations of approximately $1.3 billion and $1.8 billion during the nine months ended September 30, 2013 and 2012, respectively. Interest paid totaled approximately $215 million and $167 million for the nine months ended September 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 September 30, 2013 and December 31, 2012 consisted of the following (in millions):

 
 
 
2013
 
 
 
2012
 
Raw materials
 
$
74

 
 
$
70

 
Materials and supplies
 
 
647

 
 
 
612

 
Finished goods
 
 
708

 
 
 
763

 
 
 
 
1,429

 
 
 
1,445

 
LIFO reserve
 
 
(101
)
 
 
 
(101
)
 
Total
 
$
1,328

 
 
$
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 September 30, 2013, Occidental participated in or monitored remedial activities or proceedings at 160 sites.  The following table presents Occidental’s environmental remediation reserves as of September 30, 2013, the current portion of which is included in accrued liabilities ($80 million) and the remainder in deferred credits and other liabilities — other ($254 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.


8



 
 
Number of Sites
 
Reserve Balance
(in millions)
NPL sites
 
 
32

 
 
$
51

 
Third-party sites
 
 
75

 
 
 
91

 
Occidental-operated sites
 
 
22

 
 
 
118

 
Closed or non-operated Occidental sites
 
 
31

 
 
 
74

 
Total
 
 
160

 
 
$
334

 

As of September 30, 2013, Occidental’s environmental reserves exceeded $10 million each at 10 of the 160 sites described above, and 112 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 or disposed assets with respect to which a third party or Occidental retains liability or indemnifies the other party for conditions that existed prior to the transaction.

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 September 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 September 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 nine months ended September 30, 2013 and 2012 (in millions):

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

 
 
$
8

 
 
$
3

 
 
$
6

 
Interest cost
 
 
6

 
 
 
11

 
 
 
6

 
 
 
10

 
Expected return on plan assets
 
 
(7
)
 
 
 

 
 
 
(7
)
 
 
 

 
Amortization of prior service cost
 
 

 
 
 

 
 
 
1

 
 
 

 
Recognized actuarial loss
 
 
10

 
 
 
9

 
 
 
4

 
 
 
10

 
Total
 
$
12

 
 
$
28

 
 
$
7

 
 
$
26

 

Nine months ended September 30
 
 
2013
 
 
 
2012
 
Net Periodic Benefit Costs
 
Pension
Benefit
 
Postretirement
Benefit
 
Pension
Benefit
 
Postretirement
Benefit
Service cost
 
$
10

 
 
$
22

 
 
$
9

 
 
$
19

 
Interest cost
 
 
19

 
 
 
32

 
 
 
20

 
 
 
32

 
Expected return on plan assets
 
 
(23
)
 
 
 

 
 
 
(23
)
 
 
 

 
Amortization of prior service cost
 
 

 
 
 

 
 
 
1

 
 
 

 
Recognized actuarial loss
 
 
18

 
 
 
29

 
 
 
14

 
 
 
27

 
Total
 
$
24

 
 
$
83

 
 
$
21

 
 
$
78

 

Occidental contributed approximately $1 million in each of the three-month periods ended September 30, 2013 and 2012, and approximately $3 million and $4 million in the nine-month periods ended September 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

10



are supported by observable prices at which transactions are executed in the marketplace. Occidental generally classifies these measurements as Level 2.
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 September 30, 2013 and December 31, 2012 (in millions):

 
 
Fair Value Measurements at
 
 
 
 
 
 
September 30, 2013 Using
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(a) 
Total Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
551

 
$
314

 
$

 
$
(750
)
 
$
115

Liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
524

 
$
344

 
$

 
$
(784
)
 
$
84


 
 
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 and nine months ended September 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 September 30, 2013 and December 31, 2012 were approximately $7.7 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 September 30, 2013 and December 31, 2012, Occidental had approximately 16 billion cubic feet and 20 billion cubic feet of natural gas held in storage, respectively.  As of September 30, 2013 and December 31, 2012, Occidental had cash-flow hedges for the forecast sale, to be settled by physical delivery, of approximately 18 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 nine months ended September 30, 2013 and 2012 (in millions):
 
 
 
