Occidental Petroleum 2008 Annual Report Download - page 79

Download and view the complete annual report

Please find page 79 of the 2008 Occidental Petroleum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

terminated Occidental's contract for the operation of Block 15, which comprised all of its oil-producing operations in the country, and seized
Occidental's Block 15 assets. As of December 31, 2008, Occidental's net investment in and advances to the project totaled $66 million and
Occidental had accrued $263 million for related obligations, including all tariffs. As of December 31, 2008, Occidental also had obligations
relating to performance bonds totaling $14 million.
Occidental has a 50-percent interest in Elk Hills Power, LLC (EHP), a limited liability company that operates a gas-fired, power-
generation plant in California, which it accounts for as an equity-method investment.
ADVANCES TO EQUITY INVESTEES
Occidental had a note receivable (Note) from an equity-method investee bearing interest at 2.5 percent, which was converted into a
capital contribution of $173 million in 2008. In 2004, Occidental converted a contribution to an equity-method investee into a subordinated
revolving credit agreement (Revolver), which expires on December 31, 2021. At December 31, 2008 and 2007, the outstanding balance on
the Revolver was $49 million and $52 million, respectively, including accrued interest of $1 million and $1 million, respectively.
AVAILABLE-FOR-SALE SECURITIES
Lyondell
In October 2006, Occidental sold 10 million shares of Lyondell Chemical Company's common stock in a registered public offering for
a pre-tax gain of $90 million and gross proceeds of $250 million. In 2007, Occidental sold all of its remaining shares of Lyondell common
stock (approximately 21 million shares) for a pre-tax gain of $326 million and gross proceeds of $672 million.
RELATED-PARTY TRANSACTIONS
Occidental purchases power, steam and chemicals from and sells oil, gas, chemicals and power to certain of its equity investees at
market-related prices. During 2008, 2007 and 2006, Occidental entered into the following related-party transactions and had the following
amounts due from or to its related parties:
December 31, (in millions) 2008 2007 2006
Purchases (a) $315 $236 $688
Sales (b) $2,269 $351 $589
Services $ 1 $1 $ 6
Advances and amounts due from $ 8 $184 $216
Amounts due to $ — $ — $1
(a) In 2008 and 2007, purchases from EHP accounted for 97 percent and 98 percent, respectively. In 2006, purchases from Lyondell accounted for 38 percent.
(b) In 2008, sales to the North American oil and gas pipeline entity accounted for 85 percent.
NOTE 15 FAIR VALUE MEASUREMENTS
As discussed in Note 3, Occidental adopted the non-deferred portion of SFAS No. 157 on January 1, 2008 on a prospective basis. In
accordance with SFAS No. 157, Occidental has categorized its assets and liabilities that are measured at fair value, based on the priority of
the inputs to the valuation techniques, into a three-level fair value hierarchy: Level 1 is the use of quoted prices in active markets for identical
assets or liabilities; Level 2 is the use of other observable inputs other than quoted prices; and Level 3 is the use of unobservable inputs.
As permitted under SFAS No. 157, Occidental utilized the mid-point price between bid and ask prices for valuing the majority of its
assets and liabilities measured and reported at fair value. Occidental utilizes market data and assumptions in pricing the assets or liabilities,
including assumptions about risk and the risks inherent in the inputs to the valuation technique. Occidental primarily applies the market
approach for recurring fair value measurements and utilizes valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs. Certain of Occidental's financial instruments are valued using industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable prices at
which transactions are executed in the marketplace.
65
The following table provides fair value measurement information for such assets and liabilities that are measured on a recurring basis