NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2016
1. General
In these unaudited consolidated condensed financial statements, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental has made its disclosures in accordance with United States generally accepted accounting principles (GAAP) as they apply to interim reporting, and condensed or omitted, as permitted by the Securities and Exchange Commission’s rules and regulations, certain information and disclosures normally included in consolidated financial statements and the notes. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Occidental’s Annual Report on Form 10-K for the year ended
December 31, 2015
.
In the opinion of Occidental’s management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Occidental’s consolidated financial position as of
March 31, 2016
, and the consolidated statements of operations, comprehensive income and cash flows for the three months ended
March 31, 2016
and
2015
, as applicable. The income and cash flows for the periods ended
March 31, 2016
and
2015
are not necessarily indicative of the income or cash flows to be expected for the full year.
2. Asset Acquisitions, Dispositions and Other
In April 2016, Occidental issued $2.75 billion of senior notes, comprised of $0.4 billion of 2.6-percent senior notes due 2022, $1.15 billion of 3.4-percent senior notes due 2026 and $1.2 billion of 4.4-percent senior notes due 2046. Occidental received net proceeds of approximately $2.72 billion. Interest on the notes will be payable semi-annually in arrears in April and October of each year for each series of notes, beginning on October 15, 2016. The use of proceeds will be for general corporate purposes, including retirement of all $750 million of 4.125-percent notes at maturity in June 2016 and all $1.25 billion of 1.75-percent notes maturing in the first quarter of 2017, which will be redeemed in May 2016 by exercising our early redemption option.
In March 2016, Occidental distributed its remaining shares of California Resources Corporation (California Resources) through a special stock dividend to stockholders of record as of February 29, 2016. Upon distribution, Occidental recorded a $78 million loss to reduce the investment to its fair market value, and Occidental no longer owns any shares of California Resources common stock.
In March 2016, Occidental completed the sale of its Piceance Basin operations in Colorado for $153 million resulting in a pre-tax gain of $121 million. The assets and liabilities related to these operations were presented as held for 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. The building was classified as held for sale as of December 31, 2015.
In January 2016, Occidental reached an understanding on the terms of payment for the approximate $1.0 billion payable to Occidental by the Republic of Ecuador under a November 2015 International Center for the Settlement of Investment Disputes arbitration award. This award relates to Ecuador's 2006 expropriation of Occidental's Participation Contract for Block 15. For the three months ended March 31, 2016, Occidental recorded a pre-tax gain of $681 million. The results related to Ecuador were presented as discontinued operations.
3. Accounting and Disclosure Changes
In March 2016, the Financial Accounting Standards Board (“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 become effective for interim and annual periods beginning after December 31, 2016. The rules are not expected to have a material impact on Occidental's financial statements upon adoption.
In March 2016, the FASB amended revenue recognition rules to clarify the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether the entity controls a specified good or service before it is transferred to the customers. Occidental is currently evaluating the impact of these rules on its financial statements.
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 are not expected to 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 United States state and foreign income taxes of $102 million and $259 million during the three months ended
March 31, 2016
and
2015
, respectively. No federal income tax payments were made during the three months ended March 31, 2016 and 2015, because Occidental reported a 2015 net operating loss. Interest paid totaled $89 million in each of the three months ended
March 31, 2016
and
2015
.
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
March 31, 2016
and
December 31, 2015
consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
77
|
|
|
$
|
73
|
|
|
Materials and supplies
|
|
504
|
|
|
568
|
|
|
Finished goods
|
|
466
|
|
|
395
|
|
|
|
|
1,047
|
|
|
1,036
|
|
|
|
|
|
|
|
|
Revaluation to LIFO
|
|
(50
|
)
|
|
(50
|
)
|
|
Total
|
|
$
|
997
|
|
|
$
|
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
March 31, 2016
, Occidental participated in or monitored remedial activities or proceedings at 149 sites. The following table presents Occidental’s environmental remediation reserves as of
March 31, 2016
, the current portion of which is included in accrued liabilities ($70 million) and the remainder in deferred credits and other liabilities — other ($314 million). The reserves are grouped as environmental remediation sites listed or proposed for listing by the United States Environmental Protection Agency on the CERCLA National Priorities List (NPL sites) and three categories of non-NPL sites — third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.
