Occidental Petroleum 10-K 2012
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number 1-9210
Occidental Petroleum Corporation
(Exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes R No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: (Note: Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections). Yes £ No R
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period as the registrant was required to submit and post files). Yes R No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes £ No R
The aggregate market value of the voting common stock held by nonaffiliates of the registrant was approximately $83.2 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $104.04 per share of Common Stock on June 30, 2011. Shares of Common Stock held by each executive officer and director have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of potential affiliate status is not a conclusive determination for other purposes.
At January 31, 2012, there were 811,055,632 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement, filed in connection with its May 4, 2012 Annual Meeting of Stockholders, are incorporated by reference into Part III.
Items 1 And 2 Business and Properties
In this report, "Occidental" refers to Occidental Petroleum Corporation, a Delaware corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental conducts its operations through various subsidiaries and affiliates. Occidental’s executive offices are located at 10889 Wilshire Boulevard, Los Angeles, California 90024; telephone (310) 208-8800.
Occidental’s principal businesses consist of three segments. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The midstream, marketing and other segment (midstream and marketing) gathers, treats, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including pipelines and storage capacity, and trades oil, NGLs, gas and other commodities.
For information regarding Occidental's current developments, segments and geographic areas, see the information in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) section of this report and Note 16 to the Consolidated Financial Statements.
Oil and Gas Operations
Occidental’s domestic oil and gas operations are located mainly in California, Colorado, Kansas, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah and West Virginia. International operations are located in Bahrain, Bolivia, Colombia, Iraq, Libya, Oman, Qatar, the United Arab Emirates (UAE) and Yemen. Occidental sold its Argentine operations in February 2011 and has classified them as discontinued operations on a retrospective application basis.
Proved Reserves and Sales Volumes
The table below shows Occidental’s total oil, NGLs and natural gas proved reserves and sales volumes in 2011, 2010 and 2009. See "MD&A — Oil and Gas Segment," and the information under the caption "Supplemental Oil and Gas Information" for certain details regarding Occidental’s proved reserves, the reserves estimation process, sales and production volumes, production costs and other reserves-related data.
Competition and Sales and Marketing
As a producer of oil and condensate, NGLs and natural gas, Occidental competes with numerous other domestic and foreign private and government producers. Oil, NGLs and natural gas are commodities that are sensitive to prevailing global and, in certain cases local, current and anticipated market conditions. They are sold at current market prices or on a forward basis to refiners and other market participants. Occidental’s competitive strategy relies on increasing production through strategic acquisitions and enhanced oil recovery projects in mature and underdeveloped fields. Occidental also competes to develop and produce its worldwide oil and gas reserves cost-effectively and obtain the required labor and services.
OxyChem owns and operates manufacturing plants at 22 domestic sites in Alabama, Georgia, Illinois, Kansas, Louisiana, Michigan, New Jersey, New York, Ohio, Pennsylvania and Texas and at two international sites in Canada and Chile and has interests in a Brazilian joint venture.
In 2011, OxyChem announced plans to build a 182,500-ton-per-year membrane chlor-alkali plant in Tennessee, which it expects to begin operating in 2013.
OxyChem competes with numerous other domestic and foreign chemical producers. For every product it manufactures and markets, OxyChem’s market position is first or second in the United States and first, second or third in the world. OxyChem’s competitive strategy is to be a low-cost producer of its products in order to compete on price.
OxyChem produces the following products:
Midstream, Marketing and Other Operations
The midstream and marketing operations are conducted in the locations described below:
For information on capital expenditures, see the information under the heading "Liquidity and Capital Resources” in the MD&A section of this report.
Occidental employed approximately 11,300 people at December 31, 2011, 8,000 of whom were located in the United States. Occidental employed approximately 7,200 people in the oil and gas and midstream and marketing segments and 3,000 people in the chemical segment. An additional 1,100 people were employed in administrative and headquarters functions. Approximately 800 U.S.-based employees and 200 foreign-based employees are represented by labor unions.
Occidental has a long-standing strict policy to provide fair and equal employment opportunities to all applicants and employees.
For environmental regulation information, including associated costs, see the information under the heading "Environmental Liabilities and Expenditures" in the MD&A section of this report and "Risk Factors."
Occidental makes the following information available free of charge on its website at www.oxy.com:
Information contained on Occidental's web site is not part of this report.
Item 1A Risk Factors
Volatile global and local commodity pricing strongly affects Occidental’s results of operations.
Occidental’s financial results correlate closely to the prices it obtains for its products, particularly oil and gas.
Changes in consumption patterns, global and local economic conditions, inventory levels, production disruptions, the actions of OPEC, currency exchange rates, worldwide drilling and exploration activities, technological developments, weather, geophysical and technical limitations and other matters affect the supply and demand dynamics of oil and gas, which, along with the effect of changes in market perceptions, contribute to price unpredictability and volatility.
Demand and, consequently, the price obtained for Occidental’s chemical products correlate strongly to the health of the United States and global economies, 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.
Occidental’s oil and gas business operates in highly competitive environments, which affect, among other things, its results of operations and its ability to grow production and replace reserves.
Results of operations, reserves replacement and growth in oil and gas production depend, in part, on Occidental’s ability to profitably acquire, develop or find additional reserves. Occidental has many competitors (including national oil companies), some of which are: (i) larger and better funded, (ii) may be willing to accept greater risks or (iii) have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay of reserve replacement efforts. During periods of low product prices, any cash conservation efforts may delay production growth and reserve replacement efforts.
Occidental may experience delays, cost overruns, losses or unrealized expectations in development efforts and exploration activities.
Occidental bears the risks of development delays and cost overruns due to approval delays for drilling and other permits, equipment failures, construction delays, escalating costs or competition for services, materials, supplies or labor, property or border disputes, disappointing reservoir performance and other associated risks that may affect its ability to profitably grow production, replace reserves and achieve its targeted returns.
Exploration is inherently risky. Exploration is subject to delays, misinterpretation of geologic or engineering data, unexpected geologic conditions or finding reserves of disappointing quality or quantity, which may result in significant losses.
Governmental actions and political instability may affect Occidental’s results of operations.
Occidental’s businesses are subject to the decisions of many governments and political interests. As a result, Occidental faces risks of:
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.
