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Business Context and Reporting Period

This Form 10-Q covers Occidental Petroleum Corporation for the quarterly period ended September 30, 1999. The company operates primarily in two segments: Oil and Gas operations and Chemical operations. The filing includes unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations.

Key Financial Metrics

Note: Debt figures represent the sum of current maturities of long-term debt ($5M), notes payable ($27M), and long-term debt ($5,144M) as of September 30, 1999.

Material Changes vs. Prior Period

• Revenue: Net sales increased 27% in the third quarter (from $1,661M to $2,113M) and 4% for the nine-month period (from $4,904M to $5,104M). The increase was driven by higher worldwide crude oil prices and the inclusion of revenues from a new PVC resin partnership, partially offset by lower chemical prices.
• Profitability: Net income for the nine months ended September 30, 1999, was $65 million, a significant decrease from $401 million in the same period of 1998. The 1998 results included approximately $532 million in pretax gains from the sale of nonstrategic oil and gas properties and $38 million from discontinued operations (MidCon), which were absent in 1999.
• Segment Performance:
  • Oil & Gas: Earnings increased significantly due to higher commodity prices and lower operating costs. Nine-month earnings were $507 million compared to $768 million in 1998 (the latter inflated by asset sale gains).
  • Chemical: Earnings declined to $78 million for the nine months (from $280 million in 1998) due to lower prices for chlorine and caustic soda and the absence of revenues from assets contributed to the Equistar partnership in 1998.
• Cash Flow: Operating cash flow improved to $509 million for the nine months of 1999 compared to $78 million in 1998. Investing activities provided $1.0 billion in 1999 (vs. used $999 million in 1998), largely due to the collection of a $1.4 billion note receivable.

Guidance, Outlook, and Risks

• Capital Spending: Management expects total 1999 capital spending to be $595 million ($475M for Oil & Gas, $120M for Chemical).
• Liquidity: The company expects sufficient cash for operating needs, capital expenditures, dividends, and debt repayments. Available unused committed bank credit lines totaled approximately $2.0 billion as of September 30, 1999.
• Accounting Changes: The adoption of SOP 98-5 resulted in a $15 million after-tax charge in Q1 1999. The adoption of EITF 98-10 resulted in a $2 million after-tax benefit in Q1 1999.
• Legal Contingencies:
  • Chevron Litigation: A $742 million judgment (approx. $990 million with interest as of Oct 31, 1999) in favor of Occidental against Chevron was affirmed by the Oklahoma Supreme Court. Chevron has petitioned the U.S. Supreme Court for review.
  • Environmental: Occidental is involved in 130 Superfund or comparable state sites. Reserves have been accrued for 61 sites where costs are probable and estimable. Management believes reserves are adequate and no material adverse effect is anticipated.
• Year 2000 (Y2K): Remediation efforts are 95% complete. Total costs are estimated at $35 million over two years, with no significant expected impact on financial position.

Investor Verification Checklist

• Verify the status of the U.S. Supreme Court petition regarding the Chevron judgment ($990M award).
• Monitor crude oil and natural gas price trends, as 40% of Oil & Gas sales are attributed to trading activity and prices are volatile.
• Track chemical commodity prices (chlorine, caustic soda, PVC) to assess the impact of announced price increases on future earnings.
• Review the integration and performance of the new PVC resin partnership with The Geon Company.
• Confirm the classification of 1999 dividends, as a portion may be a return of capital due to exhausted earnings and profits.