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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ☐ | ||||
| For the fiscal year ended | December 31, | For the transition period from to | |||
Commission File Number 1-9210
Occidental Petroleum Corporation
(Exact name of registrant as specified in its charter)
| State or other jurisdiction of incorporation or organization | Delaware | ||||
| I.R.S. Employer Identification No. | 95-4035997 | ||||
| Address of principal executive offices | 5 Greenway Plaza, Suite 110 | Houston, | Texas | ||
| Zip Code | 77046 | ||||
Registrant’s telephone number, including area code | (713) | 215-7000 | |||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, $0.20 par value | OXY | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct. Yesþ☑ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: (Note: Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections).Act. Yes ¨☐Noþ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive DateData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period asthat the registrant was required to submit and postsuch files). Yesþ☑ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. (See definitionSee the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act).Act.
| Large Accelerated Filer | Accelerated Filer | Emerging Growth Company | ☐ | |||
| Non-Accelerated Filer | Smaller Reporting Company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)12b-2 of the Act). Yes ¨☐ No þ☑
The aggregate market value of the voting common stockregistrant’s Common Stock held by nonaffiliates of the registrant was approximately $57.5$45.0 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $75.56$50.28 per share of Common Stock on June 30, 2016. Shares of Common Stock held by each executive officer and director have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of potential affiliate status is not a conclusive determination for other purposes.28, 2019.
At January 31, 2017,2020, there were 764,291,301895,224,961 shares of Common Stock outstanding, par value $0.20 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement, relating to its May 12, 20172020 Annual Meeting of Stockholders, are incorporated by reference into Part III.III of this Form 10-K.
| TABLE OF CONTENTS | ||
| Part I | ||
| Items 1 and | Business and Properties | |
Chemical Operations | ||
| Item 1A. | ||
| Item | ||
| Item | ||
| Item | ||
Information About Our Executive Officers | ||
| Part II | ||
| Item | ||
| Item | Selected Financial Data | |
| Item | Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) | |
| Item | Quantitative and Qualitative Disclosures About Market Risk | |
| Item | Financial Statements and Supplementary Data | |
| Item | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Item | Controls and Procedures | |
| Item | Other Information | |
| Part III | ||
| Item | Directors, Executive Officers and Corporate Governance | |
| Item | Executive Compensation | |
| Item | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item | Certain Relationships and Related Transactions and Director Independence | |
| Item | Principal Accounting Fees and Services | |
| Part IV | ||
| Item | Exhibits and Financial Statement Schedules | |
| Item 16. | ||
 | BUSINESS AND PROPERTIES | |
Part I
ITEMS 1 AND 22. BUSINESS AND PROPERTIES
In this report, "Occidental"“Occidental” means Occidental Petroleum Corporation, a Delaware corporation (OPC) incorporated in 1986, or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental conducts its operations through its various subsidiaries and affiliates. Occidental’s executive offices are located at 5 Greenway Plaza, Suite 110, Houston, Texas 77046; telephone (713) 215-7000.
On August 8, 2019, pursuant to the Agreement and Plan of Merger, dated as of May 9, 2019, 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.
| GENERAL |
Occidental’s principal businesses consist of three segments.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 (NGLs)(NGL) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The marketing and midstream and marketing segment purchases, markets, gathers, processes, transports stores, purchases and marketsstores oil, condensate, NGLs,NGL, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstreamcapacity, and marketing segment invests in entities that conduct similar activities.activities such as Western Midstream Partners, L.P. (WES).
The marketing and midstream segment also includes 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.
For further information regarding Occidental'sOccidental’s segments, geographic areas of operation and current developments, including strategies and actions related thereto, see the information in the "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” (MD&A) section of this report and Note 1618 - Industry Segments and Geographic Areas in the Notes to Consolidated Financial Statements.
| EMPLOYEES |
Occidental employed approximately 14,400 people at December 31, 2019, which included approximately 1,000 employees who have been seconded to WES. Occidental has 10,000 employees located in the United States. Occidental employed approximately 10,400 people in the oil and gas and marketing and midstream segments and 3,000 people in the chemical segment. An additional 1,000 people were employedin administrative and corporate functions. Approximately 500 U.S.-based employees and 900 international-based employees are represented by labor unions.
| AVAILABLE INFORMATION |
Occidental’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports are available free of charge on its website, www.oxy.com, as soon as reasonably practicable after Occidental electronically files the material with, or furnishes it to, the Consolidated Financial Statements.Securities and Exchange Commission (SEC). In addition, copies of our annual report will be made available, free of charge, upon written request.
Information contained on Occidental’s website is not part of this report or any other filings with the SEC.
| 2 | OXY 2019 FORM 10-K |
| BUSINESS AND PROPERTIES | |
| OIL AND GAS OPERATIONS |
GENERAL
Occidental’s domestic upstream oil and gas operationsassets are located in some of the world’s highest-margin basins and are characterized by an advantaged mix of short- and long-cycle high-return development opportunities. Occidental conducts its ongoing exploration and production activities in the United States, the Middle East and Latin America. Within the United States, Occidental has operations in Texas, New Mexico, Colorado, Wyoming and Texas. InternationalUtah, as well as offshore operations are located in Bolivia, Colombia,the Gulf of Mexico. Internationally, Occidental conducts operations in Oman, Qatar and the United Arab Emirates (UAE)., Qatar and Colombia. Refer to the Supplemental Oil and Gas Information - Oil and Gas Acreage under Item 8 of this Form 10-K for further disclosure of Occidental’s holdings of developed and undeveloped oil and gas acreage.
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). Occidental completed the sale of Mozambique LNG assets for approximately $4.2 billion in September 2019. The remaining Africa Assets are classified as held-for-sale and not considered part of Occidental’s ongoing international operations as of December 31, 2019. In January 2020, Occidental completed the sale of South Africa assets to Total. The closing of the sale of the remaining Africa Assets is conditioned on the receipt of required regulatory and government approvals, as well as other customary closing conditions.
COMPETITION
As a producer of oil, condensate, NGL and Sales Volumesnatural gas, Occidental competes with numerous other domestic and international public, private and government producers. Oil, NGL and natural gas are sensitive to prevailing global and local, current and anticipated market conditions. Occidental competes for capacity and infrastructure for the gathering, processing, transportation, storage and delivery of its products, which are sold at current market prices or on a forward basis to refiners, end users and other market participants. Occidental’s competitive strategy relies on increasing production through developing conventional and unconventional fields, utilizing primary and EOR techniques and strategic acquisitions in areas where Occidental has a competitive advantage as a result of its successful operations or investments in shared infrastructure. Occidental also competes to develop and produce its worldwide oil and gas reserves safely and cost-effectively, maintain a skilled workforce and obtain quality services.
PROVED RESERVES AND SALES VOLUMES
The table below shows Occidental’s totalyear-end oil, NGLsNGL and natural gas proved reserves, andincluding reserves acquired in the Acquisition, but excluding reserves related to the Africa Assets. Year-to-date sales volumes in 2016, 2015exclude Anadarko sales prior to the date of the Acquisition and 2014.all sales related to the Africa Assets. See "MD“MD&A — Oil and Gas Segment,"” and the information under the caption "Supplemental“Supplemental Oil and Gas Information"Information” for certain details regarding Occidental’s proved reserves, the reserves estimation process, sales and production volumes, production costs and other reserves-related data.
Oil which(which includes condensate,condensate) and NGLsNGL are in millions of barrels; natural gas is in billions of cubic feet (Bcf); barrels of oil equivalent (BOE) are in millions.
| 2016 | 2015 | 2014 (a) | |||||||||||||||||||||||||||||||||||
| Proved Reserves | Oil | NGLs | Gas | BOE | (b) | Oil | NGLs | Gas | BOE | (b) | Oil | NGLs | Gas | BOE | (b) | ||||||||||||||||||||||
| United States | 960 | 219 | 1,045 | 1,353 | 915 | 186 | 1,019 | 1,271 | 1,273 | 222 | 1,714 | 1,781 | |||||||||||||||||||||||||
| International | 397 | 201 | 2,729 | 1,053 | 394 | 144 | 2,349 | 929 | 497 | 140 | 2,413 | 1,038 | |||||||||||||||||||||||||
| Total | 1,357 | 420 | 3,774 | 2,406 | 1,309 | 330 | 3,368 | 2,200 | 1,770 | 362 | 4,127 | 2,819 | |||||||||||||||||||||||||
| Sales Volumes | |||||||||||||||||||||||||||||||||||||
| United States | 69 | 19 | 132 | 110 | 73 | 20 | 155 | 119 | 67 | 20 | 173 | 116 | |||||||||||||||||||||||||
| International | 74 | 11 | 217 | 121 | 86 | 7 | 205 | 127 | 74 | 2 | 158 | 102 | |||||||||||||||||||||||||
| Total | 143 | 30 | 349 | 231 | 159 | 27 | 360 | 246 | 141 | 22 | 331 | 218 | |||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||
| Oil | NGL | Gas | BOE | (a) | Oil | NGL | Gas | BOE | (a) | Oil | NGL | Gas | BOE | (a) | |||||||||||||
Proved Reserves (b) | |||||||||||||||||||||||||||
| United States | 1,570 | 540 | 4,128 | 2,798 | 1,186 | 284 | 1,445 | 1,711 | 1,107 | 247 | 1,205 | 1,555 | |||||||||||||||
International (c) | 400 | 200 | 2,572 | 1,029 | 397 | 202 | 2,650 | 1,041 | 408 | 198 | 2,626 | 1,043 | |||||||||||||||
| Total | 1,970 | 740 | 6,700 | 3,827 | 1,583 | 486 | 4,095 | 2,752 | 1,515 | 445 | 3,831 | 2,598 | |||||||||||||||
| Sales Volumes | |||||||||||||||||||||||||||
| United States | 155 | 52 | 326 | 261 | 91 | 25 | 119 | 136 | 73 | 20 | 108 | 111 | |||||||||||||||
International (c) | 56 | 12 | 204 | 102 | 62 | 11 | 189 | 104 | 66 | 11 | 188 | 109 | |||||||||||||||
| Total | 211 | 64 | 530 | 363 | 153 | 36 | 308 | 240 | 139 | 31 | 296 | 220 | |||||||||||||||
(a) |
| Natural gas volumes are converted to |
(b) | The |
(c) | Excluded reserves of |
OXY 2019 FORM 10-K | 3 |
| BUSINESS AND PROPERTIES | |
| CHEMICAL OPERATIONS |
GENERAL
OxyChem owns and operates manufacturing plants at 2322 domestic sites in Alabama, Georgia, Illinois, Kansas, Louisiana, Michigan, New Jersey, New York, Ohio, Pennsylvania, Tennessee and Texas and at two international sites in Canada and Chile. In early 2014, OxyChem, through a 50/50 joint venture with Mexichem S.A.B. de C.V., broke ground on a 1.2 billion pound-per-year ethylene cracker at the OxyChem Ingleside facility. The cracker remains on budget and on schedule and is expected to begin operating in early 2017. OxyChem has announced a $145 million expansion of its manufacturing plant in Geismar, Louisiana. The project will produce an OxyChem patented new raw material used in making next-generation, climate-friendly refrigerants with a low global warming and
OxyChem competes with numerous other domestic and foreigninternational chemical producers. OxyChem’s market position was first or second in the United States in 20162019 for the principal basic chemical’schemical products it manufactures and markets as well as for Vinyl Chloride Monomervinyl chloride monomer (VCM). OxyChem ranks in the top three producers of Poly Vinyl Chloridepolyvinyl chloride (PVC) in the United States. OxyChem’s competitive strategy is to be a low-cost producer of its products in order to compete on price.
OxyChem produces the following products:
| Principal Products | Major Uses | Annual Capacity | ||
| Basic Chemicals | ||||
| Chlorine | Raw material for ethylene dichloride (EDC), water treatment and pharmaceuticals | |||
| Caustic soda | Pulp, paper and aluminum production | |||
| Chlorinated organics | Refrigerants(a), silicones and pharmaceuticals | |||
| Potassium chemicals | Fertilizers, batteries, soaps, detergents and specialty glass | 0.4 million tons | ||
| EDC | Raw material for | VCM | 2.1 billion pounds | |
| Chlorinated isocyanurates | Swimming pool sanitation and disinfecting products | 131 million pounds | ||
| Sodium silicates | Catalysts, soaps, detergents and paint pigments | 0.6 million tons | ||
| Calcium chloride | Ice melting, dust control, road stabilization and oil field services | 0.7 million tons | ||
| Vinyls | ||||
| VCM | Precursor for | PVC | 6.2 billion pounds | |
| PVC | Piping, building materials and automotive and medical products | 3.7 billion pounds | ||
| Raw material for VCM | 1.2 billion pounds (b) | |||
(a) | Includes 4CPe, a raw material used in making next-generation, climate-friendly refrigerants with low global-warming and zero ozone-depletion potential. |
(b) | Amount is gross production capacity for 50/50 joint venture with Orbia (formerly Mexichem). |
| 4 | OXY 2019 FORM 10-K |
| BUSINESS AND PROPERTIES | |
GENERAL
Included in the marketing and midstream segment is Occidental’s equity method investment in WES. WES owns gathering systems, plants and pipelines and earns revenue from fee-based and service-based contracts with Occidental and third parties.
