Delaware		95-4035997
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10889 Wilshire Boulevard
Los Angeles, California		90024
(Address of principal executive offices)		(Zip Code)

 

 

 

 

 

	Class		Outstanding at September 30, 2009
	Common stock $.20 par value		811,667,233 shares

 

 

 

 

 

 

				PAGE
Part I	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Condensed Balance Sheets —
			September 30, 2009 and December 31, 2008	2
		Consolidated Condensed Statements of Income —
			Three and nine months ended September 30, 2009 and 2008	4
		Consolidated Condensed Statements of Cash Flows —
			Nine months ended September 30, 2009 and 2008	5
		Notes to Consolidated Condensed Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial
			Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
	Item 4.	Controls and Procedures		29
Part II	Other Information
	Item 1.	Legal Proceedings		30
	Item 2.	Share Repurchase Activities		30
	Item 6.	Exhibits		31

 

 

Item 1.

Financial Statements (unaudited)

 

 

			2009			2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,608		$	1,777
Trade receivables, net			3,330			3,117
Marketing and trading assets and other			622			1,012
Inventories			1,132			958
Prepaid expenses and other			308			308
Total current assets			7,000			7,172
INVESTMENTS IN UNCONSOLIDATED ENTITIES			1,450			1,263
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation, depletion and amortization of $18,537 at September 30, 2009 and $16,462 at December 31, 2008			32,905			32,266
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET			859			836
TOTAL ASSETS		$	42,214		$	41,537

 

 

 

 

		Three months ended						Nine months ended
		September 30						September 30
		2009			2008			2009			2008
REVENUES AND OTHER INCOME
Net sales		$	4,104		$	7,060		$	10,864		$	20,196
Interest, dividends and other income			22			59			80			192
Gains on disposition of assets, net			―			―			7			25
			4,126			7,119			10,951			20,413
COSTS AND OTHER DEDUCTIONS
Cost of sales			2,130			2,780			6,253			7,800
Selling, general and administrative and other operating expenses			359			295			991			994
Taxes other than on income			105			162			320			466
Environmental remediation			10			(2	)		10			28
Exploration expense			56			61			168			193
Interest and debt expense, net			40			24			99			94
			2,700			3,320			7,841			9,575
Income before income taxes and other items			1,426			3,799			3,110			10,838
Provision for domestic and foreign income taxes			549			1,546			1,245			4,511
Income from equity investments			(66	)		(57	)		(154	)		(168	)
Income from continuing operations			943			2,310			2,019			6,495
Discontinued operations, net			(2	)		(1	)		(7	)		23
Net income			941			2,309			2,012			6,518
Less: Net income attributable to noncontrolling interest			(14	)		(38	)		(35	)		(104	)
NET INCOME ATTRIBUTABLE TO COMMON STOCK		$	927		$	2,271		$	1,977		$	6,414
BASIC EARNINGS PER COMMON SHARE – ATTRIBUTABLE TO COMMON STOCK
Income from continuing operations		$	1.14		$	2.78		$	2.44		$	7.78
Discontinued operations, net			―			―			(0.01	)		0.03
BASIC EARNINGS PER COMMON SHARE		$	1.14		$	2.78		$	2.43		$	7.81
DILUTED EARNINGS PER COMMON SHARE – ATTRIBUTABLE TO COMMON STOCK
Income from continuing operations		$	1.14		$	2.77		$	2.44		$	7.74
Discontinued operations, net			―			―			(0.01	)		0.03
DILUTED EARNINGS PER COMMON SHARE		$	1.14		$	2.77		$	2.43		$	7.77
DIVIDENDS PER COMMON SHARE		$	0.33		$	0.32		$	0.98		$	0.89

 

 

