News Column

OCCIDENTAL PETROLEUM CORP /DE/ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 5, 2014

Consolidated Results of Operations

In this report, "Occidental" means Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental reported net income of $1.4 billion for the second quarter of 2014 on net sales of $6.3 billion, compared to net income of $1.3 billion on net sales of $6.0 billion for the same period of 2013. Diluted earnings per share (EPS) were $1.82 and $1.64 for the second quarters of 2014 and 2013, respectively. Occidental reported net income of $2.8 billion for the first six months of 2014 on net sales of $12.4 billion, compared to net income of $2.7 billion on net sales of $11.8 billion for the same period of 2013. Diluted EPS were $3.58 for the six months of 2014, compared to $3.32 for the same period of 2013. Net income for the three and six months ended June 30, 2014, compared to the same periods of 2013, reflected higher domestic realized prices for oil, gas, and natural gas liquids (NGLs), higher domestic oil volumes, and improved marketing and trading performance, partially offset by lower chemical earnings, lower Middle East and North Africa oil volumes, and higher operating costs. Income for the three and six months ended June 30, 2014 included an after-tax gain of $341 million from the sale of Occidental's operations in Hugoton Field, and a $300 million after-tax impairment charge related to certain non-producing domestic oil and gas acreage.



Selected Income Statement Items

Net sales for the three and six months ended June 30, 2014, compared to the same periods of 2013, reflected higher domestic realized prices for oil, gas, and NGLs, higher domestic oil volumes, and improved marketing and trading performance, partially offset by lower Middle East and North Africa oil volumes. Cost of sales for the three and six months ended June 30, 2014, compared to the same periods in 2013, reflected higher domestic oil and gas operating expenses, in particular the cost of energy, the higher cost of injectants, such as carbon dioxide (CO2 ) and steam, as well as higher raw material and manufacturing costs for the chemical segment. The increase in the provision for domestic and foreign income taxes for the six months ended June 30, 2014, compared to the same period of 2013, was due to a higher pre-tax income and effective tax rate in 2014, compared to the 2013 rate, which included a benefit resulting from the relinquishment of an international exploration block.



Selected Analysis of Financial Position

See "Liquidity and Capital Resources" for discussion about the changes in cash and cash equivalents.

The increase in inventories was due to higher oil inventories at June 30, 2014, compared to December 31, 2013. The increase in other current assets reflected the timing of oil and gas joint venture and partner receivables. The increase in property, plant and equipment, net, reflected capital expenditures of $4.7 billion after partner contributions, partially offset by DD&A, asset sales and impairments. The increase in accounts payable reflected an increase in drilling and production activity in the Permian and higher domestic marketing and trading volumes and crude prices during the second quarter of 2014. The decrease in accrued liabilities reflected the second quarter 2014 payments of ad valorem taxes and the final installment payment on a prior acquisition. The increase in deferred domestic and foreign income taxes was mainly due to accelerated tax depreciation on capital expenditures. The increase in stockholders' equity reflected net income for the six months of 2014 offset partially by stock repurchases and dividends. 18 --------------------------------------------------------------------------------



Segment Operations

Occidental conducts its operations through three segments: (1) oil and gas; (2) chemical; and (3) midstream, marketing and other (midstream and marketing). The oil and gas segment explores for, develops and produces oil and condensate, NGLs and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, CO2 and power. It also trades around its assets, including transportation and storage capacity, and trades oil, NGLs, gas and other commodities. Additionally, the midstream and marketing segment invests in entities that conduct similar activities. The following table sets forth the sales and earnings of each operating segment and corporate items for the three and six months ended June 30, 2014 and 2013 (in millions): Three months ended June 30 Six months ended June 30 2014 2013 2014 2013 Net Sales (a) Oil and Gas $ 4,807$ 4,721$ 9,483$ 9,161 Chemical 1,242 1,187 2,462 2,362 Midstream and Marketing 530 269 965 722 Eliminations (304 ) (215 ) (547 ) (411 ) $ 6,275$ 5,962$ 12,363$ 11,834 Segment Earnings (b) Oil and Gas $ 2,182$ 2,100$ 4,286$ 4,020 Chemical 133 275 269 434 Midstream and Marketing (c) 219 48 389 263 2,534 2,423 4,944 4,717 Unallocated Corporate Items (b) Interest expense, net (15 ) (29 ) (34 ) (59 ) Income taxes (957 ) (901 ) (1,889 ) (1,745 ) Other expense, net (130 ) (166 ) (202 ) (227 ) Income from continuing operations (c) 1,432 1,327 2,819 2,686 Discontinued operations, net (1 ) (5 ) 2 (9 ) Net income attributable to common stock (c) $ 1,431 $