Occidental’s marketing and midstream and marketing businesses operate in competitive and highly regulated markets. Occidental's domestic pipeline business competes with other midstream transportation companiesFrom the date of the Acquisition to provide transportation services. The competitive strategy of
Occidental’s marketing and storage assets by marketing its own and third-party production in the oil and gas business.
| Location | Description | Capacity | |||
| Gas Plants | |||||
| Texas, New Mexico and Colorado | Occidental and third-party-operated natural gas gathering, compression and processing systems, and CO2 processing and capturing | ||||
| Rocky Mountains, Pennsylvania, Texas and New Mexico | |||||
| UAE | Natural gas processing facilities for Al Hosn Gas | ||||
| Pipelines | |||||
| Gathering Systems | |||||
| Texas, New Mexico and Colorado | CO2 fields and pipeline systems transporting CO2 to oil and gas producing locations | ||||
| Oman | Equity investment in | 3.2 Bcf of natural gas per day | |||
| Equity investment in | |||||
| Power Generation | |||||
| Texas and Louisiana | Occidental-operated power and steam generation facilities | ||||
(a) | Amounts are gross, including interests held by third parties. |
| ENVIRONMENTAL REGULATION |
For environmental regulation information, including associated costs, see the information under the heading "Environmental“Environmental Liabilities and Expenditures"Expenditures” in the MD&A section of this report and "Risk“Risk Factors."”
OXY 2019 FORM 10-K | 5 |
| RISK FACTORS | |
Volatile global and local commodity pricing strongly affect Occidental’s results of operations.
Occidental’s financial results correlate closely to the prices it obtains for its products, particularly oil and, to a lesser extent, natural gas and NGLs,NGL, and its chemical products.
Prices for crude oil, natural gas and NGLsNGL fluctuate widely. Historically, the markets for crude oil, natural gas NGLs and refined productsNGL have been volatile and may continue to be volatile in the future. Prolonged or further declines in crudeIf the prices of oil, natural gas, and NGLs prices wouldor NGL continue to reduce Occidental's operating results andbe volatile or decline, Occidental’s operations, financial condition, cash flows, level of expenditures and could impact its future ratethe quantity of growthestimated proved reserves that may be attributed to our properties may be materially and further impact the recoverability of the carrying value of its assets.
adversely affected. Prices are set by global and local market forces which are not in Occidental'sOccidental’s control. These factors include, among others:
| Ø | Worldwide and domestic supplies of, and demand for, |
| Ø | The cost of exploring for, developing, producing, refining and marketing |
| Ø | Operational impacts such as production disruptions, technological advances and regional market conditions, including available transportation capacity and infrastructure constraints in producing |
| Ø | Changes in weather patterns and |
| Ø | The impacts of the members of OPEC and other |
| Ø | The worldwide military and political environment, including uncertainty or instability resulting from an escalation or outbreak of armed hostilities or acts of terrorism in the United States, or |
| Ø | The price and availability of alternative and competing |
| Ø | Technological advances affecting energy consumption and supply; |
| Ø | Domestic and foreign governmental regulations and |
| Ø | Shareholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil, natural gas and NGL; |
| Ø | Additional or increased nationalization and expropriation activities by foreign |
| Ø |
| Ø | Volatility in commodity futures markets; |
| Ø | The effect of energy conservation efforts; and |
| Ø | Global inventory levels and general economic |
The long-term effects of these and other conditions on the prices of crude oil, natural gas, NGLsNGL and refined products are uncertain. uncertain, and there can be no assurance that the demand or pricing for Occidental’s products will follow historic patterns or recover meaningfully in the near term. Prolonged or substantial decline, or sustained market uncertainty, in these commodity prices may have the following effects on Occidental’s business:
| Ø | Adversely affect Occidental’s financial condition, liquidity, ability to reduce debt, pay dividends, finance planned capital expenditures, ability to repurchase shares and results of operations; |
| Ø | Reduce the amount of oil, natural gas and NGLs that Occidental can produce economically; |
| Ø | Cause Occidental to delay or postpone some of its capital projects; |
| Ø | Reduce Occidental’s revenues, operating income or cash flows; |
| Ø | Reduce the amounts of Occidental’s estimated proved oil, natural gas and NGL reserves; |
| Ø | Reduce the carrying value of Occidental’s oil and natural gas properties due to recognizing impairments of proved properties, unproved properties and exploration assets; |
| Ø | Reduce the standardized measure of discounted future net cash flows relating to oil, natural gas and NGL reserves; |
| Ø | Limit Occidental’s access to, or increase the cost of, sources of capital such as equity and long-term debt; and |
| Ø | Adversely affect the ability of Occidental’s partners to fund their working interest capital requirements. |
Generally, Occidental'sOccidental’s historical practice ishas been to remain exposed to the market prices of commodities; however,commodities. In 2019, management elected to hedge a portion of Occidental’s expected 2020 oil production to enhance cash flow stability following the Acquisition. In the future, management may elect to hedge some of the price risk of crude oil, natural gas NGLs and refined products in the future.
The prices obtained for Occidental’s chemical products correlate strongly to the health of the United States and global economies, as well as chemical industry expansion and contraction cycles. Occidental also depends on feedstocks and energy to produce chemicals, which are commodities subject to significant price fluctuations.
| 6 | OXY 2019 FORM 10-K |
| RISK FACTORS | |
Occidental may experience delays, cost overruns, losses or other unrealized expectations in development efforts and exploration activities.
Oil, natural gas and NGL exploration and production activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil, natural gas and NGL production. In its development and exploration activities, Occidental bears the risks of equipment failures, construction delays, escalating costs or competition for services, materials, supplies or labor, property or border disputes, disappointing drilling results or reservoir performance and other associated risks that may affect its ability to profitably grow production, replace reserves and achieve its targeted returns.of:
| Ø | Equipment failures; |
| Ø | Construction delays; |
| Ø | Escalating costs or competition for services, materials, supplies or labor; |
| Ø | Property or border disputes; |
| Ø | Disappointing drilling results or reservoir performance; |
| Ø | Title problems and other associated risks that may affect its ability to profitably grow production, replace reserves and achieve its targeted returns; |
| Ø | Actions by third-party operators of our properties; |
| Ø | Delays and costs of drilling wells on lands subject to complex development terms and circumstances; and |
| Ø | Oil, natural gas or NGL gathering, transportation and processing availability, restrictions or limitations. |
Exploration is inherently risky and is subject to delays, misinterpretation of geologic or engineering data, unexpected geologic conditions or finding reserves of disappointing quality or quantity, which may result in significant losses.
Governmental actions and political instability may affect Occidental’s results of operations.
Occidental’s businesses are subject to the actions and decisions of many federal, state, local and foreign governments and political interests. As a result, Occidental faces risks of:
| Ø | New or amended laws and regulations, or new or different applications or interpretations of |
| Ø | Refusal of, or delay in, the extension or grant of exploration, development or production |
| Ø | Development delays and cost overruns due to approval delays for, or denial of, drilling, construction, environmental and other regulatory approvals, permits and authorizations. |
As an example of local governmental actions, some counties in Colorado have amended their land use regulations to impose new requirements on oil and gas development while other local governments have entered memoranda of agreement with oil and gas producers to accomplish the same objective. Further, voters in Colorado have proposed or advanced ballot initiatives restricting or banning oil and gas development in Colorado. In the event that these ballot initiatives are adopted or the county-level regulations are implemented in areas where we conduct operations, we may incur significant costs to comply with such requirements or may experience delays or curtailment in the permitting or pursuit of exploration, development or production activities.
In addition, Occidental has and may continue to experience adverse consequences, such as risk of loss or production limitations, because certain of its international operations are located in countries affected by political instability, nationalizations, corruption, armed conflict, terrorism, insurgency, civil unrest, security problems, labor unrest, OPEC production restrictions, equipment import restrictions and sanctions. Exposure to such risks may increase if a greater percentage of Occidental’s future oil and gas production or revenue comes from international sources.
Results of operations, reserves replacement and growth in oil and gas production depend, in part, on Occidental’s ability to profitably acquire additional reserves. Occidental has many competitors (including national oil companies), some of which: (i) are larger and better funded,funded; (ii) may be willing to accept greater risksrisks; (iii) have greater access to capital; (iv) have substantially larger staffs; or (iii)(v) have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay of reserve replacement efforts. In addition,Further, during periods of low product prices, any cash conservation efforts may delay production growth and reserve replacement efforts. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Our failure to acquire properties, grow production, replace reserves and attract and retain qualified personnel could have a material adverse effect on our cash flows and results of operations.
OXY 2019 FORM 10-K | 7 |
| RISK FACTORS | |
In addition, Occidental’s acquisition activities also carry risks that it may: (i) not fully realize anticipated benefits due to less-than-expected reserves or production or changed circumstances, such as the deterioration ofdeclines in oil, NGL, and natural gas prices in recent years and the more recent significant decline in crude oil prices; (ii) bear unexpected integration costs or experience other integration difficulties; (iii) experience share price declines based on the market’s evaluation of the activity; or (iv) assumebe subject to liabilities that are greater than anticipated.
Occidental’s oil and gas reserves are estimates based on professional judgments and may be subject to revision.
Reported oil and gas reserves are an estimate based on periodic review of reservoir characteristics and recoverability, including production decline rates, operating performance and economic feasibility at the prevailing commodity prices, assumptions concerning future crude oil and natural gas prices, future operating costs and capital expenditures, as well asworkover and remedial costs, assumed effects of regulation by governmental agencies.agencies, the quantity, quality and interpretation of relevant data, taxes and availability of funds. The procedures and methods for estimating the reserves by our internal engineers were reviewed by independent petroleum consultants; however, there are inherent uncertainties in estimating reserves. Actual production, revenues, expenditures, oil, NGL and expendituresnatural gas prices and taxes with respect to our reserves may vary from estimates, and the variance may be material. If Occidental were required to make significant negative reserve revisions, its results of operations and stock price could be adversely affected.
In addition, the discounted cash flows included in this Form 10-K should not be construed as the fair value of the reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on an unweighted 12-month average first-day-of-the-month prices in accordance with SEC regulations. Actual future prices and costs may differ materially from SEC regulation-compliant prices and costs used for purposes of estimating future discounted net cash flows from proved reserves. Also, actual future net cash flows may differ from these discounted net cash flows due to the amount and timing of actual production, availability of financing for capital expenditures necessary to develop our undeveloped reserves, supply and demand for oil, NGL and natural gas, increases or decreases in consumption of oil, natural gas and NGL and changes in governmental regulations or taxation.
Continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national, regional and local legislation and regulatory programs to reduce greenhouse gas emissions. In December 2009, the Environmental Protection Agency (EPA) determined that emissions of carbon dioxide, methane and other greenhouse gases endanger public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’s atmosphere and other climatic changes. Based on these findings, the EPA began adopting and implementing regulations to restrict emissions of greenhouse gases under existing provisions of the Clean Air Act (CAA). For example, the EPA issued rules restricting methane emissions from hydraulically fractured and refractured gas wells, compressors, pneumatic controls, storage vessels, and natural gas processing plants. In addition, in August 2019, the EPA issued the Affordable Clean Energy rule that designates heat rate improvement, or efficiency improvement, as the best system of emissions reduction for carbon dioxide from existing coal-fired electric utility generating units.
In the absence of federal legislation to significantly reduce emissions of greenhouse gases to date, many state governments have established rules aimed at reducing greenhouse gas emissions, including greenhouse gas cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, including refineries and natural gas processing plants, to acquire and surrender emission allowances. In the future, the United States may also choose to adhere to international agreements targeting greenhouse gas reductions. These and other government actions relating to greenhouse gas emissions could require Occidental to incur increased operating and maintenance costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances, pay carbon taxes, or comply with new regulatory or reporting requirements, or they could promote the use of alternative sources of energy and thereby decrease demand for oil, natural gas, NGL and other products that Occidental’s businesses produce. Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, oil, natural gas, NGL and other products produced by Occidental’s businesses.businesses and lower the value of its reserves. Consequently, government actions designed to reduce emissions of greenhouse gases could have an adverse effect on Occidental’s business, financial condition, and results of operations.operations, cash flows and reserves.
It is difficult to predict the timing and certainty of such government actions and thetheir ultimate effect on Occidental, which could depend on, among other things, the type and extent of greenhouse gas reductions required, the availability and price of emissions allowances or credits, the availability and price of alternative fuel sources, the energy sectors covered, and Occidental’s ability to recover the costs incurred through its operating agreements or the pricing of the company’sits oil, natural gas, NGL and other products.
There also have been efforts in the investment community, including investment advisers and certain sovereign wealth, pension and endowment funds, as well as other stakeholders, promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Such initiatives could cause the market value of our securities to decrease, our cost of capital to
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| RISK FACTORS | |
increase and adversely affect our reputation. Finally, increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and additional private litigation against Occidental without regard to causation or our contribution to the asserted damage, which could increase our costs or otherwise adversely affect our business. Occidental has been named in certain private litigation relating to these matters.
Occidental’s businesses may experience catastrophic events.
The occurrence of events such as hurricanes, floods, droughts, earthquakes or other acts of nature, well blowouts, pandemics, fires, explosions, pipeline ruptures, chemical releases, crude oil releases, including maritime releases, releases into navigable waters, and groundwater contamination, material or mechanical failure, industrial accidents, physical attacks, abnormally pressured or structured formations and other events that cause operations to cease or be curtailed may negatively affect Occidental’s businesses and the communities in which it operates. Coastal operations are particularly susceptible to disruption from extreme weather events. Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to us as a result of:
| Ø | Damage to and destruction of property and equipment; |
| Ø | Damage to natural resources; |
| Ø | Pollution and other environmental damage, including spillage or mishandling of recovered chemicals or fluids; |
| Ø | Regulatory investigations and penalties; |
| Ø | Loss of well location, acreage, expected production and related reserves; |
| Ø | Suspension or delay of our operations; |
| Ø | Substantial liability claims; and |
| Ø | Repair and remediation costs. |
Third-party insurance may not provide adequate coverage or Occidental may be self-insured with respect to the related losses. In addition, under certain circumstances, we may be liable for environmental damage caused by previous owners or operators of properties that we own, lease or operate. As a result, we may incur substantial liabilities to third parties or governmental entities for environmental matters for which we do not have insurance coverage, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses.
Occidental’s CO2 EOR operations are critical to Occidental’s long-term strategy. Oil production from Occidental’s EOR projects depends largely on having access to sufficient amounts of naturally occurring or anthropogenic CO2. Occidental’s ability to produce oil from its EOR projects would be hindered if the supply of CO2 was limited due to, among other things, problems with current CO2 producing wells and facilities, including compression equipment, catastrophic pipeline failure or the ability to economically purchase naturally occurring or anthropogenic CO2. This could significantly affect Occidental.have a material adverse effect on Occidental’s financial condition, results of operations or cash flows. Future oil production from its EOR operations is dependent on the timing, volumes and location of CO2 injections and, in particular, Occidental’s ability to obtain sufficient volumes of CO2. Market conditions may cause the delay or cancellation of the development of naturally occurring CO2 sources or construction of plants that produce anthropogenic CO2 as a byproduct that can be purchased, thus limiting the amount of CO2 available for use in Occidental’s EOR operations.
Occidental is exposed to cyber-related risks.
The oil and gas industry is increasingly dependent on businesses have escalated in recent years.digital and industrial control technologies to conduct certain exploration, development and production activities. Occidental relies on digital and industrial control systems, related infrastructure, technologies and networks to run its business and to control and manage its oil and gas, chemicals, marketing and pipeline operations. Use of the internet, cloud services, mobile communication systems and other public networks exposes Occidental’s business and that of other third parties with whom Occidental does business to cyber-attacks that attempt to gain unauthorized access tocyber-attacks. Cyber-attacks on businesses have escalated in recent years.
Information and industrial control technology system failures, network disruptions and breaches of data security could disrupt our operations by causing delays, impeding processing of transactions and systems, release confidentialreporting financial results, resulting in the unintentional disclosure of company, partner, customer or employee information corrupt data and disrupt criticalor could damage our reputation. A cyber-attack involving our information or industrial control systems and operations. related infrastructure, or that of our business associates, could negatively impact our operations in a variety of ways, including but not limited to, the following:
| Ø | Unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information could have a negative impact on our ability to compete for oil and natural gas resources; |
| Ø | Data corruption, communication or systems interruption or other operational disruption during drilling activities could result in delays and failure to reach the intended target or cause a drilling incident; |
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| RISK FACTORS | |
| Ø | Data corruption, communication or systems interruption or operational disruptions of production-related infrastructure could result in a loss of production or accidental discharge; |
| Ø | A cyber-attack on our chemical operations could result in a disruption of the manufacturing and marketing of our products or a potential environmental hazard; |
| Ø | A cyber-attack on a vendor or service provider could result in supply chain disruptions, which could delay or halt our construction and development projects; |
| Ø | A cyber-attack on third-party gathering, pipeline, processing, or other infrastructure systems could delay or prevent us from transporting, processing and marketing our production; |
| Ø | A cyber-attack involving commodities exchanges or financial institutions could slow or halt commodities trading, thus preventing us from marketing our production or engaging in hedging activities; |
| Ø | A cyber-attack that halts activities at a power generation facility or refinery using natural gas as feedstock could have a significant impact on the natural gas market; |
| Ø | A cyber-attack on a communications network or power grid could cause operational disruption; |
| Ø | A cyber-attack on our automated and surveillance systems could cause a loss in production and potential environmental hazards; |
| Ø | A deliberate corruption of our financial or operating data could result in events of non-compliance which could then lead to regulatory fines or penalties; and |
| Ø | A cyber-attack resulting in the loss or disclosure of, or damage to, our or any of our customer’s or supplier’s data or confidential information could harm our business by damaging our reputation, subjecting us to potential financial or legal liability, and requiring us to incur significant costs, including costs to repair or restore our systems and data or to take other remedial steps. |
Even though Occidental has implemented controls and multiple layers of security to mitigate the risks of a cyber-attack that it believes are reasonable, there can be no assurance that such cyber security measures will be sufficient to prevent security breaches of its systems from occurring.occurring, and if a breach occurs, it may remain undetected for an extended period of time. Further, Occidental has no control over the comparable systems of the third parties with whom it does business. While we haveOccidental has experienced cyber-attacks in the past, we haveOccidental has not suffered any material losses. However, if in the future ourOccidental’s cyber security measures are compromised or prove insufficient, the potential consequences to Occidental’s businesses and the communities in which it operates could be significant. As cyber-attacks continue to evolve in magnitude and sophistication, weOccidental may be required to expend additional resources in order to continue to enhance ourOccidental’s cyber security measures and to investigate and remediate any digital and operational systems, related infrastructure, technologies and network security vulnerabilities.vulnerabilities, which would increase our costs. A system failure or data security breach, or a series of such failures or breaches, could have a material adverse effect on our financial condition, results of operations or cash flows.
Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless we conductOccidental conducts successful exploration or development activities, acquireacquires properties containing proved reserves, or both, proved reserves will generally decline.decline and negatively impact our business. The value of our securities and our ability to raise capital will be adversely impacted if we are not able to replace reserves that are depleted by production or replace our declining production with new production. Management expects improved recovery, extensions and discoveries to continueas main sources for reserve additions but factors such as geology, government regulations and permits, and the effectiveness of development plans and the ability to make the necessary capital investments or acquire capital are partially or fully outside management'smanagement’s control and could cause results to differ materially from expectations.
To the extent that we engage in activities to protect Occidental’s cash flows from commodity-price declines, we may be prevented from realizing the full benefits of price increases above the levels of the derivative instruments used to manage price risk. In addition, Occidental’s commodity-price risk management may expose us to the risk of financial loss in certain circumstances, including instances in which the following occur:
| Ø | Occidental’s production is less than the notional volume; |
| Ø | The counterparties to Occidental’s hedging or other price risk management contracts fail to perform under those arrangements; or |
| Ø | A sudden, unexpected event materially impacts oil, natural gas or NGL prices. |
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Occidental’s operations and financial results could be significantly negatively impacted by its offshore operations.
Occidental is vulnerable to risks associated with our offshore operations that could negatively impact our operations and financial results. Occidental conducts offshore operations in the Gulf of Mexico and Ghana. Occidental’s operations and financial results could be significantly impacted by conditions in some of these areas and are also vulnerable to certain unique risks associated with operating offshore, including those relating to the following:
Ø Hurricanes and other adverse weather conditions;
Ø Geological complexities and water depths associated with such operations;
Ø Limited number of partners available to participate in projects;
Ø Oilfield service costs and availability;
Ø Compliance with environmental, safety, and other laws and regulations;
Ø Terrorist attacks or piracy;
Ø Remediation and other costs and regulatory changes resulting from oil spills or releases of hazardous materials;
Ø Failure of equipment or facilities; and
Ø Response capabilities for personnel, equipment, or environmental incidents.
In addition, Occidental conducts some of its exploration in deep waters (greater than 1,000 feet) where operations, support services, and decommissioning activities are more difficult and costly than in shallower waters. The deep waters in the Gulf of Mexico, as well as international deepwater locations, lack the physical and oilfield service infrastructure present in shallower waters. As a result, deepwater operations may require significant time between a discovery and the time that Occidental can market its production, thereby increasing the risk involved with these operations.
Additional domestic and international deepwater drilling laws, regulations and other restrictions, delays in the processing and approval of drilling permits and exploration, development, oil spill response and decommissioning plans and other offshore-related developments may have a material adverse effect on Occidental’s business, financial condition or results of operations.
The Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement have imposed more stringent permitting procedures and regulatory safety and performance requirements for new wells to be drilled in federal waters. In addition, these governmental agencies are continuing to evaluate, develop and implement new, more restrictive regulatory requirements, which could result in additional costs, delays, restrictions or obligations with respect to oil exploration and production operations conducted offshore. For example, the BOEM has considered, and may adopt, supplemental bonding procedures for the decommissioning of offshore wells, platforms, pipelines and other facilities, which may be material. Compliance with these more stringent regulatory requirements and with existing environmental and oil spill regulations, together with any uncertainties or inconsistencies in decisions and rulings by governmental agencies, delays in the processing and approval of drilling permits or exploration, development, oil spill-response and decommissioning plans, and possible additional regulatory initiatives could result in difficult and more costly actions and adversely affect or delay new drilling and ongoing development efforts.
Occidental’s indebtedness may make it more vulnerable to economic downturns and adverse developments in its business. A downgrade in Occidental’s credit ratings or future increases in interest rates may negatively impact Occidental’s cost of and ability to access the capital markets.
Occidental incurred indebtedness and other payment obligations in connection with the Acquisition. Occidental’s higher level of indebtedness could increase Occidental’s vulnerability to adverse changes in general economic and industry conditions, economic downturns and adverse developments in its business and/or limit Occidental’s flexibility in planning for or reacting to changes in its business and the industries in which it operates. From time to time, Occidental has relied on access to the capital markets for funding, including in connection with the Acquisition. There can be no assurance that additional debt or equity financing will be available to Occidental in the future on acceptable terms, or at all. Occidental’s ability to obtain additional financing or refinancing will be subject to a number of factors, including general economic and market conditions, Occidental’s performance, investor sentiment and its existing debt compliance requirements. If Occidental is unable to generate sufficient funds from its operations to satisfy its capital requirements, including its existing debt obligations, or to raise additional capital on acceptable terms, Occidental’s business could be adversely affected. In addition, a downgrade in the credit rating of Occidental could negatively impact its cost of and ability to access capital and to effectively execute aspects of its strategy, and may require Occidental to provide collateral, letters of credit, or other forms of security under certain contractual agreements, which would increase Occidental’s operating costs. As a result, a downgrade below investment grade in Occidental’s credit ratings could have a material adverse impact on Occidental’s financial condition, operating results, or liquidity.
Further, a portion of Occidental’s indebtedness bears interest at fluctuating interest rates, some of which is tied to the London Interbank Offered Rate (“LIBOR”). LIBOR tends to fluctuate based on general interest rates, rates set by the Federal Reserve and other central banks, the supply of and demand for credit in the London interbank market and general economic conditions. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop compelling banks
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| RISK FACTORS | |
to submit rates for the calculation of LIBOR after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but may include an increase in the cost of Occidental’s variable rate indebtedness, including floating rate notes and interest rate swaps, which may have an adverse effect on Occidental’s financial condition, operating results or cash flows.
Risks related to Occidental’s Acquisition of Anadarko
Occidental may not be able to integrate Anadarko successfully, and many of the anticipated benefits of combining Occidental and Anadarko may not be realized.
Occidental acquired Anadarko with the expectation that the Acquisition will result in various benefits, including, among other things, operating efficiencies. Achieving those anticipated benefits is subject to a number of uncertainties, including whether Occidental can integrate the business of Anadarko in an efficient and effective manner. Occidental cannot ensure that those benefits will be realized as quickly as expected or at all. If Occidental does not achieve anticipated benefits, costs could increase, expected net income could decrease, the stock price could decline, and future business, financial condition, operating results and prospects could suffer.
