Occidental uses a variety of derivative financial instruments and physical contracts to manage its exposure to commodity-price fluctuations and transportation commitments, to fix margins on the future sale of stored commodity volumes and interest rate risks. Occidental also enters into derivative financial instruments for trading purposes.

Occidental may elect normal purchases and normal sales exclusions when physically delivered commodities are purchased or sold to a customer. Occidental occasionally applies cash flow hedge accounting treatment to derivative financial instruments to lock in margins on the forecasted sales of its natural gas storage volumes, and at times for other strategies, such as to lock rates on forecasted debt issuances. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty.

Derivative instruments that are derivatives not designated as hedging instruments are required to be recorded on the statement of operations and balance sheet at fair value. Changes in fair value will impact Occidental's earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument.

In July 2019, Occidental entered into three-way costless collar derivative instruments for 2020 and additional call options in 2021 to manage its near-term exposure to cash-flow variability from commodity-price risks. A three-way collar is a combination of three options: a sold call, a purchased put and a sold put. The sold call establishes the ceiling price that Occidental will receive for the contracted commodity volume for a defined period of time. The purchased put establishes the floor price that Occidental will receive for the contracted volumes unless the market price for the commodity falls below the sold put strike price, at which point the floor price equals the reference price plus the difference between the purchased put strike price and the sold put strike price for a defined period of time. Occidental entered into the 2021 call options to substantially improve the ceiling price that Occidental will receive for the contracted commodity volumes in 2020. In the Merger, Occidental also assumed three-way costless collars that expire throughout the rest of 2019. Net gains and losses associated with collars and calls are recognized currently in net sales. Hedge accounting was not elected for these contracts.



Collars and Calls, not designated as hedges
2019 Settlement
Three-way collars (Oil MMBL)			8.0
	Average price per barrel (NYMEX/Brent oil pricing)
		Ceiling sold price (call)	$	72.98
		Floor purchased price (put)	$	56.72
		Floor sold price (put)	$	46.72

2020 Settlement
Three-way collars (Oil MMBL)			109.8
	Average price per barrel (Brent oil pricing)
		Ceiling sold price (call)	$	74.09
		Floor purchased price (put)	$	55.00
		Floor sold price (put)	$	45.00

2021 Settlement
Call Options sold (Oil MMBL)			109.5
	Average price per barrel (Brent oil pricing)
		Ceiling sold price (call)	$	74.09

Occidental acquired interest rate swap contracts in the Merger. The contracts lock in a fixed interest rate in exchange for a floating interest rate indexed to three-month London Inter-Bank Offered Rate (LIBOR) throughout the reference period. Net gains and losses associated with interest rate derivative instruments not designated as hedging instruments are recognized currently in losses on interest rate swaps and warrants, net.



millions except percentages			Mandatory	Weighted-Average
Notional Principal Amount		Reference Period	Termination Date	Interest Rate
$	125	September 2016 - 2046	October 2019	6.782	%
$	550	September 2016 - 2046	September 2020	6.418	%
$	125	September 2016 - 2046	September 2022	6.835	%
$	100	September 2017 - 2047	September 2020	6.891	%
$	250	September 2017 - 2047	September 2021	6.570	%
$	450	September 2017 - 2047	September 2023	6.445	%

Derivative settlements and collateralization are classified as cash flows from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. As a result of prior extensions of reference-period start dates without settlement of the related interest rate derivative obligations, the interest rate derivatives in Occidental's portfolio contain an other-than-insignificant financing element, and therefore, any settlements, collateralization or cash payments for amendments related to these extended interest rate derivatives are classified as cash flows from financing activities. Net cash payments related to settlements and amendments of interest rate swap agreements were $43 million during the period from August 8, 2019, through September 30, 2019. Subsequent to September 30, 2019, Occidental settled interest rate swaps that had a mandatory termination date of October 11, 2019, and a notional value of $125 million.

In the Merger, Occidental also acquired interest rate swap contracts held by WES. WES exchanged a floating interest rate indexed to the three-month LIBOR for a fixed interest rate. Net gains and losses associated with these interest rate derivative instruments are recognized currently in losses on interest rate swaps and warrants, net. The following interest rate swaps were outstanding at September 30, 2019:



millions except percentages			Mandatory	Weighted-Average
Notional Principal Amount		Reference Period	Termination Date	Interest Rate
$	375	December 2019 - 2024	December 2019	2.662	%
$	375	December 2019 - 2029	December 2019	2.802	%
$	375	December 2019 - 2049	December 2019	2.885	%

Occidental's marketing derivative instruments not designated as hedges are physical and financial forward contracts which typically settle within three months. A substantial majority of Occidental's physically settled derivative contracts are index-based and carry no mark-to-market valuation in earnings. These instruments settle at a weighted-average contract price of $58.39 per barrel and $2.22 per thousand cubic feet (Mcf) for crude oil and natural gas, respectively, at September 30, 2019. The weighted-average contract price was $58.81 per barrel and $3.18 per Mcf for crude oil and natural gas, respectively, at December 31, 2018. Net gains and losses associated with marketing derivative instruments not designated as hedging instruments are recognized currently in net sales.

