filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| OXY 2019 FORM 10-K | 53 |
 | FINANCIAL STATEMENTS REPORT |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Occidental Petroleum Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Occidental Petroleum Corporation and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2019, and the related notes and financial statement schedule II - valuation and qualifying accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| 54 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS REPORT |
Evaluation of the environmental liability associated with the lower 8.3 miles of the Lower Passaic River site
As discussed in Notes 1 and 10 to the consolidated financial statements, the Company accrues a liability for estimated environmental remedial activities when it is probable a liability has been incurred and the amount of remediation costs can be estimated. As of December 31, 2019, the Company’s estimated environmental liabilities were $1.2 billion. The Company accrued a liability related to its estimated allocable share of the costs to perform the remedial activities required for the lower 8.3 miles of the Lower Passaic River site.
We identified the evaluation of the environmental liability associated with the lower 8.3 miles of the Lower Passaic River site as a critical audit matter. There was a high degree of subjective auditor judgment in applying and evaluating the results of our procedures. This is due to 1) possible changes to expected remedial activities to implement the proposed clean-up plan outlined in the Record of Decision (ROD) issued by the Environmental Protection Agency (EPA) and their estimated costs, and 2) possible changes to the Company’s estimated share of the remediation costs.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s environmental liability process to estimate the cost of remedial activities, and estimate the Company’s allocable share of the remediation costs. We evaluated the remedial activities and related cost assumptions used by the Company by comparing them against remedial activities and cost estimates provided by the EPA in the ROD. We compared certain design documentation provided by the Company to the EPA in order to identify potential differences between the design plan and the ROD and assessed the impact of any such differences on the remediation cost assumptions used by the Company to estimate the liability. We assessed the Company’s assumption for its allocable share of the remediation costs and analyzed publicly available data sources for information that might be contrary to the information used by the Company. We involved an environmental analysis professional with specialized skills and knowledge who assisted in reading correspondence between the Company and the EPA related to the design phase for this site to assess the Company’s remediation cost assumptions.
Assessment of the estimated proved oil and gas reserves on the determination of depreciation and depletion expense related to proved oil and gas properties
As discussed in Note 1 to the consolidated financial statements, the Company determines depreciation and depletion of oil and gas producing properties by the unit-of-production method. Under this method, capitalized costs are amortized over total estimated proved reserves. For the year ended December 31, 2019, the Company recorded depreciation and depletion expense related to proved oil and gas properties of $5.0 billion.
We identified the assessment of the estimated proved oil and gas reserves on the determination of depreciation and depletion expense related to proved oil and gas properties as a critical audit matter. Complex auditor judgment was required to evaluate the Company’s estimate of total proved oil and gas reserves, which is a key input for the determination of depreciation and depletion expense. Estimating total proved oil and gas reserves requires the expertise of professional petroleum reservoir engineers. The estimate of proved oil and gas reserves is dependent upon timing of future estimated production, operating and capital cost assumptions and oil and gas prices inclusive of market differentials.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s depreciation and depletion process, including the estimation of proved oil and gas reserves. We evaluated the competence, capabilities, and objectivity of the internal engineering and technical staff who estimated the proved oil and gas reserves and the independent reservoir engineering specialists engaged by the Company. We analyzed and assessed the determination of depreciation and depletion expense for compliance with industry and regulatory standards. We assessed compliance of the methodology used by the Company’s engineering and technical staff to estimate proved oil and gas reserves with industry and regulatory standards. We read the findings of the independent reservoir engineering specialist’s review of the methods and procedures used by the Company in estimating the proved reserves for compliance with industry and regulatory standards. We compared the timing of future estimated production assumptions used by the Company’s engineering and technical staff to historical production rates. We evaluated the operating and capital cost assumptions used by the Company’s engineering and technical staff by comparing them to historical costs. We assessed the oil and gas prices, including relevant market differentials, used by the Company’s engineering and technical staff by comparing them to publicly available prices, adjusted for historical market differentials.
| OXY 2019 FORM 10-K | 55 |
| FINANCIAL STATEMENTS REPORT |
Evaluation of the fair value measurement of oil and gas properties acquired in the Anadarko Petroleum Corporation business combination
As discussed in Note 3 to the consolidated financial statements, on August 8, 2019, the Company acquired Anadarko Petroleum Corporation (Anadarko) in a business combination. As a result of the transaction, the Company acquired both proved and unproved oil and gas properties. The acquisition-date fair value for the oil and gas properties was $46.5 billion.
We identified the evaluation of the initial fair value measurement of the oil and gas properties acquired in the Anadarko transaction as a critical audit matter. The Company used a combination of valuation methodologies in estimating the initial fair value of acquired oil and gas properties which included market based data from similar transactions and an income approach. There was a high degree of subjectivity in evaluating results of the market based transaction values and the discounted cash flow models used in the income approach. The evaluation of market based transactions included determining which market transactions were most relevant to the Company’s acquisition of Anadarko’s oil and gas properties. In addition, the income approach utilized risk adjusted discounted cash flow models, which included several significant assumptions. The following key assumptions were used in the discounted cash flow models: estimated future commodities prices, reserve category risk adjustment factors, estimated future production, estimated future operating and capital costs and discount rate. Changes to the assumptions used could have a significant effect on the determination of the acquisition date fair values.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date valuation process to develop and analyze the key assumptions, as listed above, used to measure the initial fair value of the acquired oil and gas properties. We compared acres utilized in the market analysis to historical Anadarko property records. We compared estimated future production to Anadarko’s historical actual production volumes. We evaluated the estimated future operating and capital cost assumptions by comparing them to Anadarko’s historical costs. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in: 1) evaluating the Company’s discount rate, by comparing it to a discount rate range that was independently developed using publicly available market data for comparable entities, 2) evaluating the reserve category risk adjustment factors used by the Company by comparing them to third party publications of risk adjustment factors utilized by market participants, 3) evaluating benchmark commodity prices used by the Company in estimating future commodity prices by comparing the benchmark prices utilized to publicly disclosed projected commodity prices 4) for oil and gas properties valued using the income approach, developing an estimate of the oil and gas properties’ fair value using the oil and gas properties’ cash flow assumptions and an independently developed discount rate, and compared to the Company’s fair value estimate and 5) evaluating the Company’s initial measurement of fair value by comparing the Company’s estimated fair values for onshore undeveloped properties to a range of indicated values of recent similar market transactions using publicly available market data.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Houston, Texas
February 27, 2020
| 56 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS REPORT |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Occidental Petroleum Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Occidental Petroleum Corporation and subsidiaries*’* (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule II - valuation and qualifying accounts (collectively, the consolidated financial statements), and our report dated February 27, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Assessment of and Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Houston, Texas
February 27, 2020
| OXY 2019 FORM 10-K | 57 |
 | FINANCIAL STATEMENTS |
| Consolidated Balance Sheets | Occidental Petroleum Corporation and Subsidiaries |
| December 31, | ||||||||
| millions | 2019 | 2018 | ||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 3,032 | $ | 3,033 | ||||
| Restricted cash and restricted cash equivalents | 480 | — | ||||||
| Trade receivables, net of reserves of $19 in 2019 and $21 in 2018 | 6,373 | 4,893 | ||||||
| Inventories | 1,447 | 1,260 | ||||||
| Assets held for sale | 6,026 | — | ||||||
| Other current assets | 1,323 | 746 | ||||||
| Total current assets | 18,681 | 9,932 | ||||||
| INVESTMENTS IN UNCONSOLIDATED ENTITIES | 6,389 | 1,680 | ||||||
| PROPERTY, PLANT AND EQUIPMENT | ||||||||
| Oil and gas segment | 105,881 | 58,799 | ||||||
| Chemical segment | 7,172 | 7,001 | ||||||
| Marketing and midstream segment | 8,176 | 8,070 | ||||||
| Corporate | 1,118 | 550 | ||||||
| 122,347 | 74,420 | |||||||
| Accumulated depreciation, depletion and amortization | (41,878 | ) | (42,983 | ) | ||||
| 80,469 | 31,437 | |||||||
| OPERATING LEASE ASSETS | 1,385 | — | ||||||
| LONG-TERM RECEIVABLES AND OTHER ASSETS, NET | 2,406 | 805 | ||||||
| TOTAL ASSETS | $ | 109,330 | $ | 43,854 |
The accompanying notes are an integral part of these consolidated financial statements.
| 58 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS |
| Consolidated Balance Sheets | Occidental Petroleum Corporation and Subsidiaries |
| December 31, | ||||||||
| millions except share and per-share amounts | 2019 | 2018 | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Current maturities of long-term debt | $ | 51 | $ | 116 | ||||
| Current operating lease liabilities | 569 | — | ||||||
| Accounts payable | 7,017 | 4,885 | ||||||
| Accrued liabilities | 5,302 | 2,411 | ||||||
| Liabilities of assets held for sale | 2,010 | — | ||||||
| Total current liabilities | 14,949 | 7,412 | ||||||
| LONG-TERM DEBT, NET | ||||||||
| Long-term debt, net | 38,537 | 10,201 | ||||||
| DEFERRED CREDITS AND OTHER LIABILITIES | ||||||||
| Deferred income taxes, net | 9,717 | 907 | ||||||
| Asset retirement obligations | 4,385 | 1,424 | ||||||
| Pension and postretirement obligations | 1,807 | 809 | ||||||
| Environmental remediation liabilities | 1,035 | 762 | ||||||
| Operating lease liabilities | 854 | — | ||||||
| Other | 3,814 | 1,009 | ||||||
| 21,612 | 4,911 | |||||||
| EQUITY | ||||||||
| Preferred stock, at $1.00 per share par value (100,000 shares at December 31, 2019) | 9,762 | — | ||||||
| Common stock, $0.20 per share par value, authorized shares: 1.1 billion, issued shares: 2019 — 1,044,434,893 and 2018 — 895,115,637 | 209 | 179 | ||||||
| Treasury stock: 2019 — 150,323,151 shares and 2018 — 145,726,051 shares | (10,653 | ) | (10,473 | ) | ||||
| Additional paid-in capital | 14,955 | 8,046 | ||||||
| Retained earnings | 20,180 | 23,750 | ||||||
| Accumulated other comprehensive loss | (221 | ) | (172 | ) | ||||
| Total stockholders’ equity | 34,232 | 21,330 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS**’** EQUITY | $ | 109,330 | $ | 43,854 |
The accompanying notes are an integral part of these consolidated financial statements.
| OXY 2019 FORM 10-K | 59 |
| FINANCIAL STATEMENTS |
| Consolidated Statements of Operations | Occidental Petroleum Corporation and Subsidiaries |
| Years Ended December 31, | ||||||||||||
| millions except per-share amounts | 2019 | 2018 | 2017 | |||||||||
| REVENUES AND OTHER INCOME | ||||||||||||
| Net sales | $ | 20,393 | $ | 17,824 | $ | 12,508 | ||||||
| Interest, dividends and other income | 217 | 136 | 99 | |||||||||
| Gains on sale of equity investments and other assets, net | 622 | 974 | 667 | |||||||||
| Total | 21,232 | 18,934 | 13,274 | |||||||||
| COSTS AND OTHER DEDUCTIONS | ||||||||||||
| Oil and gas operating expense | 3,246 | 2,761 | 2,427 | |||||||||
| Transportation expense | 621 | 152 | 175 | |||||||||
| Chemical and midstream cost of sales | 2,791 | 2,833 | 2,938 | |||||||||
| Purchased commodities | 1,679 | 822 | 54 | |||||||||
| Selling, general and administrative | 882 | 585 | 546 | |||||||||
| Other operating and non-operating expense | 1,425 | 1,028 | 878 | |||||||||
| Depreciation, depletion and amortization | 5,981 | 3,977 | 4,002 | |||||||||
| Asset impairments and other charges | 1,361 | 561 | 545 | |||||||||
| Taxes other than on income | 707 | 439 | 311 | |||||||||
| Anadarko acquisition-related costs | 1,647 | — | — | |||||||||
| Exploration expense | 246 | 110 | 82 | |||||||||
| Interest and debt expense, net | 1,066 | 389 | 345 | |||||||||
| Total | 21,652 | 13,657 | 12,303 | |||||||||
| Income (loss) before income taxes and other items | (420 | ) | 5,277 | 971 | ||||||||
| OTHER ITEMS | ||||||||||||
| Gains on interest rate swaps and warrants, net | 233 | — | — | |||||||||
| Income from equity investments | 373 | 331 | 357 | |||||||||
| Total | 606 | 331 | 357 | |||||||||
| Income from continuing operations before income taxes | 186 | 5,608 | 1,328 | |||||||||
| Income tax expense | (693 | ) | (1,477 | ) | (17 | ) | ||||||
| Income (loss) from continuing operations | (507 | ) | 4,131 | 1,311 | ||||||||
| Loss from discontinued operations, net of tax | (15 | ) | — | — | ||||||||
| NET INCOME (LOSS) | (522 | ) | 4,131 | 1,311 | ||||||||
| Less: Net income attributable to noncontrolling interest | (145 | ) | — | — | ||||||||
| Less: Preferred stock dividends | (318 | ) | — | — | ||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (985 | ) | $ | 4,131 | $ | 1,311 | |||||
| PER COMMON SHARE | ||||||||||||
| Income (loss) from continuing operations—basic | $ | (1.20 | ) | $ | 5.40 | $ | 1.71 | |||||
| (Loss) from discontinued operations—basic | (0.02 | ) | — | — | ||||||||
| Net income (loss) attributable to common stockholders—basic | $ | (1.22 | ) | $ | 5.40 | $ | 1.71 | |||||
| Income (loss) from continuing operations—diluted | $ | (1.20 | ) | $ | 5.39 | $ | 1.70 | |||||
| (Loss) from discontinued operations—diluted | (0.02 | ) | — | — | ||||||||
| Net income (loss) attributable to common stockholders—diluted | $ | (1.22 | ) | $ | 5.39 | $ | 1.70 | |||||
| DIVIDENDS PER COMMON SHARE | $ | 3.14 | $ | 3.10 | $ | 3.06 |
The accompanying notes are an integral part of these consolidated financial statements.
| 60 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS |
| Consolidated Statements of Comprehensive Income | Occidental Petroleum Corporation and Subsidiaries |
| Years Ended December 31, | ||||||||||||
| millions | 2019 | 2018 | 2017 | |||||||||
| Net income (loss) | $ | (522 | ) | $ | 4,131 | $ | 1,311 | |||||
| Other comprehensive income (loss) items: | ||||||||||||
| Foreign currency translation gains | — | — | 3 | |||||||||
| Unrealized gains (losses) on derivatives (a) | (129 | ) | (6 | ) | 13 | |||||||
| Pension and postretirement gains (losses) (b) | 78 | 137 | (7 | ) | ||||||||
| Reclassification of realized losses (gains) on derivatives (c) | 2 | 13 | (1 | ) | ||||||||
| Other comprehensive income (loss), net of tax | (49 | ) | 144 | 8 | ||||||||
| Comprehensive income (loss) | (571 | ) | 4,275 | 1,319 | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (145 | ) | — | — | ||||||||
| Comprehensive income (loss) attributable to preferred and common stockholders | $ | (716 | ) | $ | 4,275 | $ | 1,319 |
| (a) | Net of tax of $36, $2 and $(7) in 2019, 2018 and 2017, respectively. |
| (b) | Net of tax of $(25), $(38) and $4 in 2019, 2018 and 2017, respectively. See Note 15 - Retirement and Postretirement Benefit Plans in the Notes to Consolidated Financial Statements for additional information. |
| (c) | Net of tax of $0, $(4) and $0 in 2019, 2018 and 2017, respectively. |
The accompanying notes are an integral part of these consolidated financial statements.
| OXY 2019 FORM 10-K | 61 |
| FINANCIAL STATEMENTS |
| Consolidated Statements of Stockholders’ Equity | Occidental Petroleum Corporation and Subsidiaries |
| Equity Attributable to Common Stock | ||||||||||||||||||||||||||||||||
| millions, except per share amounts | Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||
| Balance, December 31, 2016 | $ | — | $ | 178 | $ | (9,143 | ) | $ | 7,747 | $ | 22,981 | $ | (266 | ) | $ | — | $ | 21,497 | ||||||||||||||
| Net income | — | — | — | — | 1,311 | — | — | 1,311 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | 8 | — | 8 | ||||||||||||||||||||||||
| Dividends on common stock, $3.06 per share | — | — | — | — | (2,357 | ) | — | — | (2,357 | ) | ||||||||||||||||||||||
| Issuance of common stock and other, net | — | 1 | — | 137 | — | — | — | 138 | ||||||||||||||||||||||||
| Purchases of treasury stock | — | — | (25 | ) | — | — | — | — | (25 | ) | ||||||||||||||||||||||
| Balance, December 31, 2017 | $ | — | $ | 179 | $ | (9,168 | ) | $ | 7,884 | $ | 21,935 | $ | (258 | ) | $ | — | $ | 20,572 | ||||||||||||||
| Net income | — | — | — | — | 4,131 | — | — | 4,131 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | 144 | — | 144 | ||||||||||||||||||||||||
| Dividends on common stock, $3.10 per share | — | — | — | — | (2,374 | ) | — | — | (2,374 | ) | ||||||||||||||||||||||
| Issuance of common stock and other, net | — | — | — | 162 | — | — | — | 162 | ||||||||||||||||||||||||
| Purchases of treasury stock | — | — | (1,305 | ) | — | — | — | — | (1,305 | ) | ||||||||||||||||||||||
| Reclassification of stranded tax effects (See Note 2) | — | — | — | — | 58 | (58 | ) | — | — | |||||||||||||||||||||||
| Balance, December 31, 2018 | $ | — | $ | 179 | $ | (10,473 | ) | $ | 8,046 | $ | 23,750 | $ | (172 | ) | $ | — | $ | 21,330 | ||||||||||||||
| Net income (loss) | — | — | — | — | (667 | ) | — | 145 | (522 | ) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (49 | ) | — | (49 | ) | ||||||||||||||||||||||
| Dividends on common stock, $3.14 per share | — | — | — | — | (2,585 | ) | — | — | (2,585 | ) | ||||||||||||||||||||||
| Dividends on preferred stock, $3,489 per share | — | — | — | — | (318 | ) | — | — | (318 | ) | ||||||||||||||||||||||
| Issuance of common stock, net | — | 30 | — | 6,909 | — | — | — | 6,939 | ||||||||||||||||||||||||
| Issuance of preferred stock | 9,762 | — | — | — | — | — | — | 9,762 | ||||||||||||||||||||||||
| Purchases of treasury stock | — | — | (180 | ) | — | — | — | — | (180 | ) | ||||||||||||||||||||||
| Fair value of noncontrolling interest acquired | — | — | — | — | — | — | 4,895 | 4,895 | ||||||||||||||||||||||||
| Noncontrolling interest distributions, net | — | — | — | — | — | — | (131 | ) | (131 | ) | ||||||||||||||||||||||
| Change in control WES | — | — | — | — | — | — | (4,909 | ) | (4,909 | ) | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 9,762 | $ | 209 | $ | (10,653 | ) | $ | 14,955 | $ | 20,180 | $ | (221 | ) | $ | — | $ | 34,232 |
The accompanying notes are an integral part of these consolidated financial statements.
| 62 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS |
| Consolidated Statements of Cash Flows | Occidental Petroleum Corporation and Subsidiaries |
| Years Ended December 31, | |||||||||||
| millions | 2019 | 2018 | 2017 | ||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | $ | (522 | ) | $ | 4,131 | $ | 1,311 | ||||
| Adjustments to reconcile net income (loss) to net cash from operating activities: | |||||||||||
| Discontinued operations, net | 15 | — | — | ||||||||
| Depreciation, depletion and amortization of assets | 5,981 | 3,977 | 4,002 | ||||||||
| Deferred income tax (benefit) provision | (1,027 | ) | 371 | (719 | ) | ||||||
| Other noncash charges to income | 940 | 34 | 219 | ||||||||
| Asset impairments and other charges | 1,328 | 561 | 545 | ||||||||
| Gain on sales of equity investments and other assets, net | (622 | ) | (974 | ) | (667 | ) | |||||
| Undistributed earnings from affiliates | (50 | ) | (43 | ) | (68 | ) | |||||
| Dry hole expense | 89 | 56 | 51 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in receivables | (44 | ) | (740 | ) | (158 | ) | |||||
| Decrease (increase) in inventories | 77 | (108 | ) | (349 | ) | ||||||
| Decrease in other current assets | 186 | 94 | 39 | ||||||||
| (Decrease) increase in accounts payable and accrued liabilities | 793 | 195 | (89 | ) | |||||||
| Increase in current domestic and foreign income taxes | 59 | 38 | 64 | ||||||||
| Other operating, net | — | 77 | 680 | ||||||||
| Operating cash flow from continuing operations | 7,203 | 7,669 | 4,861 | ||||||||
| Operating cash flow from discontinued operations, net of taxes | 172 | — | — | ||||||||
| Net cash provided by operating activities | 7,375 | 7,669 | 4,861 | ||||||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | (6,355 | ) | (4,975 | ) | (3,599 | ) | |||||
| Change in capital accrual | (282 | ) | 55 | 122 | |||||||
| Purchase of businesses and assets, net | (28,088 | ) | (928 | ) | (1,064 | ) | |||||
| Proceeds from sale of assets and equity investments, net | 6,143 | 2,824 | 1,403 | ||||||||
| Equity investments and other, net | (291 | ) | (182 | ) | 59 | ||||||
| Investing cash flow from continuing operations | (28,873 | ) | (3,206 | ) | (3,079 | ) | |||||
| Investing cash flow from discontinued operations | (154 | ) | — | — | |||||||
| Net cash used by investing activities | (29,027 | ) | (3,206 | ) | (3,079 | ) | |||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from long-term debt, net - Occidental | 21,557 | 978 | — | ||||||||
| Payments of long-term debt, net - Occidental | (6,959 | ) | (500 | ) | — | ||||||
| Proceeds from long-term debt, net - WES | 1,459 | — | — | ||||||||
| Payments of long-term debt, net - WES | (1,000 | ) | — | — | |||||||
| Proceeds from issuance of common and preferred stock | 10,028 | 33 | 28 | ||||||||
| Purchases of treasury stock | (237 | ) | (1,248 | ) | (25 | ) | |||||
| Cash dividends paid | (2,624 | ) | (2,374 | ) | (2,346 | ) | |||||
| Distributions to noncontrolling interest | (257 | ) | — | — | |||||||
| Other financing, net | 229 | 9 | — | ||||||||
| Financing cash flow from continuing operations | 22,196 | (3,102 | ) | (2,343 | ) | ||||||
| Financing cash flow from discontinued operations | (3 | ) | — | — | |||||||
| Net cash provided (used) by financing activities | 22,193 | (3,102 | ) | (2,343 | ) | ||||||
| Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | 541 | 1,361 | (561 | ) | |||||||
| Cash and cash equivalents — beginning of year | 3,033 | 1,672 | 2,233 | ||||||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents — end of year | $ | 3,574 | $ | 3,033 | $ | 1,672 |
The accompanying notes are an integral part of these consolidated financial statements.
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| FINANCIAL STATEMENTS FOOTNOTES |
| Notes to Consolidated Financial Statements | Occidental Petroleum Corporation and Subsidiaries |
| NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NATURE OF OPERATIONS
In this report, “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 conducts its operations through various subsidiaries and affiliates. On August 8, 2019, pursuant to the Agreement and Plan of Merger, dated as of May 9, 2019 (the Merger Agreement), among Occidental, Baseball Merger Sub 1, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of Occidental (Merger Subsidiary), and Anadarko Petroleum Corporation (Anadarko), Occidental acquired all of the outstanding shares of Anadarko through a transaction in which Merger Subsidiary merged with and into Anadarko (the Acquisition), with Anadarko continuing as the surviving entity and as an indirect, wholly owned subsidiary of Occidental. See Note 3 - The Acquisition.
Occidental’s principal businesses consist of three reporting segments: oil and gas, chemical and marketing and midstream. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The marketing and midstream segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity, and invests in entities that conduct similar activities. Included in the marketing and midstream segment is Occidental’s equity method investment in Western Midstream Partners, L.P. (WES). WES owns gathering systems, plants and pipelines and earns revenue from fee-based and service-based contracts with Occidental and third parties. Also within the marketing and midstream segment is Oxy Low Carbon Ventures (OLCV). OLCV seeks to capitalize on Occidental’s enhanced oil recovery (EOR) leadership by developing carbon capture, utilization and storage projects that source anthropogenic CO2 and promote innovative technologies that drive cost efficiencies and economically grow Occidental’s business while reducing emissions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in conformity with United States Generally Accepted Accounting Principles (GAAP) and include the accounts of OPC, its subsidiaries, variable interest entities (VIE) for which Occidental is the primary beneficiary, and its undivided interests in oil and gas exploration and production ventures. Occidental accounts for its share of oil and gas exploration and production ventures, in which it has a direct working interest, by reporting its proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets, statements of operations and statements of cash flows.
The Acquisition introduced different revenue and expense streams to Occidental’s legacy operations. As a result, changes were made to the structure of certain financial statements, notes and supplementary data to provide clarity and to conform to the current presentation.
WES INVESTMENT
WES is a publicly traded limited partnership with its common units traded on the New York Stock Exchange (NYSE) under the ticker symbol “WES.” WES owns the entire non-economic general partner interest and a 98% limited partner interest in Western Midstream Operating, LP (WES Operating), a Delaware limited partnership formed by Anadarko in 2007 to acquire, own, develop and operate midstream assets. WES maintains its own capital structure that is separate from Occidental, consisting of its own debt instruments and publicly traded common units.
From the Acquisition date through December 31, 2019, WES was determined to be a VIE, and Occidental, through its ownership of the general partner interest in WES, had the power to direct the activities that significantly affected the economic performance of WES and the obligation to absorb losses or the right to receive benefits that could be significant to WES. As such, Occidental was considered the primary beneficiary and consolidated WES and its consolidated subsidiaries from the date of the Acquisition to December 31, 2019. All intercompany transactions were eliminated during the consolidated period. Revenues of $1.1 billion, cost of sales of $500 million and operating cash flows of $498 million from the date of the Acquisition to December 31, 2019 are attributable to WES and are included in Occidental’s consolidated financial statements. Net income from noncontrolling interest for the same period relates to the 44.6% limited partner interest of WES owned by the public.
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| FINANCIAL STATEMENTS FOOTNOTES |
On December 31, 2019, Occidental and WES executed several agreements to allow WES to operate as an independent midstream company to support its ongoing pursuit of third-party growth opportunities. The executed agreements include amendments to the partnership agreement that significantly expand the unaffiliated limited partner unitholders’ rights. The significant amendments to the partnership agreement included:
Ø Providing for a simple majority of the unaffiliated unitholders to remove and elect a new general partner;
Ø Allowing for 20% of the unaffiliated unitholders to call a special meeting to vote to remove the general partner;
Ø Eliminating ownership thresholds that could have prevented unaffiliated unitholders from voting;
Ø Limiting Occidental’s voting percentage to 45% for certain unitholder matters until Occidental owns less than 40% of the limited partner units for twelve consecutive months; and
Ø Transferring 2% of Occidental’s limited partner interest to the general partner to provide a 2% economic interest to the general partner.
In addition to the partnership agreement amendments, in December 2019, the WES management team’s employment was transferred from Occidental to WES, and WES-dedicated personnel were seconded to WES from Occidental. The seconded employees’ employment is contractually obligated to be transferred to WES during 2020 once employee benefit plans are established. Additionally, as of December 31, 2019, Occidental employees no longer comprise a majority of the board of directors of WES’s general partner.
As a result of the partnership agreement amendments and other related agreements, WES no longer met the criteria to be considered a VIE. Accordingly, Occidental evaluated WES under the voting interest model and determined, because Occidental did not control the power to appoint or remove a successor general partner, it should no longer consolidate WES.
