assemble any additional required disclosures. The Entities with Oil and Gas Producing Activities Revenue Recognition Task Force of the American Institute of Certified Public Accountants and certain public accounting firms have published guides and interpretations. Occidental is reviewing recently released interpretations against the sample of contracts. Additionally, Occidental is training accounting staff on the new standard and finalizing estimates of potential financial impacts. Occidental has identified controls related to the implementation of the new standard, and the ongoing assessment of revenue accounting for existing and new contracts, and controls over the preparation of the newly required disclosures. Based upon work performed through September 30, 2017, Occidental does not currently anticipate a material impact to earnings as a result of adopting the new standard and is continuing to evaluate the impact of this and other provisions of the standard on its accounting policies, internal controls and consolidated financial statements and related disclosures.
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 and the corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement and presentation of expenses and cash flows by a lessee. 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, IT hardware and vehicles that are currently accounted for as operating leases, refer to Note 6,
Lease Commitments
in Occidental’s Annual Report on Form 10-K for the year ended
December 31, 2016
. 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 our interim and annual reporting periods starting January 1, 2019, using a modified retrospective approach, including several optional practical expedients related to leases commenced before the effective date. Occidental is currently evaluating the effect of these rules on its financial statements, training accounting staff and developing an internal interim software solution for the identification, documentation and tracking of leases in order to create an adoption plan based on Occidental's population of leases under the revised definition of leases. 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. Supplemental Cash Flow Information
Occidental paid foreign and state income taxes of $553 million and $442 million during the nine months ended
September 30, 2017
, and
2016
, respectively. Occidental received federal income tax refunds of $749 million and $302 million in the nine months ended September 30, 2017, and 2016, respectively. Interest paid totaled $266 million and $224 million in the nine months ended
September 30, 2017
, and
2016
, respectively.
5. Inventories
Inventories as of
September 30, 2017
, and
December 31, 2016
, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Raw materials
|
|
$
|
74
|
|
|
$
|
65
|
|
Materials and supplies
|
|
449
|
|
|
446
|
|
Finished goods
|
|
519
|
|
|
395
|
|
|
|
1,042
|
|
|
906
|
|
|
|
|
|
|
Revaluation to LIFO
|
|
(35
|
)
|
|
(40
|
)
|
Total
|
|
$
|
1,007
|
|
|
$
|
866
|
|
6. 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
September 30, 2017
, Occidental participated in or monitored remedial activities or proceedings at 148 sites. The following table presents Occidental’s environmental remediation reserves as of
September 30, 2017
. The current portion of $131 million is included in accrued liabilities and the noncurrent portion of $732 million is included in deferred credits and other liabilities — other. 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
|
|
|
$
|
458
|
|
Third-party sites
|
|
69
|
|
|
164
|
|
Occidental-operated sites
|
|
15
|
|
|
108
|
|
Closed or non-operated Occidental sites
|
|
30
|
|
|
133
|
|
Total
|
|
148
|
|
|
$
|
863
|
|
As of
September 30, 2017
, Occidental’s environmental reserves exceeded
$10 million
each at 16 of the 148 sites described above, and 88 of the sites each had reserves of $1 million or less. Based on current estimates, Occidental expects to expend funds corresponding to approximately half of the current 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. 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 (see further discussion below), has not changed materially since December 31, 2016.
When Occidental acquired Diamond Shamrock Chemicals Company (DSCC) in 1986, Maxus Energy Corporation (Maxus), formerly 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 cleanup and other costs associated with the sites subject to the indemnity, including the Site. Occidental is pursuing Maxus’ current and former parent companies, YPF and Repsol, as the alter egos of Maxus, to recover all indemnified costs, which will include costs to be incurred at 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 cleanup 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 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.
7. Lawsuits, Claims, Commitments and Contingencies
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.
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 6,
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 September 30, 2017, and December 31, 2016, were not material to Occidental’s consolidated condensed balance sheets.
Occidental also evaluates the amount of reasonably possible losses that it could incur as a result of outstanding lawsuits, claims and proceedings and discloses its estimable range of reasonably possible additional losses for sites where it is a participant in environmental remediation. Occidental believes that other reasonably possible losses for non-environmental matters that it could incur in excess of reserves accrued on the balance sheet would not be material to its consolidated financial position or results of operations. 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 2009 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 September 30, 2017, 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.
9. Fair Value Measurements
Occidental has categorized its assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 — using quoted prices in active markets for the assets or liabilities; Level 2 — using observable inputs other than quoted prices for the assets or liabilities; and Level 3 — using unobservable inputs. Transfers between levels, if any, are recognized at the end of each reporting period.
The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of September 30, 2017, and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded Derivatives
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and
Collateral
|
|
Total Fair
Value
|
Fair Value Measurements at September 30, 2017:
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54
|
|
Deferred credits and other liabilities - other
|
|
$
|
—
|
|
|
$
|
183
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016:
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
$
|
—
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43
|
|
Deferred credits and other liabilities - other
|
|
$
|
—
|
|
|
$
|
178
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
178
|
|
Fair Values — Nonrecurring
During the nine months ended September 30, 2017, Occidental did not have any assets or liabilities measured at fair value on a nonrecurring basis. During the year ended December 31, 2016, Occidental recognized pre-tax impairment charges of $15 million related to proved oil and gas properties.