			2009			2008
CASH FLOW FROM OPERATING ACTIVITIES
Net income		$	2,012		$	6,518
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations, net			7			(23	)
Depreciation, depletion and amortization expense			2,297			1,957
Deferred income tax provision			247			397
Other non-cash charges to income			333			380
Gains on disposition of assets, net			(7	)		(25	)
Income from equity investments			(154	)		(168	)
Dry hole and impairment expense			130			134
Changes in operating assets and liabilities			(826	)		(822	)
Other operating, net			(165	)		(245	)
Operating cash flow from continuing operations			3,874			8,103
Operating cash flow from discontinued operations			(31	)		33
Net cash provided by operating activities			3,843			8,136
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures			(2,649	)		(3,070	)
Purchases of businesses and assets, net			(582	)		(3,404	)
Sales of assets, net			47			22
Sales of investments			―			51
Equity investments and other investing, net			(64	)		(58	)
Net cash used by investing activities			(3,248	)		(6,459	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt			740			51
Payments of long-term debt			(699	)		(71	)
Proceeds from issuance of common stock			16			22
Purchases of treasury stock			(29	)		(1,487	)
Excess tax benefits related to share-based payments			15			74
Cash dividends paid			(794	)		(677	)
Stock options exercised			2			10
Distributions to noncontrolling interest			(15	)		(111	)
Net cash used by financing activities			(764	)		(2,189	)
Decrease in cash and cash equivalents			(169	)		(512	)
Cash and cash equivalents—beginning of period			1,777			1,964
Cash and cash equivalents—end of period		$	1,608		$	1,452

 

 

1.	General
	In these unaudited consolidated condensed financial statements, "Occidental" means Occidental Petroleum Corporation, a Delaware corporation (OPC), and/or one or more entities in which it owns a majority voting interest (subsidiaries). Occidental has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, and condensed or omitted, as permitted by the Securities and Exchange Commission’s rules and regulations, certain information and disclosures normally included in consolidated financial statements and the notes.  The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in Occidental’s Annual Report on Form 10-K for the year ended December 31, 2008.
	In the opinion of Occidental’s management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present Occidental’s consolidated financial position as of September 30, 2009, and the consolidated statements of income and cash flows for the three and nine months ended September 30, 2009 and 2008, as applicable. The income and cash flows for the periods ended September 30, 2009 and 2008, are not necessarily indicative of the income or cash flows to be expected for the full year.
	Occidental’s management has evaluated events from October 1, 2009 through November 2, 2009 and has made the appropriate disclosures.
2.	Asset Acquisitions, Dispositions and Other Transactions
	In October 2009, Occidental announced it signed an agreement to purchase Phibro LLC (Phibro) from Citigroup Inc. for approximately net asset value as of the closing date, which is anticipated to be by the end of the year.  Phibro, primarily a trader in oil and gas, will become a part of Occidental's midstream, marketing and other segment.
	In July 2009, Occidental repaid its $600 million debt associated with the Dolphin Project.
	In May 2009, Occidental issued $750 million of 4.125-percent senior unsecured notes, receiving $740 million of net proceeds. Interest on the notes will be payable semi-annually in arrears on June 1 and December 1 of each year. The notes will mature on June 1, 2016.
	In April 2009, Occidental and its partner signed a Development and Production Sharing Agreement (DPSA) with the National Oil and Gas Authority of Bahrain for further development of the Bahrain Field.  The DPSA is expected to become effective in the fourth quarter of 2009.  Under this agreement, a Joint Operating Company will serve as operator for the project under the DPSA.
3.	Accounting and Disclosure Changes
	In the quarter ended June 30, 2009, Occidental adopted new disclosure requirements for its evaluation of subsequent events as a result of new accounting standards issued by the Financial Accounting Standards Board (FASB) in May 2009.
	In the quarter ended June 30, 2009, Occidental adopted new disclosure requirements for the fair value of financial instruments in interim periods when it is practicable to estimate such values as a result of new accounting standards issued by the FASB in April 2009.

 

 

 

	Beginning January 1, 2009, Occidental modified its calculation of basic earnings per share (EPS) in accordance with new accounting standards issued by the FASB in June 2008.  Under this new accounting standard, instruments containing rights to nonforfeitable dividends granted in share-based payment transactions are considered participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing EPS under the two-class method.  While prior period EPS data has been adjusted retrospectively, this change had no material impact on Occidental’s financial statements.
	Beginning January 1, 2009, Occidental adopted new disclosure requirements for its derivative and hedging activities as a result of new accounting standards issued by the FASB in March 2008.
	Beginning January 1, 2009, Occidental prospectively adopted the deferred portion of new accounting standards related to the application of the measurement and disclosure framework of non-financial assets and liabilities that are recorded at fair value on a non-recurring basis.  These new standards were issued by the FASB in February 2008.
	Beginning January 1, 2009, Occidental adopted new accounting standards related to the accounting and disclosure requirements for business combinations.  The new standards were issued by the FASB in December 2007 and April 2009 and had no material impact on Occidental’s financial statements upon adoption.
	On January 1, 2009, Occidental adopted new accounting standards affecting the presentation and disclosure requirements related to noncontrolling interests in subsidiaries. Occidental adopted these new standards prospectively, except for the presentation and disclosure requirements which were applied retrospectively to all periods presented. These new standards were issued in December 2007 and had no material impact on Occidental’s financial statements upon adoption.
4.	Comprehensive Income
	The following table presents Occidental’s comprehensive income for the three and nine months ended September 30, 2009 and 2008 (in millions):