As a result of the loss of control, Occidental derecognized all assets, liabilities, and noncontrolling interest that were previously consolidated. Occidental recognized, at fair value, an equity method investment of $5.1 billion based on the closing market price of WES as of December 31, 2019 and recognized a loss of approximately $1 billion that is included in asset impairments and other charges on the Statement of Operations. In future periods, Occidental will recognize equity method earnings and dividends received for its economic interest in WES.
As of December 31, 2019, Occidental has a 55.4% unit ownership in WES, which consists of a 2% non-voting general partner unit interest and 54.5% of limited partner unit interest. In addition, Occidental has a 2% non-voting limited partner interest in WES Operating, which brings Occidental’s total effective economic interest in WES and its subsidiaries to 56.3%. During 2020, Occidental intends to reduce its limited partner ownership interest in WES to below 50%. Occidental’s historical pro rata interest in the net assets of WES was $1.9 billion, resulting in a basis difference of $3.2 billion primarily associated with WES’s equity method investments, PP&E, equity method goodwill and intangible assets - customer relationships and subject to amortization over their estimated average useful life.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
Occidental’s percentage interest in the underlying net assets of affiliates for which it exercises significant influence without having a controlling interest (excluding oil and gas ventures in which Occidental holds an undivided interest) are accounted for under the equity method. Occidental reviews equity-method investments for impairment whenever events or changes in circumstances indicate that an other-than-temporary decline in value may have occurred. The amount of impairment, if any, is based on quoted market prices, when available, or other valuation techniques, including discounted cash flows.
DISCONTINUED OPERATIONS
In connection with the Acquisition, Occidental agreed to sell to TOTAL S.A. (Total) all of the assets, liabilities, businesses, and operations of Anadarko’s operations in Algeria, Ghana, Mozambique and South Africa (collectively, the Africa Assets) for $8.8 billion, subject to certain purchase price adjustments. In August 2019, a purchase and sale agreement was executed for these Africa Assets. This transaction is conditioned on the receipt of required regulatory approvals, as well as other customary closing conditions. In September 2019, Occidental completed the sale of Mozambique LNG assets to Total for $4.2 billion. The assets and liabilities for Algeria, Ghana and South Africa are presented as held for sale at December 31, 2019. The results of operations of the Africa Assets are presented as discontinued operations, see Note 4 - Acquisitions, Dispositions and Other Transactions. In January 2020, Occidental completed the sale of South Africa assets to Total.
Unless otherwise indicated, information presented in the Notes to the Consolidated Financial Statements relates only to Occidental’s continuing operations. Information related to discontinued operations is included in Note 4 - Acquisitions, Dispositions and Other Transactions, and in some instances, where appropriate, is included as a separate disclosure within the individual Notes to the Consolidated Financial Statements.
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| FINANCIAL STATEMENTS FOOTNOTES |
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity with GAAP requires Occidental’s management to make informed estimates and judgments regarding certain types of financial statement balances and disclosures. Such estimates primarily relate to unsettled transactions and events as of the date of the consolidated financial statements and judgments on expected outcomes as well as the materiality of transactions and balances. Changes in facts and circumstances or discovery of new information relating to such transactions and events may result in revised estimates and judgments and actual results may differ from estimates upon settlement. Management believes that these estimates and judgments provide a reasonable basis for the fair presentation of Occidental’s financial statements. Occidental establishes a valuation allowance against net operating losses and other deferred tax assets to the extent it believes the future benefit from these assets will not be realized in the statutory carryforward periods. Realization of deferred tax assets is dependent upon Occidental generating sufficient future taxable income and reversal of temporary differences in jurisdictions where such assets originate.
The accompanying consolidated financial statements include assets of approximately $14.9 billion as of December 31, 2019, and net sales of approximately $4.6 billion for the year ended December 31, 2019, relating to Occidental’s operations in countries outside North America. Occidental operates some of its oil and gas business in countries that have experienced political instability, nationalizations, corruption, armed conflict, terrorism, insurgency, civil unrest, security problems, labor unrest, OPEC production restrictions, equipment import restrictions and sanctions, all of which increase Occidental’s risk of loss, delayed or restricted production or may result in other adverse consequences. Occidental attempts to conduct its affairs so as to mitigate its exposure to such risks and would seek compensation in the event of nationalization.
Because Occidental’s major products are commodities, significant changes in the prices of oil and gas and chemical products may have a significant impact on Occidental’s results of operations. Also, see “Property, Plant and Equipment” below.
CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS
Occidental considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents or restricted cash equivalents. The cash equivalents and restricted cash equivalents balance at December 31, 2019, included investments in government money market funds in which the carrying value approximates fair value.
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as reported at the end of the period in the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2019 to the line items within the Consolidated Balance Sheet at December 31, 2019. There was no restricted cash or restricted cash equivalents at December 31, 2018.
| millions | December 31, 2019 | |||
| Cash and cash equivalents | $ | 3,032 | ||
| Restricted cash and restricted cash equivalents | 480 | |||
| Cash and restricted cash included in assets held for sale | 8 | |||
| Restricted cash and restricted cash equivalents included in long-term receivables and other assets, net | 54 | |||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 3,574 |
Total restricted cash and restricted cash equivalents are primarily associated with a benefits trust for former Anadarko employees, payments of future hard-minerals royalties conveyed, and a judicially-controlled account related to a Brazilian tax dispute.
RECEIVABLES AND OTHER CURRENT ASSETS
Trade receivables, net, of $6.4 billion and $4.9 billion at December 31, 2019, and 2018, respectively, represent rights to payment for which Occidental has satisfied its obligations under a contract with a customer and its right to payment is conditioned only on the passage of time.
Other current assets included amounts receivable from working interest partners in Occidental’s oil and gas operations, derivative assets, and taxes receivable.
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| FINANCIAL STATEMENTS FOOTNOTES |
INVENTORIES
Materials and supplies are valued at weighted-average cost and are reviewed periodically for obsolescence. Oil, NGL and natural gas inventories are valued at the lower of cost or market.
For the chemical segment, Occidental’s finished goods inventories are valued at the lower of cost or market. For most of its domestic inventories, other than materials and supplies, the chemical segment uses the last-in, first-out (LIFO) method as it better matches current costs and current revenue. For other countries, Occidental uses the first-in, first-out method (if the costs of goods are specifically identifiable) or the average-cost method (if the costs of goods are not specifically identifiable).
PROPERTY, PLANT AND EQUIPMENT
OIL AND GAS
The carrying value of Occidental’s property, plant and equipment (PP&E) represents the cost incurred to acquire or develop the asset, including any asset retirement obligations and capitalized interest, net of accumulated depreciation, depletion and amortization (DD&A) and any impairment charges. For assets acquired, PP&E cost is based on fair values at the acquisition date. Asset retirement obligations and interest costs incurred in connection with qualifying capital expenditures are capitalized and amortized over the lives of the related assets.
Occidental uses the successful efforts method to account for its oil and gas properties. Under this method, Occidental capitalizes costs of acquiring properties, costs of drilling successful exploration wells and development costs. The costs of exploratory wells are initially capitalized pending a determination of whether proved reserves have been found. If proved reserves have been found, the costs of exploratory wells remain capitalized. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory drilling costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. At the end of each quarter, management reviews the status of all suspended exploratory drilling costs in light of ongoing exploration activities, in particular, whether Occidental is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, analyzing whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.
The following table summarizes the activity of capitalized exploratory well costs for continuing operations for the years ended December 31:
| millions | 2019 | 2018 | 2017 | |||||||||
| Balance — beginning of year | $ | 112 | $ | 108 | $ | 56 | ||||||
| Exploratory well costs acquired through the Acquisition | 231 | — | — | |||||||||
| Additions to capitalized exploratory well costs pending the determination of proved reserves | 383 | 220 | 201 | |||||||||
| Reclassifications to property, plant and equipment based on the determination of proved reserves | (230 | ) | (198 | ) | (128 | ) | ||||||
| Capitalized exploratory well costs charged to expense | (72 | ) | (18 | ) | (21 | ) | ||||||
| Balance — end of year | $ | 424 | $ | 112 | $ | 108 |
Occidental expenses annual lease rentals, the costs of injectants used in production and geological, geophysical and seismic costs as incurred.
Occidental determines depreciation and depletion of oil and gas producing properties by the unit-of-production method. It amortizes leasehold costs over total proved reserves, and capitalized development and successful exploration costs over proved developed reserves.
Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible-from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations-prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
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| FINANCIAL STATEMENTS FOOTNOTES |
Occidental performs impairment tests with respect to its proved properties whenever events or circumstances indicate that the carrying value of property may not be recoverable. If there is an indication the carrying amount of the asset may not be recovered due to prolonged declines in current and forward prices, significant changes in reserve estimates, changes in management’s plans, or other significant events, management will evaluate the property for impairment. Under the successful efforts method, if the sum of the undiscounted cash flows is less than the carrying value of the proved property, the carrying value is reduced to estimated fair value and reported as an impairment charge in the period. Individual proved properties are grouped for impairment purposes at the lowest level for which there are identifiable cash flows. The fair value of impaired assets is typically determined based on the present value of expected future cash flows using discount rates believed to be consistent with those used by market participants. The impairment test incorporates a number of assumptions involving expectations of future cash flows which can change significantly over time. These assumptions include future production and timing of production, estimates of future product prices, contractual prices, estimates of risk-adjusted oil and gas reserves and estimates of future operating and development costs. See Note 17 - Fair Value Measurements and below for further discussion of asset impairments.
A portion of the carrying value of Occidental’s oil and gas properties is attributable to unproved properties. Net capitalized costs attributable to unproved properties were $29.5 billion at December 31, 2019 and $1.0 billion December 31, 2018. The unproved amounts are not subject to DD&A until they are classified as proved properties. Individually insignificant unproved properties are combined and amortized on a group basis based on factors such as lease terms, success rates, and other factors. If the exploration efforts are unsuccessful, or management decides not to pursue development of these properties as a result of lower commodity prices, higher development and operating costs, contractual conditions or other factors, the capitalized costs of the related properties would be expensed. The timing of any writedowns of these unproved properties, if warranted, depends upon management’s plans, the nature, timing and extent of future exploration and development activities and their results. Occidental periodically reviews unproved properties for impairments; numerous factors are considered, including but not limited to, current exploration plans, favorable or unfavorable exploration activity on the property or the adjacent property, geologists’ evaluation of the property and the remaining lease term for the property. Management’s assessment of the availability of funds for future activities and the current and projected political and regulatory climate in areas in which Occidental operates also impacts the timing of any impairment.
CHEMICAL
Occidental’s chemical assets are depreciated using either the unit-of-production or the straight-line method, based upon the estimated useful lives of the facilities. The estimated useful lives of Occidental’s chemical assets, which range from three years to 50 years, are also used for impairment tests. The estimated useful lives for the chemical facilities are based on the assumption that Occidental will provide an appropriate level of annual expenditures to ensure productive capacity is sustained. Such expenditures consist of ongoing routine repairs and maintenance, as well as planned major maintenance activities (PMMA). Ongoing routine repairs and maintenance expenditures are expensed as incurred. PMMA costs are capitalized and amortized over the period until the next planned overhaul. Additionally, Occidental incurs capital expenditures that extend the remaining useful lives of existing assets, increase their capacity or operating efficiency beyond the original specification or add value through modification for a different use. These capital expenditures are not considered in the initial determination of the useful lives of these assets at the time they are placed into service. The resulting revision, if any, of the asset’s estimated useful life is measured and accounted for prospectively.
Without these continued expenditures, the useful lives of these assets could decrease significantly. Other factors that could change the estimated useful lives of Occidental’s chemical assets include sustained higher or lower product prices, which are affected by domestic and international competition, demand, feedstock costs, energy prices, environmental regulations and technological changes.
Occidental performs impairment tests on its chemical assets whenever events or changes in circumstances lead to a reduction in the estimated useful lives or estimated future cash flows that would indicate that the carrying amount may not be recoverable, or when management’s plans change with respect to those assets. Any impairment loss would be calculated as the excess of the asset’s net book value over its estimated fair value.
MARKETING AND MIDSTREAM
Occidental’s marketing and midstream PP&E is depreciated over the estimated useful lives of the assets, using either the unit-of-production or straight-line method.
Occidental performs impairment tests on its marketing and midstream assets whenever events or changes in circumstances lead to a reduction in the estimated useful lives or estimated future cash flows that would indicate that the carrying amount may not be recoverable, or when management’s plans change with respect to those assets. Any impairment loss would be calculated as the excess of the asset’s net book value over its estimated fair value.
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| FINANCIAL STATEMENTS FOOTNOTES |
GOODWILL
Occidental recognized goodwill of $5.8 billion associated with the Acquisition. The goodwill was based on WES’s publicly traded units and was primarily associated with the relationship between Occidental and WES as well as Occidental’s tax basis in WES. Upon loss of control and application of the equity method of accounting, $4.6 billion of goodwill was derecognized. The remaining $1.2 billion in goodwill is assigned to the marketing and midstream segment and is attributable to the deferred tax liability associated with the investment in WES.
Goodwill is subject to annual impairment testing every October. Occidental’s goodwill impairment test first assesses qualitative factors to determine whether goodwill is likely impaired. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill, Occidental will then perform a quantitative goodwill impairment test. Changes in goodwill may result from, among other things, impairments, future acquisitions, or future divestitures.
IMPAIRMENTS AND OTHER CHARGES
During 2019, Occidental’s Oil and Gas segment recognized pre-tax impairment and related charges of $285 million related to domestic undeveloped leases that were set to expire in the near term, where Occidental had no plans to pursue exploration activities, and $39 million related to Occidental’s mutually agreed early termination of its Qatar Idd El Shargi South Dome (ISSD) contract.
During 2018, Occidental recognized pre-tax impairment and related charges of $416 million related to Qatar Idd El Shargi North Dome (ISND) and ISSD proved properties and inventory. The fair value of the proved properties was measured based on the income approach, which 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, estimates of oil and gas reserves, estimates of future expected operating and capital costs and a risk-adjusted discount rate of 10%. These inputs are categorized as Level 3 in the fair-value hierarchy.
Also in 2018, the marketing and midstream segment incurred approximately $100 million of charges primarily for lower of cost or market adjustments on its crude inventory and line fill.
In 2017, Occidental recorded net impairment and related charges of $397 million related to proved and unproved non-core Permian acreage and $120 million related to idled marketing and midstream facilities.
It is reasonably possible that prolonged declines in commodity prices, reduced capital spending in response to lower prices or increases in operating costs could result in additional impairments.
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 reported 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. These derivatives are classified as Level 1. |
| Ø | Over-the-Counter (OTC) bilateral financial commodity contracts, foreign exchange contracts, interest rate swaps, warrants, 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. |
| Ø | Occidental values debt using market-observable information for debt instruments that are traded on secondary markets. For debt instruments that are not traded, the fair value is determined by interpolating the value based on debt with similar terms and credit risk. |
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| FINANCIAL STATEMENTS FOOTNOTES |
NON-FINANCIAL ASSETS
Occidental uses market-observable prices for assets when comparable transactions can be identified that are similar to the asset being valued. When Occidental is required to measure fair value and there is not a market-observable price for the asset or for a similar asset then the cost or income approach is used depending on the quality of information available to support management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows, and the expected cash flows are discounted using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, estimates of future oil and gas production or throughput, development and operating costs and the timing thereof, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in the Company’s business plans and investment decisions.
ACCRUED LIABILITIES - CURRENT
Accrued liabilities - current included accrued payroll, commissions and related expenses of $1.2 billion and $428 million at December 31, 2019, and 2018, respectively. Dividends payable, also included in accrued liabilities - current, were $884 million and $600 million at December 31, 2019, and 2018, respectively. Derivate financial instruments, also included in accrued liabilities - current, were $641 million and $134 million at December 31, 2019, and 2018, respectively.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Occidental records environmental liabilities and related charges and expenses for estimated remediation costs that relate to existing conditions from past operations when environmental remediation efforts are probable and the costs can be reasonably estimated. In determining the environmental remediation liability and the range of reasonably possible additional losses, Occidental refers to currently available information, including relevant past experience, remedial objectives, available technologies, applicable laws and regulations and cost-sharing arrangements. Occidental bases its environmental remediation liabilities on management’s estimate of the most likely cost to be incurred, using the most cost-effective technology reasonably expected to achieve the remedial objective. Occidental periodically reviews its environmental remediation liabilities and adjusts them as new information becomes available. Occidental records environmental remediation liabilities on a discounted basis when it deems the aggregate amount and timing of cash payments to be reliably determinable at the time the reserves are established. The reserve methodology with respect to discounting for a specific site is not modified once it is established. Presently none of its environmental remediation liabilities are recorded on a discounted basis. Occidental generally records reimbursements or recoveries of environmental remediation costs in income when received, or when receipt of recovery is highly probable.
Many factors could affect Occidental’s future remediation costs and result in adjustments to its environmental remediation liabilities and the range of reasonably possible additional losses. The most significant are: (1) cost estimates for remedial activities may vary from the initial estimate; (2) the length of time, type or amount of remediation necessary to achieve the remedial objective may change due to factors such as site conditions, the ability to identify and control contaminant sources or the discovery of additional contamination; (3) a regulatory agency may ultimately reject or modify Occidental’s proposed remedial plan; (4) improved or alternative remediation technologies may change remediation costs; (5) laws and regulations may change remediation requirements or affect cost sharing or allocation of liability; and (6) changes in allocation or cost-sharing arrangements may occur.
Certain sites involve multiple parties with various cost-sharing arrangements, which fall into the following three categories: (1) environmental proceedings that result in a negotiated or prescribed allocation of remediation costs among Occidental and other alleged potentially responsible parties; (2) oil and gas ventures in which each participant pays its proportionate share of remediation costs reflecting its working interest; or (3) contractual arrangements, typically relating to purchases and sales of properties, in which the parties to the transaction agree to methods of allocating remediation costs. In these circumstances, Occidental evaluates the financial viability of other parties with whom it is alleged to be jointly liable, the degree of their commitment to participate and the consequences to Occidental of their failure to participate when estimating Occidental’s ultimate share of liability. Occidental records its environmental remediation liabilities at its expected net cost of remedial activities and, based on these factors, believes that it will not be required to assume a share of liability of such other potentially responsible parties in an amount materially above amounts reserved.
In addition to the costs of investigations and cleanup measures, which often take in excess of 10 years at Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) National Priorities List (NPL) sites, Occidental’s environmental remediation liabilities include management’s estimates of the costs to operate and maintain remedial systems. If remedial systems are modified over time in response to significant changes in site-specific data, laws, regulations, technologies or engineering estimates, Occidental reviews and adjusts its environmental remediation liabilities accordingly.
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| FINANCIAL STATEMENTS FOOTNOTES |
ASSET RETIREMENT OBLIGATIONS
Occidental recognizes the fair value of asset retirement obligations in the period in which a determination is made that a legal obligation exists to dismantle an asset and reclaim or remediate the property at the end of its useful life and the cost of the obligation can be reasonably estimated. The liability amounts are based on future retirement cost estimates and incorporate many assumptions such as time to abandonment, future inflation rates and the risk-adjusted discount rate. When the liability is initially recorded, Occidental capitalizes the cost by increasing the related PP&E balances. If the estimated future cost of the asset retirement obligations changes, Occidental records an adjustment to both the asset retirement obligations and PP&E. Over time, the liability is increased and expense is recognized for accretion, and the capitalized cost is depreciated over the useful life of the asset.
The majority of Occidental’s asset retirement obligations relate to the plugging of wells and the related abandonment of oil and gas properties. Revisions in estimated liabilities during the period primarily relate to liabilities acquired in the Acquisition and include, but are not limited to, changes in estimates of asset retirement costs, revisions of estimated inflation rates, changes in property lives, and the expected timing of settlements.
At a certain number of its facilities, Occidental has identified conditional asset retirement obligations that are related mainly to plant decommissioning. Occidental does not know or cannot estimate when it may settle these obligations. Therefore, Occidental cannot reasonably estimate the fair value of these liabilities. Occidental will recognize these conditional asset retirement obligations in the periods in which sufficient information becomes available to reasonably estimate their fair values.
The following table summarizes the activity of asset retirement obligations for the years ended December 31,:
| millions | 2019 | 2018 | ||||||
| Beginning balance | $ | 1,499 | $ | 1,312 | ||||
| Liabilities assumed in the Acquisition | 3,344 | — | ||||||
| Liabilities incurred – capitalized to PP&E | 131 | 31 | ||||||
| Liabilities settled and paid | (200 | ) | (40 | ) | ||||
| Accretion expense | 71 | 67 | ||||||
| Acquisitions, dispositions and other | — | (18 | ) | |||||
| WES loss of control | (359 | ) | — | |||||
| Revisions to previous estimates | 147 | 147 | ||||||
| Ending balance (a) | $ | 4,633 | $ | 1,499 |
| (a) | The ending balance included $248 million and $75 million related to the current balance of AROs that are included in Accrued Liabilities on the Consolidated Balance Sheets at December 31, 2019 and 2018, respectively. |
DERIVATIVE INSTRUMENTS
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. For cash-flow hedges, the gain or loss on the effective portion of the derivative is reported as a component of other comprehensive income (OCI) with an offsetting adjustment to the carrying value of the item being hedged. Realized gains or losses from cash-flow hedges, and any ineffective portion, are recorded as a component of net sales in the consolidated statements of operations. Ineffectiveness is primarily created by a lack of correlation between the hedged item and the hedging instrument due to location, quality, grade or changes in the expected quantity of the hedged item. Gains and losses from derivative instruments are reported net in the consolidated statements of operations. There were no fair value hedges as of and during the years ended December 31, 2019, 2018 and 2017.
A hedge is regarded as highly effective such that it qualifies for hedge accounting if, at inception and throughout its life, it is expected that changes in the fair value or cash flows of the hedged item will be offset by 80% to 125% of the changes in the fair value or cash flows, respectively, of the hedging instrument. In the case of hedging a forecast transaction, the transaction must be probable and must present an exposure to variations in cash flows that could ultimately affect reported net income or loss. Occidental discontinues hedge accounting when it determines that a derivative has ceased to be highly effective as a hedge; when the hedged item matures or is sold or repaid; or when a forecast transaction is no longer deemed probable.
| OXY 2019 FORM 10-K | 71 |
| FINANCIAL STATEMENTS FOOTNOTES |
STOCK-BASED INCENTIVE PLANS
Occidental has established several stockholder-approved stock-based incentive plans for certain employees and directors (Plans) that are more fully described in Note 14 - Stock-Based Incentive Plans. A summary of Occidental’s accounting policy for awards issued under the Plans is as follows.
For cash- and stock-settled restricted stock units or incentive award shares (RSU), cash return on capital employed incentive awards (CROCEI), return on capital employed incentive awards (ROCEI) and return on assets incentive awards (ROAI), compensation value is initially measured on the grant date using the quoted market price of Occidental’s common stock and the estimated payout at the grant date. For total shareholder return incentive awards (TSRI), compensation value is initially measured on the grant date using estimated payout levels derived from a Monte Carlo valuation model. Compensation expense for RSUs, CROCEIs, ROCEIs, ROAIs and TSRIs is recognized on a straight-line basis over the requisite service periods, which is generally over the awards’ respective vesting or performance periods. Dividends accrued on unvested awards are adjusted quarterly for any changes in the number of share equivalents expected to be paid based on the relevant performance and market criteria, if applicable. All such performance or stock-price-related changes are recognized in periodic compensation expense. The stock-settled portion of these awards is expensed using the initially measured compensation value. The liability resulting from the cash settled portion of these awards and accrued dividends are remeasured at each reporting period.
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, have 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, 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.
RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
Occidental recognizes the overfunded or underfunded amounts of its defined benefit pension and postretirement plans, which are more fully described in Note 15 - Retirement and Postretirement Benefit Plans, in its financial statements using a December 31 measurement date.
Occidental’s defined benefit pension and postretirement benefit plan obligations are actuarially determined based on various assumptions and discount rates. The discount rate assumptions used are meant to reflect the interest rate at which the obligations could effectively be settled on the measurement date. Occidental estimates the rate of return on assets with regard to current market factors but within the context of historical returns. Occidental funds and expenses negotiated pension increases for domestic union employees over the terms of the applicable collective bargaining agreements.
Pension and any postretirement plan assets are measured at fair value. Common stock, preferred stock, publicly registered mutual funds, U.S. government securities and corporate bonds are valued using quoted market prices in active markets when available. When quoted market prices are not available, these investments are valued using pricing models with observable inputs from both active and non-active markets. Common and collective trusts are valued at the fund units’ net asset value (NAV) provided by the issuer, which represents the quoted price in a non-active market. Short-term investment funds are valued at the fund units’ NAV provided by the issuer.
SUPPLEMENTAL CASH FLOW INFORMATION
Occidental paid U.S. federal, state and foreign income taxes for continuing operations of approximately $1.7 billion, $1.1 billion and $0.8 billion during the years ended December 31, 2019, 2018 and 2017, respectively. Occidental received refunds of $79 million, $82 million and $768 million during the years ended December 31, 2019, 2018, and 2017, respectively. Occidental also paid production, property and other taxes of approximately $725 million, $505 million and $375 million during the years ended December 31, 2019, 2018 and 2017, respectively, substantially all of which was in the United States. Interest paid totaled $911 million, $383 million and $351 million, net of capitalized interest of $85 million, $46 million and $52 million, for the years 2019, 2018 and 2017, respectively.
| 72 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
FOREIGN CURRENCY TRANSACTIONS
The functional currency applicable to all of Occidental’s international oil and gas operations is the U.S. dollar since cash flows are denominated principally in U.S. dollars. In Occidental’s other operations, Occidental’s use of non-United States dollar functional currencies was not material for all years presented. The effect of exchange rates on transactions in foreign currencies is included in periodic income. Occidental reports the exchange rate differences arising from translating foreign-currency-denominated balance sheet accounts to the United States dollar as of the reporting date in other comprehensive income. Exchange-rate gains and losses for continuing operations were not material for all years presented.
INCOME TAXES
Occidental files various U.S. federal, state, and foreign income tax returns. The impact of changes in tax regulations are reflected when enacted. In general, deferred federal, state, and foreign income taxes are provided on temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Occidental routinely assesses the realizability of its deferred tax assets. If Occidental concludes that it is more likely than not that some of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. Occidental recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The tax benefit recorded is equal to the largest amount that is greater than 50% likely to be realized through final settlement with a taxing authority. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense (benefit). Occidental uses the flow-through method to account for its investment tax credits. See Note 12 - Income Taxes.
OTHER LOSS 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 international 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 10 - Environmental Liabilities and Expenditures, Occidental has disclosed its reserve balances for environmental remediation matters that satisfy this criteria. See Note 11 - Lawsuits, Claims, Commitments and Contingencies.
| NOTE 2 - ACCOUNTING AND DISCLOSURE CHANGES |
RECENTLY ADOPTED ACCOUNTING AND DISCLOSURE CHANGES
In January 2019, Occidental adopted the new lease standard Accounting Standards Codification Topic 842 - Leases (ASC 842). The new standard requires Occidental to recognize most leases, including operating leases, on the balance sheet. The new rules require lessees to recognize a right-of-use (ROU) asset and lease liability for all leases with lease terms of more than 12 months. Occidental adopted the standard using the modified retrospective approach, including adopting several optional practical expedients. See Note 8 - Lease Commitments.
In February 2018, the Financial Accounting Standards Board (FASB) released standards that allow the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from changes to U.S. federal tax law from the 2017 Tax Cuts and Jobs Act (Tax Reform) enacted in December 2017. Occidental early adopted this standard in the first quarter of 2018, resulting in the reclassification of $58 million in stranded tax effects from accumulated other comprehensive income (AOCI) to retained earnings.