Other Financial Instruments
The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than long-term, fixed-rate debt, approximate fair value. The cost, if any, to terminate Occidental's off-balance-sheet financial instruments is not significant. Occidental estimates the fair value of fixed-rate debt based on the quoted market prices for those instruments or on quoted market yields for similarly rated debt instruments, taking into account such instruments’ maturities. The estimated fair value of Occidental’s debt as of September 30, 2017, and December 31, 2016, was $10.3 billion and $10.2 billion, respectively, and its carrying value net of unamortized discount and debt issuance costs as of September 30, 2017, and December 31, 2016, was $9.8 billion. The majority of Occidental's debt is classified as Level 1, with $225 million classified as Level 2.
10. 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 may elect normal purchases and normal sales exclusions. Occidental usually 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 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 the 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.
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 master 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 September 30, 2017, and December 31, 2016.
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. These agreements continue through 2018. As of September 30, 2017, Occidental had approximately 7 billion cubic feet (Bcf) of natural gas held in storage, and had cash-flow hedges for the forecasted sales to be settled by physical delivery of approximately 6 Bcf of stored natural gas. As of December 31, 2016, Occidental had approximately 7 Bcf of natural gas held in storage, and had cash-flow hedges for the forecasted sales, to be settled by physical delivery, of approximately 7 Bcf of stored natural gas. The amount of cash-flow hedges, including the ineffective portion, was immaterial for the nine months ended September 30, 2017, and the year ended December 31, 2016.
Derivatives Not Designated as Hedging Instruments
The following table summarizes the amounts reported in net sales related to the outstanding commodity derivative instruments not designated as hedging instruments as of September 30, 2017, and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
(in millions, except Long/(Short) volumes)
|
|
2017
|
|
2016
|
Unrealized gain (loss) on derivatives not designated as hedges
|
|
|
|
|
Oil commodity contracts
|
|
$
|
(30
|
)
|
|
$
|
(5
|
)
|
Natural gas commodity contracts
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
Outstanding net volumes on derivatives not designated as hedges
|
|
|
|
|
Oil Commodity Contracts
|
|
|
|
|
Volume (MMBL)
|
|
65
|
|
|
67
|
|
Price Per Bbl
|
|
$
|
50.11
|
|
|
$
|
53.86
|
|
|
|
|
|
|
Natural gas commodity contracts
|
|
|
|
|
Volume (Bcf)
|
|
(43
|
)
|
|
(12
|
)
|
Price Per MMBTU
|
|
$
|
2.65
|
|
|
$
|
3.19
|
|
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 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 September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,865
|
|
|
$
|
1,071
|
|
|
$
|
266
|
|
|
$
|
(203
|
)
|
|
$
|
2,999
|
|
Pre-tax operating profit (loss)
|
|
$
|
220
|
|
(a)
|
$
|
200
|
|
|
$
|
4
|
|
|
$
|
(149
|
)
|
(b)
|
$
|
275
|
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
(c)
|
(85
|
)
|
Net income (loss)
|
|
$
|
220
|
|
|
$
|
200
|
|
|
$
|
4
|
|
|
$
|
(234
|
)
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,660
|
|
|
$
|
988
|
|
|
$
|
202
|
|
|
$
|
(202
|
)
|
|
$
|
2,648
|
|
Pre-tax operating profit (loss)
|
|
$
|
(51
|
)
|
(d)
|
$
|
117
|
|
|
$
|
(180
|
)
|
|
$
|
(154
|
)
|
(b)
|
$
|
(268
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
(c)
|
30
|
|
Discontinued operations, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
Net income (loss)
|
|
$
|
(51
|
)
|
|
$
|
117
|
|
|
$
|
(180
|
)
|
|
$
|
(127
|
)
|
|
$
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
|
Midstream
|
|
Corporate
|
|
|
|
|
and
|
|
|
|
and
|
|
and
|
|
|
|
|
Gas
|
|
Chemical
|
|
Marketing
|
|
Eliminations
|
|
Total
|
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,607
|
|
|
$
|
3,295
|
|
|
$
|
747
|
|
|
$
|
(633
|
)
|
|
$
|
9,016
|
|
Pre-tax operating profit (loss)
|
|
$
|
1,067
|
|
(a)
|
$
|
600
|
|
|
$
|
76
|
|
(e)
|
$
|
(481
|
)
|
(b)
|
$
|
1,262
|
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(448
|
)
|
(c)
|
(448
|
)
|
Net income (loss)
|
|
$
|
1,067
|
|
|
$
|
600
|
|
|
$
|
76
|
|
|
$
|
(929
|
)
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,560
|
|
|
$
|
2,786
|
|
|
$
|
476
|
|
|
$
|
(520
|
)
|
|
$
|
7,302
|
|
Pre-tax operating profit (loss)
|
|
$
|
(653
|
)
|
(d)
|
$
|
419
|
|
(f)
|
$
|
(333
|
)
|
|
$
|
(496
|
)
|
(b)
|
$
|
(1,063
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
329
|
|
(c)
|
329
|
|
Discontinued operations, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
432
|
|
|
432
|
|
Net income (loss)
|
|
$
|
(653
|
)
|
|
$
|
419
|
|
|
$
|
(333
|
)
|
|
$
|
265
|
|
|
$
|
(302
|
)
|
(a) The three and nine months ended September 30, 2017, included pre-tax gains on sale of non-strategic acreage in the Midland Basin of $81 million. The nine months ended September 30, 2017, also included pre-tax gains of $510 million on sale of domestic oil and gas assets, including South Texas.
(b) Included unallocated net interest expense, administration expense, environmental remediation and other pre-tax items.
(c) Included all foreign and domestic income taxes from continuing operations.