The integration process could take longer than anticipated and involve unanticipated costs. Disruptions of each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements could adversely affect the combined company. Occidental may also have difficulty addressing differences in corporate cultures and management philosophies and harmonizing other systems and business practices. Although Occidental expects that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will over time offset the substantial incremental transaction and Acquisition-related costs, Occidental may not achieve this net benefit in the near term, or at all.
Moreover, even if the integration of Anadarko is successful, the integration process places a significant burden on Occidental’s management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the integration process could adversely affect our financial condition, results of operations or cash flows.
Future results will be negatively impacted if Occidental does not effectively manage its expanded operations.
With completion of the Acquisition, the size of Occidental’s business has increased significantly. Occidental’s continued success depends, in part, upon its ability to manage this expanded business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. Occidental cannot assure that it will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits from the combination currently anticipated.
Anadarko’s Tronox settlement may not be deductible for income tax purposes, and Occidental may be required to repay the tax refund Anadarko received in 2016 related to the deduction of the Tronox settlement payment, which may have a material adverse effect on Occidental’s results of operations, liquidity and financial condition.
In April 2014, Anadarko and Kerr-McGee Corporation and certain of its subsidiaries (collectively, Kerr-McGee) entered into a settlement agreement for $5.15 billion, resolving all claims that were or could have been asserted in connection with the May 2009 lawsuit filed by Tronox against Anadarko and Kerr-McGee Corporation (and certain of its subsidiaries) in the U.S. Bankruptcy Court for the Southern District of New York. After the settlement became effective in January 2015, Anadarko paid $5.2 billion and deducted this payment on its 2015 federal income tax return. Due to the deduction, Anadarko had a net operating loss carryback for 2015, which resulted in a tentative tax refund of $881 million in 2016. Occidental’s consolidated financial statements include an uncertain tax position greater than the amount of the tentative tax refund received.
The IRS has audited Anadarko’s tax position regarding the deductibility of the payment and in September 2018 issued a statutory notice of deficiency rejecting Anadarko’s refund claim. Anadarko disagreed and filed a petition with the U.S. Tax Court to dispute the disallowance in November 2018. It is possible that Occidental may not ultimately succeed in defending this deduction. If the payment is ultimately determined not to be deductible, Occidental would be required to repay the tentative refund received plus interest totaling approximately $1.1 billion as of December 31, 2019, which could have a material adverse effect on our statement of operations, liquidity and consolidated balance sheets. This amount is not covered by insurance. For additional information on income taxes, see Note 11 - Lawsuits, Claims, Commitments and Contingencies" "— Environmental Liabilities in the Notes to Consolidated Financial Statements.
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Occidental may not be able to complete its planned divestitures of certain assets on favorable terms or at all.
Occidental announced a $15 billion divestiture program in connection with the Acquisition. The completion of these divestitures is subject to customary closing conditions, and Expenditures," "— Critical Accounting Policiescertain of the divestitures are conditioned on the receipt of required government and Estimates," "— Quantitative and Qualitative Disclosures About Market Risk," and "Management's Annual Assessmentregulatory approvals. Occidental may not be able to complete its planned divestitures on favorable terms, in a timely manner or at all. Any difficulties with respect to the completion of and Report on Internal Control Over Financial Reporting."
| ITEM | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 3. | LEGAL PROCEEDINGS |
On September 13, 2019, an Occidental subsidiary received a draft consent agreement and final order from the EPA regarding alleged violations under the CAA and various sections of the EPA’s Chemical Accident Prevention Provisions at the Geismar, Louisiana facility. The subsidiary contestedEPA’s order includes allegations associated with operating procedures, inspections, contractor reviews, medical protocols in the penaltiesemergency response plan, administrative updates and four historical on-site incidents. The EPA’s revised draft settlement proposal includes a civil penalty of $734,182. Occidental is awaitingcurrently negotiating a decision.resolution of this matter with the EPA.
For information regarding other legal proceedings, see the information under the caption "Lawsuits,“Lawsuits, Claims, Commitments and Contingencies"Contingencies” in the MD&A section of this report and in Note 911 - Lawsuits, Claims, Commitments and Contingencies in the Notes to the Consolidated Financial Statements.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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| OTHER INFORMATION | |
| INFORMATION ABOUT OUR EXECUTIVE OFFICERS |
Each executive officer holds his or her office from the date of Occidental will expire at the May 12, 2017 meeting ofelection by the Board of Directors until the first board meeting held after the next Annual Meeting of Stockholders or whenuntil his or her removal or departure or a successor is selected. duly elected, if earlier.
The following table sets forth the executive officers of Occidental:Occidental as of February 27, 2020:
Name Current Title | Age at February | 27, 2020 | Positions with Occidental | ||
Marcia E. Backus Senior Vice President | 65 | Senior Vice President, General Counsel and Chief Compliance Officer since December 2016; Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary, 2015-2016; Vice President, General Counsel and Corporate Secretary, 2014-2015; Vice President and General Counsel, 2013-2014; Vinson & Elkins: Partner, 1990-2013. | |||
Oscar K. Brown Senior Vice President | 49 | Senior Vice President - Strategy, Business Development and Supply Chain since November 2018; Senior Vice President - Corporate Strategy and Development, 2017 - 2018; Senior Vice President - Business Development, 2016 - 2017; Bank of America Merrill Lynch: Managing Director and co-head of Americas Energy Investment Banking, 2010 - 2016. | |||
Cedric W. Burgher Chief Financial Officer and Senior Vice President | 59 | Senior Vice President and Chief Financial Officer since May 2017; EOG Resources: Senior Vice President, Investor and Public Relations, 2014-2017; QR Energy L.P.: Chief Financial Officer, 2010-2014. | |||
Christopher O. Champion Vice President | 50 | Vice President, Chief Accounting Officer and Controller since August 2019; Anadarko Petroleum Corporation: Senior Vice President, Chief Accounting Officer and Controller, 2017-2019; Vice President, Chief Accounting Officer and Controller 2015-2017; KPMG LLP: Audit Partner, 2003-2015. | |||
Kenneth Dillon Senior Vice President | 60 | Senior Vice President since December 2016; President - International Oil and Gas Operations since June 2016; Senior Vice President - Operations and Major Projects, 2014-2016; Senior Vice President - Major Projects, 2012-2014. | |||
Vicki Hollub President and Chief Executive Officer | 60 | President, Chief Executive Officer and Director since April 2016; President, Chief Operating Officer and Director, 2015-2016; Senior Executive Vice President and President, Oxy Oil and Gas, 2015; Executive Vice President and President Oxy Oil and Gas - Americas, 2014-2015; Vice President and Executive Vice President, U.S. Operations, Oxy Oil and Gas, 2013-2014. | |||
Edward A. “Sandy” Lowe Executive Vice President | 68 | Executive Vice President since 2015; Group Chairman - Middle East since 2016; Senior Vice President, 2008-2015; President - Oxy Oil & Gas International, 2009-2016. | |||
Robert Palmer Senior Vice President | 64 | Senior Vice President since July 2017; President - Domestic Onshore Oil and Gas Operations, Oxy Oil and Gas since June 2019; Senior Vice President - Technical Support, 2017-2019; President and General Manager - Colombia, 2012-2017. | |||
Glenn M. Vangolen Senior Vice President | 61 | Senior Vice President, | |||
| 14 | OXY 2019 FORM 10-K | ||||
| ||||
| OTHER INFORMATION | ||||
Part II
| ITEM | MARKET FOR |
| MARKET INFORMATION, HOLDERS AND DIVIDEND POLICY |
Occidental’s common stock was held by approximately 26,000 stockholders of record at January 31, 2017, and by approximately 700,000 additional stockholders whose shares were held for them in street name or nominee accounts. The common stock is listed and traded on the New York Stock Exchange.Exchange under the ticker symbol “OXY.” The quarterly financial data set forth the range of trading prices for the common stock as reported on the composite tape of the New York Stock Exchange and quarterly dividend information.
Occidental’s current annualannualized dividend rate of $3.04$3.16 per share has increased by over 500 percent500% since 2002. The declaration of future dividends is a business decision made by the Board of Directors from time to time, and will depend on Occidental’s financial condition and other factors deemed relevant by the Board.
Occidental’s share repurchase activities for the year ended December 31, 20162019, were as follows:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||
| First Quarter 2016 | 103,371 | (a) | $ | 70.63 | — | ||||||||||||||||
| Second Quarter 2016 | 96,449 | (a) | $ | 76.06 | — | ||||||||||||||||
| Third Quarter 2016 | 96,151 | (a) | $ | 70.50 | — | ||||||||||||||||
| October 1 - 31, 2016 | — | $ | — | — | |||||||||||||||||
| November 1 - 30, 2016 | — | $ | — | — | |||||||||||||||||
| December 1 - 31, 2016 | — | $ | — | — | |||||||||||||||||
| Fourth Quarter 2016 | — | $ | — | — | |||||||||||||||||
| Total 2016 | 295,971 | (a) | $ | 72.36 | — | 63,756,544 | (b) | ||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||
| First Quarter 2019 | 2,690,000 | $ | 66.94 | 2,690,000 | ||||||||||||||
| Second Quarter 2019 | — | $ | — | — | ||||||||||||||
| Third Quarter 2019 | — | $ | — | — | ||||||||||||||
| Fourth Quarter 2019 | — | (a) | $ | — | — | |||||||||||||
| Total 2019 | 2,690,000 | (a) | $ | 66.94 | 2,690,000 | 44,206,787 | (b) | |||||||||||
(a) |
(b) | Represents the total number of shares remaining at year end under |
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| OTHER INFORMATION | |
| PERFORMANCE GRAPH |
The following graph compares the yearly percentage change in Occidental’s cumulative total return on its common stock with the cumulative total return of the Standard & Poor'sPoor’s 500 Stock Index (S&P 500), which includes Occidental, is included in, and with that of Occidental’s peer group over the five-year period ended on December 31, 20162019. The graph assumes that $100 was invested at the beginning of the five-year period shown in the graph below in: (i) Occidental common stock, (ii) the stock of the companies in the S&P 500, and (iii) each of the peer group companies'companies’ common stock weighted by their relative market valuescapitalization within the peer group, and that all dividends were reinvested. The cumulative total return of the peer group companies’ common stock includes the cumulative total return of Occidental’s common stock.
| 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | ||||||||||||
 | $ | 100 | $ | 84 | $ | 107 | $ | 98 | $ | 85 | $ | 94 | |||||
 | 100 | 102 | 125 | 117 | 95 | 120 | |||||||||||
 | 100 | 116 | 154 | 175 | 177 | 198 | |||||||||||
| Fiscal Year Ended December 31 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||
| Occidental | $ | 100 | $ | 87 | $ | 96 | $ | 104 | $ | 91 | $ | 65 | |||||||||||
| Peer Group | $ | 100 | $ | 83 | $ | 104 | $ | 107 | $ | 95 | $ | 103 | |||||||||||
| S&P 500 | $ | 100 | $ | 101 | $ | 113 | $ | 138 | $ | 132 | $ | 174 | |||||||||||
The information provided in this Performance Graph shall not be deemed "soliciting material"“soliciting material” or "filed"“filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act, other than as provided in Item 201 to Regulation S-K under the Exchange Act, or subject to the liabilities of Section 18 of the Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent Occidental specifically requests that it be treated as soliciting material or specifically incorporates it by reference.
