sale at December 31, 2015, and primarily included property, plant and equipment and current accrued liabilities and asset retirement obligations.
In February 2016, Occidental repaid $700 million of 2.5-percent senior notes that matured.
In January 2016, Occidental completed the sale of its Occidental Tower building in Dallas, Texas, for net proceeds of approximately $85 million, resulting in a pre-tax gain of $57 million. The building was classified as held for sale as of December 31, 2015.
3. Accounting and Disclosure Changes
In October 2016, the Financial Accounting Standards Board ("FASB") issued new guidance related to the income tax consequences of intra-entity transfers of assets other than inventory. The rules become effective for the interim and annual periods beginning after December 15, 2017. Occidental is currently evaluating the impact of these rules on its financial statements.
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 become effective for the interim and annual periods beginning after December 15, 2017. Occidental is currently evaluating the impact of these rules on its financial statements.
In March, April, and May of 2016, the FASB issued updates clarifying several aspects of the new revenue recognition standard, previously issued in May 2014. Occidental is currently evaluating the impact of these rules on its financial statements.
In March 2016, the FASB issued rules affecting entities that issue share-based payment awards to their employees. These rules are designed to simplify several aspects of accounting for share-based payment award transactions, including: (1) accounting and cash flow classification for excess tax benefits and deficiencies, (2) forfeitures, and (3) tax withholding requirements and cash flow classification. The rules were adopted for the second quarter of 2016 and did not have a material impact on Occidental's financial statements upon adoption.
In March 2016, the FASB issued an update to eliminate the requirement to retrospectively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The update requires that the equity method investor add the cost of acquiring the additional interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The rules become effective for the interim and annual periods beginning after December 15, 2016. The rules do not have a material impact on Occidental's financial statements upon adoption.
In March 2016, the FASB issued rules clarifying that a change in one of the parties to a derivative contract that is part of a hedge accounting relationship does not, by itself, require dedesignation of that relationship, as long as all other hedge accounting criteria continue to be met. The rules become effective for the interim and annual periods beginning after December 15, 2016. Occidental is currently evaluating the impact of these rules on its financial statements.
In February 2016, the FASB issued rules in which lessees will recognize most leases, including operating leases, on-balance sheet. These new rules will significantly increase reported assets and liabilities. The rules become effective for interim and annual periods beginning after December 15, 2018. Occidental is currently evaluating the impact of these rules on its financial statements.
In April 2015, the FASB issued rules simplifying the presentation of debt issuance costs. The new rules require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Occidental adopted these rules retrospectively as of January 1, 2016. The rules do not have a material impact on Occidental's financial statements.
4. Supplemental Cash Flow Information
Occidental paid foreign, state and federal income taxes of $442 million and $848 million during the nine months ended
September 30, 2016
and
2015
, respectively. During the first nine months of 2016, Occidental received federal income tax refunds of $302 million as a result of the carryback of net operating losses generated in 2015. Interest paid totaled $224 million and $198 million during the nine months ended
September 30, 2016
and
2015
, respectively.
5. Inventories
A portion of inventories is valued under the LIFO method. The valuation of LIFO inventory for interim periods is based on Occidental’s estimates of year-end inventory levels and costs. Inventories as of
September 30, 2016
, and
December 31, 2015
, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
77
|
|
|
$
|
73
|
|
|
Materials and supplies
|
|
503
|
|
|
568
|
|
|
Finished goods
|
|
397
|
|
|
395
|
|
|
|
|
977
|
|
|
1,036
|
|
|
|
|
|
|
|
|
Revaluation to LIFO
|
|
(50
|
)
|
|
(50
|
)
|
|
Total
|
|
$
|
927
|
|
|
$
|
986
|
|
|
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, 2016
, Occidental participated in or monitored remedial activities or proceedings at 150 sites. The following table presents Occidental’s environmental remediation reserves as of
September 30, 2016
, the current portion of which is included in accrued liabilities ($78 million) and the remainder in deferred credits and other liabilities — other ($342 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
|
|
35
|
|
|
$
|
68
|
|
|
Third-party sites
|
|
69
|
|
|
126
|
|
|
Occidental-operated sites
|
|
17
|
|
|
100
|
|
|
Closed or non-operated Occidental sites
|
|
29
|
|
|
126
|
|
|
Total
|
|
150
|
|
|
$
|
420
|
|
|
As of
September 30, 2016
, Occidental’s environmental reserves exceeded
$10 million
each at 13 of the 150 sites described above, and 97 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.
Due to uncertainties surrounding the Maxus indemnified sites described further under Note 7,
Lawsuits, Claims, Commitments and Contingencies
, Occidental is currently unable to estimate an amount of reasonably possible losses associated with certain sites. For all other sites, Occidental believes its estimable range of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites could be up to $415 million. For additional information regarding environmental matters, refer to Note 7.
