10-K 1 oxy10k12-31x2017.htm 10-K Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended
December 31, 2017
 
For the transition period from                to

Commission File Number 1-9210
Occidental Petroleum Corporation
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization
 
Delaware
I.R.S. Employer Identification No.
 
95-4035997
Address of principal executive offices
 
5 Greenway Plaza, Suite 110, Houston, Texas
Zip Code
 
77046
Registrant's telephone number, including area code
 
(713) 215-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
9 1/4% Senior Debentures due 2019
 
New York Stock Exchange
Common Stock, $0.20 par value
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: (Note: Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections).       Yes ¨   No  þ
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.      Yes þ   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period as the registrant was required to submit and post files).       Yes þ   No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
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 "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer
þ
Accelerated Filer
¨
Emerging Growth Company
¨
Non-Accelerated Filer
¨
Smaller Reporting Company
¨
 
 

If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
   
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ¨   No  þ

The aggregate market value of the voting common stock held by nonaffiliates of the registrant was approximately $45.8 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $59.87 per share of Common Stock on June 30, 2017. Shares of Common Stock held by each executive officer and director have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of potential affiliate status is not a conclusive determination for other purposes.
At January 31, 2018, there were 765,148,694 shares of Common Stock outstanding, par value $0.20 per share.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement, relating to its May 4, 2018 Annual Meeting of Stockholders, are incorporated by reference into Part III.




TABLE OF CONTENTS
 
  Page
Part I
 
 
Items 1 and 2
Business and Properties.........................................................................................................................................................
 
General.............................................................................................................................................................................
 
Oil and Gas Operations....................................................................................................................................................
 
Chemical Operations........................................................................................................................................................
 
Midstream and Marketing Operations...............................................................................................................................
 
Capital Expenditures.........................................................................................................................................................
 
Employees........................................................................................................................................................................
 
Environmental Regulation.................................................................................................................................................
 
Available Information.........................................................................................................................................................
Item 1A
Risk Factors............................................................................................................................................................................
Item 1B
Unresolved Staff Comments...................................................................................................................................................
Item 3
Legal Proceedings..................................................................................................................................................................
Item 4
Mine Safety Disclosures.........................................................................................................................................................
 
Executive Officers...................................................................................................................................................................
Part II
 
 
Item 5
Item 6
Selected Financial Data..........................................................................................................................................................
Item 7
 
Strategy.............................................................................................................................................................................
 
Oil and Gas Segment........................................................................................................................................................
 
Chemical Segment............................................................................................................................................................
 
Midstream and Marketing Segment..................................................................................................................................
 
Segment Results of Operations and Significant Items Affecting Earnings........................................................................
 
Taxes.................................................................................................................................................................................
 
Consolidated Results of Operations.................................................................................................................................
 
Consolidated Analysis of Financial Position......................................................................................................................
 
Liquidity and Capital Resources.......................................................................................................................................
 
Off-Balance-Sheet Arrangements.....................................................................................................................................
 
Contractual Obligations.....................................................................................................................................................
 
Lawsuits, Claims and Contingencies................................................................................................................................
 
Environmental Liabilities and Expenditures......................................................................................................................
 
Foreign Investments.........................................................................................................................................................
 
Critical Accounting Policies and Estimates.......................................................................................................................
 
Significant Accounting and Disclosure Changes...............................................................................................................
 
Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data................................................................
Item 7A
Quantitative and Qualitative Disclosures About Market Risk..................................................................................................
Item 8
Financial Statements and Supplementary Data.....................................................................................................................
 
 
 
Consolidated Balance Sheets...........................................................................................................................................
 
Consolidated Statements of Operations...........................................................................................................................
 
Consolidated Statements of Comprehensive Income.......................................................................................................
 
Consolidated Statements of Stockholders' Equity.............................................................................................................
 
Consolidated Statements of Cash Flows..........................................................................................................................
 
Notes to Consolidated Financial Statements....................................................................................................................
 
Quarterly Financial Data (Unaudited)................................................................................................................................
 
Supplemental Oil and Gas Information (Unaudited).........................................................................................................
 
 
 
Schedule II – Valuation and Qualifying Accounts..............................................................................................................
Item 9
Item 9A
Controls and Procedures........................................................................................................................................................
 
 
Disclosure Controls and Procedures.................................................................................................................................
Item 9B
Other Information....................................................................................................................................................................
 
 
 
Part III
 
 
Item 10
Directors, Executive Officers and Corporate Governance......................................................................................................
Item 11
Executive Compensation........................................................................................................................................................
Item 12
Security Ownership of Certain Beneficial Owners and Management ....................................................................................
Item 13
Certain Relationships and Related Transactions and Director Independence.......................................................................
Item 14
Principal Accounting Fees and Services................................................................................................................................
 
 
 
Part IV
 
 
Item 15
Exhibits and Financial Statement Schedules.........................................................................................................................
Item 16
Form 10-K Summary..............................................................................................................................................................




Part I
 
ITEMS 1 AND 2 BUSINESS AND PROPERTIES

In this report, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC) incorporated in 1986, or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental conducts its operations through various subsidiaries and affiliates. Occidental’s executive offices are located at 5 Greenway Plaza, Suite 110, Houston, Texas 77046; telephone (713) 215-7000.

GENERAL
Occidental’s principal businesses consist of three segments. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment (OxyChem) 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. Additionally, the midstream and marketing segment operates a crude oil export terminal, as well as invests in entities that conduct similar activities.
For information regarding Occidental's segments, geographic areas of operation and current developments, including strategies and actions related thereto, see the information in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) section of this report and Note 16 to the Consolidated Financial Statements.


 
OIL AND GAS OPERATIONS
General
Occidental’s domestic upstream oil and gas operations are located in New Mexico and Texas. International operations are located in Colombia, Oman, Qatar and the United Arab Emirates (UAE).

Proved Reserves and Sales Volumes
The table below shows Occidental’s total oil, NGLs and natural gas proved reserves and sales volumes in 2017, 2016 and 2015. See "MD&A — Oil and Gas Segment," and the information under the caption "Supplemental Oil and Gas Information" for certain details regarding Occidental’s proved reserves, the reserves estimation process, sales and production volumes, production costs and other reserves-related data.

Competition
As a producer of oil and condensate, NGLs and natural gas, Occidental competes with numerous other domestic and foreign private and government producers. Oil, NGLs and natural gas are commodities that are sensitive to prevailing global and local, current and anticipated market conditions. Occidental competes for transportation capacity and infrastructure for the delivery of its products, which are sold at current market prices or on a forward basis to refiners and other market participants. Occidental’s competitive strategy relies on increasing production through developing conventional and unconventional fields, utilizing primary and enhanced oil recovery (EOR) techniques and strategic acquisitions in areas where Occidental has a competitive advantage as a result of its current successful operations or investments in shared infrastructure. Occidental also competes to develop and produce its worldwide oil and gas reserves cost-effectively, maintain a skilled workforce and obtain quality services.

Comparative Oil and Gas Proved Reserves and Sales Volumes

Oil, which includes condensate, and NGLs are in millions of barrels; natural gas is in billions of cubic feet (Bcf); barrels of oil equivalent (BOE) are in millions.
 
 
2017
 
2016
 
2015
 
Proved Reserves
 
Oil
 
NGLs
 
Gas
 
BOE
(a) 
Oil
 
NGLs
 
Gas
 
BOE
(a) 
Oil
 
NGLs
 
Gas
 
BOE
(a) 
United States
 
1,107

 
247

 
1,205

 
1,555

 
960

 
219

 
1,045

 
1,353

 
915

 
186

 
1,019

 
1,271

 
International
 
408

 
198

 
2,626

 
1,043

 
397

 
201

 
2,729

 
1,053

 
394

 
144

 
2,349

 
929

 
Total
 
1,515

 
445

 
3,831

 
2,598

 
1,357

 
420

 
3,774

 
2,406

 
1,309

 
330

 
3,368

 
2,200

 
Sales Volumes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
73

 
20

 
108

 
111

 
69

 
19

 
132

 
110

 
73

 
20

 
155

 
119

 
International
 
66

 
11

 
188

 
109

 
74

 
11

 
217

 
121

 
86

 
7

 
205

 
127

 
Total
 
139

 
31

 
296

 
220

 
143

 
30

 
349

 
231

 
159

 
27

 
360

 
246

 
Note: The detailed proved reserves information presented in accordance with Item 1202(a)(2) to Regulation S-K under the Securities Exchange Act of 1934 (Exchange Act) is provided under the heading "Supplemental Oil and Gas Information". Proved reserves are stated on a net basis after applicable royalties.
(a)
Natural gas volumes are converted to BOE at six thousand cubic feet (Mcf) of gas per one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, in 2017, the average prices of West Texas Intermediate (WTI) oil and New York Mercantile Exchange (NYMEX) natural gas were $51.34 per barrel and $3.08 per Mcf, respectively, resulting in an oil to gas ratio of 17 to 1.

            
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CHEMICAL OPERATIONS
General
OxyChem owns and operates manufacturing plants at 22 domestic sites in Alabama, Georgia, Illinois, Kansas, Louisiana, Michigan, New Jersey, New York, Ohio, Tennessee and Texas and at two international sites in Canada and Chile. In early 2014, OxyChem, through a 50/50 joint venture with Mexichem S.A.B. de C.V., broke ground on a 1.2 billion pound-per-year ethylene cracker at the OxyChem Ingleside facility. The cracker began commercial operations in the first quarter of 2017. OxyChem completed construction on the previously announced expansion of its manufacturing plant in Geismar, Louisiana, on budget and on time. In December 2017, the new facility began producing 4CPe, a new raw
 
material used in making next-generation, climate-friendly refrigerants with a low global-warming and zero ozone-depletion potential.

Competition
OxyChem competes with numerous other domestic and foreign chemical producers. OxyChem’s market position was first or second in the United States (U.S.) in 2017 for the principal basic chemicals products it manufactures and markets as well as for vinyl chloride monomer (VCM). OxyChem ranks in the top three producers of polyvinyl chloride (PVC) in the United States. OxyChem’s competitive strategy is to be a low-cost producer of its products in order to compete on price.

OxyChem produces the following products:
 
 
 
 
 
Principal Products
 
Major Uses
 
Annual Capacity
Basic Chemicals
 
 
 
 
Chlorine
 
Raw material for ethylene dichloride (EDC), water treatment and pharmaceuticals
 
3.4 million tons
Caustic soda
 
Pulp, paper and aluminum production
 
3.5 million tons
Chlorinated organics
 
Refrigerants, silicones and pharmaceuticals
 
1.0 billion pounds
Potassium chemicals
 
Fertilizers, batteries, soaps, detergents and specialty glass
 
0.4 million tons
EDC
 
Raw material for vinyl chloride monomer (VCM)
 
2.1 billion pounds
Chlorinated isocyanurates
 
Swimming pool sanitation and disinfecting products
 
131 million pounds
Sodium silicates
 
Catalysts, soaps, detergents and paint pigments
 
0.6 million tons
Calcium chloride
 
Ice melting, dust control, road stabilization and oil field services
 
0.7 million tons
Vinyls
 
 
 
 
VCM
 
Precursor for polyvinyl chloride (PVC)
 
6.2 billion pounds
PVC
 
Piping, building materials and automotive and medical products
 
3.7 billion pounds
Ethylene
 
Raw material for VCM
 
1.2 billion pounds (a)
(a) Amount is gross production capacity for 50/50 joint venture with Mexichem.

            
4



MIDSTREAM AND MARKETING OPERATIONS
General
Occidental's midstream and marketing operations primarily support and enhance its oil and gas and chemicals businesses and also provide similar services for third parties.
In 2017, Occidental became the largest exporter of Permian light sweet crude from the U.S. Gulf Coast.  The export market for crude has developed since the lifting of the export ban in 2016. While U.S. producers have increased production of light crude, U.S. refineries are constrained in their ability to process incremental volumes of light crude without significant incremental capital investment, necessitating exports to international markets. Occidental owns and operates a crude oil terminal at Ingleside in the Port of Corpus Christi. Occidental believes it is the premier crude oil terminal on the U.S. Gulf Coast due to its logistical benefits, high loading rate and access to sizable quantities of consistent quality Permian crude oil. In response to the increase in Permian production and the need to export these barrels, Occidental is expanding its Ingleside Crude Terminal to approximately 750,000 barrels per day of capacity and 6.8 million barrels of storage which is expected to be operational by the end of 2019. Occidental is also expanding the facility to be capable of
 
loading very large crude carrier (VLCC) size vessels by the fourth quarter of 2018.

Competition
Occidental's midstream and marketing businesses operate in competitive and highly regulated markets. Occidental's Ingleside Crude Terminal and domestic pipeline businesses compete with other midstream companies to provide transportation services. The competitive strategy of Occidental's domestic pipeline business is to ensure that its pipeline and gathering systems connect various production areas to multiple market locations. Transportation rates are regulated and tariff-based. Occidental's Ingleside Crude Terminal business is to provide terminalling services and access to domestic and international markets for increasing Permian Basin production. Other midstream and marketing operations also support Occidental's domestic and international oil and gas and chemical operations. Occidental's marketing business competes with other market participants on exchange platforms and through other bilateral transactions with direct counterparties. Occidental maximizes the value of its transportation and storage assets by marketing its own and third-party production in the oil and gas business.