1,322 $ 2,821$ 2,677

(a)Intersegment sales eliminate upon consolidation and are generally made at prices approximating those that the selling entity would be able to obtain in third-party transactions. (b)Refer to "Significant Transactions and Events Affecting Earnings," "Oil and Gas Segment," "Chemical Segment," "Midstream and Marketing Segment" and "Corporate" discussions that follow. (c)Represents amounts attributable to common stock shown after deducting a noncontrolling interest amount of $3 million and $5 million for the three and six months ended June 30, 2014, respectively. 19 --------------------------------------------------------------------------------



Significant Transactions and Events Affecting Earnings

The following table sets forth, for the three and six months ended June 30, 2014 and 2013, significant transactions and events affecting Occidental's earnings that vary widely and unpredictably in nature, timing and amount (in millions): Three months ended June 30 Six months ended June 30 2014 2013 2014 2013 Oil & Gas Hugoton sale gain $ 535 $ - $ 535 $ - Asset impairments (471 ) - (471 ) - Total Oil and Gas $ 64 $ - $ 64 $ - Chemical Carbocloro sale gain $ - $ 131 $ - $ 131 Total Chemical $ - $ 131 $ - $ 131 Midstream and Marketing No significant items affecting earnings $ -



$ - $ - $ - Total Midstream and Marketing

$ -



$ - $ - $ -

Corporate

Charge for former executives and consultants $ - $ (55 ) $ - $ (55 ) Spin-off costs and other

(17 ) - (17 ) - Tax effect of pre-tax adjustments (19 ) (25 ) (19 ) (25 ) Discontinued operations, net* (1 ) (5 ) 2 (9 ) Total Corporate $ (37 )$ (85 )$ (34 )$ (89 ) Total $ 27 $ 46 $ 30 $ 42 *Amounts shown after tax. 20 --------------------------------------------------------------------------------



Worldwide Effective Tax Rate

The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations for the three and six months ended June 30, 2014 and 2013 ($ in millions): Three months ended June 30 Six months ended June 30 2014 2013 2014 2013 Oil & Gas earnings $ 2,182$ 2,100$ 4,286$ 4,020 Chemical earnings 133 275 269 434 Midstream and Marketing earnings 219 48 389 263 Unallocated corporate items (145 ) (195 ) (236 ) (286 ) Pre-tax income 2,389 2,228 4,708 4,431 Income tax expense Federal and state 427 332 805 624 Foreign 530 569 1,084 1,121 Total 957 901 1,889 1,745 Income from continuing operations $ 1,432 $



1,327 $ 2,819$ 2,686

Worldwide effective tax rate (a) 40 % 40% 40 % 39%



(a) The six months ended 2013 amount includes the benefit from the relinquishment of an international exploration block.

21 --------------------------------------------------------------------------------



Oil and Gas Segment

The following tables set forth the production and sales volumes of oil, NGLs and natural gas per day for the three and six months ended June 30, 2014 and 2013. The differences between the production and sales volumes per day are generally due to the timing of shipments at Occidental's international locations where the product is loaded onto tankers. Three months Six months ended June 30 ended June 30 Production per Day 2014 2013 2014 2013 Oil (MBBL) United States (a) 278 261 275 262 Middle East/North Africa 174 193 169 184 Latin America 19 28 24 29 NGLs (MBBL) United States (a) 72 77 74 77 Middle East/North Africa 7 7 7 7 Natural Gas (MMCF) United States (a) 718 792 737 808 Middle East/North Africa 420 433 412 433 Latin America 12 13 12 13 Total production (MBOE) (a,b) 742 772 743 768 Sales Volumes per Day Oil (MBBL) United States (a) 278 261 275 262 Middle East/North Africa 168 186 160 172 Latin America 24 26 28 28 NGLs (MBBL) United States (a) 72 77 74 77 Middle East/North Africa 7 7 7 7 Natural Gas (MMCF) United States (a) 720 795 738 810 Middle East/North Africa 420 433 412 433 Latin America 12 13 12 13 Total sales volumes (MBOE) (a,b) 741 764



