Occidental Petroleum 2002 Annual Report Download - page 87

Block 15. The development of Eden Yuturi, together with ongoing work in the
western portion of the block that is currently in production, is expected to add
net incremental production of 30,000 barrels per day in 2004, all of which is
expected to be transported through the new pipeline. Occidental has committed to
make capital contributions up to its share (currently estimated to be
approximately $64 million) of the estimated total project capital requirements.
As of December 31, 2002, Occidental has contributed $9 million to the project.
Occidental reports this investment in its consolidated statements using the
equity method of accounting.
This project is being funded in part by senior project debt. The senior
project debt is to be repaid with the proceeds of ship-or-pay tariffs of certain
upstream producers in Ecuador, including Occidental. Under their ship-or-pay
commitments, Occidental and the other upstream producers have each assumed their
respective share of project-specific risks, including construction risk,
operating risk and force-majeure risk. Occidental would be required to make an
advance tariff payment in the event of termination of the agreement authorizing
the pipeline company to build the pipeline, prolonged delay in project
completion, prolonged force majeure, upstream expropriation events, bankruptcy
of the pipeline company or its parent company, abandonment of the project,
termination of an investment guarantee agreement with Ecuador, or certain
defaults by Occidental. This advance tariff would be used by the pipeline
company to service or prepay project debt. Occidental's obligation relating to
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.
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.
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NOTE 15 INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
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In compliance with the provisions of SFAS No. 131--"Disclosures about
Segments of an Enterprise and Related Information," Occidental has identified
two reportable segments through which it conducts its continuing operations: oil
and gas and chemical. The factors for determining the reportable segments were
based on the distinct nature of their operations. They are managed as separate
business units because each requires and is responsible for executing a unique
business strategy. The oil and gas segment explores for, develops, produces and
markets crude oil and natural gas domestically and internationally. The chemical
segment manufactures and markets, domestically and internationally, basic
chemicals, vinyls and performance chemicals.
Earnings of industry segments and geographic areas exclude interest income,
interest expense, environmental remediation expenses, unallocated corporate
expenses, discontinued operations and cumulative effect of changes in accounting
principles, but include income from equity investments and gains and losses from
dispositions of segment and geographic area assets.
Foreign income and other taxes and certain state taxes are included in
segment earnings on the basis of operating results. U.S. federal income taxes
are not allocated to segments except for amounts in lieu thereof that represent
the tax effect of operating charges resulting from purchase accounting
adjustments, which arose from the implementation in 1992 of SFAS No. 109 -
"Accounting for Income Taxes," and the tax effects resulting from major,
infrequently occurring transactions such as asset sales and legal settlements
that relate to segment results.
Identifiable assets are those assets used in the operations of the
segments. Corporate assets consist of cash, short-term investments, certain
corporate receivables, an investment in Lyondell, an intrastate pipeline (sold
in the third quarter of 2001) and other assets.