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, 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, 2016 and December 31, 2015 were not material to Occidental’s consolidated 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.
Environmental Litigation
When Occidental acquired Diamond Shamrock Chemicals Company (DSCC) in 1986, Maxus Energy Corporation (Maxus), currently a subsidiary of YPF S.A. (YPF), agreed to indemnify Occidental for a number of environmental sites, including the Diamond Alkali Superfund 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 Diamond Alkali Superfund Site. Occidental has been pursuing Maxus and its parent company, YPF, as the alter ego of Maxus, to recover all indemnified costs, which will include costs to be incurred at the Diamond Alkali Superfund Site.
In March 2016, the EPA issued a Record of Decision (ROD) for the Diamond Alkali Superfund Site 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 complete the design of the proposed clean-up plan pursuant to the AOC. Occidental’s allocable share of this liability may ultimately be higher or lower than the reserved amount, and is subject to Occidental’s pursuit of its indemnity rights against Maxus. Occidental continues to evaluate the costs to be incurred to comply with the AOC in light of the Maxus bankruptcy and the share of ultimate liability of other potentially responsible parties.
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, 2016
and
December 31, 2015
was $9.1 billion and $8.4 billion, respectively, and its carrying value net of unamortized discount as of September 30, 2016 and December 31, 2015, was $8.3 billion. The majority of Occidental's debt is classified as Level 1, with $68 million classified as Level 2.
10. Derivatives
Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. Occidental applies hedge accounting when transactions meet specified criteria for cash-flow hedge treatment and management elects and documents such treatment. Otherwise, any fair value gains or losses are recognized in earnings in the current period.
Occidental uses a variety of derivative instruments, including cash-flow hedges and derivative instruments not designated as hedging instruments, to obtain average prices for the relevant production month and to improve realized prices for oil and gas. Occidental only occasionally hedges its oil and gas production, and, when it does, the volumes are usually insignificant.
Cash-Flow Hedges
Occidental's marketing and trading operations, from time to time, store natural gas purchased from third parties at Occidental's North American leased storage facilities. Derivative instruments are used to fix margins on the future sales of the stored volumes through March 2017. As of September 30, 2016, Occidental had approximately 7 billion cubic feet of natural gas held in storage, and had cash-flow hedges for the forecast sale, to be settled by physical delivery, of approximately 7 billion cubic feet of stored natural gas. As of December 31, 2015, Occidental had approximately 13 billion cubic feet of natural gas held in storage, and had cash-flow hedges for the forecast sale, to be settled by physical delivery, of approximately 14 billion cubic feet of stored natural gas. The following table summarizes Occidental’s other comprehensive income related to derivatives for the three and nine months ended
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Unrealized losses (gains) on derivatives
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
(13
|
)
|
|
$
|
2
|
|
Reclassification to income of realized loss on derivatives
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
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; reorganization or restructuring of Occidental’s operations; 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; 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, 2015 (the 2015 Form 10-K).
Consolidated Results of Operations
Occidental reported a net loss from continuing operations of $238 million for the third quarter of 2016 on net sales of $2.6 billion, compared to a net loss from continuing operations of $2.6 billion on net sales of $3.1 billion for the third quarter of 2015. The net losses for the third quarters of 2016 and 2015 included asset impairments and related charges of $221 million and $3.4 billion, respectively. Diluted loss per share from continuing operations was $0.31 for the third quarter of 2016, compared to diluted loss of $3.41 per share for the third quarter of 2015.
Occidental reported a net loss from continuing operations of $734 million for the first nine months of 2016 on net sales of $7.3 billion, compared to a net loss of $2.6 billion on net sales of $9.7 billion for the same period in 2015. The net losses for the nine months ended September 2016 and 2015 included asset impairment and related items charges of $299 million and $3.7 billion, respectively. Diluted loss per share from continuing operations was $0.96 per share for the first nine months of 2016, compared to a loss per share of $3.45 for the same period of 2015. Gain from discontinued operations was $432 million for the first nine months of 2016, compared with a loss of $10 million for the same period of 2015.
Excluding asset impairment and related items charges, net losses from continuing operations for the three and nine months ended September 30, 2016, compared to the same period of 2015, mainly reflected lower realized oil prices and sales volumes. To a lesser extent, net losses from continuing operations for the third quarter of 2016 also reflected lower chemical sales prices and volumes, and lower midstream domestic pipeline income.
Selected Statements of Operations Items
Net sales decreased for the
three
and nine months ended September 30, 2016, compared to the same periods in 2015, due to lower oil prices and sales volumes. Gain on disposal of assets, net, for the nine months ended September 30, 2016, reflect gains on the sale of the Piceance Basin operations in Colorado of $121 million, the Occidental Tower building in Dallas of $57 million and South Texas Eagle Ford non-operated properties of $59 million.
