Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Measurements

Fair Value Measurements

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 the assets or liabilities; Level 2 — using observable inputs other than quoted prices for the assets or liabilities; and Level 3 — using unobservable inputs.  Transfers between levels, if any, are recognized 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 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	Occidental values exchange-cleared commodity derivatives using closing prices provided by the exchange as of the balance sheet date. Those 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 classified as Level 2 and are generally valued using quotations provided by brokers or industry-standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility factors, credit risk and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, and can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace.
Ø	Occidental values 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 generally unobservable in the marketplace, or are observable but have been adjusted based upon various assumptions and the fair value is designated as Level 3 within the valuation hierarchy.
Ø	Occidental values its available for sale investment in California Resources based on the closing share price of California Resources’ common stock as of the balance sheet date. This investment is classified as Level 1. At June 30, 2015, Occidental had approximately 71.5 million shares of common stock of California Resources, which are recorded as a $432 million available for sale investment.

Occidental generally uses an income approach to measure fair value when observable inputs are unavailable. 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, 2015 and December 31, 2014 (in millions):

Fair Value Measurements at June 30, 2015:

Description	Level 1		Level 2		Level 3		Netting and Collateral		Total Fair Value
Assets:
Commodity derivatives	$	139	$	35	$	—	$	(139)	$	35
Available for sale investment	$	432	$	—	$	—	$	—	$	432
Liabilities:
Commodity derivatives	$	130	$	162	$	—	$	(127)	$	165

Fair Value Measurements at December 31, 2014:

Description	Level 1		Level 2		Level 3		Netting and Collateral		Total Fair Value
Assets:
Commodity derivatives	$	712	$	127	$	—	$	(742)	$	97
Available for sale investment	$	394	$	—	$	—	$	—	$	394
Liabilities:
Commodity derivatives	$	750	$	246	$	—	$	(756)	$	240

Fair Values — Nonrecurring

During the three months ended June 30, 2015 and 2014 and the six months ended June 30, 2014, Occidental did not have any assets or liabilities measured at fair value on a non-recurring basis. As a result of lower commodity prices during the first quarter 2015, Occidental recognized approximately $160 million in pre-tax impairment charges related to proved domestic oil and gas properties.

Other Financial Instruments

The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than long term fixed-rate debt, approximate fair value.  The cost, if any, to terminate Occidental’s 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 value of Occidental’s debt as of June 30, 2015 and December 31, 2014 was $8.6 billion and $7.0 billion, respectively, and its carrying value net of unamortized discount as of June 30, 2015 and December 31, 2014 was $8.3 billion and $6.8 billion, respectively. The majority of Occidental’s debt is classified as Level 1, with $68 million classified as Level 2.