|
|
|
|
|
|
|
|
|
|
|
|
Number of Sites
|
|
Reserve Balance
(in millions)
|
|
|
|
|
|
|
|
NPL sites
|
|
34
|
|
|
$
|
28
|
|
|
Third-party sites
|
|
66
|
|
|
127
|
|
|
Occidental-operated sites
|
|
18
|
|
|
105
|
|
|
Closed or non-operated Occidental sites
|
|
31
|
|
|
124
|
|
|
Total
|
|
149
|
|
|
$
|
384
|
|
|
As of
March 31, 2016
, Occidental’s environmental reserves exceeded
$10 million
each at 12 of the 149 sites described above, and 99 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 range of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites could be up to $370 million. The status of Occidental’s involvement with the sites and related significant assumptions has not changed materially since
December 31, 2015
. For additional information regarding environmental matters, refer to Note 7,
Lawsuits, Claims, Commitments and Contingencies
.
7. Lawsuits, Claims, Commitments and Contingencies
OPC 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. OPC 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 OPC 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 December 2014, a New Jersey state court approved Occidental’s settlement with the State of New Jersey (the State) to resolve claims asserted by the State against Occidental arising from Occidental’s acquisition of Diamond Shamrock Chemical Company (DSCC). During 2015, pursuant to the settlement agreement (State Settlement) Occidental paid the State $190 million. Under certain circumstances, Occidental agreed to perform or fund future
work on behalf of the State along a portion of the Passaic River. When Occidental acquired the stock of DSCC in 1986, Maxus Energy Corporation, a subsidiary of YPF S.A. (Maxus), retained liability for the Lister Avenue Plant, which is part of the Diamond Alkali Superfund Site, as well as other sites. Maxus is also obligated to indemnify Occidental for the State Settlement. Occidental is pursuing Maxus to recover the settlement costs. The State Settlement does not cover any potential Occidental share of costs associated with the EPA’s proposed clean-up plan of the Passaic River as set out in its Record of Decision, announced on March 4, 2016. Maxus is also responsible for federal clean-up or other costs associated with the Lister Avenue Plant and the Diamond Alkali Superfund Site.
Occidental accrues reserves for currently 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 March 31, 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 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.
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. Additionally, in December 2012, Occidental filed United States federal refund claims for tax years 2008 and 2009 which are subject to IRS 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.
OPC, 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 March 31, 2016, 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.
8. Retirement and Post-retirement Benefit Plans
The following tables set forth the components of the net periodic benefit costs for Occidental’s defined benefit pension and post-retirement benefit plans for the three months ended
March 31, 2016
and
2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
|
2016
|
|
2015
|
Net Periodic Benefit Costs
|
|
Pension Benefit
|
|
Post-retirement Benefit
|
|
Pension Benefit
|
|
Post-retirement Benefit
|
Service cost
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
7
|
|
Interest cost
|
|
4
|
|
|
10
|
|
|
5
|
|
|
10
|
|
Expected return on plan assets
|
|
(6
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
Recognized actuarial loss
|
|
3
|
|
|
5
|
|
|
2
|
|
|
7
|
|
Total
|
|
$
|
3
|
|
|
$
|
20
|
|
|
$
|
2
|
|
|
$
|
24
|
|
Occidental contributed approximately $1 million and $5 million to its defined benefit pension plans in the three months ended March 31, 2016 and
2015
, respectively.
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.
Fair Values — Recurring
Occidental primarily applies the market approach for recurring fair value measurements, maximizes its use of observable inputs and minimizes its use of unobservable inputs. Occidental utilizes the mid-point between bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value. In addition to using market data, Occidental makes assumptions in valuing its assets and liabilities, including assumptions about the risks inherent in the inputs to the valuation technique. For assets and liabilities carried at fair value, Occidental measures fair value using the following methods:
|
|
Ø
|
Occidental values exchange-cleared commodity derivatives using closing prices provided by the exchange as of the balance sheet date.
