Quarterly Report (10-q)

Date : 08/08/2018 @ 4:57PM
Source : Edgar (US Regulatory)
Stock : Occidental Petroleum Corp. (OXY)
Quote : 77.845  -1.815 (-2.28%) @ 12:57PM

Quarterly Report (10-q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 
Commission file number 1-9210
_____________________
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
95-4035997
(I.R.S. Employer
Identification No.)
 
 
 
5 Greenway Plaza, Suite 110
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
 
(713) 215-7000
(Registrant’s telephone number, including area code)
______________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes    o No
   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes    o No
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. (See definition of "accelerated filer", "large accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act):
  
Large Accelerated Filer         þ      Accelerated Filer         o      Non-Accelerated Filer      o
Smaller Reporting Company     o     Emerging Growth Company     o
  
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.     o
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
o Yes    þ No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at June 30, 2018
 
 
Common stock $.20 par value
 
764,721,453
 




OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES


TABLE OF CONTENTS



 
 
 
 
PAGE
 
 
 
 
 
Part I
Financial Information
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018, and December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Three and six months ended June 30, 2018, and 2017
 
 
 
 
 
 
 
 
 
 
 
Three and six months ended June 30, 2018, and 2017
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2018, and 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
Item 4.
 
 
 
 
 
Part II
Other Information
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
Item 6.


1



PART I    FINANCIAL INFORMATION
 

Item 1.
Financial Statements (unaudited)

OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2018 , AND DECEMBER 31, 2017
(Amounts in millions)

 
 
2018
 
2017
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
$
1,362

 
$
1,672

 
Trade receivables, net
 
5,521

 
4,145

 
Inventories
 
1,347

 
1,246

 
Assets held for sale
 
1,664

 
474

 
Other current assets
 
1,096

 
733

 
Total current assets
 
10,990


8,270

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
1,551

 
1,515

 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation, depletion and amortization of $40,782 at June 30, 2018, and $39,072 at December 31, 2017
 
30,432

 
31,174

 
 
 
 
 
 
 
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET
 
1,094

 
1,067

 
 
 
 
 
 
 
TOTAL ASSETS
 
$
44,067

 
$
42,026

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


2



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2018 , AND DECEMBER 31, 2017
(Amounts in millions except share amounts)

 
 
2018
 
2017
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Current maturities of long-term debt
 
$

 
$
500

 
Accounts payable
 
5,412

 
4,408

 
Accrued liabilities
 
2,521

 
2,492

 
Liabilities held for sale
 
145

 

 
Total current liabilities
 
8,078

 
7,400

 
 
 
 
 
 
 
LONG-TERM DEBT, NET
 
10,312

 
9,328

 
 
 
 
 
 
 
DEFERRED CREDITS AND OTHER LIABILITIES
 
 
 
 
 
Deferred domestic and foreign income taxes
 
738

 
581

 
Asset retirement obligations
 
1,244

 
1,241

 
Pension and postretirement obligations
 
1,010

 
1,005

 
Environmental remediation reserves
 
731

 
728

 
Other
 
1,023

 
1,171

 
 
 
4,746

 
4,726

 
STOCKHOLDERS' EQUITY
 
 
 
 
 
Common stock, at par value (894,243,621 shares at June 30, 2018 and 893,468,707 shares at December 31, 2017)
 
179

 
179

 
Treasury stock (129,562,168 shares at June 30, 2018, and 128,364,195 shares at December 31, 2017)
 
(9,268
)
 
(9,168
)
 
Additional paid-in capital
 
7,967

 
7,884

 
Retained earnings
 
22,361

 
21,935

 
Accumulated other comprehensive loss
 
(308
)
 
(258
)
 
Total stockholders’ equity
 
20,931


20,572

 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
44,067

 
$
42,026

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

3



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 , AND 2017
(Amounts in millions, except per-share amounts)

 
 
Three months ended June 30
 
Six months ended June 30
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
REVENUES AND OTHER INCOME
 
 
 
 
 
 
 
 
Net sales
 
$
4,083

 
$
3,060

 
$
7,846

 
$
6,017

Interest, dividends and other income
 
38

 
31

 
67

 
52

Gain on sale of assets, net
 
10

 
512

 
43

 
512

 
 
4,131

 
3,603

 
7,956

 
6,581

COSTS AND OTHER DEDUCTIONS
 
 
 
 
 
 
 
 
Cost of sales
 
1,465

 
1,486

 
2,828

 
2,912

Selling, general and administrative and other operating expenses
 
402

 
352

 
709

 
624

Taxes other than on income
 
115

 
77

 
223

 
145

Depreciation, depletion and amortization
 
947

 
989

 
1,868

 
1,931

Asset impairments and related items
 
12

 

 
42

 
13

Exploration expense
 
21

 
8

 
36

 
19

Interest and debt expense, net
 
97

 
86

 
194

 
167

 
 
3,059

 
2,998

 
5,900

 
5,811

 
 
 
 
 
 
 
 
 
Income before income taxes and other items
 
1,072

 
605

 
2,056

 
770

Provision for domestic and foreign income taxes
 
(302
)
 
(285
)
 
(641
)
 
(363
)
Income from equity investments
 
78

 
187

 
141

 
217

NET INCOME
 
$
848

 
$
507

 
$
1,556

 
$
624

 
 
 
 
 
 
 
 
 
BASIC EARNINGS PER COMMON SHARE
 
$
1.10

 
$
0.66

 
$
2.02

 
$
0.81

 
 
 
 
 
 
 
 
 
DILUTED EARNINGS PER COMMON SHARE
 
$
1.10

 
$
0.66

 
$
2.02

 
$
0.81

 
 
 
 
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
 
$
0.77

 
$
0.76

 
$
1.54

 
$
1.52

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


4



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 , AND 2017
(Amounts in millions)

 
 
Three months ended June 30
 
Six months ended June 30
 
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
848

 
$
507

 
$
1,556

 
$
624

 
Other comprehensive income (loss) items:
 
 
 
 
 
 
 
 
 
Foreign currency translation (losses) gains
 
(1
)
 

 

 
1

 
Unrealized gains (losses) on derivatives (a)
 