The midstream and marketing operations are conducted in the locations described below:
Location
 
Description
Capacity
Gas Plants
 
 
 
Texas, New Mexico and Colorado
 
Occidental and third-party-operated natural gas gathering, compression and processing systems, and CO2 processing and capturing
2.8 Bcf per day
Texas
 
50/50 non-controlling interest in gas processing facility (cryogenic plant with acid gas treating capability)
0.2 Bcf per day
United Arab Emirates
 
Natural gas processing facilities for Al Hosn Gas
1.1 Bcf per day
Pipelines and Gathering Systems
 
Texas, New Mexico, and Oklahoma
 
Common carrier oil pipeline and storage system
720,000 barrels of oil per day
7.1 million barrels of oil storage
2,950 miles of pipeline
Texas, New Mexico and Colorado
 
CO2 fields and pipeline systems transporting CO2 to oil and gas producing locations
2.6 Bcf per day
Dolphin Pipeline - Qatar and United Arab Emirates
 
Equity investment in a natural gas pipeline
3.2 Bcf of natural gas per day
Western and Southern United States and Canada
 
Equity investment in entity involved in pipeline transportation, storage, terminalling and marketing of oil, gas and related petroleum products
19,200 miles of active crude oil and NGL pipelines and gathering systems. (a)
142 million barrels of crude oil, refined products and NGL storage capacity and
97 Bcf of natural gas storage working capacity.(a)
Ingleside Crude Terminal
 
 
 
Texas
 
Oil pipeline, terminal and storage system
300,000 barrels of oil per day
2.1 million barrels of oil storage
Power Generation
 
 
 
Texas and Louisiana
 
Occidental-operated power and steam generation facilities
1,200 megawatts and 1.6 million pounds of steam per hour
(a)
Amounts are gross, including interests held by third parties.

            
5



CAPITAL EXPENDITURES
For information on capital expenditures, see the information under the heading "Liquidity and Capital Resources” in the MD&A section of this report.

EMPLOYEES
Occidental employed approximately 11,000 people at December 31, 2017, 7,000 of whom were located in the U.S. Occidental employed approximately 7,000 people in the oil and gas and midstream and marketing segments and 3,000 people in the chemical segment. An additional 1,000 people were employed in administrative and headquarters functions. Approximately 500 U.S.-based employees and 900 foreign-based employees are represented by labor unions.

ENVIRONMENTAL REGULATION
For environmental regulation information, including associated costs, see the information under the heading "Environmental Liabilities and Expenditures" in the MD&A section of this report and "Risk Factors."

AVAILABLE INFORMATION
Occidental makes the following information available free of charge on its website at www.oxy.com:
Ø
Forms 10-K, 10-Q, 8-K and amendments to these forms as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC);
Ø
Other SEC filings, including Forms 3, 4 and 5; and
Ø
Corporate governance information, including its Corporate Governance Policies, board-committee charters and Code of Business Conduct.
Information contained on Occidental's website is not part of this report.

ITEM 1A    RISK FACTORS
Volatile global and local commodity pricing strongly affect Occidental’s results of operations.
Occidental's financial results correlate closely to the prices it obtains for its products, particularly oil and, to a lesser extent, natural gas and NGLs, and its chemical products.
Prices for crude oil, natural gas and NGLs fluctuate widely. Historically, the markets for crude oil, natural gas, NGLs and refined products have been volatile and may continue to be volatile in the future. If the prices of oil, natural gas, or NGLs continue to be volatile, reverse their recent increases or decline, Occidental's operations, financial condition, cash flows and level of expenditures may be materially and adversely affected.
Prices are set by global and local market forces which are not in Occidental's control. These factors include, among others:
Ø
Worldwide and domestic supplies of, and demand for, crude oil, natural gas, NGLs and refined products.
Ø
The cost of exploring for, developing, producing, refining and marketing crude oil, natural gas, NGLs and refined products.
Ø
Operational impacts such as production disruptions, technological advances and regional market conditions,
 
including available transportation capacity and infrastructure constraints in producing areas.
Ø
Changes in weather patterns and climate.
Ø
The impacts of the members of OPEC and other non-OPEC member-producing nations that may agree to and maintain production levels.
Ø
The worldwide military and political environment, uncertainty or instability resulting from an escalation or outbreak of armed hostilities or acts of terrorism in the United States, or elsewhere.
Ø
The price and availability of alternative and competing fuels.
Ø
Domestic and foreign governmental regulations and taxes.
Ø
Additional or increased nationalization and expropriation activities by foreign governments.
Ø
General economic conditions worldwide.
Ø
Volatility in commodity futures markets.
 
The long-term effects of these and other conditions on the prices of crude oil, natural gas, NGLs and refined products are uncertain. Generally, Occidental's practice is to remain exposed to market prices of commodities; however, management may elect to hedge the price risk of crude oil, natural gas and NGLs in the future.
The prices obtained for Occidental’s chemical products correlate strongly to the health of the United States and global economies, as well as chemical industry expansion and contraction cycles. Occidental also depends on feedstocks and energy to produce chemicals, which are commodities subject to significant price fluctuations.

Occidental may experience delays, cost overruns, losses or other unrealized expectations in development efforts and exploration activities.
Occidental bears the risks of equipment failures, construction delays, escalating costs or competition for services, materials, supplies or labor, property or border disputes, disappointing drilling results or reservoir performance, title problems and other associated risks that may affect its ability to profitably grow production, replace reserves and achieve its targeted returns.
Exploration is inherently risky and is subject to delays, misinterpretation of geologic or engineering data, unexpected geologic conditions or finding reserves of disappointing quality or quantity, which may result in significant losses.

Governmental actions and political instability may affect Occidental’s results of operations.
Occidental’s businesses are subject to the decisions of many federal, state, local and foreign governments and political interests. As a result, Occidental faces risks of:
Ø
New or amended laws and regulations, or new or different applications or interpretations of existing laws and regulations, including those related to drilling, manufacturing or production processes (including well stimulation techniques such as hydraulic fracturing and acidization), labor and employment, taxes, royalty rates, permitted production rates, entitlements, import, export and use of raw materials, equipment or products, use or increased use of land, water and other natural resources, safety, the manufacturing of chemicals, asset integrity management, the marketing of commodities, security and environmental protection, all of which may restrict or prohibit activities of Occidental or its contractors, increase

            
6



Occidental's costs or reduce demand for Occidental's products.
Ø
Refusal of, or delay in, the extension or grant of exploration, development or production contracts.
Ø
Development delays and cost overruns due to approval delays for, or denial of, drilling, construction, environmental and other permits and authorizations.
In addition, Occidental has and may continue to experience adverse consequences, such as risk of loss or production limitations, because certain of its international operations are located in countries affected by political instability, nationalizations, corruption, armed conflict, terrorism, insurgency, civil unrest, security problems, labor unrest, OPEC production restrictions, equipment import restrictions and sanctions. Exposure to such risks may increase if a greater percentage of Occidental’s future oil and gas production or revenue comes from international sources.

Occidental's oil and gas business operates in highly competitive environments, which affect, among other things, its ability to make acquisitions to grow production and replace reserves.
Results of operations, reserves replacement and growth in oil and gas production depend, in part, on Occidental’s ability to profitably acquire additional reserves. Occidental has many competitors (including national oil companies), some of which: (i) are larger and better funded, (ii) may be willing to accept greater risks or (iii) have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay of reserve replacement efforts. In addition, during periods of low product prices, any cash conservation efforts may delay production growth and reserve replacement efforts.
Occidental’s acquisition activities also carry risks that it may: (i) not fully realize anticipated benefits due to less-than-expected reserves or production or changed circumstances, such as declines in crude oil, NGL, and gas prices; (ii) bear unexpected integration costs or experience other integration difficulties; (iii) experience share price declines based on the market’s evaluation of the activity; or (iv) assume liabilities that are greater than anticipated.

Occidental’s oil and gas reserves are estimates based on professional judgments and may be subject to revision.
Reported oil and gas reserves are an estimate based on periodic review of reservoir characteristics and recoverability, including production decline rates, operating performance and economic feasibility at the prevailing commodity prices, assumptions concerning future crude oil and natural gas prices, future operating costs and capital expenditures, and assumed effects of regulation by governmental agencies. The procedures and methods for estimating the reserves by our internal engineers were reviewed by independent petroleum consultants; however, there are inherent uncertainties in estimating reserves. Actual production, revenues and expenditures with respect to our reserves may vary from estimates, and the variance may be material. If Occidental were required to make significant negative reserve revisions, its results of operations and stock price could be adversely affected. In addition, the discounted cash flows included in this Form 10-K should not be construed as the fair value of the reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on an unweighted 12-month average first-day-of-the-month prices in accordance with SEC regulations. Actual future
 
prices and costs may differ materially from SEC regulation-compliant prices and costs used for purposes of estimating future discounted net cash flows from proved reserves.

Concerns about climate change and further regulation of greenhouse gas emissions may adversely affect Occidental’s operations or results.
Continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national, regional and local legislation and regulatory programs to reduce greenhouse gas emissions. These and other government actions relating to greenhouse gas emissions could require Occidental to incur increased operating and maintenance costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new regulatory or reporting requirements, or they could promote the use of alternative sources of energy and thereby decrease demand for oil, natural gas and other products that Occidental’s businesses produce. Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, oil, natural gas and other products produced by Occidental’s businesses. Consequently, government actions designed to reduce emissions of greenhouse gases could have an adverse effect on Occidental’s business, financial condition and results of operations. In addition, increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and additional private litigation against Occidental, which could increase our costs or otherwise adversely affect our business.
It is difficult to predict the timing and certainty of such government actions and the ultimate effect on Occidental, which could depend on, among other things, the type and extent of greenhouse gas reductions required, the availability and price of emissions allowances or credits, the availability and price of alternative fuel sources, the energy sectors covered, and Occidental’s ability to recover the costs incurred through its operating agreements or the pricing of the company’s oil, natural gas and other products.

Occidental’s businesses may experience catastrophic events.
The occurrence of events such as hurricanes, floods, droughts, earthquakes or other acts of nature, well blowouts, fires, explosions, chemical releases, crude oil releases, including maritime releases and releases into navigable waters, material or mechanical failure, industrial accidents, physical attacks and other events that cause operations to cease or be curtailed may negatively affect Occidental’s businesses and the communities in which it operates. Coastal operations are particularly susceptible to disruption from extreme weather events. Third-party insurance may not provide adequate coverage or Occidental may be self-insured with respect to the related losses.

Cyber-attacks could significantly affect Occidental.
Cyber-attacks on businesses have escalated in recent years. Occidental relies on digital systems, related infrastructure, technologies and networks to run its business and to control and manage its oil and gas, chemicals, marketing and pipeline operations.  Use of the internet, cloud services and other public networks exposes Occidental’s business and that of other third parties with whom Occidental does business to cyber-attacks that attempt to gain unauthorized access to

            
7



data and systems, release confidential information, corrupt data and disrupt critical systems and operations.  Even though Occidental has implemented controls and multiple layers of security to mitigate the risks of a cyber-attack that it believes are reasonable, there can be no assurance that such cyber security measures will be sufficient to prevent security breaches of its systems from occurring. Further, Occidental has no control over the comparable systems of the third parties with whom it does business. While Occidental has experienced cyber-attacks in the past, Occidental has not suffered any material losses.  However, if in the future Occidental's cyber security measures are compromised or prove insufficient, the potential consequences to Occidental’s businesses and the communities in which it operates could be significant.  As cyber-attacks continue to evolve in magnitude and sophistication, Occidental may be required to expend additional resources in order to continue to enhance Occidental's cyber security measures and to investigate and remediate any digital systems, related infrastructure, technologies and network security vulnerabilities.

Occidental's oil and gas reserve additions may not continue at the same rate and a failure to replace reserves may negatively affect Occidental's business.
Unless Occidental conducts successful exploration or development activities, acquires properties containing proved reserves, or both, proved reserves will generally decline. Management expects improved recovery, extensions and discoveries to continue as main sources for reserve additions but factors such as geology, government regulations and permits, and the effectiveness of development plans are partially or fully outside management's control and could cause results to differ materially from expectations.

The ultimate impact of the 2017 Tax Cuts and Jobs Act (Tax Reform) may differ from Occidental's estimates.
Tax Reform was enacted in December 2017 and made significant changes to the U.S. federal income tax law, including lowering the federal corporate income tax rate from 35 percent to 21 percent, repealing the corporate alternative minimum tax (AMT) and mandating a deemed repatriation of accumulated earnings and profits of U.S.-owned foreign corporations. Occidental recorded the effects of the changes in the tax law for which the accounting was complete. In accordance with the guidance from the SEC, Occidental recorded a provisional estimate for the federal and state tax associated with the mandatory deemed repatriation and the resulting impact to the net federal deferred tax liability. With regards to the global intangible low-taxed income (GILTI) and base erosion anti-abuse tax (BEAT) provisions of the new tax law, Occidental has recorded no tax liability based on preliminary estimates. The ultimate impact of Tax Reform may differ from Occidental’s
 
estimates due to changes in interpretations and assumptions, as well as additional regulatory guidance. Occidental will adjust provisional amounts as updated information is evaluated.

Other risk factors.
Additional discussion of risks and uncertainties related to price and demand, litigation, environmental matters, oil and gas reserves estimation processes, impairments, derivatives, market risks and internal controls appears under the headings: "MD&A — Oil & Gas Segment — Proved Reserves" and "— Industry Outlook," "— Chemical Segment — Industry Outlook," "— Midstream and Marketing Segment — Industry Outlook," "— Lawsuits, Claims and Contingencies," "— Environmental Liabilities and Expenditures," "— Critical Accounting Policies and Estimates," "— Quantitative and Qualitative Disclosures About Market Risk," and "Management's Annual Assessment of and Report on Internal Control Over Financial Reporting."
The risks described in this report are not the only risks facing Occidental and other risks, including risks deemed immaterial, may have material adverse effects.

ITEM 1B
UNRESOLVED STAFF COMMENTS
None.