(d) The three and nine months ended September 30, 2016, included pre-tax impairment charges of $112 million related to Occidental's former Libya operations and $160 million related to terminated crude oil supply contracts partially offset by pre-tax gains of $59 million on the sale of South Texas Eagle Ford non-operated properties. The nine months ended September 30, 2016, also reflected a $121 million pre-tax gain on the sale of Occidental's Piceance Basin operations in Colorado.
(e) Included a pre-tax non-cash fair value gain of $94 million on the Plains equity investment.
(f) Included a pre-tax gain on sale of $57 million and $31 million related to the Occidental Tower in Dallas, Texas, and a non-core specialty chemicals business, respectively.
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, 2016 (the 2016 Form 10-K).
Consolidated Results of Operations
Occidental reported net income of $190 million for the third quarter of 2017 on net sales of $3.0 billion, compared to a net loss of $241 million on net sales of $2.6 billion for the third quarter of 2016. Diluted earnings per share was $0.25 for the third quarter of 2017, compared to a diluted loss of $0.32 per share for the third quarter of 2016.
Occidental reported net income of $814 million for the first nine months of 2017 on net sales of $9.0 billion, compared to a net loss of $302 million on net sales of $7.3 billion for the same period in 2016. Diluted earnings per share was $1.06 per share for the first nine months of 2017, compared to a diluted loss per share of $0.40 for the same period of 2016. Net income for the nine months ended September 30, 2016, included income from discontinued operations of $432 million or diluted income of $0.56 per share for the same period of 2016.
The third quarter of 2017 reflected the impact of Hurricane Harvey which reduced Chemical and Midstream and Marketing segment earnings by $70 million and reduced average daily production by 1,000 BOE in the Permian Resources operations. The increase in net income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected higher oil and NGLs prices, higher chemical sales prices across most products and lower asset impairment and related charges. The increase in net income for the nine months ended September 30, 2017, compared to the same period of 2016, also reflected higher gains on sale of assets, lower depreciation, depletion and amortization rates and the addition of equity income from the Ingleside ethylene cracker and the fair value gain on the Plains equity investment.
Selected Statements of Operations Items
Net sales increased for the
three
and nine months ended September 30, 2017, compared to the same periods in 2016, due to higher realized crude oil and NGLs prices and higher sale prices across most chemical product lines. The increase in net sales for the nine months ended September 30, 2017, also reflected higher chemical sales volumes across most products and higher realized domestic natural gas prices in the oil and gas segment. Gain on sale of assets, net, totaling $598 million for the nine months ended September 30, 2017, primarily reflected gains on the sale of the South Texas operations and the sale of non-strategic acreage in the Midland Basin. Gain on sale of assets, net, for the nine months ended September 30, 2016, primarily reflected the sales of the Piceance Basin operations in Colorado for a pre-tax gain of $121 million, the South Texas Eagle Ford non-operated properties for a pre-tax gain of $59 million, the Occidental Tower building in Dallas for a pre-tax gain of $57 million and a non-core specialty chemical business for a pre-tax gain of $31 million.
Compared to the same periods of 2016, cost of sales for the nine months ended September 30, 2017, reflected higher raw materials and energy costs in the chemical segment and higher energy and purchase injectant and gas plant costs in the oil and gas segment. Compared to the same periods of 2016, DD&A expense for the three and nine months ended September 30, 2017, reflected improved DD&A rates and the sale of oil and gas assets. The nine months ended September 30, 2016 reflected impairment and related charges of $112 million related to Occidental’s former Libya operations and $160 million related to terminated crude oil supply contracts.
The increases in domestic and foreign income tax provisions for the three and nine months ended
September 30, 2017
, compared to the income tax benefits for same periods of 2016, reflect higher pre-tax operating income. In addition, the 2016 benefits included a tax benefit associated with the relinquishment of foreign exploration blocks not included in the 2017 provision.
The increase in income from equity investments for the nine months ended September 30, 2017, reflected a non-cash fair value gain on the Plains equity investment and equity income from the Ingleside ethylene cracker, which commenced operations in February 2017.
Selected Analysis of Financial Position
See “Liquidity and Capital Resources” for a discussion about the changes in cash and cash equivalents and restricted cash.
The increase in inventories at September 30, 2017, compared to December 31, 2016, reflected higher crude oil storage and prices. The decrease in other current assets is primarily related to receipt of a federal tax refund relating to the 2016 net operating loss carryback. The decrease in property, plant and equipment at September 30, 2017, compared to December 31, 2016, reflected current year DD&A of $2.9 billion partially offset by capital expenditures of $2.4 billion.
Current maturities of long-term debt at September 30, 2017, reflected the reclassification of 1.5-percent senior notes due February 2018 from long-term debt. The decrease in accrued liabilities at September 30, 2017, is mainly due to payments for the extension of Oman Block 9 and litigation settlements in the Chemical segment. The decrease in long term other liabilities at September 30, 2017, is mainly due to the decrease in asset retirement obligations for the South Texas assets that were sold in April.