O
ccidental values its available for sale investment based on the common stock closing share price as of the balance sheet date. These derivatives and investments are classified as Level 1.
|
|
|
Ø
|
Over-the-Counter (OTC) bilateral financial commodity contracts, foreign exchange contracts, options and physical commodity forward purchase and sale contracts are generally classified as Level 2 and are generally valued using quotations provided by brokers or industry-standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility factors, credit risk and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, and can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace.
|
|
|
Ø
|
Occidental values commodity derivatives based on a market approach that considers various assumptions, including quoted forward commodity prices and market yield curves. The assumptions used include inputs that are generally unobservable in the marketplace, or are observable but have been adjusted based upon various assumptions and the fair value is designated as Level 3 within the valuation hierarchy.
|
Occidental generally uses an income approach to measure fair value when observable inputs are unavailable. This approach utilizes management’s judgments regarding expectations of projected cash flows, and discounts those cash flows using a risk adjusted discount rate.
The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of
March 31, 2016
and
December 31, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2016:
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and
Collateral
|
|
Total Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
492
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
45
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
525
|
|
|
$
|
386
|
|
|
$
|
—
|
|
|
$
|
(527
|
)
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015:
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and
Collateral
|
|
Total Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
557
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
(535
|
)
|
|
$
|
109
|
|
Available for sale investment
|
|
$
|
167
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
167
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
$
|
544
|
|
|
$
|
404
|
|
|
$
|
—
|
|
|
$
|
(525
|
)
|
|
$
|
423
|
|
Fair Values — Nonrecurring
During the three months ended March 31, 2016, Occidental did not have any assets or liabilities measured at fair value on a nonrecurring basis. The following table provides fair value measurement for such proved domestic and international oil and gas properties that are measured on a nonrecurring basis as of December 31, 2015. The impairment tests, including the fair value estimation, incorporated a number of assumptions involving expectations of future cash flows. These assumptions included estimates of future product prices, which Occidental based on forward price curves as of balance sheet date and, where applicable, contractual prices, estimates of oil and gas reserves, estimates of future expected operating and development costs and a risk adjusted discount rate of 8-20 percent. These properties were impacted by persistently low worldwide oil and natural gas prices and changing management's development plans. Occidental used the income approach to measure the fair value of these properties, using inputs categorized as Level 3 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Fair Value Measurements at December 31, 2015 Using
|
|
Net
Book Value
|
|
Total Pre-tax
(Non-cash) Impairment Loss
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(a)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Impaired proved oil and gas assets - international
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,666
|
|
|
$
|
7,359
|
|
|
$
|
4,693
|
|
Impaired proved oil and gas assets - domestic
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
625
|
|
|
$
|
1,655
|
|
|
$
|
1,030
|
|
Impaired Midstream assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
891
|
|
|
$
|
841
|
|
Impaired Chemical property, plant, and equipment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
124
|
|
|
$
|
121
|
|
(a) Amount represents net book value at date of assessment.
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
March 31, 2016
and
December 31, 2015
was $7.9 billion and $8.4 billion, respectively, and its carrying value net of unamortized discount as of March 31, 2016 and December 31, 2015 was $7.6 billion and $8.3 billion, respectively. The majority of Occidental's debt is classified as Level 1, with $97 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 March 31, 2016, Occidental had approximately 5 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 4 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 months ended
March 31, 2016
and
March 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
|
|
As of March 31, (in millions)
|
|
2016
|
|
2015
|
|
Unrealized losses on derivatives
|
|
$
|
(12
|
)
|
|
$
|
—
|
|
|
Reclassification to income of realized loss on derivatives
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Derivatives Not Designated as Hedging Instruments
The following table summarizes Occidental’s net volumes of outstanding commodity derivatives contracts not designated as hedging instruments, including both financial and physical derivative contracts as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
Net Outstanding Position
|
|
|
|
Long / (Short)
|
|
Commodity
|
|
2016
|
|
2015
|
|
Oil (million barrels)
|
|
152
|
|
|
83
|
|
|
Natural gas (billion cubic feet)
|
|
(84
|
)
|
|
(58
|
)
|
|
Carbon dioxide
(billion cubic feet)
|
|
587
|
|
|
603
|
|
|
The volumes in the table above exclude contracts tied to index prices, for which the fair value, if any, is minimal at any point in time. These excluded contracts do not expose Occidental to price risk because the contract prices fluctuate with index prices.
