OCCIDENTAL PETROLEUM CORPORATION The following discussion should be read together with the consolidated condensed financial statements and the notes to consolidated condensed financial statements, which are included in this report in Part I, Item 1; the information set forth in Risk Factors under Part II, Item 1A; the consolidated financial statements and the notes to the consolidated financial statements, which are included in Part II, Item 8 of Occidental's 2020 Form 10-K; and the information set forth in Risk Factors under Part I, Item 1A of the 2020 Form 10-K. INDEX
PAGE
Cautionary Statement Regarding Forward-Looking Statements 25
Current Business Outlook 26
Consolidated Results of Operations 27
Segment Results of Operations and Items Affecting Comparability 28
Income Taxes 32
Liquidity and Capital Resources 32
Lawsuits, Claims, Commitments and Contingencies 33
Environmental Liabilities and Expenditures 33
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Portions of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, and they include, but are not limited to: any projections of earnings, revenue or other financial items or future financial position or sources of financing; any statements of the plans, strategies and objectives of management for future operations or business strategy; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Words such as "estimate," "project," "predict," "will," "would," "should," "could," "may," "might," "anticipate," "plan," "intend," "believe," "expect," "aim," "goal," "target," "objective," "commit," "advance," "likely" or similar expressions that convey the prospective nature of events or outcomes are generally indicative of forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Occidental does not undertake any obligation to update, modify or withdraw any forward-looking statements as a result of new information, future events or otherwise. Although Occidental believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results may differ from anticipated results, sometimes materially. Factors that could cause results to differ from those projected or assumed in any forward-looking statement include, but are not limited to: the scope and duration of the COVID-19 pandemic and ongoing actions taken by governmental authorities and other third parties in response to the pandemic; Occidental's indebtedness and other payment obligations, including the need to generate sufficient cash flows to fund operations; Occidental's ability to successfully monetize select assets and repay or refinance debt and the impact of changes in Occidental's credit ratings; assumptions about energy markets; global and local commodity and commodity-futures pricing fluctuations; supply and demand considerations for, and the prices of, Occidental's products and services; actions by theOrganization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries; results from operations and competitive conditions; future impairments of our proved and unproved oil and gas properties or equity investments, or write-downs of productive assets, causing charges to earnings; unexpected changes in costs; availability of capital resources, levels of capital expenditures and contractual obligations; the regulatory approval environment, including Occidental's ability to timely obtain or maintain permits or other governmental approvals, including those necessary for drilling and/or development projects; Occidental's ability to successfully complete, or any material delay of, field developments, expansion projects, capital expenditures, efficiency projects, acquisitions or dispositions; risks associated with acquisitions, mergers and joint ventures, such as difficulties integrating businesses, uncertainty associated with financial projections, projected synergies, restructuring, increased costs and adverse tax consequences; uncertainties and liabilities associated with acquired and divested properties and businesses; uncertainties about the estimated quantities of oil, NGL and natural gas reserves; lower-than-expected production from development projects or acquisitions; Occidental's ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes and improve Occidental's competitiveness; exploration, drilling and other operational risks; disruptions to, capacity constraints in, or other limitations on the pipeline systems that deliver Occidental's oil and natural gas and other processing and transportation considerations; general economic conditions, including slowdowns, domestically or internationally, and volatility in the securities, capital or credit markets; inflation; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; governmental actions and political conditions and events; legislative or regulatory changes, including changes relating to hydraulic fracturing or other oil and natural gas operations, retroactive royalty or production tax regimes, deepwater and onshore drilling and permitting regulations and environmental regulation (including regulations related to climate change); environmental risks and liability under federal, regional, state, provincial, tribal, local and international environmental laws and regulations (including remedial actions); Occidental's ability to recognize intended benefits from its business strategies and initiatives, such asOxy Low Carbon Ventures or announced greenhouse gas reduction targets; potential liability resulting from pending or future litigation; disruption or interruption of production or manufacturing or facility damage due to accidents, chemical releases, labor unrest, weather, power outages, natural disasters, cyber-attacks or insurgent activity; the creditworthiness and performance of Occidental's counterparties, including financial institutions, operating partners and other parties; failure of risk management; Occidental's ability to retain and hire key personnel; supply, transportation, and labor constraints; reorganization or restructuring of Occidental's operations; changes in state, federal or international tax rates; and actions by third parties that are beyond Occidental's control. Additional information concerning these and other factors can be found in Occidental's filings with theU.S. Securities and Exchange Commission , including Occidental's 2020 Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 25 --------------------------------------------------------------------------------
CURRENT BUSINESS OUTLOOK
Occidental's operations, financial condition, cash flows and levels of expenditures are highly dependent on oil prices and, to a lesser extent, NGL and natural gas prices, the Midland-to-Gulf-Coast oil spreads and the prices it receives for its chemical products. Oil prices have increased significantly in 2021. Occidental's average worldwide realized price for the three months endedSeptember 30, 2021 was$68.74 , compared to$38.51 in the same period of 2020. While the worldwide economy continues to be impacted by the ongoing effects of the COVID-19 pandemic and emergence and spread of new variants of the virus, demand for Occidental's products has increased with the lifting of certain restrictions, including certain travel restrictions and stay-at-home orders. Current oil prices could be negatively impacted by a resurgence of COVID-19 cases, slow vaccine distribution in certain large international economies, or the recurrence or tightening of travel restrictions and stay-at-home orders. We expect that oil prices in the near-term will continue to be influenced by the duration and severity of the COVID-19 pandemic and its resulting impact on oil and gas supply and demand. Occidental's operational priorities for 2021 continue to be to maximize cash flow by sustaining production in-line with its 2020 fourth quarter rate with an annualized$2.9 billion capital budget and by maintaining a majority of the cost savings achieved in 2020. Occidental intends to use excess cash flow generated during 2021, coupled with divestiture proceeds, to continue to strengthen its balance sheet by reducing its debt and other financial obligations. Year to date, Occidental has repaid a total of$4.5 billion of debt and retired$750 million in interest rate swaps, which are estimated to result in total annual interest and financing cost savings of approximately$170 million . LIABILITY MANAGEMENT In the third quarter of 2021, Occidental reduced total borrowings at face value by$4.3 billion , through a combination of cash tenders, scheduled repayments, and early retirements resulting in near-term debt maturities of$728 million in 2022 and$465 million in 2023. During the nine months endedSeptember 30, 2021 , Occidental has reduced total borrowings at face value by$4.5 billion . Occidental's Zero Coupon senior notes due 2036 (Zero Coupons) can be put to Occidental in October of each year, in whole or in part, for the then accreted value of the outstanding Zero Coupons. The Zero Coupons can next be put to Occidental inOctober 2022 , which, if put in whole, would require a payment of approximately$1.1 billion at such date. None of the outstanding Zero Coupons were put to Occidental inOctober 2021 . Occidental currently has the ability to meet this obligation and may use available capacity under the revolving credit facility (RCF) to satisfy the put should it be exercised. During the third quarter of 2021, Occidental cash settled certain interest rate swaps in advance of their mandatory termination dates with a notional value of$750 million for$815 million . The interest rate swaps remaining with a notional value of$725 million and a fair value of approximately$410 million , net of collateral, as ofSeptember 30, 2021 , have mandatory termination dates inSeptember 2022 and 2023. The interest rate swaps' fair value, and cash required to settle on their termination dates, will continue to fluctuate with changes in interest rates through the mandatory termination dates. Depending on market conditions, liability management