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, NGLs 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, NGLs, 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 nine months ended
September 30, 2017
, and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
(a)
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
$
|
1,865
|
|
|
$
|
1,660
|
|
|
$
|
5,607
|
|
|
$
|
4,560
|
|
Chemical
|
|
1,071
|
|
|
988
|
|
|
3,295
|
|
|
2,786
|
|
Midstream and Marketing
|
|
266
|
|
|
202
|
|
|
747
|
|
|
476
|
|
Eliminations
|
|
(203
|
)
|
|
(202
|
)
|
|
(633
|
)
|
|
(520
|
)
|
|
|
$
|
2,999
|
|
|
$
|
2,648
|
|
|
$
|
9,016
|
|
|
$
|
7,302
|
|
Segment Results
(b)
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
$
|
220
|
|
|
$
|
(51
|
)
|
|
$
|
1,067
|
|
|
$
|
(653
|
)
|
Chemical
|
|
200
|
|
|
117
|
|
|
600
|
|
|
419
|
|
Midstream and Marketing
|
|
4
|
|
|
(180
|
)
|
|
76
|
|
|
(333
|
)
|
|
|
424
|
|
|
(114
|
)
|
|
1,743
|
|
|
(567
|
)
|
Unallocated Corporate Items
(b)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(85
|
)
|
|
(62
|
)
|
|
(244
|
)
|
|
(203
|
)
|
Income tax benefit (provision)
|
|
(85
|
)
|
|
30
|
|
|
(448
|
)
|
|
329
|
|
Other expense, net
|
|
(64
|
)
|
|
(92
|
)
|
|
(237
|
)
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
190
|
|
|
(238
|
)
|
|
814
|
|
|
(734
|
)
|
Discontinued operations, net
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
432
|
|
Net Income (loss)
|
|
$
|
190
|
|
|
$
|
(241
|
)
|
|
$
|
814
|
|
|
$
|
(302
|
)
|
(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.
(b) Refer to “Significant Transactions and Events Affecting Earnings."
Significant Transactions and Events Affecting Earnings
The following table sets forth significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount for the
three
and nine months ended
September 30, 2017
, and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
|
|
|
|
|
|
|
Asset sales gains and other
|
|
$
|
81
|
|
|
$
|
59
|
|
|
$
|
591
|
|
|
$
|
82
|
|
Asset impairments and related Items
|
|
—
|
|
|
(61
|
)
|
|
—
|
|
|
(61
|
)
|
Total Oil and Gas
|
|
81
|
|
|
(2
|
)
|
|
591
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
|
|
|
|
|
|
Asset sales gains
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
Midstream and Marketing
|
|
|
|
|
|
|
|
|
Asset impairments and related items
|
|
$
|
—
|
|
|
$
|
(160
|
)
|
|
$
|
—
|
|
|
$
|
(160
|
)
|
Non-cash fair value gain on Plains equity investment
|
|
—
|
|
|
—
|
|
|
94
|
|
|
—
|
|
Total Midstream and Marketing
|
|
—
|
|
|
(160
|
)
|
|
94
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Asset impairments and related items
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(78
|
)
|
Tax effect of pre-tax adjustments
(a)
|
|
(28
|
)
|
|
36
|
|
|
(244
|
)
|
|
69
|
|
Discontinued operations, net
(b)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
432
|
|
Total Corporate
|
|
$
|
(28
|
)
|
|
$
|
33
|
|
|
$
|
(244
|
)
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53
|
|
|
$
|
(129
|
)
|
|
$
|
441
|
|
|
$
|
372
|
|
(a) The 2016 amount included benefits for the relinquishment of foreign exploration blocks.
(b) Amounts shown after tax.
Worldwide Effective Tax Rate
T
he following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations for the
three
and nine months ended
September 30, 2017
, and
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil and Gas results
|
|
$
|
220
|
|
|
$
|
(51
|
)
|
|
$
|
1,067
|
|
|
$
|
(653
|
)
|
Chemical results
|
|
200
|
|
|
117
|
|
|
600
|
|
|
419
|
|
Midstream and Marketing results
|
|
4
|
|
|
(180
|
)
|
|
76
|
|
|
(333
|
)
|
Unallocated corporate items
|
|
(149
|
)
|
|
(154
|
)
|
|
(481
|
)
|
|
(496
|
)
|
Pre-tax income (loss)
|
|
275
|
|
|
(268
|
)
|
|
1,262
|
|
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
Federal and state
|
|
100
|
|
|
242
|
|
|
134
|
|
|
767
|
|
Foreign
|
|
(185
|
)
|
|
(212
|
)
|
|
(582
|
)
|
|
(438
|
)
|
Total
|
|
(85
|
)
|
|
30
|
|
|
(448
|
)
|
|
329
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
190
|
|
|
$
|
(238
|
)
|
|
$
|
814
|
|
|
$
|
(734
|
)
|
|
|
|
|
|
|
|
|
|
Worldwide effective tax rate
|
|
31
|
%
|
|
11
|
%
|
|
35
|
%
|
|
31
|
%
|
Occidental's worldwide effective tax rate of 31 percent for the three months ended September 30, 2017, is higher than the comparative period of 2016 mainly due to higher pre-tax income and the mix of domestic operating losses and foreign operating income.
Oil and Gas Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Oil and Gas segment results roll-forward
|
|
2017
|
|
2017
|
Oil and Gas prior year results
(a)
|
|
$
|
(49
|
)
|
|
$
|
(674
|
)
|
Sales price
|
|
193
|
|
|
1,191
|
|
Sales volume / mix
|
|
(41
|
)
|
|
(112
|
)
|
Operating expenses
|
|
(15
|
)
|
|
(124
|
)
|
DD&A rate
|
|
95
|
|
|
269
|
|
Exploration expense
|
|
2
|
|
|
18
|
|
All others
|
|
(46
|
)
|
|
(92
|
)
|
|
|
|
|
|
Oil and Gas current year results
|
|
$
|
139
|
|
|
$
|
476
|
|
|
|
|
|
|
Significant transactions and events
|
|
|
|
|
Asset sales gains
|
|
$
|
81
|
|
|
$
|
591
|
|
|
|
|
|
|
Oil and Gas current year segment earnings
|
|
$
|
220
|
|
|
$
|
1,067
|
|
(a) Excluded net asset sales gains and impairment related charges of $2 million and net gain of $21 million for the three and nine months ended September 30, 2016, respectively.
