Occidental Petroleum 2006 Annual Report Download - page 68

Operating expenses are incurred on a continual basis. Capital expenditures relate to longer-lived improvements in currently operating
facilities. Remediation expenses relate to existing conditions caused by past operations and do not contribute to current or future revenue
generation. Although total costs may vary in any one year, over the long term, segment operating and capital expenditures for environmental
compliance generally are expected to increase.
NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
OPC or certain of its subsidiaries have been named in many lawsuits, claims and other legal proceedings. These actions seek, among other
things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or
injunctive or declaratory relief. OPC or certain of its subsidiaries also have been named in proceedings under CERCLA and similar federal, state,
local and foreign environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases,
compensation for alleged property damage, punitive damages and civil penalties; however, Occidental is usually one of many companies in these
proceedings and has to date been successful in sharing response costs with other financially sound companies. With respect to all such lawsuits,
claims and proceedings, including environmental proceedings, Occidental accrues reserves when it is probable a liability has been incurred and
the amount of loss can be reasonably estimated.
Since 2004, OCC has been served with ten lawsuits filed in Nicaragua by approximately 2,600 individual plaintiffs. These individuals allege
that they have sustained several billion dollars of personal injury damages as a result of their alleged exposure to a pesticide. OCC is aware of,
but has not been served in, 24 additional cases in Nicaragua, which Occidental understands make similar allegations. In the opinion of
management, the claims against OCC are without merit because, among other things, OCC believes that none of the pesticide it manufactured
was ever sold or used in Nicaragua. Under the applicable Nicaraguan statute, defendants are required to pay pre-trial deposits so large as to
effectively prohibit defendants from participating fully in their defense. OCC filed a response to the complaints contesting jurisdiction without
posting such pre-trial deposit. In 2004, the judge in one of the cases (Osorio Case), ruled the court had jurisdiction over the defendants, including
OCC, and that the plaintiffs had waived the requirement of the pre-trial deposit. In order to preserve its jurisdictional defense, OCC elected not to
make a substantive appearance in the Osorio Case. In 2005, the judge in the Osorio Case entered judgment against several defendants,
including OCC, for damages totaling approximately $97 million. In December 2006, the court in a second case in Nicaragua (Rios Case) entered a
judgment against several defendants, including OCC, for damages totaling approximately $800 million. While preserving its jurisdictional
defenses, OCC has appealed the judgments in the Osorio and Rios Cases. OCC has no assets in Nicaragua and, in the opinion of management,
any judgment rendered under the statute, including in the Osorio and Rios Cases, would be unenforceable in the United States.
During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and
foreign tax jurisdictions. Taxable years prior to 2001 are generally closed for U.S. federal corporate income tax purposes. Corporate tax returns for
taxable years 2001 through 2003 are in various stages of audit by the U.S. Internal Revenue Service. Disputes may arise during the course of
such audits as to facts and matters of law.
At December 31, 2006, commitments for major capital expenditures during 2007 and thereafter were approximately $787 million.
Occidental has entered into agreements providing for future payments to secure terminal and pipeline capacity, drilling services, electrical
power, steam and certain chemical raw materials. At December 31, 2006, the net present value of the fixed and determinable portion of the
obligations under these agreements, which were used to collateralize financings of the respective suppliers, aggregated $16 million, which was
payable as follows (in millions): 2007—$12 and 2008—$4. Fixed payments under these agreements were $18 million in 2006, $17 million in 2005
and $19 million in 2004.
Occidental has certain other commitments under contracts, guarantees and joint ventures, including purchase commitments for goods and
services at market-related prices and certain other contingent liabilities. Some of these commitments, although not fixed or determinable, involve
capital expenditures and are part of the $3.3 to $3.4 billion in capital expenditures estimated for 2007.
Occidental has entered into various guarantees including performance bonds, letters of credit, indemnities, commitments and other forms of
guarantees provided by Occidental to third parties, mainly to provide assurance that OPC or its subsidiaries and affiliates will meet their various
obligations (guarantees).
At December 31, 2006, the notional amount of the guarantees that are subject to the reporting requirements of FIN 45 was approximately $270
million, which consists of Occidental’s guarantee of equity investees’ debt, primarily from the Dolphin Project equity investment, and other
commitments.
Occidental has indemnified various parties against specified liabilities that those parties might incur in the future in connection with
purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party
incurring liabilities that reach specified thresholds. As of December 31, 2006, Occidental is not aware of circumstances it believes would
reasonably be expected to lead to future indemnity claims against it in connection with these transactions that would result in payments materially
in excess of reserves.
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