Occidental Petroleum 2003 Annual Report Download - page 9

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(a) See the MD&A and the "Notes to Consolidated Financial Statements" for
information regarding accounting changes, asset acquisitions and
dispositions, discontinued operations, environmental remediation, other
costs and other items affecting comparability.
(b) For an explanation of core earnings, see "Significant Items Affecting
Earnings" in the MD&A.
(c) On January 20, 2004, all of the trust preferred securities were redeemed.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (MD&A) (INCORPORATING ITEM 7A)
In this report, the term "Occidental" refers to Occidental Petroleum
Corporation (OPC) and/or one or more entities in which it owns a majority voting
interest (subsidiaries). Occidental is divided into two segments: oil and gas
and chemical.
2003 BUSINESS ENVIRONMENT
OIL AND GAS
Oil and gas prices are the key variables that drive the industry's
financial performance. Prices can vary significantly, even on a short-term
basis. Oil prices continued to strengthen in 2003 over their levels in the
previous year. The average West Texas Intermediate (WTI) market price for 2003
was $31.03/barrel (bbl) compared with $26.08/bbl in 2002.
NYMEX domestic natural gas prices increased significantly from 2002. For
2003, NYMEX gas prices averaged $5.26/Mcf compared with $3.07/Mcf for 2002.
CHEMICAL
The sectors of the chemical industry in which Occidental participates
showed signs of improvement in 2003 largely due to the improving economy and the
continued strength of the building and construction markets. The industry
experienced higher product prices for all major commodity chemicals; however,
the margin improvement was largely offset by higher costs for key raw materials,
primarily energy and ethylene.
Domestic chlorine demand dropped slightly in 2003, compared to 2002, as the
robust housing sector could not overcome general weakness in other manufacturing
markets. However, chlorine prices increased sharply in 2003 from their depressed
levels in early 2002 in part due to the tightening of supply resulting from
industry capacity reductions and the favorable influence of the strong vinyls
(VCM/PVC) demand, mainly in the housing sector. Caustic soda prices began to
improve in the
8
second quarter of 2003 but softened late in the year due to pressure to move
more caustic soda volume versus chlorine. However, overall caustic soda prices
improved for the year. PVC prices improved significantly although the price
improvement was largely offset by higher raw material costs.
STRATEGY AND OVERALL PERFORMANCE
Occidental's overall corporate strategy aims to generate competitive total
returns to stockholders and consists of three basic elements:
>> Focus on large, long-lived oil and gas assets with growth potential.
>> Maintain financial discipline and a strong balance sheet.
>> Harvest cash from chemicals.
Large, long-lived "legacy" oil and gas assets, like those in California,
the Permian Basin in Texas and Qatar, tend to have moderate decline rates,
enhanced secondary and tertiary recovery opportunities and economies of scale
that lead to cost-effective production. These assets are expected to contribute
substantial earnings and cash flow after capital.