Occidental Petroleum 2008 Annual Report Download - page 35

Increases, in each case, from the previous year, in the costs of producing oil and gas, such as purchased goods and services, and
higher utility, maintenance, workover and gas plant costs, and higher production and ad valorem taxes partially offset the effect of increases
in realized oil and natural gas prices and volumes in both 2008 and 2007. Other cost elements, such as labor costs and overhead, are not
significant drivers of changes in cash flow because they are relatively stable within a narrow range over the short to intermediate term. These
cost increases had a much smaller effect on cash flow than the higher oil and gas prices and higher oil and natural gas sales volumes.
Most of Occidental's major chemical product prices, especially caustic soda, increased in 2008, compared to 2007, which increased
margins. The increase in NGL prices in 2008, compared to 2007, resulted in higher gas processing margins in the midstream and
marketing segment. The overall impact of the chemical product price increases and gas processing margins on cash flow was less significant
than the increases in oil and gas prices because the chemical and midstream and marketing segments' earnings and cash flow were
significantly smaller than those for the oil and gas segment.
Other non-cash charges to income in 2008, 2007 and 2006 included stock incentive plan amortization, deferred compensation and
environmental remediation accruals. The 2008 amount also included a charge of $557 million for asset impairments of undeveloped acreage
in Argentina and Yemen and a $90 million charge for chemical plant closure and impairments.
In millions 2008 2007 2006
Capital expenditures (a)
Oil and Gas $(3,845)$(2,865)$(2,489)
Chemical (240) (245) (248)
Midstream and Marketing (492) (243) (103)
Corporate (87) (7) (17)
Total (4,664) (3,360) (2,857)
Other investing activities, net (4,793) 232 (1,526)
Net cash used by investing activities $(9,457)$(3,128)$(4,383)
(a) Excludes acquisitions, which are included in other investing activities, net.
Occidental’s capital spending estimate for 2009 is approximately $3.5 billion and will focus on the goal of keeping Occidental's returns
well above its cost of capital given current oil and gas prices and the cost environment. Occidental has accumulated a sizable inventory of
projects, of which a substantial portion can be delayed until industry costs are aligned with product prices. Occidental will continue to fully
fund much of its Middle East operations, the exploration programs in California, Utah and Argentina, and the midstream and marketing and
CO2 programs, which it believes have higher return and growth potential.
The 2008 other investing activities, net amount includes cash payments for the acquisitions of oil and gas interests from Plains for
$2.7 billion, an interest in Joslyn for approximately $500 million, a minority interest in a North American oil and gas pipeline entity for
approximately $330 million and approximately $700 million of various other acquisitions. The 2008 amount also includes the first payment
of the signature bonus under the Libya agreements of $450 million.
The 2007 other investing activities, net amount includes cash proceeds of $672 million from the sale of 21 million shares of Lyondell,
$485 million received from the sale of Occidental’s interest in a Russian joint venture, $509 million from the sale of other businesses and
properties, and $250 million from the sale of auction rate securities. The 2007 amount also includes the cash paid for the acquisitions of
various oil and gas and chemical interests, a Permian Basin common carrier pipeline system and a gas processing plant in Texas totaling
$1.4 billion.
The 2006 other investing activities, net amount includes the cash payments associated with the acquisition of Vintage and a property
acquisition from Plains, partially offset by cash proceeds from the Vintage assets subsequently sold and from the sale of Lyondell shares.
Commitments at December 31, 2008, for major fixed and determinable capital expenditures during 2009 and thereafter were
approximately $1.1 billion. Occidental expects to fund these commitments and capital expenditures with cash from operations.
In millions 2008 2007 2006
Net cash used by financing activities $(1,382)$(3,045)$(2,819)
The 2008 amount includes the net proceeds of $985 million from the issuance of $1 billion of 7-percent senior notes. The 2008
amount also includes $1.5 billion of cash paid for repurchases of 19.8 million shares of Occidental’s common stock at an average price of
$76.33 per share.
The 2007 amount includes net debt payments of $1.2 billion, including the repurchase of various debt issues under cash tender offers
and the redemption of Vintage notes. The 2007 amount also included $1.1 billion of cash paid for repurchases of 20.6 million shares of
Occidental’s common stock at an average price of $54.75 per share.
The 2006 amount consists of $1.5 billion of cash paid for stock repurchases and net debt payments of approximately $900 million.
Occidental also paid common stock dividends of $940 million in 2008, $765 million in 2007 and $646 million in 2006.
OFF-BALANCE-SHEET ARRANGEMENTS
In the course of its business activities, Occidental pursues a number of projects and transactions to meet its core business objectives.
Occidental also makes commitments on behalf of unconsolidated entities. Some of these projects, transactions and commitments (off-
balance-sheet arrangements) are not reflected on Occidental’s balance sheets, as a result of the application of generally accepted accounting
principles (GAAP) to their specific terms. The following is a description of the business purpose and nature of these off-balance-sheet
arrangements.
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Dolphin Project