Occidental Petroleum 2006 Annual Report Download - page 53

Notes to Consolidated Financial Statements 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In these Notes, the term "Occidental" or "the Company" refers to Occidental Petroleum Corporation (OPC) and/or one or more entities where it
owns a majority voting interest (subsidiaries). Occidental is a multinational organization whose principal business segments are operated by its oil
and gas subsidiaries and chemical subsidiaries. The subsidiaries and other affiliates in the oil and gas segment explore for, develop, produce and
market crude oil and natural gas. The subsidiaries and other affiliates in the chemical segment (OxyChem) manufacture and market basic
chemicals, vinyls and performance chemicals.
On August 1, 2006, Occidental effected a two-for-one stock split in the form of a stock dividend to shareholders of record as of that date with
distribution of the shares on August 15, 2006. The total number of authorized shares of common stock and associated par value per share were
unchanged by this action. All share and per-share amounts discussed and disclosed in this Annual Report on Form 10-K reflect the effect of the
stock split.

The consolidated financial statements include the accounts of OPC, its subsidiaries, variable-interest entities (VIE) in which it is the primary
beneficiary and its undivided interests in oil and gas exploration and production ventures. Occidental's proportionate share of oil and gas
exploration and production ventures, in which it has a direct working interest, is accounted for by reporting its proportionate share of assets,
liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets, income statements and cash flow statements.
In addition, certain financial statements, notes and supplementary data for prior years have been reclassified to conform to the 2006
presentation.

Investments in unconsolidated entities include both equity method and available-for-sale investments. Amounts representing Occidental’s
percentage interest in the underlying net assets of affiliates (excluding undivided interests in oil and gas exploration and production ventures) in
which it does not have a majority voting interest but as to which it exercises significant influence, are accounted for under the equity method.
Occidental records its share of gains or losses that arise from equity-method investee stock issuances in the income statement. Occidental reviews
equity method investments for impairment whenever events or changes in circumstances indicate that an other-than-temporary decline in value
has occurred. The amount of impairment, if any, is based on quoted market prices, where available, or other valuation techniques, including
discounted cash flows.
Investments in which Occidental does not exercise significant influence are accounted for as available-for-sale investments and are carried at
fair value, based on quoted market prices, with unrealized gains and losses reported in other comprehensive income (OCI), net of taxes, until
such investment is realized. Upon disposal, the accumulated unrealized gain or loss included in OCI is transferred to income.

Revenue is recognized from oil and gas production when title has passed to the customer, which occurs when the product is shipped. Revenue
from marketing and trading activities is recognized on settled transactions upon completion of contract terms, and for physical deliveries upon title
transfer. For unsettled transactions, contracts that meet specified accounting criteria are marked-to-market. Revenue from all marketing and
trading activities, including revenue from buy/sell arrangements with the same counterparty, is reported on a net basis.
Revenue from chemical product sales is recognized when the product is shipped and title has passed to the customer. Prices are fixed at the
time of shipment. Customer incentive programs provide for payments or credits to be made to customers based on the volume of product purchased
over a defined period. Total customer incentive payments over a given period are estimated and recorded as a reduction to revenue ratably over
the contract period. Such estimates are evaluated and revised as warranted.
Occidental records revenue net of taxes that are assessed by governmental authorities on Occidental's customers.

The process of preparing consolidated financial statements in conformity with United States generally accepted accounting principles (GAAP)
requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the consolidated financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts, but generally not by material amounts. Management believes that these estimates and assumptions provide a
reasonable basis for the fair presentation of Occidental’s financial position and results of operations.
42