ITEM 3    LEGAL PROCEEDINGS
In the fourth quarter of 2014, the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration sent a notice to an OPC subsidiary that it is seeking penalties of $165,900 related to a routine, comprehensive inspection of the subsidiary's records, procedures and facilities, covering a multi-year period. The subsidiary contested the penalties and is awaiting a decision.
In the third quarter of 2014, the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration sent a notice to an OPC subsidiary that it is seeking civil penalties related to a crude oil pipeline incident in Scurry County, Texas. The subsidiary is contesting the $122,400 in penalties being sought.
For information regarding other legal proceedings, see the information under the caption "Lawsuits, Claims Commitments and Contingencies" in the MD&A section of this report and in Note 9 to the Consolidated Financial Statements.

ITEM 4    MINE SAFETY DISCLOSURES
Not applicable.

            
8



EXECUTIVE OFFICERS
The current term of office of each executive officer of Occidental will expire at the May 4, 2018, meeting of the Board of Directors or when a successor is selected. The following table sets forth the executive officers of Occidental:
Name
Current Title
 
Age at February 22, 2018
 
Positions with Occidental and Subsidiaries and Employment History
Vicki Hollub
Chief Executive Officer and President

 
58
 
President, Chief Executive Officer and Director since April 2016; President, Chief Operating Officer and Director, 2015-2016; Senior Executive Vice President and President, Oxy Oil and Gas, 2015; Executive Vice President and President Oxy Oil and Gas - Americas, 2014-2015; Vice President and Executive Vice President, U.S. Operations, Oxy Oil and Gas, 2013-2014; Executive Vice President - California Operations, 2012-2013.
Cedric W. Burgher
Chief Financial Officer and Senior Vice President

 
57
 
Senior Vice President and Chief Financial Officer since May 2017; EOG Resources: Senior Vice President, Investor and Public Relations, 2014-2017, QR Energy L.P.; Chief Financial Officer, 2010-2014.
Edward A. “Sandy” Lowe
Executive Vice President
 
66
 
Executive Vice President since 2015; Group Chairman - Middle East since 2016; Senior Vice President, 2008-2015; President - Oxy Oil & Gas International, 2009-2016.
Marcia E. Backus
Senior Vice President

 
63
 
Senior Vice President, General Counsel and Chief Compliance Officer since December 2016; Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary, 2015-2016; Vice President, General Counsel and Corporate Secretary, 2014-2015; Vice President and General Counsel, 2013-2014; Vinson & Elkins: Partner, 1990-2013.
Joseph C. Elliott
Senior Vice President

 
60
 
Senior Vice President since December 2016; President - Oxy Oil & Gas Domestic since June 2015; President and General Manager - Permian Resources Midland, 2014-2015; Manager Operations/Well Construction - Permian Resources, 2013-2014; Manager Operations - South Texas, 2011-2013.
Glenn M. Vangolen
Senior Vice President
 
59
 
Senior Vice President - Business Support since February 2015; Executive Vice President - Business Support, 2014-2015; Senior Vice President - Oxy Oil & Gas Middle East, 2010-2014.
Jennifer M. Kirk
Vice President
 
43
 
Vice President, Controller and Principal Accounting Officer since 2014; Controller, Occidental Oil and Gas Corporation, 2012-2014.
     
Part II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   
TRADING PRICE RANGE AND DIVIDENDS
This section incorporates by reference the quarterly financial data appearing under the caption "Quarterly Financial Data (Unaudited)" after the Notes to the Consolidated Financial Statements, and the information appearing under the caption "Liquidity and Capital Resources" in the MD&A section of this report. Occidental’s common stock was held by approximately 24,500 stockholders of record at January 31, 2018, and by approximately 700,000 additional stockholders whose shares were held for them in street name or nominee accounts. The common stock is listed and traded on the New York Stock Exchange. The quarterly financial data set forth the range of trading prices for the common stock as reported on the composite tape of the New York Stock Exchange and quarterly dividend information.
Dividends declared on the common stock were $0.76 for the first and second quarter of 2017 and $0.77 for the third and fourth quarter ($3.06 for the year). On February 8, 2018, a quarterly dividend of $0.77 per share was declared on the common stock, payable on April 16, 2018, to stockholders of record on March 9, 2018. The current annual dividend rate of $3.08 per share has increased by over 500 percent since 2002. The declaration of future dividends is a business decision made by the Board of Directors from time to time, and will depend on Occidental’s financial condition and other factors deemed relevant by the Board.
    
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
All of Occidental's stock-based compensation plans for its employees and non-employee directors have been approved by the stockholders. The aggregate number of shares of Occidental common stock authorized for issuance under such plans is approximately 35 million, of which approximately 6.1 million had been reserved for issuance through December 31, 2017. The following is a summary of the securities available for issuance under such plans:
a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
b)
Weighted-average exercise price of outstanding options, warrants and rights
 
c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
7,339,506  (1)
 
79.98 (2)
 
18,836,578 (3)
(1)
Includes shares reserved to be issued pursuant to restricted stock units, stock options (Options), and performance-based awards. Shares for performance-based awards are included assuming maximum payout, but may be paid out at lesser amounts, or not at all, according to achievement of performance goals.
(2)
Price applies only to the Options included in column (a). Exercise price is not applicable to the other awards included in column (a).
(3)
A plan provision requires each share covered by an award (other than stock appreciation rights (SARs) and Options) to be counted as if three shares were issued in determining the number of shares that are available for future awards. Accordingly, the number of shares available for future awards may be less than the amount shown depending on the type of award granted. Additionally, under the plan, the amount shown may increase, depending on the award type, by the number of shares currently unvested or forfeitable, or three times that number as applicable, that (i) fail to vest, (ii) are forfeited or canceled, or (iii) correspond to the portion of any stock-based awards settled in cash.


            
9



SHARE REPURCHASE ACTIVITIES
Occidental’s share repurchase activities for the year ended December 31, 2017, were as follows:
Period
 
Total
Number
of Shares Purchased
 
Average
Price
Paid
per Share
 
Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the
Plans or Programs
First Quarter 2017
 
 

 
 
 
$

 
 
 

 
 
 
 
 
Second Quarter 2017
 
 
96,828

(a) 
 
 
$
60.77

 
 
 

 
 
 
 
 
Third Quarter 2017
 
 
96,933

(a) 
 
 
$
60.62

 
 
 

 
 
 
 
 
October 1 - 31, 2017
 
 

 
 
 
$

 
 
 

 
 
 
 
 
November 1 - 30, 2017
 
 
98,015

(a) 
 
 
$
69.90

 
 
 

 
 
 
 
 
December 1 - 31, 2017
 
 
95,113

(a) 
 
 
$
72.58

 
 
 

 
 
 
 
 
Fourth Quarter 2017
 
 
193,128

(a) 
 
 
$
71.22

 
 
 

 
 
 
 
 
Total 2017
 
 
386,889

(a) 
 
 
$
65.95

 
 
 

 
 
 
63,756,544

(b) 
(a)
Represents purchases from the trustee of Occidental's defined contribution savings plan that are not part of publicly announced plans or programs.
(b)
Represents the total number of shares remaining at year end under Occidental's share repurchase program of 185 million shares. The program was initially announced in 2005. The program does not obligate Occidental to acquire any specific number of shares and may be discontinued at any time.

PERFORMANCE GRAPH
The following graph compares the yearly percentage change in Occidental’s cumulative total return on its common stock with the cumulative total return of the Standard & Poor's 500 Stock Index (S&P 500), which Occidental is included in, and with that of Occidental’s peer group over the five-year period ended on December 31, 2017. The graph assumes that $100 was invested at the beginning of the five-year period shown in the graph below in: (i) Occidental common stock, (ii) the stock of the companies in the S&P 500, and (iii) each of the peer group companies' common stock weighted by their relative market values within the peer group, and that all dividends were reinvested.
Occidental's peer group consists of Anadarko Petroleum Corporation, Apache Corporation, Canadian Natural Resources Limited, Chevron Corporation, ConocoPhillips, Devon Energy Corporation, EOG Resources Inc., ExxonMobil Corporation, Hess Corporation, Marathon Oil Corporation, Total S.A. and Occidental.
performancegraphitem5.jpg
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
 
bluesquareitem5.jpg
$
100
 
$
128
 
$
116
 
$
102
 
$
112
 
$
121
 
circlesmallwiderlinea04.jpg
 
100
 
 
122
 
 
114
 
 
93
 
 
117
 
 
120
 
diamondsmallwiderlinea04.jpg
 
100
 
 
132
 
 
150
 
 
153
 
 
171
 
 
208
 
 
The information provided in this Performance Graph shall not be deemed "soliciting material" or "filed" with the SEC or subject to Regulation 14A or 14C under the Exchange Act, other than as provided in Item 201 to Regulation S-K under the Exchange Act, or subject to the liabilities of Section 18 of the Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent Occidental specifically requests that it be treated as soliciting material or specifically incorporates it by reference.
________________________________________________
(1)
The cumulative total return of the peer group companies' common stock includes the cumulative total return of Occidental's common stock.


            
10



ITEM 6
SELECTED FINANCIAL DATA
 
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in millions, except per-share amounts)
As of and for the years ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
RESULTS OF OPERATIONS (a)
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
12,508

 
$
10,090

 
$
12,480

 
$
19,312

 
$
20,170

 
Income (loss) from continuing operations
 
$
1,311

 
$
(1,002
)
 
$
(8,146
)
 
$
(130
)
 
$
4,932

 
Net income (loss) attributable to common stock
 
$
1,311

 
$
(574
)
 
$
(7,829
)
 
$
616

 
$
5,903

 
Basic earnings (loss) per common share from continuing operations
 
$
1.71

 
$
(1.31
)
 
$
(10.64
)
 
$
(0.18
)
 
$
6.12

 
Basic earnings (loss) per common share
 
$
1.71

 
$
(0.75
)
 
$
(10.23
)
 
$
0.79

 
$
7.33

 
Diluted earnings (loss) per common share
 
$
1.70

 
$
(0.75
)
 
$
(10.23
)
 
$
0.79

 
$
7.32

 
 
 
 
 
 
 
 
 
 
 
 
 
FINANCIAL POSITION (a)
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
42,026

 
$
43,109

 
$
43,409

 
$
56,237

 
$
69,415

 
Long-term debt, net
 
$
9,328

 
$
9,819

 
$
6,855

 
$
6,816

 
$
6,911

 
Stockholders’ equity
 
$
20,572

 
$
21,497

 
$
24,350

 
$
34,959

 
$
43,372

 
 
 
 
 
 
 
 
 
 
 
 
 
MARKET CAPITALIZATION (b)
 
$
56,357

 
$
54,437

 
$
51,632

 
$
62,119

 
$
75,699

 
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOW FROM CONTINUING OPERATIONS
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 
 
 
 
 
 
 
 
 
 
Cash flow from continuing operations
 
$
4,996

 
$
2,519

 
$
3,254

 
$
8,871

 
$
10,229

 
Investing:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
(3,599
)
 
$
(2,717
)
 
$
(5,272
)
 
$
(8,930
)
 
$
(7,357
)
 
Cash provided (used) by all other investing activities, net
 
$
385

 
$
(2,025
)
 
$
(151
)
 
$
2,686

 
$
1,040

 
Financing:
 
 
 
 
 
 
 
 
 
 
 
Cash dividends paid
 
$
(2,346
)
 
$
(2,309
)
 
$
(2,264
)
 
$
(2,210
)
 
$
(1,553
)
 
Purchases of treasury stock
 
$
(25
)
 
$
(22
)
 
$
(593
)
 
$
(2,500
)
 
$
(943
)
 
Cash provided (used) by all other financing activities, net
 
$
28

 
$
2,722

 
$
4,341

 
$
2,384

 
$
(437
)
 
 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
 
$
3.06

 
$
3.02

 
$
2.97

 
$
2.88

 
$
2.56

 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING (millions)
 
765

 
764

 
766

 
781

 
804

 
Note: The statements of income and cash flows related to California Resources have been treated as discontinued operations for all periods presented. The assets and liabilities of California Resources were removed from Occidental's consolidated balance sheet as of November 30, 2014.
(a)
See the MD&A section of this report and the Notes to Consolidated Financial Statements for information regarding acquisitions and dispositions, discontinued operations and other items affecting comparability.
(b)
Market capitalization is calculated by multiplying the year-end total shares of common stock outstanding, net of shares held as treasury stock, by the year-end closing stock price.


            
11



ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

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's principal businesses consist of three segments. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment (OxyChem) 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. Additionally, the midstream and marketing segment operates a crude oil export terminal, as well as invests in entities that conduct similar activities.
Occidental's oil and gas assets are located in some of the world’s highest-margin basins and are characterized by an advantaged mix of short- and long-cycle, high-return development opportunities. In the United States, Occidental continues to hold a leading position in the Permian Basin. Other core operations are in the Middle East (Oman, Qatar and UAE) and Latin America (Colombia). Occidental's midstream and marketing business provides access to domestic and international markets through pipeline infrastructure and Occidental's Ingleside Crude Terminal with an emphasis on operational excellence. OxyChem is a world-class chemical business that generates high financial returns.