Occidental faces risks associated with its acquisitions and divestitures.
Occidental’s acquisition and divestiture activities carry risks that it may: (i) not fully realize anticipated benefits due to less-than-expected reserves or production or changed circumstances, such as product prices; (ii) bear unexpected integration costs or experience other integration difficulties; (iii) experience share price declines based on the market’s evaluation of the activity; or (iv) assume or retain liabilities that are greater than anticipated.
Occidental’s oil and gas reserves are based on professional judgments and may be subject to revision.
Calculations of oil and gas reserves depend on estimates concerning reservoir characteristics and recoverability, including production decline rates and operating performance, as well as capital 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.
Concerns about climate change may affect Occidental’s operations.
There is an ongoing effort to assess and quantify the effects of climate change and the potential human influences on climate. The U.S. federal government and the states of California and New Mexico have adopted, and other jurisdictions are considering, legislation, regulations or policies that seek to control or reduce the production, use or emissions of “greenhouse gases” (GHG), to control or reduce the production or consumption of fossil fuels, and to increase the use of renewable or alternative energy sources. California’s cap-and-trade program is moving into the implementation phase. The U.S. Environmental Protection Agency has begun to regulate certain GHG emissions from both stationary and mobile sources. The uncertain outcome and timing of existing and proposed international, national and state measures make it difficult to predict their business impact. However, Occidental could face risks of delays in development projects, increases in costs and taxes and reductions in the demand for and restrictions on the use of its products as a result of ongoing GHG reduction efforts.
Occidental’s businesses may experience catastrophic events.
The occurrence of events, such as earthquakes, hurricanes, floods, well blowouts, fires, explosions, chemical releases, industrial accidents, physical or cyber attacks and other events that cause operations to cease or be curtailed, may negatively affect Occidental’s businesses and the communities in which it operates. Third-party insurance may not provide adequate coverage or Occidental may be self-insured with respect to the related losses.
Other risk factors.
Additional discussion of risks related to oil and gas reserves estimation processes, price and demand, litigation, environmental matters, foreign operations, impairments, derivatives and market risks appears under the headings: "MD&A — Oil & Gas Segment — Proved Reserves" and "— Industry Outlook," "— Chemical Segment — Industry Outlook," "— Midstream, Marketing and Other Segment — Industry Outlook," "— Consolidated Results of Operations," "— Lawsuits, Claims and Other Contingencies," "— Environmental Liabilities and Expenditures," "— Foreign Investments," "— Critical Accounting Policies and Estimates," and "— Derivative Activities and Market Risk."
Item 1B Unresolved Staff Comments
Occidental has no unresolved SEC staff comments that have been outstanding more than 180 days at December 31, 2011.
Item 3 Legal Proceedings
For information regarding legal proceedings, see the information under the caption, "Lawsuits, Claims and Other Contingencies" in the MD&A section of this report and in Note 9 to the Consolidated Financial Statements.
The current term of employment of each executive officer of Occidental will expire at the May 4, 2012, organizational meeting of the Board of Directors or when a successor is selected. The following table sets forth the executive officers of Occidental:
Trading Price Range and Dividends
This section incorporates by reference the quarterly financial data appearing under the caption "Quarterly Financial Data (Unaudited)" after the Notes to the Consolidated Financial Statements and the information appearing under the caption "Liquidity and Capital Resources" in the MD&A section of this report. Occidental’s common stock was held by 33,819 stockholders of record at December 31, 2011, and by approximately 475,000 additional stockholders whose shares were held for them in street name or nominee accounts. The common stock is listed and traded on the New York Stock Exchange. The quarterly financial data, which are included in this report after the Notes to the Consolidated Financial Statements, set forth the range of trading prices for the common stock as reported on the composite tape of the New York Stock Exchange and quarterly dividend information.
The quarterly dividends declared on the common stock were $0.46 for all quarters of 2011 ($1.84 for the year). On February 9, 2012, a quarterly dividend of $0.54 per share was declared on the common stock, payable on April 15, 2012 to stockholders of record on March 9, 2012. The declaration of future dividends is a business decision made by the Board of Directors from time to time, and will depend on Occidental’s financial condition and other factors deemed relevant by the Board.
Securities Authorized for Issuance under Equity Compensation Plans
All of Occidental's equity compensation plans for its employees and non-employee directors have been approved by the stockholders. The aggregate number of shares of Occidental common stock authorized for issuance under such plans was approximately 66 million as of December 31, 2011. The following is a summary of the securities reserved for issuance under such plans:
Share Repurchase Activities>
Occidental’s share repurchase activities for the year ended December 31, 2011, were as follows:
The following graph compares the yearly percentage change in Occidental’s cumulative total return on its common stock with the cumulative total return of the Standard & Poor's 500 Stock Index (S&P 500) and with that of Occidental’s peer groups over the five-year period ended on December 31, 2011. The graph assumes that $100 was invested at the beginning of the five-year period shown in the graph below in (i) Occidental common stock, (ii) in the stock of the companies in the S&P 500 and (iii) in each of the current and prior peer group companies' common stock weighted by their relative market values within the respective peer groups and that all dividends were reinvested.
In 2011, Occidental revised its current peer group due to a significant decrease in market capitalization and restructuring of a previously included entity. Prior to the revision, Occidental's peer group consisted of Anadarko Petroleum Corporation, Apache Corporation, Canadian Natural Resources Limited, Chevron Corporation, ConocoPhillips, Devon Energy Corporation, EOG Resources Inc., ExxonMobil Corporation, Hess Corporation, Marathon Oil Corporation, Royal Dutch Shell plc and Occidental. Occidental's current peer group consists of Anadarko Petroleum Corporation, Apache Corporation, Canadian Natural Resources Limited, Chevron Corporation, ConocoPhillips, Devon Energy Corporation, EOG Resources Inc., ExxonMobil Corporation, Hess Corporation, Royal Dutch Shell plc, Total S.A. and Occidental.
Item 6 Selected Financial Data>
Note: Argentine operations were sold in February 2011 and have been reflected as discontinued operations for all periods.
