Occidental Petroleum 2001 Annual Report Download - page 6

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half of 2003.
RESERVES, PRODUCTION AND RELATED INFORMATION
See Note 16 to the Consolidated Financial Statements and the information
under the caption "Supplemental Oil and Gas Information" in Item 8 of this
report for information regarding Occidental's oil and gas reserves, the
production from and other changes in these reserves, the discounted present
value of estimated future net cash flows from these reserves, certain costs and
other financial and statistical information regarding Occidental's oil and gas
exploration and production operations. Estimates of reserves have been made by
Occidental engineers and include reserves under which Occidental holds an
economic interest under service contracts and other arrangements. Occidental's
crude oil reserves include natural gas liquids and condensate. The reserves are
stated after applicable royalties. The definitions used are in accordance with
applicable Securities and Exchange Commission regulations. Accordingly, proved
oil and gas reserves are those estimated quantities of crude oil, natural gas
and natural gas liquids that geological and engineering data demonstrate, with
reasonable certainty, will be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Unless otherwise stated,
all references to reserves are made on a net basis. On May 1, 2001, Occidental
reported to the U.S. Department of Energy on Form EIA-28 proved oil and gas
reserves at December 31, 2000.
CHEMICAL OPERATIONS
GENERAL
Occidental conducts its chemical operations through Occidental Chemical
Corporation and its various subsidiaries and affiliates (collectively, OxyChem).
OxyChem is a chemical manufacturer, with interests in basic chemicals, vinyls,
petrochemicals and performance chemicals. OxyChem's operations are affected by
cyclical economic factors and by specific chemical-industry conditions.
5
OxyChem's products are commodity in nature. They are equivalent to products
manufactured by others that are generally available in the marketplace and are
produced and sold in large volumes to industrial customers for use as raw
materials. Many of OxyChem's products are both sold to others and further
processed by OxyChem into other chemical products. OxyChem's operations are
affected by environmental regulation and associated costs. See the information
appearing under the caption "Environmental Expenditures" in the MD&A section of
this report.
ALLIANCES AND STRATEGIC DEVELOPMENTS
In 1998, Occidental became a partner in Equistar by contributing certain
assets. Lyondell owns 41 percent of Equistar, while Millennium Chemicals, Inc.
and Occidental each own 29.5 percent. Equistar is one of the largest producers
of ethylene, propylene and polyethylene in the world today with an annual
capacity of more than 11 billion pounds of ethylene and more than six billion
pounds of polyethylene.
In January 2002, Occidental and Lyondell agreed in principle for Occidental
to sell its share of Equistar to Lyondell and to purchase an equity interest of
approximately 21 percent in Lyondell. These transactions are subject to the
execution of definitive documents and corporate and regulatory approvals. In
connection with the agreement in principle, Occidental wrote down its investment
in the Equistar partnership by $240 million, after tax, in December 2001. The
transactions are expected to close in the second quarter of 2002.
Because of decreased demand for its products and deteriorating prices, on
June 1, 2001, OxyChem temporarily idled the Ingleside, TX EDC plant and on
December 27, 2001, OxyChem temporarily idled the Deer Park chlor-alkali plant in
Houston, TX. These facilities will remain idle until market conditions improve.
In June 2000, OxyChem announced its decision to withdraw from several of
its chemical intermediates businesses principally located in Niagara Falls, NY
and Ashtabula, OH. As part of the initiative, OxyChem sold its Chlorowax(R)
chlorinated paraffins business in October 2000 and the Ashtabula facility in
June 2001. Although a few products continue to be manufactured for sale, almost