In January 2018, Occidental adopted the new revenue recognition standard Topic 606 - Revenue from Contracts with Customers and related updates (ASC 606). The new standard requires more detailed disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Occidental adopted the standard using the modified retrospective method. The cumulative-effect adjustment to retained earnings upon adoption was not material. See Note 5 - Revenue.
In January 2017, FASB issued new guidance clarifying the definition of a business under the topic Business Combinations. The rules became effective in the first quarter of 2018, and did not have a material impact to Occidental’s financial statements upon adoption.
| OXY 2019 FORM 10-K | 73 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 3 - THE ACQUISITION |
On May 9, 2019, Occidental entered into the Acquisition Agreement with Anadarko. On August 8, 2019, Anadarko’s stockholders voted to approve the Acquisition and it was made effective the same day. The Acquisition added to Occidental’s oil and gas portfolio, primarily in the Permian Basin, DJ Basin and Gulf of Mexico, and a controlling interest in WES.
In exchange for each share of Anadarko common stock, Anadarko stockholders received $59.00 in cash and 0.2934 of a share of Occidental common stock, plus cash in lieu of any fractional share of Occidental common stock that otherwise would have been issued, based on the average price of $46.31 per share of Occidental common stock on the NYSE on August 8, 2019.
In connection with the Acquisition, Occidental issued $13.0 billion of new senior unsecured notes, $8.8 billion of term loans (the Term Loans) and 100,000 shares of series A preferred stock (the Preferred Stock) with a warrant to purchase 80 million shares of Occidental common stock at an exercise price of $62.50 (the Warrant) for $10 billion. In addition, Occidental increased its existing $3.0 billion revolving credit facility by an additional $2.0 billion in commitments. See Note 7 - Long-term Debt and Note 13 - Stockholders’ Equity for additional information.
The Acquisition constitutes a business combination and was accounted for using the acquisition method of accounting. The following table presents the Acquisition consideration paid to Anadarko stockholders as a result of the Acquisition:
| millions except per-share amounts | As of August 8, 2019 | |||
| Total shares of Anadarko common stock eligible for Acquisition consideration | 491.6 | |||
| Cash consideration (per share of common stock and shares underlying Anadarko stock-based awards eligible for Acquisition consideration) | $ | 59.00 | ||
| Cash portion of Acquisition consideration | $ | 29,002 | ||
| Total shares of Anadarko common stock eligible for Acquisition consideration | 491.6 | |||
| Exchange ratio (per share of Anadarko common stock) | 0.2934 | |||
| Total shares of Occidental common stock issued to Anadarko stockholders | 144 | |||
| Average share price of Occidental common stock at August 8, 2019 | $ | 46.31 | ||
| Stock portion of Acquisition consideration | $ | 6,679 | ||
| Acquisition consideration attributable to Anadarko stock-based awards | $ | 23 | ||
| Total Acquisition consideration | $ | 35,704 |
| 74 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The following table sets forth the preliminary allocation of the Acquisition consideration. Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, final appraisals of certain assets acquired and liabilities assumed, valuation of pre-Acquisition contingencies and final tax returns that provide underlying tax basis of assets acquired and liabilities assumed. Occidental will finalize the purchase price allocation during the 12-month period following the Acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
| millions | As of August 8, 2019 | |||
| Fair value of assets acquired: | ||||
| Current assets | $ | 3,596 | ||
| Africa Assets held for sale | 10,616 | |||
| Investments in unconsolidated entities | 194 | |||
| Property, plant and equipment | 49,074 | |||
| Other assets | 836 | |||
| Amount attributable to assets acquired | $ | 64,316 | ||
| Fair value of liabilities assumed: | ||||
| Current liabilities | $ | 3,410 | ||
| Liabilities of Africa Assets held for sale | 2,200 | |||
| Long-term debt | 13,240 | |||
| Deferred income taxes | 8,607 | |||
| Asset retirement obligations | 2,724 | |||
| Pension and post-retirement obligations | 1,072 | |||
| Non-current derivative liabilities | 1,280 | |||
| Other long-term liabilities | 2,323 | |||
| Amount attributable to liabilities assumed | $ | 34,856 | ||
| Net assets | $ | 29,460 | ||
| Fair value of WES net assets acquired less noncontrolling interests (a) | $ | 6,244 | ||
| Total Acquisition consideration | $ | 35,704 |
| (a) | See Note 1 - Summary of Significant Accounting Policies for a discussion of the WES investment. |
| OXY 2019 FORM 10-K | 75 |
| FINANCIAL STATEMENTS FOOTNOTES |
The following table summarizes the fair value of the major categories of WES assets acquired and liabilities assumed at the Acquisition date as well as the noncontrolling interest, which primarily consists of the 44.6% limited partner interest in WES owned by the public. The fair value of Occidental’s controlling interest in WES is calculated based on the market capitalization value at the Acquisition date.
| millions | As of August 8, 2019 | |||
| Fair value of WES assets acquired: | ||||
| Current assets | $ | 499 | ||
| Investments in unconsolidated entities | 2,425 | |||
| Property, plant and equipment | 10,160 | |||
| Intangible assets - customer relationships | 1,800 | |||
| Goodwill | 5,772 | |||
| Other assets | 342 | |||
| Amount attributable to assets acquired | $ | 20,998 | ||
| Fair value of WES liabilities assumed: | ||||
| Current liabilities | $ | 815 | ||
| Long-term debt | 7,407 | |||
| Deferred income taxes | 1,174 | |||
| Asset retirement obligations | 321 | |||
| Other long-term liabilities | 142 | |||
| Amount attributable to liabilities assumed | $ | 9,859 | ||
| Net assets | $ | 11,139 | ||
| Less: Fair value of noncontrolling interests in WES | $ | 4,895 | ||
| Fair value of WES net assets acquired less noncontrolling interests | $ | 6,244 |
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their preliminary estimated fair values at the date of the Acquisition. The valuation of certain assets, including property and intangible assets, are based on preliminary appraisals. The majority of measurements of assets acquired and liabilities assumed, other than debt, are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of acquired properties and equipment is based on both available market data and a cost approach.
Onshore undeveloped oil and gas properties were valued primarily using a market approach based on comparable transactions for similar properties while the income approach was utilized for developed oil and gas properties based on underlying reserve projections at the Acquisition date. For the acquired Gulf of Mexico offshore properties, an income approach was used as the primary valuation method based on underlying reserve projections. Income approaches are considered level 3 fair value estimates and include significant assumptions of future production, commodity prices, and operating and capital cost estimates, discounted using weighted average cost of capital for industry peers, and risk adjustment factors based on reserve category. Price assumptions were based on a combination of market information and published industry resources adjusted for historical differentials. Cost estimates were based on current observable costs inflated based on historical and expected future inflation. Taxes were based on current statutory rates.
The fair value of WES investments in unconsolidated entities were valued using an income approach for each investment, with significant inputs being forecasted distributions, an anticipated growth rate and an estimated discount rate. Acquired WES property, plant and equipment primarily consisted of gathering systems and processing and treating facilities and were primarily valued using a replacement cost approach. Intangible assets primarily consist of relationships with third-party customers, the fair value of which was determined using an income approach, including significant assumptions related to estimated cash flows from third-party customers less a contributory asset charge, a customer retention rate and an estimated discount rate. Customer relationships are amortized over 30 years. Goodwill is attributable to the difference in WES market capitalization value and the net assets acquired and primarily relates to the relationship between Occidental and WES that is not recognized as a separate asset, due to Occidental consolidating WES as of the Acquisition date.
Deferred income taxes represent the tax effects of differences in the tax basis and acquisition-date fair values of assets acquired and liabilities assumed. The measurement of debt instruments was based on unadjusted quoted prices in an active market and are primarily Level 1; approximately $2.5 billion of the assumed Anadarko debt is considered Level 2, while approximately $730 million of the WES debt is considered Level 2. The value of derivative instruments was based on observable inputs, primarily forward commodity-price and interest-rate curves and is considered Level 2.
| 76 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
With the completion of the Acquisition, Occidental acquired proved and unproved properties of approximately $19.1 billion and $27.4 billion, respectively, primarily associated with the Permian Basin, DJ Basin, Gulf of Mexico and Powder River Basin. The remaining $2.5 billion in PP&E which consists of non-oil and gas mineral interests and other real estate assets.
From the date of the Acquisition through December 31, 2019, revenues and the net loss attributable to common stockholders associated with the operations acquired through the Acquisition totaled $4.2 billion and $1.7 billion, respectively, which includes a charge as a result of recording Occidental’s investment in WES at fair value as of December 31, 2019 upon the loss of control.
The following table summarizes the unaudited pro forma condensed financial information of Occidental as if the Acquisition had occurred on January 1, 2018:
| Year ended December 31, | ||||||||
| millions except per-share amounts | 2019 | 2018 | ||||||
| Revenues | $ | 28,723 | $ | 31,206 | ||||
| Net income (loss) attributable to common stockholders (a) | $ | (769 | ) | $ | 2,965 | |||
| Net income (loss) attributable to common stockholders per share—basic | $ | (0.95 | ) | $ | 3.26 | |||
| Net income (loss) attributable to common stockholders per share—diluted | $ | (0.95 | ) | $ | 3.25 |
| (a) | Excluding the pro-forma results of WES, net income (loss) attributable to common stockholders would be $(1.1) billion and $2.8 billion for the years ended December 31, 2019 and 2018, respectively. |
The unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the operating results that would have occurred had the Acquisition been completed at January 1, 2018, nor is it necessarily indicative of future operating results of the combined entity. The unaudited pro forma information for 2019 and 2018 is a result of combining the statements of operations of Occidental with the pre-Acquisition results from January 1, 2019, and 2018 of Anadarko and included adjustments for revenues and direct expenses. The pro forma results exclude results from the Africa Assets, any cost savings anticipated as a result of the Acquisition and the impact of any Acquisition-related costs. The pro forma results include adjustments to DD&A (depreciation, depletion and amortization) based on the purchase price allocated to property, plant, and equipment and the estimated useful lives as well as adjustments to interest expense. The pro forma adjustments include estimates and assumptions based on currently available information. Management believes the estimates and assumptions are reasonable, and the relative effects of the Acquisition are properly reflected.
ANADARKO ACQUISITION-RELATED COSTS
The following table summarizes the Acquisition-related costs incurred for the year ended December 31:
| millions | 2019 | |||
| Employee severance and related employee cost | $ | 1,033 | ||
| Licensing fees for critical seismic data | 401 | |||
| Bank, legal, consulting and other | 213 | |||
| Total | $ | 1,647 |
Employee severance and related employee cost primarily relates to one-time severance costs and the accelerated vesting of certain Anadarko share-based awards for former Anadarko employees based on the terms of the Acquisition Agreement and existing change of control provisions within the former Anadarko employment agreements. In addition, employee severance and related employee cost included expenses for a voluntary separation program for eligible employees. Occidental initiated this program to align the size and composition of its workforce with its expected future operating and capital plans. Employee notifications related to the voluntary separation program were ongoing at December 31, 2019, with additional expenses associated with the program expected to be incurred through most of 2020. Employees may revoke their participation in the voluntary severance program up to their separation date.
The seismic licensing fees relate to relicensing of critical seismic data related to the Gulf of Mexico, Permian Basin and DJ Basin that Anadarko had licensed from third-party vendors. The third-party vendors who own the seismic data require a transfer fee in order for Occidental to use the data.
| OXY 2019 FORM 10-K | 77 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 4 - ACQUISITIONS, DISPOSITIONS AND OTHER TRANSACTIONS |
AFRICA ASSETS - DISCONTINUED OPERATIONS
In September 2019, Occidental completed the sale of Mozambique LNG assets to Total for approximately $4.2 billion, with proceeds used to pay down a portion of the Term Loans. In January 2020, Occidental completed the sale of South Africa assets to Total. Occidental and Total continue to work toward completing the sales of the remaining Africa Assets. The carrying amount of the remaining Africa Assets will be adjusted in future periods based on changes in fair value. The results of the Africa Assets are presented as discontinued operations in the Consolidated Statements of Operations and Cash Flows.
The following table presents the amounts reported in discontinued operations, net of income taxes, related to the Africa Assets subsequent to the Acquisition closing date through December 31, 2019:
| millions | 2019 | ||
| Revenues and other income | |||
| Net sales | $ | 739 | |
| Costs and other deductions | |||
| Oil and gas lease operating expense | $ | 81 | |
| Transportation expense | 14 | ||
| Taxes other than on income | 133 | ||
| Fair value adjustment on assets held for sale | 244 | ||
| Other | 53 | ||
| Total costs and other deductions | $ | 525 | |
| Income before income taxes | $ | 214 | |
| Income tax expense | (229 | ) | |
| Discontinued operations, net of tax | $ | (15 | ) |
The following table presents amounts related to the Africa Assets reported as held for sale in the Consolidated Balance Sheet as of December 31, 2019:
| millions | 2019 | ||
| Current assets | $ | 289 | |
| Property, plant and equipment, net | 5,481 | ||
| Long-term receivables and other assets, net | 256 | ||
| Assets held for sale (a) | $ | 6,026 | |
| Current liabilities | $ | 452 | |
| Long-term debt, net - finance leases | 185 | ||
| Deferred income taxes | 1,112 | ||
| Asset retirement obligations | 181 | ||
| Other | 80 | ||
| Liabilities of assets held for sale (a) | $ | 2,010 | |
| Net assets held for sale | $ | 4,016 |
| (a) | Assets and liabilities held for sale at December 31, 2019 included South Africa assets which were sold to Total in January 2020. |
| 78 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
OTHER TRANSACTIONS
2019
In December 2019, Occidental disposed of real estate assets for $565 million. Occidental utilized net proceeds to pay down a portion of the Term Loans. Concurrent with the sale, Occidental entered a thirteen-year lease for part of the real estate assets. Based on the terms of the lease, Occidental treated this as a failed sale-leaseback, retained the related book value in property, plant and equipment and recognized a finance lease of approximately $300 million based on the discounted future minimum lease payments.
In November 2019, Occidental and Ecopetrol closed on the joint venture to develop approximately 97,000 net acres of Occidental’s Midland Basin unproved properties in the Permian Basin. Ecopetrol paid $750 million in cash at closing and up to $750 million of carried capital in exchange for a 49% interest in the new venture. Occidental recognized a gain of $563 million on the sale. Following the close, Occidental owned a 51% interest and operates the joint venture. During the carry period, Ecopetrol will pay 75% of Occidental’s share of capital expenditures, up to $750 million. The joint venture allows Occidental to accelerate its development plans in the Midland Basin, where it currently has minimal activity. Occidental will retain production and cash flow from its existing operations in the Midland Basin. The proceeds were used to pay down a portion of the Term Loans.
In September 2019, Occidental sold its remaining equity investment in Plains All American Pipeline, L.P. and Plains GP Holdings, L.P. (together, Plains) for net proceeds of $646 million, which resulted in a pre-tax gain of $114 million. The proceeds were used to pay down a portion of the Term Loans.
2018
In September 2018, Occidental divested non-core domestic midstream assets for total consideration of $2.6 billion, of which approximately $2.4 billion was received at closing, resulting in a pre-tax net gain of $907 million. These assets include the Centurion common carrier oil pipeline and storage system, Southeast New Mexico oil gathering system, and Ingleside Crude Terminal. Following the transactions, Occidental retained its long-term flow assurance, pipeline takeaway and export capacity through its retained marketing business.
In July 2018, Occidental acquired a previously leased power and steam cogeneration facility for $443 million.
In March 2018, Occidental divested non-core midstream assets for approximately $150 million, resulting in a pre-tax gain of $43 million.
2017
In the third quarter of 2017, Occidental closed on two divestitures of non-core acreage in the Permian Basin for proceeds of approximately $0.6 billion, resulting in a pre-tax gain of approximately $81 million. Concurrently, Occidental purchased additional ownership interests and assumed operatorship in CO2 enhanced oil recovery (EOR) properties located in the Seminole-San Andres Unit for approximately $0.6 billion, which was primarily allocated to proved property. In the fourth quarter of 2017, Occidental sold other non-core proved and unproved acreage in the Permian Basin for approximately $90 million, resulting in a pre-tax gain of approximately $55 million. Occidental also classified approximately $0.5 billion in non-core proved and unproved Permian acreage to assets held for sale at December 31, 2017.
In April 2017, Occidental completed the sale of its South Texas operations for net proceeds of $0.5 billion resulting in pre-tax gain of $0.5 billion.
| OXY 2019 FORM 10-K | 79 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 5 - REVENUE |
Revenue from customers is recognized when obligations under the terms of a contract are satisfied; this generally occurs with the delivery of oil, gas, NGL, chemicals or services such as transportation. Revenue from customers is measured as the amount of consideration Occidental expects to receive in exchange for the delivery of goods or services. Contracts may last from one month to one year or more, and may have renewal terms that extend indefinitely at the option of either party. Price is typically based on market indexes. Volumes fluctuate due to production and, in certain cases, customer demand and transportation availability. Occidental records revenue net of certain taxes, such as sales taxes, that are assessed by governmental authorities on Occidental’s customers.
Occidental does not incur significant costs to obtain contracts. Incidental items that are immaterial in the context of the contract are recognized as expenses. Sales of hydrocarbons and chemicals to customers are invoiced and settled on a monthly basis. Occidental is not usually subject to obligations for warranties, rebates, returns or refunds except in the case of customer incentive payments as discussed for the chemical segment below. Occidental does not typically receive payment in advance of satisfying its obligations under the terms of its sales contracts with customers; therefore, liabilities related to such payment are immaterial to Occidental.
OIL AND GAS SEGMENT
Revenue from oil and gas production is recognized when production is delivered and control passes to the customer. Revenues from the production of oil and gas properties in which Occidental has an interest with other producers are recognized on the basis of Occidental’s net revenue interest.
CHEMICALS SEGMENT
Revenue from chemical product sales is recognized when control passes to the customer. Certain incentive programs may provide for payments or credits to be made to customers based on the volume of product purchased over a defined period. Customer incentives are estimated and recorded as a reduction to revenue ratably over the contract period. Such estimates are evaluated and revised as warranted. Revenue from exchange contracts is excluded from revenue from customers.
MARKETING AND MIDSTREAM SEGMENT
Revenue from pipeline and gas processing is recognized upon the completion of the transportation or processing service. Revenue from power sales is recognized upon delivery. Net marketing revenue is included in net sales, but excluded from revenue from customers in the table below. Net marketing revenue is recognized upon completion of contract terms that are a prerequisite to payment and upon title transfer for physical deliveries. Unless the normal purchases and sales exception has been elected, net marketing revenue is classified as a derivative, reported on a net basis, recorded at fair value and changes in fair value are reflected in net sales.
| 80 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The following table reconciles revenue from customers to total net sales for the years ended December 31:
| millions | 2019 | 2018 | ||||||
| Revenue from customers | $ | 18,674 | $ | 15,560 | ||||
| All other revenues (a) | 1,719 | 2,264 | ||||||
| Net sales | $ | 20,393 | $ | 17,824 |
| (a) | Included net marketing derivatives, oil collars and calls and chemical exchange contracts. |
DISAGGREGATION OF REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table presents Occidental’s revenue from customers by segment, product and geographical area. The oil and gas segment typically sells its oil, gas and NGL at the lease or concession area. Chemical revenues are shown by geographic area based on the location of the sale. Marketing and midstream revenues are shown by the location of sale.
| millions | United States | Middle East | Latin America | Other International | Eliminations | Total | ||||||||||||||||||
| Year ended December 31, 2019 | ||||||||||||||||||||||||
| Oil and Gas | ||||||||||||||||||||||||
| Oil | $ | 8,411 | $ | 2,758 | $ | 683 | $ | — | $ | — | $ | 11,852 | ||||||||||||
| NGL | 658 | 263 | — | — | — | 921 | ||||||||||||||||||
| Gas | 424 | 319 | 20 | — | — | 763 | ||||||||||||||||||
| Other | (1 | ) | (5 | ) | — | — | — | (6 | ) | |||||||||||||||
| Segment total | $ | 9,492 | $ | 3,335 | $ | 703 | $ | — | $ | — | $ | 13,530 | ||||||||||||
| Chemical | $ | 3,858 | $ | — | $ | 155 | $ | 67 | $ | — | $ | 4,080 | ||||||||||||
| Marketing and Midstream (a) | ||||||||||||||||||||||||
| Gas processing | $ | 395 | $ | 351 | $ | — | $ | — | $ | — | $ | 746 | ||||||||||||
| WES - Gas processing and pipeline | 1,110 | — | — | — | — | 1,110 | ||||||||||||||||||
| Power and other | 472 | — | — | — | — | 472 | ||||||||||||||||||
| Segment total | $ | 1,977 | $ | 351 | $ | — | $ | — | $ | — | $ | 2,328 | ||||||||||||
| Eliminations | $ | — | $ | — | $ | — | $ | — | $ | (1,264 | ) | $ | (1,264 | ) | ||||||||||
| Consolidated | $ | 15,327 | $ | 3,686 | $ | 858 | $ | 67 | $ | (1,264 | ) | $ | 18,674 | |||||||||||
| Year ended December 31, 2018 | ||||||||||||||||||||||||
| Oil and Gas | ||||||||||||||||||||||||
| Oil | $ | 5,125 | $ | 3,405 | $ | 715 | $ | — | $ | — | $ | 9,245 | ||||||||||||
| NGL | 430 | 261 | — | — | — | 691 | ||||||||||||||||||
| Gas | 185 | 294 | 16 | — | — | 495 | ||||||||||||||||||
| Other | 7 | 3 | — | — | — | 10 | ||||||||||||||||||
| Segment total | $ | 5,747 | $ | 3,963 | $ | 731 | $ | — | $ | — | $ | 10,441 | ||||||||||||
| Chemical | $ | 4,363 | $ | — | $ | 205 | $ | 80 | $ | — | $ | 4,648 | ||||||||||||
| Marketing and Midstream | ||||||||||||||||||||||||
| Gas processing | $ | 557 | $ | 425 | $ | — | $ | — | $ | — | $ | 982 | ||||||||||||
| Pipelines | 311 | — | — | — | — | 311 | ||||||||||||||||||
| Power and other | 108 | — | — | — | — | 108 | ||||||||||||||||||
| Segment total | $ | 976 | $ | 425 | $ | — | $ | — | $ | — | $ | 1,401 | ||||||||||||
| Eliminations | $ | — | $ | — | $ | — | $ | — | $ | (930 | ) | $ | (930 | ) | ||||||||||
| Consolidated | $ | 11,086 | $ | 4,388 | $ | 936 | $ | 80 | $ | (930 | ) | $ | 15,560 |
| (a) | The marketing and midstream segment included revenues from customers from WES from the date of the Acquisition to December 31, 2019. See Note 1 - Summary of Significant Accounting Policies. |
| OXY 2019 FORM 10-K | 81 |
| FINANCIAL STATEMENTS FOOTNOTES |
TRANSACTION PRICE ALLOCATED TO REMAINING PERFORMANCE OBLIGATIONS
Revenue expected to be recognized from certain performance obligations that are unsatisfied as of December 31, 2019, is reflected in the table below. Occidental applies the optional exemptions in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations. As a result, the following table represents a small portion of Occidental’s expected future consolidated revenues, as future revenue from the sale of most products and services is dependent on future production or variable customer volume and variable commodity prices for that volume:
| millions | Total | ||
| 2020 | $ | 103 | |
| 2021 | 103 | ||
| 2022 | 7 | ||
| 2023 | 7 | ||
| 2024 | 7 | ||
| Thereafter | 53 | ||
| Total | $ | 280 |
| NOTE 6 - INVENTORIES |
Finished goods primarily represents oil, which is carried at the lower of weighted-average cost or net realizable value, and caustic soda and chlorine, which are valued under the LIFO method. Net carrying values of inventories valued under the LIFO method were $168 million and $169 million at December 31, 2019 and 2018, respectively. Inventories consisted of the following at December 31:
| millions | 2019 | 2018 | ||||||
| Raw materials | $ | 75 | $ | 74 | ||||
| Materials and supplies | 879 | 445 | ||||||
| Commodity inventory and finished goods | 533 | 788 | ||||||
| 1,487 | 1,307 | |||||||
| Revaluation to LIFO | (40 | ) | (47 | ) | ||||
| Total | $ | 1,447 | $ | 1,260 |
| 82 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 7 - LONG-TERM DEBT |
Long-term debt consisted of the following:
| millions | December 31, 2019 | |||
| 4.850% senior notes due 2021 | $ | 677 | ||
| 2.600% senior notes due 2021 | 1,500 | |||
| 4.100% senior notes due 2021 | 1,249 | |||
| Variable rate bonds due 2021 (2.854% as of December 31, 2019) | 500 | |||
| Variable rate bonds due 2021 (3.151% as of December 31, 2019) | 500 | |||
| 2-year variable rate Term Loan due 2021 (3.111% as of December 31, 2019) | 1,956 | |||
| 2.700% senior notes due 2022 | 2,000 | |||
| 3.125% senior notes due 2022 | 814 | |||
| 2.600% senior notes due 2022 | 400 | |||
| Variable rate bonds due 2022 (3.360% as of December 31, 2019) | 1,500 | |||
| 2.700% senior notes due 2023 | 1,191 | |||
| 8.750% medium-term notes due 2023 | 22 | |||
| 2.900% senior notes due 2024 | 3,000 | |||
| 6.950% senior notes due 2024 | 650 | |||
| 3.450% senior notes due 2024 | 248 | |||
| 3.500% senior notes due 2025 | 750 | |||
| 5.550% senior notes due 2026 | 1,100 | |||
| 3.200% senior notes due 2026 | 1,000 | |||
| 3.400% senior notes due 2026 | 1,150 | |||
| 7.500% debentures due 2026 | 112 | |||
| 3.000% senior notes due 2027 | 750 | |||
| 7.125% debentures due 2027 | 150 | |||
| 7.000% debentures due 2027 | 48 | |||
| 6.625% debentures due 2028 | 14 | |||
| 7.150% debentures due 2028 | 235 | |||
| 7.200% senior debentures due 2028 | 82 | |||
| 7.200% debentures due 2029 | 135 | |||
| 7.950% debentures due 2029 | 116 | |||
| 8.450% senior debentures due 2029 | 116 | |||
| 3.500% senior notes due 2029 | 1,500 | |||
| Variable rate bonds due 2030 (1.705% as of December 31, 2019) | 68 | |||
| 7.500% senior notes due 2031 | 900 | |||
| 7.875% senior notes due 2031 | 500 | |||
| 6.450% senior notes due 2036 | 1,750 | |||
| Zero Coupon senior notes due 2036 | 2,271 | |||
| 6.500% note payable to WES due 2038 | 260 | |||
| 4.300% senior notes due 2039 | 750 | |||
| 7.950% senior notes due 2039 | 325 | |||
| 6.200% senior notes due 2040 | 750 | |||
| 4.500% senior notes due 2044 | 625 | |||
| 4.625% senior notes due 2045 | 750 | |||
| 6.600% senior notes due 2046 | 1,100 | |||
| 4.400% senior notes due 2046 | 1,200 | |||
| 4.100% senior notes due 2047 | 750 | |||
| 4.200% senior notes due 2048 | 1,000 | |||
| 4.400% senior notes due 2049 | 750 | |||
| 7.730% debentures due 2096 | 60 | |||
| 7.500% debentures due 2096 | 78 | |||
| 7.250% debentures due 2096 | 49 | |||
| Total borrowings at face value(a) | 37,401 | |||
| Adjustments to book value: | ||||
| Unamortized premium, net | 914 | |||
| Debt issuance costs | (125 | ) | ||
| Long-term finance leases | 347 | |||
| Long-term Debt, net | $ | 38,537 |
| (a) | Total borrowings at face value included a $310 thousand 7.25% senior note due 2025. |
| OXY 2019 FORM 10-K | 83 |
| FINANCIAL STATEMENTS FOOTNOTES |
| millions | December 31, 2018 | |||
| Occidental | ||||
| 9.250% senior debentures due 2019 | $ | 116 | ||
| 4.100% senior notes due 2021 | 1,249 | |||
| 3.125% senior notes due 2022 | 813 | |||
| 2.600% senior notes due 2022 | 400 | |||
| 2.700% senior notes due 2023 | 1,191 | |||
| 8.750% medium-term notes due 2023 | 22 | |||
| 3.500% senior notes due 2025 | 750 | |||
| 3.400% senior notes due 2026 | 1,150 | |||
| 3.000% senior notes due 2027 | 750 | |||
| 7.200% senior debentures due 2028 | 82 | |||
| 8.450% senior debentures due 2029 | 116 | |||
| 4.625% senior notes due 2045 | 750 | |||
| 4.400% senior notes due 2046 | 1,200 | |||
| 4.100% senior notes due 2047 | 750 | |||
| 4.200% senior notes due 2048 | 1,000 | |||
| Variable rate bonds due 2030 (1.9% as of December 31, 2018) | 68 | |||
| Total borrowings at face value | 10,407 | |||
| Adjustments to book value: | ||||
| Unamortized discount, net | (36 | ) | ||
| Debt issuance costs | (54 | ) | ||
| Current maturities | (116 | ) | ||
| Long-term Debt, net | $ | 10,201 |
DEBT ISSUED AND ASSUMED
On August 8, 2019, Occidental issued $13.0 billion of new senior unsecured notes, consisting of both floating and fixed rate debt. Occidental also borrowed under the Term Loans, which consist of: (1) a 364-day senior unsecured variable-rate term loan tranche of $4.4 billion and (2) a two-year senior unsecured variable-rate term loan tranche of $4.4 billion. In total, the $21.8 billion in debt issued was used to finance part of the cash portion of the purchase price for the Acquisition.
