Occidental Petroleum Corporation (OXY, NYSE)
Industry: Energy / Oil & Gas E&P
Annual report, fiscal year 2019



# Occidental Petroleum Corporation Annual
Report 2019

Form 10-K (NYSE:OXY)

Published: February 21st, 2019



# UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

p Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
“Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 19

For the fiscal year ended December 31, 2018
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

Name of Each Exchange on Which Registered

9 1/4% Senior Debentures due 2019

New York Stock Exchange

Common Stock, $0.20 par value

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes p 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). Yes ☐ No ☐

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. Yes ☐ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period as the registrant was required to submit and post files). Yes ☐ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer p 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) Yes ☐ No ☐

The aggregate market value of the registrant's Common Stock held by nonaffiliates of the registrant was approximately $64.0 billion, computed by reference to the closing price on the New York Stock Exchange composite tape o$83.68 per share of Common Stock on June 30, 2018.

At January 31, 2019, there were 749,546,443 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 10, 2019 Annual Meeting of Stockholders, are incorporated by reference into Part III.



## TABLE OF CONTENTS

Part I
Items
1
and 2 Business and Properties.....3
General.....3
Oil and Gas Operations.....3
Chemical Operations.....4
Midstream and Marketing Operations.....5
Capital Expenditures.....5
Employees.....5
Environmental Regulation.....5
Available Information.....5
Item
1A Risk Factors.....6
Item
1B Unresolved Staff Comments.....9
Item
3 Legal Proceedings.....9
Item
4 Mine Safety Disclosures.....9
Executive Officers.....10
Part II
Item
5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.....10
Item
6 Selected Financial Data.....12
Item
7 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).....13
Strategy.....13
Oil and Gas Segment.....14
Chemical Segment.....20
Midstream and Marketing Segment.....21
Segment Results of Operations and Significant Items Affecting Earnings.....22
Taxes.....24
Consolidated Results of Operations.....24
Consolidated Analysis of Financial Position.....26
Liquidity and Capital Resources.....26
Off-Balance-Sheet Arrangements.....28
Contractual Obligations.....28
Lawsuits, Claims and Contingencies.....28
Environmental Liabilities and Expenditures.....29
International Investments.....31
Critical Accounting Policies and Estimates.....31
Significant Accounting and Disclosure Changes.....34
Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data.....34
Item
7A Quantitative and Qualitative Disclosures About Market Risk.....34
Item
8 Financial Statements and Supplementary Data.....36
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.....36



Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting..... 37
Consolidated Balance Sheets..... 38
Consolidated Statements of Operations..... 40
Consolidated Statements of Comprehensive Income..... 41
Consolidated Statements of Stockholders' Equity..... 42
Consolidated Statements of Cash Flows..... 43
Notes to Consolidated Financial Statements..... 44
Quarterly Financial Data (Unaudited)..... 74
Supplemental Oil and Gas Information (Unaudited)..... 76
Schedule II – Valuation and Qualifying Accounts..... 92
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 93
Item 9A Controls and Procedures..... 93
Management's Annual Assessment of and Report on Internal Control Over Financial Reporting..... 93
Disclosure Controls and Procedures..... 93
Item 9B Other Information..... 93
Part III
Item 10 Directors, Executive Officers and Corporate Governance..... 93
Item 11 Executive Compensation..... 94
Item 12 Security Ownership of Certain Beneficial Owners and Management..... 94
Item 13 Certain Relationships and Related Transactions and Director Independence..... 94
Item 14 Principal Accounting Fees and Services..... 94
Part IV
Item 15 Exhibits and Financial Statement Schedules..... 94
Item 16 Form 10-K Summary..... 96



## ITEMS 1 AND 2 BUSINESS AND PROPERTIES

In this report, "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 various subsidiaries and affiliates. Occidental's executive offices are located at 5 Greenway Plaza, Suite 110, Houston, Texas 77046; telephone (713) 215-7000.

## GENERAL

Occidental's principal businesses consist of three segments. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide (CO \( _{2} \) ) and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities.

For information regarding Occidental's segments, geographic areas of operation and current developments, including strategies and actions related thereto, see the information in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) section of this report and Note 17 to the Consolidated Financial Statements.

## OIL AND GAS OPERATIONS
General

Occidental’s domestic upstream oil and gas operations are located in Texas and New Mexico. International operations are located in Colombia, Oman, United Arab Emirates (UAE) and Qatar.