OXY 2019 FORM 10-K | |
| OTHER INFORMATION | |
| ITEM | SELECTED FINANCIAL DATA |
| As of and for the years ended December 31, | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
RESULTS OF OPERATIONS (a) | |||||||||||||||||||||
| Net sales | $ | 10,090 | $ | 12,480 | $ | 19,312 | $ | 20,170 | $ | 20,100 | |||||||||||
| Income (loss) from continuing operations | $ | (1,002 | ) | $ | (8,146 | ) | $ | (130 | ) | $ | 4,932 | $ | 3,829 | ||||||||
| Net income (loss) attributable to common stock | $ | (574 | ) | $ | (7,829 | ) | $ | 616 | $ | 5,903 | $ | 4,598 | |||||||||
| Basic earnings (loss) per common share from continuing operations | $ | (1.31 | ) | $ | (10.64 | ) | $ | (0.18 | ) | $ | 6.12 | $ | 4.72 | ||||||||
| Basic earnings (loss) per common share | $ | (0.75 | ) | $ | (10.23 | ) | $ | 0.79 | $ | 7.33 | $ | 5.67 | |||||||||
| Diluted earnings (loss) per common share | $ | (0.75 | ) | $ | (10.23 | ) | $ | 0.79 | $ | 7.32 | $ | 5.67 | |||||||||
FINANCIAL POSITION (a) | |||||||||||||||||||||
| Total assets | $ | 43,109 | $ | 43,409 | $ | 56,237 | $ | 69,415 | $ | 64,175 | |||||||||||
| Long-term debt, net | $ | 9,819 | $ | 6,855 | $ | 6,816 | $ | 6,911 | $ | 6,988 | |||||||||||
| Stockholders’ equity | $ | 21,497 | $ | 24,350 | $ | 34,959 | $ | 43,372 | $ | 40,048 | |||||||||||
MARKET CAPITALIZATION (b) | $ | 54,437 | $ | 51,632 | $ | 62,119 | $ | 75,699 | $ | 61,710 | |||||||||||
| CASH FLOW FROM CONTINUING OPERATIONS | |||||||||||||||||||||
| Operating: | |||||||||||||||||||||
| Cash flow from continuing operations | $ | 2,519 | $ | 3,254 | $ | 8,871 | $ | 10,229 | $ | 9,050 | |||||||||||
| Investing: | |||||||||||||||||||||
| Capital expenditures | $ | (2,717 | ) | $ | (5,272 | ) | $ | (8,930 | ) | $ | (7,357 | ) | $ | (7,874 | ) | ||||||
| Cash provided (used) by all other investing activities, net | $ | (2,025 | ) | $ | (151 | ) | $ | 2,686 | $ | 1,040 | $ | (1,989 | ) | ||||||||
| Financing: | |||||||||||||||||||||
| Cash dividends paid | $ | (2,309 | ) | $ | (2,264 | ) | $ | (2,210 | ) | $ | (1,553 | ) | (c) | $ | (2,128 | ) | (c) | ||||
| Purchases of treasury stock | $ | (22 | ) | $ | (593 | ) | $ | (2,500 | ) | $ | (943 | ) | $ | (583 | ) | ||||||
| Cash provided (used) by all other financing activities, net | $ | 2,722 | $ | 4,341 | $ | 2,384 | $ | (437 | ) | $ | 1,865 | ||||||||||
| DIVIDENDS PER COMMON SHARE | $ | 3.02 | $ | 2.97 | $ | 2.88 | $ | 2.56 | $ | 2.16 | |||||||||||
| WEIGHTED AVERAGE BASIC SHARES OUTSTANDING (millions) | 764 | 766 | 781 | 804 | 809 | ||||||||||||||||
| millions, except per-share amounts | 2019 (a) | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
RESULTS OF OPERATIONS (b,c) | |||||||||||||||||||
| Net sales | $ | 20,393 | $ | 17,824 | $ | 12,508 | $ | 10,090 | $ | 12,480 | |||||||||
| Income (loss) from continuing operations | $ | (507 | ) | $ | 4,131 | $ | 1,311 | $ | (1,002 | ) | $ | (8,146 | ) | ||||||
| Net income (loss) attributable to common stockholders | $ | (985 | ) | $ | 4,131 | $ | 1,311 | $ | (574 | ) | $ | (7,829 | ) | ||||||
| Net income (loss) from continuing operations attributable to common stockholders - basic per common share | $ | (1.20 | ) | $ | 5.40 | $ | 1.71 | $ | (1.31 | ) | $ | (10.64 | ) | ||||||
| Net income (loss) attributable to common stockholders - basic per common share | $ | (1.22 | ) | $ | 5.40 | $ | 1.71 | $ | (0.75 | ) | $ | (10.23 | ) | ||||||
| Net income (loss) attributable to common stockholders - diluted per common share | $ | (1.22 | ) | $ | 5.39 | $ | 1.70 | $ | (0.75 | ) | $ | (10.23 | ) | ||||||
FINANCIAL POSITION (b) | |||||||||||||||||||
| Total assets | $ | 109,330 | $ | 43,854 | $ | 42,026 | $ | 43,109 | $ | 43,409 | |||||||||
| Long-term debt, net | $ | 38,537 | $ | 10,201 | $ | 9,328 | $ | 9,819 | $ | 6,855 | |||||||||
| Stockholders’ equity | $ | 34,232 | $ | 21,330 | $ | 20,572 | $ | 21,497 | $ | 24,350 | |||||||||
MARKET CAPITALIZATION (d) | $ | 36,846 | $ | 45,998 | $ | 56,357 | $ | 54,437 | $ | 51,632 | |||||||||
CASH FLOW FROM CONTINUING OPERATIONS (b,c) | |||||||||||||||||||
| Operating: | |||||||||||||||||||
| Cash flow from continuing operations | $ | 7,203 | $ | 7,669 | $ | 4,861 | $ | 2,520 | $ | 3,251 | |||||||||
| Investing: | |||||||||||||||||||
| Capital expenditures | $ | (6,355 | ) | $ | (4,975 | ) | $ | (3,599 | ) | $ | (2,717 | ) | $ | (5,272 | ) | ||||
| Payments for purchases of assets and businesses | $ | (28,088 | ) | $ | (928 | ) | $ | (1,064 | ) | $ | (2,044 | ) | $ | (109 | ) | ||||
| Sales of assets, net | $ | 6,143 | $ | 2,824 | $ | 1,403 | $ | 302 | $ | 819 | |||||||||
| Cash provided (used) by all other investing activities, net | $ | (573 | ) | $ | (127 | ) | $ | 181 | $ | (284 | ) | $ | (858 | ) | |||||
| Financing: | |||||||||||||||||||
| Cash dividends paid | $ | (2,624 | ) | $ | (2,374 | ) | $ | (2,346 | ) | $ | (2,309 | ) | $ | (2,264 | ) | ||||
| Purchases of treasury stock | $ | (237 | ) | $ | (1,248 | ) | $ | (25 | ) | $ | (22 | ) | $ | (593 | ) | ||||
| Proceeds from long-term debt, net - Occidental | $ | 21,557 | $ | 978 | $ | — | $ | 4,203 | $ | 1,478 | |||||||||
| Payment of long-term debt, net - Occidental | $ | (6,959 | ) | $ | (500 | ) | $ | — | $ | (2,710 | ) | $ | — | ||||||
| Proceeds from issuance of common and preferred stock | $ | 10,028 | $ | 33 | $ | 28 | $ | 36 | $ | 37 | |||||||||
| Cash provided (used) by all other financing activities, net | $ | 431 | $ | 9 | $ | — | $ | — | $ | — | |||||||||
| DIVIDENDS PER COMMON SHARE | $ | 3.14 | $ | 3.10 | $ | 3.06 | $ | 3.02 | $ | 2.97 | |||||||||
| WEIGHTED-AVERAGE BASIC SHARES OUTSTANDING | 810 | 762 | 765 | 764 | 766 | ||||||||||||||
(a) | Summary financial information included the impact of the Acquisition, see Note 3 - The Acquisitionin the Notes to Consolidated Financial Statements. Summary results of operations from the date of the Acquisition to December 31, 2019 included the results of WES, a previously consolidated subsidiary. The summary results of operations also included a loss as a result of no longer consolidating WES of approximately $1 billion. See Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. |
(b) | See the MD&A section of this report and the Notes to Consolidated Financial Statements for information regarding acquisitions and dispositions, discontinued operations and other |
(c) | The 2019 results include results of operations and cash flows related to the Acquisition for the period beginning August 8, 2019 through December 31, 2019. |
(d) | Market capitalization is calculated by multiplying the year-end total shares of common stock outstanding, net of shares held as treasury stock, by the year-end closing stock price. |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
The following discussion should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included in this Form 10-K in Item 8, and the information set forth in Risk Factors under Item 1A.
| INDEX | PAGE |
Segment Results of Operations and Items Affecting Comparability | |
| Income Taxes | |
| Commitments and Obligations | |
Global Investments | |
| 18 | OXY 2019 FORM 10-K |
| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
| STRATEGY |
GENERAL
| Ø |
| Ø |
| Ø |
| Ø | Achieving production growth rates of |
| Ø |
Price volatility is inherent in the oil and gas business. In 2016,business, and Occidental’s strategy is to position the business to thrive in an up- or down-cycle commodity price environment.
On August 8, 2019, Occidental continuedclosed on its acquisition of Anadarko. The Acquisition added to experience a challenging price environment with low oil, natural gas and NGLs prices. In order to manage this risk, Occidental strives to retain sufficient cash on hand and may access capital markets, as necessary.
Occidental seeks to meet its strategic goals by continually measuring its success in itsagainst key performance metrics that drive total stockholder return. In addition to production growth andefficient capital allocation and deployment discussed above,below, Occidental believes the following are its most significant metrics:
| Ø | Health, |
| Ø | Achieving debt reduction targets; |
| Ø | Total |
| Ø | Maintaining investment grade credit metrics; |
| Ø | Return on |
| Ø | Specific measures such as |
| Ø | Acquisition-related synergy and divestiture targets. |
| OIL AND GAS SEGMENT | ||||
BUSINESS STRATEGY
Occidental’s oil and gas segment focuses on long-term value creation and leadership in sustainability, health, safety and the environment. In each core operating area, Occidental’s operations benefit from scale, technical expertise, decades of high-margin inventory, environmental and safety leadership, and commercial and governmental collaboration. These attributes allow Occidental to bring additional production quickly to market, extend the life of older fields at lower costs, and provide low-cost returns-driven growth opportunities with advanced technology.
With the completion of the Acquisition, Occidental became the largest U.S. producer of oil and liquids in the second half of 2019, allowing Occidental to maximize cash margins on a BOE basis. Through the Acquisition, Occidental acquired modern 3D seismic data pertaining to approximately 450,000 square miles of core domestic development areas. This resulted in a 40% increase in Occidental’s Permian seismic inventory. The advantages that Occidental’s diversified portfolio provides, coupled with unmatched subsurface characterization ability and the proven ability to execute, ensures that Occidental is positioned for full-cycle success in the years ahead. The oil and gas segment continues to focus on integration of the newly acquired assets and efforts to realize synergies at an early stage to deliver lower breakeven costs and generate excess free cash flow.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
As a result of Occidental’s strategic positioning, Occidental’s assets provide current production and a future portfolio of projects that are flexible and have short-cycle investment paybacks. Together with Occidental’s technical capabilities, the oil and gas segment strives to achieve low development and operating costs to maximize full-cycle value of the assets.
The oil and gas business implements Occidental’s strategy primarily by:
ØOperating and developing areas where reserves are known to exist and optimizing capital intensity in core areas, primarily in the Permian Basin, DJ Basin, Gulf of Mexico, UAE, Oman, Qatar and Colombia;
ØMaintaining a disciplined and prudent approach to capital expenditures with a focus on high-return, short-cycle, cash-flow-generating opportunities and an emphasis on creating value and further enhancing Occidental’s existing positions;
ØFocusing Occidental’s subsurface characterization and technical activities on unconventional opportunities, primarily in the Permian Basin;
ØUsing enhanced oil recovery techniques, such as CO2, water and steam floods in mature fields; and
ØFocusing on cost-reduction efficiencies and innovative technologies to reduce carbon emissions.
In 2019, oil and gas capital expenditures were approximately $5.5 billion and primarily focused on Occidental’s assets in the Permian Basin, the DJ Basin, Gulf of Mexico and Oman.
BUSINESS ENVIRONMENT
Oil and gas prices are the major variables that drive the industry’s financial performance. The following table presents the average daily West Texas Intermediate (WTI), Brent and New York Mercantile Exchange (NYMEX) prices for 20162019 and 2015:2018:
| 2016 | 2015 | 2019 | 2018 | % Change | |||||||||||||||
| WTI oil ($/barrel) | $ | 43.32 | $ | 48.80 | $ | 57.03 | $ | 64.77 | (12 | )% | |||||||||
| Brent oil ($/barrel) | $ | 45.04 | $ | 53.64 | $ | 64.18 | $ | 71.53 | (10 | )% | |||||||||
| NYMEX gas ($/Mcf) | $ | 2.42 | $ | 2.75 | $ | 2.67 | $ | 2.97 | (10 | )% | |||||||||
The following table presents Occidental'sOccidental’s average realized prices for continuing operations as a percentage of WTI, Brent and NYMEX for 20162019 and 2015:2018:
| 2016 | 2015 | 2019 | 2018 | |||||||||
| Worldwide oil as a percentage of average WTI | 89 | % | 97 | % | 98 | % | 94 | % | ||||
| Worldwide oil as a percentage of average Brent | 86 | % | 88 | % | 87 | % | 85 | % | ||||
| Worldwide NGLs as a percentage of average WTI | 34 | % | 33 | % | ||||||||
| Worldwide NGLs as a percentage of average Brent | 33 | % | 30 | % | ||||||||
| Worldwide NGL as a percentage of average WTI | 30 | % | 41 | % | ||||||||
| Worldwide NGL as a percentage of average Brent | 27 | % | 37 | % | ||||||||
| Domestic natural gas as a percentage of NYMEX | 79 | % | 78 | % | 49 | % | 54 | % | ||||
Prices and differentials can vary significantly, even on a short-term basis, making it impossibledifficult to predict realized prices with a reliable degree of certainty.