Compared to the same periods in 2015, cost of sales for the three and nine months ended
September 30, 2016
reflected lower oil and gas production costs, mainly from maintenance and support activities. The nine months ended September 30, 2016 also reflected lower raw material and energy costs for the chemical business.
Asset impairments and related items for the three and nine months ended September 30, 2016, reflected an impairment charge of $112 million related to Libya and a crude oil supply agreement termination charge of $160 million. The nine months ended September 30, 2016 also reflected impairment charges of $78 million related to the special stock dividend of California Resources shares. Asset impairments and related items in the Oil and Gas segment for the three and nine months ended September 30, 2015 reflected impairment charges of $3.1 billion, which included $763 million to write down the net book value of the Williston operations and impairment charges related to Occidental's domestic gas operations of $924 million, Iraq operations of $760 million and Libya operations of $676 million due to the decline in oil and gas futures prices. The nine months ended September 30, 2015 also reflected first quarter impairment charges of $195 million for Occidental's South Texas Eagle Ford non-operated properties and $41 million to write-off the remaining investment in Yemen due to the collapse of the country's government.
Taxes other than on income for the three and nine months ended September 30, 2016, compared to the same periods of 2015, reflected lower production and ad valorem taxes, due to lower oil and gas prices and the sale of the Williston operation.
Higher interest and debt expense, net for the three and nine months ended September 30, 2016, compared to the same periods of 2015, reflected lower capitalized interest and an additional six months interest expense related to the $750 million 3.50-percent senior unsecured notes due 2025 and $750 million of 4.625-percent senior unsecured notes due 2045 issued in June 2015. The nine months ended September 30, 2016 also reflected a premium charge on the early retirement in May 2016 of the $1.25 billion of 1.75-percent senior notes due February 2017.
The domestic and foreign income tax benefit for the three and nine months ended
September 30, 2016
, compared to the same periods of 2015, reflected lower pre-tax operating losses in
2016
compared to
2015
. The nine months ended September 30, 2016 also reflected the relinquishment of foreign exploration blocks.
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 trade receivables, net, at September 30, 2016, compared to December 31, 2015, was due to an increase in oil and gas realized prices. The decrease in assets held for sale and available for sale investment reflect the sale of Piceance operations in Colorado and the Occidental Tower in Dallas, and the distribution of Occidental's remaining California Resources common stock to its shareholders. The increase in investments in unconsolidated entities is primarily a result of capital contributions associated with the joint venture for the ethylene cracker at the OxyChem Ingleside facility. The decrease in property, plant and equipment, net, is primarily the result of $3.2 billion of DD&A, partially offset by capital expenditures of $1.8 billion.
Current maturities of long-term debt at September 30, 2016, decreased from December 31, 2015, due to the payments of $700 million 2.5-percent senior notes due February 2016 and $750 million 4.125-percent senior notes due June 2016. The increase in long-term debt, net since December 31, 2015 is the result of the issuance of $2.75 billion of senior notes in April 2016, partially offset by the early redemption in May 2016 of $1.25 billion 1.75-percent senior notes due February 2017.
The increase in accounts payable at September 30, 2016, is due to higher marketing payables as a result of higher oil and gas prices at the end of the third quarter 2016 compared to year-end 2015. Liabilities of assets held for sale as of September 30, 2016, decreased due to the sale of Piceance operations in Colorado.
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, 2016
and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net Sales
(a)
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
$
|
1,660
|
|
|
$
|
2,054
|
|
|
$
|
4,560
|
|
|
$
|
6,405
|
|
|
Chemical
|
|
988
|
|
|
1,008
|
|
|
2,786
|
|
|
3,038
|
|
|
Midstream and Marketing
|
|
202
|
|
|
231
|
|
|
476
|
|
|
722
|
|
|
Eliminations
|
|
(202
|
)
|
|
(177
|
)
|
|
(520
|
)
|
|
(491
|
)
|
|
|
|
$
|
2,648
|
|
|
$
|
3,116
|
|
|
$
|
7,302
|
|
|
$
|
9,674
|
|
|
Segment Results
(b)
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
$
|
(51
|
)
|
|
$
|
(3,128
|
)
|
|
$
|
(653
|
)
|
|
$
|
(3,039
|
)
|
|
Chemical
|
|
117
|
|
|
272
|
|
|
419
|
|
|
547
|
|
|
Midstream and Marketing
|
|
(180
|
)
|
|
24
|
|
|
(333
|
)
|
|
96
|
|
|
|
|
(114
|
)
|
|
(2,832
|
)
|
|
(567
|
)
|
|
(2,396
|
)
|
|
Unallocated Corporate Items
(b)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(62
|
)
|
|
(47
|
)
|
|
(203
|
)
|
|
(82
|
)
|
|
Income tax benefit
|
|
30
|
|
|
445
|
|
|
329
|
|
|
140
|
|
|
Other expense, net
|
|
(92
|
)
|
|
(172
|
)
|
|
(293
|
)
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
(238
|
)
|
|
(2,606
|
)
|
|
(734
|
)
|
|
(2,641
|
)
|
|
Discontinued operations, net
|
|
(3
|
)
|
|
(3
|
)
|
|
432
|
|
|
(10
|
)
|
|
Net loss
|
|
$
|
(241
|
)
|
|
$
|
(2,609
|
)
|
|
$
|
(302
|
)
|
|
$
|
(2,651
|
)
|
|
(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,” “Oil and Gas Segment,” “Chemical Segment,” “Midstream and Marketing Segment” and "Corporate" discussions that follow.
