Occidental Petroleum 2001 Annual Report Download - page 28

acting as general contractor during construction. The equity participant in the
owner trust has committed to fund the owner trust with equity in the amount of
three percent of the total project cost during construction and 13 percent of
the total project cost upon commencement of the lease term. During the
construction period, Occidental is fully liable for total project costs if an
event of termination occurs due to its
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willful misconduct or bankruptcy, and Occidental is liable to pay up to 89.9
percent of the eligible construction costs if an event of termination occurs for
reasons other than force majeure. Upon completion of construction and
satisfaction of certain other conditions, expected to occur by December 31,
2002, Occidental will enter into a 26-year operating lease of the facility. The
total cost of the project at the inception of the lease is expected to be
approximately $450 million. The total accumulated costs of the project as of
December 31, 2001 amount to approximately $328 million. If these costs were
recorded as liabilities on Occidental's balance sheet, either during
construction or during the lease term, the Taft cogeneration facility would also
be recorded as an asset on the balance sheet.
LEASES
Occidental has entered into various operating lease agreements, mainly for
railcars, manufacturing facilities and office space. The leased assets are used
in Occidental's operations where leasing offers advantages of greater operating
flexibility and generally costs less than alternative methods of funding. Lease
payments are charged to Occidental's operations, mainly as cost of sales.
Occidental estimates the present value of the remaining lease payments to be
$310 million at December 31, 2001. Occidental has fixed-price purchase options
associated with certain leases at various dates ranging from 2003 to 2015, with
an estimated present value of $285 million. These obligations are not recorded
as liabilities on Occidental's consolidated balance sheets. If they were so
recorded, the leased properties also would be included on the balance sheets as
assets.
OXYMAR
Occidental has a 78.6-percent ownership interest in OxyMar, a general
partnership that owns a vinyl chloride monomer (VCM) facility in Texas operated
by OxyChem. Marubeni Corporation (Marubeni) owns the remaining 21.4 percent of
OxyMar, but has a 50-percent voting interest. The OxyMar VCM plant is a modern,
efficient manufacturing facility. Occidental's chlorovinyls business derives
economic benefit as the supplier of chlorine, a major raw material, to OxyMar.
OxyMar, in turn, supplies VCM required by Occidental to manufacture PVC, one of
its major products. This investment in OxyMar is recorded as an equity
investment on the consolidated balance sheet. Occidental owns 28.6 percent of
OxyMar directly and the OxyVinyls partnership, which is 76-percent owned by
Occidental, owns 50 percent. Therefore, because of the effect of a third party's
minority ownership interest, Occidental's total share of OxyMar's results is
only approximately 67 percent. Occidental guarantees 50 percent of OxyMar's $165
million private placement bonds due 2016 and 100 percent of a $220 million
revolving line of credit which matures in 2005, under which $105 million was
outstanding at December 31, 2001. These amounts are reflected as debt on
OxyMar's balance sheet. Marubeni has a right to put its interest in OxyMar to
Occidental in 2004 by paying approximately $30 million to Occidental and, in
connection with this transfer, require Occidental to assume Marubeni's guarantee
of OxyMar's debt. If Occidental acquires the Marubeni interest, it will
consolidate OxyMar. If OxyMar were to be consolidated, its assets, including the
VCM facility, and its liabilities, including debt to third parties, would be
recorded on Occidental's consolidated balance sheets. As of December 31, 2001,
Occidental had advanced $144 million to OxyMar and had a net equity investment
of $52 million.
INGLESIDE
Occidental and Conoco Inc. (Conoco) each has a 50-percent interest in
Ingleside Cogeneration Limited Partnership, a limited partnership (Ingleside
LP), which operates a cogeneration plant in Texas. The cogeneration facility
supplies all of the steam and electric power requirements to Occidental's
Ingleside chlor-alkali plant and the VCM plant Occidental owns with Marubeni, at
less cost than if these facilities were to produce their own steam and purchase