 

		Periods Ended September 30
		Three months						Nine months
			2009			2008			2009			2008
Net income attributable to common stock		$	927		$	2,271		$	1,977		$	6,414
Other comprehensive income (loss) items
Foreign currency translation adjustments			10			(20	)		28			(9	)
Pension and post-retirement adjustments			7			6			19			(4	)
Unrealized gains (losses) on derivatives			(8	)		404			(54	)		(158	)
Reclassification of realized losses (gains) on derivatives			16			20			(6	)		103
Unrealized gains (losses) on securities			―			(2	)		―			14
Realized losses on securities			―			―			―			(16	)
Other comprehensive income (loss), net of tax			25			408			(13	)		(70	)
Comprehensive income attributable to common stock		$	952		$	2,679		$	1,964		$	6,344

 

There were no other comprehensive income (loss) items related to noncontrolling interests for the three and nine months ended September 30, 2009 and 2008.

 

 

 

 

5.	Supplemental Cash Flow Information
	Income taxes paid (received) for the nine months ended September 30, 2009 and 2008 were $(168) million and $1.7 billion for U.S. taxes, respectively, and $1.1 billion and $2.3 billion for foreign taxes, respectively.  Interest paid totaled approximately $116 million and $93 million for the nine months ended September 30, 2009 and 2008, respectively.
6.	Inventories
	A portion of inventories is valued under the LIFO method.  The valuation of LIFO inventory for interim periods is based on Occidental’s estimates of year-end inventory levels and costs.  Inventories as of September 30, 2009 and December 31, 2008 consisted of the following (in millions):

 

		2009					2008
Raw materials			$	48				$	123
Materials and supplies				555					412
Finished goods				600					494
				1,203					1,029
LIFO reserve				(71	)				(71	)
Total			$	1,132				$	958

 

7.	Environmental Liabilities and Expenditures
	Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations relating to improving or maintaining environmental quality.  Occidental’s environmental compliance costs have generally increased over time and could continue to rise in the future.  Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.
	The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites.  OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites.  Remedial activities may include one or more of the following:  investigation including sampling, modeling, risk assessment or monitoring; cleanup measures including removal, treatment or disposal; or operation and maintenance of remedial systems.  The environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.
	As of September 30, 2009, Occidental participated in or monitored remedial activities or proceedings at 167 sites.  The following table presents Occidental’s environmental remediation reserves as of September 30, 2009, the current portion of which is included in accrued liabilities ($67 million) and the remainder in deferred credits and other liabilities — other ($334 million).  The reserves are grouped in four categories of environmental remediation sites — sites listed or proposed for listing by the U.S. Environmental Protection Agency on the CERCLA National Priorities List (NPL) as well as non-NPL third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.

 

 

	As of September 30, 2009, Occidental’s environmental reserves exceeded $10 million at 14 of the 167 sites described above, and 117 of the sites had reserves from $0 to $1 million.  Occidental expects to expend funds corresponding to about half of the current environmental reserves over the next four years and the balance over the subsequent ten or more years.  Occidental believes its range of reasonably possible additional loss beyond those liabilities recorded for environmental remediation at the sites described above could be up to $390 million.  The status of Occidental’s involvement with the sites and related significant assumptions have not changed materially since December 31, 2008.  For management’s opinion with respect to environmental matters, refer to Note 8.
8.	Lawsuits, Claims, Commitments, Contingencies and Related Matters
	OPC or certain of its subsidiaries are named, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.  OPC or certain of its subsidiaries also have been named in proceedings under CERCLA and similar federal, state, local and foreign environmental laws.  These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief; however, Occidental is usually one of many companies in these proceedings and has to date been successful in sharing response costs with other financially sound companies.  With respect to all such lawsuits, claims and proceedings, including environmental proceedings, Occidental accrues reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated.
	Lawsuits have been filed in Nicaragua against Occidental Chemical Corporation (OxyChem) and other companies that once manufactured or used a pesticide, dibromochloropropane (DBCP).  These lawsuits claim damages of several billion dollars for alleged personal injuries.  In the opinion of management, the claims against OxyChem are without merit because, among other things, the DBCP it manufactured was never sold or used in Nicaragua.  In order to preserve its jurisdictional defense, OxyChem elected not to make a substantive appearance in these cases.  Nicaraguan courts have entered judgments of approximately $900 million against four defendants, including OxyChem.  Under Nicaraguan law, the judgments would be shared equally among the defendants.  The plaintiffs attempted to enforce one judgment in Miami.  In January 2009, the federal district court in Miami granted summary judgment in favor of OxyChem and refused to enforce the judgment finding the Nicaraguan court lacked personal jurisdiction because there was no evidence that any OxyChem DBCP was used in Nicaragua and that OxyChem did not otherwise have sufficient contacts with Nicaragua.  In October 2009, the same court concluded the following additional grounds existed for not enforcing the Nicaraguan judgment: the Nicaraguan trial court lacked jurisdiction under a Nicaraguan DBCP statute; the judgment was rendered under a judicial system that does not provide procedures compatible with due process of law and lacks impartial tribunals; and enforcing the judgment would violate Florida public policy.  OxyChem has no assets in Nicaragua and, in the opinion of management, no such Nicaraguan judgment would be enforceable in the United States.
	During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions.  While the audits for taxable years through 2007 have concluded for U.S. federal income tax purposes, the 2008 taxable year as well as the current period are currently under audit by the U.S. Internal Revenue Service pursuant to its compliance assurance