STRATEGY
General
Occidental is focused on delivering a unique shareholder value proposition through continual enhancements to its asset quality, organizational capability and innovative technical applications that provide competitive advantages. The attributes of Occidental's strategy include its mix of short- and long-cycle investment opportunities, low base production declines, strong financial position and focus on generating shareholder returns through its value-based development approach. Occidental aims to maximize shareholder returns through a combination of:
Ø
Consistent dividend growth;
Ø
Value growth through oil and gas development that meets above cost-of-capital returns and return targets of greater than 15 percent and 20 percent for domestic and international projects, respectively;
Ø
Targeted production growth rates of 5 to 8 percent average per year over the long-term; and
Ø
Maintenance of a strong balance sheet to secure business and enhance shareholder value.
Occidental conducts its operations with a focus on its social responsibility commitments and initiatives, including health and safety, and environmental stewardship. Capital is employed to operate all assets in a safe and environmentally sound manner. Occidental accepts
 
commodity, engineering and limited exploration risks. Occidental seeks to limit its financial and political risks.
Price volatility is inherent in the oil and gas business and Occidental’s strategy is to position the business to thrive in an up- or down-cycle commodity price environment. Recent strategic initiatives have resulted in Occidental exiting its non-core areas, including South Texas in 2017, and strengthening its position in areas where Occidental has a competitive advantage and an advantaged asset portfolio. In 2017, Occidental continued to build upon its business, including a growing dividend and production growth at low oil prices. During the year, Occidental's board of directors and management implemented a short-term strategic plan that is intended to maintain production and sustain the dividend at a West Texas Intermediate (WTI) oil price of $40 per barrel. At $50 WTI, Occidental’s plan anticipates that the business will generate additional capital to cover production growth of 5 to 8 percent, and fulfill Occidental's dividend growth goal. This plan has continued into 2018 and, longer term, Occidental will continue to build upon this low-cost, high-margin value proposition through development and operation of its focused and advantaged assets.
The following describes the application of Occidental’s overall strategy for each of its operating segments:

Oil and Gas
Occidental’s oil and gas segment focuses on long-term value creation and leadership in health, safety and the environment. In each core operating area, Occidental's operations benefit from scale, technical expertise, environmental and safety leadership, and commercial and governmental collaboration. These attributes allow Occidental to bring additional production quickly to market, extend the life of older fields at lower costs, and provide low-cost growth opportunities with advanced technology.
As a result of Occidental's strategic positioning, Occidental's assets provide current production and a future portfolio of projects that are flexible, have short-cycle investment paybacks, deliver a low base decline and provide decades of diverse and unique opportunities to support energy demand across many future scenarios. Together with Occidental's technical capabilities, the oil and gas segment is able to achieve low development and operating costs to obtain full-cycle value while promoting innovative ideas that differentiate Occidental's approach and provide future opportunities.
The oil and gas business implements Occidental's strategy primarily by:
Ø
Operating and developing areas where reserves are known to exist and to increase production from core areas, primarily in the Permian Basin, Colombia, Oman, Qatar and UAE;
Ø
Focusing on cost-reduction efficiencies, improvement in new well productivity and better base management to reduce total spend per barrel;

            
12



Ø
Using enhanced oil recovery techniques, such as CO2, water and steam floods, in mature fields;
Ø
Focusing many of Occidental's subsurface characterization and technical activities on unconventional opportunities, primarily in the Permian Basin. This focus is in support of a sizable capital program within these developments and
Ø
Maintaining a disciplined and prudent approach to capital expenditures with focus on returns and maintain discipline and an emphasis on creating value and further enhancing Occidental's existing positions.
In 2017, oil and gas capital expenditures were approximately $3.0 billion, and were mainly comprised of expenditures in the Permian Basin and the Middle East. This activity reflects Occidental's strategy to focus on achieving returns well above the cost of capital even in a low price environment.
Management believes Occidental's oil and gas segment growth will occur primarily through exploitation and development opportunities in the Permian Basin and Colombia and focused international projects in the Middle East.

Chemical
The primary objective of OxyChem is to generate cash flow in excess of its normal capital expenditure requirements and achieve above-cost-of-capital returns. The chemical segment's strategy is to be a low-cost producer in order to maximize its cash flow generation. OxyChem concentrates on the chlorovinyls chain beginning with chlorine, which is co-produced with caustic soda, and markets both to external customers. In addition, chlorine, together with ethylene, is converted through a series of intermediate products into polyvinyl chloride (PVC). OxyChem's focus on chlorovinyls allows it to maximize the benefits of integration and take advantage of economies of scale. Capital is employed to sustain production capacity in a safe and environmentally sound manner, as well as to focus on projects and developments designed to improve the competitiveness of segment assets. Acquisitions and plant development opportunities may be pursued when they are expected to enhance the existing core chlor-alkali and PVC businesses or take advantage of other specific opportunities. In the first quarter of 2017, OxyChem, through a 50/50 joint venture with Mexichem S.A.B. de C.V., began commercial operations on a 1.2 billion pound-per-year ethylene cracker at the OxyChem Ingleside facility. The joint venture provides an opportunity to capitalize on the advantage that U.S. shale gas development has presented to U.S. chemical producers by providing low-cost ethane as a raw material. The joint venture will provide OxyChem with an ongoing source of ethylene, significantly reducing OxyChem's reliance on third-party ethylene suppliers. In 2017, capital expenditures for OxyChem totaled $308 million. An additional $39 million was contributed to the Mexichem joint venture. OxyChem completed construction on the previously announced expansion of its manufacturing plant in Geismar, Louisiana, on budget and on time. In December 2017, the new facility began producing 4CPe, a new raw
 
material used in making next-generation, climate-friendly refrigerants with a low global-warming and zero ozone-depletion potential.
 
Midstream and Marketing
The midstream and marketing segment strives to maximize realized value by optimizing the use of its transportation, storage and terminal assets and by providing access to domestic and international market alternatives. To generate returns, the segment evaluates opportunities across the value chain and uses its assets to provide services to Occidental subsidiaries as well as third parties. The midstream and marketing segment invests in and operates pipeline and gathering systems, gas plants, co-generation facilities, storage facilities and terminal assets. This segment also seeks to minimize the costs of gas, power and other commodities used in Occidental's various businesses. Capital is employed to sustain or expand facilities in the gathering, transportation, storage and terminal assets to improve the competitiveness of Occidental's businesses. In 2017, capital expenditures totaled $284 million related to Permian Basin gas processing and gathering infrastructure, Al Hosn Gas, the Ingleside Crude Terminal, and expansion of the oil pipeline system in New Mexico by an additional 50 miles.

Key Performance Indicators
Occidental seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive total stockholder return. In addition to production growth and capital allocation and deployment discussed above, Occidental believes the following are its most significant metrics:
Ø
Health, environmental and safety performance measures;
Ø
Total Shareholder Return, including funding the dividend;
Ø
Return on capital employed (ROCE) and cash return on capital employed (CROCE); and
Ø
Specific measures such as per-unit profit, production cost, cash flow, finding-and-development costs and reserves replacement percentages.

OIL AND GAS SEGMENT
Business Environment
Oil and gas prices are the major variables that drive the industry’s financial performance. The following table presents the average daily West Texas Intermediate (WTI), Brent and New York Mercantile Exchange (NYMEX) prices for 2017 and 2016:
 
 
2017
 
2016
WTI oil ($/barrel)
 
$
50.95

 
$
43.32

Brent oil ($/barrel)
 
$
54.82

 
$
45.04

NYMEX gas ($/Mcf)
 
$
3.09

 
$
2.42


            
13



The following table presents Occidental's average realized prices as a percentage of WTI, Brent and NYMEX for 2017 and 2016:
 
 
2017
 
2016
Worldwide oil as a percentage of average WTI
 
96
%
 
89
%
Worldwide oil as a percentage of average Brent
 
89
%
 
86
%
Worldwide NGLs as a percentage of average WTI
 
42
%
 
34
%
Worldwide NGLs as a percentage of average Brent
 
39
%
 
33
%
Domestic natural gas as a percentage of NYMEX
 
75
%
 
79
%

Average WTI and Brent oil price indexes increased 18 percent and 22 percent, from $43.32 and $45.04 in 2016 to $50.95 and $54.82 in 2017, respectively. Average worldwide realized oil prices rose $10.20, or 26 percent, in 2017 compared to 2016. WTI and Brent oil price indexes increased in the fourth quarter of 2017, closing at $60.42 per barrel and $66.87 per barrel, respectively, well above 2017 average prices. The average realized domestic natural gas price in 2017 increased 22 percent from 2016. Average NYMEX natural gas prices increased 28 percent, from $2.42 in 2016 to $3.09 in 2017.
Prices and differentials can vary significantly, even on a short-term basis, making it difficult to predict realized prices with a reliable degree of certainty.

Operations
2017 Developments
In the third quarter of 2017, Occidental closed on two divestitures of non-core acreage in the Permian Basin for proceeds of approximately $0.6 billion, resulting in a pre-tax gain of approximately $81 million. Concurrently, Occidental purchased additional ownership interests and assumed operatorship in CO2 enhanced oil recovery (EOR) properties located in the Seminole-San Andres Unit for approximately $0.6 billion, which was primarily allocated to proved property. In the fourth quarter of 2017, Occidental sold other non-core proved and unproved acreage in the Permian Basin for approximately $90 million, resulting in a pre-tax gain of approximately $55 million. Occidental also classified approximately $0.5 billion in non-core proved and unproved Permian acreage to assets held for sale at December 31, 2017.
In April 2017, Occidental completed the sale of its South Texas operations for net proceeds of $0.5 billion resulting in pre-tax gain of $0.5 billion.

Business Review
Domestic Interests
Occidental conducts its domestic operations through land leases, subsurface mineral rights it owns, or a combination of both surface land and subsurface mineral rights it owns. Occidental's domestic oil and gas leases have a primary term ranging from one to ten years, which is extended through the end of production once it commences. Of the total 3.4 million net acres in which Occidental has interests, approximately 83 percent is leased, 16 percent is owned subsurface mineral rights and 1 percent is owned land with mineral rights.

 
The following charts show Occidental’s domestic total production volumes for the last five years:

Domestic Production Volumes
(thousands BOE/day) domproduction.jpg
Notes:
Excludes volumes from California Resources, which was separated on November 30, 2014, and included as discontinued operations for all applicable periods.
Operations sold include South Texas (sold in April 2017), Piceance (sold in March 2016), Williston (sold in November 2015) and Hugoton (sold in April 2014)

United States Assetspermianmap.jpg
United States

1.
Delaware Basin
2.
Midland Basin
3.
Central Basin Platform

Permian Basin
The Permian Basin extends throughout West Texas and southeast New Mexico and is one of the largest and most active oil basins in the United States, accounting for more than 20% of the total United States oil production.
Occidental manages its Permian Basin operations through two business units: Permian Resources, which includes growth-oriented unconventional opportunities, and Permian EOR, which utilizes enhanced oil recovery techniques such as CO2 floods and waterfloods. Occidental has a leading position in the Permian Basin, producing

            
14



approximately 9 percent of the total oil in the basin. By exploiting the natural synergies between Permian Resources and Permian EOR, Occidental is able to deliver unique short- and long-term advantages, efficiencies and expertise across its Permian Basin operations. Occidental can decrease its Permian Basin full-cycle breakeven costs, while continuing to add high-quality, low-cost breakeven inventory of future drilling locations faster than it is developed. The combined technical advancements, infrastructure utilization opportunities and operations across over 2.5 million net acres will provide sustainability of Occidental's low cost position in the Permian Basin.
In the next few years, growth within Occidental’s Permian Basin portfolio will be focused in the Permian Resources unconventional assets. In 2017, Occidental spent approximately $2.1 billion of capital in the Permian Basin, of which over 75 percent was spent on Permian Resources assets. In 2018, Occidental expects to allocate approximately half of its worldwide 2018 capital budget to Permian Resources for development and approximately 15 percent to Permian EOR for the expansion of existing facilities to increase CO2 production and injection capacity.

Permian Resources
Permian Resources' unconventional oil development projects provide very short-cycle investment payback, averaging less than two years, that replaces the lower return production from assets divested during the 2013-2017 portfolio optimization, while also providing some of the highest margin and returns of any oil and gas projects in the world. These investments provide better cash-flow and production growth, while increasing long-term value and sustainability through higher return on capital employed.
Occidental's Permian Resources inventory includes over 11,200 horizontal drilling locations in the Midland and Delaware sub-basins. As of December 31, 2017, approximately 750 of these drilling locations represented proved undeveloped reserves. In 2017, Permian Resources produced approximately 141,000 net BOE per day from approximately 5,050 net wells, of which 18 percent are operated by other companies. In 2017, Permian Resources drilled 138 horizontal wells and added 127 million BOE from improved recovery to Occidental's proved reserves.

Permian EOR
The Permian Basin’s concentration of large conventional reservoirs, favorable CO2 flooding performance and the proximity to naturally occurring CO2 supply has resulted in decades of steady growth in enhanced oil production. With 34 active floods and over 40 years of experience, Occidental is the industry leader in Permian Basin CO2 flooding, which can increase ultimate oil recovery by 10 to 25 percent. Technology improvements, such as the recent trend toward vertical expansion of the CO2 flooded interval into residual oil zone targets, continue to yield more recovery from existing projects. Occidental utilizes workover rigs to drill extra depth into additional CO2 floodable sections of the reservoir, and completed 91 well workovers in 2017 and has plans to complete 100 well workovers in 2018. In 2017, Permian EOR added 21 million
 
BOE to Occidental’s proved reserves for improved recovery additions, primarily as a result of executing CO2 flood development projects and expansions. Occidental's share of production from Permian EOR was approximately 150,000 BOE per day in 2017.
Significant opportunities also remain to gain additional recovery by expanding Occidental's existing CO2 projects into new portions of reservoirs that have only been water-flooded. Permian EOR has a large inventory of future CO2 projects which could be developed over the next 20 years or accelerated, depending on market conditions.

Other Domestic
Occidental holds approximately 908,000 net acres in other domestic locations. Occidental's share of production in other domestic locations was approximately 5,000 BOE per day.

