Occidental Petroleum 2002 Annual Report Download - page 59

Occidental expects to expend funds equivalent to about half of the current
environmental reserve over the next three years and the balance over the next
ten or more years.
DISMANTLEMENT, RESTORATION AND RECLAMATION COSTS
For offshore production, the estimated future abandonment costs of oil and
gas properties and removal costs for platforms, net of salvage value, are
accrued over their operating lives. Such costs are calculated at
unit-of-production rates based upon estimated proved recoverable reserves and
are taken into account in determining depreciation, depletion and amortization.
For onshore production, Occidental assumes that the salvage value of the oil and
gas property will equal the dismantlement restoration and reclamation costs so
no accrual is necessary. For the chemical segment, appropriate reserves are
provided when a decision is made to dispose of a property, since Occidental
makes capital renewal expenditures on a continual basis while an asset is in
operation. Reserves for dismantlement, restoration and reclamation costs are
included in accrued liabilities and in other noncurrent liabilities and amounted
to $0 million and $14 million, respectively, at December 31, 2002, and amounted
to $1 million and $21 million, respectively, at December 31, 2001. (See
"Accounting Changes" in Note 4.)
DERIVATIVE INSTRUMENTS
Occidental accounts for its derivatives under the provisions of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended
by SFAS No. 137 and SFAS No. 138 (collectively SFAS No. 133). Under SFAS No.
133, recognition of the gain or loss that results from recording and adjusting a
derivative to fair market value depends on the purpose for issuing or holding
the derivative. Gains and losses from derivatives that are not designated as
hedges are recognized immediately in earnings. A hedge is considered effective
if changes in its value are offset exactly by changes in the value of the item
being hedged. A hedge is ineffective to the extent changes in its value are not
matched by offsetting changes in value for the item being hedged. If a
derivative is used to hedge the fair value of an asset or liability (fair value
hedge), the gains or losses from adjusting the derivative to its market value
are recognized in earnings immediately and to the extent the hedge is effective,
offset the concurrent recognition in earnings of changes in the fair value of
the hedged item. Gains or losses from derivatives used to hedge future cash
flows are recorded on the balance sheet in accumulated other comprehensive
income (OCI), a component of stockholders' equity, until the transaction that is
hedged is recognized in earnings. However, to the extent the value of the
derivative differs from the value of the anticipated cash flows of the hedged
transaction, the hedge is considered partly ineffective and the resulting gains
or losses are recognized immediately in earnings.
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FINANCIAL INSTRUMENTS
Occidental values financial instruments as required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The carrying amounts of
cash and cash equivalents and short-term notes payable approximate fair value
because of the short maturity of those instruments. The carrying value of other
on-balance sheet financial instruments other than debt approximates fair value
and the cost, if any, to terminate off-balance sheet financial instruments is
not significant.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments, net of refunds, during the years 2002, 2001 and 2000
included federal, foreign and state income taxes of approximately $111 million,
$408 million and $682 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $250 million, $389 million and $516 million
for the years 2002, 2001 and 2000, respectively. (See Note 3 for detail of
noncash investing and financing activities regarding certain acquisitions).
NOTE 2 DERIVATIVE ACTIVITIES INCLUDING FAIR VALUE OF FINANCIAL INSTRUMENTS