Significant Transactions and Events Affecting Earnings
The following table sets forth significant transactions and events that vary widely and unpredictably in nature, timing and amount, affecting Occidental’s earnings for the
three
and nine months ended
September 30, 2016
and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
|
|
|
|
|
|
|
Asset sales gains and other
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
82
|
|
|
$
|
5
|
|
Asset impairments and related items - Domestic
|
|
—
|
|
|
(1,852
|
)
|
|
—
|
|
|
(2,102
|
)
|
Asset impairments and related items - International
|
|
(61
|
)
|
|
(1,438
|
)
|
|
(61
|
)
|
|
(1,485
|
)
|
Total Oil and Gas
|
|
$
|
(2
|
)
|
|
$
|
(3,290
|
)
|
|
$
|
21
|
|
|
$
|
(3,582
|
)
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
|
|
|
|
|
|
Asset sales gains
|
|
$
|
—
|
|
|
$
|
98
|
|
|
$
|
88
|
|
|
$
|
98
|
|
Total Chemical
|
|
$
|
—
|
|
|
$
|
98
|
|
|
$
|
88
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
Midstream and Marketing
|
|
|
|
|
|
|
|
|
Asset impairments and related items
|
|
$
|
(160
|
)
|
|
$
|
(7
|
)
|
|
$
|
(160
|
)
|
|
$
|
(14
|
)
|
Total Midstream and Marketing
|
|
$
|
(160
|
)
|
|
$
|
(7
|
)
|
|
$
|
(160
|
)
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
Spin-off costs and related items
|
|
—
|
|
|
(95
|
)
|
|
(78
|
)
|
|
(115
|
)
|
Asset sales gains (losses)
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(9
|
)
|
Tax effect of pre-tax adjustments
(a)
|
|
36
|
|
|
667
|
|
|
69
|
|
|
766
|
|
Discontinued operations, net
(b)
|
|
(3
|
)
|
|
(3
|
)
|
|
432
|
|
|
(10
|
)
|
Total Corporate
|
|
$
|
33
|
|
|
$
|
566
|
|
|
$
|
423
|
|
|
$
|
627
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(129
|
)
|
|
$
|
(2,633
|
)
|
|
$
|
372
|
|
|
$
|
(2,871
|
)
|
(a) The nine months ended September 30, 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, 2016
and
2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Oil and Gas results
|
|
$
|
(51
|
)
|
|
$
|
(3,128
|
)
|
|
$
|
(653
|
)
|
|
$
|
(3,039
|
)
|
Chemical results
|
|
117
|
|
|
272
|
|
|
419
|
|
|
547
|
|
Midstream and Marketing results
|
|
(180
|
)
|
|
24
|
|
|
(333
|
)
|
|
96
|
|
Unallocated corporate items
|
|
(154
|
)
|
|
(219
|
)
|
|
(496
|
)
|
|
(385
|
)
|
Pre-tax loss
|
|
(268
|
)
|
|
(3,051
|
)
|
|
(1,063
|
)
|
|
(2,781
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
Federal and state
|
|
242
|
|
|
747
|
|
|
767
|
|
|
919
|
|
Foreign
|
|
(212
|
)
|
|
(302
|
)
|
|
(438
|
)
|
|
(779
|
)
|
Total
|
|
30
|
|
|
445
|
|
|
329
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(238
|
)
|
|
$
|
(2,606
|
)
|
|
$
|
(734
|
)
|
|
$
|
(2,641
|
)
|
|
|
|
|
|
|
|
|
|
Worldwide effective tax rate
|
|
11
|
%
|
|
15
|
%
|
|
31
|
%
|
|
5
|
%
|
Occidental's worldwide effective tax rate of 31 percent for the nine months ended September 30, 2016 is higher than the comparative period of 2015 due to the mix of domestic operating losses and foreign operating income, as well as the current year domestic tax benefit associated with the relinquishment of foreign exploration blocks and oil and gas asset impairments recorded in 2015. Excluding the impact of asset sales and other nonrecurring items, Occidental's worldwide effective tax rate for the nine months ended September 30, 2016 would be 28 percent.