actions or other factors, Occidental may enter into offsetting interest rate swap positions or amend or settle certain or all of the currently outstanding interest rate swaps, as appropriate. As of the date of this filing, Occidental had$5.0 billion of committed borrowing capacity under its RCF, which matures inJanuary 2023 . Additionally, Occidental has up to$400 million of capacity, subject to monthly redetermination, under its receivables securitization facility, which matures inNovember 2022 . Occidental intends to use excess cash flow and the net proceeds from theGhana asset sale to repay additional indebtedness. The closing of theGhana asset sale completed Occidental's large-scale asset divestiture program. Occidental expects its cash on hand and funds available under its RCF to be sufficient to meet its near-term debt maturities, operating expenditures and other obligations for the next 12 months from the date of this filing. DEBT RATINGS As ofSeptember 30, 2021 , Occidental's long-term debt was rated Ba2 by Moody's Investors Service, BB by Fitch Ratings and BB by Standard and Poor's. In the third quarter of 2021, Standard and Poor's upgraded Occidental's credit rating from BB- to BB. Any downgrade in credit ratings could impact Occidental's ability to access capital and increase its cost of capital. In addition, given that Occidental's current debt ratings are non-investment grade, Occidental may be requested, and in some cases be required, to provide collateral in the form of cash, letters of credit, surety bonds or other acceptable support as financial assurance of its performance and payment obligations under certain contractual arrangements such as pipeline transportation contracts, environmental remediation obligations, oil and gas purchase contracts and certain derivative instruments. As of the date of this filing, Occidental has provided required financial assurances through a combination of cash, letters of credit and surety bonds made available to it on a bilateral basis and has not issued any letters of credit under the RCF or other committed facilities. For additional information, see Risk Factors in Part I, Item 1A of Occidental's 2020 Form 10-K. 26 -------------------------------------------------------------------------------- IMPACT OF COVID-19 PANDEMIC TO GLOBAL OPERATIONS Occidental continues to focus on protecting the health and safety of its employees and contractors during the COVID-19 pandemic. Certain workplace restrictions implemented in the initial stages of the pandemic for our offices and work sites for health and safety reasons were lifted in 2021 due to higher vaccination rates and lower infection rates. Other restrictions remain in place. Occidental has not incurred material costs as a result of new protocols and procedures. Occidental continues to monitor national, state and local government directives where it has operations and/or offices. Occidental has not incurred any significant disruptions to its day-to-day operations as a result of any workplace restrictions related to the COVID-19 pandemic to date; however, the extent to which the COVID-19 pandemic could adversely affect Occidental's business, results of operations and financial condition will depend on future developments, which remain uncertain.
CONSOLIDATED RESULTS OF OPERATIONS
Occidental reported after-tax income from continuing operations of$830 million on net sales of$6.8 billion , for the three months endedSeptember 30, 2021 , compared to an after-tax loss from continuing operations of$3.7 billion on net sales of$4.1 billion for the same period of 2020. Diluted income from continuing operations per share was$0.65 for the three months endedSeptember 30, 2021 compared to a diluted loss of$4.16 for the same period of 2020. Occidental reported after-tax income from continuing operations of$1.2 billion on net sales of$18.0 billion for the nine months endedSeptember 30, 2021 , compared to an after-tax loss from continuing operations of$12.4 billion on net sales of$13.6 billion for the same period of 2020. Diluted income from continuing operations per share was$0.65 for the nine months endedSeptember 30, 2021 compared to a diluted loss of$14.26 for the same period of 2020. Excluding the impact of asset impairments, gains and losses on sales of assets and equity investments, gains and losses on derivative mark-to-market adjustments and acquisition-related costs, the increase in income from continuing operations for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, was primarily related to higher crude oil, NGL and natural gas prices, higher marketing margins in the midstream and marketing segment and higher realized prices across most chemical product lines, partially offset by lower crude oil sales volumes, higher depreciation, depletion and amortization (DD&A) rates and higher chemical ethylene and energy costs. SELECTED STATEMENTS OF OPERATIONS ITEMS Net sales increased for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020, primarily