The three and nine months ended September 30, 2017, included pre-tax gains of $81 million and $591 million, respectively, primarily related to the sale of the South Texas operations and non-strategic acreage in the Midland Basin. Excluding the gains on sale, the increase in earnings for the three and nine months ended September 30, 2017, compared to the same periods of 2016, was mainly due to higher realized commodity prices for oil and NGLs and lower DD&A rates.
The following tables set forth the production and sales volumes of oil, NGLs and natural gas per day for the three and nine months ended
September 30, 2017
, and
2016
. The differences between the production and sales volumes per day are generally due to the timing of shipments at Occidental’s international locations where the product is loaded onto tankers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Production Volumes per Day
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
United States
|
|
199
|
|
|
181
|
|
|
196
|
|
|
189
|
|
Middle East
|
|
148
|
|
|
164
|
|
|
150
|
|
|
172
|
|
Latin America
|
|
32
|
|
|
26
|
|
|
31
|
|
|
33
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
United States
|
|
54
|
|
|
55
|
|
|
53
|
|
|
54
|
|
Middle East
|
|
33
|
|
|
31
|
|
|
30
|
|
|
27
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
United States
|
|
261
|
|
|
349
|
|
|
298
|
|
|
364
|
|
Middle East
|
|
533
|
|
|
531
|
|
|
503
|
|
|
608
|
|
Latin America
|
|
7
|
|
|
8
|
|
|
7
|
|
|
8
|
|
Total Production Volumes (MBOE)
(a)
|
|
600
|
|
|
605
|
|
|
595
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Sales Volumes per Day
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
United States
|
|
199
|
|
|
181
|
|
|
196
|
|
|
189
|
|
Middle East
|
|
150
|
|
|
163
|
|
|
151
|
|
|
173
|
|
Latin America
|
|
30
|
|
|
31
|
|
|
30
|
|
|
34
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
United States
|
|
54
|
|
|
55
|
|
|
53
|
|
|
54
|
|
Middle East
|
|
33
|
|
|
31
|
|
|
30
|
|
|
27
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
United States
|
|
261
|
|
|
349
|
|
|
298
|
|
|
364
|
|
Middle East
|
|
533
|
|
|
531
|
|
|
503
|
|
|
608
|
|
Latin America
|
|
7
|
|
|
8
|
|
|
7
|
|
|
8
|
|
Total Sales Volumes (MBOE)
(a
)
|
|
600
|
|
|
609
|
|
|
595
|
|
|
640
|
|
(See footnote following the table below)
The following tables set forth the production and sales volumes of ongoing operations for oil, NGLs and natural gas per day for the three and nine months ended
September 30, 2017
and
2016
, excluding operations sold or exited.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Production Volumes per Day from Ongoing Operations
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
199
|
|
|
179
|
|
|
195
|
|
|
186
|
|
Middle East
(c)
|
|
148
|
|
|
164
|
|
|
150
|
|
|
163
|
|
Latin America
|
|
32
|
|
|
26
|
|
|
31
|
|
|
33
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
54
|
|
|
50
|
|
|
51
|
|
|
48
|
|
Middle East
|
|
33
|
|
|
31
|
|
|
30
|
|
|
27
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
261
|
|
|
238
|
|
|
251
|
|
|
233
|
|
Middle East
(c)
|
|
533
|
|
|
531
|
|
|
503
|
|
|
457
|
|
Latin America
|
|
7
|
|
|
8
|
|
|
7
|
|
|
8
|
|
Total Production Ongoing Operations (MBOE)
|
|
600
|
|
|
579
|
|
|
584
|
|
|
573
|
|
Operations Sold, Exited and Exiting
|
|
—
|
|
|
26
|
|
|
11
|
|
|
65
|
|
Total Production Volumes (MBOE)
(a)
|
|
600
|
|
|
605
|
|
|
595
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Sales Volumes per Day from Ongoing Operations
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
199
|
|
|
179
|
|
|
195
|
|
|
186
|
|
Middle East
(c)
|
|
150
|
|
|
163
|
|
|
151
|
|
|
164
|
|
Latin America
|
|
30
|
|
|
31
|
|
|
30
|
|
|
34
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
54
|
|
|
50
|
|
|
51
|
|
|
48
|
|
Middle East
|
|
33
|
|
|
31
|
|
|
30
|
|
|
27
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
261
|
|
|
238
|
|
|
251
|
|
|
233
|
|
Middle East
(c)
|
|
533
|
|
|
531
|
|
|
503
|
|
|
457
|
|
Latin America
|
|
7
|
|
|
8
|
|
|
7
|
|
|
8
|
|
Total Sales Ongoing Operations (MBOE)
|
|
600
|
|
|
583
|
|
|
584
|
|
|
575
|
|
Operations Sold, Exited and Exiting
|
|
—
|
|
|
26
|
|
|
11
|
|
|
65
|
|
Total Sales Volumes (MBOE)
(a
)
|
|
600
|
|
|
609
|
|
|
595
|
|
|
640
|
|
Note
: MBBL represents thousand barrels. MMCF represents million cubic feet.