Oil and Gas Segment
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, 2016
and
2015
. 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
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
181
|
|
|
204
|
|
|
189
|
|
|
203
|
|
|
Middle East/North Africa
|
|
164
|
|
|
207
|
|
|
172
|
|
|
195
|
|
|
Latin America
|
|
26
|
|
|
25
|
|
|
33
|
|
|
34
|
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
55
|
|
|
58
|
|
|
54
|
|
|
55
|
|
|
Middle East/North Africa
|
|
31
|
|
|
22
|
|
|
27
|
|
|
15
|
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
|
United States
|
|
349
|
|
|
419
|
|
|
364
|
|
|
434
|
|
|
Middle East/North Africa
|
|
531
|
|
|
607
|
|
|
608
|
|
|
529
|
|
|
Latin America
|
|
8
|
|
|
9
|
|
|
8
|
|
|
10
|
|
|
Total Production Volumes (MBOE)
(a)
|
|
605
|
|
|
689
|
|
|
638
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
Sales Volumes per Day
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
181
|
|
|
204
|
|
|
189
|
|
|
203
|
|
|
Middle East/North Africa
|
|
163
|
|
|
179
|
|
|
173
|
|
|
185
|
|
|
Latin America
|
|
31
|
|
|
34
|
|
|
34
|
|
|
34
|
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
55
|
|
|
58
|
|
|
54
|
|
|
55
|
|
|
Middle East/North Africa
|
|
31
|
|
|
22
|
|
|
27
|
|
|
15
|
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
|
United States
|
|
349
|
|
|
419
|
|
|
364
|
|
|
434
|
|
|
Middle East/North Africa
|
|
531
|
|
|
607
|
|
|
608
|
|
|
529
|
|
|
Latin America
|
|
8
|
|
|
9
|
|
|
8
|
|
|
10
|
|
|
Total Sales Volumes (MBOE)
(a
)
|
|
609
|
|
|
670
|
|
|
640
|
|
|
655
|
|
|
(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, 2016
and
2015
, this excludes operations sold, exited or exiting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
Production Volumes per Day
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
181
|
|
|
188
|
|
|
189
|
|
|
186
|
|
|
Middle East/North Africa
(c)
|
|
164
|
|
|
168
|
|
|
163
|
|
|
159
|
|
|
Latin America
|
|
26
|
|
|
25
|
|
|
33
|
|
|
34
|
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
55
|
|
|
55
|
|
|
53
|
|
|
52
|
|
|
Middle East/North Africa
|
|
31
|
|
|
22
|
|
|
27
|
|
|
15
|
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
349
|
|
|
343
|
|
|
350
|
|
|
353
|
|
|
Middle East/North Africa
(c)
|
|
531
|
|
|
365
|
|
|
457
|
|
|
287
|
|
|
Latin America
|
|
8
|
|
|
9
|
|
|
8
|
|
|
10
|
|
|
Total Production Ongoing Operations (MBOE)
|
|
605
|
|
|
578
|
|
|
601
|
|
|
555
|
|
|
Operations Sold, Exited and Exiting
|
|
—
|
|
|
111
|
|
|
37
|
|
|
110
|
|
|
Total Production Volumes (MBOE)
(a)
|
|
605
|
|
|
689
|
|
|
638
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
Sales Volumes per Day
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
181
|
|
|
188
|
|
|
189
|
|
|
186
|
|
|
Middle East/North Africa
(d)
|
|
163
|
|
|
162
|
|
|
164
|
|
|
158
|
|
|
Latin America
|
|
31
|
|
|
34
|
|
|
34
|
|
|
34
|
|
|
NGLs (MBBL)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
55
|
|
|
55
|
|
|
53
|
|
|
52
|
|
|
Middle East/North Africa
|
|
31
|
|
|
22
|
|
|
27
|
|
|
15
|
|
|
Natural Gas (MMCF)
|
|
|
|
|
|
|
|
|
|
United States
(b)
|
|
349
|
|
|
343
|
|
|
350
|
|
|
353
|
|
|
Middle East/North Africa
(d)
|
|
531
|
|
|
365
|
|
|
457
|
|
|
287
|
|
|
Latin America
|
|
8
|
|
|
9
|
|
|
8
|
|
|
10
|
|
|
Total Sales Ongoing Operations (MBOE)
|
|
609
|
|
|
581
|
|
|
603
|
|
|
554
|
|
|
Operations Sold, Exited and Exiting
|
|
—
|
|
|
89
|
|
|
37
|
|
|
101
|
|
|
Total Sales Volumes (MBOE)
(a
)
|
|
609
|
|
|
670
|
|
|
640
|
|
|
655
|
|
|
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 16 MBBL, 3 MBBL and 76 MMCF of oil, NGLs and gas for the three months ended September 30, 2015 related to Williston and Piceance. Excludes 1 MBBL of NGLs and 14 MMCF of gas for the nine months ended September 30, 2016, related to Piceance and 17 MBBL, 3 MBBL and 81 MMCF of oil, NGLs, and gas for the nine months ended September 30, 2015, related to Williston and Piceance.