In the Acquisition, Occidental assumed Anadarko debt with an outstanding principal balance of $11.9 billion. In September 2019, Occidental completed its offers to exchange the Anadarko senior notes and debentures assumed as part of the Acquisition for notes of a corresponding series issued by Occidental and cash, and related solicitation of consents. Of the approximately $11.9 billion in aggregate principal amount of Anadarko senior notes and debentures offered in the exchange, 97%, or approximately $11.5 billion, were tendered and accepted in the exchange offers. The portion not exchanged, approximately $400 million, remains outstanding with the original terms.
DEBT REPAYMENT
In 2019, Occidental paid approximately $7.0 billion of long-term debt including a majority of the Term Loans using proceeds from assets sales and available cash.
REVOLVING CREDIT FACILITY
On June 3, 2019, Occidental entered into an amendment to its existing $3.0 billion revolving credit facility (Occidental RCF) pursuant to which, among other things, the commitments under the Occidental RCF were increased to $5.0 billion at the closing of the Acquisition. Borrowings under the Occidental RCF bear interest at various benchmark rates, including LIBOR, plus a margin based on Occidental’s senior debt ratings. The facility has similar terms to other debt agreements and does not contain material adverse change clauses or debt ratings triggers that could restrict Occidental’s ability to borrow, or that would permit lenders to terminate their commitments or accelerate debt repayment. The facility provides for the termination of loan commitments and requires immediate repayment of any outstanding amounts if certain events of default occur. Occidental has not drawn down any amounts under the Occidental RCF. In 2019, Occidental paid average annual facility fees of 0.11% on the total commitment amount.
ZERO COUPON NOTES DUE 2036
The Zero Coupon senior notes due 2036 (Zero Coupons) have an aggregate principal amount due at maturity of approximately $2.3 billion, reflecting an accretion rate of 5.24%. The Zero Coupons can be put to Occidental in October of each year, in whole or in part, for the then-accreted value of the outstanding Zero Coupons. The Zero Coupons can next be put to Occidental in October 2020, which, if put in whole, would be $992 million at such date. Occidental has the ability and intent to refinance these obligations using long-term debt should a put be exercised.
| 84 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
DEBT GUARANTEES
As of December 31, 2019, and 2018, Occidental had provided limited recourse guarantees on approximately $242 million and $244 million, respectively, of Dolphin Energy’s debt, which are limited to certain political and other events.
FAIR VALUE OF DEBT
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 values of Occidental’s debt at December 31, 2019, and 2018, substantially all of which were classified as Level 1, were approximately $38.8 billion and $10.3 billion, respectively. Occidental’s exposure to changes in interest rates relates primarily to its variable-rate, long-term debt obligations, and is not material. As of December 31, 2019, and 2018, variable-rate debt constituted approximately 12% and 1% of Occidental’s total debt, respectively.
DEBT MATURITIES
At December 31, 2019, future principal payments on long-term debt aggregated approximately $37.4 billion, of which, $6.4 billion is due in 2021, $4.7 billion is due in 2022, $1.2 billion is due in 2023, and $25.1 billion is due in 2024 and thereafter.
| NOTE 8 - LEASE COMMITMENTS |
On January 1, 2019, Occidental adopted ASC 842 using the modified retrospective approach, which provided a method for recording existing leases at adoption and did not require restatement of prior year amounts and disclosures, which continue to be reflected in accordance with ASC 840. Occidental elected certain practical expedients as follows:
Ø Leases that commenced before the effective date carried forward their historical lease classification.
| Ø | Existing or expired land easements as of December 31, 2018, were not reassessed to determine whether or not they contained a lease. |
| Ø | Leases with a lease term of 12 months or less from lease commencement date are considered short-term leases and not recorded on the Consolidated Balance Sheet; however, the lease expenditures recognized are captured and reported as incurred. |
| Ø | For asset classes, except long-term drilling rigs, Occidental elected to account for the lease and non-lease components as a single lease component as the non-lease portions were not significant to separate in determining the lease liability. For long-term drilling rig contracts, Occidental bifurcated the lease and non-lease components using relative fair value as a stand-alone selling price between the asset rental and the services obtained. |
ASC 842 requires lessees to recognize a ROU asset and lease liability for all long-term leases. A ROU asset represents Occidental’s right to use an underlying asset for the lease term and the associated lease liability represents the discounted obligation of future minimum lease payments. Occidental identifies leases through its accounts payable and contract monitoring process. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU assets include the discounted obligation in addition to any upfront payments or costs incurred during the contract execution of the lease and amortized on a straight-line basis over the course of the lease term. Except for leases with explicitly defined contract terms, Occidental utilizes judgment to assess likelihood of renewals, terminations and purchase options, in order to determine the lease term. Occidental uses the incremental borrowing rate at commencement date to determine the present value of lease payments. The incremental borrowing rate equates to the rate of interest that Occidental would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain leases include variable lease payments which are over and above the minimum lease liability used to derive the ROU asset and lease liability and are based on the underlying asset’s operations. These variable lease costs are reported in the lease cost classification table.
Recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The criteria for distinguishing between finance and operating leases are substantially similar to the criteria under ASC 840. For Occidental operations, adoption of ASC 842 resulted in recording of net lease assets and lease liabilities of $772 million as of January 1, 2019. There was no material impact to net income, cash flows, or stockholders’ equity.
ACQUISITION IMPACT
ASC 805 Business Combinations requires lease-related assets and liabilities acquired to be measured as if the lease were new at the acquisition date. Occidental measured the Anadarko lease agreements using Occidental’s incremental borrowing rates. This resulted in Anadarko assets and lease liabilities of $503 million and $574 million, respectively, excluding the Africa Assets at the Acquisition date, being evaluated and adjusted, as necessary, for above- or below -market impacts. For the leases acquired through the Acquisition, Occidental will retain the previous lease classification.
| OXY 2019 FORM 10-K | 85 |
| FINANCIAL STATEMENTS FOOTNOTES |
The following table reconciles the undiscounted cash flows related to the operating and finance lease liabilities assumed in the Acquisition and recorded on the Consolidated Balance Sheet at the Acquisition date:
| millions | Operating Leases | Finance Leases | Total | ||||||||
| 2019 | $ | 90 | $ | 7 | $ | 97 | |||||
| 2020 | 172 | 17 | 189 | ||||||||
| 2021 | 64 | 16 | 80 | ||||||||
| 2022 | 42 | 13 | 55 | ||||||||
| 2023 | 28 | 8 | 36 | ||||||||
| Thereafter | 136 | 43 | 179 | ||||||||
| Total lease payments | $ | 532 | $ | 104 | $ | 636 | |||||
| Less: Interest | (44 | ) | (18 | ) | (62 | ) | |||||
| Total lease liabilities (a) | $ | 488 | $ | 86 | $ | 574 |
| (a) | Excluded operating and finance leases associated with the Africa Assets of $74 million and $201 million, respectively. |
Additionally, Occidental has elected short-term lease treatment for those acquired lease contracts which, at the Acquisition date, had a remaining lease term of 12 months or less.
NATURE OF LEASES
Occidental’s operating lease agreements include leases for oil and gas exploration and development equipment, including offshore and onshore drilling rigs of $217 million, compressors of $162 million and other field equipment of $389 million, which are recorded gross on the Consolidated Balance Sheet and in the lease cost disclosures below. Contract expiration terms generally range from 2 to 9 years. Further, actual expenditures are netted against joint-interest recoveries on the statement of operations through the normal joint-interest billing process. Occidental’s leases also include pipelines, rail cars, storage facilities, easements and real estate of $659 million, which typically are not associated with joint-interest recoveries. Real estate leases have contract expiration terms ranging from 1 to 14 years.
Occidental’s finance lease agreements include leases for oil and gas exploration and development equipment, as well as real estate offices, compressors, and field equipment of approximately $398 million.
The following table presents lease balances and their location on the Consolidated Balance Sheet at December 31, 2019:
| millions | Balance sheet location | 2019 | ||||
| Assets: | ||||||
| Operating | Operating lease assets | $ | 1,385 | |||
| Finance | Property, plant and equipment | 397 | ||||
| Total lease assets | $ | 1,782 | ||||
| Liabilities: | ||||||
| Current | ||||||
| Operating | Current operating lease liabilities | $ | 569 | |||
| Finance | Current maturities of long-term debt | 51 | ||||
| Non-current | ||||||
| Operating | Deferred credits and other liabilities - Operating lease liabilities | 854 | ||||
| Finance | Long-term debt, net | 347 | ||||
| Total lease liabilities | $ | 1,821 |
| 86 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
At December 31, 2019, Occidental’s leases expire based on the following schedule:
| millions | Operating Leases**(a)** | Finance Leases**(b)** | Total | ||||||||
| 2020 | $ | 555 | $ | 53 | $ | 608 | |||||
| 2021 | 408 | 45 | 453 | ||||||||
| 2022 | 136 | 41 | 177 | ||||||||
| 2023 | 99 | 37 | 136 | ||||||||
| 2024 | 81 | 34 | 115 | ||||||||
| Thereafter | 254 | 275 | 529 | ||||||||
| Total lease payments | 1,533 | 485 | 2,018 | ||||||||
| Less: Interest | (110 | ) | (87 | ) | (197 | ) | |||||
| Total lease liabilities | $ | 1,423 | $ | 398 | $ | 1,821 |
| (a) | The weighted-average remaining lease term is 4.6 years and the weighted-average discount rate is 2.53%. |
| (b) | The weighted-average remaining lease term is 11.6 years and the weighted-average discount rate is 3.74%. |
At December 31, 2018, future undiscounted net minimum fixed lease payments for non-cancellable operating leases, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows:
| millions | Operating Leases | |||
| 2019 | $ | 186 | ||
| 2020 | 147 | |||
| 2021 | 96 | |||
| 2022 | 68 | |||
| 2023 | 49 | |||
| Thereafter | 158 | |||
| Total minimum lease payments(a) | $ | 704 |
| (a) | The amount represents the future undiscounted cash flows at December 31, 2018, excluding any amount associated with the Acquisition. |
The following tables present Occidental’s total lease cost and classifications, as well as cash paid for amounts included in the measurement of operating and finance lease liabilities:
| millions | Year ended December 31, 2019 | |||
| Lease cost classification(a) | ||||
| Operating lease costs(b) | ||||
| Property, plant and equipment, net | $ | 449 | ||
| Operating expense and cost of sales | 391 | |||
| Selling, general and administrative expenses | 92 | |||
| Finance lease cost | ||||
| Amortization of ROU assets | 19 | |||
| Interest on lease liabilities | 2 | |||
| Total lease cost | $ | 953 |
| (a) | Amounts reflected are gross before joint-interest recoveries. |
| (b) | Included short-term lease cost of $404 million for the twelve months ended December 31, 2019, and variable lease cost of $162 million for the twelve months ended December 31, 2019. |
| millions | Year ended December 31, 2019 | |||
| Operating cash flows | $ | 262 | ||
| Investing cash flows | $ | 112 | ||
| Financing cash flows (a) | $ | 19 |
| (a) | Excludes cash received of approximately $300 million associated with the failed sale-leaseback, see Note 4 - Acquisitions, Dispositions and Other. |
| OXY 2019 FORM 10-K | 87 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 9 - DERIVATIVES |
OBJECTIVE AND STRATEGY
Occidental uses a variety of derivative financial instruments and physical contracts to manage its exposure to commodity-price fluctuations, interest rate risks, transportation commitments, and to fix margins on the future sale of stored commodity volumes. Occidental also enters into derivative financial instruments for trading purposes.
Occidental may elect normal purchases and normal sales exclusions when physically delivered commodities are purchased or sold to a customer. Occidental occasionally applies cash flow hedge accounting treatment to derivative financial instruments to lock in margins on the forecasted sales of its natural gas storage volumes, and at times for other strategies, such as to lock rates on forecasted debt issuances. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. See Note 1 - Summary of Significant Accounting Policies for Occidental’s accounting policy on derivatives.
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
As of December 31, 2019, Occidental’s derivatives not designated as hedges consist of three-way oil collars and call options, interest rate swaps, marketing derivatives and the Warrant.
Derivative instruments that are derivatives not designated as hedging instruments are required to be recorded on the balance sheet at fair value. Changes in fair value will impact Occidental’s earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the realized or cash value of the instrument.
THREE-WAY OIL COLLARS AND CALL OPTIONS
In 2019, Occidental entered into three-way costless collar derivative instruments for 2020 along with additional call options in 2021 to manage its near-term exposure to cash-flow variability from commodity price risks. A three-way collar is a combination of three options: a sold call, a purchased put and a sold put. The sold call establishes the ceiling price that Occidental will receive for the contracted commodity volume for a defined period of time. The purchased put establishes the floor price that Occidental will receive for the contracted volumes unless the market price for the commodity falls below the sold put strike price, at which point the floor price equals the reference price plus the difference between the purchased put strike price and the sold put strike price for a defined period of time. Occidental entered into the 2021 call options to substantially improve the terms for the ceiling price that Occidental will receive for the contracted commodity volumes in 2020. Net gains and losses associated with collars and calls are recognized currently in net sales.
Occidental had the following collars and calls outstanding at December 31, 2019:
| Collars and Calls, not designated as hedges | ||||||
| 2020 Settlement | ||||||
| Three-way collars (oil MMBBL) | 128.1 | |||||
| Volume weighted average price per barrel (Brent oil pricing) | ||||||
| Ceiling sold price (call) | $ | 74.16 | ||||
| Floor purchased price (put) | $ | 55.00 | ||||
| Floor sold price (put) | $ | 45.00 | ||||
| 2021 Settlement | ||||||
| Call options sold (oil MMBBL) | 127.8 | |||||
| Volume weighted average price per barrel (Brent oil pricing) | ||||||
| Ceiling sold price (call) | $ | 74.16 |
INTEREST RATE SWAPS
Occidental acquired interest rate swap contracts in the Acquisition. The contracts lock in a fixed interest rate in exchange for a floating interest rate indexed to three-month London Inter-Bank Offered Rate (LIBOR) throughout the reference period. Occidental also acquired interest rate swap contracts held by WES, which were settled as of December 31, 2019. Net gains and losses associated with interest rate derivative instruments not designated as hedging instruments are recognized currently in gains (losses) on interest rate swaps and warrants, net.
| 88 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
Occidental had the following outstanding interest rate swaps at December 31, 2019:
| millions except percentages | Mandatory | Weighted-Average | ||||||||
| Notional Principal Amount | Reference Period | Termination Date | Interest Rate | |||||||
| $ | 550 | September 2016 - 2046 | September 2020 | 6.418 | % | |||||
| $ | 125 | September 2016 - 2046 | September 2022 | 6.835 | % | |||||
| $ | 100 | September 2017 - 2047 | September 2020 | 6.891 | % | |||||
| $ | 250 | September 2017 - 2047 | September 2021 | 6.570 | % | |||||
| $ | 450 | September 2017 - 2047 | September 2023 | 6.445 | % |
Depending on market conditions, liability management actions or other factors, Occidental may enter into offsetting interest rate swap positions or settle or amend certain or all of the currently outstanding interest rate swaps. Occidental settled interest rate swaps with a notional value of $125 million in October 2019. In January and February 2020, Occidental extended September 2020 mandatory termination dates to September 2021 and September 2022 for swaps with a notional value of $500 million and $150 million, respectively.
Derivative settlements and collateralization are classified as cash flows from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. Due to the liability position of the interest rate derivatives at the date of the Acquisition, the interest rate derivatives in Occidental’s portfolio contain an other-than-insignificant financing element, and therefore, any settlements, collateralization or cash payments related to interest rate derivatives are classified as cash flow from financing activities. Net cash receipts related to settlements, and collateralization of interest rate swap agreements were $120 million during the period from August 8, 2019 through December 31, 2019.
MARKETING DERIVATIVES
Occidental’s marketing derivative instruments not designated as hedges are physical and financial forward contracts which typically settle within three months. A substantial majority of Occidental’s physically settled derivative contracts are index-based and carry no mark-to-market valuation in earnings. These instruments settle at a weighted-average contract price of $60.60 per barrel and $2.17 per thousand cubic feet (Mcf) for oil and natural gas, respectively, at December 31, 2019. The weighted-average contract price was $58.81 per barrel and $3.18 per Mcf for oil and natural gas, respectively, at December 31, 2018. Net gains and losses associated with marketing derivative instruments not designated as hedging instruments are recognized currently in net sales.
The following table summarizes net long/(short) volumes associated with the outstanding marketing commodity derivatives not designated as hedging instruments as of December 31, 2019, and 2018:
| 2019 | 2018 | |||||
| Oil Commodity Contracts | ||||||
| Volume (MMBBL) | 55 | 61 | ||||
| Natural gas commodity contracts | ||||||
| Volume (Bcf) | (128 | ) | (142 | ) |
THE WARRANT
The Warrant issued with the Preferred Stock in connection with the Acquisition is exercisable at the holder’s option, in whole or in part, until the first anniversary of the date on which no shares of Preferred Stock remain outstanding at which point the Warrant expires. The holder of the Warrant may require net cash settlement if certain shareholder and regulatory approvals to issue Occidental common stock are not obtained on a timely basis. The initial fair value of the Warrant, $188 million, was measured at the date of the Acquisition using the Black Scholes option model. The following inputs were used in the Black Scholes option model: the expected life is based on the estimated term of the Warrant, the volatility factor is based on historical volatilities of Occidental common stock, and the call option price for Occidental common stock at $62.50. The fair value of the Warrant is remeasured each reporting period based on changes in the inputs above.
DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS
Net gains and losses attributable to derivative instruments subject to cash flow hedge accounting reside in accumulated other comprehensive loss and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings.
| OXY 2019 FORM 10-K | 89 |
| FINANCIAL STATEMENTS FOOTNOTES |
CASH FLOW HEDGES
Occidental’s marketing operations store natural gas purchased from third parties at Occidental’s leased storage facilities. Occidental occasionally elects cash flow hedge accounting for derivative instruments which are used to fix margins on the future sales of the stored volumes. The amount of cash flow hedges related to stored gas, including the ineffective portion, was immaterial for the years ended December 31, 2019, and 2018.
In June 2019, in anticipation of issuing debt in the third quarter to partially finance the cash portion of the Acquisition consideration, Occidental entered into a series of U.S. treasury locks which were designated as cash flow hedges. In August 2019, the U.S. treasury locks were unwound with the issuance of the $13.0 billion new senior unsecured notes, and the resulting after-tax accumulated other comprehensive loss of $125 million will be amortized to interest expense over the life of the underlying senior notes.
FAIR VALUE OF DERIVATIVES
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 reported at the end of each reporting period. The following table presents the fair values of Occidental’s outstanding derivatives. Fair values are presented at gross amounts below, including when derivatives are subject to netting arrangements, and are presented on a net basis in the Consolidated Balance Sheets.
| millions | Fair Value Measurements Using | Total Fair Value | ||||||||||||||||||
| Balance Sheet Classification | Level 1 | Level 2 | Level 3 | Netting (a) | ||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| Oil Collars and Calls | ||||||||||||||||||||
| Other current assets | $ | — | $ | 92 | $ | — | $ | — | $ | 92 | ||||||||||
| Deferred credits and other liabilities - other | — | (160 | ) | — | — | (160 | ) | |||||||||||||
| Marketing Derivatives | ||||||||||||||||||||
| Other current assets | 945 | 79 | — | (973 | ) | 51 | ||||||||||||||
| Long-term receivables and other assets, net | 4 | 12 | — | (4 | ) | 12 | ||||||||||||||
| Accrued liabilities | (1,008 | ) | (44 | ) | — | 973 | (79 | ) | ||||||||||||
| Deferred credits and other liabilities - other | (4 | ) | (1 | ) | — | 4 | (1 | ) | ||||||||||||
| Interest Rate Swaps | ||||||||||||||||||||
| Other current assets | — | 5 | — | — | 5 | |||||||||||||||
| Long-term receivables and other assets, net | — | 5 | — | — | 5 | |||||||||||||||
| Accrued liabilities | — | (657 | ) | — | — | (657 | ) | |||||||||||||
| Deferred credits and other liabilities - other | — | (776 | ) | — | — | (776 | ) | |||||||||||||
| Warrant | ||||||||||||||||||||
| Deferred credits and other liabilities - other | — | (107 | ) | — | — | (107 | ) | |||||||||||||
| December 31, 2018 | ||||||||||||||||||||
| Marketing Derivatives | ||||||||||||||||||||
| Other current assets | $ | 2,531 | $ | 110 | $ | — | $ | (2,392 | ) | $ | 249 | |||||||||
| Long-term receivables and other assets, net | 5 | 9 | — | (6 | ) | 8 | ||||||||||||||
| Accrued liabilities | (2,357 | ) | (101 | ) | — | 2,392 | (66 | ) | ||||||||||||
| Deferred credits and other liabilities - other | (6 | ) | (2 | ) | — | 6 | (2 | ) |
| (a) | These amounts do not include collateral. As of December 31, 2019, $104 million of collateral has been netted against derivative liabilities related to interest rate swaps. Occidental had $65 million and $54 million of initial margin deposited with brokers as of December 31, 2019 and 2018, respectively, related to marketing derivatives. |
| 90 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
GAINS AND LOSSES ON DERIVATIVES
The following table presents gains and (losses) related to Occidental’s derivative instruments on the Consolidated Statements of Operations:
| millions | December 31, | |||||||||||
| Income Statement Classification | 2019 | 2018 | 2017 | |||||||||
| Oil Collars and Calls | ||||||||||||
| Net sales | $ | (107 | ) | $ | — | $ | — | |||||
| Marketing Derivatives | ||||||||||||
| Net sales (a) | 1,804 | 2,254 | (138 | ) | ||||||||
| Interest Rate Swaps (Excluding WES) | ||||||||||||
| Gain on interest rate swaps and warrants, net | 122 | — | — | |||||||||
| Interest Rate Swaps (WES) | ||||||||||||
| Gain on interest rate swaps and warrants, net | 30 | — | — | |||||||||
| Warrant | ||||||||||||
| Gain on interest rate swaps and warrants, net | 81 | — | — |
| (a) | Included derivative and non-derivative marketing activity. |
CREDIT RISK
The majority of Occidental’s counterparty credit risk is related to the physical delivery of energy commodities to its customers and their inability to meet their settlement commitments. Occidental manages credit risk by selecting counterparties that it believes to be financially strong, by entering into netting arrangements with counterparties and by requiring collateral or other credit risk mitigants, as appropriate. Occidental actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits, and monitors credit exposures against those assigned limits. Occidental also enters into future contracts through regulated exchanges with select clearinghouses and brokers, which are subject to minimal credit risk as a significant portion of these transactions settle on a daily margin basis.
Certain of Occidental’s 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 party would need to post. The aggregate fair value of derivative instruments with credit-risk-contingent features for which a net liability position existed at December 31, 2019 was $787 million (net of $169 million collateral), primarily related to acquired interest-rate swaps, and $68 million (net of $1 million of collateral) existed at December 31, 2018.
| NOTE 10 - ENVIRONMENTAL LIABILITIES AND EXPENDITURES |
Occidental’s operations are subject to stringent federal, state, local and international laws and regulations related to improving or maintaining environmental quality. The laws that require or address environmental remediation, including CERCLA and similar federal, state, local and international 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; or operation and maintenance of remedial systems. The 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.
ENVIRONMENTAL REMEDIATION
As of December 31, 2019, Occidental participated in or monitored remedial activities or proceedings at 177 sites, which included 36 sites assumed through the Acquisition. The following table presents Occidental’s current and non-current environmental remediation liabilities as of December 31, 2019 and 2018, the current portion of which is included in accrued liabilities ($162 million in 2019 and $120 million in 2018) and the remainder in deferred credits and other liabilities - environmental remediation liabilities ($1.04 billion in 2019 and $762 million in 2018). Occidental continues to evaluate the remediation obligations assumed through the Acquisition.
Occidental’s environmental remediation sites are grouped into four categories: NPL sites listed or proposed for listing by the EPA on the CERCLA NPL and three categories of non-NPL sites — third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.
| OXY 2019 FORM 10-K | 91 |
| FINANCIAL STATEMENTS FOOTNOTES |
| 2019 | 2018 | |||||||||||||
| millions, except number of sites | Number of Sites | Remediation Balance | Number of Sites | Remediation Balance | ||||||||||
| NPL sites | 36 | $ | 463 | 34 | $ | 458 | ||||||||
| Third-party sites | 74 | 311 | 68 | 168 | ||||||||||
| Occidental-operated sites | 17 | 154 | 14 | 115 | ||||||||||
| Closed or non-operated Occidental sites | 50 | 269 | 29 | 141 | ||||||||||
| Total | 177 | $ | 1,197 | 145 | $ | 882 |
As of December 31, 2019, Occidental’s environmental liabilities exceeded $10 million each at 20 of the 177 sites described above, and 101 of the sites had liabilities from $0 to $1 million each. As of December 31, 2019, three sites — the Diamond Alkali Superfund Site and a former chemical plant in Ohio (both of which are indemnified by Maxus Energy Corporation, as discussed further below), and a landfill in Western New York — accounted for 94 percent of its liabilities associated with NPL sites. Seventeen of the 36 NPL sites are indemnified by Maxus.
Six of the 74 third-party sites — a Maxus-indemnified chrome site in New Jersey, a former copper mining and smelting operation in Tennessee, a former oil field, a landfill and a chemical plant in California, and an active refinery in Louisiana where Occidental reimburses the current owner for certain remediation activities — accounted for 75 percent of Occidental’s liabilities associated with these sites. Nine of the 74 third-party sites are indemnified by Maxus.
Five sites — oil and gas operations in Colorado and chemical plants in Kansas, Louisiana, New York and Texas — accounted for 67 percent of the liabilities associated with the Occidental-operated sites.