The Warrant issued with the Preferred Stock in connection with the Merger is exercisable at the holder's option, in whole or in part, until the first anniversary of the date on which no shares of Preferred Stock remain outstanding at which point the Warrant expires. The holder of the Warrant may require net cash settlement if certain shareholder and regulatory approvals to issue Occidental common stock are not obtained on a timely basis. The initial fair value of the Warrant, $188 million, was measured at the date of the Merger using the Black Scholes option model. The following inputs were used in the Black Scholes option model; the expected life is based on the estimated term of the Warrant, the volatility factor is based on historical volatilities of Occidental common stock, and the call option price for Occidental common stock at $62.50. The fair value of the Warrant is remeasured each reporting period based on changes in the inputs above.

Occidental’s marketing operations store natural gas purchased from third parties at Occidental’s leased storage facilities. Derivative instruments are used to fix margins on the future sales of the stored volumes. As of September 30, 2019, Occidental had approximately 5 billion cubic feet (Bcf) of natural gas held in storage, and had cash flow hedges for the forecast sales, to be settled by physical delivery, of approximately 3 Bcf of stored natural gas. As of December 31, 2018, Occidental had approximately 5 Bcf of natural gas held in storage, and had cash flow hedges for the forecasted sales, to be settled by physical delivery, of approximately 4 Bcf of stored natural gas. The fair value of the cash flow hedges associated with stored natural gas was immaterial at September 30, 2019 and December 31, 2018. The ineffective portion recognized through earnings was immaterial for the nine months ended September 30, 2019, and the year ended December 31, 2018.

In June 2019, in anticipation of issuing debt in the third quarter to partially finance the cash portion of the Merger consideration, Occidental entered into a series of U.S. treasury locks which were designated as cash flow hedges. In August 2019, the U.S. treasury locks were unwound with the issuance of the $13.0 billion new senior unsecured notes, and the resulting after-tax accumulated other comprehensive loss of $125 million will be amortized to interest expense over the life of the underlying senior notes.

The following tables present the fair values of Occidental’s outstanding derivatives. Fair values are presented at gross amounts, including when the derivatives are subject to master netting arrangements, and are presented on a net basis in the Consolidated Condensed Balance Sheets.



Balance Sheet Classification	Fair-Value Measurements Using						Netting ^(a)			Total Fair Value
millions	Level 1		Level 2		Level 3

September 30, 2019
Oil Collars and Calls
Other current assets	$	—	$	217	$	—	$	(4	)	$	213
Accrued liabilities	—		3		—		(3		)	—
Deferred credits and other liabilities - other	—		97		—		—			97
Marketing Derivatives
Other current assets	838		97		—		(861		)	74
Long-term receivables and other assets, net	70		12		—		(70		)	12
Accrued liabilities	827		45		—		(861		)	11
Deferred credits and other liabilities - other	71		1		—		(70		)	2
Interest Rate Swaps (excluding WES)
Other current assets	—		14		—		—			14
Long-term receivables and other assets, net	—		13		—		—			13
Accrued liabilities	—		882		—		—			882
Deferred credits and other liabilities - other	—		879		—		—			879
WES Interest Rate Swaps
Accrued liabilities	—		171		—		—			171
Warrant
Deferred credits and other liabilities - other	—		168		—		—			168

December 31, 2018
Marketing Derivatives
Other current assets	$	2,531	$	110	$	—	$	(2,392	)	$	249
Long-term receivables and other assets, net	5		9		—		(6		)	8
Accrued liabilities	2,357		101		—		(2,392		)	66
Deferred credits and other liabilities - other	6		2		—		(6		)	2

As of September 30, 2019, $359 million of collateral has been netted against derivative liabilities related to interest rate swaps. Occidental had $36 million of initial margin deposited with brokers as of September 30, 2019, related to marketing derivatives. As of December 31, 2018, $45 million collateral received has been netted against derivative assets, and collateral posted of $1 million has been netted against derivative liabilities. Occidental had $178 million of initial margin deposited with brokers as of December 31, 2018. Initial margin is included in other current assets in the Consolidated Condensed Balance Sheets and has not been reflected in these derivative fair-value tables.



Income Statement Classification	Three months ended September 30					Nine months ended September 30
millions	2019			2018		2019			2018

Oil Collars and Calls
Net sales	$	75		$	—	$	75		$	—
Marketing Derivatives
Net sales	91			36		(119		)	8
Interest Rate Swaps (Excluding WES)
Losses on interest rate swaps and warrants, net	(45		)	—		(45		)	—
Interest Rate Swaps (WES)
Losses on interest rate swaps and warrants, net	(8		)	—		(8		)	—
Warrants
Gains on interest rate swaps and warrants, net	20			—		20			—

Occidental's counterparty credit risk related to the physical delivery of energy commodities results from its customers' potential inability to meet their settlement commitments. Occidental manages credit risk by selecting counterparties that it believes to be financially strong, by entering into netting arrangements with counterparties and by requiring collateral or other credit risk mitigants, as appropriate. Occidental actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits and monitors credit exposures against those assigned limits. Occidental also enters into future contracts through regulated exchanges with select clearinghouses and brokers, which are subject to minimal credit risk as a significant portion of these transactions settle on a daily margin basis.

Certain over-the-counter derivative instruments contain credit-risk-contingent features, primarily tied to credit ratings for Occidental or its counterparties, which may affect the amount of collateral that each party would need to post. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed at September 30, 2019 was $1.6 billion (net of $0.3 billion collateral), primarily related to acquired interest-rate swaps, and $68 million (net of $1 million of collateral) existed at December 31, 2018.