(1
)
 
1

 
(4
)
 
6

 
Pension and postretirement gains (losses) (b)
 
5

 
(1
)
 
9

 
8

 
Reclassification of realized (gains) losses on derivatives (c)
 
1

 
1

 
3

 
(1
)
 
Other comprehensive income, net of tax
 
4


1

 
8

 
14

 
Comprehensive income
 
$
852

 
$
508

 
$
1,564

 
$
638

 

(a)
Net of tax of zero for the three months ended June 30, 2018, and 2017, and $1 and $(3) for the six months ended June 30, 2018, and 2017, respectively.
(b)
Net of tax of $(2) and $1 for the three months ended June 30, 2018, and 2017, respectively, and $(3) and $(4) for the six months ended June 30, 2018, and 2017, respectively.
(c)
Net of tax of zero for each of the three months ended June 30, 2018, and 2017, and $(1) and $1 for the six months ended June 30, 2018, and 2017, respectively.

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

5



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 , AND 2017
(Amounts in millions)
 
 
2018
 
2017
 
CASH FLOW FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
1,556

 
$
624

 
Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
Depreciation, depletion and amortization of assets
 
1,868

 
1,931

 
Deferred income tax (benefit) provision
 
171

 
(24
)
 
Other noncash charges to income
 
96

 
167

 
Gain on sale of assets, net
 
(43
)
 
(512
)
 
Asset impairments and related items
 
42

 
13

 
Net distributions from equity investments
 
(20
)
 
(127
)
 
Dry hole expenses
 
15

 
7

 
Changes in operating assets and liabilities, net
 
(920
)
 
(454
)
 
Other operating, net
 

 
729

 
Net cash provided by operating activities
 
2,765

 
2,354

 
 
 
 
 
 
 
CASH FLOW FROM INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
 
(2,319
)
 
(1,492
)
 
Change in capital accrual
 
(6
)
 
(35
)
 
Payments for purchases of assets and businesses
 
(242
)
 
(377
)
 
Sales of assets, net
 
330

 
609

 
Other investing, net
 
(49
)
 
84

 
Net cash used by investing activities
 
(2,286
)

(1,211
)
 
 
 
 
 
 
 
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from long-term debt, net
 
978

 

 
Payments of long-term debt
 
(500
)
 

 
Proceeds from issuance of common stock
 
13

 
16

 
Purchases of treasury stock
 
(97
)
 
(6
)
 
Cash dividends paid
 
(1,185
)
 
(1,168
)
 
Other financing, net
 
2

 

 
Net cash used by financing activities
 
(789
)
 
(1,158
)
 
 
 
 
 
 
 
Decrease in cash and cash equivalents
 
(310
)
 
(15
)
 
Cash and cash equivalents — beginning of period
 
1,672

 
2,233

 
Cash and cash equivalents — end of period
 
$
1,362

 
$
2,218

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



6



OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2018

1. General

In these unaudited, consolidated, condensed financial statements, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental has made its disclosures in accordance with United States generally accepted accounting principles (GAAP) as they apply to interim reporting, and condensed or omitted, as permitted by the Securities and Exchange Commission’s rules and regulations, certain information and disclosures normally included in consolidated financial statements and the notes. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Occidental’s Annual Report on Form 10-K for the year ended December 31, 2017 .

In the opinion of Occidental’s management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Occidental’s consolidated financial position as of June 30, 2018 , and the consolidated statements of operations, comprehensive income and cash flows for the three and six months ended June 30, 2018 , and 2017 , as applicable. Certain data in the financial statements and notes for prior periods have been reclassified to conform to the current presentation. The income and cash flows for the periods ended June 30, 2018 , and 2017 , are not necessarily indicative of the income or cash flows to be expected for the full year.

2. Asset Acquisitions, Dispositions and Other

On August 8, 2018, Occidental announced the sale of non-core domestic midstream assets. These assets to be sold include the Centurion common carrier oil pipeline and storage system, Southeast New Mexico oil gathering system, and Ingleside Crude Terminal. Following the transaction, Occidental will retain its long-term flow assurance, pipeline takeaway and export capacity through its retained marketing business. A substantial portion of the assets to be sold were classified as assets held for sale on the balance sheet at June 30, 2018. The assets held for sale were comprised primarily of midstream property, plant and equipment.

As of June 30, 2018, the remaining $250 million of assets classified as held for sale primarily relates to non-core proved and unproved Permian acreage.

In July 2018, Occidental acquired the previously leased power and steam cogeneration facility in Louisiana for $443 million, which will be paid in three installments in 2018.

In March 2018, Occidental divested non-core midstream assets for approximately $150 million, resulting in a pre-tax gain of $43 million.

In March 2018, Occidental issued $1.0 billion of 4.2-percent senior notes due 2048. Occidental received net proceeds of approximately $985 million. Interest on the notes will be payable semi-annually in arrears in March and September of each year, beginning on September 15, 2018. The proceeds were used to refinance the repayment of the $500 million aggregate principal amount of Occidental's 1.5-percent senior notes due in February 2018, with the remainder to be used for general corporate purposes.

In January 2018, Occidental entered into a new five-year, $3.0 billion revolving credit facility (2018 Credit Facility), replacing the previous credit facility that was scheduled to expire in August 2019. The 2018 Credit Facility has similar terms to the previous 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.

3. Accounting and Disclosure Changes

In February 2018, the Financial Accounting Standards Board (FASB) released standards that allow the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from changes to U.S. federal tax law from the 2017 Tax Cuts and Jobs Act enacted in December 2017. Occidental early adopted

7



this standard in the first quarter of 2018, resulting in the reclassification of $58 million in stranded tax effects from accumulated other comprehensive income to retained earnings.

In the first quarter of 2018, Occidental adopted the new revenue recognition standard Topic 606 - Revenue from Contracts with Customers and related updates (ASC 606). The new standard requires more detailed disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Occidental adopted the standard using the modified retrospective method. The cumulative-effect adjustment to retained earnings upon adoption was not material. See Note 4 Revenue Recognition .

