Occidental Petroleum 2008 Annual Report Download - page 34

Liabilities and Stockholders' Equity
The increase in current maturities of long-term debt and notes payable is due to the 2009 maturities of the Dolphin Energy loans and
Occidental's 10 1/8-percent senior notes. The decrease in accounts payable reflected lower crude oil prices and volumes in the marketing and
trading operations during the fourth quarter of 2008 compared to the fourth quarter of 2007. The increase in accrued liabilities was due to the
accrual of the current portion of the unpaid Libya signature bonus and higher ad valorem taxes, rig contract termination, payroll and contractor
accruals, partially offset by fair value adjustments on derivatives. The increase in long-term debt, net was due to the 2008 issuance of $1
billion of 7-percent senior notes, partially offset by the reduction resulting from the Dolphin loans and the 10 1/8-percent senior notes being
moved to current maturities. The increase in deferred credits and other liabilities – income taxes is due to the additional deferred taxes
recorded as part of the Joslyn acquisition. The increase in stockholders’ equity reflected net income for 2008, partially offset by 2008 treasury
stock repurchases of approximately 19.8 million shares and dividend payments.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, Occidental had approximately $1.8 billion in cash on hand. Income and cash flows are largely dependent on
oil and gas prices, which have fallen steeply since mid-2008, and sales volumes. Occidental believes that cash on hand and cash generated
from operations will be sufficient to fund its operating needs, planned capital expenditures, dividends and debt payments. If needed,
Occidental could access its existing credit facilities.
In the third quarter of 2008, Occidental filed a shelf registration statement which facilitates issuing senior debt securities. In October
2008, Occidental issued $1 billion of 7-percent senior notes receiving $985 million of net proceeds using this shelf registration. Interest on
the notes will be payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2009. The notes will mature
on November 1, 2013. As of December 31, 2008, no other securities were issued under the shelf.
In September 2006, Occidental amended and restated its $1.5 billion bank credit (Credit Facility) to, among other things, lower the
interest rate and extend the term to September 2011. In September 2007, participating lenders extended the maturity date on $1.4 billion of
aggregate loan commitments under the Credit Facility to September 2012. The Credit Facility provides for the termination of the loan
commitments and requires immediate repayment of any outstanding amounts if certain events of default occur or if Occidental files for
bankruptcy. Occidental did not draw down any amounts under the Credit Facility during 2008. Available but unused lines of committed bank
credit totaled approximately $1.5 billion at December 31, 2008.
None of Occidental's committed bank credits contain material adverse change (MAC) clauses or debt rating triggers that could restrict
Occidental's ability to borrow under these lines. Occidental's credit facilities and debt agreements do not contain rating triggers that could
terminate bank commitments or accelerate debt in the event of a ratings downgrade. Up to $350 million of the Credit Facility is available in
the form of letters of credit.
As of December 31, 2008, under the most restrictive covenants of certain financing agreements, Occidental's capacity for additional
unsecured borrowing was approximately $65.3 billion, and the capacity for the payment of cash dividends and other distributions on, and for
acquisitions of, Occidental's capital stock was approximately $25.1 billion, assuming that such dividends, distributions and acquisitions were
made without incurring additional borrowing. Since 2007, Occidental’s long-term senior unsecured debt has been rated A by Fitch Ratings. In
2008, Occidental's long-term senior unsecured debt was upgraded from A- to A by Standard and Poor’s Ratings Services, from A3 to A2 by
Moody’s Investors Service and from A (low) to A by Dominion Bond Rating Service. A security rating is not a recommendation to buy, sell or
hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated
independently of any other rating.
In May 2007, Occidental redeemed all $276 million of the outstanding principal amount of its 8.25-percent Vintage senior notes due
2012. In January 2007, Occidental completed cash tender offers for portions of various debt instruments totaling $659 million in principal
amount. The redemption and repurchases resulted in a pre-tax interest expense of $167 million.
Cash Flow Analysis
In millions 2008 2007 2006
Net cash provided by operating activities $10,652 $6,798 $6,353
The most important sources of the increase in operating cash flow in 2008, compared to 2007, were higher average oil and natural
gas prices and, to a lesser extent, higher oil and gas sales volumes. The increased operating cash flow also reflects the higher caustic soda
margins and higher margins in gas processing in 2008 in the chemical and midstream and marketing businesses, respectively. In 2008,
compared to 2007, Occidental’s global realized crude oil prices increased by 36 percent and realized natural gas prices increased by 23
percent in the U.S., where approximately 70 percent of Occidental's natural gas was produced. Occidental’s oil and gas sales volumes
increased by 5 percent in 2008, mainly due to the increase in production from the Dolphin Project.
The increase in operating cash flow in 2007, compared to 2006, resulted from higher oil prices and higher oil and gas sales volumes
partially offset by the effects of lower chemical margins, particularly PVC, and reduced cash flow from discontinued operations. In 2007,
Occidental’s realized crude oil prices increased 12 percent and its oil and gas sales volumes increased by over 4 percent compared to 2006.
The increase in sales volumes was mainly due to the start-up of the Dolphin Project production in the third quarter of 2007.
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Increases, in each case, from the previous year, in the costs of producing oil and gas, such as purchased goods and services, and