 

 

 

	program.  Foreign government tax authorities are in various stages of auditing Occidental, and income taxes for taxable years from 2000 through 2008 remain subject to examination in certain jurisdictions.  During the course of tax audits, disputes have arisen and other disputes may arise as to facts and matters of law.
	Occidental has indemnified various parties against specified liabilities that those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental.  These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds.  Currently, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to future indemnity claims against it in connection with these transactions that would result in payments materially in excess of reserves.
	The ultimate amount of losses and the timing of any such losses that OPC and its subsidiaries may incur resulting from currently outstanding lawsuits, claims and proceedings, audits, commitments, contingencies and related matters cannot be determined reliably at this time.  If these matters were ultimately resolved unfavorably at amounts substantially exceeding Occidental’s reserves, an outcome not currently expected, it is possible that such outcome could have a material adverse effect upon Occidental’s consolidated financial position or results of operations.  However, after taking into account reserves, management does not expect the ultimate resolution of any of these matters to have a material adverse effect upon Occidental’s consolidated financial position or results of operations.
9.	Retirement Plans and Postretirement Benefits
	The following table sets forth the components of the net periodic benefit costs for Occidental’s defined benefit pension and postretirement benefit plans for the three and nine months ended September 30, 2009 and 2008 (in millions):

 

Occidental contributed $2 million and $7 million to its defined benefit pension plans for the three and nine months ended September 30, 2009, respectively, and expects to contribute an additional $3 million in the remainder of 2009. Occidental contributed $1 million and $3 million to its defined benefit pension plans for the three and nine months ended September 30, 2008, respectively.

 

 

 

10.	Fair Value Measurements
	Occidental has categorized its assets and liabilities that are measured at fair value, based on the priority of the inputs to the valuation technique, 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.  The following table provides fair value measurement information for such assets and liabilities that are measured on a recurring basis (in millions):

 

					Fair Value Measurements at September 30, 2009 Using:
Description		Total Fair Value			Level 1			Level 2			Level 3
Assets:
Derivative financial instruments(a)
Marketing and trading assets and other		$	128		$	10		$	118		$	—
Long-term receivables and other assets, net			136			―			136			—
Total assets		$	264		$	10		$	254		$	—
Liabilities:
Derivative financial instruments(a)
Accrued liabilities		$	(230	)	$	(6	)	$	(224	)	$	—
Deferred credits and other liabilities-other			(305	)		―			(305	)		—
Total liabilities		$	(535	)	$	(6	)	$	(529	)	$	—

(a)

Derivative fair values are reported on a net basis to the extent a legal right of offset with a counterparty exists.