International Interests
Production-Sharing Contracts
Occidental's interests in Oman and Qatar are subject to production sharing contracts (PSC). Under such contracts, Occidental records a share of production and reserves to recover certain development and production costs and an additional share for profit. In addition, certain contracts in Colombia are subject to contractual arrangements similar to a PSC. These contracts do not transfer any right of ownership to Occidental and reserves reported from these arrangements are based on Occidental’s economic interest as defined in the contracts. Occidental’s share of production and reserves from these contracts decreases when product prices rise and increases when prices decline. Overall, Occidental’s net economic benefit from these contracts is greater when product prices are higher.

The following charts show Occidental’s international production volumes for the last five years:

International Production Volumes
(thousands BOE/day)intlproduction.jpg
Notes:
Operations sold or exited include Bahrain, Iraq, Libya and Yemen.

            
15



Middle East Assetsmiddleeastmap.jpg
1.
Qatar
2.
United Arab Emirates
3.
Oman

Oman
In Oman, Occidental is the operator of Block 9 with a 50-percent working interest, Block 27 with a 65-percent working interest, Block 53 with a 45-percent working interest; and Block 62, with an 80-percent working interest. Also, in November 2017, Occidental was awarded a three-year exploration contract in Block 30.
In December 2015, the existing PSC for Block 9 expired and Occidental agreed to operate Block 9 under modified operating terms until a new contract was approved. The Block 9 Exploration and Production Sharing Agreement 15-year extension was signed in January 2017 and was ratified in March 2017 through Royal Decree. In 2017, the average gross production from Block 9 was 91,000 BOE per day.
The term for Block 27 expires in 2035 and the average gross production was 16,000 BOE per day in 2017.
A 30-year PSC for Block 53 (Mukhaizna Field) was signed with the Government of Oman in 2005, pursuant to which Occidental assumed operation of the field. By the end of 2017, Occidental had drilled more than 3,000 new wells and continued implementation of a major steamflood project. In 2017, the average gross daily production was 123,000 BOE per day.
In 2008, Occidental was awarded a 20-year contract for Block 62, subject to declaration of commerciality, where it is pursuing development and exploration opportunities targeting natural gas and condensate resources. In 2014, Occidental signed a five-year extension for the initial phase for the discovered non-associated gas area (natural gas not in contact with crude oil in a reservoir) for Block 62. In 2017, the average gross daily production was 22,000 BOE per day.
Occidental's Oman operations reached a significant milestone in November 2017 with the production of its one billionth gross barrel of oil, including condensate, from all its blocks. Over two-thirds of this production has come in the last ten years, illustrating the tremendous growth achieved over that period. In 2017, Occidental's share of production in Oman averaged 95,000 BOE per day.
 
Qatar
In Qatar, Occidental is the operator of the offshore fields Idd El Shargi North Dome (ISND) and Idd El Shargi South Dome (ISSD), with a 100-percent working interest in each. The terms for ISND and ISSD expire in October 2019 and December 2022, respectively. Occidental's net share of production from ISND and ISSD was 53,000 BOE and 4,000 BOE per day respectively, in 2017.
Occidental operated Al-Rayyan (Block 12) until the term expired on May 31, 2017, when Block 12 was successfully transitioned back to the Government of Qatar. Production from Block 12 in 2017 was not significant.
Occidental has continued to successfully implement large scale water flooding projects combined with state-of-the-art horizontal drilling, advanced completion techniques as well as utilizing extensive automated artificial lift systems that are significantly extending the life of the fields. Since the commencement of its operations in 1994, Occidental has boosted the production from the Idd El Shargi fields by over 400 percent with current gross oil rates of around 91,000 BOE per day.
Utilizing Occidental’s expertise in artificial lift, together with other game-changing technologies and innovations, the ISSD field continues to outperform expectations and exited 2017 with record gross production rates of over 9,000 BOE per day. Despite complex marine operations, Occidental is recognized as a regional leader in its safety performance as well as being the lowest-cost offshore oil operator in the State of Qatar.
Occidental also partners in the Dolphin Energy project, an investment that is comprised of two separate economic interests. Occidental has a 24.5-percent interest in the upstream operations to develop and produce natural gas, NGLs and condensate from Qatar’s North Field through mid-2032. Occidental also has a 24.5-percent interest in Dolphin Energy Limited which operates a pipeline and is discussed further in "Midstream and Marketing Segment – Pipeline Transportation. Occidental's net share of production from the Dolphin upstream operations was 42,000 BOE per day in 2017.
Occidental's share of production from Qatar was approximately 100,000 BOE per day in 2017.

United Arab Emirates
In 2011, Occidental acquired a 40-percent participating interest in Al Hosn Gas, joining with the Abu Dhabi National Oil Company (ADNOC) in a 30-year joint venture agreement. In 2017, Al Hosn Gas gross production exceeded expectations, producing over 525 MMcf per day of natural gas and 90,000 barrels per day of NGLs and condensate. Occidental’s share of production from Al Hosn Gas was 211 MMcf per day of natural gas and 36,000 barrels per day of NGLs and condensate in 2017. Al Hosn Gas includes gas processing facilities which are discussed further in "Midstream and Marketing Segment - Gas Processing Plants and CO2 Fields and Facilities".
Occidental conducts a majority of its Middle East business development activities through its office in Abu Dhabi, which also provides various support functions for Occidental’s Middle East oil and gas operations.

            
16



Latin America Assets colombiamap.jpg
1.
Teca Heavy Oil Area
2.
La Cira-Infantas Waterflood Area
3.
Northern Llanos Basin
Colombia
Occidental has working interests in the La Cira-Infantas and Teca areas and has operations within the Llanos Norte Basin. Occidental's interests range from 39 to 61 percent and certain interests expire between 2023 and 2038, while others extend through the economic limit of the areas. In 2017, Occidental continued a thermal recovery pilot at the Teca heavy oil field and the initial results are better than anticipated. Production began from these pilots in 2016. Occidental's share of production from Colombia was approximately 31,000 BOE per day in 2017.

Proved Reserves
Proved oil, NGLs and gas reserves were estimated using the unweighted arithmetic average of the first-day-of-the-month price for each month within the year, unless prices were defined by contractual arrangements. Oil, NGLs and natural gas prices used for this purpose were based on posted benchmark prices and adjusted for price differentials including gravity, quality and transportation costs. For the 2017, 2016 and 2015 disclosures, the calculated average West Texas Intermediate oil prices were $51.34, $42.75 and $50.28 per barrel, respectively. The calculated average Brent oil prices for 2017, 2016 and 2015 disclosures were $54.93, $44.49 and $55.57, per barrel, respectively. The calculated average Henry Hub gas prices for 2017, 2016 and 2015 were $3.08, $2.55 and $2.66 per MMBtu, respectively.
Occidental had proved reserves at year-end 2017 of 2,598 million BOE, compared to the year-end 2016 amount of 2,406 million BOE. Proved reserves at year-end 2017 and 2016 consisted of, respectively, 58 percent and 56 percent oil, 17 percent and 17 percent NGLs and 25 percent and 27 percent natural gas. Proved developed reserves represented approximately 74 percent and 77 percent, respectively, of Occidental’s total proved reserves at year-end 2017 and 2016.
Occidental does not have any reserves from non-traditional sources. For further information regarding Occidental's proved reserves, see "Supplemental Oil and Gas Information" following the "Financial Statements."
 
Changes in Proved Reserves
Occidental's total proved reserves increased 192 million BOE in 2017, which included additions of 206 million BOE from Occidental's development program.
Changes in reserves were as follows:
(in millions of BOE)
 
2017

Revisions of previous estimates
 
151

Improved recovery
 
201

Extensions and discoveries
 
5

Purchases
 
99

Sales
 
(44
)
Production
 
(220
)
Total
 
192


Occidental's ability to add reserves, other than through purchases, depends on the success of improved recovery, extension and discovery projects, each of which depends on reservoir characteristics, technology improvements and oil and natural gas prices, as well as capital and operating costs. Many of these factors are outside management’s control, and may negatively or positively affect Occidental's reserves.

Revisions of Previous Estimates
Revisions can include upward or downward changes to previous proved reserve estimates for existing fields due to the evaluation or interpretation of geologic, production decline or operating performance data. In addition, product price changes affect proved reserves recorded by Occidental. For example, lower prices may decrease the economically recoverable reserves, particularly for domestic properties, because the reduced margin limits the expected life of the operations. Offsetting this effect, lower prices increase Occidental's share of proved reserves under PSCs because more oil is required to recover costs. Conversely, when prices rise, Occidental's share of proved reserves decreases for PSCs and economically recoverable reserves may increase for other operations. In 2017, Occidental had positive revisions of 151 million BOE, mainly in the Permian Basin and Oman.
Reserve estimation rules require that estimated ultimate recoveries be much more likely to increase or remain constant than to decrease, as changes are made due to increased availability of technical data.

Improved Recovery
In 2017, Occidental added proved reserves of 201 million BOE mainly associated with the Permian Basin and UAE. These properties comprise both conventional projects, which are characterized by the deployment of EOR development methods, largely employing application of CO2 flood, waterflood or steam flood, and unconventional projects. These types of conventional EOR development methods can be applied through existing wells, though additional drilling is frequently required to fully optimize the development configuration. Waterflooding is the technique of injecting water into the formation to displace the oil to the offsetting oil production wells. The use of either CO2 or steam flooding depends on the geology of the formation, the evaluation of engineering data, availability and cost of

            
17



either CO2 or steam and other economic factors. Both techniques work similarly to lower viscosity causing the oil to move more easily to the producing wells. Many of Occidental's projects, including unconventional projects, rely on improving permeability to increase flow in the wells. In addition, some improved recovery comes from drilling infill wells that allow recovery of reserves that would not be recoverable from existing wells.

Extensions and Discoveries
Occidental also added proved reserves from extensions and discoveries, which are dependent on successful exploration and exploitation programs. In 2017, extensions and discoveries added 5 million BOE related primarily to the recognition of proved developed reserves in Oman.

Purchases of Proved Reserves
Occidental continues to seek opportunities to add reserves through acquisitions when properties are available at prices it deems reasonable. As market conditions change, the available supply of properties may increase or decrease accordingly.
In 2017, Occidental purchased 99 million BOE of proved reserves in the Permian Basin, which mainly came from acquisitions made in the third quarter of 2017.

Sales of Proved Reserves
In 2017, Occidental sold 44 million BOE in proved reserves mainly related to the sales of South Texas and non-core Permian acreage.

Proved Undeveloped Reserves
Occidental had proved undeveloped reserves at year-end 2017 of 670 million BOE, compared to the year-end 2016 amount of 550 million BOE.
Changes in proved undeveloped reserves were as follows:
(in millions of BOE)
 
2017

 
Revisions of previous estimates
 
51

 
Improved recovery
 
127

 
Extensions and discoveries
 
3

 
Purchases
 
37

 
Sales
 
(9
)
 
Transfer to proved developed reserves
 
(89
)
 
Total
 
120

 

The increase in proved undeveloped reserves from the Permian Basin added approximately 168 million BOE through improved recovery, positive revisions and purchases. The remaining additions mainly came from Oman and UAE.
The 2017 additions to proved undeveloped reserves were partially offset by 89 million BOE of transfers to proved developed reserves, mainly from the Permian Basin, and sales of proved undeveloped reserves related to the sales of South Texas and non-core Permian acreage.
Occidental’s highest-return projects and most active development areas are located in the Permian Basin, which
 
represented 73 percent of the proved undeveloped reserves as of December 31, 2017. The majority of Occidental’s 2018 capital program of $3.9 billion is allocated to the development program in the Permian Basin. Overall, Occidental plans to spend approximately $8 billion, or over 76 percent of total estimated future development costs, over the next five years to develop its proved undeveloped reserves in the Permian Basin.
Occidental’s proved undeveloped reserves in international locations are associated with approved long-term international development projects.

