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Business Context and Reporting Period

This Form 10-Q covers Occidental Petroleum Corporation for the quarterly period ended September 30, 1998. The company operates primarily in oil and gas and chemical sectors. The reporting period was characterized by historically low energy and commodity chemical prices, significant asset redeployment (sales of nonstrategic assets), and a major acquisition of the Elk Hills Naval Petroleum Reserve.

Key Financial Metrics (Nine Months Ended Sept 30, 1998)

Note: Total Long-Term Debt includes $1,400 million in current maturities and $5,830 million in long-term debt.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased to $4.9 billion from $6.1 billion in the prior year period, driven by lower crude oil prices, lower chemical product prices/volumes, and the absence of petrochemical revenues following the Equistar joint venture formation.
• Earnings Impact: Net income fell to $401 million from $494 million. Earnings before special items dropped significantly due to lower commodity prices, partially offset by gains from asset sales.
• Asset Sales: The company recorded net pretax gains of approximately $532 million from the sale of nonstrategic oil and gas properties (including MidCon Corp. and interests in the Netherlands, Venezuela, and the U.S.).
• Acquisitions: Occidental acquired the U.S. government's 78% interest in the Elk Hills Field for approximately $3.5 billion in February 1998.
• Joint Ventures: In May 1998, the petrochemical business was contributed to Equistar Chemicals, LP in exchange for a 29.5% interest and $420 million cash.

Guidance, Outlook, and Risks

• Outlook: Management anticipates a net cash shortfall for the full year 1998 but expects to fund it without substantial additional borrowings. Cash requirements for the next 12 months are expected to be met by operations, asset sales, and borrowing capacity, assuming current oil and gas price ranges persist.
• Capital Allocation: The company repurchased $937 million of common stock in the first nine months of 1998. Dividends paid totaled $296 million.
• Year 2000 (Y2K): Remediation efforts are estimated at 35% complete with total costs estimated at $50 million. Management believes risks are minimized but acknowledges reliance on third-party suppliers.
• Environmental & Legal: The company faces substantial lawsuits and environmental proceedings (CERCLA). While reserves are accrued for probable costs, unfavorable resolutions could have a material adverse effect. A shareholder derivative suit regarding executive compensation was settled in principle.
• Accounting Changes: The company adopted SFAS No. 130 (Comprehensive Income) and SFAS No. 131 (Segment Reporting) in 1998. Implementation of SFAS No. 133 (Derivatives) is required by Q1 2000.

Investor Verification Checklist

• Asset Sale Proceeds: Verify the realization of the $532 million in gains from nonstrategic asset sales and the timing of cash receipts.
• Elk Hills Integration: Monitor the operational integration and production enhancements of the Elk Hills Field to offset the $3.5 billion acquisition cost.
• Commodity Price Sensitivity: Assess the impact of continued low oil and chemical prices on future margins, as the company explicitly cites this as a primary earnings driver.
• Debt Maturity Profile: Review the $1.4 billion in current debt maturities due in Q1 1999 and the company's plan to refinance using the $1.4 billion note receivable from the MidCon sale.
• Environmental Reserves: Evaluate the adequacy of reserves for the 68 Superfund sites where remediation is probable, given the potential for joint and several liability.