(c) Excludes 39 MMBL and 242 MMCF of oil and gas for the three months ended September 30, 2015, related to Bahrain and Iraq. Excludes 9 MBBL and 151 MMCF of oil and gas for the nine months ended September 30, 2016, and 36 MMBL and 242 MMCF of oil and gas for the nine months ended September 30, 2015, related to Bahrain, Iraq, Libya and Yemen.
(d) Excludes 17 MMBL and 242 MMCF of oil and gas for the three months ended September 30, 2015, related to Bahrain and Iraq. Excludes 9 MBBL and 151 MMCF of oil and gas for the nine months ended September 30, 2016, and 27 MMBL and 242 MMCF of oil and gas for the nine months ended September 30, 2015, related to Bahrain, Iraq, Libya and Yemen.
The following tables present information about Occidental's average realized prices and index prices for the
three
and nine months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
Average Realized Prices
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Oil ($/BBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
41.49
|
|
|
$
|
44.48
|
|
|
$
|
37.31
|
|
|
$
|
46.97
|
|
|
Middle East/North Africa
|
|
$
|
41.84
|
|
|
$
|
52.53
|
|
|
$
|
36.26
|
|
|
$
|
54.37
|
|
|
Latin America
|
|
$
|
39.66
|
|
|
$
|
42.46
|
|
|
$
|
35.50
|
|
|
$
|
48.53
|
|
|
Total Worldwide
|
|
$
|
41.49
|
|
|
$
|
47.78
|
|
|
$
|
36.70
|
|
|
$
|
50.33
|
|
|
NGLs ($/BBL)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
15.21
|
|
|
$
|
13.72
|
|
|
$
|
13.12
|
|
|
$
|
16.06
|
|
|
Middle East/North Africa
|
|
$
|
14.63
|
|
|
$
|
17.12
|
|
|
$
|
14.47
|
|
|
$
|
19.25
|
|
|
Total Worldwide
|
|
$
|
14.99
|
|
|
$
|
14.68
|
|
|
$
|
13.58
|
|
|
$
|
16.73
|
|
|
Natural Gas ($/MCF)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2.30
|
|
|
$
|
2.24
|
|
|
$
|
1.74
|
|
|
$
|
2.28
|
|
|
Latin America
|
|
$
|
3.48
|
|
|
$
|
5.67
|
|
|
$
|
3.66
|
|
|
$
|
5.18
|
|
|
Total Worldwide
|
|
$
|
1.84
|
|
|
$
|
1.51
|
|
|
$
|
1.43
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
Average Index Prices
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
WTI oil ($/BBL)
|
|
$
|
44.94
|
|
|
$
|
46.43
|
|
|
$
|
41.33
|
|
|
$
|
51.00
|
|
|
Brent oil ($/BBL)
|
|
$
|
46.98
|
|
|
$
|
51.17
|
|
|
$
|
43.01
|
|
|
$
|
56.61
|
|
|
NYMEX gas ($/MCF)
|
|
$
|
2.70
|
|
|
$
|
2.78
|
|
|
$
|
2.24
|
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Realized Prices as Percentage of Average Index Prices
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Worldwide oil as a percentage of average WTI
|
|
92
|
%
|
|
103
|
%
|
|
89
|
%
|
|
99
|
%
|
|
Worldwide oil as a percentage of average Brent
|
|
88
|
%
|
|
93
|
%
|
|
85
|
%
|
|
89
|
%
|
|
Worldwide NGLs as a percentage of average WTI
|
|
33
|
%
|
|
32
|
%
|
|
33
|
%
|
|
33
|
%
|
|
Domestic natural gas as a percentage of average NYMEX
|
|
85
|
%
|
|
81
|
%
|
|
78
|
%
|
|
80
|
%
|
|
Oil and gas segment losses were $51 million for the third quarter of 2016, compared with segment losses of $3.1 billion for the third quarter of 2015. The pre-tax results for the third quarter of 2015 included $3.3 billion of pre-tax impairment and related charges, which reflected the sharp decline in the oil and gas futures price curves, as well as projects that management determined it would cease to pursue. After removing the impact of asset sales, impairments and other adjustments, the decrease in earnings year over year was mainly due to lower oil prices and volumes.