Reserves Evaluation and Review Process
Occidental's estimates of proved reserves and associated future net cash flows as of December 31, 2017, were made by Occidental’s technical personnel and are the responsibility of management. The estimation of proved reserves is based on the requirement of reasonable certainty of economic producibility and funding commitments by Occidental to develop the reserves. This process involves reservoir engineers, geoscientists, planning engineers and financial analysts. As part of the proved reserves estimation process, all reserve volumes are estimated by a forecast of production rates, operating costs and capital expenditures. Price differentials between benchmark prices (the unweighted arithmetic average of the first-day-of-the-month price for each month within the year) and realized prices and specifics of each operating agreement are then used to estimate the net reserves. Production rate forecasts are derived by a number of methods, including estimates from decline curve analysis, type curve analysis, material balance calculations that take into account the volumes of substances replacing the volumes produced, and associated reservoir pressure changes, seismic analysis and computer simulation of the reservoir performance. These field-tested technologies have demonstrated reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. Operating and capital costs are forecast using the current cost environment applied to expectations of future operating and development activities.
Net proved developed reserves are those volumes that are expected to be recovered through existing wells with existing equipment and operating methods for which the incremental cost of any additional required investment is relatively minor.
Net proved undeveloped reserves are those volumes that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Proved undeveloped reserves are supported by a five-year, detailed, field-level development plan, which includes the timing, location and capital commitment of the wells to be drilled. The development plan is reviewed and approved annually by senior management and technical personnel. Annually a detailed review is performed by Occidental’s Worldwide Reserves Group and its technical personnel on a lease-by-lease basis to assess whether proved undeveloped reserves are being converted on a timely basis within five years from the initial disclosure date. Any leases not showing timely transfers from proved

            
18



undeveloped reserves to proved developed reserves are reviewed by senior management to determine if the remaining reserves will be developed in a timely manner and has sufficient capital committed in the development plan. Only proved undeveloped reserves that are reasonably certain to be drilled within five years of booking and are supported by a final investment decision to drill them are included in the development plan. A portion of the proved developed reserves associated with international operations are expected to be developed beyond the five years and are tied to approved long-term development plans.
The current Senior Vice President, Reserves for Oxy Oil and Gas is responsible for overseeing the preparation of reserve estimates, in compliance with U.S. Securities and Exchange Commission (SEC) rules and regulations, including the internal audit and review of Occidental's oil and gas reserves data. He has over 30 years of experience in the upstream sector of the exploration and production business, and has held various assignments in North America, Asia and Europe. He is a three-time past Chair of the Society of Petroleum Engineers Oil and Gas Reserves Committee. He is an American Association of Petroleum Geologists (AAPG) Certified Petroleum Geologist and currently serves on the AAPG Committee on Resource Evaluation. He is a member of the Society of Petroleum Evaluation Engineers, the Colorado School of Mines Potential Gas Committee and the UNECE Expert Group on Resource Classification. He has Bachelor of Science and Master of Science degrees in geology from Emory University in Atlanta.
Occidental has a Corporate Reserves Review Committee (Reserves Committee), consisting of senior corporate officers, to review and approve Occidental's oil and gas reserves. The Reserves Committee reports to the Audit Committee of Occidental's Board of Directors during the year. Since 2003, Occidental has retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its annual oil and gas reserve estimation processes.
In 2017, Ryder Scott conducted a process review of the methods and analytical procedures utilized by Occidental’s engineering and geological staff for estimating the proved reserves volumes, preparing the economic evaluations and determining the reserves classifications as of December 31, 2017, in accordance with the SEC regulatory standards. Ryder Scott reviewed the specific application of such methods and procedures for selected oil and gas properties considered to be a valid representation of Occidental’s 2017 year-end total proved reserves portfolio. In 2017, Ryder Scott reviewed approximately 20 percent of Occidental’s proved oil and gas reserves. Since being engaged in 2003, Ryder Scott has reviewed the specific application of Occidental’s reserve estimation methods and procedures for approximately 80 percent of Occidental’s existing proved oil and gas reserves. Management retains Ryder Scott to provide objective third-party input on its methods and procedures and to gather industry information applicable to Occidental’s reserve estimation and reporting process. Ryder Scott has not been engaged to render an opinion as to the reasonableness of reserves quantities reported by
 
Occidental. Occidental has filed Ryder Scott's independent report as an exhibit to this Form 10-K.
Based on its reviews, including the data, technical processes and interpretations presented by Occidental, Ryder Scott has concluded that the overall procedures and methodologies Occidental utilized in estimating the proved reserves volumes, documenting the changes in reserves from prior estimates, preparing the economic evaluations and determining the reserves classifications for the reviewed properties are appropriate for the purpose thereof and comply with current SEC regulations.

Industry Outlook
The petroleum industry is highly competitive and subject to significant volatility due to various market conditions. WTI and Brent oil price indexes for 2017 were above the 2016 index prices closing at $60.42 per barrel and $66.87 per barrel, respectively, as of December 31, 2017. Commodity prices remained relatively constant in 2017 and started to increase in the latter part of the fourth quarter.
Oil prices will continue to be affected by: (i) global supply and demand, which are generally a function of global economic conditions, inventory levels, production disruptions, technological advances, regional market conditions and the actions of OPEC, other significant producers and governments; (ii) transportation capacity, infrastructure constraints, and costs in producing areas; (iii) currency exchange rates; and (iv) the effect of changes in these variables on market perceptions.
NGLs prices are related to the supply and demand for the components of products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products for which they are used as feedstock. In addition, infrastructure constraints magnify the pricing volatility from region to region.
Domestic natural gas prices and local differentials are strongly affected by local supply and demand fundamentals, as well as government regulations and availability of transportation capacity from producing areas.
These and other factors make it difficult to predict the future direction of oil, NGLs and domestic gas prices reliably. For purposes of the current capital plan, Occidental anticipates 2018 oil prices to be higher than average 2017 oil prices. International gas prices are generally fixed under long-term contracts. Occidental continues to respond to economic conditions by adjusting capital expenditures in line with current economic conditions with the goal of keeping returns well above its cost of capital.

CHEMICAL SEGMENT
Business Environment
In 2017, U.S. economic growth surpassed that of 2016 and was supported by growing demand for domestically produced energy and feedstocks, even though natural gas and ethylene pricing was higher on average than in 2016. Hurricane Harvey impacted the ethylene market in the second half of 2017 and ethylene pricing on average ended the year slightly higher than 2016. The impact of higher energy and feedstock costs was offset in 2017, as tighter supply and increased demand in the caustic market

            
19



resulted in higher margins, while PVC margins slightly improved as prices kept up with raw material costs.

Business Review
Basic Chemicals
In 2017, the U.S. economic growth rate was expected to exceed the 1.5 percent experienced in 2016. The higher U.S. growth rate bolstered domestic demand as the 2017 industry chlorine operating rate increased by 4 percent, to 88 percent, resulting in an improvement in chlorine pricing in the second half of 2017. Exports of downstream chlorine derivatives into the vinyls chain were stable in 2017 as U.S. ethylene and energy costs remained advantaged over global pricing. Liquid caustic soda prices improved both domestically and globally in 2017, as increased demand and tighter supply supported the higher pricing.

Vinyls
Demand for PVC improved year-over-year with domestic demand improving 5 percent and export demand being on par with 2016. Domestic demand was driven by construction as housing starts continued their year-over-year increase and rising home values drove increased home remodeling. Export volume remains a significant portion of PVC sales, representing over 30 percent of total North American producer’s production. PVC industry operating rates decreased less than one percent compared to 2016, despite impact from Hurricane Harvey. Industry PVC margins slightly improved in 2017, as PVC pricing kept pace with higher ethylene cost.

Industry Outlook
Industry performance will depend on the health of the global economy, specifically in the housing, construction, automotive and durable goods markets. Margins also depend on market supply-and-demand balances and feedstock and energy prices. Strengthening in the petroleum industry may positively affect the demand and pricing of a number of Occidental’s products that are consumed by industry participants. U.S. commodity export markets will continue to be impacted by the relative strength of the U.S. dollar, which is anticipated to be relatively neutral in 2018.

Basic Chemicals
Continued improvement in the United States housing, automotive and durable goods markets should drive a moderate increase in domestic demand for basic chemical products in 2018. Export demand for caustic is also expected to remain firm in 2018. Chlor-alkali operating rates should improve moderately with higher demand and continued competitive energy and raw material pricing as compared to global feedstock costs. Businesses such as calcium chloride and muriatic acid continue to improve as oil and gas drilling activity increases in the U.S., which is expected to continue in 2018.

Vinyls
North American demand should continue to show improvement in 2018 over 2017 levels as growth in construction spending continues with further upside potential driven by new infrastructure projects. North
 
American operating rates are expected to remain relatively flat with 2017 but margins should improve as demand in the United States strengthens.

MIDSTREAM AND MARKETING SEGMENT
Business Environment
Midstream and marketing segment earnings are affected by the performance of its various businesses including its gas processing, transportation, power-generation assets, and storage facilities and terminal business. The marketing business aggregates markets, and stores Occidental's and third-party volumes. Marketing performance is affected primarily by commodity price changes and margins in oil and gas transportation and storage programs. Gas processing and transportation results are affected by the volumes that are processed and transported through the segment's plants and pipelines, as well as the margins obtained on related services.
The midstream and marketing segment earnings in 2017 were significantly higher than those in 2016 primarily due to improved Permian to Gulf Coast price differentials, higher plant income due to higher NGL prices and higher income from a full year of operating the Ingleside Crude Terminal.

Business Review
Pipeline and Gathering Systems and Transportation
Margin and cash flow from pipeline transportation operations mainly reflect volumes shipped. Dolphin Energy owns and operates a 230-mile-long, 48-inch-diameter natural gas pipeline (Dolphin Pipeline), which transports dry natural gas from Qatar to the UAE and Oman. The Dolphin Pipeline contributes significantly to Occidental's pipeline transportation results through Occidental's 24.5-percent interest in Dolphin Energy. The Dolphin Pipeline has capacity to transport up to 3.2 Bcf of natural gas per day and currently transports approximately 2.2 Bcf per day, and up to 2.5 Bcf per day in the summer.
Occidental owns an oil common carrier pipeline and storage system with approximately 2,950 miles of pipelines from southeast New Mexico across the Permian Basin in West Texas to Cushing, Oklahoma. The system has a current throughput capacity of about 720,000 barrels per day, 7.1 million barrels of active storage capability and 128 truck unloading facilities at various points along the system, which allow for additional volumes to be delivered into the pipeline. In 2017, Occidental expanded its oil pipeline system in New Mexico by an additional 50 miles.
Occidental's 2017 pipeline transportation earnings increased from 2016 due to higher throughput volumes and improved margins.

Gas Processing Plants and CO2 Fields and Facilities
Occidental processes its and third-party domestic wet gas to extract NGLs and other gas byproducts, including CO2, and delivers dry gas to pipelines. Margins primarily result from the difference between inlet costs of wet gas and market prices for NGLs. Occidental’s 2017 earnings from these operations increased compared to 2016 due to higher throughput volumes and higher realized NGL pricing.
Occidental has a 40-percent participating interest in Al Hosn Gas which is designed to process 1.0 Bcf per day of

            
20



natural gas and separate it into sales gas, condensate, NGLs and sulfur. The facilities produce approximately 10,500 tons per day of sulfur, of which approximately 4,200 tons is Occidental's share. Al Hosn Gas facilities generate revenues from gas processing fees and the sale of sulfur. The increase in 2017 earnings compared to 2016 was primarily due to higher throughput volumes and higher sulfur pricing.

Power Generation Facilities
Earnings from power and steam generation facilities are derived from sales to affiliates and third parties. The decrease in earnings in 2017 compared to 2016 was a result of lower production due to longer outages and lower ancillary sales.

Storage Facilities and Terminal Assets
Occidental owns the Oxy Ingleside Energy Center, which includes the Ingleside Crude Terminal, a crude oil storage and export terminal located in the Port of Corpus Christi in Ingleside, Texas. The facility has a competitive advantage over other similarly situated export terminals, with a location near port entry, access to deep water, industry-leading loading rates and reduced lay times while berthed. The facility has over 300,000 barrels per day of throughput capacity, along with 2.1 million barrels of storage and three loading berths with 80,000 barrels per hour loading capability. The terminal is currently capable of loading articulated tug barges (ATB), medium range (MR), Aframax and Suezmax size vessels.
In 2017, Occidental became the largest exporter of Permian light sweet crude from the United States (U.S.) Gulf Coast. The export market for crude has developed since the lifting of the export ban in 2016. While U.S. producers have increased production of light crude, U.S. refineries are constrained in their ability to process incremental volumes of light crude without significant incremental capital investment, necessitating exports to international markets. In response to the increase in Permian production and the need to export these barrels, Occidental is expanding its terminal to approximately 750,000 barrels per day of capacity and 6.8 million barrels of storage which will be operational by the end of 2019. Occidental is also expanding the facility to be capable of loading VLCC size vessels by the fourth quarter of 2018.

Marketing
The marketing group markets substantially all of Occidental’s oil, NGLs and gas production, as well as trades around its assets, including its own and third-party transportation and storage capacity. Occidental’s third-party marketing activities focus on purchasing oil, NGLs and gas for resale from parties whose oil and gas supply is located near its transportation and storage assets. These purchases allow Occidental to aggregate volumes to better utilize and optimize its assets. Marketing performance in 2017 improved compared to 2016 due to favorable Permian-to-Gulf Coast crude oil price differentials and higher marketing volumes.


 
Industry Outlook
The pipeline transportation and power generation businesses are expected to remain relatively stable. Marketing results can have significant volatile results depending on significant price swings, as well as Permian-to-Gulf Coast crude oil differentials. The gas processing plant operations could have volatile results depending on NGLs prices. Generally, higher NGLs prices result in higher profitability.

SEGMENT RESULTS OF OPERATIONS AND SIGNIFICANT ITEMS AFFECTING EARNINGS
Segment earnings exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income from the segments' equity investments. Seasonality is not a primary driver of changes in Occidental's consolidated quarterly earnings during the year.
The following table sets forth the sales and earnings of each operating segment and corporate items:
(in millions, except per share amounts)
For the years ended December 31,
 
2017
 
2016
 
2015
NET SALES (a)
 
 
 
 
 
 
Oil and Gas
 
$
7,870

 
$
6,377

 
$
8,304

Chemical
 
4,355

 
3,756

 
3,945

Midstream and Marketing
 
1,157

 
684

 
891

Eliminations
 
(874
)
 
(727
)
 
(660
)
 
 
$
12,508

 
$
10,090

 
$
12,480

SEGMENT RESULTS AND EARNINGS
 
 
 
 
 
 
Domestic
 
$
(589
)
 
$
(1,552
)
 
$
(4,151
)
Foreign
 
1,767

 
965

 
(3,747
)
Exploration
 
(67
)
 
(49
)
 
(162
)
Oil and Gas
 
1,111

 
(636
)
 
(8,060
)
Chemical 
 
822

 
571

 
542

Midstream and Marketing
 
85

 
(381
)
 
(1,194
)
 
 
2,018

 
(446
)
 
(8,712
)
Unallocated corporate items
 
 
 
 
 
 
Interest expense, net
 
(324
)
 
(275
)
 
(141
)
Income taxes
 
(17
)
 
662

 
1,330

Other
 
(366
)
 
(943
)
 
(623
)
Income (loss) from continuing operations
 
1,311

 
(1,002
)
 
(8,146
)
Discontinued operations, net
 

 
428

 
317

Net income (loss)
 
$
1,311

 
$
(574
)
 
$
(7,829
)
Basic Earnings per Common Share
 
$
1.71

 
$
(0.75
)
 
$
(10.23
)
(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.