Occidental fulfills short positions through its own production or by third-party purchase contracts. Subsequent to
March 31, 2016
, Occidental entered into purchase contracts for a substantial portion of the short positions outstanding at quarter end and has sufficient production capacity and the ability to enter into additional purchase contracts to satisfy the remaining positions.
Approximately $13 million and $26 million of net losses from derivatives not designated as hedging instruments were recognized in net sales for the three months ended
March 31, 2016
and
2015
, respectively.
Fair Value of Derivatives
The following table presents the gross and net fair values of Occidental’s outstanding derivatives as of
March 31, 2016
and
December 31, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Fair
|
|
Liability Derivatives
|
|
Fair
|
March 31, 2016
|
|
Balance Sheet Location
|
|
Value
|
|
Balance Sheet Location
|
|
Value
|
Cash-flow hedges
(a)
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
Accrued liabilities
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(a)
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
535
|
|
|
Accrued liabilities
|
|
618
|
|
Long-term receivables and other assets, net
|
|
8
|
|
|
Deferred credits and other liabilities
|
|
293
|
|
|
|
|
|
543
|
|
|
|
|
911
|
|
Total gross fair value
|
|
|
|
543
|
|
|
|
|
912
|
|
Less: counterparty netting and cash collateral
(b,d)
|
|
|
|
(498
|
)
|
|
|
|
(527
|
)
|
Total net fair value of derivatives
|
|
|
|
$
|
45
|
|
|
|
|
$
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Fair
|
|
Liability Derivatives
|
|
Fair
|
December 31, 2015
|
|
Balance Sheet Location
|
|
Value
|
|
Balance Sheet Location
|
|
Value
|
Cash-flow hedges
(a)
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
$
|
9
|
|
|
Accrued liabilities
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(a)
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Other current assets
|
|
626
|
|
|
Accrued liabilities
|
|
672
|
|
Long-term receivables and other assets, net
|
|
9
|
|
|
Deferred credits and other liabilities
|
|
275
|
|
|
|
|
|
635
|
|
|
|
|
947
|
|
Total gross fair value
|
|
|
|
644
|
|
|
|
|
948
|
|
Less: counterparty netting and cash collateral
(c,d)
|
|
|
|
(535
|
)
|
|
|
|
(525
|
)
|
Total net fair value of derivatives
|
|
|
|
$
|
109
|
|
|
|
|
$
|
423
|
|
|
|
(a)
|
Fair values are presented at gross amounts, including when the derivatives are subject to master netting arrangements and presented on a net basis in the consolidated balance sheets.
|
|
|
(b)
|
As of
March 31, 2016
, collateral received of zero has been netted against the derivative assets and collateral paid of $29 million has been netted against derivative liabilities.
|
|
|
(c)
|
As of
December 31, 2015
, collateral received of $14 million has been netted against derivative assets and collateral paid of $4 million has been netted against derivative liabilities.
|
|
|
(d)
|
Select clearinghouses and brokers require Occidental to post an initial margin deposit. Collateral, mainly for initial margin, of $33 million and $3 million deposited by Occidental has not been reflected in these derivative fair value tables as of March 31, 2016 and December 31, 2015, respectively. This collateral is included in other current assets in the consolidated balance sheets as of
March 31, 2016
and
December 31, 2015
, respectively.
|
See Note 9,
Fair Value Measurements,
for fair value measurement disclosures on derivatives.