(a) Natural gas volumes have been converted to thousands of barrels of oil equivalent (MBOE) based on energy content of six million cubic feet (MMCF) of gas to one thousand barrels of oil (MBOE). Barrels of oil equivalence does not necessarily result in price equivalence.
(b) Excludes 2 MBBL, 5 MBBL and 111 MMCF of oil, NGLs and gas for the three months ended September 30, 2016, related to South Texas. Excludes 1 MBBL, 2 MMBL and 47 MMCF of oil, NGLs and gas for the nine months ended September 30, 2017, related to South Texas and 3 MBBL, 6 MMBL, and 131 MMCF of oil, NGLs and gas for the nine months ended September 30, 2016, related to South Texas and Piceance.
(c) Excludes 9 MBBL and 151 MMCF of oil and gas for the nine months ended September 30, 2016, related to Bahrain and Iraq.
Total average daily production volumes were 600,000 barrels of oil equivalent (BOE) for the third quarter of 2017 compared to 605,000 BOE for the third quarter of 2016. In April 2017, Occidental completed the sale of its non-core South Texas operations, which produced average daily volumes of 26,000 BOE in the third quarter of 2016. Excluding South Texas, total company average daily oil and gas production volumes for ongoing operations increased by 21,000 BOE to 600,000 BOE from 579,000 BOE in the third quarter of 2016. Average daily production for the third quarter of 2017 reflected a 1,000 BOE decrease to Permian Resources production due to Hurricane Harvey. Compared to the third quarter of 2016, domestic average daily production for ongoing operations increased by 29,000 BOE to 297,000 BOE in the third quarter of 2017, with Permian Resources increasing by 18,000 BOE due to increased drilling activity and well productivity, and Permian EOR increasing by 10,000 BOE partially due to the purchase of EOR
properties in the third quarter of 2017. International average daily production for ongoing operations decreased to 303,000 BOE in the third quarter of 2017 from 311,000 BOE in the third quarter of 2016. The decrease in international production is primarily attributable to higher prices impacting our cost recovery volumes under production-sharing contracts and third-party outages, partially offset by higher production in Colombia.
Total average daily production volumes for the first nine months of 2017 and 2016 were 595,000 BOE and 638,000 BOE, respectively. For the first nine months of 2017 and 2016, non-core operations produced average daily volumes of 11,000 BOE and 65,000 BOE, respectively. For the first nine months of 2017, total company average daily oil and gas production volumes for ongoing operations increased by 11,000 BOE to 584,000 BOE from 573,000 BOE for the first nine months of 2016. Domestic average daily production for ongoing operations increased by 15,000 BOE for the first nine months of 2017, as compared to the first nine months of 2016, with Permian Resources increasing by 10,000 BOE. International average daily production decreased to 296,000 BOE for the first nine months of 2017 from 300,000 BOE for the first nine months of 2016. The decrease in international production is primarily attributable to higher prices impacting production-sharing contracts, partially offset by higher production at Al Hosn Gas.
The following tables present information about Occidental's average realized prices and index prices for the
three
and nine months ended
September 30, 2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Average Realized Prices
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Oil ($/BBL)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
45.04
|
|
|
$
|
41.49
|
|
|
$
|
46.19
|
|
|
$
|
37.31
|
|
Middle East
|
|
$
|
47.84
|
|
|
$
|
41.84
|
|
|
$
|
48.99
|
|
|
$
|
36.26
|
|
Latin America
|
|
$
|
45.54
|
|
|
$
|
39.66
|
|
|
$
|
45.26
|
|
|
$
|
35.50
|
|
Total Worldwide
|
|
$
|
46.19
|
|
|
$
|
41.49
|
|
|
$
|
47.23
|
|
|
$
|
36.70
|
|
NGLs ($/BBL)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
22.99
|
|
|
$
|
15.21
|
|
|
$
|
22.18
|
|
|
$
|
13.12
|
|
Middle East
|
|
$
|
17.01
|
|
|
$
|
14.63
|
|
|
$
|
17.23
|
|
|
$
|
14.47
|
|
Total Worldwide
|
|
$
|
20.73
|
|
|
$
|
14.99
|
|
|
$
|
20.37
|
|
|
$
|
13.58
|
|
Natural Gas ($/MCF)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2.15
|
|
|
$
|
2.30
|
|
|
$
|
2.38
|
|
|
$
|
1.74
|
|
Latin America
|
|
$
|
5.22
|
|
|
$
|
3.48
|
|
|
$
|
5.04
|
|
|
$
|
3.66
|
|
Total Worldwide
|
|
$
|
1.77
|
|
|
$
|
1.84
|
|
|
$
|
1.88
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Average Index Prices
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
WTI oil ($/BBL)
|
|
$
|
48.21
|
|
|
$
|
44.94
|
|
|
$
|
49.47
|
|
|
$
|
41.33
|
|
Brent oil ($/BBL)
|
|
$
|
52.18
|
|
|
$
|
46.98
|
|
|
$
|
52.59
|
|
|
$
|
43.01
|
|
NYMEX gas ($/MCF)
|
|
$
|
2.95
|
|
|
$
|
2.70
|
|
|
$
|
3.12
|
|
|
$
|
2.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Realized Prices as Percentage of Average Index Prices
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Worldwide oil as a percentage of average WTI
|
|
96
|
%
|
|
92
|
%
|
|
95
|
%
|
|
89
|
%
|
Worldwide oil as a percentage of average Brent
|
|
89
|
%
|
|
88
|
%
|
|
90
|
%
|
|
85
|
%
|
Worldwide NGLs as a percentage of average WTI
|
|
43
|
%
|
|
33
|
%
|
|
41
|
%
|
|
33
|
%
|
Domestic natural gas as a percentage of average NYMEX
|
|
73
|
%
|
|
85
|
%
|
|
76
|
%
|
|
78
|
%
|
Worldwide commodity prices for the third quarter of 2017 were higher than the third quarter of 2016. The average quarterly WTI and Brent prices increased to $48.21 per barrel and $52.18 per barrel, respectively, for the third quarter of 2017, compared to $44.94 per barrel and $46.98 per barrel, respectively, for the third quarter of 2016. Worldwide realized crude oil prices increased by 11 percent to $46.19 per barrel for the third quarter of 2017, compared to $41.49 per barrel in the third quarter of 2016. Worldwide realized NGL prices increased by 38 percent to $20.73 per barrel in the third quarter of 2017, compared to $14.99 per barrel in the third quarter of 2016. Domestic realized natural gas
prices decreased by 7 percent in the third quarter of 2017 to $2.15 per MCF, compared to $2.30 per MCF in the third quarter of 2016.