as a result of higher crude oil, NGL and natural gas prices, higher realized prices across most chemical product lines and higher marketing margins in the midstream and marketing segment, partially offset by lower crude oil sales volumes. Gains on sales of assets and equity investments, net for the nine months endedSeptember 30, 2021 , was primarily related to a$102 million gain from the sale of limited partner units of WES in the first quarter of 2021. Losses on sales of assets and equity method investments, net for the three and nine months endedSeptember 30, 2020 primarily comprised of$431 million in losses associated with mineral and surface acres located inWyoming ,Colorado andUtah and$356 million in losses related to onshore oil and gasColombia assets. Transportation and gathering expense decreased for the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily as a result of lower domestic oil and gas production volumes. Purchased commodities increased for the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, due to higher crude prices on third-party crude purchases related to the midstream and marketing segment. Other operating and non-operating expense increased for the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily due to a net gain in the second quarter of 2020 related to the settlement, curtailment, and special termination benefits on pension plans acquired fromAnadarko . Taxes other than on income increased for the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily due to higher production taxes, which are directly tied to higher commodity prices. Asset impairments and other charges for the three months endedSeptember 30, 2020 included a$2.7 billion other-than-temporary impairment on the WES equity investment. Asset impairments and other charges for the nine months endedSeptember 30, 2020 also included$7.0 billion in pre-tax impairments on oil and gas proved and unproved properties, a$1.2 billion impairment of goodwill attributable to Occidental's ownership in WES and other impairments to both proved and unproved oil and gas properties and lower of cost or net realizable value adjustments for crude inventory. Interest and debt expense, net increased for the nine months endedSeptember 30, 2021 compared to the same period in 2020, as a result of higher effective interest rates and premiums and fees related to debt tenders. Gains (losses) on interest rate swaps and warrants, net increased for the nine months endedSeptember 30, 2021 compared to the same period in 2020, due to changes in the three-month LIBOR, upon which the floating rate of the 27 -------------------------------------------------------------------------------- underlying interest rate swaps are indexed. See Note 5 - Derivat ives in the notes to the consolidated condensed financial statements in Part 1, Item 1 of this Form 10-Q for further discussion. Income (loss) from equity investments for the nine months endedSeptember 30, 2020 included a loss of approximately$240 million related to WES' write-off of its goodwill of$440 million in the first quarter of 2020. Income tax expense increased for the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, primarily due to higher pre-tax income. See further discussion under the heading Income Taxes .
SEGMENT RESULTS OF OPERATIONS AND ITEMS AFFECTING COMPARABILITY
SEGMENT RESULTS OF OPERATIONS Occidental's principal businesses consist of three reporting segments: oil and gas, chemical and midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, NGL and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream and marketing segment purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, CO2 and power. It also trades around its assets, including transportation and storage capacity, and invests in entities that conduct similar activities such as WES. The following table sets forth the sales and earnings of each operating segment and corporate items for the three and nine months endedSeptember 30, 2021 and 2020: Three months ended September 30, Nine months ended September 30, millions 2021 2020 2021 2020 Net sales (a) Oil and gas $ 4,955$ 2,989 $ 13,124 $ 10,089 Chemical 1,396 937 3,671 2,745 Midstream and marketing 702 364 2,006 1,358 Eliminations (261) (182) (758) (543) Total 6,792 4,108 18,043 13,649 Income (loss) from continuing operations Oil and gas (b) 1,467 (1,072) 2,036 (8,570) Chemical 407 178 970 472 Midstream and marketing (b) 20 (2,791) 272 (4,085) Total 1,894 (3,685) 3,278 (12,183) Unallocated corporate items (b) Interest expense, net (449) (353) (1,229) (1,015) Income tax benefit (expense) (387) 403 (446) 1,896 Other items, net (228) (20) (374) (1,082) Income (loss) from continuing operations $ 830 $
(3,655) $ 1,229
(a) Intersegment sales eliminate upon consolidation and are generally made at
prices approximating those that the selling entity would be able to obtain in
third-party transactions.
(b) Please refer to the Items Affecting Comparability table.
