Occidental Petroleum 2006 Annual Report Download - page 60

In May 2006, Ecuador terminated Occidental's contract for the operation of Block 15, which comprised all of its oil producing operations in the
country, and seized Occidental's Block 15 assets. The process resulting in this action began shortly after Occidental prevailed, by unanimous
decision of an international arbitration panel subsequently upheld by a London court, in a legal dispute over tax refunds that Ecuador wrongfully
withheld. Occidental immediately filed an arbitration claim against Ecuador, seeking redress for illegal confiscation of the Block 15 operations with
the International Centre for Settlement of Investment Disputes in Washington, D.C., invoking the protections of the U.S. - Ecuador Bilateral
Investment Treaty. As a result of the seizure, Occidental classified its Block 15 operations as discontinued operations. In 2006, Occidental recorded
a net after-tax charge of $296 million in discontinued operations. This amount consists of after-tax charges for the write-off of the investment in
Block 15 in Ecuador, as well as ship-or-pay obligations entered into with respect to the Oleoducto de Crudos Pesados Ltd. (OCP) pipeline in
Ecuador to ship oil produced in Block 15, partially offset by $109 million after-tax income from operations for the first five months of 2006.
Occidental’s Block 15 assets and liabilities are classified as assets and liabilities of discontinued operations on the consolidated balance sheet
at December 31, 2005, on a retrospective application basis. At December 31, 2005, Block 15 assets of discontinued operations were $426 million,
which mainly consisted of PP&E. At December 31, 2006, liabilities of discontinued operations related to Ecuador were $321 million, which mainly
consisted of the ship or pay obligations to the OCP pipeline. At December 31, 2005, liabilities of discontinued operations related to Ecuador were
$136 million, which mainly consisted of accrued liabilities. Net revenues and pre-tax income (loss) for discontinued operations related to Ecuador
for the year ended December 31, 2006, 2005 and 2004 were $275 million and $(529) million, including a pre-tax write-off of $(673) million, $611
million and $325 million, and $489 million and $269 million, respectively.
In September 2006, Occidental acquired oil and gas assets located in the Permian Basin in West Texas and California from Plains Exploration
and Production Co. (Plains) for approximately $859 million in cash.
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In 2005, Occidental made several oil and gas producing property acquisitions in the Permian Basin for approximately $1.7 billion in cash. This
was partially offset by cash proceeds totaling $171 million from dispositions of a portion of the acquired properties. No gain or loss was recorded for
these dispositions.
Occidental suspended all activities in Libya in 1986 as a result of economic sanctions imposed by the United States government. During the
imposition of sanctions, Occidental derived no economic benefit from its Libyan interests. In 2004, the United States government lifted all of the
principal economic sanctions against Libya. In 2006, the United States effectively eliminated the last of the economic sanctions.
In 2005, the Libyan authorities approved the terms of Occidental’s participation in the assets that it left in 1986. This re-entry agreement
allowed Occidental to return to its Libyan operations on generally the same terms in effect when activities were suspended. Those assets consist of
three producing contracts in the Sirte Basin and four exploration blocks. Occidental paid approximately $133 million in re-entry bonuses and
capital adjustment and work-in-progress payments and is required to pay $10 million per year while it continues to operate in Libya, as
reimbursements for past development costs associated with these assets. In addition, Occidental has committed to spend $90 million over the next
five years in the four exploration blocks. Currently, Occidental’s rights in the producing fields extend through 2009 and early 2010.
Separately, in early 2005, Occidental participated in the EPSA IV exploration bid round in Libya. Occidental successfully bid on nine of the 15
areas available. Occidental is the operator of five onshore areas and has a 90-percent exploration working interest in each area. In addition,
Occidental holds a 35-percent exploration working interest in four offshore areas. Woodside Petroleum Ltd. is the operator for the offshore areas.
Occidental paid approximately $90 million in exploration lease bonuses for these nine new areas and committed to perform a minimum exploration
work program valued at $125 million over the commitment period.
In July 2005, Occidental signed a new production-sharing contract (PSC) for the Mukhaizna oil field with the Government of the Sultanate of
Oman. Under the terms of the new PSC, Occidental took over field operations on September 1, 2005, for a cost of $137 million. Occidental holds a
45-percent working interest.
In June 2005, Occidental completed the purchase of three basic chemical manufacturing facilities from Vulcan for $214 million in cash, plus
contingent payments based upon the future performance of these facilities and the assumption of certain liabilities. In order to facilitate receipt of
regulatory approval for this acquisition, Occidental divested one of the facilities.
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