Occidental Petroleum 2002 Annual Report Download - page 26

the pipeline company's senior project debt totaled $101 million, and the
completion bonds and other bonds totaled $17 million at December 31, 2002. As
Occidental ships product using the pipeline, its overall obligations will
decrease with the reduction of the pipeline company's senior project debt.
ELK HILLS POWER
Occidental and Sempra Energy (Sempra) each has a 50-percent interest in Elk
Hills Power LLC, a limited liability company that is currently constructing a
gas-fired, power-generation plant in California. Occidental accounts for this
investment using the equity method. In January 2002, Elk Hills Power LLC entered
into a $400 million construction loan facility. Occidental guarantees $200
million (50 percent) of the loan facility. At December 31, 2002, approximately
$162 million of debt guaranteed by Occidental was outstanding.
* CHEMICAL TRANSACTIONS
TAFT COGENERATION FACILITY
Occidental is leasing a cogeneration facility which was completed in 2002.
This facility supplies all the steam and electric power requirements for
Occidental's Taft chlor-alkali plant at a lower cost than if the plant were to
generate its own steam and purchase electricity from a public utility. An owner
trust with investors as participating beneficiaries owns the project. The equity
participants in the owner trust funded the owner trust with equity during
construction in the amount of three percent of the cumulative project costs
throughout the period and in an amount in excess of 14 percent of the final
project costs upon the commencement of the lease term. In connection with the
completion of construction and satisfaction of certain other conditions, the
26-year term of the operating lease commenced in December 2002. At December 31,
2002, Occidental estimates the present value of the remaining lease payments to
be $455 million.
LEASES
Occidental has entered into various operating lease agreements, mainly for
railcars, power plants, 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 that were available at the time financing decisions were made. Lease
payments are charged to Occidental's operations, mainly as cost of sales.
The accounting treatment for the leases described above, including the Taft
lease, is dictated by Statement of Financial Accounting Standards (SFAS) No. 13
and other related pronouncements issued by the Financial Accounting Standards
Board (FASB). These leases have been classified as operating leases in
accordance with the operating lease criteria. As discussed under "Additional
Accounting Changes" (below), FASB Interpretation (FIN) No. 46 is expected to
result in the consolidation of certain variable interest entities that are
owners of plant and equipment Occidental leases from them. The probable
consolidation would affect the LaPorte, Texas VCM plant lease. If consolidation
were to take place, there would be no significant effect on Occidental's
financial condition; however, consolidation would result in an increase in
assets of approximately $132 million and liabilities of $154 million, with an
after-tax charge of approximately $22 million in the third quarter of 2003 that
would be recorded as a cumulative effect of a change in accounting principles.
Annual expense for depreciation would increase by approximately $12 million
pre-tax. If Occidental chose to terminate the leases prior to adoption, there
would be no cumulative effect of a change in accounting principles.
OXYMAR
Occidental has a 78.6-percent ownership interest (before minority interest)
in OxyMar. Occidental owns 28.6 percent of OxyMar directly and the OxyVinyls
partnership, which is 76-percent owned by Occidental, owns 50 percent.
Therefore, after minority interest, Occidental's effective ownership interest is
67 percent. 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
significant economic benefit from OxyMar's operations as the supplier of certain
products to OxyMar. OxyMar, in turn, supplies VCM required by Occidental to
manufacture PVC. This investment in OxyMar is recorded as an equity investment
on the consolidated balance sheet. Occidental guarantees 50 percent of OxyMar's