DOMESTIC INTERESTS
Occidental conducts its domestic operations through land leases, subsurface mineral rights it owns, or a combination of both surface land and subsurface mineral rights it owns. Occidental'sboth. Occidental’s domestic oil and gas leases have a primary term ranging from one to ten years, which is extended through the end of production once it commences. Of the total 3.6Occidental has leasehold and mineral interests in 14.4 million net acres, inof which Occidental has interests, approximately 84 percent39% is leased, 15 percent55% is owned subsurface mineral rights and 1 percent6% is owned land with mineral rights. Included in Occidental’s total net acres is approximately 7 million net acres of primarily undeveloped minerals that pass through Colorado, Wyoming and into Utah. Occidental holds fee ownership of oil and gas, mineral and hardrock mineral rights in this area.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
The following charts showchart shows Occidental’s domestic total production volumes for the last five years:
Note:Operations sold include South Texas (sold in April 2017), Piceance (sold in March 2016), and Williston (sold in November 2015) and Hugoton (sold in April 2014).
 | 1. Powder River Basin 2. DJ Basin 3. Greater Natural Buttes 4. Permian Basin |
5. Gulf of Mexico |
Permian Basin
Occidental manages its Permian Basin operations through two business units: Permian Resources, which includes growth-oriented unconventional opportunities, and Permian EOR, which utilizes enhanced oil recovery techniques such as CO2floods and waterfloods. During 2016, the Permian operations focused on full cycle value through capital efficiency, reduced operating expense, improved base production and new well productivity. InOccidental has a leading position in the Permian Basin, producing approximately 11% of total oil in
the basin.Occidental’s position in the Texas Delaware sub-basin was further enhanced through assets acquired as part of the Acquisition. By exploiting the natural synergies between Permian Resources and Permian EOR, Occidental is able to deliver unique short- and long-term advantages, efficiencies and expertise across its Permian Basin operations. Occidental expects to decrease its Permian Basin full-cycle breakeven costs, while continuing to expand its high-quality, low-cost
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
breakeven inventory. Occidental expects the combined technical advancements, infrastructure utilization opportunities and operations across over 3.1 million net acres will provide sustainability of Occidental’s low-cost position in the Permian Basin.
In the next few years, growth within Occidental’s Permian Basin portfolio is expected to be focused in the Permian Resources unconventional assets. In 2019, Occidental spent over $1.2approximately $3.8 billion of capital in 2016, with 60 percentthe Permian Basin, of which over 85% was spent on Permian Resources assets. In 2017,2020, Occidental expects to allocate approximately one third40% of the 2017its worldwide capital budget to Permian Resources for focused development areas in the Midland and Delaware Basins and approximately 10 to 15 percent8% to Permian EOR in order to add tofor the expansion of existing facilities to increase CO2production and injection capacitycapacity.
In November 2019, Occidental and Ecopetrol formed a joint venture to explore and develop approximately 97,000 net acres of Occidental’s Midland sub-basin properties in the Permian Basin. Occidental owns a 51% interest in the joint venture and is the operator. In exchange for future projects.
 | 1. Delaware Basin 2. Central Basin Platform 3. Midland Basin |
Permian Resources
Permian Resources unconventional oil development projects provide very short-cycle investment payback, averaging less than two years, and development drilling, along with offset operators drilling activities. generate some of the highest margin and returns of any oil and gas projects in the world. These investments contribute cash flow and production growth, while increasing long-term value and sustainability through higher return on capital employed.
As part of year end,the Acquisition, Occidental acquired Anadarko’s oil and gas operations in Permian Resources which included approximately 650 of these drilling locations represented proved reserves. Continued wellbore placement370,000 net acres, including 240,000 net acres located primarily within Loving and completion optimization through advanced subsurface characterizationReeves Counties. A new well design and the application of enhanced manufacturing principles, combined with projected commercial savings, areflowback method will be implemented in 2020, which is expected to increaselower the overall well inventory even further.cost while improving completion efficiency. The 2020 plan contemplates the continued development program, which largely beganof the newly acquired acreage. Occidental’s share of production from the acquired assets in 2010, continued in 2016. In 2016, Permian Resources drilled 63 horizontal wells. Productionwas approximately 159 thousand BOE per day (MBOE/d) from the Acquisition date through December 31, 2019. Overall in 2019, Permian Resources comesproduced approximately 355 MBOE/d from approximately 5,550 net wells, of which 23 percent are operated by other operators. These investments in Permian wells operated by others allows Occidental to access and leverage additional data in the same areas where it is operating. By analyzing the operated by others data with the significant amount of data Occidental has gathered, its Permian operations are able to use the information to aid in reducing operating expenses, gain drilling and completions efficiencies, increase the productivity of its wells and improve the base production.7,600 gross wells. In 2016,2019, Permian Resources added 92 million BOE173 MMBOE to Occidental'sOccidental’s proved reserves.reserves for improved recovery additions.
Permian EOR operates a combination of CO2 floods and waterfloods, which have similar development characteristics and ongoing monitoring and maintenance requirements. Due to a unique combination of characteristics, the Permian Basin has been a leader in the
| 22 | OXY 2019 FORM 10-K |
| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
reserves for improved recovery additions, primarily as a result of executing CO2 flood development projects and expansions. Occidental’s share of production from Permian EOR was approximately 154 MBOE/d in 2019.
Significant opportunities also remain to gain additional recovery by expanding Occidental’s existing CO2 projects into new portions of reservoirs that can add reserves even in a low price environment.have only been water-flooded. Permian EOR has a large inventory of future CO2 projects, which could be developed over the next 20 years or accelerated, depending on market conditions. In 2016,addition, OLCV continues making progress towards supplying anthropogenic, or man-made, CO2 for the purpose of carbon capture, utilization and storage in Occidental’s Permian EOR had its largest improved recovery additions in more than 10 years adding 72 million BOE to Occidental's proved reserves, primarily as a result of executing CO2 flood development projects and expansions as well as extendingoperations.
DJ Basin
Through the approved CO2 slug size of current floods.
Occidental’s share of production infrom the PermianDJ Basin was approximately 269,000 BOE per day303 MBOE/d from the Acquisition date through December 31, 2019. Horizontal drilling results in 2016the field continue to be strong, with 124,000 BOE per day comingimproved operational efficiencies in drilling and completions.
License to operate continues to be a key focus moving into 2020. Occidental has a majority of its planned 2020 completions activity permitted. Occidental maintains optionality by flexing resources between DJ Basin and another emerging high rate- of-return program in the Powder River Basin.
Powder River
In the southern Powder River Basin, Occidental acquired through the Acquisition approximately 400,000 net acres mainly located in Converse County, Wyoming. The field contains the Turner, Niobrara, Mowry and Parkman formations that hold both liquids and natural gas.
Greater Natural Buttes
The Greater Natural Buttes area in eastern Utah is a tight-gas asset producing primarily from Permian Resourcesthe Mesa Verde, Wasatch and 145,000 BOE per dayBlackhawk formations. Occidental uses cryogenic and refrigeration processing facilities in this area to extract NGLs from Permian EOR.the natural-gas stream. There was no development activity in this field during 2019 due to capital being allocated to higher-margin projects.
Gulf of Mexico
Occidental holds approximately 178,000 net acresowns a working interest in South Texas. Occidental's share230 blocks in the Gulf of production in South TexasMexico, operates 10 active floating platforms and Other was approximately 33,000 BOE per day.
| Development Area | Working Interest | |
| Horn Mountain | 100 | % |
| Marlin | 100 | % |
| Holstein | 100 | % |
| Caesar Tonga | 34 | % |
| Constellation | 33 | % |
| Lucius | 49 | % |
| K2 Complex | 42 | % |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
INTERNATIONAL INTERESTS
BUSINESS REVIEW
Occidental conducts its ongoing international operations in two sub-regions: the Middle East and Latin America. Its activities include oil, natural gas and NGL production through direct working-interest and production sharing contracts (PSC).
Production Sharing Contracts
Occidental’s interest in Oman and Dolphin are subject to PSCs. Under such contracts, Occidental records a share of production and reserves to recover certain development and production costs and an additional share for profit. In addition, certain contracts in Colombia are subject to contractual arrangements similar to a PSC. These contracts do not transfer any right of ownership to Occidental and reserves reported from these arrangements are based on Occidental’s economic interest as defined in the contracts. Occidental’s share of production and reserves from these contracts decreases
when product prices rise and increases when prices decline. Overall, Occidental’s net economic benefit from these contracts is greater when product prices are higher.
The following charts showchart shows Occidental’s international production volumes for the last five years:
Note:Operations sold, exited or exitedheld for sale include Bahrain, Iraq, Libyathe Africa Assets (sold in 2019 or held for sale at December 31, 2019), Qatar (exited in 2019) and Yemen.
other Middle East Assetsand North Africa operations exited in 2016 and 2015.
 | |
OXY 2019 FORM 10-K | |
| ||
Oman
In Oman, Occidental is the operator of Block 9 with a 50-percent50% working interest, Block 27 with a 65-percent65% working interest, Block 53 with a 45-percent45% working interest;interest and Block 62 with an 80-percenta 100% working interest.
In December 2015, the existing production sharing contract for Block 9 expired2018 and 2019, Occidental agreed to operate Block 9 under modified operating terms until a new contract is approved. The Block 9entered into Exploration and Production Sharing Agreement 15-year extensionAgreements for Blocks 30, 51, 65 and 72, which increased the acreage that Occidental holds in Oman from 2.3 million to 6.0 million gross acres and the potential well inventory locations to approximately 10,000. In 2019, Occidental’s share of production was signed in January 2017 and will be effective upon ratification through Royal Decree. In 2016, the average gross production from89 MBOE/d.
The Block 9 was 94,000 BOE per day. The term forcontract expires in 2030 and the Block 27 contract expires in 2035.
United Arab Emirates
In 2011, Occidental acquired a 40-percent40% participating interest in Al Hosn Gas, joining with the Abu Dhabi National Oil Company (ADNOC) in a 30-year joint venture agreement. In 2016, Al Hosn Gas gross production
In 2019, Occidental acquired a 9-year exploration concession and, Facilities".
subject to a declaration of commerciality, a 35-year production concession for onshore Block 3 which covers an area of approximately 1.5 million acres and is adjacent to Al Hosn Gas. Occidental conducts a majority of its Middle East business development activities through its office in Abu Dhabi, which also provides various support functions for Occidental’s Middle East oil and gas operations.
In Qatar, Occidental partners in the Dolphin Energy project, an investment that is comprised of two separate economic interests. Occidental has a 24.5% interest in the upstream operations to develop and produce natural gas, NGL and condensate from Qatar’s North Field through mid-2032. Occidental also has a 24.5% interest in Dolphin Energy Limited, which operates a pipeline and is discussed further in “Marketing and Midstream Segment – Pipeline.” Occidental’s net share of production from the Dolphin upstream operations was 42 MBOE/d in 2019.
In 2019, Occidental’s contract for Idd El Shargi North Dome (ISND) expired, and there was a mutually agreed early termination of its Idd El Shargi South Dome (ISSD) contract.
LATIN AMERICA ASSETS
  | 1. 2. Llanos Norte Basin 3. Teca Heavy Oil Area 4. Putumayo Basin | |
Colombia
Occidental has working interests in the La Cira-Infantas and Teca areas and has operations within the Llanos Norte Basin. Occidental'sOccidental’s interests range from 3939% to 61 percent61% and certain interests expire between 2023 and 2038, while others extend through the economic limit of the areas.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
In 2016,2019, Occidental started a thermal recovery pilot at theand Ecopetrol initiated Teca heavy oil fieldsteam flood project second phase development activities. During 2019, 17 new wells were drilled, and the initial results are better than anticipated. Production began from these pilotsfacility upgrade project began.
Occidental also farmed into two additional blocks in 2016. Occidental'sthe prospective Putumayo Basin, consolidating a position of 1.6 million gross acres in the basin.
Occidental’s net share of production from Colombia was 33 MBOE/d in 2019.
AFRICA ASSETS
In September 2019, Occidental completed the sale of Mozambique LNG assets to Total for approximately 33,000 BOE per day in 2016.