Item 7 and 7A
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
In this report, "Occidental" refers to Occidental Petroleum Corporation (OPC), or OPC and one or more entities in which it owns a controlling interest (subsidiaries). Occidental's principal businesses consist of three segments operated by OPC's subsidiaries and affiliates. The oil and gas segment explores for, develops and produces oil and condensate, NGLs and natural gas. The chemical segment mainly manufactures and markets basic chemicals and vinyls. The midstream, marketing and other segment gathers, treats, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, CO2 and power. It also trades around its assets, including pipelines and storage capacity, and trades oil, NGLs, gas and other commodities.
Occidental aims to maximize total returns to stockholders using the following strategies:
Occidental prefers to seek growth of oil and gas production by holding large, long-lived "legacy" oil and gas assets, like those in California and the Permian Basin, that tend to have enhanced secondary and tertiary recovery opportunities and economies of scale that lead to cost-effective production. Capital is employed to operate segment assets in a safe and environmentally sound manner. Management expects such assets to contribute substantially to earnings and cash flow after invested capital. Management currently believes its growth will be most strongly affected by the success of the development plans for its California prospects, the Permian development program, Oman and the Shah Gas Field development project in Abu Dhabi.
The primary objective of the chemical business is to generate cash flow in excess of its normal capital expenditure requirements and achieve above-cost-of-capital returns. Capital is employed to operate the chemical business in a safe and environmentally sound manner, to sustain production capacity and to focus on projects designed to improve the competitiveness of these assets. Acquisitions may be pursued when they are expected to enhance the existing core chlor-alkali and PVC businesses or take advantage of other specific opportunities.
The midstream and marketing segment is also managed to generate returns on capital employed in excess of Occidental's cost of capital. In marketing its own production and third-party purchases, Occidental attempts to maximize realized prices and margins and limit credit risk exposure. In commodities trading, Occidental seeks to generate gains using net-long positions. Capital is employed to operate segment assets in a safe and environmentally sound manner, to sustain or, where appropriate, increase operational capacity and to improve the competitiveness of Occidental's assets.
Occidental maintains financial discipline by prioritizing the uses of its cash flows in the following order:
Oil and Gas
The oil and gas business seeks to increase its oil and gas production profitably and add new reserves at a pace ahead of production while minimizing costs incurred for finding and development of such reserves. The oil and gas business implements this strategy within the limits of the overall corporate strategy primarily by:
Over the past several years, Occidental has strengthened its asset base within its core areas. Occidental has invested in, and disposed of, assets with the goal of raising the average performance and potential of its assets.
In the first quarter of 2011, Occidental sold its Argentine oil and gas operations for after-tax proceeds of approximately $2.6 billion. In 2011, Occidental also completed the acquisition of producing properties in South Texas for approximately $1.8 billion and acquired other domestic oil and gas assets, which included properties in California, as well as the Permian and Williston Basins for approximately $2.6 billion.
Internationally, Occidental acquired a 40-percent participating interest in the Shah Gas Field development project in Abu Dhabi, which is operated by Abu Dhabi Gas Development Company Limited (Al Hosn Gas Project), in the first quarter of 2011. Occidental partnered with the Abu Dhabi National Oil Company in a 30-year joint venture agreement for the $10 billion project, of which Occidental’s portion is approximately $4 billion. In May 2011, Occidental paid approximately $500 million for its share of pre-acquisition development expenditures. Approximately $460 million of this amount related to expenditures recorded in the midstream and marketing segment.
In addition, Occidental continues to deploy significant capital to its core operations in the Permian Basin and California, as well as in Iraq, Oman and Qatar, to increase production from these assets.
OxyChem’s strategy is to be a low-cost producer in order to maximize its cash flow generation. OxyChem concentrates on the chlorovinyls chain beginning with chlorine, which is co-produced with caustic soda, both of which are marketed to third parties. In addition, chlorine, together with ethylene, is converted through a series of intermediate products into PVC. OxyChem's focus on chlorovinyls allows it to maximize the benefits of integration and take advantage of economies of scale.
Midstream, Marketing and Other
The midstream and marketing segment is managed to generate returns on capital invested in excess of Occidental's cost of capital. In order to generate these returns, the segment provides low-cost services to other segments and operates and invests in gas plants and oil, gas, NGLs and CO2 pipeline systems and storage facilities. It also provides similar services to third parties. In addition, the marketing and trading group markets Occidental's and third-party oil and gas, trades around the midstream and marketing segment assets and engages in commodities trading.
Key Performance Indicators
Occidental seeks to meet its strategic goals by continuously measuring its success in its key performance metrics, which ultimately drives total stockholder return. Occidental believes the following are the most significant metrics that maximize total stockholder return:
In addition, Occidental monitors other segment-specific measures such as per-unit profit, production cost, cash flow, finding and development cost and others.
Occidental's oil and gas production has grown a cumulative 15 percent for the three-year period from 2008 through 2011. Based on the $2.16 per share annual dividend rate announced in February 2012, Occidental’s dividend rate has increased by 332 percent in 10 years. While Occidental's stockholders' equity increased by 16 percent for 2011 and 29 percent for the three-year period from 2009 through 2011, it continued to deliver above-cost-of-capital returns as follows:
As a result, through December 31, 2011, Occidental’s total stockholder return has been 110 percent over the past five years and 769 percent over the past 10 years.
Occidental’s year-end 2011 total debt-to-capitalization (debt and equity) ratio was 13 percent. In the first quarter of 2011, Occidental redeemed $1.4 billion of senior notes. Occidental issued $2.15 billion of senior unsecured notes in the third quarter of 2011.
Occidental has a $2.0 billion bank credit facility (2011 Credit Facility). The interest rate on any borrowings under the 2011 Credit Facility is based in part on Occidental’s senior debt ratings. Occidental’s long-term senior unsecured debt was rated A by Fitch Ratings, Standard and Poor’s Ratings and DBRS. Occidental’s long-term unsecured debt was rated A2 by Moody’s Investors Service. A security rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating.
