Occidental Petroleum 2003 Annual Report Download - page 27

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operations. The decrease in accrued liabilities is due to lower mark-to-market
adjustments on derivative financial instruments. The decrease in dividends
payable is due to the fact that at the end of 2002, there were two quarters of
dividend accruals due to an early declaration in 2002 of a dividend paid in
2003. At June 30, 2003, pursuant to the adoption of SFAS No. 150, the trust
preferred securities were reclassified to long-term liabilities. At year-end
2003, they were further reclassified to current liabilities as Occidental
announced its intention to redeem all of the trust preferred securities. On
January 20, 2004, all of the trust preferred securities were redeemed. Other
deferred credits and liabilities include deferred compensation, other
post-retirement benefits, environmental remediation reserves, asset retirement
obligations and other deferred items. The increase in other deferred credits and
liabilities in 2003, compared to 2002, was primarily due to the asset retirement
obligation that was recorded in connection with the adoption of SFAS No. 143.
The increase in stockholders' equity primarily reflects net income and issuance
of new stock related to options exercised, partially offset by dividends on
common stock.
OFF-BALANCE-SHEET ARRANGEMENTS
In the course of its business activities, Occidental pursues a number of
projects and transactions to meet its core business objectives. The accounting
and financial statement treatment of these transactions is a result of the
varying methods of funding employed. Occidental also makes commitments on behalf
of unconsolidated entities. These transactions, or groups of transactions, are
recorded in compliance with generally accepted accounting principles and, unless
otherwise noted, are not reflected on Occidental's balance sheets. The following
is a description of the business purpose and nature of these transactions.
DOLPHIN PROJECT
See discussion of the Dolphin Project in the "Business Review - Oil and
Gas, Middle East" section of the MD&A above.
ECUADOR
In Ecuador, Occidental has a 14-percent interest in the OCP oil export
pipeline. 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 pipeline. Occidental made capital contributions of $64 million
in 2003 and as of December 31, 2003, has contributed a total of $73 million to
the project. Occidental reports this investment in its consolidated statements
using the equity method of accounting.
The project was 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 operating risk and
force-majeure risk. Occidental would be required to make an advance tariff
payment in the event of 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 $108 million, and
Occidental's obligations relating to performance bonds totaled $14 million at
December 31, 2003. As Occidental ships product using the pipeline, its overall
obligations will decrease with the reduction of the pipeline company's senior
project debt.
ELK HILLS POWER
Occidental has a 50-percent interest in Elk Hills Power LLC (EHP), a
limited liability company that operates a gas-fired, power-generation plant in
California. EHP is a variable-interest entity (VIE) under the provisions of FIN
46. Occidental has concluded it is not the primary beneficiary of EHP and,
therefore, accounts for this investment using the equity method. In January
2002, EHP entered into a $400 million construction loan facility, which was
amended in May 2003 to increase the facility to $425 million. Upon construction
completion on July 17, 2003, the facility converted to a $415 million term loan,
50 percent of which is guaranteed by Occidental.