Six other sites — a landfill in Western New York, a former refinery in Oklahoma, former chemical plants in California, Tennessee and Washington, and a closed coal mine in Pennsylvania — accounted for 64 percent of the liabilities associated with closed or non-operated Occidental sites.
Environmental remediation liabilities vary over time depending on factors such as acquisitions or dispositions, identification of additional sites and remedy selection and implementation. Occidental recorded environmental remediation expenses of $112 million, $47 million and $39 million for the years ended December 31, 2019, 2018 and 2017, respectively. Environmental remediation expenses primarily relate to changes to existing conditions from past operations. Based on current estimates, Occidental expects to expend funds corresponding to approximately 40 percent of the year-end remediation balance over the next three to four years with the remainder over the subsequent 10 or more years. Occidental believes its range of reasonably possible additional losses beyond those amounts currently recorded for environmental remediation for all of its environmental sites could be up to $1.1 billion.
MAXUS ENVIRONMENTAL SITES
When Occidental acquired Diamond Shamrock Chemicals Company (DSCC) in 1986, Maxus, a subsidiary of YPF S.A. (YPF), agreed to indemnify Occidental for a number of environmental sites, including the Diamond Alkali Superfund Site (Site) along a portion of the Passaic River. On June 17, 2016, Maxus and several affiliated companies filed for Chapter 11 bankruptcy in Federal District Court in the State of Delaware. Prior to filing for bankruptcy, Maxus defended and indemnified Occidental in connection with clean-up and other costs associated with the sites subject to the indemnity, including the Site.
In March 2016, the EPA issued a Record of Decision (ROD) specifying remedial actions required for the lower 8.3 miles of the Lower Passaic River. The ROD does not address any potential remedial action for the upper nine miles of the Lower Passaic River or Newark Bay. During the third quarter of 2016, and following Maxus’s bankruptcy filing, Occidental and the EPA entered into an Administrative Order on Consent (AOC) to complete the design of the proposed clean-up plan outlined in the ROD at an estimated cost of $165 million. The EPA announced that it will pursue similar agreements with other potentially responsible parties.
Occidental has accrued a remediation liability relating to its estimated allocable share of the costs to perform the design and the remediation called for in the AOC and the ROD, as well as for certain other Maxus-indemnified sites. Occidental’s accrued estimated environmental remediation liability does not consider any recoveries for indemnified costs. Occidental’s ultimate share of the estimated costs may be higher or lower than its accrued remediation liability, and is subject to final design plans and the resolution with other potentially responsible parties. Occidental continues to evaluate the costs to be incurred to comply with the AOC, the ROD and to perform remediation at other Maxus-indemnified sites in light of the Maxus bankruptcy and the share of ultimate liability of other potentially responsible parties. In June 2018, Occidental filed a complaint under CERCLA in Federal District Court in the State of New Jersey against numerous potentially responsible parties for reimbursement of amounts incurred or to be incurred to comply with the AOC, the ROD or to perform other remediation activities at the Site.
In June 2017, the court overseeing the Maxus bankruptcy approved a Plan of Liquidation (Plan) to liquidate Maxus and create a trust to pursue claims against YPF, Repsol and others to satisfy claims by Occidental and other creditors for past and future cleanup and other costs. In July 2017, the court-approved Plan became final and the trust became effective. Among other responsibilities, the trust will pursue claims against YPF, Repsol and others and distribute assets to Maxus’ creditors in accordance with the trust agreement and Plan. In June 2018, the trust filed its complaint against YPF and Repsol in Delaware bankruptcy court asserting claims based upon, among other things, fraudulent transfer and alter ego. On February 15, 2019, the bankruptcy court denied Repsol’s and YPF’s motions to dismiss the complaint.
| 92 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 11 - LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES |
LEGAL MATTERS
Occidental or certain of its subsidiaries are involved, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. Occidental or certain of its subsidiaries also are involved in proceedings under Comprehensive Environmental Response, Compensation and Liability Act (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. Reserves for matters, other than for environmental remediation, that satisfy this criteria as of December 31, 2019, and December 31, 2018, were not material to Occidental’s Consolidated Balance Sheets.
On May 30, 2019, a complaint was filed in the Court of Chancery of the State of Delaware by purported Occidental stockholders High River Limited Partnership, Icahn Partners Master Fund LP and Icahn Partners LP (the “Icahn Complainants”), captioned High River Ltd. P’ship v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, seeking inspection of Occidental’s books and records pursuant to Section 220 of the Delaware General Corporation Law. In the complaint, the Icahn Complainants noted that they had accumulated over $1.6 billion of Occidental Common Stock. On June 14, 2019, Occidental filed an answer to the complaint in the Court of Chancery of the State of Delaware. A trial was held on September 20, 2019, and the court dismissed the Icahn Complaint. The Icahn Complainants appealed and oral arguments occurred in February 2020.
In 2016, Occidental received payments from the Republic of Ecuador of approximately $1.0 billion pursuant to a November 2015 arbitration award for Ecuador’s 2006 expropriation of Occidental’s Participation Contract for Block 15. The awarded amount represented a recovery of 60 percent of the value of Block 15. In 2017, Andes Petroleum Ecuador Ltd. (Andes) filed a demand for arbitration, claiming it is entitled to a 40 percent share of the judgment amount obtained by Occidental. Occidental contends that Andes is not entitled to any of the amounts paid under the 2015 arbitration award because Occidental’s recovery was limited to Occidental’s own 60 percent economic interest in the block. The merits hearing is scheduled for May 2020. Occidental intends to vigorously defend against this claim in arbitration.
The ultimate outcome and impact of outstanding lawsuits, claims and proceedings on Occidental cannot be predicted. Management believes that the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on Occidental’s Consolidated Balance Sheets. If unfavorable outcomes of these matters were to occur, future results of operations or cash flows for any particular quarterly or annual period could be materially adversely affected. Occidental’s estimates are based on information known about the legal matters and its experience in contesting, litigating and settling similar matters. Occidental reassesses the probability and estimability of contingent losses as new information becomes available.
TAX MATTERS
During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. Taxable years through 2016 for U.S. federal income tax purposes have been audited by the U.S. Internal Revenue Service (IRS) pursuant to its Compliance Assurance Program and subsequent taxable years are currently under review. Taxable years through 2009 have been audited for state income tax purposes. While a single foreign tax jurisdiction is open for 2002, all other significant audit matters in foreign jurisdictions have been resolved through 2010. 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.
For Anadarko, its taxable years through 2016 for U.S. federal and state income tax purposes have been audited by the IRS and respective state taxing authorities. There are outstanding significant audit matters in one foreign jurisdiction. During the course of the tax audit, disputes have arisen and other disputes may arise as to facts and matters of law. Other than the matter discussed below, Occidental believes that the resolution of these outstanding tax matters would not have a material adverse effect on its consolidated financial position or results of operations.
Anadarko received an $881 million tentative refund in 2016 related to its $5.2 billion Tronox settlement payment in 2015. In September 2018, Anadarko received a statutory notice of deficiency from the IRS disallowing the net operating loss carryback and rejecting Anadarko’s refund claim. As a result, Anadarko filed a petition with the U.S. Tax Court to dispute the disallowances in November 2018. The case is currently in the IRS appeals process. If the matter is not resolved in the IRS appeals process, Occidental expects to continue pursuing resolution in the U.S. Tax Court.
While Occidental believes it is entitled to this refund, in accordance with ASC 740’s guidance on the accounting for uncertain tax positions, as of December 31, 2019, Occidental has recorded no tax benefit on the tentative cash tax refund of
| OXY 2019 FORM 10-K | 93 |
| FINANCIAL STATEMENTS FOOTNOTES |
$881 million. As a result, should Occidental not ultimately prevail on the issue, there would be no additional tax expense recorded for financial statement purposes other than future interest. However, in that event Occidental would be required to repay approximately $925 million ($898 million federal and $27 million in state taxes) plus accrued interest of approximately $189 million. As a result, a liability for this amount has been recorded in deferred credits and other liabilities - other at December 31, 2019.
INDEMNITIES TO THIRD PARTIES
Occidental, its subsidiaries, or both, have indemnified various parties against specified liabilities those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds. As of December 31, 2019, 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.
PURCHASE OBLIGATIONS AND COMMITMENTS
Occidental, its subsidiaries, or both, have entered into agreements providing for future payments to secure terminal and pipeline capacity, drilling rigs and services, electrical power, steam and certain chemical raw materials. Occidental has certain other commitments under contracts, guarantees and joint ventures, including purchase commitments for goods and services at market-related prices and certain other contingent liabilities. At December 31, 2019, total purchase obligations were $20.7 billion, which included approximately $3.3 billion in 2020, $5.7 billion in 2021 and 2022, $4.7 billion in 2023 and 2024, and $7.1 billion in 2025 and thereafter.
| NOTE 12 - INCOME TAXES |
The following summarizes domestic and foreign components of income (loss) from continuing operations before domestic and foreign income taxes for the years ended December 31:
| millions | 2019 | 2018 | 2017 | |||||||||
| Domestic | $ | (1,632 | ) | $ | 3,431 | $ | (609 | ) | ||||
| Foreign | 1,818 | 2,177 | 1,937 | |||||||||
| Total | $ | 186 | $ | 5,608 | $ | 1,328 |
The following summarizes components of income tax expense (benefit) on continuing operations for the years ended December 31:
| millions | 2019 | 2018 | 2017 | |||||||||
| Current | ||||||||||||
| Federal | $ | 33 | $ | (23 | ) | $ | (81 | ) | ||||
| State and Local | 46 | 52 | 11 | |||||||||
| Foreign | 1,641 | 1,077 | 806 | |||||||||
| Total current tax expense | $ | 1,720 | $ | 1,106 | $ | 736 | ||||||
| Deferred | ||||||||||||
| Federal | (130 | ) | 422 | (856 | ) | |||||||
| State and Local | 17 | 12 | 23 | |||||||||
| Foreign | (914 | ) | (63 | ) | 114 | |||||||
| Total deferred tax expense (benefit) | $ | (1,027 | ) | $ | 371 | $ | (719 | ) | ||||
| Total income tax expense | $ | 693 | $ | 1,477 | $ | 17 |
| 94 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The following reconciliation of the U.S federal statutory income tax rate to Occidental’s worldwide effective tax rate on income from continuing operations for the years ended December 31 is stated as a percentage of income (loss) from continuing operations before income taxes:
| 2019 | 2018 | 2017 | |||||||
| U.S. federal statutory tax rate | 21 | % | 21 | % | 35 | % | |||
| Enhanced oil recovery credit and other general business credits | (4 | ) | (3 | ) | (9 | ) | |||
| Change in federal income tax rate | — | — | (44 | ) | |||||
| Tax (benefit) expense due to reversal of indefinite reinvestment assertion | — | (2 | ) | 7 | |||||
| Tax impact from foreign operations | 187 | 11 | 12 | ||||||
| State income taxes, net of federal benefit | 28 | 1 | 2 | ||||||
| Uncertain tax positions | 13 | — | — | ||||||
| Transaction costs | 19 | — | — | ||||||
| Non-controlling interest | (16 | ) | — | — | |||||
| Executive compensation limitation | 24 | — | — | ||||||
| Stock warrants | (9 | ) | — | — | |||||
| WES loss of control | 113 | — | — | ||||||
| Other | (3 | ) | (2 | ) | (2 | ) | |||
| Worldwide effective tax rate | 373 | % | 26 | % | 1 | % |
In 2019, Occidental’s worldwide effective tax rate was 373%, which was largely a result of Acquisition-related costs and charges associated with the loss of control of WES for which Occidental received no tax benefit.
The tax effects of temporary differences resulting in deferred income taxes at December 31, 2019, and 2018 were as follows:
| millions | 2019 | 2018 | ||||||
| Deferred tax liabilities | ||||||||
| Property, plant and equipment differences | $ | (12,375 | ) | $ | (2,089 | ) | ||
| Equity investments, partnerships and foreign subsidiaries | (989 | ) | (161 | ) | ||||
| Gross long-term deferred tax liabilities | (13,364 | ) | (2,250 | ) | ||||
| Deferred tax assets | ||||||||
| Environmental reserves | 261 | 195 | ||||||
| Postretirement benefit accruals | 441 | 176 | ||||||
| Deferred compensation and benefits | 266 | 170 | ||||||
| Asset retirement obligations | 906 | 280 | ||||||
| Foreign tax credit carryforwards | 4,379 | 2,356 | ||||||
| General business credit carryforwards | 443 | 429 | ||||||
| Net operating loss carryforward | 692 | 29 | ||||||
| Interest expense carryforward | 492 | — | ||||||
| All other | 782 | 111 | ||||||
| Gross long-term deferred tax assets | 8,662 | 3,746 | ||||||
| Valuation allowance | (4,959 | ) | (2,403 | ) | ||||
| Net long-term deferred tax assets | $ | 3,703 | $ | 1,343 | ||||
| Less: Foreign deferred tax asset in long-term receivables and other assets, net | $ | (56 | ) | $ | — | |||
| Total deferred income taxes, net | $ | (9,717 | ) | $ | (907 | ) |
Total deferred tax assets, after valuation allowances, were $3.7 billion and $1.3 billion as of December 31, 2019, and 2018, respectively. Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The total deferred tax liabilities were $13.4 billion and $2.3 billion as
| OXY 2019 FORM 10-K | 95 |
| FINANCIAL STATEMENTS FOOTNOTES |
of December 31, 2019 and 2018, respectively. The increase in net deferred tax liability in 2019 over 2018 is primarily due to the acquisition of Anadarko offset by the generation of interest expense and operating loss carryforwards in 2019.
As of December 31, 2019, Occidental had foreign tax credit carryforwards of $4.4 billion, federal general business credits carryforwards of $404 million, tax-effected foreign net operating loss carryforwards of $209 million, tax-effected state operating loss carryforwards of $292 million and state tax credit carryforwards of $39 million. These carryforward balances have varying carryforward periods through 2039. Occidental has recorded a valuation allowance for all of the foreign tax credit carryforwards, $240 million of the tax-effected state net operating loss carryforwards $32 million of the state tax credit carryforwards and all of the tax-effected foreign net operating loss carryforwards.
A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated international subsidiaries aggregating approximately $889 million at December 31, 2019, as it is Occidental’s intention to reinvest such earnings indefinitely. If the earnings of these international subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $206 million would be required.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| millions | 2019 | 2018 | 2017 | |||||||||
| Balance at January 1 | $ | — | $ | 22 | $ | 22 | ||||||
| Increase related to Anadarko Acquisition | 2,143 | — | — | |||||||||
| Increases related to current-year positions | 30 | — | — | |||||||||
| Settlements | — | (22 | ) | — | ||||||||
| Balance at December 31 | $ | 2,173 | $ | — | $ | 22 |
The December 31, 2019 balance of unrecognized tax benefits of $2.2 billion included potential benefits of $2.0 billion of which, if recognized, $1.7 billion would affect the effective tax rate on income. Also included are benefits of $131 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain. Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes. The Company accrued approximately $199 million of interest related to liabilities for unrecognized tax benefits as of December 31, 2019. During 2019, Occidental recorded interest related to liabilities for unrecognized tax benefits of $30 million. There were no interest and penalties associated with liabilities for unrecognized tax benefits recorded for the years ended December 31, 2018 and 2017. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax benefits could decrease by $100 million to $110 million due to settlements with taxing authorities or lapse in statutes of limitation.
Occidental has recognized $86 million and $68 million in federal and state income tax receivables at December 31, 2019, and 2018, respectively, which was recorded in other current assets. In addition, Occidental has recognized $36 million and $68 million in federal alternative minimum tax non-current receivables at December 31, 2019, and 2018, respectively, which was recorded in long-term receivables and other assets, net.
Occidental is subject to audit by various tax authorities in varying periods. See Note 11 - Lawsuits, Claims, Commitments and Contingencies for a discussion of these matters.
| NOTE 13 - STOCKHOLDERS’ EQUITY |
The following is a summary of common stock issuances:
| Shares in thousands | Common Stock | ||
| Balance, December 31, 2016 | 892,215 | ||
| Issued | 1,252 | ||
| Options exercised and other, net | 2 | ||
| Balance, December 31, 2017 | 893,469 | ||
| Issued | 1,628 | ||
| Options exercised and other, net | 19 | ||
| Balance, December 31, 2018 | 895,116 | ||
| Issued in the ordinary course | 3,188 | ||
| Issued as part of the Acquisition (a) | 146,131 | ||
| Balance, December 31, 2019 | 1,044,435 |
| (a) | Included approximately 2 million shares of common stock issued to a benefits trust for former Anadarko employees treated as treasury stock at December 31, 2019. |
| 96 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
TREASURY STOCK
The total number of shares authorized for Occidental’s share repurchase program is 185 million shares of which 44.2 million may yet be purchased under the repurchase program. However, the program does not obligate Occidental to acquire any specific number of shares and may be discontinued at any time. In 2019, 2.7 million shares were purchased at an average price of $66.94 under the program and in 2018, 16.9 million shares were purchased at an average price of $74.92. No shares were purchased under the program in 2017. Additionally, Occidental purchased shares from the trustee of its defined contribution savings plan during each year. As of December 31, 2019, 2018 and 2017, treasury stock shares numbered 150.3 million, 145.7 million, and 128.4 million, respectively.
PREFERRED STOCK
Occidental has authorized 50 million shares of preferred stock with a par value of $1.00 per share. On August 8, 2019, in connection with the Acquisition, Occidental issued 100,000 shares of series A preferred stock (the Preferred Stock), having a face value of $100,000 per share and a liquidation preference of $105,000 per share plus unpaid accrued dividends. In connection with the preferred stock issuance, Occidental also issued the Warrant. The holder of the Warrant and the Preferred Stock may redeem the Preferred Stock as payment for the exercise price of the Warrant in lieu of cash payment upon exercise. The Preferred Stock is redeemable at Occidental’s option after the 10th anniversary of issuance. Dividends on the Preferred Stock will accrue on the face value at a rate per annum of 8 percent, but will be paid only when, as, and if declared by Occidental’s Board of Directors. At any time, when such dividends have not been paid in full, the unpaid amounts will accrue dividends, compounded quarterly, at a rate per annum of 9 percent. Following the payment in full of any accrued but unpaid dividends, the dividend rate will remain at 9 percent per annum. In January 2020, Occidental paid $200 million in Preferred Stock dividends. At December 31, 2019, Occidental had 100,000 shares of preferred stock issued and outstanding, and none were outstanding in 2018 and 2017.
EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per share for the years ended December 31:
| millions except per share amounts | 2019 | 2018 | 2017 | |||||||||
| Income (loss) from continuing operations | $ | (507 | ) | $ | 4,131 | $ | 1,311 | |||||
| Loss from discontinued operations | (15 | ) | — | — | ||||||||
| Net income (loss) | $ | (522 | ) | $ | 4,131 | $ | 1,311 | |||||
| Less: Net income attributable to noncontrolling interest | (145 | ) | — | — | ||||||||
| Less: Preferred stock dividends | (318 | ) | — | — | ||||||||
| Net income (loss) attributable to common stock | $ | (985 | ) | $ | 4,131 | $ | 1,311 | |||||
| Less: Net income allocated to participating securities | — | (17 | ) | (6 | ) | |||||||
| Net income (loss), net of participating securities | $ | (985 | ) | $ | 4,114 | $ | 1,305 | |||||
| Weighted-average number of basic shares | 809.5 | 761.7 | 765.1 | |||||||||
| Basic earnings (loss) per common share | $ | (1.22 | ) | $ | 5.40 | $ | 1.71 | |||||
| Net income (loss), net of participating securities | $ | (985 | ) | $ | 4,114 | $ | 1,305 | |||||
| Weighted-average number of basic shares | 809.5 | 761.7 | 765.1 | |||||||||
| Dilutive securities | — | 1.6 | 0.8 | |||||||||
| Total diluted weighted-average common shares | 809.5 | 763.3 | 765.9 | |||||||||
| Diluted earnings (loss) per common share | $ | (1.22 | ) | $ | 5.39 | $ | 1.70 |
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consisted of the following after-tax amounts at December 31:
| millions | 2019 | 2018 | ||||||
| Foreign currency translation adjustments | $ | (7 | ) | $ | (7 | ) | ||
| Unrealized gains (losses) on derivatives | (122 | ) | 5 | |||||
| Pension and postretirement adjustments (a) | (92 | ) | (170 | ) | ||||
| Total | $ | (221 | ) | $ | (172 | ) |
| (a) | See Note 15 - Retirement and Postretirement Benefit Plans for further information. |
| OXY 2019 FORM 10-K | 97 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 14 - STOCK-BASED INCENTIVE PLANS |
Occidental issues stock-based awards to employees in accordance with the terms of the shareholder approved 2015 Long-Term Incentive Plan (2015 LTIP). An aggregate of 80 million shares of Occidental common stock were authorized for issuance and approximately 6.6 million shares had been allocated to employee awards through December 31, 2019. As of December 31, 2019, approximately 52.5 million shares were available for grants of future awards. The plan requires each share covered by an award (other than options) to be counted as if three shares were issued in determining the number of shares that are available for future awards. Accordingly, the number of shares available for future awards may be less than 52.5 million depending on the type of award granted, and shares available for future awards may increase by the number of shares that are forfeited, canceled, or correspond to the portion of any stock-based awards settled in cash, including awards that were issued under a previous plan that remain outstanding. Current outstanding awards include RSUs, stock options, CROCEIs, and TSRIs.
During 2019, non-employee directors were granted awards for 41,752 shares of common stock. Compensation expense for these awards was measured using the closing quoted market price of Occidental’s common stock on the grant date and was fully recognized at that time.
For the year ended December 31, 2019, Occidental incurred expenses of $208 million related to stock-based incentive plans, of which $31 million was related to the Acquisition. For the years ended December 31, 2018, and 2017, expense related to stock-based incentive plans was $180 million, and $150 million, respectively. The income tax benefit associated with this expense was $43 million, $47 million, and $32 million in the years ended December 31, 2019, 2018, and 2017, respectively.
As of December 31, 2019, unrecognized compensation expense for all unvested stock-based incentive awards was $354.1 million. This expense is expected to be recognized over a weighted-average period of 1.9 years. Occidental accounts for forfeitures as they occur.
RSUs
Certain employees are awarded the right to receive RSUs, some of which have performance criteria, and are in the form of, or equivalent in value to, actual shares of Occidental common stock. Depending on their terms, RSUs may be settled in stock or may be cash settled liabilities. These awards vest from one to 4 years following the grant date, however, certain of the RSUs are forfeitable if performance objectives are not satisfied by the seventh anniversary of the grant date. For certain RSUs, dividend equivalents are paid during the vesting period.
CASH-SETTLED LIABILITY AWARDS
The weighted-average, grant-date fair values of cash-settled RSUs granted in 2019, 2018 and 2017 were $42.62, $75.86, and $66.62 per share, respectively. Cash-Settled RSUs resulted in payments of $4 million, $18 million, and $23 million, during the years ended December 31, 2019, 2018 and 2017, respectively.
STOCK-SETTLED EQUITY AWARDS
The weighted-average, grant-date fair values of the stock-settled RSUs granted in 2019, 2018, and 2017 were $58.73, $69.87, and $67.21, respectively. The fair value of RSUs settled in shares during the years ended December 31, 2019, 2018 and 2017 was $148 million, $109 million, and $64 million, respectively.
A summary of changes in Occidental’s unvested cash- and stock-settled RSUs during the year ended December 31, 2019, is presented below:
| Cash-Settled | Stock-Settled | |||||||||||||||
| thousands, except fair values | RSUs | Weighted-Average Grant-Date Fair Value | RSUs | Weighted-Average Grant-Date Fair Value | ||||||||||||
| Unvested at January 1 | 186 | $ | 73.93 | 3,971 | $ | 73.19 | ||||||||||
| Granted (a) | 4,267 | $ | 42.62 | 3,543 | $ | 58.73 | ||||||||||
| Vested | (67 | ) | $ | 72.26 | (2,743 | ) | $ | 67.04 | ||||||||
| Forfeitures | (39 | ) | $ | 47.60 | (376 | ) | $ | 67.25 | ||||||||
| Unvested at December 31 | 4,347 | $ | 43.46 | 4,395 | $ | 65.88 |
| (a) | Included 1.5 million shares issued in exchange for Anadarko stock-based incentive shares. |
TSRIs
Certain executives are awarded TSRIs that vest at the end of a three-year period following the grant date. Payout is based upon Occidental’s absolute total shareholder return and performance relative to its peers. TSRIs have payouts that range from 0% to 200% of the target award and settle in stock once certified. Dividend equivalents for TSRIs are accumulated and paid upon certification of the award. The fair value of TSRIs settled in shares during the years ended December 31, 2019, 2018 and 2017 was $4 million, $12 million, and $5 million, respectively.
| 98 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The fair values of TSRIs are initially determined on the grant date using a Monte Carlo simulation model based on Occidental’s assumptions, noted in the following table, and the volatility from corresponding peer group companies. The expected life is based on the vesting period (Term). The risk-free interest rate is the implied yield available on zero coupon T-notes (U.S. Treasury Strip) at the time of grant with a remaining term equal to the Term. The dividend yield is the expected annual dividend yield over the Term, expressed as a percentage of the stock price on the grant date. Estimates of fair value may not accurately predict the value ultimately realized by the employees who receive the awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by Occidental.
The grant-date assumptions used in the Monte Carlo simulation models for the estimated payout level of TSRIs were as follows:
| TSRIs | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Assumptions used: | ||||||||||||
| Risk-free interest rate | 2.5 | % | 2.3 | % | 1.5 | % | ||||||
| Volatility factor | 22 | % | 24 | % | 25 | % | ||||||
| Expected life (years) | 3 | 3 | 3 | |||||||||
| Grant-date fair value of underlying Occidental common stock | $ | 67.19 | $ | 69.87 | $ | 67.21 |
A summary of Occidental’s unvested TSRIs as of December 31, 2019 and changes during the year ended December 31, 2019 is presented below:
| TSRIs | ||||||||
| thousands, except fair values | Awards | Weighted-Average Grant-Date Fair Value of Occidental Stock | ||||||
| Unvested at January 1 | 1,444 | $ | 70.97 | |||||
| Granted | 578 | $ | 67.19 | |||||
| Vested (a) | (442 | ) | $ | 76.83 | ||||
| Forfeitures | (43 | ) | $ | 76.83 | ||||
| Unvested at December 31 | 1,537 | $ | 67.70 |
| (a) | Presented at the target payouts. The weighted-average payout at vesting was 19% of the target, resulting in the issuance of approximately 83,000 shares of Occidental common stock. |
STOCK OPTIONS
Certain employees have been granted options that are settled in stock. Exercise prices of the options were equal to the quoted market value of Occidental’s stock on the grant date. No options were granted, vested or forfeited in 2019. The intrinsic value of options exercised during the years ended December 31, 2019, 2018, and 2017 was insignificant. As of December 31, 2019, there were 530,000 fully vested options outstanding with an exercise price of $79.98 per share and a remaining life of 2.1 years.
CROCEI, ROCEI and ROAI
Certain executives are awarded CROCEI, ROCEI or ROAI awards that vest at the end of a three-year period if performance targets based on cash return on capital employed, return on capital employed, or return on assets are certified as being met. These awards are settled in stock upon certification of the performance target, with payouts that range from 0% to 200% of the target award. Dividend equivalents are accumulated and paid upon certification of the award.
| CROCEI, ROCEI, and ROAI | ||||||||
| thousands, except fair values | Awards | Weighted-Average Grant-Date Fair Value of Occidental Stock | ||||||
| Unvested at January 1 | 210 | $ | 71.60 | |||||
| Granted | 81 | $ | 67.19 | |||||
| Vested (a) | (137 | ) | $ | 72.54 | ||||
| Forfeited | — | — | ||||||
| Unvested at December 31 | 154 | $ | 68.44 |
| (a) | Presented at the target payouts. The weighted-average payout at vesting was 86% of the target resulting in the issuance of approximately 118,000 shares. |
| OXY 2019 FORM 10-K | 99 |
| FINANCIAL STATEMENTS FOOTNOTES |
| NOTE 15 - RETIREMENT AND POSTRETIREMENT BENEFIT PLANS |
Occidental has various benefit plans for its salaried, domestic union and nonunion hourly, and certain foreign national employees.