Oil and Gas Segment
Oil and gas prices are the major variables that drive the industry’s short- and intermediate-term financial performance. Average oil prices were higher in 2011 than 2010. The average daily per barrel WTI and Brent market prices, respectively, for 2011 were $95.12 and $110.90, compared with $79.53 and $79.61 in 2010. Approximately 60 percent of Occidental’s oil production tracks world oil prices, such as Brent, and 40 percent is indexed to WTI. Occidental’s average realized price for oil as a percentage of average WTI and Brent prices was approximately 103 percent and 88 percent for 2011, and 95 percent and 94 percent for 2010, respectively. Occidental's average realized price for NGLs as a percentage of average WTI price was approximately 56 percent and 57 percent for 2011 and 2010, respectively.
The average daily New York Mercantile Exchange (NYMEX) domestic natural gas price in 2011 decreased approximately 8 percent from 2010. For 2011, the price averaged $4.11 per Mcf compared with $4.49 per Mcf for 2010, and was $2.99 per Mcf as of December 31, 2011.
Prices and differentials can vary significantly, even on a short-term basis, making it impossible to predict realized prices with a reliable degree of certainty.
Occidental conducts its domestic operations through land leases, subsurface mineral rights it owns or a combination of both surface land and subsurface mineral rights it owns. Occidental's domestic oil and gas leases have a primary term ranging from one to ten years, which are extended through the end of production once production commences. Of the total 7.4 million net acres domestically where Occidental conducts its operations, 73 percent is leased, 26 percent represents owned subsurface mineral rights and for 1 percent it owns both land and the mineral rights.
Occidental has interests in Bahrain, Iraq, Libya, Oman, Yemen and Qatar, including Dolphin, that are operated under PSCs or similar contracts. Under such contracts, Occidental receives a share of production and reserves to recover its costs and an additional share for profit. In addition, Occidental's share of production and reserves from operations in Long Beach, California, and certain contracts in Colombia are subject to contractual arrangements similar to a PSC. These contracts do not transfer any right of ownership to Occidental and reserves reported from these arrangements are based on Occidental’s economic interest as defined in the contracts. Occidental’s share of production and reserves from these contracts decreases when product prices rise and increases when prices decline. Overall, Occidental’s net economic benefit from these contracts is greater when product prices are higher.
The following chart shows Occidental’s total volumes for the last five years:
Worldwide Sales Volumes
United States Assets>
Occidental's Permian production is diversified across a large number of producing areas in the Permian Basin. The Permian Basin extends throughout southwest Texas and southeast New Mexico and is one of the largest and most active oil basins in the United States, with the entire basin accounting for approximately 16 percent of the total United States oil production. Occidental is the largest producer of oil in the Permian Basin with an approximate 15-percent net share of the total production. Occidental also produces and processes natural gas and NGLs in the Permian Basin.
In the past several years, including 2011, Occidental increased its Permian interests through various acquisitions.
Occidental’s interests in Permian offer additional development and exploitation potential. During 2011, Occidental drilled approximately 409 wells on its operated properties and participated in additional wells drilled on third-party-operated properties. Occidental also focused on improving the performance of existing wells.
Approximately 64 percent of Occidental’s Permian oil production is from fields that actively employ the application of CO2 flood technology, an enhanced oil recovery (EOR) technique. This technique involves injecting CO2 into oil reservoirs where it causes the oil to flow more freely into producing wells. These CO2 flood operations make Occidental a world leader in the application of this technology. During 2011, Occidental’s non-CO2 operations increased their development program, which accounted for more than half of the wells drilled in Permian.
Occidental's total share of production in Permian was approximately 198,000 BOE per day in 2011.
Occidental's California operations consist of holdings in the Elk Hills area, the Wilmington and other fields in the Los Angeles basin and interests in the Ventura, San Joaquin and Sacramento basins. Occidental's properties in California consist of more than 90 fields.
Occidental's interests in the Elk Hills area include the Elk Hills oil and gas field in the southern portion of California’s San Joaquin Valley, which it operates with an approximate 78-percent interest, along with other adjacent properties. The Elk Hills Field is the largest producer of gas and NGLs in California. During 2011, Occidental continued to invest in the Elk Hills area, performing infill drilling, field extensions and recompletions identified by advanced reservoir characterization techniques, resulting in approximately 330 new wells being drilled.
Occidental began construction of a new gas processing plant in the Elk Hills area in 2010, which is expected to be completed in 2012.
Occidental holds approximately 1.7 million acres in California, the vast majority of which are net fee mineral interests. As a result, Occidental has a substantial inventory of properties available for future development and exploitation in conventional areas, as well as unconventional prospects, such as shale. In all of California during 2011, Occidental drilled approximately 675 wells and performed approximately 500 workovers.
Occidental's share of production and reserves from its operations in the Wilmington Field is subject to contractual arrangements similar to a PSC.
Occidental's total share of production in California was approximately 138,000 BOE per day in 2011.
Midcontinent and Other>
The Midcontinent properties, which include interests in the Hugoton Field and the Piceance Basin, are located in Colorado, Utah, Kansas and Oklahoma. Occidental holds over 2.4 million net acres in the midcontinent region, which includes 1.4 million acres in a large concentration of gas reserves and production and royalty interests in the Hugoton area located in Kansas and Oklahoma, and approximately 1.0 million acres in Colorado and Utah.
Other interests are located in North Dakota, Montana, South Texas and West Virginia. In January 2011, Occidental completed the acquisition of producing properties in South Texas. Occidental holds approximately 138,000 net acres in South Texas. Occidental also holds approximately 277,000 net acres of oil producing and prospective unconventional properties in North Dakota’s Williston Basin, including acreage in the Bakken and Three Forks formations. A substantial portion of this acreage was purchased in 2011 and 2010. In addition, Occidental holds 229,000 net acres in West Virginia.
In Midcontinent and Other, Occidental drilled approximately 270 wells and produced approximately 92,000 BOE per day in 2011. Occidental expects to reduce drilling activity for gas wells in 2012.
Middle East/North Africa Assets>
In 2009, Occidental and its partners began operating the Bahrain Field under a 20-year development and production sharing agreement (DPSA). Occidental has a 48-percent working interest in the joint venture. Since handover of operations, Occidental and its partners have increased gross gas production capacity more than 40 percent from an initial level of 1.5 billion cubic feet per day to over 2.1 billion cubic feet per day and increased gross oil production by 60 percent from 26,000 barrels per day to 42,000 barrels per day. Occidental plans to continue growing gross gas production capacity to over 2.3 billion cubic feet per day and gross oil production to over 75,000 barrels. Occidental's share of production from Bahrain during 2011 was approximately 173 million cubic feet (MMcf) of gas and 4,000 barrels of oil per day.
