Occidental Petroleum 2002 Annual Report Download - page 36

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Occidental was a party to a series of forward interest-rate locks, which
qualified as cash-flow hedges. The hedges were related to the construction of a
cogeneration plant that was completed in December 2002 and leased by Occidental
concurrently. The associated loss on the hedges through December 2002 is
approximately $21 million after-tax, which is recorded in accumulated Other
Comprehensive Income (OCI) and will be recognized in earnings over the lease
term of 26 years on a straight-line basis.
Certain of Occidental's equity investees have entered into additional
derivative instruments that qualified as cash-flow hedges. Occidental reflects
its proportionate share of these cash-flow hedges in OCI.
TABULAR PRESENTATION OF INTEREST RATE RISK
In millions of U.S. dollars, except rates
U.S. Dollar U.S.Dollar
Year of Maturity Fixed Rate Variable Rate (a) Grand Total (a,b)
========================= =============== =============== ===============
2004 $ 323 $ -- $ 323
2005 -- 157 157
2006 346 450 796
2007 250 300 550
2008 10 395 405
Thereafter 1,553 115 1,668
--------------- --------------- ---------------
TOTAL $ 2,482 $ 1,417 $ 3,899
=============== =============== ===============
Average interest rate 7.44% 3.01% 5.83%
=============== =============== ===============
Fair Value $ 2,953 $ 1,581 $ 4,534
========================= =============== =============== ===============
(a) Includes fixed-rate debt with fair-value hedges but excludes $106 million
of mark-to- market adjustments related to such hedges.
(b) Excludes $8 million of unamortized discounts.
CREDIT RISK
Occidental's energy contracts are spread among numerous counterparties.
Creditworthiness is reviewed before doing business with a new counterparty and
on an ongoing basis. Occidental monitors aggregated counterparty exposure
relative to credit limits, and manages credit-enhancement issues. Credit
exposure for each customer is monitored for outstanding balances, current month
activity, and forward mark-to-market exposure.
FOREIGN CURRENCY RISK
Several of Occidental's foreign operations are located in countries whose
currencies generally depreciate against the U.S. dollar on a continuing basis.
Typically, effective currency forward markets do not exist for these countries.
Therefore, Occidental attempts to manage its exposure primarily by balancing
monetary assets and liabilities and maintaining cash positions only at levels
necessary for operating purposes. Generally,
24
international crude oil sales are denominated in U.S. dollars. Additionally, all
of Occidental's oil and gas foreign entities have the U.S. dollar as the
functional currency. However, in one foreign chemical subsidiary where the local
currency is the functional currency, Occidental has exposure on U.S.
dollar-denominated debt that is not material. At December 31, 2002 and 2001,
Occidental had not entered into any foreign currency derivative instruments. The
effect of exchange-rate transactions in foreign currencies is included in
periodic income.
DERIVATIVE AND FAIR VALUE DISCLOSURES