Occidental Petroleum 2003 Annual Report Download - page 15

approximately 1 percent of its worldwide assets, 2 percent of its total
worldwide reserves and about 6 percent of its worldwide oil and gas production
in 2003. Occidental anticipates that it will recover the proved reserves
attributable to its contract.
ECUADOR
Net production in Block 15, which Occidental operates with a 60-percent
working interest, averaged approximately 25,000 barrels of oil per day in 2003.
In the second half of 2003, the increased production from the Eden-Yuturi
oil field in the southeastern corner of Block 15 coincided with the completion
of the Oleoducto de Crudos Pesados (OCP) Ltd. oil export pipeline, in which
Occidental has a 14-percent interest. Full field development of the Eden-Yuturi
oil field is underway with continued development drilling planned in 2004. In
addition, work continues in the producing areas in the western portion of the
block at the Indillana complex and the Yanaquincha and Limoncocha fields. These
projects are expected to increase production by 20,000 barrels per day, for a
total net production of 45,000 barrels per day in 2004.
In addition, Occidental has completed extensive 3-D seismic surveys and
plans to continue expanding its exploration activities in Block 15 in 2004.
Foreign oil companies, including Occidental, have been paying a Value Added
Tax (VAT), generally calculated on the basis of 10 to 12 percent of expenditures
for goods and services used in the production of oil for export. Until 2001, oil
companies, like other companies producing products for export, filed for and
received reimbursement of VAT. In 2001, the Ecuador tax authority announced that
the oil companies' VAT payments did not qualify for reimbursement. In response,
the affected oil companies filed actions in the Ecuador Tax Court to seek a
judicial determination that the expenditures are subject to reimbursement. In
November 2002, Occidental initiated an international arbitration proceeding
against the Ecuadorian Government under the United States-Ecuador bilateral
investment treaty based on Occidental's belief that the Ecuadorian Government is
arbitrarily and discriminatorily refusing to refund the VAT to Occidental.
Arbitration proceedings continue at present. Occidental believes that it has a
valid claim for reimbursement under applicable Ecuador tax law and the treaty.
In the event of an unfavorable outcome, the potential financial statement effect
would not be significant.
PRODUCTION-SHARING CONTRACTS
Occidental conducts its operations in Qatar, Oman and Yemen under
production-sharing contracts and, under such contracts, receives a share of
production to recover its costs and an additional share for profit. Occidental's
share of production from these contracts decreases when oil prices rise and
increases when oil prices decline. Overall, Occidental's net economic benefit
from these contracts is greater at higher oil prices.
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CHEMICAL
CHLOR-ALKALI
Demand for chlor-alkali products improved throughout the first half of 2003
with combined chlorine and caustic soda prices peaking about mid-year. However,
as supply and demand shifted to a more balanced position, prices softened in the
latter part of the year. OxyChem's chlor-alkali operating rate for 2003 was 90
percent, approximately matching the industry. Domestic caustic soda pricing
improved in the second quarter, but then fell to its lowest level of the year in
the fourth quarter. Export pricing for caustic soda remained weak throughout the
year as the worldwide supply exceeded demand, exerting downward pressure on
pricing.
OxyChem maintained its Deer Park chlor-alkali production facility in
Houston, Texas and its EDC facility in Ingleside, Texas in standby mode. In June
2003, OxyChem idled a circuit which produced chlorine and caustic soda at its
Delaware City plant. These idle facilities will be reactivated upon
strengthening in overall economic conditions that leads to improved demand and
higher margins for caustic soda.
VINYLS