Occidental Petroleum 2008 Annual Report Download - page 11

At Occidental, maintaining financial discipline means investing capital in projects that management expects will generate above-cost-
of-capital returns through their life cycle. Occidental expects to use most of any excess cash flow after capital expenditures to enhance
stockholders' returns by continuing its program for evaluating dividend increases, potential stock repurchases and acquisition opportunities.
The chemical business is not managed with a growth strategy. Capital is expended to operate the chemical business in a safe and
environmentally sound way, to sustain production capacity and to focus on projects designed to improve the competitiveness of these assets.
Asset acquisitions may be pursued when they are expected to enhance the existing core chlor-alkali and polyvinyl chloride (PVC)
businesses. Historically, the chemical segment has generated cash flow exceeding its normal capital expenditure requirements.
The midstream and marketing segment is managed to generate returns on capital invested in excess of Occidental's cost of capital. In
order to generate these returns, the segment operates in and around Occidental's asset base and provides low cost services to other
segments as well as to third parties, and operates gas plants, oil, gas and CO 2 pipeline systems, storage facilities and a trading and
marketing business. Capital is expended to operate those facilities in a safe and environmentally sound way, to sustain or, where
appropriate, increase operational capacity and to improve the competitiveness of Occidental's assets.
Oil and Gas
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The oil and gas business seeks to add new oil and natural gas reserves at a pace ahead of production while minimizing costs incurred
for finding and development. The oil and gas business implements this strategy within the limits of the overall corporate strategy primarily
by:
ØContinuing to add commercial reserves through a combination of focused exploration and development programs conducted in and
around Occidental’s core areas, which are the United States, the Middle East/North Africa and Latin America;
ØPursuing commercial opportunities in core areas to enhance the development of mature fields with large volumes of remaining oil by
applying appropriate technology and advanced reservoir-management practices; and
ØMaintaining a disciplined approach in acquisitions and divestitures at attractive prices.
Over the past several years, Occidental has strengthened its asset base within each of the core areas. Occidental has invested in, and
disposed of, assets with the goal of raising the average performance and potential of its assets.
In addition, Occidental has continued to make capital contributions and investments in the Dolphin Project in Qatar and the United
Arab Emirates (UAE) and the Mukhaizna project in Oman for continued growth opportunities.
Occidental’s overall performance during the past several years reflects the successful implementation of its strategy to enhance the
development of mature fields, beginning with the acquisition of the Elk Hills oil and gas field in California in 1998, followed by a series of
purchases in the Permian Basin in west Texas and New Mexico, the integration of Vintage Petroleum, Inc. (Vintage) operations acquired in
2006, and Plains Exploration & Production Company (Plains) assets acquired in 2006 and 2008, as well as the investment in the Dolphin
Project, which began operations in 2007.
At the end of 2008, the Elk Hills and Permian assets made up 60 percent of Occidental’s consolidated proved oil reserves and 37
percent of its consolidated proved gas reserves. On a barrels of oil equivalent (BOE) basis, these assets accounted for 54 percent of
Occidental’s consolidated proved reserves. In 2008, the combined production from these assets was approximately 282,000 BOE per day.
Chemical
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