Worldwide commodity prices for the first nine months of 2017 were higher than the same period of 2016. Worldwide realized crude oil prices increased by 29 percent to $47.23 per barrel for the first nine months of 2017, compared to $36.70 per barrel for the same period of 2016. Worldwide realized NGL prices increased by 50 percent to $20.37 per barrel for the first nine months of 2017, compared to $13.58 per barrel for the same period of 2016. Domestic realized natural gas prices increased by 37 percent for the first nine months of 2017 to $2.38 per MCF, compared to $1.74 per MCF for the same period of 2016.
Occidental’s financial results correlate closely to the prices it obtains for its products. Significant declines in commodity prices may result in impairments to reduce the carrying value of Occidental’s oil and gas properties, while also reducing the amount of volumes that can be produced economically and the quantity and present value of proved reserves.
Chemical Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Chemical segment results roll-forward
|
|
2017
|
|
2017
|
Chemical prior year results
(a)
|
|
$
|
117
|
|
|
$
|
331
|
|
Sales price
|
|
109
|
|
|
372
|
|
Sales volume / mix
|
|
(12
|
)
|
|
68
|
|
Operations / manufacturing
|
|
(32
|
)
|
|
(223
|
)
|
All others
(b)
|
|
18
|
|
|
52
|
|
Chemical current year segment earnings
|
|
$
|
200
|
|
|
$
|
600
|
|
(a) Excluded gain on sale of the Occidental Tower in Dallas and a non-core specialty chemicals business of $88 million for the nine months ended September 30, 2016.
(b) Included equity income from the Ingleside joint venture ethylene cracker.
Chemical segment earnings for the third quarter of 2017 of $200 million was negatively impacted by Hurricane Harvey by approximately $60 million due to the temporary shutdown of chlorovinyl production, and higher costs for plant maintenance and raw materials and a lack of utilities. The higher earnings for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected higher realized pricing for caustic soda, improved vinyls margins, and the addition of equity income from the joint venture ethylene cracker in Ingleside, Texas, partially offset by the impact of Hurricane Harvey.
Midstream and Marketing Segment
The following table summarizes the key factors impacting segment earnings for the three and nine months ended September 30, 2017, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
Midstream and Marketing segment results roll-forward
|
|
2017
|
|
2017
|
Midstream and Marketing prior year results
(a)
|
|
$
|
(20
|
)
|
|
$
|
(173
|
)
|
Marketing
|
|
4
|
|
|
90
|
|
Gas plants
|
|
9
|
|
|
17
|
|
Pipelines
|
|
9
|
|
|
44
|
|
Power generation
|
|
(4
|
)
|
|
(5
|
)
|
All others
|
|
6
|
|
|
9
|
|
Midstream and Marketing current year results
|
|
$
|
4
|
|
|
$
|
(18
|
)
|
Significant transactions and events
|
|
|
|
|
Non-cash fair value gain on Plains equity investment
|
|
$
|
—
|
|
|
$
|
94
|
|
|
|
|
|
|
Midstream and Marketing current year segment earnings
|
|
$
|
4
|
|
|
$
|
76
|
|
(a) Excluded $160 million related to terminated crude oil supply contracts for the three and nine months ended September 30, 2016.
Midstream and marketing segment earnings for the third quarter of 2017 of $4 million was negatively impacted by Hurricane Harvey by approximately $10 million. The increase in income for the three and nine months ended September 30, 2017, compared to the same periods in 2016, reflected improved Midland to Gulf Coast spreads, income from the Ingleside Crude Oil Terminal, which commenced operations in late 2016, higher sulfur sales in Al Hosn and higher domestic pipeline sales.
Liquidity and Capital Resources
At
September 30, 2017
, Occidental had $1.8 billion in cash. Income and cash flows are largely dependent on the oil and gas segment's realized prices, sales volumes and operating costs. 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, if necessary, through future borrowings or proceeds from other forms of capital issuance.
Net cash provided by operating activities was $
3.6 billion
and $2.5 billion for the nine months ended
September 30, 2017
, and 2016, respectively. Cash flows in the first nine months of 2017 were positively impacted by improved commodity prices in both the oil and gas and chemicals segments, and federal income tax refunds of $749 million. Operating cash flows in 2016 benefited from $882 million for the Ecuador settlement and $302 million of federal income tax refunds. The impact of the chemical and the midstream and marketing segments on overall cash flows is typically less significant than the impact of the oil and gas segment because the chemical and midstream and marketing segments are significantly smaller.