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 this credit risk by selecting counterparties that it believes to be financially strong, by entering into master netting arrangements with counterparties and by requiring collateral, as appropriate. Occidental actively reviews the creditworthiness of its counterparties and
monitors credit exposures against assigned credit limits by adjusting credit limits to reflect counterparty risk, if necessary. 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 OTC 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 March 31, 2016 and December 31, 2015.
11. Industry Segments
Occidental conducts its operations through
three
segments: (1) oil and gas; (2) chemical; and (3) midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (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.
Results of industry segments generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment and geographic area assets and income from the segments' equity investments. Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions.
The following tables present Occidental’s industry segments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
|
Midstream
|
|
Corporate
|
|
|
|
|
and
|
|
|
|
and
|
|
and
|
|
|
|
|
Gas
|
|
Chemical
|
|
Marketing
|
|
Eliminations
|
|
Total
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,275
|
|
|
$
|
890
|
|
|
$
|
133
|
|
|
$
|
(175
|
)
|
|
$
|
2,123
|
|
Pre-tax operating profit (loss)
|
|
$
|
(485
|
)
|
|
$
|
214
|
|
|
$
|
(95
|
)
|
|
$
|
(197
|
)
|
(a)
|
$
|
(563
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
203
|
|
(b)
|
203
|
|
Discontinued operations, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
438
|
|
|
438
|
|
Net income (loss)
|
|
$
|
(485
|
)
|
|
$
|
214
|
|
|
$
|
(95
|
)
|
|
$
|
444
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,009
|
|
|
$
|
1,000
|
|
|
$
|
197
|
|
|
$
|
(117
|
)
|
|
$
|
3,089
|
|
Pre-tax operating profit (loss)
|
|
$
|
(266
|
)
|
(c)
|
$
|
139
|
|
|
$
|
(15
|
)
|
|
$
|
(92
|
)
|
(a,c)
|
$
|
(234
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
(b)
|
19
|
|
Discontinued operations, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
Net income (loss)
|
|
$
|
(266
|
)
|
|
$
|
139
|
|
|
$
|
(15
|
)
|
|
$
|
(76
|
)
|
|
$
|
(218
|
)
|
(a) Includes unallocated net interest expense, administration expense, environmental remediation and other pre-tax items.
(b) Includes all foreign and domestic income taxes from continuing operations.
(c) Includes pre-tax charges of $310 million for the impairment of certain domestic and international oil and gas assets and other items, and $14 million of corporate other items.
12. Earnings Per Share
Occidental’s instruments containing rights to nonforfeitable dividends granted in stock-based awards are considered participating securities prior to vesting and, therefore, net income allocated to these participating securities has been deducted from earnings in computing basic and diluted EPS under the two-class method.
Basic EPS was computed by dividing net income attributable to common stock, net of income allocated to participating securities, by the weighted-average number of common shares outstanding during each period, net of treasury shares and including vested but unissued shares and share units. The computation of diluted EPS reflects the additional dilutive effect of stock options and unvested stock awards.
The following table presents the calculation of basic and diluted EPS for the
three
months ended
March 31, 2016
and
2015
(in millions, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Basic EPS
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(360
|
)
|
|
$
|
(215
|
)
|
|
Discontinued operations, net
|
|
438
|
|
|
(3
|
)
|
|
Net income (loss)
|
|
78
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
Less: Net income allocated to participating securities
|
|
—
|
|
|
—
|
|
|
Net income (loss), net of participating securities
|
|
78
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
Weighted average number of basic shares
|
|
763.4
|
|
|
769.6
|
|
|
Basic EPS
|
|
$
|
0.10
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
Net income (loss), net of participating securities
|
|
$
|
78
|
|
|
$
|
(218
|
)
|
|
Weighted average number of basic shares
|
|
763.4
|
|
|
769.6
|
|
|
Dilutive effect of potentially dilutive securities
|
|
—
|
|
|
—
|
|
|
Total diluted weighted average common shares
|
|
763.4
|
|
|
769.6
|
|
|
Diluted EPS
|
|
$
|
0.10
|
|
|
$
|
(0.28
|
)
|
|