## Proved Reserves and Sales Volumes

The table below shows Occidental’s total oil, NGL and natural gas proved reserves and sales volumes in 2018, 2017 and 2016. See “MD&A — Oil and Gas Segment,” and the information under the caption “Supplemental Oil and Gas Information” for certain details regarding Occidental’s proved reserves, the reserves estimation process, sales and production volumes, production costs and other reserves-related data.

## Competition

As a producer of oil, condensate, NGL and natural gas, Occidental competes with numerous other domestic and international public, private, and government producers. Oil, NGL and natural gas are commodities that are sensitive to prevailing global and local, current and anticipated market conditions. Occidental competes for transportation capacity and infrastructure for the delivery of its products, which are sold at current market prices or on a forward basis to refiners and other market participants. Occidental’s competitive strategy relies on increasing production through developing conventional and unconventional fields, utilizing primary and enhanced oil recovery (EOR) techniques and strategic acquisitions in areas where Occidental has a competitive advantage as a result of its current 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.

## Comparative Oil and Gas Proved Reserves and Sales Volumes

Oil (which includes condensate) and NGL are in millions of barrels; natural gas is in billions of cubic feet (Bcf); barrels of oil equivalent (BOE) are in millions.

<table><tr><td></td><td colspan="5">2018</td><td colspan="5">2017</td><td colspan="5">2016</td></tr><tr><td>Proved Reserves</td><td>Oil</td><td>NGL</td><td>Gas</td><td>BOE (a)</td><td>Oil</td><td>NGL</td><td>Gas</td><td>BOE (a)</td><td>OIL</td><td>NGL</td><td>Gas</td><td>BOE (a)</td><td></td><td></td><td></td></tr><tr><td>United States</td><td>1,186</td><td>284</td><td>1,445</td><td>1,711</td><td>1,107</td><td>247</td><td>1,205</td><td>1,555</td><td>960</td><td>219</td><td>1,045</td><td>1,353</td><td></td><td></td><td></td></tr><tr><td>International</td><td>397</td><td>202</td><td>2,650</td><td>1,041</td><td>408</td><td>198</td><td>2,626</td><td>1,043</td><td>397</td><td>201</td><td>2,729</td><td>1,053</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>1,583</td><td>486</td><td>4,095</td><td>2,752</td><td>1,515</td><td>445</td><td>3,831</td><td>2,598</td><td>1,357</td><td>420</td><td>3,774</td><td>2,406</td><td></td><td></td><td></td></tr><tr><td>Sales Volumes</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>United States</td><td>91</td><td>25</td><td>119</td><td>136</td><td>73</td><td>20</td><td>108</td><td>111</td><td>69</td><td>19</td><td>132</td><td>110</td><td></td><td></td><td></td></tr><tr><td>International</td><td>62</td><td>11</td><td>189</td><td>104</td><td>66</td><td>11</td><td>188</td><td>109</td><td>74</td><td>11</td><td>217</td><td>121</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>153</td><td>36</td><td>308</td><td>240</td><td>139</td><td>31</td><td>296</td><td>220</td><td>143</td><td>30</td><td>349</td><td>231</td><td></td><td></td><td></td></tr></table>

Note: The detailed proved reserves information presented in accordance with Item 1202(a)(2) to Regulation S-K under the Securities Exchange Act of 1934 (Exchange Act) is provided under the heading "Supplemental Oil and Gas Information". Proved reserves are stated on a net basis after applicable royalties.

(a) Natural gas volumes are converted to barrels of oil equivalence (BOE) at six thousand cubic feet (Mcf) of gas per 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, in 2018, the average daily prices of West Texas Intermediate (WTI) oil and New York Mercantile Exchange (NYMEX) natural gas were $64.77 per barrel and $2.97 per Mcf, respectively, resulting in an oil to gas ratio of over 20 to 1.



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## CHEMICAL OPERATIONS

## General

OxyChem owns and operates manufacturing plants at 22 domestic sites in Alabama, Georgia, Illinois, Kansas, Louisiana, Michigan, New Jersey, New York, Ohio, Tennessee and Texas and at two international sites in Canada and Chile. In 2018, OxyChem achieved a full year of operations at the 1.2 billion pound-per-year ethylene cracker at the OxyChem Ingleside, Texas facility as well as the 4CPE unit at OxyChem's Geismar, Louisiana site. The ethylene cracker, a 50/50 joint venture with Mexichem S.A.B. de C.V., began commercial operations in the first quarter of 2017.