In March 2017, FASB issued guidance related to presentation of net periodic pension cost and net periodic postretirement benefit cost. The rules became effective in the first quarter of 2018. These rules did not have a material impact to Occidental's financial statements upon adoption.

In January 2017, the FASB issued new guidance clarifying the definition of a business under the topic Business Combinations. The rules became effective in the first quarter of 2018, and did not have a material impact to Occidental's financial statements upon adoption.

In November 2016, FASB issued new guidance related to the cash flow classification and presentation of the changes in restricted cash on the statement of cash flows. The rules became effective in the first quarter of 2018 and must be applied retrospectively. Occidental did not have restricted cash as of June 30, 2018, or December 31, 2017.

In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and payments on the statement of cash flows. The rules were adopted for the first quarter of 2018 and resulted in the retrospective reclassification of $151 million of cash receipts from operating cash flows to investing cash flows for the six months ended June 30, 2017, within the Statement of Cash Flows.

In February 2016, the FASB issued rules which require Occidental to recognize most leases, including operating leases, on the balance sheet. The new rules require lessees to recognize a right-of-use asset and lease liability for all leases with lease terms of more than 12 months. The lease liability represents the discounted obligation to make future minimum lease payments. The corresponding right-of-use asset includes the discounted obligation in addition to any upfront payment or cost incurred during contract execution of the lease. Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. Occidental is the lessee under various agreements for real estate, equipment, plants and facilities, aircraft and information technology hardware that are currently accounted for as operating leases. As a result, these new rules will increase reported assets and liabilities. Occidental will not be an early adopter of this standard. Occidental will apply the revised lease rules for its interim and annual reporting periods starting January 1, 2019, using a modified retrospective approach, including several optional practical expedients related to leases that commenced before the effective date. Occidental is currently evaluating the effect of these rules on its financial statements, training employees, working with third-party consultants and has developed an internal interim software solution for the identification, documentation, tracking, and accounting of leases in order to create an adoption plan based on Occidental's population of leases under the revised definition of leases. Occidental is currently in the test phase and continues to evaluate existing and new lease contracts for compliance. The quantitative impacts of the new standard are dependent on the leases in force at the time of adoption. As a result, the evaluation of the effect of the new standard will extend over future periods.

4. Revenue Recognition

On January 1, 2018, Occidental adopted ASC 606 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018, are presented under ASC 606, while prior period amounts have not been adjusted. There was no impact of adopting ASC 606 to the opening balance of retained earnings. There was no impact to the timing or amount of revenue recognized in the six months ended June 30, 2018, as a result of the adoption of ASC 606.

Revenue from customers is recognized when obligations under the terms of a contract with our customer are satisfied; this generally occurs with the delivery of oil, gas, natural gas liquids ("NGL"), chemicals or services such as transportation. Revenue from customers is measured as the amount of consideration Occidental expects to receive in exchange for the delivery of goods or services. Contracts may last from one month to one year or more, and may

8



have renewal terms that extend indefinitely at the option of either party. Price is typically based on market indexes. Volumes fluctuate due to production and, in certain cases, customer demand and transportation availability. Occidental records revenue net of certain taxes, such as sales taxes, that are assessed by governmental authorities on Occidental's customers. Occidental has elected a practical expedient under ASC 606 and will not disclose revenue recognizable in future periods for unsatisfied performance obligations because the consideration related to those performance obligations is based on volume or market prices, which are variable.

Occidental does not incur significant costs to obtain contracts. Incidental items that are immaterial in the context of the contract are recognized as expense. Sales of hydrocarbons and chemicals to customers are invoiced and settled on a monthly basis. Occidental is not usually subject to obligations for warranties, returns or refunds except in the case of customer incentive payments as discussed for the chemical segment below. Occidental does not typically receive payment in advance of satisfying its obligations under the terms of its sales contracts with customers; therefore, liabilities related to such payment are immaterial to Occidental. As of June 30, 2018, trade receivables, net, of $5.5 billion, represents rights to payment for which Occidental has satisfied its obligations under a contract and its right to payment is conditioned only on the passage of time.

Oil and Gas Segment

Revenue is recognized from oil and gas production when it is delivered and control passes to the customer. Revenues from the production of oil and gas properties in which Occidental has an interest with other producers are recognized on the basis of Occidental’s net revenue interest.

Chemical Segment

Revenue from chemical product sales is recognized when control passes to the customer. Certain incentive programs may provide for payments or credits to be made to customers based on the volume of product purchased over a defined period. Customer incentives are estimated and recorded as a reduction to revenue ratably over the contract period. Such estimates are evaluated and revised as warranted. Revenue from exchange contracts is excluded from revenue from customers.

Midstream and Marketing Segment

Pipeline and gas processing revenue is recognized upon the completion of the transportation or processing service. Revenue from power sales is recognized upon delivery. Net marketing margin is included in net sales, but excluded from revenue from customers. Net marketing margin is recognized upon completion of contract terms that are a prerequisite to payment and upon title transfer for physical deliveries. Unless normal sales treatment has been elected, net marketing margin is classified as a derivative, reported on a net basis, recorded at fair value and changes in fair value are reflected in net sales.

The following table shows a reconciliation of revenue from customers to total net sales (in millions):
 
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
 
 
 
 
Revenue from customers
 
$
3,831

 
$
7,556

All other revenues (a)
 
252

 
290

Total net sales
 
$
4,083

 
$
7,846

 
(a) Includes net marketing margin and chemical exchange contracts.


