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Business Context and Reporting Period

Company: Occidental Petroleum Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1997
Business Overview: Occidental operates in three primary segments: Oil and Gas, Natural Gas Transmission (MidCon Corp.), and Chemical operations. The company is engaged in the exploration, production, and marketing of oil and gas, as well as the manufacturing and marketing of chemical products.

Key Financial Metrics (Nine Months Ended Sept 30, 1997)

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 4.6% year-over-year, driven by higher natural gas transmission revenues ($2,063M vs $1,777M) and chemical sales ($3,302M vs $3,210M), partially offset by lower oil and gas revenues due to reduced trading activity.
• Profitability: Net income decreased 3% to $494 million. Earnings before special items increased to $548 million (from $485 million in 1996), reflecting improved margins in petrochemicals and chlorine and increased domestic natural gas production.
• Special Items: The 1997 results included a $54 million after-tax charge for executive employment agreements. The 1996 period included a $30 million extraordinary loss from debt extinguishment and various litigation settlements and environmental charges.
• Cash Flow: Operating cash flow declined significantly to $863 million (from $1.25 billion) due to lower operating cash, changes in working capital (increased receivables, lower payables), and the $112 million cash payment for executive liabilities.
• Investing Activity: Capital expenditures rose 36% to $1.064 billion, with significant increases in oil and gas ($799M) and chemical ($207M) spending.

Guidance, Outlook, and Material Events

• Elk Hills Acquisition: On October 6, 1997, Occidental signed an agreement to acquire the U.S. Government's 78% interest in the Elk Hills Field for $3.65 billion. The acquisition is effective October 1, 1997, with closing expected in February 1998. Funding will come from the divestiture of MidCon Corp. and other asset sales.
• MidCon Divestiture: The company announced its intention to divest MidCon Corp., its natural gas transmission subsidiary. The segment is expected to be reported as a discontinued operation in Q4 1997, with the transaction completing in early 1998.
• Stock Repurchase: The Board authorized the repurchase of up to 40 million shares of common stock, funded initially by temporary financing.
• Outlook: Management expects cash from operations and asset sales to be adequate for operating requirements, capital spending, and dividends. The company maintains substantial borrowing capacity ($1.5 billion unused committed credit).
• Risks: Significant environmental liabilities exist at 224 Superfund or comparable sites. Management believes accrued reserves are sufficient and that pending litigation will not have a material adverse effect. Oil and gas prices remain sensitive to complex factors outside the company's control.

Investor Verification Checklist

• Elk Hills Funding: Verify the progress of the MidCon Corp. divestiture and other asset sales required to fund the $3.65 billion Elk Hills acquisition.
• MidCon Discontinued Ops: Confirm the accounting treatment of MidCon as a discontinued operation in Q4 1997 and the impact on future comparability.
• Executive Charges: Assess the impact of the $54 million charge for executive employment agreements on future compensation costs.
• Environmental Reserves: Review the adequacy of reserves for the 224 identified environmental sites, particularly given the "unknown" nature of some liabilities.
• Debt Levels: Monitor the increase in long-term debt and the reliance on temporary financing for the Elk Hills deal and stock repurchase program.