Total average daily production volumes were 605,000 BOE for the third quarter of 2016 compared to 689,000 BOE for the third quarter of 2015. Occidental completed the sale of the Piceance Basin assets on March 1, 2016, and continues to reduce its exposure to non-core operations in the Middle East/North Africa. Occidental completed its exit from Bahrain in the third quarter of 2016. These non-core domestic and international operations produced average daily volumes of 111,000 BOE in the third quarter of 2015. For the third quarter of 2016, total company average daily oil and gas production volumes for ongoing operations increased by 27,000 barrels of oil equivalent (BOE) to 605,000 BOE from 578,000 BOE in the third quarter of 2015. Compared to the third quarter of 2015, domestic average daily production for ongoing operations decreased by 6,000 BOE to 294,000 BOE in the third quarter of 2016, with South Texas decreasing by 10,000 BOE, which was partially offset by a 5,000 BOE production increase by Permian Resources. International average daily production for ongoing operations increased to 311,000 BOE in the third quarter of 2016 from 278,000 BOE in the third quarter of 2015. The increase in international production is primarily attributable to Al Hosn, which was still ramping up production in the third quarter of 2015, in addition to Oman's Block 62 production which commenced in 2016.
Worldwide commodity prices for the third quarter of 2016 were lower than the third quarter of 2015. The average quarterly WTI and Brent prices decreased to $44.94 per barrel and $46.98 per barrel, respectively, for the third quarter of 2016, compared to $46.43 per barrel and $51.17 per barrel, respectively, for the third quarter of 2015.
Worldwide realized crude oil prices declined by 13 percent to $41.49 per barrel for the third quarter of 2016, compared to $47.78 per barrel in the third quarter of 2015. Worldwide realized NGL prices increased by 2 percent to $14.99 per barrel in the third quarter of 2016, compared to $14.68 per barrel in the third quarter of 2015. Domestic realized natural gas prices increased by 3 percent in the third quarter of 2016 to $2.30 per MCF, compared to $2.24 per MCF in the third quarter of 2015.
Oil and gas segment losses were $653 million for the first nine months of 2016, compared with segment losses of $3.0 billion for the same period of 2015. The pre-tax results for the first nine months of 2015 included $3.6 billion of pre-tax impairment and related charges. After removing the impact of impairments and related charges, the decrease in earnings for the first nine months of 2016 was mainly due to oil prices partially offset by lower operating costs.
Total average daily production volumes for the first nine months of 2016 and 2015 were 638,000 BOE and 665,000 BOE, respectively. For the first nine months of 2016 and 2015, non-core operations produced average daily volumes of 37,000 BOE and 110,000 BOE, respectively. For the first nine months of 2016, total company average daily oil and gas production volumes for ongoing operations increased by 46,000 barrels of oil equivalent (BOE) to 601,000 BOE from 555,000 BOE for the first nine months of 2015. Domestic average daily production for ongoing operations increased by 4,000 BOE for the first nine months of 2016 as compared to the first nine months of 2015 with Permian Resources increasing by 17,000 BOE, which was partially offset by lower natural gas and NGL production in South Texas. International average daily production for ongoing operations increased to 300,000 BOE for the first nine months of 2016 from 258,000 BOE for the first nine months of 2015. The increase in international production mainly comes from Al Hosn, which was not fully operational in the first nine months of 2015, and Oman's Block 62 production which commenced in 2016.
Worldwide commodity prices for the first nine months of 2016 were lower than the same period of 2015. Worldwide realized crude oil prices declined by 27 percent to $36.70 per barrel for the first nine months of 2016, compared to $50.33 per barrel for the same period of 2015. Worldwide realized NGL prices decreased by 19 percent to $13.58 per barrel for the first nine months of 2016, compared to $16.73 per barrel for the same period of 2015. Domestic realized natural gas prices decreased by 24 percent for the first nine months of 2016 to $1.74 per MCF, compared to $2.28 per MCF for the same period of 2015.
In October 2016, Occidental acquired producing and non-producing leasehold acreage in the Permian Basin. This acquisition includes 35,000 net acres in Reeves and Pecos counties, Texas in the Southern Delaware Basin, in areas where Occidental currently operates or has working interests. Separately, Occidental also acquired working interests in several producing oil and gas CO
2
floods and related EOR infrastructure, increasing Occidental's ownership in several properties where it is currently the operator or an existing working interest partner. The total purchase price for these transactions is approximately $2.0 billion, which Occidental funded from existing cash on hand.
Occidental’s financial results correlate closely to the prices it obtains for its products. The weak price environment continues to significantly impact earnings as compared to the same period in 2015. Further declines in these commodity prices may result in additional impairments to reduce the carrying value of Occidental’s oil and gas properties, as well as reducing the amount of these commodities that can be produced economically and the quantity and present value of proved reserves.