9



The following table presents Occidental's revenue from customers by segment, product, and geographical area. Because the oil and gas segment typically sells its hydrocarbons at the lease or concession area, oil, gas and NGL are assumed to be sold in the area where they are produced. Chemical and midstream revenues are shown by area based on the location of the sale (in millions):
For the three months ended June 30, 2018
Revenue by Product
 
United States
 
Middle East
 
Latin America
 
Other International
 
Total
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Segment
 
 
 
 
 
 
 
 
 
 
Oil
 
$
1,334

 
$
718

 
$
180

 
$

 
$
2,232

NGL
 
111

 
64

 

 

 
175

Gas
 
42

 
73

 
3

 

 
118

Other
 
4

 
1

 
1

 

 
6

Segment Total
 
$
1,491

 
$
856

 
$
184

 
$

 
$
2,531

 
 
 
 
 
 
 
 
 
 
 
Chemical Segment
 
$
1,102

 
$

 
$
51

 
$
17

 
$
1,170

 
 
 
 
 
 
 
 
 
 
 
Midstream Segment
 
 
 
 
 
 
 
 
 
 
Marketing and Trading
 
$
2

 
$

 
$

 
$

 
$
2

Gas Processing
 
131

 
104

 

 

 
235

Pipelines
 
101

 

 

 

 
101

Power and Other
 
19

 

 

 

 
19

Segment Total
 
$
253

 
$
104

 
$

 
$

 
$
357

 
 
 
 
 
 
 
 
 
 
 
Intersegment Eliminations
 
$
(227
)
 
$

 
$

 
$

 
$
(227
)
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
2,619

 
$
960

 
$
235

 
$
17

 
$
3,831


For the six months ended June 30, 2018
Revenue by Product
 
United States
 
Middle East
 
Latin America
 
Other International
 
Total
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Segment
 
 
 
 
 
 
 
 
 
 
Oil
 
$
2,581

 
$
1,491

 
$
350

 
$

 
$
4,422

NGL
 
200

 
115

 

 

 
315

Gas
 
94

 
138

 
7

 

 
239

Other
 
7

 
1

 
1

 

 
9

Segment Total
 
$
2,882

 
$
1,745

 
$
358

 
$

 
$
4,985

 
 
 
 
 
 
 
 
 
 
 
Chemical Segment
 
$
2,182

 
$

 
$
103

 
$
38

 
$
2,323

 
 
 
 
 
 
 
 
 
 
 
Midstream Segment
 
 
 
 
 
 
 
 
 
 
Marketing and Trading
 
$
8

 
$

 
$

 
$

 
$
8

Gas Processing
 
268

 
200

 

 

 
468

Pipelines
 
195

 

 

 

 
195

Power and Other
 
38

 

 

 

 
38

Segment Total
 
$
509

 
$
200

 
$

 
$

 
$
709

 
 
 
 
 
 
 
 
 
 
 
Intersegment Eliminations
 
$
(461
)
 
$

 
$

 
$

 
$
(461
)
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
5,112

 
$
1,945

 
$
461

 
$
38

 
$
7,556





10



5. Supplemental Cash Flow Information

Occidental paid foreign income taxes and domestic state taxes of $545 million and $375 million during the six months ended June 30, 2018 , and 2017 , respectively. Occidental received domestic tax refunds of $2 million and $755 million during the six months ended June 30, 2018, and 2017, respectively. Interest paid totaled $182 million and $155 million during the six months ended June 30, 2018 , and 2017 , respectively.

6. Inventories

Finished goods primarily represents crude oil, caustic soda and vinyl products. Inventories as of June 30, 2018 , and December 31, 2017 , consisted of the following (in millions):
 
 
2018
 
2017
 
 
 
 
 
 
 
Raw materials
 
$
68

 
$
66

 
Materials and supplies
 
466

 
447

 
Finished goods
 
858

 
776

 
 
 
1,392

 
1,289

 
Revaluation to LIFO
 
(45
)
 
(43
)
 
Total
 
$
1,347

 
$
1,246

 

7. Environmental Liabilities and Expenditures

Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations related to improving or maintaining environmental quality. The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal of hazardous substances; or operation and maintenance of remedial systems. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.

As of June 30, 2018, Occidental participated in or monitored remedial activities or proceedings at 148 sites. The following table presents Occidental’s current and non-current environmental remediation reserves as of June 30, 2018, which were included in current liabilities ($140 million) and deferred credits and other liabilities - environmental remediation reserves ($731 million). The reserves are grouped as environmental remediation sites listed or proposed for listing by the United States Environmental Protection Agency on the CERCLA National Priorities List (NPL sites) and three categories of non-NPL sites — third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.
 
 
Number of Sites
 
Reserve Balance
(in millions)
 
 
 
 
 
 
 
NPL sites
 
34

 
$
454

 
Third-party sites
 
70

 
173

 
Occidental-operated sites
 
15

 
105

 
Closed or non-operated Occidental sites
 
29

 
139

 
Total
 
148

 
$
871

 

As of June 30, 2018, Occidental’s environmental reserves exceeded $10 million each at 16 of the 148 sites described above, and 91 of the sites each had reserves of $1 million or less. Based on current estimates, Occidental expects to expend funds corresponding to approximately 40 percent of the environmental reserves at the sites described above over the next three to four years and the balance at these sites over the subsequent 10 or more years.

11



Occidental believes its estimable amount of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites could range up to $1.1 billion. The status of Occidental's involvement with the sites and related significant assumptions, including those sites indemnified by Maxus Energy Corporation (Maxus), has not changed materially since December 31, 2017.

Maxus Environmental Sites

When Occidental acquired Diamond Shamrock Chemicals Company (DSCC) in 1986, Maxus, a subsidiary of YPF S.A. (YPF), agreed to indemnify Occidental for a number of environmental sites, including the Diamond Alkali Superfund Site (Site) along a portion of the Passaic River. On June 17, 2016, Maxus and several affiliated companies filed for Chapter 11 bankruptcy in Federal District Court in the State of Delaware. Prior to filing for bankruptcy, Maxus defended and indemnified Occidental in connection with clean-up and other costs associated with the sites subject to the indemnity, including the Site.

In March 2016, the EPA issued a Record of Decision (ROD) specifying remedial actions required for the lower 8.3 miles of the Lower Passaic River. The ROD does not address any potential remedial action for the upper nine miles of the Lower Passaic River or Newark Bay. During the third quarter of 2016, and following Maxus’s bankruptcy filing, Occidental and the EPA entered into an Administrative Order on Consent (AOC) to complete the design of the proposed clean-up plan outlined in the ROD at an estimated cost of $165 million. The EPA announced that it will pursue similar agreements with other potentially responsible parties.

