Occidental Petroleum 2001 Annual Report Download - page 37

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statement. The $39 million net gain represents a reversal of negative
mark-to-market adjustments resulting from the adoption of SFAS No. 133, as
amended.
At December 31, 2001, total assets and liabilities include $108 million and
$101 million for the fair value of derivative instruments used in marketing and
trading operations.
Prior to the physical settlement of any energy contract held for trading
purposes, favorable or unfavorable price movement is reported in the income
statement. An offsetting amount is recorded on the balance sheet as unrealized
gains or unrealized losses on trading transactions. When a contract to sell
energy is physically settled, the above entries are reversed and the gross
amount invoiced to the customer is included as net sales in the income
statement. Similarly, when a contract to purchase energy is physically settled,
the purchase price is included as cost of sales in the income statement. Until a
contract is physically settled, the unrealized gain or loss is reclassified to a
receivable or payable account. Other than the positive effect on oil and gas
realized prices, the results of trading activities are not significant.
RECONCILIATION OF FAIR VALUE OF CONTRACTS FROM
JANUARY 1, 2001 TO DECEMBER 31, 2001 (in millions)
======================================================================
Fair value of contracts outstanding at January 1, 2001 $ (66)
Contracts realized or otherwise settled during the period
gains/(losses) (30)
Changes in fair value attributable to changes in valuation
techniques and assumptions --
Other changes in fair values 103
-------
Fair value of contracts outstanding at December 31, 2001 $ 7
=======
Maturity Periods
-------------------------------------------------------
2007 Total
Source of 2003 2005 and Fair
Fair Value 2002 to 2004 to 2006 thereafter Value
=============== ========== ========== ========== ========== ==========
Prices actively
quoted $ (12) $ -- $ -- $ -- $ (12)
Prices
provided by
other
external
sources 20 1 -- -- 21
Prices based
on models
and other
valuation
methods -- (1) (1) -- (2)
---------- ---------- ---------- ---------- ----------
TOTAL $ 8 $ -- $ (1) $ -- $ 7
=============== ========== ========== ========== ========== ==========
GAS PRESALE
In November 1998, Occidental entered into a natural gas delivery commitment
for proceeds of $500 million, which obligates Occidental to deliver 263 billion
cubic feet of natural gas over a four-year period ending in December 2003. This
transaction resulted in less expensive financing and enables Occidental to
satisfy the delivery commitment at a fixed price with open market purchases
without reducing its own natural gas reserves. The imputed interest rate in the
transaction is approximately 6 percent. The current portion of Occidental's
natural gas delivery commitment ($137 million at December 31, 2001) is shown as
a current liability on Occidental's consolidated balance sheets. The present
value of the non-current commitment ($145 million at December 31, 2001) is shown
under deferred credits and other liabilities on Occidental's consolidated
balance sheets. In connection with this transaction, Occidental simultaneously