Occidental Petroleum 2006 Annual Report Download - page 24
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Oil and Gas (continued)
Core earnings in 2006 were $7.2 billion, compared to $6.0 billion in 2005. The increase in core earnings is primarily due to higher crude oil
prices and oil and gas production, partially offset by higher operating expenses, including a depreciation, depletion and amortization (DD&A)
increase, which was driven by higher volumes and rates.
Core earnings in 2005 were $6.0 billion, compared with $4.0 billion in 2004. The increase in core earnings is primarily due to higher prices
and volumes for crude oil and natural gas, partially offset by higher operating expenses, higher exploration expense and increased DD&A rates.
Average consolidated production costs for 2006 were $11.23 per BOE, compared to the average 2005 production cost of $8.81 per BOE. At least
41 percent of the increase was a result of higher energy prices pushing up utility costs, gas plant costs and ad valorem and export taxes, and the
impact on Occidental's PSCs of lower volumes due to higher energy prices. These cash operating cost increases included $0.57 per barrel for
taxes and $0.33 per barrel for higher energy costs. The remaining increase of $1.52 per barrel was the result of higher workover, maintenance
and lifting costs. Maintenance costs increased by $116 million, while workovers, ad valorem taxes and utilities each accounted for approximately
$55 million in higher costs during 2006.
Also, see "Production-Sharing Contracts" above.
Chemical
Core earnings in 2006 were $901 million, compared to $777 million in 2005. The increase in core earnings is primarily due to higher margins
in chlorine, caustic soda and PVC.
Core earnings in 2005 were $777 million, compared with $414 million in 2004. The increase in core earnings is primarily due to higher
margins resulting from higher prices for chlorine, caustic soda and PVC, partially offset by higher energy and feedstock costs.
Occidental’s results of operations often include the effects of significant transactions and events affecting earnings that vary widely and
unpredictably in nature, timing and amount. Therefore, management uses a measure called "core earnings," which excludes those items. This
non-Generally Accepted Accounting Principles (GAAP) measure is not meant to disassociate those items from management’s performance, but
rather is meant to provide useful information to investors interested in comparing Occidental’s earnings performance between periods. Reported
earnings are considered representative of management’s performance over the long term. Core earnings is not considered to be an alternative to
operating income in accordance with GAAP.
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