738 755

Note: MBBL represents thousand barrels. MMCF represents million cubic feet. (a)Includes Hugoton daily production and sales volumes of 2 MBBL, 1 MBBL, and 16 MMCF for the three months ended June 30, 2014 and 6 MBBL, 3 MBBL, and 60 MMCF for the three months ended June 30, 2013, for oil, NGLs, and natural gas, respectively. Includes Hugoton daily production and sales volumes of 4 MBBL, 2 MBBL, and 35 MMCF for the six months ended June 30, 2014 and 6 MBBL, 3 MBBL, and 60 MMCF for the six months ended June 30, 2013 for oil, NGLs, and natural gas, respectively. (b)Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on energy content of six thousand cubic feet (Mcf) of gas to one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a BOE basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, for the six months ending June 30, 2014 the average prices of West Texas Intermediate (WTI) oil and New York Mercantile Exchange (NYMEX) natural gas were $100.84 per barrel and $4.60 per Mcf, respectively, resulting in an oil-to-gas ratio of over 20 to 1. 22 -------------------------------------------------------------------------------- The following tables present information about Occidental's average realized prices and index prices for the three and six months ended June 30, 2014 and 2013: Three months ended June 30 Six months ended June 30

Average Realized Prices 2014 2013 2014 2013 Oil ($/BBL) United States $ 97.48$ 95.08$ 96.72$ 93.33 Middle East/North Africa $ 105.15$ 101.83$ 104.91$ 104.40 Latin America $ 101.30$ 98.85$ 99.73$ 103.29 Total Worldwide $ 100.38$ 97.91$ 99.70$ 97.99 NGLs ($/BBL) United States $ 43.91$ 39.70$ 45.30$ 40.15 Middle East/North Africa $ 32.00$ 29.14$ 34.94$ 32.65 Total Worldwide $ 42.82$ 38.78$ 44.43$ 39.52 Natural Gas ($/MCF) United States $ 4.28 $ 3.82 $ 4.43 $ 3.44 Latin America $ 10.99$ 11.32$ 10.90$ 11.46 Total Worldwide $ 3.07 $ 2.83 $ 3.20 $ 2.60 Three months ended June 30 Six months ended June 30 Average Index Prices 2014 2013 2014 2013 WTI oil ($/BBL) $ 102.99$ 94.22$ 100.84$ 94.30 Brent oil ($/BBL) $ 109.77$ 103.35$ 108.83$ 108.00 NYMEX gas ($/MCF) $ 4.55 $ 4.00 $ 4.60 $ 3.68 Three months Six months ended June 30 ended June 30 Average Realized Prices as Percentage of Average Index Prices 2014 2013 2014 2013 Worldwide oil as a percentage of average WTI 97% 104% 99% 104% Worldwide oil as a percentage of average Brent 91% 95% 92% 91% Worldwide NGLs as a percentage of average WTI 42% 41% 44% 42% Domestic natural gas as a percentage of average NYMEX 94% 95% 96% 93% Oil and gas segment earnings were $2.2 billion for the second quarter of 2014, which included a $535 million gain from the sale of the Hugoton Field operations and a $471 million charge for the impairment of domestic non-producing acreage, compared with $2.1 billion for the second quarter of 2013. The increase reflected higher domestic realized prices for all products and higher domestic oil volumes, partially offset by lower Middle East and North Africa oil volumes and higher operating costs. For the second quarter of 2014, total company average daily oil and gas production volumes, excluding the Hugoton production, averaged 736,000 BOE, compared with 753,000 BOE in the second quarter of 2013. The sale of Hugoton assets closed on April 30, 2014. Hugoton production was 6,000 BOE per day and 19,000 BOE per day for the second quarter of 2014 and 2013, respectively. Domestic daily production increased by 13,000 BOE to 464,000 BOE in the second quarter of 2014 compared to 451,000 BOE in the second quarter of 2013. Domestic average oil production increased by 21,000 barrels per day, primarily from California and Permian Resources. International average daily production decreased to 272,000 BOE in the second quarter of 2014 from 302,000 BOE in second quarter of 2013. The decrease primarily resulted from insurgent activities in Colombia, continued field and port strikes in Libya and lower cost recovery barrels in Iraq. Worldwide average daily sales volumes decreased to 735,000 BOE in the second quarter of 2014 from 745,000 BOE in the second quarter of 2013, mainly due to the timing of liftings. 