            
21



Oil and Gas
(in millions)
For the years ended December 31,

 
2017
 
2016
 
2015
Segment Sales
 
$
7,870

 
$
6,377

 
$
8,304

Segment Results (a)
 
 
 
 
 
 
Domestic
 
$
(589
)
 
$
(1,552
)
 
$
(4,151
)
Foreign
 
1,767

 
965

 
(3,747
)
Exploration
 
(67
)
 
(49
)
 
(162
)
 
 
$
1,111

 
$
(636
)
 
$
(8,060
)
 
 
 
 
 
 
 
Significant items affecting results
 
 
 
 
 
 
Asset sale gains (b)
 
$
655

 
$
107

 
$
10

Asset impairments and related items domestic (c)
 
$
(397
)
 
$
(1
)
 
$
(3,457
)
Asset impairments and related items international (d)
 
$
(4
)
 
$
(70
)
 
$
(5,050
)
Total Oil and Gas
 
$
254

 
$
36

 
$
(8,497
)
(a)
Results include significant items listed below.
(b)
The 2017 gain on sale of assets included the sale of South Texas and non-core acreage in the Permian Basin. The 2016 gain on sale of assets included the sale of Piceance and South Texas oil and gas properties.
(c)
The 2017 amount included $397 million of impairment and related charges associated with non-core proved and unproved Permian acreage. The 2015 amount included approximately $1.6 billion of impairment and related charges associated with non-core domestic oil and gas assets in the Williston Basin (sold in November 2015) and Piceance Basin (sold in March 2016). The remaining 2015 charges were mainly associated with the decline in commodity prices and management changes to future development plans.
(d)
The 2016 amount included a net charge of $61 million related to the sale of Libya and exit from Iraq. The 2015 amount included impairment and related charges of approximately $1.7 billion for operations where Occidental exited or reduced its involvement in and $3.4 billion related to the decline in commodity prices.
(in millions)
For the years ended December 31,

 
2017
 
2016
 
2015
Average Realized Prices
 
 
 
 
 
 
Oil Prices ($ per bbl)
 
 
 
 
 
 
United States
 
$
47.91

 
$
39.38

 
$
45.04

Latin America
 
$
48.50

 
$
37.48

 
$
44.49

Middle East/North Africa
 
$
50.38

 
$
38.25

 
$
49.65

Total worldwide
 
$
48.93

 
$
38.73

 
$
47.10

NGLs Prices ($ per bbl)
 
 
 
 
 
 
United States
 
$
23.67

 
$
14.72

 
$
15.35

Middle East/North Africa
 
$
18.05

 
$
15.01

 
$
17.88

Total worldwide
 
$
21.63

 
$
14.82

 
$
15.96

Gas Prices ($ per Mcf)
 
 
 
 
 
 
United States
 
$
2.31

 
$
1.90

 
$
2.15

Latin America
 
$
5.08

 
$
3.78

 
$
5.20

Total worldwide
 
$
1.84

 
$
1.53

 
$
1.49


Domestic oil and gas results were losses of $0.6 billion, $1.6 billion and $4.2 billion in 2017, 2016 and 2015, respectively. Excluding significant items affecting results, domestic oil and gas results in 2017 increased from 2016, due to a 22 percent increase in realized oil prices, and lower DD&A rates.
 
Excluding significant items affecting results, domestic oil and gas results in 2016 were lower than 2015, due to a 13 percent decrease in realized oil prices, higher DD&A rates, and lower oil volumes due to the sale of non-core domestic operations. These decreases were partially offset by lower operating expenses.
International oil and gas earnings were $1.8 billion and $1.0 billion in 2017 and 2016, respectively and a loss of $3.7 billion in 2015. Excluding significant items affecting results, international oil and gas earnings in 2017, increased from 2016. The improved 2017 earnings reflected a 32 and 20 percent increase in realized crude oil and NGL prices in the Middle East, respectively.
Excluding significant items affecting results, the decrease in international oil and gas results in 2016, compared to 2015, reflected lower realized crude oil prices, which had decreased by 23 percent in the Middle East and 16 percent in Latin America. The decrease in prices was partially offset by lower DD&A rates.
Average production costs for 2017, excluding taxes other than on income, were $11.73 per BOE, compared to $10.76 per BOE for 2016. The increase in average production costs per BOE reflected the sales of low margin non-core gas assets, including South Texas and Piceance Basin. Permian Resources production costs per BOE for 2017 decreased by 5 percent from the prior year due to continued improved operational efficiencies.
Average production costs for 2016, excluding taxes other than on income, were $10.76 per BOE,compared to $11.57 per BOE for 2015. The decrease in average costs reflected lower maintenance, workover, and support costs as a result of improvements in operating efficiencies, especially in domestic operations.
The following table sets forth the production volumes of oil, NGLs and natural gas per day from ongoing operations for each of the three years in the period ended December 31, 2017.
Production per Day from Ongoing Operations (MBOE)
 
2017
 
2016
 
2015
United States
 
 
 
 
 
 
Permian Resources
 
141

 
124

 
110

Permian EOR
 
150

 
145

 
145

Other Domestic
 
5

 
4

 
6

Total
 
296

 
273

 
261

Latin America
 
32

 
34

 
37

Middle East
 
 
 
 
 
 
Al Hosn Gas
 
71

 
64

 
35

Dolphin
 
42

 
43

 
41

Oman
 
95

 
96

 
89

Qatar
 
58

 
65

 
66

Total
 
266

 
268

 
231

Total Production Ongoing Operations
 
594

 
575

 
529

Sold domestic operations
 
8

 
29

 
67

Sold or Exited MENA operations
 

 
26

 
72

Total Production (MBOE) (a)
 
602

 
630

 
668

(a)
Natural gas volumes have been converted to BOE based on energy content of six Mcf of gas to one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence. Please refer to "Supplemental Oil and Gas Information (unaudited)" for additional information on oil and gas production and sales.

            
22



Average daily production volumes were 602,000 BOE and 630,000 BOE for 2017 and 2016, respectively, and included production from assets sold or exited of 8,000 BOE and 55,000 BOE for 2017 and 2016, respectively. Excluding production for assets sold or exited, average daily production volumes were 594,000 BOE and 575,000 BOE for 2017 and 2016, respectively. The increase in production mainly reflected higher Permian Resources production which increased by 14 percent from the prior year.
Average daily production volumes were 630,000 BOE and 668,000 BOE for 2016 and 2015, respectively, and included production from assets sold or exited of 55,000 BOE and 139,000 BOE for 2016 and 2015, respectively. Excluding production for assets sold or exited, average daily production volumes were 575,000 BOE and 529,000 BOE for 2016 and 2015, respectively. The increase in production from on-going operations mainly reflected higher production from Al Hosn Gas as it was not fully operational in 2015 and higher production from Permian Resources, which increased its 2016 production by 13 percent compared to 2015. These increases were offset by lower production from South Texas and Other due to curtailed drilling.

Chemical
(in millions)
For the years ended December 31,

 
2017
 
2016
 
2015
Segment Sales
 
$
4,355

 
$
3,756

 
$
3,945

Segment Results (a)
 
$
822

 
$
571

 
$
542

 
 
 
 
 
 
 
Significant items affecting results
 
 
 
 
 
 
Asset sale gains (b)
 
$
5

 
$
88

 
$
98

Asset impairments and related items
 

 

 
(121
)
Total Chemicals
 
$
5

 
$
88

 
$
(23
)
(a)
Results include significant items listed below.
(b)
The 2016 amount included the $57 million gain on sale of the Occidental Tower in Dallas and a $31 million gain on the sale of a non-core specialty chemicals business. The 2015 amount included a $98 million gain on sale of an idled facility.

Chemical segment earnings were $822 million, $571 million and $542 million for 2017, 2016 and 2015, respectively. Excluding significant items affecting results, the year over year increase in 2017 earnings compared to 2016, was the result of higher realized pricing for caustic soda, improved vinyls margins, higher sales volumes across most product lines, and the addition of equity income from the joint venture ethylene cracker in Ingleside, Texas.
Excluding significant items affecting results, the decrease in 2016 earnings, compared to 2015, reflected lower PVC margins as PVC pricing decreased with lower ethylene pricing, which was partially offset by lower ethylene and energy costs.

 
Midstream and Marketing
(in millions)
For the years ended December 31,

 
2017
 
2016
 
2015
Segment Sales
 
$
1,157

 
$
684

 
$
891

Segment Results (a)
 
$
85

 
$
(381
)
 
$
(1,194
)
 
 
 
 
 
 
 
Significant items affecting results
 
 
 
 
 
 
Asset and equity investment gains (b)
 
$
94

 
$

 
$

Asset impairments and related items(c)
 
(120
)
 
(160
)
 
(1,259
)
Total Midstream and Marketing
 
$
(26
)
 
$
(160
)
 
$
(1,259
)
(a)
Results include significant items listed below.
(b)
The 2017 amount included a $94 million non-cash fair value gain on the Plains equity investment.
(c)
The 2017 amount included $120 million of impairment and related charges related to idled midstream facilities. The 2016 amount included charges related to the termination of crude oil supply contracts. The 2015 amount included an impairment charge of $814 million related to the Century gas processing plant as a result of our partner's inability to provide volumes to the plant and meet its contractual obligations to deliver CO2.

Midstream and marketing segment results were earnings of $0.1 billion and losses of $0.4 billion and $1.2 billion in 2017, 2016 and 2015, respectively. Excluding significant items affecting results, the increase in 2017 results compared to 2016, reflected higher marketing margins due to improved spreads, higher plant income due to higher NGL prices and higher income from a full year of operating the Ingleside Crude Terminal.
Excluding the significant items noted above, the decrease in 2016 results compared to 2015 reflected lower marketing margins due to unfavorable contract pricing on long-term supply agreements as well as unfavorable Permian-to-Gulf Coast differentials, decreased throughput and lower realized NGLs pricing.

Corporate
The following table sets forth significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount.
Benefit (Charge) (in millions)
 
2017
 
2016
 
2015
CORPORATE
 
 
 
 
 
 
Asset sale losses
 
$

 
$

 
$
(8
)
Asset impairments and related items(a)
 

 
(619
)
 
(235
)
Severance, spin-off and other
 

 

 
(118
)
Tax effect of pre-tax and other adjustments
 
392

 
424

 
1,903

Discontinued operations, net of tax(b)
 

 
428

 
317

TOTAL
 
$
392

 
$
233

 
$
1,859

(a)
The 2016 amount included charges of $541 million related to a reserve for doubtful accounts and $78 million loss on the distribution of the remaining CRC stock. The 2015 amount included a $227 million other-than-temporary loss on Occidental’s investment in California Resources.
(b)
The 2016 and 2015 amounts included gains related to the Ecuador settlement. See Note 2 of the consolidated financial statements.



            
23



TAXES
On December 22, 2017, Tax Reform was enacted which made significant changes to the U.S. federal income tax law, including lowering the federal corporate income tax rate from 35 percent to 21 percent, repealing the corporate AMT and mandating a deemed repatriation of accumulated earnings and profits of U.S.-owned foreign corporations. Occidental recorded the effects of the changes in the tax law for which the accounting was complete. In accordance with the guidance from the SEC, Occidental recorded a provisional estimate for the federal and state tax associated with the mandatory deemed repatriation and the resulting impact to the net federal deferred tax liability. Tax Reform resulted in a one-time non-cash gain of $583 million due to the remeasurement of net deferred tax liabilities to the new federal corporate income tax rate. Occidental recognized a noncurrent receivable of $221 million for its corporate AMT credit carryforwards. The tax impact of Occidental's deemed repatriation of accumulated earnings was fully offset by foreign tax credits. At December 31, 2017, Occidental reversed its indefinite re-investment assertion with regards to its investments in foreign subsidiaries and as a result, a deferred foreign tax liability of $99 million was recorded. The ultimate impact of Tax Reform may differ from Occidental’s estimates due to changes in interpretations and assumptions as well as additional regulatory guidance. Occidental will adjust provisional amounts as updated information is evaluated. Refer to Note 10 in the Consolidated Financial Statements for additional details.
Deferred tax liabilities, net of deferred tax assets of $1.8 billion, were $581 million at December 31, 2017. The deferred tax assets, net of allowances, are expected to be realized through future operating income and reversal of temporary differences.

Worldwide Effective Tax Rate
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:
(in millions)
 
2017
 
2016
 
2015
SEGMENT RESULTS
 
 
 
 
 
 
Oil and Gas
 
$
1,111

 
$
(636
)
 
$
(8,060
)
Chemical
 
822

 
571

 
542

Midstream and Marketing
 
85

 
(381
)
 
(1,194
)
Unallocated Corporate Items
 
(690
)
 
(1,218
)
 
(764
)
Pre-tax (loss) income
 
1,328

 
(1,664
)
 
(9,476
)
Income tax (benefit) expense
 
 

 
 

 
 

Federal and State
 
(903
)
 
(1,298
)
 
(2,070
)
Foreign
 
920

 
636

 
740

Total income tax (benefit) expense
 
17

 
(662
)
 
(1,330
)
Income (loss) from continuing operations
 
$
1,311

 
$
(1,002
)
 
$
(8,146
)
Worldwide effective tax rate
 
1
%
 
40
%
 
14
%

In 2017, Occidental's worldwide effective tax rate was 1 percent, which is lower than the 2016 rate mainly due to the remeasurement of net deferred tax liabilities to the new federal corporate income tax rate. Excluding the impact of impairments, tax rate changes and other nonrecurring
 
items, Occidental's worldwide effective tax rate for 2017 would be 37 percent.