Occidental has accrued a reserve relating to its estimated allocable share of the costs to perform the design and the remediation called for in the AOC and the ROD, as well as for certain other Maxus-indemnified sites. Occidental's accrued estimated environmental reserve does not consider any recoveries for indemnified costs. Occidental’s ultimate share of this liability may be higher or lower than the reserved amount, and is subject to final design plans and the resolution of Occidental's allocable share with other potentially responsible parties. Occidental continues to evaluate the costs to be incurred to comply with the AOC, the ROD and to perform remediation at other Maxus-indemnified sites in light of the Maxus bankruptcy and the share of ultimate liability of other potentially responsible parties. In June 2018, Occidental filed a complaint under CERCLA in Federal District Court in the State of New Jersey against numerous potentially responsible parties for reimbursement of amounts incurred or to be incurred to comply with the AOC, the ROD or to perform other remediation activities at the Site.

In June 2017, the court overseeing the Maxus bankruptcy approved a Plan of Liquidation (Plan) to liquidate Maxus and create a trust to pursue claims against YPF, Repsol and others to satisfy claims by Occidental and other creditors for past and future cleanup and other costs. In July 2017, the court-approved Plan became final and the trust became effective. Among other responsibilities, the trust will pursue claims against YPF, Repsol and others and distribute assets to Maxus' creditors in accordance with the trust agreement and Plan. In June 2018, the trust filed its complaint against YPF and Repsol in Delaware bankruptcy court asserting claims based upon, among other things, fraudulent transfer and alter ego.

8. Lawsuits, Claims, Commitments and Contingencies

Legal Matters

Occidental or certain of its subsidiaries are involved, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. Occidental or certain of its subsidiaries also are involved in proceedings under CERCLA and similar federal, state, local and foreign environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief. Usually Occidental or such subsidiaries are among many companies in these environmental proceedings and have to date been successful in sharing response costs with other financially sound companies. Further, some lawsuits, claims and legal proceedings involve acquired or disposed assets with respect to which a third party or Occidental retains liability or indemnifies the other party for conditions that existed prior to the transaction.


12



In 2016, Occidental received payments from the Republic of Ecuador of approximately $1.0 billion pursuant to a November 2015 arbitration award for Ecuador’s 2006 expropriation of Occidental's Participation Contract for Block 15.  The awarded amount represented a recovery of 60 percent of the value of Block 15.  In 2017, Andes Petroleum Ecuador Ltd. (Andes) filed a demand for arbitration, claiming it is entitled to a 40 percent share of the judgment amount obtained by Occidental.  Occidental contends that Andes is not entitled to any of the amounts paid under the 2015 arbitration award because Occidental’s recovery was limited to Occidental’s own 60 percent economic interest in the block. Occidental intends to vigorously defend against this claim in arbitration.

In accordance with applicable accounting guidance, Occidental accrues reserves for outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. In Note 7, Environmental Liabilities and Expenditures, Occidental has disclosed its reserve balances for environmental remediation matters that satisfy this criteria. Reserve balances for matters, other than environmental remediation, that satisfy this criteria as of June 30, 2018, and December 31, 2017, were not material to Occidental’s consolidated balance sheets.

The ultimate outcome and impact of outstanding lawsuits, claims and proceedings on Occidental cannot be predicted. Management believes that the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on Occidental's consolidated balance sheet. If unfavorable outcomes of these matters were to occur, future results of operations or cash flows for any particular quarterly or annual period could be materially adversely affected. Occidental’s estimates are based on information known about the legal matters and its experience in contesting, litigating and settling similar matters. Occidental reassesses the probability and estimability of contingent losses as new information becomes available.

Tax Matters

During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. Although taxable years through 2012 for United States federal income tax purposes have been audited by the United States Internal Revenue Service (IRS) pursuant to its Compliance Assurance Program, subsequent taxable years are currently under review.  Taxable years from 2002 through the current year remain subject to examination by foreign and state government tax authorities in certain jurisdictions. In certain of these jurisdictions, tax authorities are in various stages of auditing Occidental’s income taxes. During the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law. Occidental believes that the resolution of outstanding tax matters would not have a material adverse effect on its consolidated financial position or results of operations.

Indemnities to Third Parties

Occidental, its subsidiaries, or both, have indemnified various parties against specified liabilities those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds. As of June 30, 2018, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.


13



9. Retirement and Postretirement Benefit Plans

The following tables set forth the components of the net periodic benefit costs for Occidental’s defined benefit plans for the three and six months ended June 30, 2018 , and 2017 (in millions):
Three months ended June 30
 
2018
 
2017
Net Periodic Benefit Costs
 
Pension Benefit
 
Postretirement Benefit
 
Pension Benefit
 
Postretirement Benefit
 
 
 
 
 
 
 
 
 
Service cost
 
$
2

 
$
6

 
$
2

 
$
5

Interest cost
 
4

 
9

 
4

 
10

Expected return on plan assets
 
(6
)
 

 
(6
)
 

Recognized actuarial loss
 
1

 
6

 
2

 
4

Total
 
$
1

 
$
21

 
$
2

 
$
19


Six months ended June 30
 
2018
 
2017
Net Periodic Benefit Costs
 
Pension Benefit
 
Postretirement Benefit
 
Pension Benefit
 
Postretirement Benefit
 
 
 
 
 
 
 
 
 
Service cost
 
$
4

 
$
12

 
$
4

 
$
10

Interest cost
 
8

 
18

 
8

 
20

Expected return on plan assets
 
(12
)
 

 
(12
)
 

Recognized actuarial loss
 
2

 
10

 
4

 
8

Total
 
$
2

 
$
40

 
$
4

 
$
38


Occidental contributed approximately $1 million in each of the three months ended June 30, 2018, and 2017, and approximately $2 million in each of the six months ended June 30, 2018, and 2017, to its defined benefit plans.

10. Fair Value Measurements

Occidental has categorized its assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 — using quoted prices in active markets for the assets or liabilities; Level 2 — using observable inputs other than quoted prices for the assets or liabilities; and Level 3 — using unobservable inputs.  Transfers between levels, if any, are recognized at the end of each reporting period.


