The Merger

9 Months Ended

Sep. 30, 2019

On May 9, 2019, Occidental entered into the Merger Agreement with Anadarko. On August 8, 2019, Anadarko’s stockholders voted to approve the Merger and it was made effective the same day. The Merger added to Occidental's oil and gas portfolio, primarily in the Permian Basin, DJ Basin and Gulf of Mexico, and a controlling interest in WES.

In exchange for each share of Anadarko common stock, Anadarko stockholders received $59.00 in cash and 0.2934 of a share of Occidental common stock, plus cash in lieu of any fractional share of Occidental common stock that otherwise would have been issued, based on the average price of $46.31 per share of Occidental common stock on the NYSE on August 8, 2019.

In connection with the Merger, Occidental issued $13.0 billion of new senior unsecured notes, $8.8 billion of term loans (the Term Loans) and 100,000 shares of series A preferred stock (the Preferred Stock) with a warrant to purchase 80 million shares of Occidental common stock at an exercise price of $62.50 (the Warrant) for $10 billion. In addition, Occidental increased its existing $3.0 billion revolving credit facility by an additional $2.0 billion in commitments. See Note 9 - Long-term Debt and Note 14 - Stockholders' Equity for additional information.

The Merger constitutes a business combination and was accounted for using the acquisition method of accounting. The following table presents the Merger consideration paid to Anadarko stockholders as a result of the Merger:



millions, except per share amounts
Total shares of Anadarko common stock eligible for Merger consideration	491.6
Cash consideration (per share of common stock and shares underlying Anadarko stock-based awards eligible for Merger consideration)	$	59.00
Cash portion of Merger consideration	$	29,002

Total shares of Anadarko common stock and shares underlying Anadarko stock-based awards eligible for Merger consideration	492.0
Exchange ratio (per share of Anadarko common stock)	0.2934
Total shares of Occidental common stock issued to Anadarko stockholders	144
Average share price of Occidental common stock at August 8, 2019	$	46.31
Stock portion of Merger consideration	$	6,684
Total Merger consideration	$	35,686

The following table sets forth the preliminary allocation of the Merger consideration. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed, valuation of pre-merger contingencies and final tax returns that provide underlying tax basis of assets acquired and liabilities assumed. Occidental will finalize the purchase price allocation during the 12-month period following the Merger date, during which time the value of the assets and liabilities may be revised as appropriate.



millions	As of August 8, 2019
Fair value of assets acquired:
Current assets	$	3,590
Anadarko's Africa Assets held for sale	10,746
Investments in unconsolidated entities	2,430
Property, plant and equipment, net - Anadarko	48,771
Property, plant and equipment, net - WES Midstream	9,475
Other assets	797
Intangible assets - WES Midstream	2,400
Amount attributable to assets acquired	$	78,209

Fair value of liabilities assumed:
Current liabilities	$	3,677
Liabilities of Anadarko's Africa Assets held for sale	2,329
Long-term debt - Anadarko	12,829
Long-term debt - WES Midstream	7,407
Deferred income taxes	10,040
Asset retirement obligations	2,728
Pension and post retirement obligations	1,125
Non-current derivative liabilities	1,279
Other long-term liabilities	2,308
Amount attributable to liabilities assumed	$	43,722

Net assets	$	34,487
Less: Fair value of noncontrolling interests in WES Midstream	4,875
Fair value of net assets acquired	29,612
Goodwill - WES Midstream	6,074
Total Merger consideration	$	35,686

The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their preliminary estimated fair values at the date of the Merger. The valuation of certain assets, including property and intangible assets, are based on preliminary appraisals. The majority of measurements of assets acquired and liabilities assumed, other than debt, are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of acquired properties and equipment is based on both available market data and a cost approach. Oil and natural gas properties were valued using either available market data based on the nature of the properties and the location or an income approach. Intangible assets primarily consist of third-party customer contracts, the fair value of which was determined using an income approach. Deferred income taxes represent the tax effects of differences in the tax basis and merger-date fair values of assets acquired and liabilities assumed. The measurement of debt instruments was based on unadjusted quoted prices in an active market and are primarily Level 1; approximately $6.1 billion of the assumed debt is considered Level 2. The value of derivative instruments was based on observable inputs, primarily forward commodity-price and interest-rate curves and is considered Level 2.