	For the nine months ended September 30, 2009, Occidental did not have any assets or liabilities measured at fair value on a non-recurring basis.
	Occidental primarily applies the market approach for recurring fair value measurements and maximizes its use of observable inputs and minimizes its use of unobservable inputs.  Occidental utilizes the mid-point price between bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value.  In addition to using market data, Occidental makes assumptions in valuing its assets and liabilities, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
	Certain of Occidental's derivative instruments, however, are valued using industry-standard models that consider various inputs, 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 inputs 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.
	The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than fixed-rate debt, approximate fair value.  The cost, if any, to terminate off-balance-sheet financial instruments is not significant.  Occidental estimates the fair value of its fixed-rate debt based on the quoted market prices for its debt instruments or on quoted market yields for similarly rated debt instruments, taking into account their maturities.  The estimated fair values of Occidental’s debt, at September 30, 2009 and December 31, 2008, were approximately $3.1 billion and $2.9 billion, respectively, compared to carrying values of $2.8 billion and $2.7 billion, respectively.

 

 

	Occidental’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, trade receivables and energy derivative contracts.  Occidental’s cash and cash equivalents are spread among major international financial institutions.  Occidental’s trade receivables and energy derivative contracts are spread among various counterparties.  Creditworthiness is reviewed prior to conducting business with a new counterparty and on an ongoing basis.  Occidental monitors aggregate credit exposure for each counterparty relative to established credit limits.  Credit exposure to each counterparty is monitored for outstanding balances, current month activity, and forward mark-to-market exposures.  Losses associated with credit risk have been immaterial for all periods presented.
11.	Derivatives
	As discussed in Note 3, Occidental adopted new accounting standards for derivative disclosures on January 1, 2009.  Derivatives are carried at fair value and, when a legal right of offset with the same counterparty exists, Occidental records these derivatives on a net basis.  Occidental applies hedge accounting when transactions meet specified criteria for such treatment.  If a derivative does not qualify as a hedge or is not designated and documented as a hedge, any fair value gains or losses are recognized in earnings in the current period.  For cash-flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) with an offsetting adjustment to the basis of the item being hedged.  Realized gains or losses from cash-flow hedges, and any ineffectiveness, are recorded as a component of net sales in the consolidated statements of income. Ineffectiveness is primarily created by a basis difference between the hedged item and the hedging instrument due to location, quality or grade of the physical commodity transactions.  Gains and losses from derivative instruments are reported net in the consolidated statements of income. There were no fair value hedges as of and for the three and nine months ended September 30, 2009.
	Occidental is exposed to commodity price risk.  Occidental has used derivatives to reduce its long-term exposure to price volatility on a small portion of its oil and gas production.  Through its low-risk marketing and trading activities and within its established policy controls and procedures, Occidental also uses derivative instruments, including a combination of short-term futures, forwards, options and swaps to improve realized prices for its oil and gas.
	A majority of Occidental’s derivative transactions are exchange-traded contracts, which are subject to nominal credit risk as a significant portion of these derivative transactions are executed on a daily margin basis.  Cash collateral of $132 million deposited by Occidental with clearing houses, which has not been reflected in the derivative fair value tables, is included in the marketing and trading assets and other balance as of September 30, 2009.
	In addition, Occidental executes a portion of its derivative transactions in the over-the-counter (OTC) market with various high-credit-quality counterparties.  Occidental is subject to counterparty credit risk to the extent the counterparty to the derivatives is unable to meet its settlement commitments.  Occidental manages this credit risk by selecting counterparties that it believes to be financially strong, by spreading the credit risk among many such counterparties, and by entering into master netting arrangements with the counterparties, as appropriate.  Occidental actively monitors the creditworthiness of each counterparty and records valuation adjustments against the derivative assets to reflect counterparty risk, if necessary.  Certain of Occidental's OTC derivative instruments contain collateral thresholds.  If credit thresholds are exceeded or if Occidental’s or the counterparty’s credit rating is reduced by the major credit rating agencies, Occidental or the counterparty may be required to post collateral via available cash or letters of credit to satisfy the difference between the current exposure and the negotiated credit threshold.  As of September 30, 2009, Occidental had a liability of $292 million, which represents the fair value of derivative instruments with credit-risk-related contingent features.  As of September 30, 2009, Occidental was not required to post collateral for these derivative instruments.  Occidental believes that if it had received a one-notch reduction in its credit rating, it would not have resulted in a material change in its collateral-posting requirements as of September 30, 2009.

 

 

 

	Cash-Flow Hedges
	Occidental holds a series of collar agreements that qualify as cash-flow hedges for the sale of approximately 3 percent of its crude oil production.  These agreements continue to the end of 2011.  The following table presents the daily notional amounts and weighted average strike prices of Occidental’s collar positions as of September 30, 2009.