## Competition

OxyChem competes with numerous other domestic and international chemical producers. OxyChem’s market position was first or second in the United States in 2018 for the principal basic chemicals products it manufactures and markets as well as for vinyl chloride monomer (VCM). OxyChem ranks in the top three producers of polyvinyl 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:

<table><tr><td>Principal Products</td><td>Major Uses</td><td>Annual Capacity</td></tr><tr><td>Basic Chemicals</td><td></td><td></td></tr><tr><td>Chlorine</td><td>Raw material for ethylene dichloride (EDC), water treatment and pharmaceuticals</td><td>3.4 million tons</td></tr><tr><td>Caustic soda</td><td>Pulp, paper and aluminum production</td><td>3.5 million tons</td></tr><tr><td>Chlorinated organics</td><td>Refrigerants, silicones and pharmaceuticals</td><td>1.0 billion pounds</td></tr><tr><td>Potassium chemicals</td><td>Fertilizers, batteries, soaps, detergents and specialty glass</td><td>0.4 million tons</td></tr><tr><td>EDC</td><td>Raw material for vinyl chloride monomer (VCM)</td><td>2.1 billion pounds</td></tr><tr><td>Chlorinated isocyanurates</td><td>Swimming pool sanitation and disinfecting products</td><td>131 million pounds</td></tr><tr><td>Sodium silicates</td><td>Catalysts, soaps, detergents and paint pigments</td><td>0.6 million tons</td></tr><tr><td>Calcium chloride</td><td>Ice melting, dust control, road stabilization and oil field services</td><td>0.7 million tons</td></tr><tr><td>Vinyls</td><td></td><td></td></tr><tr><td>VCM</td><td>Precursor for polyvinyl chloride (PVC)</td><td>6.2 billion pounds</td></tr><tr><td>PVC</td><td>Piping, building materials and automotive and medical products</td><td>3.7 billion pounds</td></tr><tr><td>Ethylene</td><td>Raw material for VCM</td><td>1.2 billion pounds (a)</td></tr></table>

(a) Amount is gross production capacity for 50/50 joint venture with Mexichem.



## MIDSTREAM AND MARKETING OPERATIONS
General

Occidental’s midstream and marketing operations primarily support and enhance its oil and gas and chemical businesses and also provide similar services for third parties.

In 2018, Occidental sold several non-core assets, including the Centurion common carrier oil pipeline and storage system, Southeast New Mexico oil gathering system and Ingleside Crude Terminal. Following the transactions, Occidental retained its long-term flow assurance, pipeline takeaway and export capacity through its retained marketing business.
Also within the midstream and marketing segment is Oxy Low Carbon Ventures (OLCV). OLCV seeks to capitalize on Occidental's EOR leadership by developing carbon capture, utilization and storage projects that source anthropogenic carbon dioxide and promote innovative technologies that drive cost efficiencies and economically grow Occidental's business while reducing emissions.

## Competition

Occidental's midstream and marketing businesses operate in competitive and highly regulated markets. Occidental's marketing business competes with other market participants on exchange platforms and through other bilateral transactions with direct counterparties.

The midstream and marketing operations are conducted in the locations described below as of December 31, 2018:

<table><tr><td>Location</td><td>Description</td><td>Capacity</td></tr><tr><td>Gas Plants</td><td></td><td></td></tr><tr><td>Texas, New Mexico and Colorado</td><td>Occidental and third-party-operated natural gas gathering, compression and processing systems, and CO2 processing and capturing</td><td>2.8 Bcf per day</td></tr><tr><td>United Arab Emirates</td><td>Natural gas processing facilities for Al Hosn Gas</td><td>1.3 Bcf of natural gas per day</td></tr><tr><td>Pipelines and Gathering Systems</td><td></td><td></td></tr><tr><td>Texas, New Mexico and Colorado</td><td>CO2 fields and pipeline systems transporting CO2 to oil and gas producing locations</td><td>2.8 Bcf per day</td></tr><tr><td>Dolphin Pipeline - Qatar and United Arab Emirates and Oman</td><td>Equity investment in a natural gas pipeline</td><td>3.2 Bcf of natural gas per day</td></tr><tr><td>Western and Southern United States and Canada</td><td>Equity investment in entity involved in pipeline transportation, storage, terminalling and marketing of oil, gas and related petroleum products</td><td>17,965 miles of active crude oil and NGL pipelines and gathering systems. (a) 108 million barrels of crude oil, refined products and NGL storage capacity and 65 Bcf of natural gas storage working capacity (a)</td></tr><tr><td>Power Generation</td><td></td><td></td></tr><tr><td>Texas and Louisiana</td><td>Occidental-operated power and steam generation facilities</td><td>1,200 megawatts of electricity and 1.6 million pounds of steam per hour</td></tr></table>

(a) Amounts are gross, including interests held by third parties.