In 2010, Occidental and its partners signed a 20-year contract with the South Oil Company of Iraq to develop the Zubair Field. Occidental has a 23.44-percent interest in this contract, which entitles Occidental to receive oil for cost recovery and a remuneration fee, as a result of having achieved an initial gross production threshold of approximately 180,000 BOE per day in 2010. Occidental and its partners plan to increase production to a contractually targeted production level of 1.2 million BOE per day by 2016 and maintain this level of production for seven years. Occidental's share of production in Iraq was approximately 7,000 BOE per day in 2011.
Occidental, under agreements with the Libyan National Oil Corporation, participates in Sirte Basin producing operations. These agreements continue through 2032.
In early 2011, Occidental ceased exploration activities and its participation in production operations in Libya due to civil unrest in the country and United States sanctions. The United States government lifted its sanctions in September 2011 and Occidental resumed its participation in the producing operations at that time. Occidental Libya’s 2011 and 2010 production volumes were approximately 4,000 and 13,000 BOE per day, representing less than 1 percent and 2 percent, respectively, of Occidental’s worldwide volumes.
In Oman, Occidental is the operator of Block 9 and Block 27, with a 65-percent working interest in each block; Block 53, with a 45-percent working interest; and Block 62, with a 48-percent working interest.
Occidental and its partners signed a 30-year PSC for the Mukhaizna Field (Block 53) with the Government of Oman in 2005, pursuant to which Occidental assumed operations of the field. By the end of 2011, Occidental had drilled over 1,400 new wells and continued implementation of a major steam flood project. As of year-end 2011, the exit rate of gross daily production was over 16 times higher than the production rate in September 2005, reaching 124,000 BOE per day. Occidental plans to steadily increase production through continued expansion of the steam flood project.
The term for Block 9 is through December 2015, with a potential 10-year extension. The term for Block 27 is through September 2035.
In 2008, Occidental was awarded a 20-year contract for Block 62, subject to declaration of commerciality, where it is pursuing development and exploration opportunities targeting gas and condensate resources.
Occidental's share of production from the Oman properties was approximately 76,000 BOE per day in 2011.
Occidental operates three offshore projects in Qatar: Idd El Shargi North Dome (ISND) and Idd El Shargi South Dome (ISSD), with a 100-percent working interest in each project, and Al Rayyan (Block 12), with a 92.5-percent working interest. The terms for ISND, ISSD and Block 12 extend through 2019, 2022 and 2017, respectively.
In 2011, Occidental received approval from the Government of Qatar for the fourth phase of field development of the ISND Field, focusing on continued development of mature reservoirs while further delineating and developing less mature reservoirs. Drilling under this phase is planned to be completed in 2012. Occidental also received approval for field development plans for ISSD and Al Rayyan, which would include additional drilling through 2013.
Occidental also has an investment in Dolphin, which was acquired in 2002, consisting of two separate economic interests through which Occidental owns: (i) a 24.5-percent undivided interest in the operations under a DPSA with the Government of Qatar to develop and produce natural gas and NGLs in Qatar’s North Field through mid-2032, with a provision to request a five-year extension; and (ii) a 24.5-percent interest in the stock of Dolphin Energy Limited (Dolphin Energy), which is discussed further in "Midstream, Marketing and Other Segment – Pipeline Transportation."
Occidental's share of production from all of its operations in Qatar was approximately 126,000 BOE per day in 2011.
United Arab Emirates>
In the first quarter of 2011, Occidental acquired a 40-percent participating interest in the Al Hosn Gas Project. Occidental partnered with the Abu Dhabi National Oil Company in a 30-year joint venture agreement for the project. The project is anticipated to produce over 500 MMcf per day of natural gas, of which Occidental’s net share would be over 200 MMcf per day. In addition, the project is expected to produce over 50,000 barrels per day of NGLs and condensates, of which Occidental’s net share would be over 20,000 barrels per day. Occidental’s 2011 capital expenditures for this project were approximately $460 million, with an additional $500 million paid for Occidental's share of pre-acquisition development expenditures. A substantial portion of the total expenditures to date have been incurred in connection with plants and facilities, which are included in the midstream and marketing segment. As the development project progresses, higher portions of the capital will be spent to drill wells, which will be reflected in the oil and gas segment. Occidental believes that its share of remaining capital until production from the field begins (expected to be in 2014), will be approximately $3 billion.
Occidental conducts a majority of its Middle East business development activities through its office in Abu Dhabi, which also provides various support functions for Occidental’s Middle East/North Africa oil and gas operations.
Occidental owns contractual interests in two producing blocks in Yemen, Block 10 East Shabwa Field with a 40.4-percent interest that includes an 11.8-percent interest held in an unconsolidated entity, and Block S-1 An Nagyah Field, which is an Occidental-operated block with a 75-percent working interest. Occidental’s working interests in the Block 14 Masila Field expired in December 2011.
Occidental's share of production from the Yemen properties was approximately 27,000 BOE per day in 2011, which included nearly 11,000 BOE per day from the Masila Field.
Latin America Assets>
Occidental holds working interests in four blocks located in the Tarija, Chuquisaca and Santa Cruz regions of Bolivia.
Occidental is the operator under four contracts within the Llanos Norte Basin: the Cravo Norte, Rondón, Cosecha and Chipirón association contracts. Occidental’s working interests under these four contracts are 39 percent, 44 percent, 53 percent and 61 percent, respectively. Occidental also holds a 48-percent working interest in the La Cira-Infantas Field, which is located in the Middle-Magdalena Basin. Occidental's share of 2011 production from its Colombian operations was approximately 29,000 BOE per day.
For further information regarding Occidental's proved reserves, see "Supplemental Oil and Gas Information" following the "Financial Statements."
Occidental had proved reserves at year-end 2011 of 3,176 million BOE, as compared with the year-end 2010 amount of 3,167 million BOE. Proved reserves at year-end 2011 and 2010 consisted of, respectively, 63 percent and 64 percent oil, 9 percent and 9 percent NGLs and 28 percent and 27 percent natural gas. Proved developed reserves represented approximately 76 percent of Occidental’s total proved reserves at year-end 2011 and 2010.