 

		Crude Oil  Collars
		Daily Volume (barrels)		Average Floor		Average Cap
2009		13,000		$33.15		$47.41
2010		12,000		$33.00		$46.35
2011		12,000		$32.92		$46.27

 

Occidental entered into natural gas swap agreements related to the sale, for 2010, of a portion of its production from the Rockies that qualify as cash-flow hedges.  The following table presents the daily notional amounts and weighted average strike prices, net to Occidental, of these hedges as of September 30, 2009.

 

		Natural Gas - Swaps
		Daily Volume		Average Strike Price
2010		40 million cubic feet		$5.03

 

Occidental’s marketing and trading operations store natural gas purchased from third parties at Occidental’s leased storage facilities.  Derivative instruments are used to fix margins on the future sales of the stored volumes.  These agreements continue through 2010.  As of September 30, 2009, Occidental has the following outstanding natural gas commodity contracts that were designated as cash-flow hedges:

 

Natural Gas Contracts		Volumes
Forecasted sales		24 billion cubic feet

 

	As of September 30, 2009, Occidental had approximately 27 billion cubic feet of natural gas, which it holds in storage.
	The following table presents the pre-tax gains (losses) recognized in, and reclassified from, Accumulated Other Comprehensive Income (AOCI) and recognized in income (net sales), including any hedge ineffectiveness, for derivative instruments classified as cash-flow hedges for the three and nine months ended September 30, 2009 (in millions):

 

 

 

Three months ended September 30, 2009
Cash-Flow Hedges		Gains (losses) Recognized in AOCI – Effective Portion				Amount of Losses Reclassified from AOCI into Income – Effective Portion				Gains Recognized in Income – Ineffective Portion
Commodity contracts 
Occidental’s crude oil production		$	8			$	(26	)		$	1
Commodity contracts 
Third-party natural gas marketing and trading activities			(21	)			―				―
Total		$	(13	)		$	(26	)		$	1

 

Nine months ended September 30, 2009
Cash-Flow Hedges		Gains (Losses) Recognized in AOCI – Effective Portion				Amount of Gains (Losses) Reclassified from AOCI into Income – Effective Portion				Gains Recognized in Income – Ineffective Portion
Commodity contracts 
Occidental’s crude oil production		$	(89	)		$	(40	)		$	10
Commodity contracts 
Third-party natural gas marketing and trading activities			4				50				―
Total		$	(85	)		$	10			$	10

 

The following table summarizes net after-tax derivative activity recorded in AOCI for the three and nine months ended September 30, 2009 and 2008 (in millions):

 

		Periods ended September 30
		Three Months						Nine Months
			2009			2008			2009			2008
Beginning Balance		$	(218	)	$	(920	)	$	(150	)	$	(441	)
Gains (losses) from changes in cash-flow hedges			(8	)		404			(54	)		(158	)
Losses (gains) reclassified to income			16			20			(6	)		103
Ending Balance		$	(210	)	$	(496	)	$	(210	)	$	(496	)

 

	During the next twelve months, Occidental expects that approximately $85 million of net after-tax derivative losses included in AOCI, based on their valuation as of September 30, 2009, will be reclassified into income.
	Derivatives not designated as hedging instruments
	Occidental’s third-party marketing and trading activities are focused on purchasing crude oil and natural gas for resale from partners, producers and third parties whose oil and gas supply is located near the midstream assets such as pipelines, processing plants and storage facilities that are owned or leased by Occidental.  These purchases allow Occidental to aggregate volumes to maximize prices received for Occidental’s production.  The aggregate volumes and durations of these third-party marketing and trading purchase and sales contracts generally approximate each other.

 

 

 

The following table presents gross volumes of Occidental’s derivatives not designated as hedging instruments as of September 30, 2009:

 

Commodity		Volumes
Occidental’s production sales contracts
Crude oil		8 million barrels
Third-party marketing and trading activities
Purchase contracts
Crude oil		74 million barrels
Natural gas		1,039 billion cubic feet
Sales contracts
Crude oil		85 million barrels
Natural gas		1,042 billion cubic feet

 

	Approximately $56 million and $20 million of gains from derivatives not designated as hedging instruments  entered for Occidental’s oil and gas production and the third-party marketing and trading activities, respectively, were recognized in net sales for the three months ended September 30, 2009.  Approximately $9 million of losses and $46 million of gains from derivatives not designated as hedging instruments entered for Occidental’s oil and gas production and the third-party marketing and trading activities, respectively, were recognized in net sales for the nine months ended September 30, 2009.
	The following table presents the gross fair value of Occidental’s outstanding derivatives as of September 30, 2009 (in millions):