23 -------------------------------------------------------------------------------- Worldwide realized crude oil prices increased by 3 percent to $100.38 per barrel for the second quarter of 2014 compared with $97.91 per barrel for the second quarter of 2013 and improved slightly compared to the first quarter of 2014. Worldwide NGL prices increased by 10 percent to $42.82 per barrel in the second quarter of 2014, compared with $38.78 per barrel in the second quarter of 2013, but decreased by 7 percent compared with $46.05 in the first quarter of 2014. Domestic natural gas prices increased 12 percent in the second quarter of 2014 to $4.28 per MCF compared with $3.82 in the second quarter of 2013, and fell by 6 percent compared with the first quarter of 2014. Approximately 60 percent of Occidental's oil production tracks world oil prices, such as Brent, and 40 percent tracks WTI. For example, the realized pricing for Occidental's California oil production has typically exceeded WTI for comparable grades. Price changes at current global prices and levels of production affect Occidental's quarterly pre-tax income by approximately $37 million for a $1.00 per barrel change in global oil prices and approximately $7 million for a $1.00 per barrel change in NGL prices. A change of $0.50 per Mcf in domestic gas prices affects quarterly pre-tax earnings by approximately $25 million. These price change sensitivities include the impact of volume changes from production-sharing and similar contracts. If production levels change in the future, the sensitivity of Occidental's results to oil, NGLs and gas prices also would change. Oil and gas earnings were $4.3 billion for the first six months of 2014, compared with $4.0 billion for the same period of 2013. The increase reflects higher domestic realized prices for all products, and higher domestic volumes partially offset by lower Middle East and North Africa oil volumes and higher operating costs. Oil and gas production volumes, excluding Hugoton production for the first six months of 2014 averaged 731,000 BOE per day, compared with 749,000 BOE per day for the first six months of 2013. Domestic daily production averaged 460,000 BOE and 455,000 BOE for the first six months of 2014 and 2013, respectively. Average domestic oil production increased by 15,000 barrels per day in the first six months of 2014 compared to the first six months of 2013. Average international daily production volumes decreased to 271,000 BOE for the first six months of 2014 from 294,000 BOE for the first six months of 2013. The decrease was primarily due to insurgent activities in Colombia, continued field and port strikes in Libya and lower cost recovery barrels in Iraq. Worldwide average daily sales volumes were 726,000 BOE in the first six months of 2014, compared with 736,000 BOE for 2013. Sales volumes were lower than production volumes due to the timing of liftings in Middle East/North Africa. Worldwide realized crude oil prices rose by 2 percent to $99.70 per barrel for the first six months of 2014, compared with $97.99 per barrel for the first six months of 2013. Worldwide NGL prices increased by 12 percent to $44.43 per barrel for the first six months of 2014, compared with $39.52 per barrel for the first six months of 2013. Domestic gas prices increased by 29 percent to $4.43 per MCF for the first six months of 2014, compared to $3.44 per MCF for the first six months of 2013. Chemical Segment Chemical segment earnings for the three months ended June 30, 2014 were $133 million, compared to $144 million, excluding the $131 million gain from the sale of Carbocloro, for the same period of 2013. The decrease in chemical segment earnings for the second quarter of 2014 reflected lower caustic soda prices driven by new chlor-alkali capacity in the industry and higher natural gas costs partially offset by higher vinyl margins, resulting from improvement in United States construction markets. Chemical segment earnings for the six months ended June 30, 2014 were $269 million, compared to $303 million, excluding the $131 million gain from the sale of Carbocloro, for the same period of 2013. The lower earnings resulted primarily from lower caustic soda prices driven by new chlor-alkali capacity in the industry and higher natural gas costs, partially offset by higher vinyl margins and volume improvements across most products.



Midstream and Marketing Segment

Midstream and marketing segment earnings for the three months ended June 30, 2014 and 2013 were $219 million and $48 million, respectively. Earnings for the six months ended June 30, 2014 and 2013 were $389 million and $263 million, respectively. The increases reflected improved marketing and trading performance.