In conjunction with the Acquisition, Occidental acquired certain Anadarko contributory and non-contributory defined benefit pension plans, which include both qualified and supplemental plans, and plans that provide health care and life insurance benefits for certain retired employees. The Anadarko pension and postretirement obligations were remeasured as of the Acquisition date. The remeasurement resulted in an increase to the benefit obligation of $193 million. The disclosures below exclude the plans related to the Africa Assets classified as held for sale as of December 31, 2019.
During the third quarter of 2018, Occidental adopted a postretirement benefit plan design change, which replaced the previous self-insured benefit with a Medicare Advantage PPA plan for Medicare-eligible retirees. As a result of this change, the postretirement benefit obligation was remeasured as of August 31, 2018. The remeasurement resulted in a decrease to the benefit obligation of $178 million with a corresponding offset to accumulated other comprehensive income.
DEFINED CONTRIBUTION PLANS
All domestic employees and certain foreign national employees are eligible to participate in one or more of the defined contribution retirement or savings plans that provide for periodic contributions by Occidental based on plan-specific criteria, such as base pay, level and employee contributions. Certain salaried employees participate in a supplemental retirement plan that restores benefits lost due to governmental limitations on qualified retirement benefits. The accrued liabilities for the supplemental retirement plan were $279 million and $201 million as of December 31, 2019, and 2018, respectively, and Occidental expensed $211 million in 2019, $152 million in 2018 and $130 million in 2017 under the provisions of these defined contribution and supplemental retirement plans.
DEFINED BENEFIT PLANS
Participation in defined benefit plans is limited. Approximately 4,000 domestic and 600 foreign national employees, mainly union, nonunion hourly and certain employees that joined Occidental from acquired operations with grandfathered benefits, are currently accruing benefits under these plans.
Pension costs for Occidental’s defined benefit pension plans, determined by independent actuarial valuations, are generally funded by payments to trust funds, which are administered by independent trustees.
POSTRETIREMENT AND OTHER BENEFIT PLANS
Occidental provides medical and dental benefits and life insurance coverage for certain active, retired and disabled employees and their eligible dependents. Occidental generally funds the benefits as they are paid during the year. These benefit costs, including the postretirement costs, were approximately $220 million in 2019, $182 million in 2018 and $181 million in 2017.
OBLIGATIONS AND FUNDED STATUS
The following tables show the amounts recognized in Occidental’s consolidated balance sheets at December 31, 2019 and 2018, related to its pension and postretirement benefit plans:
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| millions | 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Amounts recognized in the consolidated balance sheet: | ||||||||||||||||
| Long-term receivables and other assets, net | $ | 85 | $ | 60 | $ | — | $ | — | ||||||||
| Accrued liabilities | (96 | ) | (25 | ) | (72 | ) | (45 | ) | ||||||||
| Deferred credits and other liabilities — pension and postretirement obligations | (704 | ) | (46 | ) | (1,103 | ) | (763 | ) | ||||||||
| $ | (715 | ) | $ | (11 | ) | $ | (1,175 | ) | $ | (808 | ) | |||||
| Accumulated other comprehensive loss included the following after-tax balances: | ||||||||||||||||
| Net (gain) loss | $ | (25 | ) | $ | 91 | $ | 184 | $ | 151 | |||||||
| Prior service credit | — | — | (67 | ) | (72 | ) | ||||||||||
| $ | (25 | ) | $ | 91 | $ | 117 | $ | 79 |
| 100 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The following tables show the funding status, obligations and plan asset fair values of Occidental related to its pension and postretirement benefit plans for the years ended December 31:
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| millions | 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Changes in the benefit obligation: | ||||||||||||||||
| Benefit obligation — beginning of year | $ | 349 | $ | 391 | $ | 808 | $ | 999 | ||||||||
| Service cost — benefits earned during the period | 45 | 5 | 24 | 23 | ||||||||||||
| Interest cost on projected benefit obligation | 39 | 15 | 36 | 34 | ||||||||||||
| Actuarial (gain) loss | (33 | ) | (19 | ) | 45 | (90 | ) | |||||||||
| Foreign currency exchange rate gain | — | (3 | ) | — | — | |||||||||||
| Curtailment (gain) loss | (136 | ) | — | 10 | — | |||||||||||
| Special termination benefits | 49 | — | — | — | ||||||||||||
| Benefits paid | (95 | ) | (40 | ) | (51 | ) | (57 | ) | ||||||||
| Participant contributions | — | — | 2 | — | ||||||||||||
| Plan amendments | — | — | — | (101 | ) | |||||||||||
| Additions due to the Acquisition | 2,136 | — | 301 | — | ||||||||||||
| Benefit obligation — end of year | $ | 2,354 | $ | 349 | $ | 1,175 | $ | 808 | ||||||||
| Changes in plan assets: | ||||||||||||||||
| Fair value of plan assets — beginning of year | $ | 338 | $ | 403 | $ | — | $ | — | ||||||||
| Actual return on plan assets | 122 | (33 | ) | — | — | |||||||||||
| Participant contributions | — | — | 2 | — | ||||||||||||
| Employer contributions | 41 | 8 | 49 | — | ||||||||||||
| Benefits paid | (95 | ) | (40 | ) | (51 | ) | — | |||||||||
| Additions due to the Acquisition | 1,233 | — | — | — | ||||||||||||
| Fair value of plan assets — end of year | $ | 1,639 | $ | 338 | $ | — | $ | — | ||||||||
| Unfunded status: | $ | (715 | ) | $ | (11 | ) | $ | (1,175 | ) | $ | (808 | ) |
The following table sets forth details of the obligations and assets of Occidental’s defined benefit pension plans for the years December 31:
| Accumulated Benefit Obligation in Excess of Plan Assets | Plan Assets in Excess of Accumulated Benefit Obligation | |||||||||||||||
| millions | 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Projected benefit obligation | $ | 2,175 | $ | 173 | $ | 179 | $ | 176 | ||||||||
| Accumulated benefit obligation | $ | 1,918 | $ | 169 | $ | 179 | $ | 176 | ||||||||
| Fair value of plan assets | $ | 1,375 | $ | 98 | $ | 264 | $ | 240 |
| OXY 2019 FORM 10-K | 101 |
| FINANCIAL STATEMENTS FOOTNOTES |
COMPONENTS OF NET PERIODIC BENEFIT COST
The following table sets forth the components of net periodic benefit costs for the years ended December 31:
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| millions | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
| Net periodic benefit costs: | ||||||||||||||||||||||||
| Service cost — benefits earned during the period | $ | 45 | $ | 5 | $ | 6 | $ | 24 | $ | 23 | $ | 21 | ||||||||||||
| Interest cost on projected benefit obligation | 39 | 15 | 17 | 36 | 34 | 38 | ||||||||||||||||||
| Expected return on plan assets | (50 | ) | (25 | ) | (24 | ) | — | — | — | |||||||||||||||
| Recognized actuarial loss | 9 | 7 | 10 | 8 | 14 | 14 | ||||||||||||||||||
| Recognized prior service credit | — | — | — | (8 | ) | — | — | |||||||||||||||||
| Liability (gain) loss due to curtailment | (91 | ) | — | — | 6 | — | — | |||||||||||||||||
| Special termination benefits | 49 | — | — | — | — | — | ||||||||||||||||||
| Other costs and adjustments | (2 | ) | 1 | 3 | — | (2 | ) | 1 | ||||||||||||||||
| Net periodic benefit cost | $ | (1 | ) | $ | 3 | $ | 12 | $ | 66 | $ | 69 | $ | 74 |
The service cost component of net periodic benefit cost is included in selling, general and administrative, oil and gas operating expense, chemical and midstream costs, and exploration expense on Occidental’s Consolidated Statements of Operations. All other components of net periodic benefit cost are included in other operating and non-operating expense.
The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from Accumulated Other Comprehensive Income (AOCI) into net periodic benefit cost over the next fiscal year are $3 million and zero, respectively. The estimated net loss and prior service credit for the defined benefit postretirement plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $12 million and $(8) million, respectively.
ADDITIONAL INFORMATION
The following table sets forth the weighted-average assumptions used to determine Occidental’s benefit obligation and net periodic benefit cost for domestic plans for the years ended December 31:
| Pension Benefits | Postretirement Benefits | |||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Benefit Obligation Assumptions: | ||||||||||||
| Discount rate | 3.10 | % | 4.09 | % | 3.26 | % | 4.29 | % | ||||
| Net Periodic Benefit Cost Assumptions: | ||||||||||||
| Discount rate for January 1 - August 31 expense | 3.21 | % | 3.45 | % | 3.41 | % | 3.61 | % | ||||
| Discount rate for September 1 - December 31 expense | 3.21 | % | 3.45 | % | 3.41 | % | 4.14 | % | ||||
| Assumed long-term rate of return on assets | 6.50 | % | 6.50 | % | — | — | ||||||
| Rates of increase in compensation levels | 5.44 | % | — | — | — |
For domestic pension plans and postretirement benefit plans, Occidental based the discount rate on AA-AAA Universe yield curve in 2019 and 2018. The assumed long-term rate of return on assets is estimated with regard to current market factors but within the context of historical returns for the asset mix that exists at year end. Assumed rates of compensation increases for active participants in certain plans and vary by age group.
In 2019, Occidental adopted the Society of Actuaries 2019 Pri-2012 Private Retirement Plans Mortality Tables with Mortality Improvement Scale, which updated the mortality assumptions that private defined-benefit plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. The new mortality assumption reflects additional data that the Social Security Administration has released since the previous mortality tables and improvement scales were released. This additional data shows a lower degree of mortality improvement than previously reflected. The changes in the mortality assumption results in a decrease of $15 million and $9 million in the pension and postretirement benefit obligation, respectively, at December 31, 2019.
For pension plans outside the United States, Occidental based its discount rate on rates indicative of government or investment grade corporate debt in the applicable country, taking into account hyperinflationary environments when necessary. The discount rates used for the foreign pension plans ranged from 1.0% to 8.8% at December 31, 2019 and from 1.0% to 8.9% at December 31, 2018. The average rate of increase in future compensation levels ranged from 1.0% to 8.0% in 2019, depending on local economic conditions.
The postretirement benefit obligation was determined by application of the terms of medical and dental benefits and life insurance coverage, including the effect of established maximums on covered costs, together with relevant actuarial
| 102 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
assumptions and health care cost trend rates. Health care cost trend rates for Medicare advantaged prescription drug (MAPD) plans of 4.3% to 21.5% in 2019, between (7.7)% and (6.2)% in 2020, 9.6% in 2021, then grading down to 4.5% in 2028 and beyond. The negative trend rates for the MAPD plans reflect the repeal of the Health Insurer Fee effective in 2021. Health care cost trend rates used for non-MAPD plans are 6.7% to 7.5% in 2019, then grading down to 4.5% in 2028 and beyond.
A 1% increase or a 1% decrease in these assumed health care cost trend rates would result in an increase of $131 million or a reduction of $103 million, respectively, in the postretirement benefit obligation and increase of $13 million or a reduction of $9 million in the annual service and interest costs as of December 31, 2019.
The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors that, depending on the nature of the changes, could cause increases or decreases in the plan assets and liabilities.
FAIR VALUE OF PENSION PLAN ASSETS
Pension plan assets are monitored by Occidental’s Pension and Retirement Trust and Investment Committee or by the Investment Subcommittee of the Anadarko Petroleum Corporation Administrative & Investment Committee (collectively, the Investment Committees), in their roles as fiduciaries. The Investment Committees select and employ various external professional investment management firms to manage specific investments across the spectrum of asset classes. The Investment Committees employ a total return investment approach that uses a diversified blend of investments across several categories (equity securities, fixed-income securities, real estate, hedge funds, and private equity) to optimize the long-term return of plan assets at a prudent level of risk. Equity investments are diversified across U.S. and non-U.S. stocks, as well as differing styles and market capitalizations. Investment performance is measured and monitored on an ongoing basis through quarterly investment portfolio and manager guideline compliance reviews, annual liability measurements and periodic studies.
The fair values of Occidental’s pension plan assets by asset category were as follows:
| millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| December 31, 2019 | ||||||||||||||||
| Asset Class: | ||||||||||||||||
| U.S. government securities | $ | 13 | $ | — | $ | — | $ | 13 | ||||||||
| Corporate bonds (a) | — | 60 | — | 60 | ||||||||||||
| Mutual funds: | ||||||||||||||||
| Bond funds | 46 | — | — | 46 | ||||||||||||
| International funds | 68 | — | — | 68 | ||||||||||||
| Common and preferred stocks (b) | 173 | — | — | 173 | ||||||||||||
| Other | — | 29 | — | 29 | ||||||||||||
| Investments measured at fair value | $ | 300 | $ | 89 | $ | — | $ | 389 | ||||||||
| Investments measured at net asset value (c) | — | — | — | 1,253 | ||||||||||||
| Total pension plan assets (d) | $ | 300 | $ | 89 | $ | — | $ | 1,642 | ||||||||
| December 31, 2018 | ||||||||||||||||
| Asset Class: | ||||||||||||||||
| U.S. government securities | $ | 17 | $ | — | $ | — | $ | 17 | ||||||||
| Corporate bonds (a) | — | 66 | — | 66 | ||||||||||||
| Common/collective trusts (e) | — | 9 | — | 9 | ||||||||||||
| Mutual funds: | ||||||||||||||||
| Bond funds | 31 | — | — | 31 | ||||||||||||
| Blend funds | 48 | — | — | 48 | ||||||||||||
| Common and preferred stocks (b) | 141 | — | — | 141 | ||||||||||||
| Other | — | 31 | — | 31 | ||||||||||||
| Total pension plan assets (d) | $ | 237 | $ | 106 | $ | — | $ | 343 |
| (a) | This category represents investment grade bonds of U.S. and non-U.S. issuers from diverse industries. |
| (b) | This category included investment funds that primarily invest in U.S. and non-U.S. common stocks and fixed-income securities. |
| (c) | This category represents direct investments in common and preferred stocks from diverse U.S. and non-U.S. industries. |
| (d) | Certain investments measured at fair value using the net asset value per share (or its equivalent) have not been categorized in the fair value hierarchy. Amounts presented in this table are intended to reconcile the fair value hierarchy to the pension plan assets. |
| (e) | Amounts exclude net payables of approximately $3 million and $5 million as of December 31, 2019 and 2018, respectively. |
| OXY 2019 FORM 10-K | 103 |
| FINANCIAL STATEMENTS FOOTNOTES |
Occidental expects to contribute $179 million in cash to its defined benefit pension plans during 2020. Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows for the years ended December 31:
| millions | Pension Benefits | Postretirement Benefits | ||||||
| 2020 | $ | 810 | $ | 73 | ||||
| 2021 | $ | 113 | $ | 72 | ||||
| 2022 | $ | 125 | $ | 71 | ||||
| 2023 | $ | 128 | $ | 70 | ||||
| 2024 | $ | 124 | $ | 68 | ||||
| 2025 - 2029 | $ | 625 | $ | 321 |
| NOTE 16 - INVESTMENTS AND RELATED-PARTY TRANSACTIONS |
EQUITY INVESTMENTS
As of December 31, 2019, and 2018, investments in unconsolidated entities were $6.4 billion and $1.7 billion, respectively. As of December 31, 2019, Occidental’s significant equity investments primarily consisted of the following:
| millions | % Interest | Carrying amount | |||||
| WES | 56.3 | % | $ | 5,128 | |||
| OxyChem Ingleside Facility | 50.0 | % | 679 | ||||
| Dolphin Energy Limited | 24.5 | % | 240 | ||||
| Other | various | 342 | |||||
| Total | $ | 6,389 |
As of December 31, 2018, Occidental’s significant equity investments consisted of investments in Plains, OxyChem Ingleside Facility and Dolphin Energy Limited. In September 2019, Occidental sold its equity investment in Plains, which consisted of an 11 percent interest in the general partner that owned approximately 40 percent in Plains Pipeline. See Note 4 - Acquisitions, Dispositions, and Other Transactions for additional information.
As part of the Acquisition, Occidental acquired equity investments in certain oil and gas properties and gathering and processing assets and assumed an associated notes payable which Occidental has the legal right of setoff and intends to net settle with its ownership interest in the equity investments. The notes payable can be net settled starting in 2022. The carrying value of the investment and note payable was $2.8 billion and $2.8 billion at December 31, 2019, respectively. Accordingly, the equity investments and the related notes payable are presented net on the Consolidated Balance Sheets.
Dividends received from equity investments were $422 million, $329 million, and $297 million to Occidental in 2019, 2018 and 2017, respectively. As of December 31, 2019, cumulative undistributed earnings of equity-method investees since they were acquired was immaterial. As of December 31, 2019, Occidental’s investments in equity investees exceeded the underlying equity in net assets by approximately $3.6 billion, of which $1.5 billion represented goodwill and the remainder comprised intangibles amortized over their estimated useful lives.
The following table presents the summarized financial information of its equity-method investments combined for the years ended and as of December 31:
| millions | 2019 | 2018 | 2017 | |||||||||
| Summarized Results of Operations(a) | ||||||||||||
| Revenues and other income | $ | 26,520 | $ | 28,091 | $ | 13,843 | ||||||
| Costs and expenses | 24,084 | 25,029 | 12,230 | |||||||||
| Net income | $ | 2,436 | $ | 3,062 | $ | 1,613 | ||||||
| Summarized Balance Sheet(b) | ||||||||||||
| Current assets | $ | 1,130 | $ | 5,587 | $ | 5,754 | ||||||
| Non-current assets | $ | 21,158 | $ | 25,871 | $ | 25,108 | ||||||
| Current liabilities | $ | 785 | $ | 4,879 | $ | 4,479 | ||||||
| Long-term debt | $ | 8,673 | $ | 12,505 | $ | 14,091 | ||||||
| Other non-current liabilities | $ | 859 | $ | 95 | $ | 414 | ||||||
| Stockholders’ equity | $ | 11,971 | $ | 13,979 | $ | 11,878 |
| (a) | The 2019 Summarized Results of Operations include results of Plains for the period beginning January 1, 2019 through the date Occidental’s interest was sold in September 2019. |
| (b) | The 2019 Summarized Balance Sheet included the balance of WES due to the loss of control on December 30, 2019 and excluded the balances of Plains as the interest was sold in September 2019. |
RELATED-PARTY TRANSACTIONS
From time to time, Occidental purchases oil, NGL, power, steam and chemicals from and sells oil, NGL, natural gas, chemicals and power to certain of its equity investees and other related parties. During 2019, 2018 and 2017, Occidental entered into the following related-party transactions and had the following amounts due from or to its related parties for the years ended December 31:
| millions | 2019 | 2018 | 2017 | |||||||||
| Sales (a,c) | $ | 691 | $ | 805 | $ | 636 | ||||||
| Purchases (b,c) | $ | 463 | $ | 502 | $ | 387 | ||||||
| Services | $ | 28 | $ | 52 | $ | 38 | ||||||
| Advances and amounts due from related parties | $ | 133 | $ | 63 | $ | 63 | ||||||
| Amounts due to related parties (d) | $ | 463 | $ | 46 | $ | 45 |
| (a) | In 2019, 2018 and 2017, sales of Occidental-produced oil and NGL to Plains Pipeline affiliates accounted for 87 percent, 89 percent and 86 percent of these totals, respectively. In September 2019, Occidental sold its remaining interest in Plains Pipeline. |
| (b) | In 2019 and 2018, purchases of ethylene from the Ingleside ethylene cracker accounted for 98 percent of related-party purchases, respectively. |
| (c) | Excluded sales to and purchases from WES as it was a consolidated subsidiary from the date of the Acquisition through December 31, 2019. |
| (d) | Amounts due to related parties at December 31, 2019 primarily consists of a 6.5% note payable to WES due 2038. |
| NOTE 17 - FAIR VALUE MEASUREMENTS |
FAIR VALUES – RECURRING
In January 2012, Occidental entered into a long-term contract to purchase CO2. This contract contains a price adjustment clause that is linked to changes in NYMEX oil prices. Occidental determined that the portion of this contract linked to NYMEX oil prices is not clearly and closely related to the host contract, and Occidental therefore bifurcated this embedded pricing feature from its host contract and accounts for it at fair value in the consolidated financial statements.
| 104 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
The following tables provide fair value measurement information for assets and liabilities that are measured on a recurring basis:
| millions | Fair Value Measurements Using | Total Fair Value | ||||||||||||||||||
| Balance Sheet Classification | Level 1 | Level 2 | Level 3 | Netting | ||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| Embedded Derivatives | ||||||||||||||||||||
| Accrued liabilities | $ | — | $ | 40 | $ | — | $ | — | $ | 40 | ||||||||||
| Deferred credits and other liabilities - other | $ | — | $ | 49 | $ | — | $ | — | $ | 49 | ||||||||||
| December 31, 2018 | ||||||||||||||||||||
| Embedded Derivatives | ||||||||||||||||||||
| Accrued liabilities | $ | — | $ | 66 | $ | — | $ | — | $ | 66 | ||||||||||
| Deferred credits and other liabilities - other | $ | — | $ | 116 | $ | — | $ | — | $ | 116 |
FAIR VALUES – NONRECURRING
During 2019, Occidental measured assets and liabilities at acquisition-date fair value on a nonrecurring basis related to the Acquisition. See Note 3 - The Acquisition for more detail.
In 2019, Occidental recorded a $1 billion charge as a result of recording Occidental’s equity investment in WES at fair value upon loss of control, see Note 1 - Summary of Significant Accounting Policies. Additionally, Occidental’s oil and gas segment recognized pre-tax impairment and related charges of $285 million related to domestic undeveloped leases that were set to expire in the near term, where Occidental had no plans to pursue exploration activities, and $39 million related to Occidental’s mutually agreed early termination of its Qatar ISSD contract.
During 2018, Occidental recognized pre-tax impairment and related charges of $416 million primarily related to Qatar ISND and ISSD proved properties and inventory. The fair value of the proved properties was measured based on the income approach, which 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, estimates of oil and gas reserves, estimates of future expected operating and capital costs and a risk-adjusted discount rate of 10 percent. These inputs are categorized as Level 3 in the fair value hierarchy.
During 2017, Occidental recognized pre-tax impairment charges of $397 million primarily related to held for sale non-core proved and unproved Permian acreage. Assumptions for proved and unproved properties classified as held for sale include estimated third-party prices to be received based on recent transactions of similar acreage.
FINANCIAL INSTRUMENTS FAIR VALUE
The carrying amounts of cash, cash equivalents, restricted cash and restricted cash equivalents and other on-balance sheet financial instruments, other than fixed-rate debt, approximate fair value. See Note 7 - Long-term Debt for the fair value of Long-term debt.
| NOTE 18 - INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS |
Occidental conducts its operations through three segments: (1) oil and gas; (2) chemical; and (3) marketing and midstream.
Income taxes, interest income, interest expense, environmental remediation expenses, Anadarko acquisition-related costs and unallocated corporate expenses are included under Corporate and Eliminations. 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. Identifiable assets are those assets used in the operations of the segments. Corporate assets consist of cash and restricted cash, certain corporate receivables and PP&E.