$4.2 billion. In January 2020, Occidental also holds working interestscompleted the sale of South Africa assets to Total. Occidental and Total continue to work toward completing the sales of the remaining Africa Assets during 2020. The results of the Africa Assets are presented as discontinued operations in the Tarija, ChuquisacaConsolidated Statements of Operations and Santa Cruz regionsCash Flows. The remaining Africa Assets are classified as held-for-sale and not considered part of Bolivia, which produce gas. Occidental's shareOccidental’s ongoing international operations as of December 31, 2019. Operations in Algeria involve production from Bolivia was 1,000 BOE per dayand development activities in 2016.Blocks 404A and 208 of Algeria’s Sahara Desert. The El Merk Central Processing Facility (CPF) in Block 208 processed produced oil and NGL, while the Hassi Berkine South and Ourhoud CPFs in Block 404A processed only produced oil. Ghana operations include production and development activities located offshore in the West Cape Three Point Block and the Deepwater Tano Block.
PROVED RESERVES
Proved Reserves
The following table shows the 2016, 20152019, 2018 and2014 disclosures, the 2017 calculated average West Texas Intermediate oil prices
| 2019 | 2018 | 2017 | ||||||||||
| WTI oil ($/barrel) | $ | 55.69 | $ | 65.56 | $ | 51.34 | ||||||
| Brent oil ($/barrel) | $ | 63.03 | $ | 72.20 | $ | 54.93 | ||||||
| NYMEX gas ($/Mcf) | $ | 2.58 | $ | 3.10 | $ | 2.98 | ||||||
Occidental had proved reserves from continuing operations at year-end 20162019 of 2,4063,827 million BOE,barrels of oil equivalent (MMBOE) (excluding the Africa Assets), compared to the year-end 20152018 amount of 2,200 million BOE. Proved reserves at year-end 2016 and 2015 consisted of, respectively, 56 percent and 59 percent oil, 17 percent and 15 percent NGLs and 27 percent and 26 percent natural gas.2,752 MMBOE. Proved developed reserves represented approximately 77 percent76% and 79 percent, respectively,73% of Occidental’s total proved reserves at year-end 20162019 and 2015.2018, respectively. The following table shows the breakout of Occidental’s proved reserves from continuing operations by commodity as a percentage of total proved reserves:
| 2019 | 2018 | |||||
| Oil | 52 | % | 57 | % | ||
| Natural gas | 29 | % | 25 | % | ||
| NGL | 19 | % | 18 | % | ||
Occidental does not have any reserves from non-traditional sources. For further information regarding Occidental'sOccidental’s proved reserves, see "Supplemental“Supplemental Oil and Gas Information"Information.”
The following table details the "Financial Statements."proved developed and undeveloped reserves related to the Africa Assets 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 | ||||||||
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
CHANGES IN PROVED RESERVES
Occidental’s total proved reserves from continuing operations increased 206 million BOE1,075 MMBOE in 2016,2019, which includedwas primarily driven by additions of 187 million BOE1,311 MMBOE primarily from Occidental'sthe Acquisition and 356 MMBOE from Occidental’s development program.
Changes in reserves were as follows:
| Revisions of previous estimates | ) | ||
| Improved recovery | |||
| Extensions and discoveries | |||
| Purchases | |||
| Sales | ( | ) | |
| Production | ( | ) | |
| Total | |||
Purchases of Proved Reserves
In 2016,2019, Occidental purchased 137 million BOEproved reserves of 1,311 MMBOE primarily as part of the Acquisition, including proved reserves in the Permian Delaware Basin, the DJ Basin and Gulf of Mexico. As part of smaller asset purchases separate from the Acquisition, Occidental purchased proved reserves in Permian Resources New Mexico.
Revisions of Previous Estimates
Revisions can include upward or downward changes to previous proved reserve estimates for existing fields due to the evaluation or interpretation of geologic, production decline or operating performance data. In addition, product price changes affect proved reserves recorded by Occidental. For example, lower prices may decrease the economically recoverable reserves, particularly for domestic properties, because the reduced margin limits the expected life of the operations. Offsetting this effect, lower prices increase Occidental’s share of proved reserves under PSCs because more oil is required to recover costs. Conversely, when prices rise, Occidental’s share of proved reserves decreases for PSCs and economically recoverable reserves may increase for other operations. Reserve estimation rules require that estimated ultimate recoveries be much more likely to increase or remain constant than to decrease, as changes are made due to increased availability of technical data.
In 2019, Occidental had negative revisions of 200 MMBOE, primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin.
Improved Recovery
In 2019, Occidental added proved reserves of 293 MMBOE mainly associated with the Permian Basin. These properties comprise both conventional projects, which mainly cameare characterized by the deployment of EOR development methods, largely employing application of CO2 flood, waterflood or steam flood, and unconventional projects. These types of conventional EOR development methods can be applied through existing wells, though additional drilling is frequently required to fully optimize the development configuration. Waterflooding is the technique of injecting water into the formation to displace the oil to the offsetting oil production wells. The use of either CO2 or steam flooding depends on the geology of the formation, the evaluation of engineering data, availability and cost of either CO2 or steam and other economic factors. Both techniques work similarly to lower viscosity causing the oil to move more easily to the producing wells. Many of Occidental’s projects, including unconventional projects, rely on improving permeability to increase flow in the wells. In addition, some improved recovery comes from acquisitions madedrilling infill wells that allow recovery of reserves that would not be recoverable from existing wells.
Extensions and Discoveries
Occidental also added proved reserves from extensions and discoveries, which are dependent on successful exploration and exploitation programs. In 2019, extensions and discoveries added 63 MMBOE primarily related to the recognition of proved undeveloped reserves due to post-Acquisition activities for acquired properties in October 2016.the Permian Basin and Gulf of Mexico.
Sales of Proved Reserves
In 2016,2019, Occidental sold 46 million BOE29 MMBOE in proved reserves mainly related to Libya and Piceance.non-core Permian Basin acreage.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
Proved Undeveloped Reserves
follows:
| MMBOE | 2019 | ||
| Revisions of previous estimates | (166 | ) | |
| Improved recovery | 192 | ||
| Extensions and discoveries | 36 | ||
| Purchases | 317 | ||
| Sales | (29 | ) | |
| Transfer to proved developed reserves | (196 | ) | |
| Total | 154 | ||
Occidental incurred approximately $0.5$1.8 billion in 20162019 to convert proved undeveloped reserves to proved developed reserves. A substantial portionPermian Basin added approximately 500 MMBOE through improved recovery and purchases.
The 2019 additions to proved undeveloped reserves were partially offset by 196 MMBOE transfers to proved developed reserves, primarily in the Permian Basin, 166 MMBOE of negative revisions of previous estimates primarily related to negative price revisions, changes to development plans and reservoir performance in the Permian Basin.
Occidental’s highest-return projects and most active development areas are located in the Permian Basin, which represented 44% of the proved undeveloped reserves as of December 31, 2016, was the result2019. Nearly half of Occidental’s 2020 capital program of $5.3 billion is allocated to the development program in the Permian Basin, which represents 75 percent of total year-endBasin. Overall, Occidental plans to spend approximately $3.6 billion over the next five years to develop its proved undeveloped reserves.reserves in the Permian Basin.
Occidental’s proved undeveloped reserves in international locations are associated with approved long-term international development projects.
Occidental’s estimates of proved reserves and associated future net cash flows as of December 31, 2016,2019, were made by Occidental’s technical personnel and are the responsibility of management. The estimation of proved reserves is based on the requirement of reasonable certainty of economic producibility and funding commitments by Occidental to develop the reserves. This process involves reservoir engineers, geoscientists, planning engineers and financial analysts. As part of the proved reserves estimation process, all reserve volumes are estimated by a forecast of production rates, operating costs and capital expenditures. Price differentials between benchmark prices (the unweighted arithmetic average of the first-day-of-the-month price for each month within the year) and realized prices and specifics of each operating agreement are then used to estimate the net reserves. Production rate forecasts are derived by a number of methods, including estimates from decline curve analysis, type-curvetype curve analysis, material balance calculations that take into account the volumes of substances replacing the volumes produced, and associated reservoir pressure changes, seismic analysis and computer simulation of the reservoir performance. These reliable field-tested technologies have demonstrated reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. Operating and capital costs are forecast using the current cost environment applied to expectations of future operating and development activities.
Net proved developed reserves are those volumes that are expected to be recovered through existing wells with existing equipment and operating methods for which the incremental cost of any additional required investment is relatively minor.
Net proved undeveloped reserves are those volumes that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Proved undeveloped reserves 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. The development plan is reviewed and approved annually by senior management and technical personnel. Annually a detailed review is performed by Occidental’s Worldwide Reserves Group and its technical personnel on a lease-by-lease basis to assess whether proved undeveloped reserves are being converted on a timely basis within five years from the initial disclosure date. Any leases not showing timely transfers from proved undeveloped reserves to proved developed reserves are reviewed by senior management to determine if the remaining reserves will be developed in a timely manner and have sufficient capital committed in the development plan. Only proved undeveloped reserves that 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.
The current Senior Vice President, Reserves for Oxy Oil and Gas is responsible for overseeing the preparation of reserve estimates, in compliance with U.S. Securities and Exchange Commission (SEC)SEC rules and regulations, including the internal audit and review of Occidental'sOccidental’s oil and gas reserves data. The Senior Vice PresidentHe has over 3035 years of experience in the upstream sector of the exploration and production business, and has held various assignments in North America, Asia and Europe. He is a three-time past Chair of the Society of Petroleum Engineers Oil and Gas Reserves Committee. He is an American Association of Petroleum Geologists (AAPG) Certified
Petroleum Geologist and currently serves on the AAPG Committee on Resource Evaluation. He is a member of the Society
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
of Petroleum Evaluation Engineers, the Colorado School of Mines Potential Gas Committee and the UNECE Expert Group on Resource Classification. The Senior Vice PresidentManagement. He has Bachelor of Science and Master of Science degrees in geology from Emory University in Atlanta.
Occidental has a Corporate Reserves Review Committee (Reserves Committee), consisting of senior corporate officers, to review and approve Occidental'sOccidental’s oil and gas reserves. The Reserves Committee reports to the Audit Committee of Occidental'sOccidental’s Board of Directors during the year. Since 2003, Occidental has retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its annual oil and gas reserve estimation processes. In addition, Occidental utilized Miller and Lents, Ltd. (M&L), independent petroleum engineering consultants who were previously retained by Anadarko, to review the annual oil and gas reserve estimation processes associated with the Anadarko reserves. For additional reserves information, see Supplemental Oil and Gas Informationunder Item 8 of this Form 10-K.
In 2016,2019, both Ryder Scott and M&L conducted a process review of the methods and analytical procedures utilized by Occidental’s engineering and geological staff for estimating the proved reserves volumes, preparing the economic evaluations and determining the reserves classifications as of December 31, 2016,2019, in accordance with the SEC regulatory standards. Ryder Scott and M&L reviewed the specific application of such methods and procedures for selected oil and gas properties considered to be a valid representation of Occidental’s 20162019 year-end total proved reserves portfolio. In 2016,2019, Ryder Scott reviewed approximately 18 percent20% of legacy Occidental’s proved oil and gas reserves. Since being engaged in 2003, Ryder Scott has reviewed the specific application of Occidental’s reserve estimation methods and procedures for approximately 80 percent80% of legacy Occidental’s existing proved oil and gas reserves. M&L reviewed approximately 90% of the Anadarko proved oil and gas reserves.
Management retainsretained Ryder Scott and M&L to provide objective third-party input on its methods and procedures and to gather industry information applicable to Occidental’s reserve estimation and reporting process. Neither Ryder Scott nor M&L has not been engaged to render an opinion as to the reasonableness of reserves quantities reported by Occidental. Occidental has filed Ryder Scott'sScott’s and M&L’s independent reportreports as an exhibitexhibits to this Form 10-K.
Based on its reviews, including the data, technical processes and interpretations presented by Occidental, Ryder Scott hasand M&L have concluded that the overall procedures and methodologies Occidental utilized in estimating the proved reserves volumes, documenting the changes in reserves from prior estimates, preparing the economic evaluations and determining the reserves classifications for the reviewed properties are appropriate for the purpose thereof and comply with current SEC regulations.
The petroleum industry is highly competitive and subject to significant volatility due to various market conditions. Average annual WTI and Brent oil price indexes for 2016 were below the 2015 averages, but ended the year higher,increased throughout 2019 closing at $53.72$61.06 per barrel and $56.82$66.00 per barrel, respectively, as of December 31, 2016. Commodity prices remained relatively constant in early 2017.2019.
Oil prices will continue to be affected by: (i) global supply and demand, which are generally a function of global economic conditions, inventory levels, production disruptions, technological advances, regional market
conditions and the actions of OPEC, other significant producers and governments; (ii) transportation capacity, infrastructure constraints, and costcosts in producing areas; (iii) currency exchange rates; and (iv) the effect of changes in these variables on market perceptions.
Domestic natural gas prices and local differentials are strongly affected by local supply and demand fundamentals, as well as government regulations and availability of transportation capacity from producing areas.