Liquidity and Capital Resources

24 -------------------------------------------------------------------------------- At June 30, 2014, Occidental had approximately $2.4 billion in cash on hand. In addition, Occidental has a bank credit facility (Credit Facility) with a $2.0 billion commitment expiring in 2016. No amounts have been drawn under this Credit Facility. Income and cash flows are largely dependent on the oil and gas segment's prices, sales volumes and costs. Occidental believes that cash on hand and cash generated from operations will be sufficient to fund its operating needs and planned capital expenditures, dividends and any debt payments. Occidental, from time to time, may access and has accessed debt markets for general corporate purposes, including acquisitions. Net cash provided by operating activities was $5.6 billion for the six months ended June 30, 2014, compared to $6.2 billion for the same period in 2013. The 2014 decrease in cash provided by operating activities reflected a $0.5 billion higher tax payment and the 2013 collection of a $0.4 billion tax receivable. Cash flow from operations in the first six months of 2014, compared to the same period of 2013, reflected higher domestic oil volumes, 4-percent higher domestic oil prices, 29-percent higher domestic gas prices, and 13-percent higher domestic NGL prices, offset by lower international oil volumes. The impact of the chemical and the midstream and marketing segments on overall cash flows is typically less significant than the impact of the oil and gas segment because the chemical and midstream and marketing segments are significantly smaller. Occidental's net cash used by investing activities was $4.1 billion for the first six months of 2014, compared to $4.3 billion for the same period of 2013. Capital expenditures for the first six months of 2014 were $4.9 billion of which $3.9 billion was for the oil and gas segment and $0.9 billion was for the midstream and marketing segment. Capital expenditures for the first six months of 2013 were $4.3 billion of which $3.4 billion was for the oil and gas segment and $0.7 billion was for the midstream and marketing segment. The 2014 amount also included $1.3 billion in proceeds from the sale of Occidental's operations in the Hugoton Field. Occidental's net cash used by financing activities was approximately $2.5 billion for the first six months of 2014, compared to net cash used by financing activities of approximately $0.4 billion for the same period of 2013. The 2014 amount included purchases of treasury stock of $1.6 billion and $1.1 billion used to pay dividends, partly offset by $272 million of contributions received from a noncontrolling interest. The first six months of 2013 included dividend payments of $0.5 billion. The 2013 dividends were lower due to the accelerated payment in 2012 of that year's fourth quarter dividend.



As of June 30, 2014, Occidental was in compliance with all covenants of its financing agreements and had substantial capacity for additional unsecured borrowings, the payment of cash dividends and other distributions on, or acquisitions of, Occidental stock.

Environmental Liabilities and Expenditures

Occidental's operations are subject to stringent federal, state, local and foreign laws and regulations related to improving or maintaining environmental quality. Occidental's environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand. The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal of hazardous substances; or operation and maintenance of remedial systems. Government or private proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs. As of June 30, 2014, Occidental participated in or monitored remedial activities or proceedings at 154 sites. The following table presents Occidental's environmental remediation reserves as of June 30, 2014, grouped as environmental remediation sites listed or proposed for listing by the United States Environmental Protection Agency 25 --------------------------------------------------------------------------------



on the CERCLA National Priorities List (NPL sites) and three categories of non-NPL sites - third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.

Reserve Balance Number of Sites (in millions) NPL sites 30 $ 23 Third-party sites 72 92 Occidental-operated sites 20 113 Closed or non-operated Occidental sites 32 96 Total 154 $ 324 As of June 30, 2014, Occidental's environmental reserves exceeded $10 million each at 11 of the 154 sites described above, and 104 of the sites had reserves from $0 to $1 million each. Based on current estimates, Occidental expects to expend funds corresponding to approximately half of the current environmental reserves at the sites described above over the next three to four years and the balance at these sites over the subsequent 10 or more years. Occidental believes its range of reasonably possible additional losses beyond those liabilities recorded for environmental remediation at these sites could be up to $385 million. The status of Occidental's involvement with the sites and related significant assumptions have not changed materially since December 31, 2013.



Refer to the "Environmental Liabilities and Expenditures" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Occidental's Annual Report on Form 10-K for the year ended December 31, 2013, for additional information regarding Occidental's environmental expenditures.