Occidental's total proved reserve additions from all sources were 276 million BOE in 2011. The total additions were as follows:
Occidental's ability to add reserves, other than through purchases, depends on the success of improved recovery, extension and discovery projects, each of which depends on reservoir characteristics, technology improvements, oil and natural gas prices, as well as capital and operating costs. Many of these factors are outside of management’s control, and will affect whether or not these historical sources of proved reserve additions continue at similar levels.
Revisions can include upward or downward changes to previous proved reserves estimates for existing fields due to the evaluation of existing or new geologic, production decline or operating performance data, or changes in prices and costs that are used in reserves estimations. In 2011, revisions of previous estimates provided a net 214 million BOE reduction to reserves.
Oil price changes affect proved reserves recorded by Occidental. For example, when oil prices increase, less oil volume is required to recover costs under PSCs, which results in a reduction of Occidental’s share of proved reserves. Conversely, when oil prices drop, Occidental’s share of proved reserves increases for these PSCs. Oil and natural gas price changes also affect the economic lives of proved reserves, primarily in domestic properties, in a manner offsetting these PSC effects, because higher prices result in longer reservoir lives and more reserves.
In 2011, Occidental’s domestic reserves had a positive price-related revision as a result of higher oil prices, net of negative revisions in certain properties resulting from lower gas prices during the year. International reserves had negative price adjustments due to high oil prices. Price adjustments for the company as a whole were negative. If the currently prevailing natural gas prices stay at depressed levels for an extended period, domestic gas reserves could experience a further negative price revision at the end of 2012.
Other revisions outside the United States were largely in Libya and Iraq. In Libya, the revision was the result of the current situation in the country where development plans for proved undeveloped reserves have not yet been put into effect. In Iraq, a slower than
expected pace of the development resulted in a revision to the proved undeveloped reserves. In both countries, Occidental expects that these reserves will be reinstated as the development plans progress. Other revisions internationally were caused by the performance of previously drilled wells.
In the United States, other revisions were caused by performance issues related to wells drilled in prior periods. The revisions involved several properties where wells experienced higher than expected decline rates. Sizable portions of these revisions were transferred from the proved category to probable, possible and contingent categories.
Apart from the effects of product prices, Occidental believes its approach to interpreting technical data regarding proved oil and gas reserves makes it more likely that future proved reserve revisions will be positive rather than negative.
In 2011, Occidental added proved reserves of 264 million BOE from improved recovery through its EOR and infill drilling activities. Generally, the improved recovery additions in 2011 were associated with the continued development of properties in California, Permian, Williston, Oman, Colombia and Bahrain. These properties are generally characterized by the deployment of secondary and tertiary development projects, largely employing application of waterflood (secondary), steamflood (tertiary) or CO2 (secondary or tertiary) injection. These development projects are often applied through existing wells, though additional drilling may be required to fully optimize the development configuration. Waterflooding is the technique of injecting water into the formation to displace the oil to the offsetting oil production wells. Steamflooding is the technique of injecting steam into the formation to lower oil viscosity so that it flows more freely into producing wells. This process is applied in areas where the oil is too viscous to be effectively moved with water. CO2 flooding involves injecting CO2 into oil reservoirs where it causes the oil to flow more freely into producing wells. In addition, some improved recovery comes from drilling infill wells that allow recovery of reserves that would not be recoverable from existing wells.
Occidental also obtained reserve additions from extensions and discoveries, which are dependent on successful exploration and exploitation programs. In 2011, extensions and discoveries added 25 million BOE.
Occidental continues to add reserves through acquisitions when properties are available at prices it deems reasonable. As market conditions change, the available supply of properties may increase or decrease accordingly. In 2011, Occidental added 201 million BOE through purchases of proved reserves largely consisting of several domestic acquisitions in South Texas, the Permian Basin and California.
In 2011, Occidental had proved undeveloped reserves additions of 307 million BOE from improved recovery, extensions and discoveries and purchases. Of the total additions, 186 million BOE represented additions from improved recovery, primarily in California, Permian, Williston, Oman, Colombia, Bahrain and Qatar. Occidental added 106 million BOE through purchases of proved undeveloped reserves domestically in South Texas, the Permian Basin and California. These proved undeveloped reserve additions were offset by reserves transfers of 178 million BOE to the proved developed category as a result of the 2011 development programs. Occidental incurred approximately $2.7 billion in 2011 to convert proved undeveloped reserves to proved developed reserves. Permian, California, Midcontinent, Oman, Qatar and Bahrain accounted for approximately 89 percent of the reserves transfers from proved undeveloped to proved developed in 2011. Costs to develop proved undeveloped reserves have increased over time and costs of transfers to proved developed reserves may continue to increase.
Occidental’s estimates of proved reserves and associated future net cash flows as of December 31, 2011, were made by Occidental’s technical personnel and are the responsibility of management. The estimation of proved reserves is based on the requirement of reasonable certainty of economic producibility and funding commitments by Occidental toward the development of reserves. This process involves reservoir engineers, geoscientists, planning engineers and financial analysts. As part of the proved reserves estimation process, all reserves volumes are estimated by a forecast of production rates, operating costs and capital expenditures. Price differentials between benchmark prices (the unweighted arithmetic average of the first-day-of-the-month price for each month within the year) and realized prices and specifics of each operating agreement are then used to estimate the net reserves. Production rate forecasts are derived by a number of methods, including estimates from decline curve analysis, type-curve analysis, material balance calculations that take into account the volumes of substances replacing the volumes produced and associated reservoir pressure changes, seismic analysis and computer simulation of the reservoir performance. These field-tested technologies have demonstrated reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. Operating and capital costs are forecast using the current cost environment applied to expectations of future operating and development activities.