## CAPITAL EXPENDITURES

For information on capital expenditures, see the information under the heading "Liquidity and Capital Resources" in the MD&A section of this report.

## EMPLOYEES

Occidental employed approximately 11,000 people at December 31, 2018, 7,000 of whom were located in the U.S. Occidental employed approximately 7,000 people in the oil and gas and midstream and marketing segments and 3,000 people in the chemical segment. An additional 1,000 people were employed in administrative and headquarters functions. Approximately 500 U.S.-based employees and 900 international-based employees are represented by labor unions.

## ENVIRONMENTAL REGULATION

For environmental regulation information, including associated costs, see the information under the heading "Environmental Liabilities and Expenditures" in the MD&A section of this report and "Risk Factors."

## 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 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.



## ITEM 1A 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 NGL, and its chemical products.

Prices for crude oil, natural gas and NGL fluctuate widely. Historically, the markets for crude oil, natural gas and NGL have been volatile and may continue to be volatile in the future. If the prices of oil, natural gas, or NGL continue to be volatile or decline, Occidental's operations, financial condition, cash flows, level of expenditures and the quantity of estimated proved reserves that may be attributed to our properties may be materially and adversely affected. Prices are set by global and local market forces which are not in Occidental's control. These factors include, among others:

☑ Worldwide and domestic supplies of, and demand for, crude oil, natural gas, NGL and refined products;

The cost of exploring for, developing, producing, refining and marketing crude oil, natural gas, NGL and refined products;

Operational impacts such as production disruptions, technological advances and regional market conditions, including available transportation capacity and infrastructure constraints in producing areas;

Changes in weather patterns and climate;

The impacts of the members of OPEC and other non-OPEC member-producing nations that may agree to and maintain production levels;

The worldwide military and political environment, uncertainty or instability resulting from an escalation or outbreak of armed hostilities or acts of terrorism in the United States, or elsewhere;

The price and availability of alternative and competing fuels;

☑ Technological advances affecting energy consumption and supply;

Domestic and foreign governmental regulations and taxes, or changes in regulation and taxes;

☑ Shareholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil, natural gas and NGL;

☑ Additional or increased nationalization and expropriation activities by foreign governments;

☑ General economic conditions worldwide;

Volatility in commodity futures markets; and

The effect of energy conservation efforts.

The long-term effects of these and other conditions on the prices of crude oil, natural gas, NGL and refined products are uncertain. Generally, Occidental's practice is to remain exposed to market prices of commodities. Management may elect to hedge the price risk of crude oil, natural gas and NGL in the future, and commodity price risk management and hedging activities may prevent us from fully benefiting from price increases and may expose us to regulatory and other risks.

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.

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;

☑ Title problems and other associated risks that may affect its ability to profitably grow production, replace reserves and achieve its targeted returns;

☑ Actions by third-party operators of our properties;

☑ Delays and costs of drilling wells on lands subject to complex development terms and circumstances; and

☑ 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:

New or amended laws and regulations, or new or different applications or interpretations of existing laws and regulations, including those related to drilling, manufacturing or production processes (including well stimulation techniques such as hydraulic fracturing and acidization), labor and employment, taxes, royalty rates, permitted production rates, entitlements, import, export and use of raw materials, equipment or products, use or increased use of land, water and other natural resources, safety, the manufacturing of chemicals, asset integrity management, the marketing or export of commodities, security and environmental protection, all of which may restrict or prohibit activities of Occidental or its contractors, increase Occidental's costs or reduce demand for Occidental's products. In addition, violation of certain governmental laws and regulations may result in strict, joint and several liability and the imposition of significant civil and criminal fines and penalties.



Ø Refusal of, or delay in, the extension or grant of exploration, development or production contracts.

Development delays and cost overruns due to approval delays for, or denial of, drilling, construction, environmental and other regulatory approvals, permits and authorizations.

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.

Occidental’s oil and gas business operates in highly competitive environments, which affect, among other things, its ability to make acquisitions to grow production and replace reserves.

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; (ii) may be willing to accept greater risks; (iii) have greater access to capital; (iv) have substantially larger staffs; or (v) have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay of reserve replacement efforts. 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.