Lawsuits, Claims, Commitments and Contingencies

OPC or certain of its subsidiaries are involved, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. OPC or certain of its subsidiaries also are involved in proceedings under CERCLA and similar federal, state, local and foreign environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief. Usually OPC or such subsidiaries are among many companies in these environmental proceedings and have to date been successful in sharing response costs with other financially sound companies. Further, some lawsuits, claims and legal proceedings involve acquired or disposed assets with respect to which a third party or Occidental retains liability or indemnifies the other party for conditions that existed prior to the transaction. In connection with a suit brought by the New Jersey Department of Environmental Protection, Occidental is in discussions regarding a potential settlement agreement, subject to court approval, to resolve the remaining claims by the State of New Jersey against Occidental arising from the acquisition of Diamond Shamrock Chemicals Company (DSCC) and historic operations of DSCC's Lister Avenue Plant. At the time Occidental acquired DSCC's stock, Maxus Energy Corporation retained liability for the Lister Avenue Plant, among other sites. Occidental's responsibility for the potential settlement is not expected to be material. Occidental accrues reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Occidental has disclosed its reserve balances for environmental matters. Reserve balances for other matters as of June 30, 2014 and December 31, 2013 were not material to Occidental's consolidated balance sheets. Occidental also evaluates the amount of reasonably possible losses that it could incur as a result of the matters mentioned above. Occidental has disclosed its range of reasonably possible additional losses for sites where it is a participant in environmental remediation. Occidental believes that other reasonably possible losses that it could incur in excess of reserves accrued on the balance sheet would not be material to its consolidated financial position or results of operations. During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. Although taxable years through 2009 for United States federal income tax purposes have been audited by the United States Internal Revenue Service (IRS) pursuant to its Compliance Assurance Program, subsequent taxable years are currently under review. Additionally, in December 2012, Occidental filed United States federal refund claims for tax years 2008 and 2009, which are subject to IRS 26 -------------------------------------------------------------------------------- review. Taxable years from 2000 through the current year remain subject to examination by foreign and state government tax authorities in certain jurisdictions. In certain of these jurisdictions, tax authorities are in various stages of auditing Occidental's income taxes. During the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law. Occidental believes that the resolution of outstanding tax matters would not have a material adverse effect on its consolidated financial position or results of operations. OPC, its subsidiaries or both have indemnified various parties against specified liabilities those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds. As of June 30, 2014, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.



Recently Adopted Accounting and Disclosure Changes

In June 2014, the Financial Accounting Standards Board (FASB) issued rules affecting entities that grant their employees share-based payment awards in which the terms of the awards provide that a performance target can be achieved after the requisite service period. The new rules require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities may apply the update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. These rules are effective for annual periods beginning on or after December 15, 2015. The rules are not expected to have a material impact on Occidental's financial statements upon adoption but will require assessment on an ongoing basis. In May 2014, the FASB issued rules relating to revenue recognition. Under the new rules, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The rules also require more detailed disclosures related to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. These rules are effective for the Company for interim and annual periods beginning after December 15, 2016. The rules are not expected to have a material impact on Occidental's financial statements upon adoption. In April 2014, the FASB issued rules changing the requirements for reporting discontinued operations so that only the disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results will be reported as discontinued operations in the financial statements. These rules are effective for annual periods beginning on or after December 15, 2014. The rules are not expected to have a material impact on Occidental's financial statements upon adoption. In July 2013, the FASB issued rules requiring net, rather than gross, presentation of a deferred tax asset for a net operating loss or other tax credit and any related liability for unrecognized tax benefits. The rules became effective on January 1, 2014, and did not have a material impact on Occidental's financial statements. 27 --------------------------------------------------------------------------------



Safe Harbor Statement Regarding Outlook and Forward-Looking Information

Portions of this report contain forward-looking statements and involve risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows and business prospects. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. Factors that could cause results to differ include, but are not limited to: global commodity pricing fluctuations; supply and demand considerations for Occidental's products; higher-than-expected costs; the regulatory approval environment; reorganization or restructuring of Occidental's operations, including any delay of, or other negative developments affecting, the spin-off of California Resources Corporation; not successfully completing, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; lower-than-expected production from development projects or acquisitions; exploration risks; general economic slowdowns domestically or internationally; political conditions and events; liability under environmental regulations including remedial actions; litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, natural disasters, cyber attacks or insurgent activity; failure of risk management; changes in law or regulations; or changes in tax rates. Words such as "estimate," "project," "predict," "will," "would," "should," "could," "may," "might," "anticipate," "plan," "intend," "believe," "expect," "aim," "goal," "target," "objective," "likely" or similar expressions that convey the prospective nature of events or outcomes generally indicate forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update any forward-looking statements, as a result of new information, future events or otherwise. Material risks that may affect Occidental's results of operations and financial position appear in Part I, Item 1A "Risk Factors" of the 2013 Form 10-K.


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