Occidental Petroleum 2008 Annual Report Download - page 46

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
Occidental holds a series of collar agreements that qualify as cash-flow hedges for the sale of a small portion of its crude oil production.
These agreements continue to the end of 2011. The 2008 volume that was hedged was less than 3 percent of Occidental’s 2008 crude oil
production. Further detail about these cash-flow hedges, which are included in the total fair value of ($139) million in the table above, is
presented below as of December 31, 2008 (volumes in thousands of barrels):
Crude Oil – Collars
Daily Volume Average Floor Average Cap
2009 13 $33.15 $47.41
2010 12 $33.00 $46.35
2011 12 $32.92 $46.27
($ millions) Crude Oil – Collars
Fair value liability ($253)

Occidental uses value at risk to estimate the potential effects of changes in fair values of commodity-based derivatives and commodity
contracts used in marketing and trading activities. This method determines the maximum potential negative short-term change in fair value
with a 95-percent level of confidence. The marketing and trading value at risk was immaterial during all of 2008.
Interest Rate Risk

Occidental's exposure to changes in interest rates relates primarily to its long-term debt obligations, and is not expected to be material.

In millions of U.S. dollars, except rates
The table below provides information about Occidental's debt obligations. Debt amounts represent principal payments by maturity
date.
Year of Maturity
U.S. Dollar
Fixed-Rate Debt
U.S. Dollar
Variable-Rate Debt Grand Total (a)
2009 $91 $600 $691
2010 239 — 239
2011 — 68 68
2012 368 — 368
2013 1,000 — 1,000
Thereafter 337 46 383
Total $2,035 $714 $2,749
Average interest rate 7.05% 3.45% 6.11%
Fair Value $2,212 $714 $2,927
(a) Excludes unamortized net discounts of $9 million.
Credit Risk
Occidental’s energy contracts are spread among several counterparties. Creditworthiness is reviewed before doing business with a
new counterparty and on an ongoing basis. Occidental monitors aggregated counterparty exposure relative to credit limits. Credit exposure for
each customer is monitored for outstanding balances, current month activity, and forward mark-to-market exposure. Losses associated with
credit risk have been immaterial for all years presented.
Foreign Currency Risk
Occidental’s foreign operations have currency risk. Occidental manages its exposure primarily by balancing monetary assets and
liabilities and maintaining cash positions in foreign currencies only at levels necessary for operating purposes. Most international crude oil
sales are denominated in U.S. dollars. Additionally, all of Occidental’s consolidated foreign oil and gas subsidiaries have the U.S. dollar as
the functional currency. As of December 31, 2008 and 2007, Occidental had not entered into any foreign currency derivative instruments.
The effect of exchange rates on transactions in foreign currencies is included in periodic income.
SAFE HARBOR DISCUSSION REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of this report, including Items 1 and 2 and the information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including the information under the sub captions "Strategy," "Oil and Gas
Segment — Industry Outlook," "Chemical Segment — Industry Outlook," and Midstream, Marketing and Other Segment — Industry
Outlook" contain forward-looking statements and involve risks and uncertainties that could materially affect expected results of operations,
liquidity, cash flows and business prospects. Words such as "estimate," "project," "predict," "will," "would," "could," "may," "might,"
"anticipate," "plan," "intend," "believe," "expect" or similar expressions that convey the uncertainty of future events or outcomes generally
identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the
date of this report. Unless legally required, Occidental does not undertake any obligation to update any forward-looking statements as a result
of new information, future events or otherwise. Material risks that may affect Occidental’s results of operations and financial position appear
in Part I, Item 1A "Risk Factors," and elsewhere.