The excess of the purchase price over the preliminary estimated fair value of the net tangible and identifiable intangible assets acquired totaled $6.1 billion in goodwill. Goodwill is attributable to the difference in the WES Midstream market capitalization value at the date of the Merger and the WES Midstream net assets acquired, and primarily represents the intrinsic value of the customer relationship between WES Midstream and Occidental.

With the completion of the Merger, Occidental acquired proved and unproved properties of approximately $18.2 billion and $26.0 billion, respectively, primarily associated with the Permian Basin, DJ Basin, Gulf of Mexico and Powder River Basin. The remaining $5.0 billion is related to land, mineral interests and corporate properties.

Other intangible assets of $2.4 billion primarily relate to customer contracts associated with the WES Midstream segment. These contracts are amortized over 25 years. The annual aggregate amortization expense for intangible assets is expected to be $108 million.

From the date of the Merger through September 30, 2019, revenues and net loss attributable to common stockholders associated with Anadarko assets totaled $1.5 billion and $400 million, respectively.

The following summarizes the unaudited pro forma condensed financial information of Occidental as if the Merger had occurred on January 1, 2018:



	Three months ended September 30					Nine months ended September 30
millions, except per-share amounts	2019			2018		2019		2018

Revenues	$	7,335		$	8,913	$	22,419	$	23,095
Net income (loss) attributable to common stockholders	$	(427	)	$	2,060	$	475	$	3,405
Net income (loss) attributable to common stockholders per share—basic	$	(0.50	)	$	2.27	$	0.51	$	3.74
Net income (loss) attributable to common stockholders per share—diluted	$	(0.50	)	$	2.26	$	0.50	$	3.73

The unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the operating results that would have occurred had the Merger been completed at January 1, 2018, nor is it necessarily indicative of future operating results of the combined entity. The unaudited pro forma information for 2019 and 2018 is a result of combining the three and nine months statements of operations of Occidental with the pre-merger results from January 1, 2019, and 2018 of Anadarko and includes adjustments for revenues and direct expenses. The pro forma results exclude results from the Africa Assets and the impact of any merger-related costs. The pro forma results include adjustments to DD&A (Depreciation, depletion and amortization) based on the purchase price allocated to property, plant, and equipment and intangibles and the estimated useful lives as well as adjustments to interest expense. The pro forma adjustments include estimates and assumptions based on currently available information. Management believes the estimates and assumptions are reasonable, and the relative effects of the Merger are properly reflected. The unaudited pro forma information does not reflect any cost savings anticipated as a result of the Merger or any merger-related costs.

Anadarko Merger-Related Costs

The following table summarizes the merger-related costs incurred:



millions	Three months ended September 30, 2019		Nine months ended September 30, 2019
Employee severance and related cost	$	459	$	459
Licensing fees for critical seismic data	329		354
Bank, legal and consulting fees	136		161
Total	$	924	$	974

Employee severance and related cost primarily relates to one-time severance costs and the accelerated vesting of certain Anadarko share-based awards for former Anadarko employees based on the terms of the Merger Agreement and existing change of control provisions within the former Anadarko employment agreements. In addition, employee severance and related cost includes expenses for a voluntary separation program for eligible employees. Occidental initiated this program to align the size and composition of its workforce with its expected future operating and capital plans. Employee notifications related to the voluntary separation program were ongoing at September 30, 2019, with additional expenses associated with the program expected to be incurred throughout the remainder of 2019 and through most of 2020.

The seismic licensing fees relate to relicensing of critical seismic data related to the Gulf of Mexico, Permian Basin and DJ Basin that Anadarko had licensed from third-party vendors. The third-party vendors who own the seismic data require a transfer fee in order for Occidental to use the data.

Occidental Stock-based Incentive Plans

On the date of the Merger, Occidental issued restricted share awards covering 1.7 million shares of common stock in exchange for Anadarko stock-based incentive shares to the former Anadarko employees. These restricted shares vest in periods ranging from one month to 3.5 years and are conditioned solely on the employees' continued service, with a weighted-average grant-date fair value of $47.13 and a weighted-average remaining life of 1.3 years. Under the terms of the Merger Agreement, these restricted share awards would be subject to accelerated vesting based on a qualifying termination event.