Occidental’s net cash used by investing activities was $2.3 billion for the first nine months of 2017, compared to
$2.0 billion
for the same period of 2016. Capital expenditures for the first nine months of
2017
were $2.4 billion of which $2.0 billion was for the oil and gas segment. Capital expenditures were $1.8 billion for the first nine months of 2016, of which $1.4 billion was for the oil and gas segment. Proceeds of $1.3 billion from the sale of assets in the first nine months of 2017 primarily reflected the sale of Occidental's South Texas operations, and non-strategic acreage in the Midland Basin. Asset acquisitions in the first nine months of 2017 of $1.1 billion mainly reflected Permian acquisitions and the Oman Block 9 bonus payment.
Occidental’s net cash used by financing activities was $1.7 billion for the first nine months of
2017
, compared to cash used by financing activities of $0.5 billion for the same period of
2016
. Cash used by financing activities in the first nine months of 2017 primarily reflected the payment of dividends. In the first nine months of 2016, restricted cash of $1.2 billion was used to pay dividends and repay debt. In the first nine months of 2016, Occidental issued $2.75 billion of senior notes, repaid $700 million of 2.5-percent senior notes due February 2016 and $750 million of 4.125-
percent senior notes due June 2016, and completed the early redemption of $1.25 billion of 1.75-percent senior notes due February 2017.
As of
September 30, 2017
, Occidental was in compliance with all covenants of its financing agreements and had substantial capacity for additional unsecured borrowings, the payment of cash dividends and other distributions on, or acquisitions of, Occidental stock.
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. Occidental’s environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.
The laws that require or address environmental remediation, including 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.
Refer to Note 6,
Environmental Liabilities and Expenditures,
in the
Notes to the Consolidated Condensed Financial Statements
in Part I Item 1 of this Form 10-Q and to the
Environmental Liabilities and Expenditures
section of
Management’s Discussion and Analysis of Financial Condition and Results of Operation
s in the 2016 Form 10-K for additional information regarding Occidental’s environmental expenditures.
Lawsuits, Claims, Commitments and Contingencies
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. Occidental has disclosed its reserve balances for environmental matters. Reserve balances for other matters as of
September 30, 2017
, and
December 31, 2016
, were not material to Occidental's consolidated condensed balance sheets. Occidental also evaluates the amount of reasonably possible losses that it could incur as a result of the matters mentioned above. Occidental has disclosed its range of reasonably possible additional losses for sites where it is a participant in environmental remediation. Occidental believes that other reasonably possible losses which it could incur in excess of reserves accrued on the balance sheet would not be material to its consolidated financial position or results of operations. For further information, see Note 7,
Lawsuits, Claims, Commitments and Contingencies,
in the
Notes to Consolidated Condensed Financial Statements
in Part I Item 1 of this Form 10-Q.
Recently Adopted Accounting and Disclosure Changes
See Note 3,
Accounting and Disclosure Changes,
in the
Notes to Consolidated Condensed Financial Statements
in Part I Item 1 of this Form 10-Q
.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
For the three and nine months ended
September 30, 2017
, there were no material changes in the information required to be provided under Item 305 of Regulation S-K included under Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the 2016 Form 10-K.
Item 4.
Controls and Procedures
Occidental's President and Chief Executive Officer and its Senior Vice President and Chief Financial Officer supervised and participated in Occidental's evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, Occidental's President and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that Occidental's disclosure controls and procedures were effective as of
September 30, 2017
.
There has been no change in Occidental's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the first nine months of 2017 that has materially affected, or is reasonably likely to materially affect, Occidental's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
For information regarding other legal proceedings, see Note 7,
Lawsuits, Claims, Commitments and Contingencies in the Notes to Consolidated Condensed Financial Statements
, in Part I Item 1 of this Form 10-Q, and Part I Item 3, “
Legal Proceedings
” in the 2016 Form 10-K.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Activities
Occidental's share repurchase activities for the nine months ended
September 30, 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
(a)
|
|
|
|
|
|
|
|
|
|
First Quarter 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Second Quarter 2017
|
|
96,828
|
|
(b)
|
$
|
60.77
|
|
|
—
|
|
|
|
July 1- 31, 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
August 1 - 31, 2017
|
|
96,933
|
|
(b)
|
$
|
60.62
|
|
|
—
|
|
|
|
September 1 - 30, 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Third Quarter 2017
|
|
96,933
|
|
|
$
|
60.62
|
|
|
—
|
|
|
|
Total
|
|
193,761
|
|
|
$
|
60.69
|
|
|
—
|
|
|
63,756,544
|
|
|
|
(a)
|
Represents the total number of shares remaining at September 30, 2017, 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.
|
|
|
(b)
|
Includes purchases from the trustee of Occidental's defined contribution savings plan that are not part of publicly announced plans or programs.
|
Item 6. Exhibits
|
|
|
12
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
101.INS
|
XBRL Instance Document.
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
* Incorporated herein by reference
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
OCCIDENTAL PETROLEUM CORPORATION
|
|
|
|
|
|
|
DATE:
|
November 1, 2017
|
/s/ Jennifer M. Kirk
|
|
|
|
Jennifer M. Kirk
|
|
|
|
Vice President, Controller and
|
|
|
|
Principal Accounting Officer
|
|
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