Net proved developed reserves are those volumes that are expected to be recovered through existing wells with existing equipment and operating methods for which the incremental cost of any additional required investment is relatively minor. Net proved undeveloped reserves are those volumes that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
The current Senior Director of Worldwide Reserves and Reservoir Engineering is responsible for overseeing the preparation of reserve estimates, in compliance with SEC rules and regulations, including the internal audit and review of Occidental's oil and gas reserves data. The Senior Director has over 30 years of experience in the upstream sector of the exploration and production
business, and has held various assignments in North America, Asia and Europe. He is a three-time past Chair of the Society of Petroleum Engineers Oil and Gas Reserves Committee. He is an American Association of Petroleum Geologists (AAPG) Certified Petroleum Geologist and currently serves on the AAPG Committee on Resource Evaluation. He is a member of the Society of Petroleum Evaluation Engineers, the Colorado School of Mines Potential Gas Committee and the UNECE Expert Group on Resource Classification. He is also an active member of the Joint Committee on Reserves Evaluator Training (JCORET). The Senior Director has Bachelor of Science and Master of Science degrees in geology from Emory University in Atlanta.
Occidental has a Corporate Reserves Review Committee (Reserves Committee) consisting of senior corporate officers to monitor, review and approve Occidental's oil and gas reserves. The Reserves Committee reports to the Audit Committee of Occidental's Board of Directors during the year. Since 2003, Occidental has retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its annual oil and gas reserve estimation processes.
In 2011, Ryder Scott conducted a process review of Occidental’s methods and analytical procedures utilized by Occidental’s engineering and geological staff for estimating the proved reserves volumes, preparing the economic evaluations and determining the reserves classifications as of December 31, 2011, in accordance with the U.S. Securities and Exchange Commission (SEC) regulatory standards. Ryder Scott reviewed the specific application of such methods and procedures for selected oil and gas properties considered to be a valid representation of Occidental’s 2011 year-end total proved reserves portfolio. In 2011, Ryder Scott reviewed approximately 20 percent of Occidental’s proved oil and gas reserves. Since being engaged in 2003, Ryder Scott has reviewed the specific application of Occidental’s reserve estimation methods and procedures for approximately 76 percent of Occidental’s existing proved oil and gas reserves. Management retains Ryder Scott to provide objective third-party input on its methods and procedures and to gather industry information applicable to Occidental’s reserve estimation and reporting process. Ryder Scott has not been engaged to render an opinion as to the reasonableness of reserves quantities reported by Occidental. Occidental has filed Ryder Scott's independent report as an exhibit to this Form 10-K.
Based on its reviews, including the data, technical processes and interpretations presented by Occidental, Ryder Scott has concluded that the overall procedures and methodologies Occidental utilized in estimating the proved reserves volumes for the reviewed properties are appropriate for the purpose thereof, and comply with current SEC regulations.
The petroleum industry is highly competitive and subject to significant volatility due to numerous current and anticipated market conditions. The WTI and Brent oil price indexes generally increased throughout 2011, settling at $98.83 per barrel and $107.38 per barrel as of December 31, 2011.
Oil prices will continue to be affected by (i) global supply and demand, which is generally a function of global economic conditions, inventory levels, production disruptions, currency exchange rates, and the actions of OPEC, other significant producers and governments, and (ii) the effect of changes in these variables on market perceptions. These factors make it impossible to predict the future direction of oil prices reliably. Occidental continues to adjust to economic conditions by adjusting capital expenditures in line with current economic conditions with the goal of keeping returns well above its cost of capital.
NGL prices are related to the supply and demand for the components of products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products for which they are used as feedstock. In addition, infrastructure constraints magnify the pricing volatility from region to region. The volatility in all of these markets makes it impossible to predict NGL prices reliably.
Domestic natural gas prices and local differentials are strongly affected by local supply and demand fundamentals, as well as government regulations and availability of transportation capacity from producing areas. These and other factors can cause prices to be volatile, making it impossible to forecast gas prices reliably.
Chemical segment earnings increased in 2011 as certain economies continued to recover from the global economic downturn. Higher margins across most product lines were achieved as prices more than offset higher feedstock costs.
During 2011, United States and international manufacturing sectors continued to recover from the global economic downturn resulting in strong demand and pricing for basic chemical products. Industry chlorine production increased by 2 percent, compared to 2010, as chlorine demand in emerging economies continued to outpace United States demand. Exports of downstream chlorine derivatives remained competitive in offshore markets as a result of the North America feedstock cost advantages, which are driven mostly by natural gas prices. Pricing for liquid caustic soda improved each quarter of 2011 partly as a result of major global events, including the devastating tsunami in Japan, which led to an increase in exports of 7 percent over 2010. Chlorine prices remained steady throughout the year, and began to decrease during the fourth quarter due to seasonal slowdowns, which negatively impacted overall chlorine demand.
Year-over-year domestic vinyls demand fell 3.6 percent due to the persistent low demand from the housing and commercial construction markets. Consequently, domestic operating rates in 2011 were down 1 percent compared to 2010, and margins also decreased in 2011. In addition, ethylene costs, which contribute significantly to feedstock costs, increased
globally in 2011. However, North American-produced ethylene continues to cost significantly less compared to costs in Europe and Asia, giving North American vinyl products an advantage in global markets. As a result, Occidental's vinyl exports in 2011 were 19 percent higher compared to 2010.
Future performance will depend on the recovery of domestic housing and construction markets, positive global economic activity, and the cost competitiveness of United States feedstock and energy pricing compared to global markets.
Occidental expects that if the United States housing, automotive and durable goods sectors continue to improve, it should experience higher domestic demand for basic chemical products in 2012. With the stronger demand, chlorine and caustic soda margins would be expected to generally remain at 2011 levels. The continued competitiveness of downstream chlorine derivatives in global markets is contingent on United States feedstock costs remaining favorable compared to other global markets.
If the United States economy continues to improve, domestic demand for vinyls and operating rates would also be expected to improve in 2012, which should result in better domestic margins. Occidental expects export demand to remain firm, but for margins to be challenged as North American ethylene producers operate near capacity reducing the United States cost advantages compared to other vinyl producing regions of the world.
Midstream, Marketing and Other Segment
Midstream and marketing segment earnings are affected by the performance of its marketing and trading businesses and its processing and transportation assets. The marketing and trading businesses earn margins from trading oil, gas and other commodities, marketing the oil and gas segment's products and storage activity. Earnings related to processing and transportation are affected by the volumes that are processed at, and transported through, the segment's plants and pipelines, as well as the margins obtained on related services.