In addition, Occidental’s acquisition activities carry risks that it may: (i) not fully realize anticipated benefits due to less-than-expected reserves or production or changed circumstances, such as declines in crude oil, NGL, and gas 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) assume 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, workover and remedial costs, assumed effects of regulation by governmental 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, crude oil, natural gas and NGL 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, natural gas and NGL, increases or decreases in consumption of oil, natural gas and NGL and changes in governmental regulations or taxation.

## Concerns about climate change and further regulation of greenhouse gas emissions may adversely affect Occidental’s operations or results.

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 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. For example, the EPA issued rules restricting methane emissions from hydraulically fractured and refracted gas wells, compressors, pneumatic controls, storage vessels, and natural gas processing plants.

In the absence of federal legislation to significantly reduce emissions of greenhouse gases to date, many state governments have 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, such as 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 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 and other products produced by Occidental's 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, results of operations, cash flows and reserves.

There also have been efforts in recent years to influence the investment community, including investment advisers and certain sovereign wealth, pension and endowment funds 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. 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. We have been named in certain private litigation relating to these matters.

It is difficult to predict the timing and certainty of such government actions and the 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's oil, NGL, natural gas and other products.

## Occidental’s businesses may experience catastrophic events.

The occurrence of events such as hurricanes, floods, droughts, earthquakes or other acts of nature, well blowouts, 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:

Damage to and destruction of property and equipment;

Damage to natural resources;

Pollution and other environmental damage, including spillage or mishandling of recovered chemicals or fluids;

Regulatory investigations and penalties;

Loss of well location, acreage, expected production and related reserves;

Suspension or delay of our operations;

Substantial liability claims; and

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.

## Cyber-attacks could negatively affect Occidental.

The oil and gas industry is increasingly dependent on 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. 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 reporting financial results, resulting in the unintentional disclosure of company, partner, customer, employee information, or damage to our reputation. A cyber-attack involving our information or industrial control systems and 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:

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;

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;

Data corruption, communication or systems interruption, or operational disruptions of production-related infrastructure could result in a loss of production, or accidental discharge;

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 and ultimately loss of revenue;

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;

A cyber-attack on third-party gathering, pipeline, or other transportation systems could delay or prevent us from transporting and marketing our production, resulting in loss of revenue;

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, resulting in loss of revenue;

A cyber-attack that halts activities at a power generation facility or refinery using natural gas as feed stock could have a significant impact on the natural gas market;

A cyber-attack on a communications network or power grid could cause operational disruption resulting in loss of revenue;

A cyber-attack on our automated and surveillance systems could cause a loss in production and potential environmental hazards;

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

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, 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 Occidental has experienced cyber-attacks in the past, Occidental has not suffered any material losses. However, if in the future Occidental'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, Occidental may be required to expend additional resources in order to continue to enhance Occidental's cyber security measures and to investigate and remediate any digital and operational systems, related infrastructure, technologies and network security 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.
Occidental's oil and gas reserve additions may not continue at the same rate and a failure to replace reserves may negatively affect Occidental's business.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless Occidental conducts successful exploration or development activities, acquires properties containing proved reserves, or both, proved reserves will generally 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 continue as main sources for reserve additions but factors such as geology, government regulations and permits, the effectiveness of development plans and the ability to make the necessary capital investments or acquire capital are partially or fully outside management's control and could cause results to differ materially from expectations.

## Other risk factors.

Additional discussion of risks and uncertainties related to price and demand, litigation, environmental matters, oil, natural gas and NGL reserves estimation processes, impairments, derivatives, market risks and internal controls appears under the headings: "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Market Information, Holders and Dividend Policy," "MD&A — Oil and Gas Segment — Business Environment," "— Proved Reserves" and "— Industry Outlook," "— Chemical Segment — Industry Outlook," "— Midstream and Marketing Segment — Industry Outlook," "— Lawsuits, Claims and Contingencies," "— Environmental Liabilities and Expenditures," "— Critical Accounting Policies and Estimates," "— Quantitative and Qualitative Disclosures About Market Risk," and "Management's Annual Assessment of and Report on Internal Control Over Financial Reporting."

The risks described in this report are not the only risks facing Occidental and other risks, including risks deemed immaterial, may have material adverse effects.

## ITEM 1B UNRESOLVED STAFF COMMENTS

None.

## ITEM 3 LEGAL PROCEEDINGS

For information regarding legal proceedings, see the information under the caption "Lawsuits, Claims, Commitments and Contingencies" in the MD&A section of this report and in Note 10 to the Consolidated Financial Statements.

## ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.



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