Occidental Petroleum 2008 Annual Report Download - page 6

ITEM 1A RISK FACTORS
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Occidental’s financial results typically correlate closely to the prices it obtains for its products. Changes in consumption patterns, global
and local economic conditions, inventory levels, production disruptions, the actions of OPEC, currency exchange rates, speculation,
worldwide drilling and exploration activities, weather, geophysical and technical limitations and other matters may affect the supply and
demand dynamics of oil and gas, contributing to price volatility.
Demand and, consequently, the price obtained for Occidental’s chemical products correlate strongly to the health of the United States
and global economy, as well as chemical industry expansion and contraction cycles. Occidental also depends on feedstocks and energy to
produce chemicals, which are commodities subject to significant price fluctuations.
Recent global economic conditions have driven oil and gas prices down to levels last seen in 2004. These conditions may continue for
an extended period.
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Occidental’s oil and gas production and results of operations depend, in part, on its ability to profitably acquire, develop or find
additional reserves. Occidental replaces significant amounts of its reserves through acquisitions and large development projects. Occidental
has many competitors (including national oil companies), some of which are larger and better funded, may be willing to accept greater risks
or have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay
of expected reserve replacement efforts. Cash conservation considerations during periods of low product prices may delay production growth
and reserve replacement efforts.
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Occidental’s businesses are subject to the decisions of many governments and political interests. As a result, Occidental faces risks
of:
Ønew or amended laws and regulations, including those related to taxes, royalty rates, profit repatriation, permitted production rates,
import, export and use of equipment and environmental protection, all of which may increase costs or reduce the demand for
Occidental's products;
Øreduction of entitlements to produce oil and gas; and
Ørefusal or delay in the extension or grant of, exploration, production or development contracts.
Occidental may experience adverse consequences, such as risk of loss or production limitations, because certain of its foreign
operations are located in countries occasionally affected by political instability, armed conflict, terrorism, insurgency, civil unrest, security
problems, labor unrest, OPEC production restrictions, equipment import restrictions and sanctions. Exposure to such risks may increase if a
greater percentage of Occidental’s future oil and gas production comes from foreign sources.
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Occidental’s merger, acquisition and divestiture activities carry risks that it may: not fully realize anticipated benefits due to less than
expected reserves or production or changed circumstances, such as prices; bear unexpected integration costs or experience other integration
difficulties; experience share price declines based on the market’s evaluation of the activity; assume or retain liabilities that are greater than
anticipated; or be unable to resell acquired assets as planned or at planned prices.
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Calculations of oil and gas reserves depend on estimates concerning reservoir characteristics and recoverability, as well as oil and gas
prices, capital costs and operating costs. If Occidental were required to make unanticipated significant negative reserve revisions, its results of
operations and stock price could be adversely affected.
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Exploration is inherently risky. Exploration and development activities are subject to misinterpretation of geologic or engineering data,
unexpected geologic conditions or finding reserves of disappointing quality or quantity, which may result in significant losses. Occidental
bears the risks of project delays and cost overruns due to equipment failures, approval delays, construction delays, escalating costs for
materials and labor, border disputes and other associated risks in its development efforts.
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There is an ongoing scientific effort to assess and quantify the effects of climate change and the potential human influences on
climate, and related efforts by certain U.S. and foreign jurisdictions to propose or adopt legislation, regulations or policies seeking to control or
reduce emissions of “greenhouse gases” or consumption of fossil fuels. As a result of these efforts, Occidental faces risks of delays in new or
expanded development projects and increases in taxes. Occidental also faces risks of increases in the costs to produce, reductions in the
demand for, and restrictions on the use of, its products.
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