These and other factors make it impossibledifficult to predict the future direction of oil, NGLsNGL and domestic gas prices reliably. For purposes of the current capital plan, Occidental will continue to focus on allocating capital to its highest-return assets with the flexibility to adjust based on fluctuations in commodity prices. International gas prices are generally fixed under long-term contracts. Occidental continues to respond to economic conditions by adjustingadjust capital expenditures in line with current economic conditions with the goal of keeping returns well above its cost of capital.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
| CHEMICAL SEGMENT |
BUSINESS STRATEGY
OxyChem seeks to generate cash flow in 2016 lagged behind thatexcess of 2015, demand for domestically produced energyits normal capital expenditure requirements and feedstocks remained fairly constant as natural gas and ethylene pricing was lowerachieve above-cost-of-capital returns. The chemical segment focuses on average thanbeing a low-cost producer in 2015. Historically high planned and unplanned ethylene outages, resulting in price volatility withinorder to maximize cash flow generation. OxyChem concentrates on the spot market, and rising energy costs inchlorovinyls chain, beginning with the last halfco-production of 2016 put pressure on chemical margins. The impact of energy and feedstock costs was partially offset by the end of 2016 as tighter supply in the caustic soda and chlorine. Caustic soda and chlorine are marketed to external customers. In addition, chlorine, together with ethylene, is converted through a series of intermediate products into polyvinyl chloride (PVC). OxyChem’s focus on chlorovinyls allows it to maximize the benefits of integration and take advantage of economies of scale. Capital is employed to sustain production capacity and to focus on projects and developments designed to improve the competitiveness of segment assets. Acquisitions and plant development opportunities may be pursued when they are expected to enhance the existing core chlor-alkali and PVC markets resulted in improved margins.businesses or take advantage of other specific opportunities. In 2019, capital expenditures for OxyChem totaled $267 million.
In 2016,2019, the United States economic growth rate, was expectedestimated to be below2.3%, was lower than the 2.6 percent2.9% experienced in 2015. 2018, which resulted in lower demand for caustic soda and PVC. Ethylene prices trended downward in the first half of 2019 before increasing in the second half of the year with the total year average ethylene price being less than that of 2018. Pricing for caustic soda and PVC was lower in 2019, partially offset by lower energy and feedstock costs. Domestic demand for caustic soda and PVC was negatively impacted by slower or no growth in manufacturing, automotive and construction markets as well as a weaker pulp and paper market.
BUSINESS REVIEW
BASIC CHEMICALS
The lower than expected U.S. growth rate temperedresulted in lower domestic demand as the 2016 industry chlorinechlor-alkali operating rate increasedrates decreased by only 1 percent,3% compared to 84 percent, resulting2018. Liquid caustic soda prices were lower both domestically and globally in only a moderate improvement2019 due to weaker demand in chlorine pricing.the alumina and pulp and paper market segments, which was partially offset by lower energy prices than in 2018. Exports of downstream chlorine derivatives into the vinyls chain were relatively strongdecreased in 20162019 as United States ethylene and energy costs were advantaged over global pricing. Liquid caustic soda prices improved both domestically and globally in the last three quarters of 2016 as new capacity growth in the United States slowed.demand for PVC lagged year-over-year.
Demand for PVC in 2019 decreased year-over-year in total as domestic anddemand was down 3% from 2018 while export PVC improved year- over-year 4.1 percent and 4.2 percent, respectively.demand increased by less than 1%. Domestic demand was weaker in the first half of 2019 due to lower construction demand caused by weather conditions and demand did not fully recover in the second half of 2019. Export demand growth was driven by construction as housing starts continued their year-over-year increaseemerging economy growth and rising home values drove increased home remodeling.competitive North American feedstock costs. Export volume remains a significant portion of PVC sales representing over 30 percent34% of total North American
producer’s production. PVC industry operating rates in 2016 were approximately 2.3 percent higher than 2015.decreased by 1% compared to 2018. Industry PVC margins declined slightlydecreased in 2016 compared2019 due to 2015, aslower PVC pricing decreased withprices partially offset by lower ethylene pricing.prices in the first half of 2019 and lower energy prices than in 2018.
Industry performance will depend on the health of the global economy, specifically in the housing, construction, automotive and durable goods markets. The housing and construction markets are expected to strengthen over the next year while the automotive and durable goods markets look to remain flat or decrease slightly. Margins also depend on market supply and demand balances and feedstock and energy prices. Long-term weaknessWeakening in the petroleum industry may negatively affect the demand and pricing of a number of Occidental’s products that are consumed by industry participants. Further strengtheningU.S. commodity export markets will continue to be impacted by the relative strength of the U.S. dollar may cause headwinds in the U.S. commodity export market.dollar.
Continued improvement in the United States housing market, offset by flat to weakening automotive and durable goods markets, should driveare expected to result in a flattening to a moderate increase in domestic demand for basic chemical products in 2017.2020. Export demand for caustic soda is also expected to remain firm in 2017. Overall,be similar to 2019 levels driven by limited demand improvement into the low chlor-alkalialumina market. Chlor-alkali operating rates driven by capacity increases over the last few years should improve as the pace of expansions have slowed considerably both domesticallymoderately with higher demand and globally. Improved 2016 margins from historically low values in 2015 are expected to continuecontinued competitive energy and raw material pricing as long as United States feedstock costs, primarily natural gas and ethylene, remain favorable compared to global feedstock costs. Businesses such as calcium chloride and muriatic acid continue tomay be challenged but are expected to improveaffected by flatter U.S. oil growth trends, as oil prices rise.well as shifts in drilling technology.
North American demand shouldfor PVC is expected to improve slightly in 20172020 over 20162019 levels, as growth in residential construction spending continuesis expected to rebound along with further upside potential driven by new infrastructure projects. Although overall demand is expected to increase in North AmericanAmerica, operating rates are expectedanticipated to remain relatively flat with 2016 but margins should improvein 2020 as demandnew PVC capacity is expected to enter the market. Growth in the United States strengthens.export market is likely along with favorable ethylene costs continuing in 2020.
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| MARKETING AND MIDSTREAM SEGMENT |
BUSINESS STRATEGY
The marketing and midstream segment strives to maximize realized value by optimizing the use of its gathering, processing, transportation, storage and terminal commitments and by providing access to domestic and international markets. To generate returns, the segment evaluates opportunities across the value chain and uses its assets to provide services to Occidental’s subsidiaries, as well as third parties. The marketing and midstream segment operates gathering systems, gas plants, co-generation facilities and storage facilities and invests in entities that conduct similar activities. From August 8, 2019, to December 31, 2019, WES’s operating results were consolidated in the marketing and midstream segment. As of December 31, 2019, Occidental will account for its ownership investment in WES under the equity method of accounting. See Note 16 - Investments and Related-Party Transactions in the Notes to Consolidated Financial Statements.
Also within the marketing and midstream segment is OLCV. OLCV seeks to capitalize on Occidental’s 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.
This segment also seeks to minimize the costs of gas, power and other commodities used in Occidental’s various businesses. Capital is employed to sustain or expand assets to improve the competitiveness of Occidental’s businesses. In 2019, capital expenditures related to the marketing and midstream segment totaled $461 million (including $365 million related to WES).
BUSINESS ENVIRONMENT
Marketing and midstream segment earnings are affected by the performance of its various businesses, including its marketing, businessgathering and itstransportation, gas processing transportation and power generationpower-generation assets. The marketing business aggregates, markets and markets Occidental'sstores Occidental and third-party volumes and engages in storage activities.volumes. Marketing performance is affected primarily by commodity price changes and margins in oil and gas transportation and storage programs. ProcessingThe marketing business results can experience significant volatility depending on commodity price changes and the Midland to Gulf Coast spreads. In 2019, the Permian takeaway capacity increased as several new third-party pipelines were completed, which in turn reduced the Midland to Gulf Coast spreads. Gas gathering, processing and transportation results are affected by fluctuations in commodity prices and the volumes that are processed and transported through the segment'ssegment’s plants, and pipelines, as well as the margins obtained on related services.services from investments in which Occidental has an equity interest. The 2019 declines in NGL prices and sulfur prices negatively impacted the gas processing business.
BUSINESS REVIEW
MARKETING
The midstreammarketing group markets substantially all of Occidental’s oil, NGL and marketing segment earnings in 2016 were significantly higher than those in 2015, primarily due to impairments taken in 2015. Excluding the 2015 impairments, 2016 earnings were lower because of
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| MANAGEMENT’S DISCUSSION AND ANALYSIS | |
PIPELINE
Occidental’s pipeline transportation operationsbusiness mainly reflect volumes shipped.consists of its 24.5% ownership interest in Dolphin Energy. Dolphin Energy owns and operates a 230-mile-long, 48-inch-diameter natural gas pipeline (Dolphin Pipeline), which transports dry natural gas from Qatar to the UAE and Oman. The Dolphin Pipeline contributes significantly to Occidental's pipeline transportation results through Occidental's 24.5-percent interest in Dolphin Energy. The Dolphin Pipeline has capacity to transport up to 3.2 Bcf of natural gas per day and currently transports approximately 2.2 Bcf per day, and up to 2.5 Bcf per day in the summer. Dolphin Pipeline is currently expanding gas compression facilitiessummer months.
In 2019, compared to achieve maximumthe prior year, pipeline capacity. Occidental believes substantial opportunities remainincome declined due to provide gas transportation to additional customers in the region to reach the full capacity2018 sale of the DolphinCenturion Pipeline and generate additional midstream revenues and cash flows.
Occidental processes its and third-party domestic wet gas to extract NGLsNGL and other gas byproducts, including CO2, and delivers dry gas to pipelines. Margins primarily result from the difference between inlet costs of wet gas and market prices for NGLs. Occidental’s 2016 earningsNGL.
As of December 31, 2019, Occidental has 54.5% of limited partner unit interest and a 2% non-voting general partner unit interest in WES. In addition, Occidental has a 2% non-voting limited partner interest in Western Midstream Operating, LP, a consolidated subsidiary of WES. Prior to December 31, 2019 Occidental consolidated WES. As of December 31, 2019, Occidental recognizes WES as an equity method investment. See Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. WES owns gathering systems, plants and pipelines and earns revenue from these operations decreased compared to 2015 due to lower realized NGL pricing.fee-based and service-based contracts with Occidental and third parties.
Occidental together with ADNOC, developedalso has a 40% participating interest in Al Hosn Gas in Abu Dhabi, of which Occidental has a 40-percent participating interest. Al Hosn Gas is designed to process 1.01.3 Bcf per day of natural gas and separate it into salessalable gas, condensate, NGLsNGL and sulfur. The processingIn 2019, the facilities include processing and treatment facilities, sulfur recovery units, including facilities to extract sulfur from natural gas and to load and store sulfur. The facilities produceproduced approximately 10,00011,500 metric tons per day of sulfur, of which approximately 4,0004,600 metric tons is Occidental'swas Occidental’s share. Al Hosn Gas facilities generatesgenerate revenues from gas processing fees and the sale of sulfur. The decrease in 2016 earnings
In 2019, compared to 2015 wasthe prior year, gas processing, gathering and CO2 results increased primarily due to income from WES partially offset by lower NGL prices and sulfur pricing.prices which negatively impacted the gas processing business.
Earnings from power and steam generation facilities are derived from sales to affiliates and third parties. The
LOW CARBON VENTURES
INDUSTRY OUTLOOK
Marketing and storage assets. These purchases allow Occidental to aggregate volumes to better utilize and optimize its assets. Marketing performance in 2016 declined compared to 2015 due to unfavorable Permianmidstream segment results can experience volatility depending on the Midland to Gulf Coast crude oilspreads and commodity price differentials.
changes. The pipeline transportation and power generation businesses are expected to remain relatively stable. Marketing results can have significant volatile results depending on significant price swings, as well as Permiandecline in the Midland to Gulf Coast crude oil differentials. Occidental continues to actively focus onspreads in the second half of 2019 has continued into the early part of 2020. If the spread remains at current levels or are lower for the rest of 2020, this could significantly reduce margins in the marketing itsbusiness. To a lesser extent, declines in commodity production to generate maximum valueprices, including NGL and sulfur prices, would reduce the results for its stakeholders. Thethe gas processing plant operations could have volatile results depending mostly on NGLs prices, which cannot reasonably be predicted. Generally, higher NGLs prices result in higher profitability.business.
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| SEGMENT RESULTS OF OPERATIONS AND ITEMS AFFECTING COMPARABILITY |
SEGMENT RESULTS OF OPERATIONS AND SIGNIFICANT ITEMS AFFECTING EARNINGS
Segment earnings exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income from the segments'segments’ equity investments. Seasonality is not a primary driver of changes in Occidental'sOccidental’s consolidated quarterly earnings during the year.
