Occidental Petroleum 2008 Annual Report Download - page 28

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Oil and gas segment earnings in 2008 were $10.7 billion, compared to $8.0 billion in 2007. The increase in segment earnings reflects
higher average oil and natural gas prices and increased oil and gas volumes, which were offset by higher operating expenses and production
taxes and increased depreciation, depletion and amortization (DD&A) rates. Oil and gas segment earnings in 2008 include pre-tax foreign
exchange gains of $74 million, a pre-tax charge of $599 million for asset impairments consisting of undeveloped acreage in Argentina and
Yemen and impairments of producing properties in the U.S. and a pre-tax charge of $58 million for termination of rig contracts.
Average consolidated production costs for 2008, excluding taxes other than on income, were $12.13 per BOE, compared to the
average 2007 production cost of $10.37 per BOE. The increases resulted from higher production, maintenance and workover costs.
Oil and gas segment earnings in 2007 were $8.0 billion, compared to $6.7 billion in 2006. Oil and gas segment earnings in 2007
included an after-tax gain of $412 million from the sale of Occidental’s interest in a Russian joint venture, an after-tax gain of $112 million
from certain litigation settlements, a pre-tax gain of $103 million from the sale of exploration properties, a pre-tax gain of $35 million from the
sale of miscellaneous domestic oil and gas interests and a $74 million pre-tax loss from the impairment of properties. In addition to the
matters discussed above, oil and gas segment earnings for 2007, compared to 2006, reflected higher crude oil prices and higher oil and gas
production, partially offset by increased DD&A rates and higher operating and exploration expenses.
Chemical
In millions 2008 2007 2006
Segment Sales $5,112 $4,664 $4,815
Segment Earnings $669 $601 $906
Capital Expenditures $240 $245 $248
Chemical segment earnings in 2008 were $669 million, compared to $601 million in 2007. The increase in segment earnings is
primarily due to higher caustic soda margins, partially offset by lower volumes in chlorine, caustic soda and PVC and a $90 million charge
for plant closure and impairments.
Chemical segment earnings in 2007 were $601 million, compared to $906 million in 2006. The decrease in segment earnings was
primarily due to lower margins in PVC.
Midstream, Marketing and Other
In millions 2008 2007 2006
Segment Sales $1,598 $1,388 $934
Segment Earnings $520 $367 $201
Capital Expenditures $492 $243 $103
Midstream and marketing segment earnings in 2008 were $520 million, compared to $367 million in 2007. The increase in segment
earnings in 2008 reflects higher income from the Dolphin Pipeline and higher margins in gas processing.
The increase in segment earnings in 2007, compared to 2006, was primarily due to higher natural gas trading margins and, to a
lesser degree, increased crude oil trading margins.
SIGNIFICANT ITEMS AFFECTING EARNINGS
The following table sets forth, for the years ended December 31, 2008, 2007 and 2006, the effects of significant transactions and
events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount:
Significant Items Affecting Earnings
Benefit (Charge) (in millions) 2008 2007 2006
OIL AND GAS
Asset impairments $(599)$(74)$ —
Rig contract terminations (58) — —
Gain on sale of a Russian joint venture (a) — 412 —
Legal settlements (a) — 112 —
Gain on sale of exploration properties — 103 —
Gain on sale of oil and gas interests — 35 —
Total Oil and Gas $(657)$588 $ —
CHEMICAL
Plant closure and impairments $(90)$ — $ —
Total Chemical $(90)$ — $ —
MIDSTREAM, MARKETING AND OTHER
No significant items affecting earnings $ — $ — $ —
Total Midstream, Marketing and Other $— $ — $ —
CORPORATE
Gain on sale of Lyondell shares $ — $326 $90
Debt purchase expense — (167) (31)
Facility closure — (47) —
Severance charge — (25) —
Deferred tax write-off due to
compensation program changes (a) — — (40)
Litigation settlements — — 108
Tax effect of pre-tax adjustments 238 (2) (41)