| OXY 2019 FORM 10-K | 105 |
| FINANCIAL STATEMENTS FOOTNOTES |
| millions | Oil and Gas | Chemical | Marketing and Midstream | Corporate and Eliminations | Total | ||||||||||||||
| Year ended December 31, 2019 | |||||||||||||||||||
| Net sales | $ | 13,423 | $ | 4,102 | $ | 4,132 | $ | (1,264 | ) | $ | 20,393 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | 2,352 | (a) | $ | 799 | $ | 241 | (b) | $ | (3,206 | ) | (c) | $ | 186 | |||||
| Income tax expense | — | — | — | (693 | ) | (d) | (693 | ) | |||||||||||
| Income (loss) from continuing operations | $ | 2,352 | $ | 799 | $ | 241 | $ | (3,899 | ) | $ | (507 | ) | |||||||
| Investments in unconsolidated entities | $ | 181 | $ | 689 | $ | 5,519 | $ | — | $ | 6,389 | |||||||||
| Property, plant and equipment additions(e) | $ | 5,559 | $ | 272 | $ | 475 | $ | 135 | $ | 6,441 | |||||||||
| Depreciation, depletion and amortization | $ | 4,994 | $ | 368 | $ | 563 | $ | 56 | $ | 5,981 | |||||||||
| Total assets | $ | 77,936 | $ | 4,361 | $ | 17,055 | $ | 9,978 | $ | 109,330 | |||||||||
| Year ended December 31, 2018 | |||||||||||||||||||
| Net sales | $ | 10,441 | $ | 4,657 | $ | 3,656 | $ | (930 | ) | $ | 17,824 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | 2,442 | (a) | $ | 1,159 | $ | 2,802 | (b) | $ | (795 | ) | (c) | $ | 5,608 | |||||
| Income tax expense | — | — | — | (1,477 | ) | (d) | (1,477 | ) | |||||||||||
| Income (loss) from continuing operations | $ | 2,442 | $ | 1,159 | $ | 2,802 | $ | (2,272 | ) | $ | 4,131 | ||||||||
| Investments in unconsolidated entities | $ | — | $ | 733 | $ | 947 | $ | — | $ | 1,680 | |||||||||
| Property, plant and equipment additions(e) | $ | 4,443 | $ | 277 | $ | 221 | $ | 79 | $ | 5,020 | |||||||||
| Depreciation, depletion and amortization | $ | 3,254 | $ | 354 | $ | 331 | $ | 38 | $ | 3,977 | |||||||||
| Total assets | $ | 24,874 | $ | 4,359 | $ | 11,087 | $ | 3,534 | $ | 43,854 | |||||||||
| Year ended December 31, 2017 | |||||||||||||||||||
| Net sales | $ | 7,870 | $ | 4,355 | $ | 1,157 | $ | (874 | ) | $ | 12,508 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | 1,111 | (a) | $ | 822 | $ | 85 | (b) | $ | (690 | ) | (c) | $ | 1,328 | |||||
| Income tax expense | — | — | — | (17 | ) | (d) | (17 | ) | |||||||||||
| Income (loss) from continuing operations | $ | 1,111 | $ | 822 | $ | 85 | $ | (707 | ) | $ | 1,311 | ||||||||
| Investments in unconsolidated entities | $ | — | $ | 771 | $ | 739 | $ | 5 | $ | 1,515 | |||||||||
| Property, plant and equipment additions(e) | $ | 2,968 | $ | 323 | $ | 296 | $ | 64 | $ | 3,651 | |||||||||
| Depreciation, depletion and amortization | $ | 3,269 | $ | 352 | $ | 340 | $ | 41 | $ | 4,002 | |||||||||
| Total assets | $ | 23,595 | $ | 4,364 | $ | 11,775 | $ | 2,292 | $ | 42,026 |
| (a) | The 2019 amount included a net gain on sale of $475 million related to Occidental’s joint venture with Ecopetrol in the Midland Basin and sale of real estate assets, a $285 million impairment charge associated with domestic undeveloped leases that were set to expire in the near term, where Occidental had no plans to pursue exploration activities, and a $39 million charge related to Occidental’s mutually agreed early termination of its Qatar ISSD contract. The 2018 amount included $416 million for the impairment of proved oil properties and inventory in Qatar ISND and ISSD due to the decline in oil prices. The 2017 amount included pre-tax asset sale gains of $655 million primarily related to South Texas and non-core acreage in the Permian basin and $397 million for the impairment of non-core proved and unproved Permian acreage. |
| (b) | The 2019 amount included a $1 billion charge as a result of recording Occidental’s investment in WES at fair value as of December 31, 2019 upon the loss of control, a $114 million gain on the sale of an equity investment in Plains and a $30 million mark-to-market gain on an interest rate swap for WES. The 2018 amount included pre-tax asset sale gains of $907 million on the sale of non-core domestic midstream assets. The 2017 amount included pre-tax charges of $120 million related to asset impairments of idled facilities. |
| (c) | The 2019 amount included corporate transactions related to the Acquisition including charges of $1.0 billion related to employee severance and related costs, $401 million related to crucial seismic data and $213 million for bank, legal and consulting fees. There were no significant corporate transactions and events affecting 2018 and 2017 results. The tax effect of these pre-tax adjustments was a $245 million benefit in 2019, and $198 million expense and $392 million expense in 2018 and 2017, respectively. |
| (d) | Included all foreign and domestic income taxes from continuing operations. |
| (e) | Included capital expenditures and capitalized interest, but excluded acquisition and disposition of assets. |
| 106 | OXY 2019 FORM 10-K |
| FINANCIAL STATEMENTS FOOTNOTES |
GEOGRAPHIC AREAS
| Property, plant and equipment, net | ||||||||||||
| millions | 2019 | 2018 | 2017 | |||||||||
| United States | $ | 72,808 | $ | 23,594 | $ | 22,863 | ||||||
| International | ||||||||||||
| United Arab Emirates | 3,887 | 4,051 | 4,241 | |||||||||
| Oman | 2,115 | 2,048 | 1,962 | |||||||||
| Colombia | 1,010 | 927 | 807 | |||||||||
| Qatar | 562 | 741 | 1,236 | |||||||||
| Other International | 87 | 76 | 65 | |||||||||
| Total International | 7,661 | 7,843 | 8,311 | |||||||||
| Total | $ | 80,469 | $ | 31,437 | $ | 31,174 |
| OXY 2019 FORM 10-K | 107 |
| Supplemental Quarterly Information (Unaudited) |
| Quarterly Financial Data | Occidental Petroleum Corporation and Subsidiaries |
| millions except per-share amounts | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| 2019 | ||||||||||||||||
| Segment net sales | ||||||||||||||||
| Oil and gas | $ | 2,351 | $ | 2,718 | $ | 3,821 | $ | 4,533 | ||||||||
| Chemical | 1,059 | 998 | 1,071 | 974 | ||||||||||||
| Marketing and Midstream(a) | 816 | 909 | 1,163 | 1,244 | ||||||||||||
| Eliminations | (222 | ) | (205 | ) | (368 | ) | (469 | ) | ||||||||
| Net sales | $ | 4,004 | $ | 4,420 | $ | 5,687 | $ | 6,282 | ||||||||
| Gross profit | $ | 1,210 | $ | 1,449 | $ | 1,422 | $ | 1,287 | ||||||||
| Segment earnings | ||||||||||||||||
| Oil and gas | $ | 484 | $ | 726 | $ | 221 | $ | 921 | ||||||||
| Chemical | 265 | 208 | 207 | 119 | ||||||||||||
| Marketing and Midstream(a) | 279 | 331 | 400 | (769 | ) | |||||||||||
| Total segment earnings | $ | 1,028 | $ | 1,265 | $ | 828 | $ | 271 | ||||||||
| Unallocated corporate items | ||||||||||||||||
| Interest expense, net | (83 | ) | (143 | ) | (360 | ) | (416 | ) | ||||||||
| Income taxes | (225 | ) | (306 | ) | (116 | ) | (46 | ) | ||||||||
| Other | (89 | ) | (181 | ) | (1,089 | ) | (845 | ) | ||||||||
| Income (loss) from continuing operations | $ | 631 | $ | 635 | $ | (737 | ) | $ | (1,036 | ) | ||||||
| Discontinued operates, net of taxes | — | — | (15 | ) | — | |||||||||||
| Net Income (loss) | $ | 631 | $ | 635 | $ | (752 | ) | $ | (1,036 | ) | ||||||
| Less: Net income attributable to noncontrolling interests | — | — | (42 | ) | (103 | ) | ||||||||||
| Less: Preferred stock dividend | — | — | (118 | ) | (200 | ) | ||||||||||
| Net income (loss) attributable to common stockholders | $ | 631 | $ | 635 | $ | (912 | ) | $ | (1,339 | ) | ||||||
| Basic earnings (loss) per common share | $ | 0.84 | $ | 0.84 | $ | (1.08 | ) | $ | (1.50 | ) | ||||||
| Diluted earnings (loss) per common share | $ | 0.84 | $ | 0.84 | $ | (1.08 | ) | $ | (1.50 | ) | ||||||
| Dividends per common share | $ | 0.78 | $ | 0.78 | $ | 0.79 | $ | 0.79 | ||||||||
| 2018 | ||||||||||||||||
| Segment net sales | ||||||||||||||||
| Oil and gas | $ | 2,454 | $ | 2,531 | $ | 2,889 | $ | 2,567 | ||||||||
| Chemical | 1,154 | 1,176 | 1,185 | 1,142 | ||||||||||||
| Marketing and Midstream | 389 | 603 | 1,367 | 1,297 | ||||||||||||
| Eliminations | (234 | ) | (227 | ) | (225 | ) | (244 | ) | ||||||||
| Net sales | $ | 3,763 | $ | 4,083 | $ | 5,216 | $ | 4,762 | ||||||||
| Gross profit | $ | 1,371 | $ | 1,556 | $ | 2,297 | $ | 1,616 | ||||||||
| Segment earnings | ||||||||||||||||
| Oil and gas | $ | 750 | $ | 780 | $ | 767 | $ | 145 | ||||||||
| Chemical | 298 | 317 | 321 | 223 | ||||||||||||
| Marketing and Midstream | 179 | 250 | 1,698 | 675 | ||||||||||||
| Total segment earnings | $ | 1,227 | $ | 1,347 | $ | 2,786 | $ | 1,043 | ||||||||
| Unallocated corporate items | ||||||||||||||||
| Interest expense, net | (92 | ) | (91 | ) | (92 | ) | (81 | ) | ||||||||
| Income taxes | (339 | ) | (302 | ) | (710 | ) | (126 | ) | ||||||||
| Other | (88 | ) | (106 | ) | (115 | ) | (130 | ) | ||||||||
| Net income attributable to common stockholders | $ | 708 | $ | 848 | $ | 1,869 | $ | 706 | ||||||||
| Basic earnings per common share | $ | 0.92 | $ | 1.10 | $ | 2.44 | $ | 0.93 | ||||||||
| Diluted earnings per common share | $ | 0.92 | $ | 1.10 | $ | 2.44 | $ | 0.93 | ||||||||
| Dividends per common share | $ | 0.77 | $ | 0.77 | $ | 0.78 | $ | 0.78 |
| (a) | Marketing and Midstream segment net sales and earnings include the results of WES from the Acquisition date to the loss of control date. |
| 108 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
Supplemental Oil and Gas Information
OIL AND GAS RESERVES
The following tables set forth Occidental’s net interests in quantities of proved developed and undeveloped reserves of oil (including condensate), NGL and natural gas and changes in such quantities. Proved oil, NGL and natural gas reserves were estimated using the unweighted arithmetic average of the first-day-of-the-month price for each month within the year, unless prices were defined by contractual arrangements. Oil, NGL and natural gas prices used for this purpose were based on posted benchmark prices and adjusted for price differentials including gravity, quality and transportation costs. The following table shows the pricing used in the reserve analysis for the periods presented:
| 2019 | 2018 | 2017 | ||||
| Average WTI oil price (per barrel) | $55.69 | $65.56 | $51.34 | |||
| Average Brent price (per barrel) | $63.03 | $72.20 | $54.93 | |||
| Average Henry Hub natural gas price (per MMBtu) | $2.58 | $3.10 | $2.98 |
Reserves are stated net of applicable royalties. Estimated reserves include Occidental’s economic interests under production-sharing contracts (PSCs) and other similar economic arrangements. In addition, discussions of oil and gas production or volumes, in general, refer to sales volumes unless the context requires or it is indicated otherwise.
Prices for oil, natural gas and NGL fluctuate widely. Historically, the markets for oil, natural gas, NGL and refined products have been volatile and may continue to be volatile in the future. Prolonged or further declines in oil, natural gas and NGL prices would continue to reduce Occidental’s operating results and cash flows, and could impact its future rate of growth and further impact the recoverability of the carrying value of its assets.
Proved undeveloped reserves in the Permian Basin are supported by a five-year detailed field-level development plan, which includes the timing, location and capital commitment of the wells to be drilled. Only proved undeveloped reserves which are reasonably certain to be drilled within five years of booking and are supported by a final investment decision to drill them are included in the development plan. A portion of the proved undeveloped reserves associated with international operations are expected to be developed beyond the five years and are tied to approved long-term development plans.
| 109 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
OIL RESERVES**(a)**
| millions of barrels (MMbbl) | United States | Latin America | Middle East (b) | Total | ||||||||
| PROVED DEVELOPED AND UNDEVELOPED RESERVES | ||||||||||||
| Balance at December 31, 2016 | 960 | 71 | 326 | 1,357 | ||||||||
| Revisions of previous estimates | 66 | 14 | 33 | 113 | ||||||||
| Improved recovery | 97 | 8 | 17 | 122 | ||||||||
| Extensions and discoveries | — | — | 5 | 5 | ||||||||
| Purchases of proved reserves | 70 | — | — | 70 | ||||||||
| Sales of proved reserves | (13 | ) | — | — | (13 | ) | ||||||
| Production | (73 | ) | (11 | ) | (55 | ) | (139 | ) | ||||
| Balance at December 31, 2017 | 1,107 | 82 | 326 | 1,515 | ||||||||
| Revisions of previous estimates | 15 | (2 | ) | (7 | ) | 6 | ||||||
| Improved recovery | 135 | 23 | 31 | 189 | ||||||||
| Extensions and discoveries | — | 4 | 2 | 6 | ||||||||
| Purchases of proved reserves | 32 | — | — | 32 | ||||||||
| Sales of proved reserves | (12 | ) | — | — | (12 | ) | ||||||
| Production | (91 | ) | (11 | ) | (51 | ) | (153 | ) | ||||
| Balance at December 31, 2018 | 1,186 | 96 | 301 | 1,583 | ||||||||
| Revisions of previous estimates (c) | (154 | ) | 3 | 15 | (136 | ) | ||||||
| Improved recovery | 128 | 12 | 25 | 165 | ||||||||
| Extensions and discoveries | 37 | 2 | 2 | 41 | ||||||||
| Purchases of proved reserves (d) | 545 | — | — | 545 | ||||||||
| Sales of proved reserves | (17 | ) | — | — | (17 | ) | ||||||
| Production | (155 | ) | (12 | ) | (44 | ) | (211 | ) | ||||
| Balance at December 31, 2019 | 1,570 | 101 | 299 | 1,970 | ||||||||
| PROVED DEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 670 | 69 | 298 | 1,037 | ||||||||
| December 31, 2017 | 772 | 77 | 279 | 1,128 | ||||||||
| December 31, 2018 | 843 | 77 | 240 | 1,160 | ||||||||
| December 31, 2019 (e) | 1,206 | 76 | 226 | 1,508 | ||||||||
| PROVED UNDEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 290 | 2 | 28 | 320 | ||||||||
| December 31, 2017 | 335 | 5 | 47 | 387 | ||||||||
| December 31, 2018 | 343 | 19 | 61 | 423 | ||||||||
| December 31, 2019 | 364 | 25 | 73 | 462 |
| (a) | Excluded reserve amounts related to the Africa Assets. |
| (b) | A majority of the proved reserve amounts relate to PSCs and other similar economic arrangements. |
| (c) | Revisions of previous estimates in 2019 primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin. |
| (d) | Purchases of proved reserves in 2019 related to acquired reserves through the Acquisition. |
| (e) | Approximately 11% of the proved developed reserves at December 31, 2019, are nonproducing, primarily associated with Oman, Permian EOR and DJ Basin. |
| 110 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
NGL RESERVES**(a)**
| millions of barrels (MMbbl) | United States | Latin America | Middle East | Total | ||||||||
| PROVED DEVELOPED AND UNDEVELOPED RESERVES | ||||||||||||
| Balance at December 31, 2016 | 219 | — | 201 | 420 | ||||||||
| Revisions of previous estimates | 11 | — | (2 | ) | 9 | |||||||
| Improved recovery | 23 | — | 10 | 33 | ||||||||
| Extensions and discoveries | — | — | — | — | ||||||||
| Purchases of proved reserves | 21 | — | — | 21 | ||||||||
| Sales of proved reserves | (7 | ) | — | — | (7 | ) | ||||||
| Production | (20 | ) | — | (11 | ) | (31 | ) | |||||
| Balance at December 31, 2017 | 247 | — | 198 | 445 | ||||||||
| Revisions of previous estimates | 7 | — | 15 | 22 | ||||||||
| Improved recovery | 47 | — | — | 47 | ||||||||
| Extensions and discoveries | — | — | — | — | ||||||||
| Purchases of proved reserves | 11 | — | — | 11 | ||||||||
| Sales of proved reserves | (3 | ) | — | — | (3 | ) | ||||||
| Production | (25 | ) | — | (11 | ) | (36 | ) | |||||
| Balance at December 31, 2018 | 284 | — | 202 | 486 | ||||||||
| Revisions of previous estimates (b) | (21 | ) | — | 10 | (11 | ) | ||||||
| Improved recovery | 58 | — | — | 58 | ||||||||
| Extensions and discoveries | 11 | — | — | 11 | ||||||||
| Purchases of proved reserves (c) | 267 | — | — | 267 | ||||||||
| Sales of proved reserves | (7 | ) | — | — | (7 | ) | ||||||
| Production | (52 | ) | — | (12 | ) | (64 | ) | |||||
| Balance at December 31, 2019 | 540 | — | 200 | 740 | ||||||||
| PROVED DEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 149 | — | 164 | 313 | ||||||||
| December 31, 2017 | 161 | — | 153 | 314 | ||||||||
| December 31, 2018 | 196 | — | 145 | 341 | ||||||||
| December 31, 2019 (d) | 406 | — | 141 | 547 | ||||||||
| PROVED UNDEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 70 | — | 37 | 107 | ||||||||
| December 31, 2017 | 86 | — | 45 | 131 | ||||||||
| December 31, 2018 | 88 | — | 57 | 145 | ||||||||
| December 31, 2019 | 134 | — | 59 | 193 |
| (a) | Excluded reserve amounts related to the Africa Assets. |
| (b) | Revisions of previous estimates in 2019 primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin and DJ Basin. |
| (c) | Purchases of proved reserves in 2019 related to acquired reserves through the Acquisition. |
| (d) | Approximately 6% of the proved developed reserves at December 31, 2019, are nonproducing, primarily associated with Permian EOR and DJ Basin. |
| OXY 2019 FORM 10-K | 111 |
| Supplemental Oil and Gas Information (Unaudited) |
NATURAL GAS RESERVES**(a)**
| billions of cubic feet (Bcf) | United States | Latin America | Middle East (b) | Total | ||||||||
| PROVED DEVELOPED AND UNDEVELOPED RESERVES | ||||||||||||
| Balance at December 31, 2016 | 1,045 | 6 | 2,723 | 3,774 | ||||||||
| Revisions of previous estimates | 197 | 8 | (33 | ) | 172 | |||||||
| Improved recovery | 167 | 1 | 106 | 274 | ||||||||
| Extensions and discoveries | — | — | 3 | 3 | ||||||||
| Purchases of proved reserves | 50 | — | — | 50 | ||||||||
| Sales of proved reserves | (146 | ) | — | — | (146 | ) | ||||||
| Production | (108 | ) | (3 | ) | (185 | ) | (296 | ) | ||||
| Balance at December 31, 2017 | 1,205 | 12 | 2,614 | 3,831 | ||||||||
| Revisions of previous estimates | (25 | ) | — | 191 | 166 | |||||||
| Improved recovery | 329 | 1 | 17 | 347 | ||||||||
| Extensions and discoveries | — | — | 4 | 4 | ||||||||
| Purchases of proved reserves | 69 | — | — | 69 | ||||||||
| Sales of proved reserves | (14 | ) | — | — | (14 | ) | ||||||
| Production | (119 | ) | (2 | ) | (187 | ) | (308 | ) | ||||
| Balance at December 31, 2018 | 1,445 | 11 | 2,639 | 4,095 | ||||||||
| Revisions of previous estimates (c) | (409 | ) | (1 | ) | 90 | (320 | ) | |||||
| Improved recovery | 393 | 2 | 30 | 425 | ||||||||
| Extensions and discoveries | 59 | 2 | 3 | 64 | ||||||||
| Purchases of proved reserves (d) | 2,996 | — | — | 2,996 | ||||||||
| Sales of proved reserves | (30 | ) | — | — | (30 | ) | ||||||
| Production | (326 | ) | (2 | ) | (202 | ) | (530 | ) | ||||
| Balance at December 31, 2019 | 4,128 | 12 | 2,560 | 6,700 | ||||||||
| PROVED DEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 708 | 6 | 2,324 | 3,038 | ||||||||
| December 31, 2017 | 782 | 11 | 2,131 | 2,924 | ||||||||
| December 31, 2018 | 978 | 11 | 2,015 | 3,004 | ||||||||
| December 31, 2019 (e) | 3,198 | 11 | 1,996 | 5,205 | ||||||||
| PROVED UNDEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 337 | — | 399 | 736 | ||||||||
| December 31, 2017 | 423 | 1 | 483 | 907 | ||||||||
| December 31, 2018 | 467 | — | 624 | 1,091 | ||||||||
| December 31, 2019 | 930 | 1 | 564 | 1,495 |
| (a) | Excluded reserve amounts related to the Africa Assets. |
| (b) | Approximately one-third of Middle East proved reserves relate to PSCs and other similar economic arrangements. |
| (c) | Revisions of previous estimates in 2019 primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin. |
| (d) | Purchases of proved reserves in 2019 related to acquired reserves through the Acquisition. |
| (e) | Approximately 4% of the proved developed reserves at December 31, 2019, are nonproducing, primarily associated with Permian EOR and DJ Basin. |
| 112 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
TOTAL RESERVES**(a)**
| millions of BOE (MMBOE) (b) | United States | Latin America | Middle East | Total**(c)** | ||||||||
| PROVED DEVELOPED AND UNDEVELOPED RESERVES | ||||||||||||
| Balance at December 31, 2016 | 1,353 | 72 | 981 | 2,406 | ||||||||
| Revisions of previous estimates | 109 | 16 | 26 | 151 | ||||||||
| Improved recovery | 149 | 8 | 44 | 201 | ||||||||
| Extensions and discoveries | — | — | 5 | 5 | ||||||||
| Purchases of proved reserves | 99 | — | — | 99 | ||||||||
| Sales of proved reserves | (44 | ) | — | — | (44 | ) | ||||||
| Production | (111 | ) | (12 | ) | (97 | ) | (220 | ) | ||||
| Balance at December 31, 2017 | 1,555 | 84 | 959 | 2,598 | ||||||||
| Revisions of previous estimates | 18 | (2 | ) | 40 | 56 | |||||||
| Improved recovery | 237 | 23 | 34 | 294 | ||||||||
| Extensions and discoveries | — | 4 | 3 | 7 | ||||||||
| Purchases of proved reserves | 54 | — | — | 54 | ||||||||
| Sales of proved reserves | (17 | ) | — | — | (17 | ) | ||||||
| Production | (136 | ) | (11 | ) | (93 | ) | (240 | ) | ||||
| Balance at December 31, 2018 | 1,711 | 98 | 943 | 2,752 | ||||||||
| Revisions of previous estimates (d) | (243 | ) | 3 | 40 | (200 | ) | ||||||
| Improved recovery | 251 | 12 | 30 | 293 | ||||||||
| Extensions and discoveries | 58 | 2 | 3 | 63 | ||||||||
| Purchases of proved reserves (e) | 1,311 | — | — | 1,311 | ||||||||
| Sales of proved reserves | (29 | ) | — | — | (29 | ) | ||||||
| Production | (261 | ) | (12 | ) | (90 | ) | (363 | ) | ||||
| Balance at December 31, 2019 | 2,798 | 103 | 926 | 3,827 | ||||||||
| PROVED DEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 937 | 70 | 849 | 1,856 | ||||||||
| December 31, 2017 | 1,063 | 79 | 786 | 1,928 | ||||||||
| December 31, 2018 | 1,202 | 79 | 721 | 2,002 | ||||||||
| December 31, 2019**(f)** | 2,145 | 78 | 700 | 2,923 | ||||||||
| PROVED UNDEVELOPED RESERVES | ||||||||||||
| December 31, 2016 | 416 | 2 | 132 | 550 | ||||||||
| December 31, 2017 | 492 | 5 | 173 | 670 | ||||||||
| December 31, 2018 | 509 | 19 | 222 | 750 | ||||||||
| December 31, 2019 | 653 | 25 | 226 | 904 |
| (a) | Excluded reserve amounts related to the Africa Assets. |
| (b) | Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on an energy content of six thousand cubic feet (Mcf) of gas to one barrel of oil. |
| (c) | Included proved reserves related to PSCs and other similar economic arrangements of 0.5 billion BOE at December 31, 2019, 2018, 2017, and 2016. |
| (d) | Revisions of previous estimates in 2019 primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin. |
| (e) | Purchases of proved reserves in 2019 related to acquired reserves through the Acquisition. |
| (f) | Approximately 8% of the proved developed reserves at December 31, 2019, are nonproducing, primarily associated with Oman, Permian EOR and DJ Basin. |
| OXY 2019 FORM 10-K | 113 |
| Supplemental Oil and Gas Information (Unaudited) |
Reserves of Assets Held for Sale
The table below shows proved developed and undeveloped reserves related to Ghana and Algeria that were presented as held for sale at December 31, 2019:
| Oil (MMbbl) | NGL(MMbbl) | Natural Gas (Bcf) | Total (MMBOE) | |||||||||
| PROVED DEVELOPED RESERVES | 99 | 7 | 19 | 109 | ||||||||
| PROVED UNDEVELOPED RESERVES | 14 | — | 11 | 16 |
CAPITALIZED COSTS
Capitalized costs relating to oil and gas producing activities and related accumulated DD&A were as follows:
| millions | United States | Latin America | Middle East | Total | ||||||||||||
| December 31, 2019 | ||||||||||||||||
| Proved properties | $ | 59,658 | $ | 3,667 | $ | 11,787 | $ | 75,112 | ||||||||
| Unproved properties | 30,301 | 36 | 432 | 30,769 | ||||||||||||
| Total capitalized costs (a,b) | 89,959 | 3,703 | 12,219 | 105,881 | ||||||||||||
| Proved properties depreciation, depletion and amortization | (20,961 | ) | (2,643 | ) | (8,853 | ) | (32,457 | ) | ||||||||
| Unproved properties valuation | (1,025 | ) | (27 | ) | (170 | ) | (1,222 | ) | ||||||||
| Total Accumulated depreciation, depletion and amortization | (21,986 | ) | (2,670 | ) | (9,023 | ) | (33,679 | ) | ||||||||
| Net capitalized costs | $ | 67,973 | $ | 1,033 | $ | 3,196 | $ | 72,202 | ||||||||
| December 31, 2018 | ||||||||||||||||
| Proved properties | $ | 35,717 | $ | 3,436 | $ | 17,302 | $ | 56,455 | ||||||||
| Unproved properties | 1,900 | 43 | 401 | 2,344 | ||||||||||||
| Total capitalized costs (a) | 37,617 | 3,479 | 17,703 | 58,799 | ||||||||||||
| Proved properties depreciation, depletion and amortization | (17,188 | ) | (2,514 | ) | (14,286 | ) | (33,988 | ) | ||||||||
| Unproved properties valuation | (1,200 | ) | (27 | ) | (85 | ) | (1,312 | ) | ||||||||
| Total Accumulated depreciation, depletion and amortization | (18,388 | ) | (2,541 | ) | (14,371 | ) | (35,300 | ) | ||||||||
| Net capitalized costs | $ | 19,229 | $ | 938 | $ | 3,332 | $ | 23,499 | ||||||||
| December 31, 2017 | ||||||||||||||||
| Proved properties | $ | 31,091 | $ | 3,194 | $ | 16,582 | $ | 50,867 | ||||||||
| Unproved properties | 2,094 | 53 | 394 | 2,541 | ||||||||||||
| Total capitalized costs (a) | 33,185 | 3,247 | 16,976 | 53,408 | ||||||||||||
| Proved properties depreciation, depletion and amortization | (14,609 | ) | (2,412 | ) | (13,196 | ) | (30,217 | ) | ||||||||
| Unproved properties valuation | (1,166 | ) | (27 | ) | — | (1,193 | ) | |||||||||
| Total Accumulated depreciation, depletion and amortization | (15,775 | ) | (2,439 | ) | (13,196 | ) | (31,410 | ) | ||||||||
| Net capitalized costs | $ | 17,410 | $ | 808 | $ | 3,780 | $ | 21,998 |
| (a) | Included acquisition costs, development costs, capitalized interest and asset retirement obligations. Excluded capitalized costs related to Africa Assets. |
| (b) | $48.4 billion of capitalized costs are associated with the Acquisition. |
| 114 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
