Occidental Petroleum 2002 Annual Report Download - page 57

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warranted, depends upon the nature, timing and extent of future exploration and
development activities and their results. Occidental believes its exploration
and development efforts will allow it to fully realize the unproved property
balance.
The estimated useful lives of Occidental's chemical assets, which range
from 3 years to 50 years, are used to compute depreciation expense and are also
used for impairment tests. The estimated useful lives used for the chemical
facilities were based on the assumption that Occidental would provide an
appropriate level of annual capital expenditures while the plants are still in
operation. Without these continued capital expenditures, the useful lives of
these plants could significantly decrease. Other factors which could change the
estimated useful lives of Occidental's chemical plants include higher or lower
product prices, feedstock costs, energy prices, environmental regulations,
competition and technological changes.
Occidental is required to perform impairment tests on its chemical assets
whenever events or changes in circumstances lead to a reduction in the estimated
useful lives or estimated future cash flows that would indicate that its
carrying amount may not be recoverable, or when management's plans change with
respect to those assets. Under the provisions of SFAS No. 144, Occidental must
compare the undiscounted future cash flows of an asset to its carrying value.
The key factors which could significantly affect future cash flows are future
product prices, feedstock costs, energy costs and remaining estimated useful
life.
Due to a temporary decrease in demand for some of its products, Occidental
has temporarily idled an EDC plant in June 2001, and a chlor-alkali plant in
December 2001. These facilities will remain idle until market conditions
improve. Management expects that both of these plants will become operational in
the future. The net book value of these two plants was $150 million at December
31, 2002. These facilities were tested for impairment at the time they were
temporarily idled and, based on the results, no impairment was deemed necessary
for these two facilities. Occidental continues to depreciate these facilities
based on their remaining estimated useful lives.
Occidental's chemical plants are depreciated using either the
unit-of-production or straight-line method based upon the estimated useful life
of the facilities.
OTHER ASSETS
Other assets include tangible and intangible assets, certain of which are
amortized over the estimated periods to be benefited.
NOTES PAYABLE
Notes payable at December 31, 2001 consisted of short-term notes due to
financial institutions and other corporations. The weighted average interest
rate on short-term borrowings outstanding as of 2001 was 2.9 percent.
ACCRUED LIABILITIES--CURRENT
Accrued liabilities include the following (in millions):
Balance at December 31, 2002 2001
================================================================= ========== ==========
Accrued payroll, commissions and related expenses $ 159 $ 143
Accrued environmental reserves $ 84 $ 96
Derivative financial instruments $ 115 $ 102
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ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Reserves for estimated costs that relate to
existing conditions caused by past operations and that do not contribute to
current or future revenue generation are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining