Occidental Petroleum 2003 Annual Report Download - page 54

CHEMICAL
Occidental's chemical plants are depreciated using either the
unit-of-production or straight-line method based upon the estimated useful life
of the facilities.
The estimated useful lives of Occidental's chemical assets, which range
from 3 years to 50 years, are used to compute depreciation expense and are also
used for impairment tests. The estimated useful lives used for the chemical
facilities are based on the assumption that Occidental will provide an
appropriate level of annual expenditures to maintain the facilities in good
operating condition. Without these continued expenditures, the useful lives of
these plants could significantly decrease. Other factors which could change the
estimated useful lives of Occidental's chemical plants include higher or lower
product prices, which are particularly affected by both domestic and foreign
competition, feedstock costs, energy prices, environmental regulations,
competition and technological changes.
Occidental is required to perform impairment tests on its chemical assets
whenever events or changes in circumstances lead to a reduction in the estimated
useful lives or estimated future cash flows that would indicate that the
carrying amount may not be recoverable, or when management's plans change with
respect to those assets. Under the provisions of SFAS No. 144, Occidental must
compare the undiscounted future cash flows of an asset to its carrying value.
The key factors which could significantly affect future cash flows are future
product prices, which are particularly affected by both domestic and foreign
competition, feedstock costs, energy costs, significantly increased regulation
and remaining estimated useful life.
Due to a temporary decrease in demand for some of its products, Occidental
temporarily idled an ethylene dichloride (EDC) plant in June 2001, a
chlor-alkali plant in December 2001 and a portion of a chlor-alkali plant in
June 2003. These facilities will remain idle until market conditions improve.
Management expects that these plants will become operational in the future. The
net book value of these plants was $156 million at December 31, 2003. Based on
year-end value, the chlor-alkali plant that closed in December 2001 has a
24-percent minority interest of $28 million. These facilities are periodically
tested for impairment and, based on the results, no impairment is deemed
necessary at this time. Occidental continues to depreciate these facilities
based on their remaining estimated useful lives.
ACCRUED LIABILITIES--CURRENT
Accrued liabilities include accrued payroll, commissions and related
expenses of $200 million and $159 million at December 31, 2003 and 2002,
respectively.
40
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