Occidental Petroleum 2003 Annual Report Download - page 36

operation and maintenance, the development of more effective treatment
technology, or acceptance of alternative and more cost-effective treatment
methodologies such as bio-remediation, could significantly affect
remediation costs.
>> Laws and regulations might change to impose more or less stringent
remediation requirements.
At sites involving multiple parties, Occidental provides environmental
reserves based upon its expected share of liability. When other parties are
jointly liable, the financial viability of the parties, the degree of their
commitment to participate and the consequences to Occidental of their failure to
participate are evaluated when estimating Occidental's ultimate share of
liability. Based on these factors, Occidental believes that it will not be
required to assume a share of liability of other potentially responsible
parties, with whom it is alleged to be jointly liable, in an amount that would
have a material effect on Occidental's consolidated financial position,
liquidity or results of operations.
Most cost sharing arrangements with other parties fall into one of the
following three categories:
Category 1: CERCLA or state-equivalent sites wherein Occidental and other
alleged potentially responsible parties share the cost of remediation in
accordance with negotiated or prescribed allocations;
Category 2: Oil and gas joint ventures wherein each joint venture partner
pays its proportionate share of remedial cost; and
Category 3: Contractual arrangements typically relating to purchases and
sales of property wherein the parties to the transaction agree to methods of
allocating the costs of environmental remediation.
In all three of these categories, Occidental records as a reserve its
expected net cost of remedial activities, as adjusted by recognition for any
non-performing parties.
In addition to the costs of investigating and implementing remedial
measures, which often take in excess of ten years at CERCLA sites, Occidental's
reserves include management's estimates of the cost of operation and maintenance
of remedial systems. To the extent that the remedial systems are modified over
time in response to significant changes in site-specific data, laws,
regulations, technologies or engineering estimates, Occidental reviews and
changes the reserves accordingly on a site-specific basis.
If the environmental reserve balance were to either increase or decrease
based on the factors mentioned above, the amount of the increase or decrease
would be immediately recognized in earnings. For example, if the reserve balance
were to decrease by 10 percent, Occidental would record a pre-tax gain of $37
million. If the reserve balance were to increase by 10 percent, Occidental would
record an additional remediation expense of $37 million.
OTHER LOSS CONTINGENCIES
Occidental is involved with numerous lawsuits, claims, proceedings and
audits in the normal course of its operations. Occidental records a loss
contingency for these matters when it is probable that an asset has been
impaired or a liability has been incurred and the amount of the loss can be
reasonably estimated. In addition, Occidental discloses, in aggregate, its
exposure to loss in excess of the amount recorded on the balance sheet for these
matters if it is reasonably possible that an additional material loss may be
incurred. Occidental reviews its loss contingencies on an on-going basis so that
they are adequately reserved on the balance sheet.
These reserves are based on judgments made by management with respect to
the likely outcome of these matters and are adjusted as appropriate.
Management's judgments could change based on new information, changes in laws or
regulations, changes in management's plans or intentions, the outcome of legal
proceedings, settlements or other factors.
SIGNIFICANT ACCOUNTING CHANGES
Listed below are significant changes in Occidental's accounting principles.
SFAS NO. 132 REVISED
In December 2003, the FASB issued a revision to SFAS No. 132, "Employers
Disclosures about Pensions and Other Postretirement Benefits" to improve
financial statement disclosures for defined benefit plans. The standard requires