Occidental Petroleum 2006 Annual Report Download - page 80

Occidental has a 50-percent interest in Elk Hills Power LLC (EHP), a limited liability company that operates a gas-fired, power-generation plant
in California. OCP and EHP are VIEs under the provisions of FIN 46. Occidental has concluded it is not the primary beneficiary of OCP or EHP
and, therefore, accounts for these investments using the equity method.
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In 2004, Occidental entered into a note receivable (Note) with an equity method investee. The Note bears interest at 2 percent and is due
December 31, 2007. At December 31, 2006, the outstanding balance on the Note was $196 million. In 2004, Occidental converted a contribution to
an equity method investee into a subordinated revolving credit agreement (Revolver). The Revolver bears interest at 18 percent and expires on
December 31, 2021. At December 31, 2006, the outstanding balance on the Revolver and related accrued interest were $55 million and $1
million, respectively.
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Lyondell
Starting 2002, when Occidental acquired an equity investment in Lyondell Chemical Company (Lyondell), two senior executives of
Occidental held seats on Lyondell’s board of directors. One of Occidental’s senior executives did not stand for re-election to Lyondell’s board of
directors at its annual meeting on May 4, 2006. As a result, Occidental management believes that it no longer has the ability to exercise
significant influence over Lyondell’s financial and operating policies and has discontinued accruing its share of Lyondell earnings or losses under
equity-method accounting. Subsequent to May 4, 2006, Occidental classified its Lyondell shares as an available-for-sale investment.
In October 2006, Occidental sold 10 million shares of Lyondell's common stock in a registered public offering for a pre-tax gain of $90 million
and gross proceeds of $250 million. At December 31, 2006, Occidental owned 20.3 million Lyondell shares of common stock (8-percent ownership),
with a carrying value of $519 million, and warrants to purchase an additional five million shares of Lyondell common stock. In February 2007,
Occidental exercised these warrants and received approximately 700,000 shares of Lyondell stock. Following this transaction, Occidental owned
approximately 21 million shares of Lyondell common stock. Occidental has no current plans to divest the remaining Lyondell shares. However,
Occidental regularly reviews and analyzes its investments and other operations in order to determine how its stockholders’ interests are best
served.
In 2005, Occidental sold 11 million shares of Lyondell stock for gross proceeds of approximately $300 million. This sale resulted in a 2005 pre-
tax gain of $140 million.
In 2004, Lyondell acquired Millennium Chemicals Inc. by issuing additional shares of Lyondell common stock. Under SAB 51, Occidental was
required to record its share of the increase in Lyondell's net equity resulting from this issuance. Occidental increased its carrying value in
Lyondell and recorded a pre-tax gain of $121 million.
Premcor
Valero Energy Corp.’s (Valero) acquisition of Premcor, Inc. resulted in a $704 million pre-tax gain and the subsequent sale of all of the Valero
common shares received resulted in an additional $22 million pre-tax gain in 2005.
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Occidental purchases power, steam and chemicals from its equity investees and sells chemicals and power to its equity investees at market-
related prices. During 2006, 2005 and 2004, Occidental entered into the following related-party transactions and had the following amounts due
from or to its related parties:
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