Occidental Petroleum 2008 Annual Report Download - page 24

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Margin and cash flow from pipeline transportation operations mainly reflect volumes shipped. The Dolphin Pipeline investment
contributes significantly to pipeline transportation results. See "Oil and Gas Segment —Middle East/North Africa — Dolphin Project." In
August 2008, Occidental purchased a minority interest in a North American oil and gas pipeline entity for approximately $330 million.
Occidental’s 2008 pipeline transportation earnings improved due to increased earnings from the Dolphin Pipeline investment.
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Earnings from power generation facilities represent the sales of excess steam and power to third parties.
Occidental’s 2008 earnings from these facilities increased due to higher margins between the selling prices of power and steam and
the cost of gas used in their production.
Industry Outlook
Occidental expects future performance of the midstream and marketing segment to remain relatively stable unless it makes
significant acquisitions or dispositions.
CORPORATE
In July 2008, Occidental purchased a 15-percent interest in the Joslyn Oil Sands Project (Joslyn) in northern Alberta, Canada, for
approximately $500 million in cash.
SEGMENT RESULTS OF OPERATIONS
Segment earnings generally exclude income taxes, interest income, interest expense, environmental remediation expenses,
unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income
from the segments' equity investments. Seasonality is not a primary driver of changes in Occidental's consolidated quarterly earnings during
the year.
The following table sets forth the sales and earnings of each operating segment and corporate items:
In millions, except per share amounts
For the years ended December 31, 2008 2007 2006
NET SALES (a)
Oil and Gas $18,187 $13,304 $11,712
Chemical 5,112 4,664 4,815
Midstream, Marketing and Other 1,598 1,388 934
Eliminations (a) (680) (572) (286)
$24,217 $18,784 $17,175
EARNINGS (LOSS)
Oil and Gas (b) $10,651 $7,957 $6,676
Chemical (c) 669 601 906
Midstream, Marketing and Other 520 367 201
11,840 8,925 7,783
Unallocated corporate items
Interest expense, net (d) (26) (199) (131)
Income taxes (e) (4,629) (3,507) (3,354)
Other (f) (346) (141) (96)
Income from continuing operations 6,839 5,078 4,202
Discontinued operations, net (g) 18 322 (11)
Net Income $6,857 $5,400 $4,191
Basic Earnings per
Common Share $8.39 $6.47 $4.92
(a) Intersegment sales are generally made at prices approximately equal to those that the selling entity is able to
obtain in third-party transactions and eliminate upon consolidation.
(b) The 2008 amount includes a $599 million fourth quarter pre-tax charge for asset impairments, including
undeveloped acreage in Argentina and Yemen and domestic producing properties (included in depreciation,
depletion and amortization expense), and a $58 million fourth quarter pre-tax charge for the termination of rig
contracts. The 2007 amount includes 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 charge for exploration impairments. The 2008, 2007 and
2006 amounts include interest income of $9 million, $10 million and $10 million, respectively, from loans made
to an equity investee.
(c) The 2008 amount includes a pre-tax charge of $90 million for plant closure and impairments.
(d) The 2007 and 2006 amounts include $167 million and $31 million, respectively, of interest charges to redeem or
purchase and retire various debt issues.
(e) The 2008 amount includes tax benefits of $148 million resulting from relinquishment of exploration properties. As
a result of changes in compensation programs in 2006, Occidental wrote off approximately $40 million of the
related deferred tax asset that had been recognized in the financial statements prior to the changes.
(f) The 2007 amount includes a $326 million pre-tax gain from the sale of Occidental’s remaining investment in
Lyondell Chemical Company (Lyondell), a $47 million pre-tax charge for a plant closure and related
environmental remediation reserve and a $25 million pre-tax severance charge. The 2006 amount includes a
$90 million pre-tax gain from the sale of 10 million shares of Lyondell and a $108 million pre-tax gain related to
litigation settlements.
(g) In June 2007, Occidental completed an exchange of oil and gas interests in Horn Mountain with BP p.l.c. (BP) for
oil and gas interests in the Permian Basin and a gas processing plant in Texas. Occidental also sold its oil and
gas interests in Pakistan to BP. The 2007 amount includes after-tax income of $326 million related to these