 
Periods ended September 30
 
 
 
Three Months
 
 
 
 
Nine Months

 
 
2013
 
2012
 
2013
 
2012
Beginning Balance — AOCI
 
$
(9
)
 
$
(11
)
 
$
(7
)
 
$
1

Unrealized (losses) gains recognized in AOCI
 

 
(2
)
 
1

 
10

Gains reclassified to income
 
(1
)
 

 
(4
)
 
(24
)
Ending Balance — AOCI
 
$
(10
)
 
$
(13
)
 
$
(10
)
 
$
(13
)

Occidental expects to reclassify an insignificant amount, based on the valuation as of September 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 and nine months ended September 30, 2013 and 2012.


12



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

 
 
Net Outstanding Position
 
 
Long / (Short)
Commodity
 
2013
 
2012
Oil (million barrels)
 
(15
)
 
(4
)
Natural gas (billion cubic feet)
 
(47
)
 
(170
)
Precious metals (million troy ounces)
 
1

 
1


The volumes in the table above exclude contracts tied to index prices, for which the fair value, if any, is minimal at any point in time. These contracts do not expose Occidental to price risk because the contract prices fluctuate with index 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 September 30, 2013 and December 31, 2012.

Occidental fulfills its short positions through its own production or by third-party purchase contracts. Subsequent to September 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 $56 million and $78 million of net gains from derivatives not designated as hedging instruments were recognized in net sales for the three months ended September 30, 2013 and 2012, respectively.   Approximately $41 million and $42 million of net gains from derivatives not designated as hedging instruments were recognized in net sales for the nine months ended September 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 September 30, 2013 and December 31, 2012 (in millions):
 
 
 
Asset Derivatives
 
 
 
Liability Derivatives
 
 
September 30, 2013
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Cash-flow hedges (a)
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
$
4

 
Accrued liabilities
 
$
1

Long-term receivables and other assets, net
 

 
Deferred credits and other liabilities
 

 
 
 
 
4

 
 
 
1

Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
841

 
Accrued liabilities
 
850

Long-term receivables and other assets, net
 
20

 
Deferred credits and other liabilities
 
17

 
 
 
 
861

 
 
 
867

Total gross fair value
 
 
 
865

 
 
 
868

Less: counterparty netting and cash collateral (b) (d)
 
 
 
(750
)
 
 
 
(784
)
Total net fair value of derivatives
 
 
 
$
115

 
 
 
$
84

 
 
 
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 September 30, 2013, collateral received of $13 million has been netted against derivative assets and collateral paid of $47 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 $85 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 September 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 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 September 30, 2013 and December 31, 2012, Occidental had a liability of $19 million and $34 million, respectively, net of collateral posted of $28 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 September 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
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
5,018

 
$
1,200

 
$
442

 
$
(211
)
 
$
6,449

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
2,363

 
$
181

 
$
212

 
$
(131
)
(a) 
$
2,625

Income taxes
 

 

 

 
(1,037
)
(b) 
(1,037
)
Discontinued operations, net
 

 

 

 
(5
)
 
(5
)
Net income (loss)
 
$
2,363

 
$
181

 
$
212

 
$
(1,173
)
 
$
1,583

 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
4,635

 
$
1,119

 
$
389

 
$
(178
)
 
$
5,965

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
2,026

 
$
162

 
$
156

 
$
(110
)
(a) 
$
2,234

Income taxes
 

 

 

 
(855
)
(b) 
(855
)
Discontinued operations, net
 

 

 

 
(4
)
 
(4
)
Net income (loss)
 
$
2,026

 
$
162

 
$
156

 
$
(969
)
 
$
1,375


 
 
 
 
 
 
Midstream
 
Corporate
 
 
 
 
 
 
 
 
and
 
and
 
 
 
 
Oil and Gas
 
Chemical
 
Marketing
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
14,179

 
$
3,562

 
$
1,164

 
$
(622
)
 
$
18,283

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
6,383

 
$
615

(c) 
$
475

 
$
(417
)
(a) 
$
7,056

Income taxes
 

 

 

 
(2,782
)
(b) 
(2,782
)
Discontinued operations, net
 

 

 

 
(14
)
 