14



The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of June 30, 2018 , and December 31, 2017 (in millions):
Fair Value Measurements at June 30, 2018:
 
 
 
 
 
 
Embedded derivatives
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
 
Total Fair
Value
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
 
$

 
$
17

 
$

 
$

 
$
17

Deferred credits and other liabilities
 
$

 
$
86

 
$

 
$

 
$
86

 
 
 
 
 
 
 
Fair Value Measurements at December 31, 2017:
 
 
 
 
 
 
Embedded derivatives
 
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
 
Total Fair
Value
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
 
$

 
$
39

 
$

 
$

 
$
39

Deferred credits and other liabilities
 
$

 
$
147

 
$

 
$

 
$
147


Fair Values — Nonrecurring

During the six months ended June 30, 2018, Occidental recognized pre-tax impairment charges of $42 million related to non-core Permian acreage and an investment in gas processing facilities. During the year ended December 31, 2017, Occidental recognized pre-tax impairment charges of $397 million primarily related to held-for-sale, non-core, proved and unproved Permian acreage.

Other Financial Instruments

The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than long-term, fixed-rate debt, approximate fair value. The cost, if any, to terminate Occidental's off-balance-sheet financial instruments is not significant. Occidental estimates the fair value of fixed-rate debt based on the quoted market prices for those instruments or on quoted market yields for similarly rated debt instruments, taking into account such instruments’ maturities. The estimated fair value of Occidental’s debt as of June 30, 2018 , and December 31, 2017 , was $10.4 billion for both periods. The remaining principal payments, less the discount on long-term debt, aggregated approximately $10.4 billion and $9.9 billion as of June 30, 2018, and December 31, 2017, respectively.

11. Derivatives

Occidental uses a variety of derivative financial instruments and physical contracts, including those designated as cash flow hedges, to manage its exposure to commodity price fluctuations, transportation commitments and to fix margins on the future sale of stored volumes of oil and natural gas. Where Occidental buys product for its own consumption or sells its production to a defined customer, Occidental elects normal purchases and normal sales exclusions. Occidental usually applies cash flow hedge accounting treatment to derivative financial instruments to lock in margins on the forecast sales of its natural gas storage volumes, and at times for other strategies to lock in margins. Occidental also enters into derivative financial instruments for speculative or trading purposes; however, the results of any transactions are immaterial to the marketing portfolio.

The financial instruments not designated as hedges will impact Occidental's earnings through mark-to-market until the offsetting future physical commodity is delivered. For GAAP purposes, any physical inventory is carried at lower of cost or market on the balance sheet. A substantial majority of Occidental's physical derivative contracts are index-based and carry no mark-to-market value in earnings. Net gains and losses associated with derivative instruments not designated as hedging instruments are recognized currently in net sales. Net gains and losses attributable to derivative instruments subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings.


15



Credit Risk

The majority of Occidental's counterparty credit risk is related to the physical delivery of energy commodities to its customers and their 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 of Occidental's 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 would need to post. Occidental believes that if it had received a one-notch reduction in its credit ratings, it would not have resulted in a material change in its collateral-posting requirements as of June 30, 2018, and December 31, 2017.

Cash-Flow Hedges

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 June 30, 2018, Occidental did not have any cash-flow hedges. As of December 31, 2017, Occidental had approximately 7 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 7 Bcf of stored natural gas.

Derivatives Not Designated as Hedging Instruments

Forward unrealized instruments that are derivatives not designated as hedging instruments are required to be recorded on the income statement and balance sheet at fair value. The fair value represents an unrealized gain or loss between executed sales prices and market prices at the end of the period. The fair value does not reflect the realized or cash value of the instrument. Substantially all of the fair value of Occidental's derivative instruments not designated as hedges are used to manage its exposure to commodity price fluctuations and settle within three months at a weighted average sales price of $70.90 and $2.53 for crude oil and natural gas, respectively at June 30, 2018. The remaining fair value of derivative instruments not designated as hedges was immaterial. The weighted average sales price was $57.38 and $2.73 for crude oil and natural gas, respectively, at December 31, 2017.

The following table summarizes the amounts reported in net sales related to the outstanding commodity derivatives not designated as hedging instruments as of June 30, 2018 and December 31, 2017.
(in millions, except Long/(Short) volumes)
 
2018
 
2017
 
 
 
 
 
Unrealized gain (loss) on derivatives not designated as hedges
 
 
 
 
Crude Oil Commodity Contracts
 
$
(73
)
 
$
(47
)
Natural Gas Commodity Contracts
 
$

 
$
1

Outstanding net volumes on derivatives not designated as hedges
 
 
 
 
Crude Oil Commodity Contracts
 
 
 
 
Volume (MMBL)
 
45

 
61

Natural Gas Commodity Contracts
 
 
 
 
Volume (Bcf)
 
(57
)
 
(47
)


16



Fair Value of Derivatives

The following table presents the gross and net fair values of Occidental’s outstanding derivatives as of June 30, 2018 , and December 31, 2017 (in millions):
As of June 30, 2018
 
Fair Value Measurements Using
 
Netting (b)
 
Total Fair Value
(in millions)
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
933

 
655

 

 
(1,027
)
 
561

 
Long-term receivables and other assets, net
 
40

 
4

 

 
(41
)
 
3

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Accrued liabilities
 
979

 
682

 

 
(1,027
)
 
634

 
Deferred credits and other liabilities
 
40

 
3

 

 
(41
)
 
2

As of December 31, 2017
 
Fair Value Measurements Using
 
Netting (b)
 
Total Fair Value
(in millions)
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash-flow hedges (a)
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 

 
3

 

 

 
3

Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current assets
 
485

 
227

 

 
(517
)
 
195

 
Long-term receivables and other assets, net
 
1

 
2

 

 
(1
)
 
2

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments (a)
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Accrued liabilities
 
535

 
222

 

 
(517
)
 
240

 
Deferred credits and other liabilities
 
1

 
3

 

 
(1
)
 
3

 
(a)
Fair values are presented at gross amounts, including when the derivatives are subject to master netting arrangements and presented on a net basis in the consolidated condensed balance sheets.
(b)
These amounts do not include collateral. As of June 30, 2018, collateral received of $4 million has been netted against derivative assets and collateral paid of $40 million has been netted against derivative liabilities. As of December 31, 2017, no collateral received has been netted against derivative assets and collateral paid of $54 million has been netted against derivative liabilities. Select clearinghouse and brokers require Occidental to post an initial margin deposit. Collateral deposited by Occidental, mainly for initial margin, of $73 million and $53 million as of June 30, 2018 and December 31, 2017, respectively, has not been reflected in these derivative fair value tables. This collateral is included in other current assets in the consolidated condensed balance sheets.