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ITEMS AFFECTING COMPARABILITY
The following table sets forth items affecting the comparability of Occidental's
earnings that vary widely and unpredictably in nature, timing and amount:
Three months ended September 30, Nine months ended September 30,
millions 2021 2020 2021 2020
Oil and gas
Asset impairments - domestic $ (17)
- - - (1,195)
Asset sales gains (losses), net - domestic 14 (439) 14 (425)
Asset sales losses, net - international (12) (356) (12) (356)
Rig termination and others - domestic - (23) - (61)
Rig termination and others - international - (4) - (10)
Oil, gas and CO2 derivative gains (losses), net (97) 136 (277) 1,059
Total oil and gas (112) (707) (448) (6,805)
Midstream and marketing
Asset sales gains (losses) and other, net - (46) 124 (46)
Goodwill and other asset impairment - (2,729) - (4,194)
Derivative gains (losses), net (11) (20) (176) 285
Total midstream and marketing (11) (2,795) (52) (3,955)
Corporate
Anadarko acquisition-related costs (29) (5) (122) (302) Acquisition-related pension and curtailment gains - - - 114 Interest rate swap gains (losses), net (26) 88 150 (577) Debt tender premium and related items, net (88) - (88) - Warrants gains, net - - - 5 Total corporate (143) 83 (60) (760) Valuation allowance on tax assets - (37) - (37) State tax rate revaluation - - 55 - Income taxes 60 386 123 1,607 Loss from continuing operations $ (206)
$ (2) $ 80 $ (444) $ (1,335)
Total $ (208) $ (2,990) $ (826) $ (11,285)
(a) Included in discontinued operations, net of taxes are the results of
Occidental's Ghana assets and a $403 million loss contingency which was recorded
in the first quarter of 2021 associated with Occidental's former operations in
Ecuador; see Note 8 - Lawsuits, Claims, Commitments and Contingencies in the
notes to consolidated condensed financial statements in Part I, Item 1 of this
Form 10-Q.
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OIL AND GAS SEGMENT
Oil and gas segment pre-tax income was $1.5 billion and $2.0 billion for the
three and nine months ended September 30, 2021 , respectively, compared with
segment pre-tax losses of $1.1 billion and $8.6 billion for the same periods in
2020, respectively. Excluding the impact of asset impairments and other charges
and oil, gas and CO2 derivative gains (losses), oil and gas segment results for
the three and nine months ended September 30, 2021 , compared to the same periods
in 2020, reflected higher commodity prices, partially offset by lower crude oil
sales volumes and higher DD&A rates.
As a result of Occidental's mid-year reserve review undertaken in the second
quarter of 2021, DD&A rates for the second half of 2021 were lower compared to
the first half of 2021 due to increased proved reserves primarily related to
positive price revisions. Proved oil, NGL and natural gas reserves were
estimated during this mid-year review using the unweighted arithmetic average of
the first-day-of-the-month price for each month for the twelve months ended June
30, 2021 , unless prices were defined by contractual arrangements. DD&A rates for
the three and nine months ended September 30, 2020 were lower compared to the
current period as a result of higher reported reserves volumes at year-end 2019,
consistent with higher average prices in 2019.