(14
)
Net income (loss)
 
$
6,383

 
$
615

 
$
475

 
$
(3,213
)
 
$
4,260

 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
14,032

 
$
3,439

 
$
1,044

 
$
(514
)
 
$
18,001

 
 
 
 
 
 
 
 
 
 
 
Pretax operating profit (loss)
 
$
6,573

 
$
540

 
$
364

 
$
(337
)
(a) 
$
7,140

Income taxes
 

 

 

 
(2,869
)
(b) 
(2,869
)
Discontinued operations, net
 

 

 

 
(9
)
 
(9
)
Net income (loss)
 
$
6,573

 
$
540

 
$
364

 
$
(3,215
)
 
$
4,262

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

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 nine months ended September 30, 2013 and 2012:

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

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1,588

 
$
1,379

 
$
4,274

 
$
4,271

Discontinued operations, net
 
(5
)
 
(4
)
 
(14
)
 
(9
)
Net income
 
1,583

 
1,375

 
4,260

 
4,262

Less: Net income allocated to participating securities
 
(4
)
 
(3
)
 
(9
)
 
(8
)
Net income, net of participating securities
 
$
1,579

 
$
1,372

 
$
4,251

 
$
4,254

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares
 
805.1

 
809.7

 
804.8

 
810.1

 
 
 
 
 
 
 
 
 
Basic EPS
 
$
1.96

 
$
1.69

 
$
5.28

 
$
5.25

 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, net of participating securities
 
$
1,579

 
$
1,372

 
$
4,251

 
$
4,254

Weighted average number of basic shares
 
805.1

 
809.7

 
804.8

 
810.1

Dilutive effect of potentially dilutive securities
 
0.6

 
0.7

 
0.6

 
0.7

Total diluted weighted average common shares
 
805.7

 
810.4

 
805.4

 
810.8

 
 
 
 
 
 
 
 
 
Diluted EPS
 
$
1.96

 
$
1.69

 
$
5.28

 
$
5.25



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 $1.6 billion for the third quarter of 2013 on net sales of $6.4 billion, compared to net income of $1.4 billion on net sales of $6.0 billion for the same period of 2012.  Diluted earnings per share (EPS) were $1.96 and $1.69 for the third quarters of 2013 and 2012, respectively.  Occidental reported net income of $4.3 billion for the first nine months of 2013 on net sales of $18.3 billion, compared to net income of $4.3 billion on net sales of $18.0 billion for the same period of 2012.  Diluted EPS were $5.28 for the nine months of 2013, compared to $5.25 for the same period of 2012.  

Net income for the three months ended September 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 domestic liquids volumes, partially offset by higher oil and gas segment depreciation, depletion and amortization (DD&A) rates and lower Middle East/North Africa crude oil volumes. Net income for the nine months ended September 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 domestic liquids volumes, mainly offset by higher oil and gas segment DD&A rates, lower domestic NGL prices, lower Middle East/North Africa oil prices and volumes and higher energy and feedstock costs for the chemical segment.

Income for the nine months ended September 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 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 September 30, 2013, of $6.4 billion, compared to $6.0 billion for the same period of 2012, reflected higher domestic realized prices for oil and natural gas and higher domestic liquids volumes, partially offset by lower Middle East/North Africa crude oil volumes. Net sales for the nine months ended September 30, 2013, of $18.3 billion, compared to $18.0 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 domestic NGL prices, and lower Middle East/North Africa oil prices and volumes.

Cost of sales for the three and nine months ended September 30, 2013, compared to the same periods in 2012, reflected higher oil and gas segment DD&A rates, partially offset by lower oil and gas segment operating costs. Selling, general and administrative and other operating expenses (SG&A) for the three and nine months ended September 30, 2013, compared to the same periods in the prior year, reflected higher employee-related expenses, particularly in the third quarter, in part due to Occidental's improved stock price. Nine-month SG&A for 2013 also included the 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 increase in the provision for domestic and foreign income taxes for the three months ended September 30, 2013, compared to the same period of 2012, was due to higher pre-tax income in 2013 and a higher effective rate. The decrease in the provision for domestic and foreign income taxes for the nine months ended September 30, 2013, compared to the same period of 2012, was due to lower pre-tax income in 2013 and a lower effective 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 oil prices and marketing and trading volumes and the timing of settlements, partially offset by lower international crude oil lifting volumes in the third quarter of 2013, compared to the fourth quarter of 2012. The decrease in other current assets was mainly due to the collection of an expected tax receivable during the second quarter of 2013. The decrease in investments in unconsolidated entities was mainly due to the sale of Occidental’s investment in Carbocloro and to cash dividends received in excess of income. The increase