17



12. Industry Segments

Occidental conducts its operations through three segments: (1) oil and gas; (2) chemical; and (3) midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, NGL and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGL, natural gas, CO 2 and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities.

Results of industry segments generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment and geographic area assets and income from the segments' equity investments. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions. The following tables present Occidental’s industry segments (in millions):
 
 
Oil
 
 
 
Midstream
 
Corporate
 
 
 
 
and
 
 
 
and
 
and
 
 
 
 
Gas
 
Chemical
 
Marketing
 
Eliminations
 
Total
Three months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
2,531

 
$
1,176

 
$
603

 
$
(227
)
 
$
4,083

Pre-tax operating profit (loss)
 
$
780

 
$
317

 
$
250

 
$
(197
)
(a)  
$
1,150

Income taxes
 

 

 

 
(302
)
(b)  
(302
)
Net income (loss)
 
$
780

 
$
317

 
$
250

 
$
(499
)
 
$
848

 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,848

 
$
1,156

 
$
270

 
$
(214
)
 
$
3,060

Pre-tax operating profit (loss)
 
$
627

(c)  
$
230

 
$
119

(d)  
$
(184
)
(a)  
$
792

Income taxes
 

 

 

 
(285
)
(b)  
(285
)
Net income (loss)
 
$
627


$
230


$
119


$
(469
)

$
507

 

 
 
Oil
 
 
 
Midstream
 
Corporate
 
 
 
 
and
 
 
 
and
 
and
 
 
 
 
Gas
 
Chemical
 
Marketing
 
Eliminations
 
Total
Six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
4,985

 
$
2,330

 
$
992

 
$
(461
)
 
$
7,846

Pre-tax operating profit (loss)
 
$
1,530

 
$
615

 
$
429

 
$
(377
)
(a)  
$
2,197

Income taxes
 

 

 

 
(641
)
(b)  
(641
)
Net income (loss)
 
$
1,530

 
$
615

 
$
429

 
$
(1,018
)
 
$
1,556

 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
3,742

 
$
2,224

 
$
481

 
$
(430
)
 
$
6,017

Pre-tax operating profit (loss)
 
$
847

(c)  
$
400

 
$
72

(d)  
$
(332
)
(a)  
$
987

Income taxes
 

 

 

 
(363
)
(b)  
(363
)
Net income (loss)
 
$
847

 
$
400

 
$
72

 
$
(695
)
 
$
624



(a) Includes unallocated net interest expense, administration expense, environmental remediation and other pre-tax items.
(b) Includes all foreign and domestic income taxes from continuing operations.
(c) Includes gain on sale of domestic oil and gas assets, including South Texas, of $510 million.
(d) Includes a non-cash fair value gain of $94 million on the Plains equity investment.

18



13. Earnings Per Share

Basic earnings per share (EPS) was computed by dividing net income attributable to common stock, net of income allocated to participating securities, by the weighted-average number of common shares outstanding during each period, net of treasury shares and including vested but unissued shares and share units. The computation of diluted EPS reflects the additional dilutive effect of stock options and unvested stock awards. Occidental’s instruments containing rights to nonforfeitable dividends granted in stock-based awards are considered participating securities prior to vesting and, therefore, net income allocated to these participating securities has been deducted from earnings in computing basic and diluted EPS under the two-class method. The following table presents the calculation of basic and diluted EPS for the three and six months ended June 30, 2018 , and 2017 (in millions, except per-share amounts):
 
 
Three months ended June 30
 
Six months ended June 30
 
 
 
 
 
2018
 
2017
 
2018
 
2017
Basic EPS
 
 
 
 
 
 
 
 
Net Income
 
$
848

 
$
507

 
$
1,556

 
$
624

Less: Net income allocated to participating securities
 
(5
)
 
(2
)
 
(8
)
 
(2
)
Net Income, net of participating securities
 
843

 
505

 
1,548

 
622

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares
 
765.7

 
764.9

 
765.7

 
764.7

Basic EPS
 
$
1.10

 
$
0.66

 
$
2.02

 
$
0.81

Diluted EPS
 
 
 
 
 
 
 
 
Net income, net of participating securities
 
$
843

 
$
505

 
$
1,548

 
$
622

Weighted average number of basic shares
 
765.7

 
764.9

 
765.7

 
764.7

Dilutive effect of potentially dilutive securities
 
1.7

 
1.0

 
1.5

 
0.8

Total diluted weighted average common shares
 
767.4

 
765.9

 
767.2

 
765.5

Diluted EPS
 
$
1.10

 
$
0.66

 
$
2.02

 
$
0.81


19



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
In this report, “Occidental” means Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Portions of this report contain forward-looking statements and involve risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows and business prospects. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. Factors that could cause results to differ include, but are not limited to: global commodity pricing fluctuations; supply and demand considerations for Occidental’s products; higher-than-expected costs; the regulatory approval environment; not successfully completing, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; uncertainties about the estimated quantities of oil and natural gas reserves; lower-than-expected production from development projects or acquisitions; exploration risks; general economic slowdowns domestically or internationally; political conditions and events; liability under environmental regulations including remedial actions; litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, natural disasters, cyber attacks or insurgent activity; failure of risk management; changes in law or regulations; reorganization or restructuring of Occidental’s operations; or changes in tax rates. Words such as “estimate,” “project,” “predict,” “will,” “would,” “should,” “could,” “may,” “might,” “anticipate,” “plan,” “intend,” “believe,” “expect,” “aim,” “goal,” “target,” “objective,” “likely” or similar expressions that convey the prospective nature of events or outcomes generally indicate forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update any forward-looking statements, as a result of new information, future events or otherwise. Material risks that may affect Occidental’s results of operations and financial position appear in Part I, Item 1A “Risk Factors” of Occidental's Annual Report on Form 10-K for the year ended December 31, 2017 (the 2017 Form 10-K).