The following table sets forth the average sales volumes per day for oil in
thousands of barrels (Mbbl), for NGL in thousands of barrels equivalent (Mboe)
and for natural gas in millions of cubic feet (MMcf):
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Sales Volumes per Day
Oil (Mbbl)
United States 483 508 496 591
International 121 108 118 125
NGL (Mboe)
United States 219 212 214 224
International 36 36 33 37
Natural Gas (MMcf)
United States 1,295 1,439 1,303 1,609
International 496 527 471 544Total Continuing Operations Volumes
(Mboe) (a) 1,158 1,192 1,157 1,336
Operations Exited or Exiting (a) 36 64 24
62
Total Sales Volumes (Mboe) (b) 1,194 1,256 1,181
1,398
(a) Operations exited or exiting includedColombia andGhana . (b) Natural gas volumes have been converted to barrels of oil equivalent (Boe) based on energy content of six Mcf of gas to one barrel of oil. Barrels of oil equivalent does not necessarily result in price equivalency. Average daily sales volumes from continuing operations were 1,158 Mboe per day (Mboe/d) for the three months endedSeptember 30, 2021 , compared to 1,192 Mboe/d for the same period in 2020. Average daily sales volumes from continuing operations for the first nine months of 2021 and 2020 were 1,157 Mboe/d and 1,336 Mboe/d, respectively. The decrease in average daily sales volumes from continuing operations of 34 Mboe/d and 179 Mboe/d for the three and nine months endedSeptember 30, 2021 , respectively, compared to the same periods in 2020, primarily reflected declines in the Permian and DJ Basins as a result of reduced capital investment. 30 -------------------------------------------------------------------------------- The following table presents information about Occidental's average realized prices and index prices: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Average Realized Prices Oil ($/Bbl) United States $ 68.76$ 38.22 $ 63.16$ 35.27 International $ 68.65$ 39.86 $ 61.98$ 41.49 Total Worldwide $ 68.74$ 38.51 $ 62.94$ 36.36 NGL ($/Boe) United States $ 35.20$ 14.62 $ 28.20$ 11.19 International $ 26.85$ 16.24 $ 24.32$ 15.79 Total Worldwide $ 34.01$ 14.85 $ 27.68$ 11.84 Natural Gas ($/Mcf) United States $ 3.35$ 1.18 $ 2.84$ 1.09 International $ 1.68$ 1.64 $ 1.68$ 1.68 Total Worldwide $ 2.89$ 1.31 $ 2.53$ 1.24 Average Index Prices WTI oil ($/Bbl) $ 70.56$ 40.93 $ 64.82$ 38.32 Brent oil ($/Bbl) $ 73.23$ 43.37 $ 67.78$ 42.53 NYMEX gas ($/Mcf) $ 3.71$ 1.94 $ 3.06$ 1.92 Average Realized Prices as Percentage of Average Index Prices Worldwide oil as a percentage of average WTI 97 % 94 % 97 % 95 % Worldwide oil as a percentage of average Brent 94 % 89 % 93 % 85 % Worldwide NGL as a percentage of average WTI 48 % 36 % 43 % 31 % Domestic natural gas as a percentage of average NYMEX 90 % 61 % 93 % 57 % CHEMICAL SEGMENT Chemical segment pre-tax earnings for the three and nine months endedSeptember 30, 2021 were$407 million and$970 million , respectively, compared to$178 million and$472 million for the same periods in 2020, respectively. Compared to the same periods in 2020, the three and nine months endedSeptember 30, 2021 reflected improved realized prices across most product lines, partially offset by higher raw material costs, primarily ethylene and energy. MIDSTREAM AND MARKETING SEGMENT Midstream and marketing segment pre-tax earnings for the three and nine months endedSeptember 30, 2021 were$20 million and$272 million , respectively, compared to pre-tax losses of$2.8 billion and$4.1 billion for the same periods in 2020, respectively. Excluding the impact of impairment charges, net derivative mark-to-market gains and losses and asset sale gains and losses, the increase in midstream and marketing segment results for the nine months endedSeptember 30, 2021 , compared to the same period in 2020, was attributed to the rising crude oil price environment and its impact on export sales and higher realized sulfur prices atAl Hosn Gas . 31 --------------------------------------------------------------------------------
INCOME TAXES
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:
Three months ended September 30, Nine months ended September 30,
millions, except percentages 2021 2020 2021 2020
Income (loss) from continuing operations
before income taxes $ 1,217 $
(4,058)
(151) 511 (41) 2,178
International (236) (108) (405) (282)
Total income tax benefit (expense) (387) 403 (446) 1,896
Income (loss) from continuing operations $ 830 $ (3,655) $ 1,229 $ (12,384)
Worldwide effective tax rate 32% 10% 27% 13%
Occidental estimates its annual effective income tax rate in recording its
quarterly provision for income taxes in the various jurisdictions in which
Occidental operates, adjusted for certain discrete items. Each quarter,
Occidental updates these rates and records a cumulative adjustment to its income
taxes by applying the rates to the pre-tax income excluding certain discrete
items. Occidental's quarterly estimate of its effective tax rates can vary
significantly based on various forecasted items, including future commodity
prices, capital expenditures, expenses for which tax benefits are not recognized
and the geographic mix of pre-tax income and losses. The difference between the
32% and 27% effective tax rates for income from continuing operations for the
three and nine months ended September 30, 2021 , and the 21% U.S. federal
statutory tax rate is primarily driven by the jurisdictional mix of income. U.S.