18



in property, plant and equipment, net, reflected capital expenditures of $6.4 billion, after $145 million of contributions from a non-controlling interest, partially offset by DD&A.
The increase in accounts payable reflected higher oil prices and marketing and trading volumes during the third 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 third quarter of 2013. The increase in accrued liabilities was due to the accelerated payout of the fourth quarter 2012 dividend during 2012, resulting in a lower year-end balance. The September 30, 2013 balance included the accrual of the third quarter 2013 dividend to be paid in the fourth quarter. The increase in deferred domestic and foreign income taxes was mainly due to the accelerated tax depreciation of the capital expenditures in the first nine months of 2013. The increase in stockholders’ equity reflected net income for the first nine months of 2013, partially offset by dividends and stock purchases.
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 nine months ended September 30, 2013 and 2012 (in millions):
 
 
 
 
 
 
Periods ended September 30
 
 
 
 
Three Months
 
 
 
Nine Months
 
 
 
2013

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Net Sales (a)
 
 
 
 
 
 
 
 
Oil and Gas
 
$
5,018

 
$
4,635

 
$
14,179

 
$
14,032

Chemical
 
1,200

 
1,119

 
3,562

 
3,439

Midstream and Marketing
 
442

 
389

 
1,164

 
1,044

Eliminations
 
(211
)
 
(178
)
 
(622
)
 
(514
)
 
 
 
 
 
 
 
 
 
 
 
$
6,449

 
$
5,965

 
$
18,283

 
$
18,001

Segment Earnings (b)
 
 
 
 
 
 
 
 
Oil and Gas
 
$
2,363

 
$
2,026

 
$
6,383

 
$
6,573

Chemical
 
181

 
162

 
615

 
540

Midstream and Marketing
 
212

 
156

 
475

 
364

 
 
2,756

 
2,344

 
7,473

 
7,477

 
 
 
 
 
 
 
 
 
Unallocated Corporate Items (b)
 
 
 
 
 
 
 
 
Interest expense, net
 
(28
)
 
(34
)
 
(87
)
 
(87
)
Income taxes
 
(1,037
)
 
(855
)
 
(2,782
)
 
(2,869
)
Other expense, net
 
(103
)
 
(76
)
 
(330
)
 
(250
)
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
1,588

 
1,379

 
4,274

 
4,271

Discontinued operations, net
 
(5
)
 
(4
)
 
(14
)
 
(9
)
 
 
 
 
 
 
 
 
 
Net income
 
$
1,583

 
$
1,375

 
$
4,260

 
$
4,262

(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 nine months ended September 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 September 30
 
 
 
 
Three Months
 
 
 
Nine Months
 
 
 
2013

 
2012

 
2013

 
2012

 
 
 
 
 
 
 
 
 
Oil & Gas
 
 
 
 
 
 
 
 
No significant items affecting earnings
 
$

 
$

 
$

 
$

Total Oil and Gas
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Chemical
 
 
 
 
 
 
 
 
Carbocloro sale gain
 
$

 
$

 
$
131

 
$

Total Chemical
 
$

 
$

 
$
131

 
$

 
 
 
 
 
 
 
 
 
Midstream and Marketing
 
 
 
 
 
 
 
 
No significant items affecting earnings
 
$

 
$

 
$

 
$

Total Midstream and Marketing
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
Charge for former executives and consultants
 
$

 
$

 
$
(55
)
 
$

Tax effect of pre-tax adjustments
 

 

 
(25
)
 

Discontinued operations, net*
 
(5
)
 
(4
)
 
(14
)
 
(9
)
Total Corporate
 
$
(5
)
 
$
(4
)
 
$
(94
)
 
$
(9
)