Consolidated Results of Operations
 
Occidental reported net income of $848 million for the second quarter of 2018 on net sales of $4.1 billion , compared to net income of $507 million on net sales of $3.1 billion for the second quarter of 2017. Diluted earnings per share was $1.10 for the second quarter of 2018 compared to $0.66 for the second quarter of 2017.

Occidental reported net income of $1.6 billion for the six months ended June 30, 2018, on net sales of $7.8 billion , compared to net income of $624 million on net sales of $6.0 billion for the same period of 2017. Diluted earnings per share was $2.02 for the six months ended June 30, 2018, compared to $0.81 for the same period of 2017.

Net income increased for the three and six months ended June 30, 2018, when compared to the same periods of 2017, across all segments. Excluding the gain on sale of South Texas operations in the second quarter of 2017, approximately two-thirds of the increase in earnings for the three and six months ended June 30, 2018, compared to the same periods of 2017, was the result of higher crude oil prices, higher domestic volumes, and lower depreciation, depletion and amortization (DD&A) rates in the oil and gas segment. The remaining increase reflected higher marketing margins from improved crude oil spreads in the marketing business as well as higher realized caustic soda prices and favorable plant margins due to lower ethylene and energy costs.

Selected Statements of Operations Items

Net sales increased for the three and six months ended June 30, 2018, compared to the same periods in 2017, as a result of higher crude oil prices and higher domestic crude oil volumes in the oil and gas segment, higher realized caustic soda prices in the chemical segment and higher marketing margins in the midstream and marketing segment. Gain on the sale of assets, net, totaling $512 million for the three and six months ended June 30, 2017, primarily reflected gains on sale of the South Texas operations.

Cost of sales decreased for the three and six months ended June 30, 2018, compared to the same periods in 2017, mainly due to lower raw materials costs in the chemical segment and changes in the fair value of a long-term contract to purchase carbon dioxide in the oil and gas segment, partially offset by higher third party crude purchases.

The increase in selling, general and administrative and other operating expenses for the three and six months ended June 30, 2018, compared to the same periods in 2017, reflected higher stock compensation costs due to Occidental's higher stock price and higher environmental remediation costs. Taxes other than on income increased for the three and six months ended June 30, 2018, compared to the same periods of 2017, mainly due to higher production taxes

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as a result of higher domestic oil prices. The decrease in DD&A expense for the three and six months ended June 30, 2018, compared to the same periods in 2017, was mainly due to lower DD&A rates in the Permian Resources oil and gas operations.

The increase in the domestic and foreign income tax provision for the three and six months ended June 30, 2018 , compared to the same periods in 2017, reflected higher pre-tax operating income.

Income from equity investments for the three and six months ended June 30, 2017, reflected a non-cash fair value gain on the Plains equity investment.

Selected Analysis of Financial Position
 
See “Liquidity and Capital Resources” for a discussion about the changes in cash and cash equivalents.
 
The increase in trade receivables, net, at June 30, 2018, compared to December 31, 2017, was primarily due to higher crude oil prices and volumes. The increase in inventories at June 30, 2018, compared to December 31, 2017, reflected an increase in domestic crude oil in transit from the Ingleside Crude Terminal at June 30, 2018. The increase in other current assets at June 30, 2018, compared to December 31, 2017, reflected mark-to-market increases on derivative financial instruments.

Assets and liabilities held for sale primarily represent non-core midstream assets and non-core proved and unproved domestic acreage. The increase in assets held for sale from December 31, 2017, is primarily the result of the addition of $1.5 billion in non-core upstream and midstream property, plant and equipment, partially offset by the divestiture of non-core Permian and midstream assets with a book value of $0.3 billion. Excluding the reclassification of assets held for sale, the increase in property, plant and equipment, net at June 30, 2018, compared to December 31, 2017, is primarily the result of capital expenditures and property acquisitions of $2.3 billion and $0.2 billion, respectively, which were partially offset by DD&A of $1.8 billion.

The decrease in the current portion of long-term debt at June 30, 2018, compared to December 31, 2017, reflected the repayment of $500 million of 1.5-percent senior notes that matured in February 2018. The increase in accounts payable at June 30, 2018, compared to December 31, 2017, mainly reflected higher crude oil prices and third-party purchases. The increase in accrued liabilities at June 30, 2018, compared to December 31, 2017, mainly reflected mark-to-market increases on derivative financial instruments, partially offset by payments related to incentive compensation that were paid in the first quarter of 2018. The increase in long-term debt at June 30, 2018, compared to December 31, 2017, reflected the issuance of $1.0 billion of 4.2-percent senior notes due 2048. The increase in deferred domestic and foreign income taxes at June 30, 2018, compared to December 31, 2017, was primarily due to accelerated depreciation for tax purposes.



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Segment Operations
 
Occidental conducts its operations through three segments: (1) oil and gas; (2) chemical; and (3) midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, NGL and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGL, natural gas, CO 2 and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities. The following table sets forth the sales and earnings of each operating segment and corporate items for the three and six months ended June 30, 2018 , and 2017 (in millions):
 
 
Three months ended June 30
 
Six months ended June 30
 
 
2018
 
2017
 
2018
 
2017
Net Sales   (a)
 
 
 
 
 
 
 
 
Oil and Gas
 
$
2,531

 
$
1,848

 
$
4,985

 
$
3,742

Chemical
 
1,176

 
1,156

 
2,330

 
2,224

Midstream and Marketing
 
603

 
270

 
992

 
481

Eliminations
 
(227
)
 
(214
)
 
(461
)
 
(430
)
 
 
$
4,083

 
$
3,060

 
$
7,846

 
$
6,017

Segment Results
 
 
 
 
 
 
 
 
Oil and Gas
 
$
780

 
$
627

 
$
1,530

 
$
847

Chemical
 
317

 
230

 
615

 
400

Midstream and Marketing
 
250

 
119

 
429

 
72

 
 
1,347


976

 
2,574

 
1,319

Unallocated Corporate Items