Occidental Petroleum 2003 Annual Report Download - page 35

chemical plants were to decrease based on the factors mentioned above, the most
significant impact would be on depreciation expense. For example, a reduction in
the remaining useful lives of 20 percent would increase depreciation and reduce
pre-tax earnings by approximately $50 million per year.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
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
the reserves and the reasonably possible range of loss, Occidental refers to
currently available information, including relevant past experience, available
technology, regulations in effect, the timing of remediation and cost-sharing
arrangements. The environmental reserves are based on management's estimate of
the most likely cost to be incurred and are reviewed periodically and adjusted
as additional or new information becomes available. For the years ended December
31, 2003 and 2002, Occidental has not accrued any reimbursements or
indemnification recoveries for environmental remediation matters as assets.
Recoveries and reimbursements are recorded in income when receipt is probable.
Environmental reserves are recorded on a discounted basis only when a reserve is
initially established and the aggregate amount of the estimated costs for a
specific site and the timing of cash payments are reliably determinable. The
reserve methodology for a specific site is not modified once it has been
established.
Many factors could result in changes to Occidental's environmental reserves
and reasonably possible range of loss. The most significant are:
>> The original cost estimate may have been inaccurate.
>> Modified remedial measures might be necessary to achieve the required
remediation results. Occidental generally assumes that the remedial
objective can be achieved using the most cost-effective technology
reasonably expected to achieve that objective. Such technologies may
include air sparging or phyto-remediation of shallow groundwater, or
limited surface soil removal or in-situ treatment producing acceptable risk
assessment results. Should such remedies fail to achieve remedial
objectives, more intensive or costly measures may be required.
24
>> The remedial measure might take more or less time than originally
anticipated to achieve the required contaminant reduction. Site-specific
time estimates can be affected by factors such as groundwater capture
rates, anomalies in subsurface geology, interactions between or among
water-bearing zones and non-water-bearing zones, or the ability to identify
and control contaminant sources.
>> The regulatory agency might ultimately reject or modify Occidental's
proposed remedial plan and insist upon a different course of action.
Additionally, other events might occur that could affect Occidental's
future remediation costs, such as:
>> The discovery of more extensive contamination than had been originally
anticipated. For some sites with impacted groundwater, accurate definition
of contaminant plumes requires years of monitoring data and computer
modeling. Migration of contaminants may follow unexpected pathways along
geologic anomalies that could initially go undetected. Additionally, the
size of the area requiring remediation may change based upon risk
assessment results following site characterization or interim remedial
measures.
>> Improved remediation technology might decrease the cost of remediation. In
particular, for groundwater remediation sites with projected long-term