income is taxed at a U.S. federal statutory rate of 21%, while international
income is subject to tax at statutory rates as high as 55%. In addition, the
effective tax rate was impacted by a state margin tax rate reduction and
one-time benefits associated with the settlement of federal and state audit
matters.
LIQUIDITY AND CAPITAL RESOURCES
AtSeptember 30, 2021 , Occidental had$2.1 billion in cash and cash equivalents and$220 million in restricted cash and restricted cash equivalents classified as current assets. Operating cash flow from continuing operations was$7.0 billion for the nine months endedSeptember 30, 2021 , compared to$2.5 billion for the same period in 2020. The increase in operating cash flow from continuing operations was primarily due to higher commodity prices as compared to the same period in 2020. This increase was partially offset by an increase in working capital related to receivables, which increased largely as a result of the improvement in prices. Occidental's net cash used by investing activities from continuing operations was$1.2 billion for the nine months endedSeptember 30, 2021 , compared to$2.4 billion for the same period in 2020. Capital expenditures for the nine months endedSeptember 30, 2021 and 2020 were approximately$1.9 billion for each period, of which substantially all were for the oil and gas segment. For the nine months endedSeptember 30, 2021 , proceeds from sales of equity investments and other assets, net primarily included the divestitures of non-strategic assets in thePermian Basin and non-operated assets in theDJ Basin and the sale of WES units. Occidental's net cash used by financing activities from continuing operations was$6.0 billion for the nine months endedSeptember 30, 2021 , compared to approximately$1.6 billion for the same period in 2020. Cash used by financing activities for the nine months endedSeptember 30, 2021 reflected the dividend payments of$630 million on preferred and common stock, debt repayments of$4.6 billion and$815 million paid in advance of the mandatory termination dates of interest rate swaps during the third quarter of 2021. As ofSeptember 30, 2021 , and as of the date of this filing, Occidental was in compliance with all covenants in its financing agreements. Occidental currently expects its cash on hand and funds available under its RCF to be sufficient to meet its near-term debt maturities, operating expenditures and other obligations for the next 12 months from the date of this filing. For information regarding upcoming debt maturities and other near-term obligations, see the Current Business Outlook section of the Management's Discussion and Analysis of Financial Condition and Results of Operations. 32 --------------------------------------------------------------------------------
LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES
Occidental accrues reserves for outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Occidental has disclosed its reserve balances for environmental remediation matters and its estimated range of reasonably possible additional losses for such matters. See Note 8 - Lawsuits, Claims, Commitments and Contingencies in the notes to the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q for further information.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Occidental's operations are subject to stringent federal, regional, state, provincial, tribal, local and international laws and regulations related to improving or maintaining environmental quality. Occidental's environmental compliance costs have generally increased over time and are expected to rise in the future. Occidental factors environmental expenditures for its operations as an integral part of its business planning process. The laws that require or address environmental remediation, including CERCLA and similar federal, regional, state, provincial, tribal, local and international laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. Occidental 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 involving 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. See Note 9 - Environmental Liabilities and Expenditures in the notes to the consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q and the Environmental Liabilities and Expenditures section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Form 10-K for additional information regarding Occidental's environmental liabilities and expenditures.
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