The calculated average first-day-of-the-month West Texas Intermediate oil price and Henry Hub natural gas price were $41.52 per barrel and $2.42 per MMBtu, respectively, for the first ten months of 2016 as compared to $50.28 per barrel and $2.66 per MMBtu for the twelve months of 2015. Lower commodity prices in 2016 could result in a portion of proved reserves deemed uneconomic and no longer classified as proved.
Chemical Segment
Chemical segment earnings for the three and nine months ended
September 30, 2016
, were
$117 million
and $419 million, respectively, compared to $272 million and $547 million for the same periods of 2015. Excluding gains on sale of the chemical assets, the lower earnings for the three months ended September 30, 2016 compared to the same period in 2015 reflected lower sales volumes, primarily chlor-alkali and calcium chloride, along with higher ethylene costs resulting from significant planned and unplanned industry cracker outages, which was partially offset
by higher realized caustic soda pricing. Excluding gains on sale for the chemical assets, the lower earnings for the nine months ended September 30, 2016 compared to the same period in 2015 reflected lower vinyl margins as vinyl prices declined more than key material costs. In addition, chlor-alkali sales prices and volumes were unfavorable across most product lines which was partially offset by lower energy costs. Calcium chloride earnings were negatively impacted by the mild winter weather conditions.
Midstream and Marketing Segment
Midstream and marketing losses were
$180 million
and $333 million for the three and nine months ended September 30, 2016, respectively, compared to segment earnings of $24 million and $96 million for the same periods of 2015. The three months ended September 30, 2016 included a crude oil supply contract termination charge of $160 million. Excluding the termination charge, the three and nine months ended September 30, 2016, compared to the same periods of 2015, reflected lower marketing margins due to unfavorable Permian to Gulf Coast differentials and lower domestic pipeline income due to lower throughput volumes.
Liquidity and Capital Resources
At
September 30, 2016
, Occidental had $3.2 billion in cash. Subsequent to the quarter end, Occidental acquired Permian producing and non-producing leasehold acreage, CO
2
properties and related infrastructure for approximately $2.0 billion. Occidental funded these acquisitions from existing cash on hand. Income and cash flows are largely dependent on the oil and gas segment's realized prices, sales volumes and operating costs. In the first nine months of 2016, Occidental significantly reduced its capital expenditures compared to the prior year period. With a continued focus on capital efficiency and operational efficiency, Occidental expects to fund its liquidity needs, including future dividend payments, through cash on hand, cash generated from operations, monetization of non-core assets or investments and through future borrowings, and if necessary, proceeds from other forms of capital issuance.
Net cash provided by operating activities was $
2.5 billion
and $2.4 billion for the nine months ended
September 30, 2016
and 2015, respectively. The 2016 amount include $0.9 billion from discontinued operations related to the Ecuador settlement. Cash flows were negatively impacted by significantly lower oil prices and sales volumes in the first nine months of 2016 as compared to the same period in 2015; this was partially offset by operating cost reductions as well as cash receipts of $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 these segments are significantly smaller. The usage of working capital of approximately $460 million for the nine months ended September 30, 2016 mainly reflected higher oil prices at the end of the third quarter of 2016 compared to the year-end of 2015, which increased marketing receivables.
Occidental’s net cash used by investing activities was $2.0 billion for the first nine months of 2016, compared to $5.1 billion for the same period of 2015. Capital expenditures for the first nine months of
2016
were $1.8 billion of which $1.4 billion was for the oil and gas segment, compared to $4.2 billion for the first nine months of 2015 of which $3.6 billion was for the oil and gas segment. The change in capital accrual for both periods reflected amounts paid in the current year related to capital expenditures incurred and accrued in the fourth quarter of the preceding year. Capital expenditures have been significantly reduced in response to the current commodity price environment.
Occidental’s net cash used by financing activities was $0.5 billion for the first nine months of
2016
, compared to net cash provided by financing activities of $1.5 billion for the same period of
2015
. Restricted cash of $1.2 billion and $2.3 billion was used to pay dividends and repay debt in the first nine months of 2016 and 2015, respectively. In the first nine months of 2016 and 2015, Occidental received net proceeds of $2.72 billion and $1.48 billion for the issuance of senior notes, respectively. In the first nine months of 2016, Occidental 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 redeemed $1.25 billion of 1.75-percent senior notes due February 2017.
As of
September 30, 2016
, 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 Operations
in the 2015 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, 2016
, and
December 31, 2015
, were not material to Occidental's consolidated 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 Condensed Consolidated 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, 2016
, 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 2015 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, 2016
.
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 2016 that has materially affected, or is reasonably likely to materially affect, Occidental's internal control over financial reporting.