COSTS INCURRED
Costs incurred in oil and gas property acquisition, exploration and development activities, whether capitalized or expensed, were as follows:
| millions | United States | Latin America | Middle East | Total | ||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2019**(a)** | ||||||||||||||||
| Property acquisition costs | ||||||||||||||||
| Proved properties | $ | 19,567 | $ | 6 | $ | — | $ | 19,573 | ||||||||
| Unproved properties | 29,042 | 1 | 11 | 29,054 | ||||||||||||
| Exploration costs | 307 | 58 | 141 | 506 | ||||||||||||
| Development costs | 4,449 | 196 | 563 | 5,208 | ||||||||||||
| Costs incurred | $ | 53,365 | $ | 261 | $ | 715 | $ | 54,341 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2018 | ||||||||||||||||
| Property acquisition costs | ||||||||||||||||
| Proved properties | $ | 428 | $ | — | $ | — | $ | 428 | ||||||||
| Unproved properties | 46 | 4 | 2 | 52 | ||||||||||||
| Exploration costs | 196 | 42 | 44 | 282 | ||||||||||||
| Development costs | 3,387 | 203 | 698 | 4,288 | ||||||||||||
| Costs incurred | $ | 4,057 | $ | 249 | $ | 744 | $ | 5,050 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2017 | ||||||||||||||||
| Property acquisition costs | ||||||||||||||||
| Proved properties | $ | 880 | $ | — | $ | 1 | $ | 881 | ||||||||
| Unproved properties | 32 | — | — | 32 | ||||||||||||
| Exploration costs | 163 | 39 | 54 | 256 | ||||||||||||
| Development costs | 1,981 | 157 | 582 | 2,720 | ||||||||||||
| Costs incurred | $ | 3,056 | $ | 196 | $ | 637 | $ | 3,889 |
| (a) | Excluded costs incurred related to Africa Assets. |
| OXY 2019 FORM 10-K | 115 |
| Supplemental Oil and Gas Information (Unaudited) |
RESULTS OF OPERATIONS
Occidental’s oil and gas producing activities for continuing operations, which exclude items such as asset dispositions, corporate overhead, interest and royalties, were as follows:
| millions | United States | Latin America | Middle East | Total | ||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2019 | ||||||||||||||||
| Revenues (a) | $ | 9,497 | $ | 703 | $ | 3,335 | $ | 13,535 | ||||||||
| Lease operating costs | 2,271 | 163 | 904 | 3,338 | ||||||||||||
| Transportation costs | 647 | 5 | 78 | 730 | ||||||||||||
| Other operating expenses | 1,125 | 51 | 200 | 1,376 | ||||||||||||
| Depreciation, depletion and amortization | 4,113 | 135 | 746 | 4,994 | ||||||||||||
| Taxes other than on income | 651 | 8 | — | 659 | ||||||||||||
| Exploration expenses | 99 | 45 | 102 | 246 | ||||||||||||
| Oil and gas mark-to-market - Collars and CO2 | 15 | — | — | 15 | ||||||||||||
| Pretax income before impairments and other charges | 576 | 296 | 1,305 | 2,177 | ||||||||||||
| Asset impairments and other charges | 288 | — | 39 | 327 | ||||||||||||
| Pretax income | 288 | 296 | 1,266 | 1,850 | ||||||||||||
| Income tax expense (b) | 74 | 135 | 634 | 843 | ||||||||||||
| Results of operations**(c)** | $ | 214 | $ | 161 | $ | 632 | $ | 1,007 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2018 | ||||||||||||||||
| Revenues (a) | $ | 5,747 | $ | 731 | $ | 3,963 | $ | 10,441 | ||||||||
| Lease operating costs | 1,675 | 151 | 939 | 2,765 | ||||||||||||
| Transportation costs | 11 | 3 | 98 | 112 | ||||||||||||
| Other operating expenses | 676 | 49 | 186 | 911 | ||||||||||||
| Depreciation, depletion and amortization | 2,321 | 102 | 831 | 3,254 | ||||||||||||
| Taxes other than on income | 407 | 6 | — | 413 | ||||||||||||
| Exploration expenses | 64 | 19 | 27 | 110 | ||||||||||||
| Oil and gas mark-to-market - CO2 | (4 | ) | — | — | (4 | ) | ||||||||||
| Pretax income before impairments and other charges | 597 | 401 | 1,882 | 2,880 | ||||||||||||
| Asset impairments and other charges | 32 | — | 416 | 448 | ||||||||||||
| Pretax income | 565 | 401 | 1,466 | 2,432 | ||||||||||||
| Income tax expense (benefit) (b) | (131 | ) | 174 | 925 | 968 | |||||||||||
| Results of operations | $ | 696 | $ | 227 | $ | 541 | $ | 1,464 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2017 | ||||||||||||||||
| Revenues (a) | $ | 4,047 | $ | 570 | $ | 3,253 | $ | 7,870 | ||||||||
| Lease operating costs | 1,463 | 151 | 849 | 2,463 | ||||||||||||
| Transportation costs | 11 | 4 | 101 | 116 | ||||||||||||
| Other operating expenses | 621 | 51 | 166 | 838 | ||||||||||||
| Depreciation, depletion and amortization | 2,549 | 124 | 596 | 3,269 | ||||||||||||
| Taxes other than on income | 273 | 9 | — | 282 | ||||||||||||
| Exploration expenses | 28 | 7 | 47 | 82 | ||||||||||||
| Oil and gas mark-to-market - CO2 | (36 | ) | — | — | (36 | ) | ||||||||||
| Pretax income (loss) before impairments and other charges | (862 | ) | 224 | 1,494 | 856 | |||||||||||
| Asset impairments and other charges | 397 | 4 | — | 401 | ||||||||||||
| Pretax income (loss) | (1,259 | ) | 220 | 1,494 | 455 | |||||||||||
| Income tax expense (benefit) (b) | (695 | ) | 120 | 690 | 115 | |||||||||||
| Results of operations | $ | (564 | ) | $ | 100 | $ | 804 | $ | 340 |
| (a) | Revenues are net of royalty payments. |
| (b) | U.S. federal income taxes reflect certain expenses related to oil and gas activities allocated for U.S. income tax purposes . These amounts are computed using the statutory rate in effect during the period. |
| (c) | The 2019 results of operations excluded amounts related to Africa Assets. |
| 116 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
RESULTS PER UNIT OF PRODUCTION FOR CONTINUING OPERATIONS
| $/BOE (a) | United States | Latin America | Middle East | Total | ||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2019 | ||||||||||||||||
| Revenues (b) | $ | 36.43 | $ | 56.70 | $ | 36.94 | $ | 37.25 | ||||||||
| Lease operating costs | 8.71 | 13.18 | 10.01 | 9.19 | ||||||||||||
| Transportation costs | 2.48 | 0.34 | 0.87 | 2.01 | ||||||||||||
| Other operating expenses | 4.32 | 4.15 | 2.21 | 3.79 | ||||||||||||
| Depreciation, depletion and amortization | 15.78 | 10.85 | 8.27 | 13.74 | ||||||||||||
| Taxes other than on income | 2.50 | 0.63 | — | 1.81 | ||||||||||||
| Exploration expenses | 0.38 | 3.66 | 1.13 | 0.68 | ||||||||||||
| Oil and gas mark-to-market - Collars and CO2 | 0.06 | — | — | 0.04 | ||||||||||||
| Pretax income before impairments and other charges | 2.20 | 23.89 | 14.45 | 5.99 | ||||||||||||
| Asset impairments and other charges | 1.11 | — | 0.43 | 0.90 | ||||||||||||
| Pretax income | 1.09 | 23.89 | 14.02 | 5.09 | ||||||||||||
| Income tax expense(c) | 0.29 | 10.90 | 7.01 | 2.32 | ||||||||||||
| Results of operations**(d)** | $ | 0.80 | $ | 12.99 | $ | 7.01 | $ | 2.77 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2018 | ||||||||||||||||
| Revenues (b) | $ | 42.30 | $ | 63.37 | $ | 42.78 | $ | 43.50 | ||||||||
| Lease operating costs | 12.33 | 13.08 | 10.14 | 11.52 | ||||||||||||
| Transportation costs | 0.08 | 0.24 | 1.06 | 0.47 | ||||||||||||
| Other operating expenses | 4.98 | 4.24 | 2.01 | 3.79 | ||||||||||||
| Depreciation, depletion and amortization | 17.08 | 8.88 | 8.96 | 13.56 | ||||||||||||
| Taxes other than on income | 3.00 | 0.52 | — | 1.72 | ||||||||||||
| Exploration expenses | 0.47 | 1.65 | 0.29 | 0.46 | ||||||||||||
| Oil and gas mark-to-market - CO2 | (0.03 | ) | — | — | (0.01 | ) | ||||||||||
| Pretax income before impairments and other charges | 4.39 | 34.76 | 20.32 | 11.99 | ||||||||||||
| Asset impairments and other charges | 0.24 | — | 4.49 | 1.87 | ||||||||||||
| Pretax income | 4.15 | 34.76 | 15.83 | 10.12 | ||||||||||||
| Income tax expense (benefit) (c) | (0.96 | ) | 15.08 | 9.99 | 4.03 | |||||||||||
| Results of operations | $ | 5.11 | $ | 19.68 | $ | 5.84 | $ | 6.09 | ||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2017 | ||||||||||||||||
| Revenues (b) | $ | 36.50 | $ | 47.79 | $ | 33.51 | $ | 35.79 | ||||||||
| Lease operating costs | 13.19 | 12.66 | 8.75 | 11.20 | ||||||||||||
| Transportation costs | 0.10 | 0.33 | 1.04 | 0.53 | ||||||||||||
| Other operating expenses | 5.60 | 4.28 | 1.71 | 3.81 | ||||||||||||
| Depreciation, depletion and amortization | 22.99 | 10.37 | 6.14 | 14.87 | ||||||||||||
| Taxes other than on income | 2.47 | 0.75 | — | 1.28 | ||||||||||||
| Exploration expenses | 0.25 | 0.59 | 0.48 | 0.37 | ||||||||||||
| Oil and gas mark-to-market - CO2 | (0.32 | ) | — | — | (0.16 | ) | ||||||||||
| Pretax income before impairments and other charges | (7.78 | ) | 18.81 | 15.39 | 3.89 | |||||||||||
| Asset impairments and other charges | 3.58 | 0.34 | — | 1.82 | ||||||||||||
| Pretax income (loss) | (11.36 | ) | 18.47 | 15.39 | 2.07 | |||||||||||
| Income tax expense (benefit) (c) | (6.27 | ) | 10.06 | 7.11 | 0.52 | |||||||||||
| Results of operations | $ | (5.09 | ) | $ | 8.41 | $ | 8.28 | $ | 1.55 |
| (a) | Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on energy content of six thousand cubic feet (Mcf) of gas to one barrel of oil. |
| (b) | Revenues are net of royalty payments. |
| (c) | U.S. federal income taxes reflect certain expenses related to oil and gas activities allocated for U.S. income tax purposes . These amounts are computed using the statutory rate in effect during the period. |
| (d) | The 2019 results of operations excluded amounts related to Africa Assets. |
| OXY 2019 FORM 10-K | 117 |
| Supplemental Oil and Gas Information (Unaudited) |
STANDARDIZED MEASURE, INCLUDING YEAR-TO-YEAR CHANGES THEREIN, OF DISCOUNTED FUTURE NET CASH FLOWS
For purposes of the following disclosures, future cash flows were computed by applying to Occidental’s proved oil and gas reserves the unweighted arithmetic average of the first-day-of-the-month price for each month within the years ended December 31, 2019, 2018, and 2017, respectively, unless prices were defined by contractual arrangements, and exclude escalations based upon future conditions. The realized prices used to calculate future cash flows vary by producing area and market conditions. Future operating and capital costs were forecast using the current cost environment applied to expectations of future operating and development activities to develop and produce proved reserves at year end.
| 2019 | 2018 | 2017 | ||||
| Average WTI oil price (per barrel) | $55.69 | $65.56 | $51.34 | |||
| Average Brent price (per barrel) | $63.03 | $72.20 | $54.93 | |||
| Average Henry Hub natural gas price (per MMBtu) | $2.58 | $3.10 | $2.98 |
Future income tax expenses were computed by applying, generally, year-end statutory tax rates (adjusted for permanent differences, tax credits, allowances and foreign income repatriation considerations) to the estimated net future pre-tax cash flows. The discount was computed by application of a 10% discount factor. The calculations assumed the continuation of existing economic, operating and contractual conditions at December 31, 2019, 2018, and 2017. Such assumptions, which are required by regulation, have not always proven accurate in the past. Other valid assumptions would give rise to substantially different results.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
| millions | United States | Latin America | Middle East | Total | ||||||||||||
| AT DECEMBER 31, 2019 | ||||||||||||||||
| Future cash inflows | $ | 97,293 | $ | 5,803 | $ | 28,715 | $ | 131,811 | ||||||||
| Future costs | ||||||||||||||||
| Production costs and other operating | (47,685 | ) | (2,824 | ) | (9,786 | ) | (60,295 | ) | ||||||||
| Development costs (a) | (13,137 | ) | (553 | ) | (2,543 | ) | (16,233 | ) | ||||||||
| Future income tax expense | (4,097 | ) | (687 | ) | (2,559 | ) | (7,343 | ) | ||||||||
| Future net cash flows | 32,374 | 1,739 | 13,827 | 47,940 | ||||||||||||
| 10% discount factor | (12,427 | ) | (701 | ) | (6,819 | ) | (19,947 | ) | ||||||||
| Standardized measure of discounted future net cash flows (b) | $ | 19,947 | $ | 1,038 | $ | 7,008 | $ | 27,993 | ||||||||
| AT DECEMBER 31, 2018 | ||||||||||||||||
| Future cash inflows | $ | 75,313 | $ | 6,104 | $ | 31,158 | $ | 112,575 | ||||||||
| Future costs | ||||||||||||||||
| Production costs and other operating | (33,373 | ) | (2,673 | ) | (9,609 | ) | (45,655 | ) | ||||||||
| Development costs (a) | (9,450 | ) | (377 | ) | (2,136 | ) | (11,963 | ) | ||||||||
| Future income tax expense | (4,150 | ) | (959 | ) | (3,524 | ) | (8,633 | ) | ||||||||
| Future net cash flows | 28,340 | 2,095 | 15,889 | 46,324 | ||||||||||||
| 10% discount factor | (14,288 | ) | (846 | ) | (7,729 | ) | (22,863 | ) | ||||||||
| Standardized measure of discounted future net cash flows | $ | 14,052 | $ | 1,249 | $ | 8,160 | $ | 23,461 | ||||||||
| AT DECEMBER 31, 2017 | ||||||||||||||||
| Future cash inflows | $ | 59,289 | $ | 3,961 | $ | 25,662 | $ | 88,912 | ||||||||
| Future costs | ||||||||||||||||
| Production costs and other operating | (29,318 | ) | (1,915 | ) | (9,349 | ) | (40,582 | ) | ||||||||
| Development costs (a) | (7,986 | ) | (238 | ) | (2,199 | ) | (10,423 | ) | ||||||||
| Future income tax expense | (1,838 | ) | (543 | ) | (2,906 | ) | (5,287 | ) | ||||||||
| Future net cash flows | 20,147 | 1,265 | 11,208 | 32,620 | ||||||||||||
| 10% discount factor | (10,951 | ) | (423 | ) | (5,026 | ) | (16,400 | ) | ||||||||
| Standardized measure of discounted future net cash flows | $ | 9,196 | $ | 842 | $ | 6,182 | $ | 16,220 |
| (a) | Included asset retirement costs. |
| (b) | Excluded discounted future net cash flows of $2.0 billion related to Occidental’s Africa Assets. |
| 118 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
| millions | 2019 | 2018 | 2017 | |||||||||
| Balance at January 1 | $ | 23,461 | $ | 16,220 | $ | 9,713 | ||||||
| Sales and transfers of oil and gas produced, net of production costs and other operating expenses | (8,884 | ) | (7,828 | ) | (5,362 | ) | ||||||
| Net change in prices received per barrel, net of production costs and other operating expenses | (6,823 | ) | 9,482 | 7,598 | ||||||||
| Extensions, discoveries and improved recovery, net of future production and development costs | 2,607 | 3,378 | 1,534 | |||||||||
| Change in estimated future development costs | (1,636 | ) | (3,463 | ) | (1,283 | ) | ||||||
| Revisions of quantity estimates | (1,769 | ) | 664 | 966 | ||||||||
| Previously estimated development costs incurred during the period | 3,297 | 1,943 | 1,643 | |||||||||
| Accretion of discount | 2,276 | 1,551 | 922 | |||||||||
| Net change in income taxes | 2,905 | (1,182 | ) | (528 | ) | |||||||
| Purchases and sales of reserves in place, net | 9,945 | 347 | 688 | |||||||||
| Changes in production rates and other | 2,614 | 2,349 | 329 | |||||||||
| Net change | 4,532 | 7,241 | 6,507 | |||||||||
| Balance at December 31 | $ | 27,993 | $ | 23,461 | $ | 16,220 |
AVERAGE SALES PRICE
The following table sets forth, for each year in the three-year period ended December 31, 2019, Occidental’s approximate average sales prices in continuing operations:
| United States | Latin America | Middle East | Total | |||||||||||||
| 2019 | ||||||||||||||||
| Oil ($/bbl) | $ | 54.31 | $ | 57.26 | $ | 61.96 | $ | 56.09 | ||||||||
| NGL ($/bbl) | $ | 16.03 | $ | — | $ | 21.31 | $ | 17.06 | ||||||||
| Gas ($/Mcf) | $ | 1.31 | $ | 7.01 | $ | 1.59 | $ | 1.45 | ||||||||
| 2018 | ||||||||||||||||
| Oil ($/bbl) | $ | 56.30 | $ | 64.32 | $ | 67.69 | $ | 60.64 | ||||||||
| NGL ($/bbl) | $ | 27.64 | $ | — | $ | 23.20 | $ | 26.25 | ||||||||
| Gas ($/Mcf) | $ | 1.59 | $ | 6.43 | $ | 1.58 | $ | 1.62 | ||||||||
| 2017 | ||||||||||||||||
| Oil ($/bbl) | $ | 47.91 | $ | 48.50 | $ | 50.38 | $ | 48.93 | ||||||||
| NGL ($/bbl) | $ | 23.67 | $ | — | $ | 18.05 | $ | 21.63 | ||||||||
| Gas ($/Mcf) | $ | 2.31 | $ | 5.08 | $ | 1.52 | $ | 1.84 |
| OXY 2019 FORM 10-K | 119 |
| Supplemental Oil and Gas Information (Unaudited) |
NET PRODUCTIVE AND DRY— EXPLORATORY AND DEVELOPMENT WELLS COMPLETED
The following table sets forth, for each year in the three-year period ended December 31, 2019, Occidental’s net productive and dry exploratory and development wells completed:
| United States | Latin America | Middle East | Total | |||||||||
| 2019 | ||||||||||||
| Oil | ||||||||||||
| Exploratory | 22 | — | 7 | 29 | ||||||||
| Development | 422 | 68 | 129 | 619 | ||||||||
| Gas | ||||||||||||
| Exploratory | — | 2 | 5 | 7 | ||||||||
| Development | 2 | — | 2 | 4 | ||||||||
| Dry | ||||||||||||
| Exploratory | 1 | 3 | 6 | 10 | ||||||||
| Development | — | 1 | — | 1 | ||||||||
| 2018 | ||||||||||||
| Oil | ||||||||||||
| Exploratory | 11 | 2 | 5 | 18 | ||||||||
| Development | 267 | 54 | 138 | 459 | ||||||||
| Gas | ||||||||||||
| Development | 3 | — | 1 | 4 | ||||||||
| Dry | ||||||||||||
| Exploratory | — | 2 | 3 | 5 | ||||||||
| 2017 | ||||||||||||
| Oil | ||||||||||||
| Exploratory | 14 | 1 | 5 | 20 | ||||||||
| Development | 201 | 51 | 105 | 357 | ||||||||
| Gas | ||||||||||||
| Development | 2 | — | 1 | 3 | ||||||||
| Dry | ||||||||||||
| Exploratory | — | — | 3 | 3 |
PRODUCTIVE OIL AND GAS WELLS
The following table sets forth, as of December 31, 2019, Occidental’s productive oil and gas wells (both producing and capable of production):
| Wells at December 31, 2019 (a) | United States | Latin America | Middle East | Total | ||||||||||||||||||||
| Oil | ||||||||||||||||||||||||
| Gross (b) | 20,976 | (1,196 | ) | 1,881 | — | 2,579 | — | 25,436 | (1,196 | ) | ||||||||||||||
| Net (c) | 17,304 | (1,076 | ) | 954 | — | 1,205 | — | 19,463 | (1,076 | ) | ||||||||||||||
| Gas | ||||||||||||||||||||||||
| Gross (b) | 9,596 | (2,386 | ) | 35 | — | 113 | (2 | ) | 9,744 | (2,388 | ) | |||||||||||||
| Net (c) | 8,056 | (2,138 | ) | 33 | — | 58 | (2 | ) | 8,147 | (2,140 | ) |
| (a) | The numbers in parentheses indicate the number of wells with multiple completions. |
| (b) | The total number of wells in which interests are owned. |
| (c) | The sum of fractional interests. |
| 120 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
PARTICIPATION IN WELLS BEING DRILLED OR PENDING COMPLETION
The following table sets forth, as of December 31, 2019, Occidental’s participation in exploratory and development wells being drilled:
| United States | Latin America | Middle East | Total | |||||||||
| Exploratory and development wells being drilled | ||||||||||||
| Gross | 73 | 2 | 23 | 98 | ||||||||
| Net | 57 | 2 | 13 | 72 | ||||||||
| Exploratory and development wells pending completion (a,b) | ||||||||||||
| Gross | 359 | — | — | 359 | ||||||||
| Net | 294 | — | — | 294 |
| (a) | Wells suspended or waiting on completion include exploration and development wells where drilling has occurred, but the wells are awaiting the completion of hydraulic fracturing or other completion activities or the resumption of drilling in the future. |
| (b) | There were 138 MMBOE of PUDs primarily assigned to U.S. onshore development wells suspended or waiting on completion at December 31, 2019, Occidental expects to convert all of these PUDs reserves to developed status within five years of their initial disclosure. |
At December 31, 2019, Occidental was participating in 109 pressure-maintenance projects, mostly waterfloods, in the United States, 9 in Latin America, and 44 in the Middle East.
OIL AND GAS ACREAGE
The following table sets forth, as of December 31, 2019, Occidental’s holdings of developed and undeveloped oil and gas acreage:
| thousands | United States | Latin America | Middle East | Total | ||||||||
| Developed (a) | ||||||||||||
| Gross (b) | 6,782 | 146 | 589 | 7,517 | ||||||||
| Net (c) | 4,208 | 97 | 215 | 4,520 | ||||||||
| Undeveloped (d) | ||||||||||||
| Gross (b) | 1,992 | 1,853 | 5,536 | 9,381 | ||||||||
| Net (c) | 1,341 | 996 | 4,717 | 7,054 | ||||||||
| Fee Mineral Ownership (e) | ||||||||||||
| Gross (b) | 12,515 | — | — | 12,515 | ||||||||
| Net (c) | 8,810 | — | — | 8,810 |
| (a) | Acres spaced or assigned to productive wells. |
| (b) | Total acres in which interests are held. |
| (c) | Sum of the fractional interests owned based on working interests, or interests under PSCs and other economic arrangements. |
| (d) | Acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether the acreage contains proved reserves. |
| (e) | Occidental’s fee mineral acreage is primarily undeveloped. |
Occidental’s investment in developed and undeveloped acreage comprises numerous concessions, blocks and leases. Work programs are designed to ensure that the exploration potential of any property is fully evaluated before the contractual expiration date. In some instances, Occidental may elect to relinquish acreage in advance of the contractual expiration date if the evaluation process is complete and there is not a business basis for extension. In cases where additional time may be required to fully evaluate acreage, Occidental has generally been successful in obtaining extensions. Scheduled lease and concession expirations for undeveloped acreage over the next three years are not expected to have a material adverse impact on Occidental.
| OXY 2019 FORM 10-K | 121 |
| Supplemental Oil and Gas Information (Unaudited) |
OIL, NGL AND NATURAL GAS SALES VOLUMES PER DAY
The following tables set forth the sales volumes from ongoing operations of oil, NGL and natural gas per day for each of the three years in the period ended December 31, 2019. The differences between the sales and production volumes per day are negligible and are generally due to the timing of shipments at Occidental’s international locations where product is loaded onto tankers. Natural gas volumes have been converted to BOE based on energy content of six Mcf of gas to one barrel of oil.
| Sales per Day from Ongoing Operations (MBOE/d) | 2019 | 2018 | 2017 | ||||||
| United States | |||||||||
| Permian Resources | 355 | 214 | 141 | ||||||
| Permian EOR | 154 | 154 | 150 | ||||||
| DJ Basin | 120 | — | — | ||||||
| Gulf of Mexico | 58 | — | — | ||||||
| Other Domestic | 27 | 4 | 5 | ||||||
| Total | 714 | 372 | 296 | ||||||
| Latin America | 34 | 32 | 33 | ||||||
| Middle East | |||||||||
| Al Hosn Gas | 82 | 73 | 71 | ||||||
| Dolphin | 42 | 40 | 42 | ||||||
| Oman | 89 | 86 | 95 | ||||||
| Qatar | 35 | 55 | 58 | ||||||
| Total | 248 | 254 | 266 | ||||||
| Total Sales from Ongoing Operations (MBOE/d) | 996 | 658 | 595 | ||||||
| Sold domestic operations | — | — | 8 | ||||||
| Discontinued operations - Africa Assets | 33 | — | — | ||||||
| Total Sales (MBOE/d) | 1,029 | 658 | 603 |
| 122 | OXY 2019 FORM 10-K |
| Supplemental Oil and Gas Information (Unaudited) |
| Sales per Day by Products from Ongoing Operations (MBOE/d) | 2019 | 2018 | 2017 | ||||||
| United States | |||||||||
| Oil (Mbbl) | |||||||||
| Permian Resources | 207 | 132 | 85 | ||||||
| Permian EOR | 117 | 117 | 113 | ||||||
| DJ Basin | 46 | — | — | ||||||
| Gulf of Mexico | 48 | — | — | ||||||
| Other Domestic | 7 | 1 | 2 | ||||||
| Total | 425 | 250 | 200 | ||||||
| NGL (Mbbl) | |||||||||
| Permian Resources | 74 | 38 | 26 | ||||||
| Permian EOR | 30 | 29 | 27 | ||||||
| DJ Basin | 28 | — | — | ||||||
| Gulf of Mexico | 4 | — | — | ||||||
| Other Domestic | 4 | — | — | ||||||
| Total | 140 | 67 | 53 | ||||||
| Natural gas (MMcf) | |||||||||
| Permian Resources | 442 | 261 | 184 | ||||||
| Permian EOR | 44 | 50 | 57 | ||||||
| DJ Basin | 275 | — | — | ||||||
| Gulf of Mexico | 34 | — | — | ||||||
| Other Domestic | 98 | 16 | 18 | ||||||
| Total | 893 | 327 | 259 | ||||||
| Latin America | |||||||||
| Oil (Mbbl) | 33 | 31 | 32 | ||||||
| Natural gas (MMcf) | 7 | 6 | 7 | ||||||
| Middle East | |||||||||
| Oil (Mbbl) | |||||||||
| Al Hosn Gas | 14 | 13 | 13 | ||||||
| Dolphin | 7 | 7 | 7 | ||||||
| Oman | 66 | 63 | 72 | ||||||
| Qatar | 35 | 55 | 58 | ||||||
| Total | 122 | 138 | 150 | ||||||
| NGL (Mbbl) | |||||||||
| Al Hosn Gas | 26 | 23 | 23 | ||||||
| Dolphin | 8 | 8 | 8 | ||||||
| Total | 34 | 31 | 31 | ||||||
| Natural gas (MMcf) | |||||||||
| Al Hosn Gas | 251 | 220 | 211 | ||||||
| Dolphin | 161 | 152 | 159 | ||||||
| Oman | 138 | 139 | 138 | ||||||
| Total | 550 | 511 | 508 | ||||||
| Total Sales from Ongoing Operations (MBOE/d) | 996 | 658 | 595 |
| OXY 2019 FORM 10-K | 123 |
| Schedule II – Valuation and Qualifying Accounts | Occidental Petroleum Corporation and Subsidiaries |
| Additions | |||||||||||||||||||||
| millions | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Deductions (a) | Balance at End of Period | ||||||||||||||||
| 2019 | |||||||||||||||||||||
| Allowance for doubtful accounts | $ | 668 | $ | 126 | $ | (6 | ) | $ | — | $ | 788 | (b) | |||||||||
| Environmental, litigation and other reserves | $ | 994 | $ | 182 | $ | 1,408 | $ | (173 | ) | $ | 2,411 | (c) | |||||||||
| 2018 | |||||||||||||||||||||
| Allowance for doubtful accounts | $ | 594 | $ | 77 | $ | (3 | ) | $ | — | $ | 668 | (b) | |||||||||
| Environmental, litigation, tax and other reserves | $ | 935 | $ | 140 | $ | 85 | $ | (166 | ) | $ | 994 | (c) | |||||||||
| 2017 | |||||||||||||||||||||
| Allowance for doubtful accounts | $ | 558 | $ | 37 | $ | (2 | ) | $ | 1 | $ | 594 | (b) | |||||||||
| Environmental, litigation, tax and other reserves | $ | 997 | $ | 45 | $ | 53 | $ | (160 | ) | $ | 935 | (c) |
Note: The amounts presented represent continuing operations.
| (a) | Primarily represents payments. |
| (b) | Of these amounts, $22 million, $24 million and $18 million in 2019, 2018, and 2017, respectively, are classified as current. |
| (c) | Of these amounts, $188 million, $146 million and $163 million in 2019, 2018, and 2017, respectively, are classified as current. |
| 124 | OXY 2019 FORM 10-K |
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