CONSOLIDATED RESULTS OF OPERATIONS
Changes in components of Occidental's results of continuing operations are discussed below:

Revenue and Other Income Items
(in millions)
 
2017
 
2016
 
2015
Net sales
 
$
12,508

 
$
10,090

 
$
12,480

Interest, dividends and other income
 
$
99

 
$
106

 
$
118

Gain on sale of equity investments and other assets
 
$
667

 
$
202

 
$
101


The increase in net sales in 2017, compared to 2016, was mainly due to the increase in average worldwide realized oil and NGLs prices, as well as higher realized prices for caustic soda in the Chemical business. Average worldwide realized oil prices rose approximately 26 percent from 2016 to 2017.
The decrease in net sales in 2016, compared to 2015, was mainly due to the decline in average worldwide realized oil prices in 2016 and a decline in worldwide production as Occidental exited non-core areas. Average worldwide realized oil prices fell by approximately 18 percent from 2015 to 2016.
Price and volume changes in the oil and gas segment generally represent the majority of the change in oil and gas segment sales, which is a substantially larger portion of the overall change in sales than the chemical and midstream and marketing segments.
The 2017 gain on sale included the sale of South Texas and non-core proved and unproved Permian acreage. The 2016 gain on sale included the sale of Piceance and South Texas oil and gas properties, the Occidental Tower building in Dallas, and a non-core specialty chemicals business. The 2015 gain on sale included $98 million for the sale of an idled chemical facility.

Expense Items
(in millions)
 
2017
 
2016
 
2015
Cost of sales
 
$
5,594

 
$
5,189

 
$
5,804

Selling, general and administrative and other operating expenses
 
$
1,424

 
$
1,330

 
$
1,270

Depreciation, depletion and amortization
 
$
4,002

 
$
4,268

 
$
4,544

Asset impairments and related items
 
$
545

 
$
825

 
$
10,239

Taxes other than on income
 
$
311

 
$
277

 
$
343

Exploration expense
 
$
82

 
$
62

 
$
36

Interest and debt expense, net
 
$
345

 
$
292

 
$
147


Cost of sales increased in 2017 from 2016 due primarily to increases in chemical feedstock and energy costs and higher oil and gas purchase injectants. Cost of sales decreased in 2016 from the prior year due primarily to lower oil and gas maintenance costs and lower chemical feedstock and energy costs.
Selling, general and administrative and other operating expenses increased in 2017 compared to 2016, due to the change in timing of incentive compensation awards. Selling,

            
24



general and administrative and other operating expenses increased in 2016 compared to 2015, due to lower compensation accruals in 2015 related to Occidental's decision not to pay bonuses.
DD&A expense decreased in 2017, compared to 2016, due to lower volumes and lower DD&A rates. DD&A expense decreased in 2016, compared to 2015, due to lower volumes from the exited non-core oil and gas operations and lower DD&A rates in the Middle East.
In 2017, Occidental incurred impairment and related items charges of $545 million, of which $397 million related to proved and unproved non-core Permian acreage and $120 million for idled midstream assets. In 2016, Occidental incurred impairment and related items charges of $825 million, of which $541 million related to a reserve for doubtful accounts and $160 million for the termination of crude oil supply contracts, $78 million related to the disposal of CRC stock and $61 million related to exits from Libya and Iraq. The allowance for doubtful accounts recorded during 2016 includes a reserve against the long-term receivable related to environmental sites indemnified by Maxus described in Note 8, Environmental Liabilities and Expenditures. Occidental recorded a reserve against this receivable due to the uncertainty of collection as a result of the Maxus bankruptcy.
Asset impairments and related items in 2015 of $10.2 billion included charges of $3.5 billion related to domestic oil and gas assets due to Occidental’s exit from the Williston and Piceance basins, as well as the decline in the futures price curve and management’s decision not to pursue activities associated with certain non-producing acreage. International oil and gas charges of $5.0 billion were due to a combination of Occidental’s strategic plan to exit or reduce its exposure in certain Middle East and North Africa operations as well as the decline in the futures price curve, which have made certain projects in the region unprofitable. Midstream charges of $1.3 billion included the impairment of Occidental’s Century gas processing plant as a result of our partner’s inability to provide volumes to the plant and meet their contractual obligations to deliver CO2. Occidental recorded an other-than-temporary loss of $227 million for its available for sale investment in California Resources.
Taxes other than on income in 2017 increased from 2016 due primarily to higher oil, NGL and natural gas prices, which resulted in higher production taxes. Taxes other than on income decreased in 2016 from 2015 due primarily to lower production taxes, which are directly tied to lower commodity prices.

Other Items
Income/(expense) (in millions)
 
2017
 
2016
 
2015
(Provision for) benefit from income taxes
 
$
(17
)
 
$
662

 
$
1,330

Income from equity investments
 
$
357

 
$
181

 
$
208

Discontinued operations, net
 
$

 
$
428

 
$
317


In 2017, Occidental recorded an income tax expense as opposed to an income tax benefit recorded in 2016, due to higher pre-tax operating income as a result of a recovery in commodity prices, partially offset by the deferred tax benefit from Tax Reform. The benefit from income taxes
 
decreased in 2016 from the prior year as a result of a lower net loss in 2016, compared to 2015, which reflected significant impairments and related item charges.
The increase in income from equity investments in 2017 from 2016 is the result of the OxyChem Ingleside facility beginning operations in the first quarter of 2017 and a non-cash fair value gain on the Plains equity investment. The decline in income from equity investments in 2016 from 2015 is the result of lower Dolphin gas sales.
There were no charges for discontinued operations in 2017. Discontinued operations, net in 2016 and 2015 of $428 and $317 million, respectively, primarily include settlement payments by the Republic of Ecuador. See Note 2 of the Consolidated Financial Statements.

CONSOLIDATED ANALYSIS OF FINANCIAL POSITION
The changes in select components of Occidental’s balance sheet are discussed below:
(in millions)
 
2017
 
2016
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
1,672

 
$
2,233

Trade receivables, net
 
4,145

 
3,989

Inventories
 
1,246

 
866

Assets held for sale
 
474

 

Other current assets
 
733

 
1,340

Total current assets
 
$
8,270

 
$
8,428

 
 
 
 
 
Investments in unconsolidated entities
 
$
1,515

 
$
1,401

Property, plant and equipment, net
 
$
31,174

 
$
32,337

Long-term receivables and other assets, net
 
$
1,067

 
$
943

 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Current maturities of long-term debt
 
$
500

 
$

Accounts payable
 
4,408

 
3,926

Accrued liabilities
 
2,492

 
2,436

Total current liabilities
 
$
7,400

 
$
6,362

 
 
 
 
 
Long-term debt, net
 
$
9,328

 
$
9,819

DEFERRED CREDITS AND OTHER LIABILITIES
 
 
 
 
Deferred domestic and foreign income taxes
 
$
581

 
$
1,132

Asset retirement obligations
 
$
1,241

 
$
1,245

Pension and postretirement obligations
 
$
1,005

 
$
963

Environmental remediation reserves
 
$
728

 
$
739

Other
 
$
1,171

 
$
1,352

Total deferred credits and other liabilities
 
$
4,726

 
$
5,431

 
 
 
 
 
STOCKHOLDERS' EQUITY
 
$
20,572

 
$
21,497


Assets
See "Liquidity and Capital Resources — Cash Flow Analysis" for discussion of the change in cash and cash equivalents and restricted cash.
The increase in trade receivables, net, was the result of improved oil and gas prices at the end of 2017, compared to the end of 2016. Average December WTI and Brent prices increased approximately 11 percent and 17 percent, per barrel, respectively from 2016 to 2017. The increase in inventories in 2017 was the result of more exported domestic crude oil in transit in the midstream and marketing segment. Assets held for sale at the end of 2017 mainly reflected non-core proved and unproved Permian acreage. Other current assets decreased as a result of the receipt of a federal tax refund related to the 2016 net operating loss

            
25



carryback. The increase in investments in unconsolidated entities was due to contributions to the ethylene cracker joint venture, and the second quarter non-cash fair value gain related to Occidental's equity investment in Plains Pipeline. The decrease in property, plant and equipment, net (PP&E), was due to depletion and sales of non-core assets, which was partially offset by capital additions and acquisitions.

Liabilities and Stockholders' Equity
Current maturities of long-term debt represent the $0.5 billion of 1.50-percent senior notes due 2018.
The increase in accounts payable reflected higher marketing payables as a result of higher oil and gas prices at the end of 2017, compared to the end of 2016.
The decrease in deferred credits and other liabilities-income taxes was primarily due to the remeasurement of net deferred taxes as a result of a reduction in the federal corporate income tax rate. The decrease in long-term debt is the result of the reclassification of notes to current maturities of long-term debt. The decrease in stockholders' equity reflected the distribution of cash dividends, partially offset by the 2017 net income.

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2017, Occidental had approximately $1.7 billion in cash and cash equivalents. A substantial majority of this cash is held and available for use in the United States. Income and cash flows are largely dependent on the oil and gas segment's prices, sales volumes and costs.
Occidental utilized the remaining restricted cash balance resulting from the spin-off of California Resources in the first quarter of 2016 to retire debt and pay dividends.
In November 2016, Occidental issued $1.5 billion of senior notes, comprised of $750 million of 3.0-percent senior notes due 2027 and $750 million of 4.1-percent senior notes due 2047. Occidental received net proceeds of $1.49 billion. Interest on the senior notes is payable semi-annually in arrears in February and August each year for each series of senior notes beginning August 15, 2017. Occidental used the proceeds for general corporate purposes.
In May and June 2016, respectively, Occidental utilized part of the proceeds from the April 2016 senior note offering (described below) to exercise the early redemption option on $1.25 billion of 1.75-percent senior notes due in the first quarter of 2017 and to retire all $750 million of 4.125-percent senior notes that matured in June 2016.
In April 2016, Occidental issued $2.75 billion of senior notes, comprised of $0.4 billion of 2.6-percent senior notes due 2022, $1.15 billion of 3.4-percent senior notes due 2026 and $1.2 billion of 4.4-percent senior notes due 2046. Occidental received net proceeds of approximately $2.72 billion. Interest on the senior notes is payable semi-annually in arrears in April and October of each year for each series of senior notes, beginning on October 15, 2016. Occidental used a portion of the proceeds to retire debt in May and June 2016, and used the remaining proceeds for general corporate purposes.
 
In February 2016, Occidental retired $700 million of 2.5-percent senior notes that had matured.
In June 2015, Occidental issued $1.5 billion of debt that was comprised of $750 million of 3.50-percent senior unsecured notes due 2025 and $750 million of 4.625-percent senior unsecured notes due 2045. Occidental received net proceeds of approximately $1.48 billion. Interest on the notes is payable semi-annually in arrears in June and December of each year for both series of notes, beginning on December 15, 2015.
As of December 31, 2017, Occidental had an undrawn $2.0 billion revolving credit facility (2014 Credit Facility). Occidental did not draw down any amounts under the 2014 Credit Facility during 2017 or 2016, and no amounts were outstanding as of December 31, 2017.
In January 2018, Occidental entered into a new five-year, $3.0 billion revolving credit facility (2018 Credit Facility), which replaced the 2014 Credit Facility, that was scheduled to expire in August 2019. The 2018 Credit Facility has similar terms to the 2014 Credit Facility and does not contain material adverse change clauses or debt ratings triggers that could restrict Occidental's ability to borrow under the facility.
As of December 31, 2017, under the most restrictive covenants of its financing agreements, Occidental had substantial capacity for additional unsecured borrowings, the payment of cash dividends and other distributions on, or acquisitions of, Occidental stock.
Occidental expects to fund its liquidity needs, including future dividend payments, through cash on hand, cash generated from operations, monetization of non-core assets or investments and through future borrowings, and if necessary, proceeds from other forms of capital issuance.

Cash Flow Analysis
Cash provided by operating activities
 
 
 
 
 
(in millions)
 
2017
 
2016
 
2015
Operating cash flow from continuing operations
 
$
4,996

 
$
2,519

 
$
3,254

Operating cash flow from discontinued operations, net of taxes
 

 
864

 
97

Net cash provided by operating activities
 
$
4,996

 
$
3,383

 
$
3,351


Cash provided by operating activities from continuing operations in 2017 increased $2.5 billion to $5.0 billion, from $2.5 billion in 2016. Operating cash flows were positively impacted by higher worldwide oil and NGLs prices and higher domestic volumes in the oil and gas business and improved margins in the midstream and marketing and chemicals businesses. Cash flows from continuing operations in 2017 also included $761 million of federal tax refunds.
Cash provided by operating activities from continuing operations in 2016 decreased $0.7 billion to $2.5 billion, from $3.3 billion in 2015. Operating cash flows were negatively impacted by lower worldwide average realized oil prices in the first half of 2016, which on a year-over-year basis declined 18 percent. The effect of lower commodity prices was partially offset by lower operating costs, especially in the oil and gas segment where year over year production costs decreased by 7 percent. Cash flows from

            
26



continuing operations in 2016 also included collections of $325 million of federal and state tax refunds. Operating cash flows from discontinued operations reflected the collection of the Ecuador settlement.
Other cost elements, such as labor costs and overhead, are not significant drivers of changes in cash flow because they are relatively stable within a narrow range over the short to intermediate term. Changes in these costs had a much smaller effect on cash flows than changes in oil and gas product prices, sales volumes and operating costs.
The chemical and midstream and marketing segments cash flows are significantly smaller and their overall cash flows are generally less significant than the impact of the oil and gas segment.
Cash used by investing activities
 
 
 
 
 
 
(in millions)
 
2017