The midstream and marketing segment earnings were modestly lower in 2011, compared to 2010, reflecting lower marketing and trading income, partially offset by higher pipeline income.
The marketing and trading group markets substantially all of Occidental’s oil, NGLs and gas production, trades around the midstream and marketing segment assets and engages in commodities trading. Occidental’s third-party marketing and trading activities focus on purchasing oil, NGLs and gas for resale from partners, producers and third parties whose oil and gas supply is located near its midstream and marketing assets, such as pipelines, processing plants and storage facilities. These purchases allow Occidental to aggregate volumes to maximize prices received for Occidental’s production. In addition, Occidental’s Phibro trading unit's strategy is to profit from market price changes. Marketing and trading earnings are affected primarily by commodity price changes and margins in oil and gas transportation and storage programs. In 2011, the marketing and trading group earnings decreased due to lower trading results.
Occidental processes its and third-party domestic wet gas to extract NGLs and other gas by-products, including CO2, and delivers dry gas to pipelines. Margins primarily result from the difference between inlet costs of wet gas and market prices for NGLs. Occidental’s 2011 earnings from these operations improved compared to 2010, due to higher gas processing volumes and higher NGL prices.
Margin and cash flow from pipeline transportation operations mainly reflect volumes shipped. Dolphin Energy owns and operates a 230-mile-long, 48-inch diameter natural gas pipeline (Dolphin Pipeline), which transports dry natural gas from Qatar to the UAE. Through its 24.5-percent interest in Dolphin Energy, the Dolphin Pipeline investment contributes significantly to Occidental's pipeline transportation results. The Dolphin Pipeline has a capacity to transport up to 3.2 Bcf of natural gas per day and currently transports approximately 2.3 Bcf per day. Demand for natural gas in the UAE and Oman has grown and Dolphin Energy’s customers have requested additional gas supplies. To help fulfill this growing demand, Dolphin Energy will continue to pursue an agreement to secure an additional supply of gas from Qatar.
Occidental owns an oil-gathering, common carrier pipeline and storage system with approximately 2,700 miles of pipelines from southeast New Mexico across the Permian Basin of southwest Texas to Cushing, Oklahoma. The system has a current throughput capacity of about 365,000 barrels per day, 5.8 million barrels of active storage capability as well as 64 truck unloading facilities at various points along the system, which allow for additional volumes to be delivered into the pipeline.
Occidental owns approximately 35 percent of the General Partner of Plains All-American Pipeline, L.P. (Plains Pipeline), an oil and gas pipeline transportation, storage, terminalling and marketing entity.
Occidental’s 2011 pipeline transportation earnings improved due to better revenues and margins from all of these assets.
Earnings from power generation facilities are derived from the sales of steam and power to affiliates and third parties. Occidental’s 2011 earnings from these facilities were flat compared to 2010. On December 31, 2010, Occidental completed its acquisition of the remaining 50-percent joint-venture interest in Elk Hills Power, LLC (EHP), a limited liability company that operates a gas-fired power-generation plant in California, bringing Occidental's total ownership to 100 percent.
The pipeline transportation and power generation businesses are expected to remain relatively stable. The gas processing plant operations could have volatile results depending mostly on NGL prices, which cannot be predicted. Generally, higher NGL prices result in higher profitability. The trading and marketing business is inherently volatile. Based on its framework of controls and risk management systems, Occidental does not expect the volatility of these operations to be significant to the company as a whole.
Segment Results of Operations>
Segment earnings 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:
The following tables set forth the production and sales volumes of oil, NGLs and natural gas per day for each of the three years in the period ended December 31, 2011. The differences between the production and sales volumes per day are generally due to the timing of shipments at Occidental’s international locations where product is loaded onto tankers.
Oil and gas segment earnings in 2011 were $10.2 billion compared to $7.2 billion in 2010. The increase reflected higher oil and NGL prices and volumes, partially offset by higher depreciation, depletion and amortization (DD&A) rates and higher operating costs, including higher field support, workover and well maintenance expenses driven by Occidental’s program to increase production at current high oil prices.
Daily oil and gas production volumes were 733,000 BOE for 2011, compared with 711,000 BOE for 2010. The increase was mainly due to acquisitions in South Texas, California and the Williston Basin, including the effect of post-acquisition capital investment, and higher production in Oman’s Mukhaizna Field and Iraq, which were partially offset by lower production in Libya. Production was negatively impacted in the Middle East/North Africa, Colombia and Long Beach by higher year-over-year average oil prices affecting PSCs by 18,000 BOE per day. Daily sales volumes were 731,000 BOE in the twelve months of 2011, compared with 705,000 BOE for 2010.
Oil and gas segment earnings in 2010 were $7.2 billion compared to $5.1 billion in 2009. The increase reflected higher average worldwide oil, NGL and domestic natural gas prices and higher volumes, partially offset by higher operating expenses partly resulting from fully expensing CO2, higher field support and workover expenses and higher DD&A rates.
Daily oil and gas production volumes were 711,000 BOE for 2010, compared with 677,000 BOE for 2009. The increase was mainly due to the new production in Bahrain, higher production in the Mukhaizna Field in Oman, and gas production from domestic assets, which were partially offset by a decline in Colombia. Production was negatively impacted in the Middle East/North Africa, Long Beach and Colombia by higher year-over-year average oil prices affecting PSCs by 16,000 BOE per day. Daily sales volumes were 705,000 BOE in the twelve months of 2010, compared with 678,000 BOE for 2009.
Oil and gas segment earnings in 2011 include pre-tax charges of $35 million related to exploration write-offs in Libya and $29 million related to Colombia net worth tax, as well as a pre-tax gain for sale of an interest in a Colombian pipeline of $22 million.
Oil and gas segment earnings in 2010 included a pre-tax charge of $275 million for asset impairments, predominately of gas properties in the Rocky Mountain region. Oil and gas segment earnings in 2009 included an $8 million pre-tax charge for the termination of rig contracts.
Average production costs for 2011, excluding taxes other than on income, were $12.84 per BOE, compared to $10.19 for 2010. The increase resulted from higher workover and well maintenance activity driven by Occidental’s program to increase production at current increased oil prices. We expect further increases in the activity level in 2012.