Edgar Filing: OCCIDENTAL PETROLEUM CORP /DE/

Occidental Petroleum Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008

o Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to

Commission File Number 1-9210

Occidental Petroleum Corporation

(Exact name of registrant as specified in its charter)

State or other jurisdiction of incorporation or organization	Delaware
I.R.S. Employer Identification No.	95-4035997
Address of principal executive offices	10889 Wilshire Blvd., Los Angeles, CA
Zip Code	90024
Registrant’s telephone number, including area code	(310) 208-8800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
10 1/8% Senior Debentures due 2009	New York Stock Exchange
9 1/4% Senior Debentures due 2019	New York Stock Exchange
Common Stock	New York Stock Exchange

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. þ YES o 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 Section13 or 15(d) of the Exchange Act from their obligations under those Sections). o YES þ NO

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. þ YES o 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. þ

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).

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). o YES þ NO

The aggregate market value of the voting common stock held by nonaffiliates of the registrant was approximately $71.9 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $89.86 per share of Common Stock on June 30, 2008. 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, 2009, there were 810,294,560 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement, filed in connection with its May 1, 2009, Annual Meeting of Stockholders, are incorporated by reference into Part III.

TABLE OF CONTENTS

		Page
Part I
Items 1 and 2	Business and Properties	3
	General	3
	Oil and Gas Operations	3
	Chemical Operations	4
	Midstream, Marketing and Other Operations	5
	Capital Expenditures	5
	Employees	5
	Environmental Regulation	5
	Available Information	5
Item 1A	Risk Factors	6
Item 1B	Unresolved Staff Comments	7
Item 3	Legal Proceedings	7
Item 4	Submission of Matters to a Vote of Security Holders	7
	Executive Officers	7
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities	8
Item 6	Selected Financial Data	10
Item 7 and 7A	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	10
	Strategy	10
	Oil and Gas Segment	12
	Chemical Segment	17
	Midstream, Marketing and Other Segment	18
	Corporate	19
	Segment Results of Operations	19
	Significant Items Affecting Earnings	21
	Taxes	21
	Consolidated Results of Operations	22
	Consolidated Analysis of Financial Position	23
	Liquidity and Capital Resources	24
	Off-Balance-Sheet Arrangements	25
	Lawsuits, Claims, Commitments, Contingencies and Related Matters	26
	Environmental Liabilities and Expenditures	27
	Foreign Investments	28
	Critical Accounting Policies and Estimates	28
	Significant Accounting Changes	31
	Derivative Activities and Market Risk	32
	Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data	33
Item 8	Financial Statements and Supplementary Data	34
	Management's Annual Assessment of and Report on Internal Control Over Financial Reporting	34
	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	35
	Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	36
	Consolidated Statements of Income	37
	Consolidated Balance Sheets	38
	Consolidated Statements of Stockholders’ Equity	40
	Consolidated Statements of Comprehensive Income	40
	Consolidated Statements of Cash Flows	41
	Notes to Consolidated Financial Statements	42
	Quarterly Financial Data (Unaudited)	73
	Supplemental Oil and Gas Information (Unaudited)	75
	Financial Statement Schedule:
	Schedule II – Valuation and Qualifying Accounts	84
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	85
Item 9A	Controls and Procedures	85
	Disclosure Controls and Procedures	85
Part III
Item 10	Directors, Executive Officers and Corporate Governance	85
Item 11	Executive Compensation	85
Item 12	Security Ownership of Certain Beneficial Owners and Management	85
Item 13	Certain Relationships and Related Transactions and Director Independence	85
Item 14	Principal Accountant Fees and Services	85

Part IV
Item 15	Exhibits and Financial Statement Schedules	86

Part I

ITEMS 1 AND 2 BUSINESS AND PROPERTIES

In this report, "Occidental" refers to Occidental Petroleum Corporation, a Delaware corporation (OPC), and/or one or more entities in which it owns a majority voting interest (subsidiaries). Occidental conducts its operations through various oil and gas, chemical, midstream, marketing and other subsidiaries and affiliates. Occidental’s executive offices are located at 10889 Wilshire Boulevard, Los Angeles, California 90024; telephone (310) 208-8800.

GENERAL

Occidental’s principal businesses consist of three segments. The oil and gas segment explores for, develops, produces and markets crude oil, natural gas liquids (NGLs), condensate and natural gas. The chemical segment (OxyChem) manufactures and markets basic chemicals, vinyls and performance chemicals. The midstream, marketing and other segment (midstream and marketing) gathers, treats, processes, transports, stores, trades and markets crude oil, natural gas, NGLs, condensate and carbon dioxide (CO₂) and generates and markets power. Unless otherwise indicated hereafter, discussion of oil or oil and liquids refers to crude oil, NGLs and condensate.

Occidental changed its alignment of operating segments at the beginning of 2008. In previous years, oil and gas and a portion of the midstream and marketing operations were reported as a single oil and gas segment and some of the corporate-directed midstream and marketing operations were reported under corporate and other. In the past two years, the Dolphin Project (Dolphin) pipeline began transporting natural gas to the United Arab Emirates (UAE) and Occidental acquired a common carrier pipeline system in the Permian Basin, various gas processing plants and the remaining ownership interest in a cogeneration facility. The addition of these operations to the existing midstream and marketing infrastructure caused management to realign its operating segments to increase its focus on these operations. All segment information for prior periods has been revised to retrospectively reflect the current segment reporting structure. The change to segment reporting had no effect on Occidental's reported consolidated earnings. Each of the reportable segments represents separate and distinct operations, is managed and receives resource allocation as a separate business unit and has its performance separately evaluated. For financial information by segment and by geographic area, see Note 16 to the Consolidated Financial Statements of Occidental (Consolidated Financial Statements).

For information regarding Occidental's current developments, see the information in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) section of this report.

OIL AND GAS OPERATIONS

General

Occidental’s domestic oil and gas operations are located in Texas, New Mexico, California, Kansas, Oklahoma, Utah and Colorado. International operations are located in Argentina, Bolivia, Colombia, Libya, Oman, Qatar, the UAE and Yemen. For additional information regarding Occidental's oil and gas segment, see the information under the caption "Oil and Gas Segment" in the MD&A section of this report.

Proved Reserves and Sales Volumes

The table below shows Occidental’s total oil and natural gas proved reserves and sales volumes in 2008, 2007 and 2006. See "MD&A — Oil and Gas Segment," Note 17 to the Consolidated Financial Statements and the information under the caption "Supplemental Oil and Gas Information" for certain details regarding Occidental’s oil and gas proved reserves, the estimation process and sales volumes by country. On May 1, 2008, Occidental reported to the United States Department of Energy on Form EIA-28 proved oil and gas reserves at December 31, 2007. The amounts reported were the same as those reported in Occidental’s 2007 Annual Report.

Comparative Oil and Gas Proved Reserves and Sales Volumes

Oil in millions of barrels; natural gas in billions of cubic feet; BOE in millions of barrels of oil equivalent

	2008					2007					2006
PROVED RESERVES	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)
United States	1,547		3,153	2,073		1,707		2,672	2,152		1,660		2,424	2,064
International	664		1,448	905		519		1,171	714		553		1,300	769
Consolidated Subsidiaries ^(c)	2,211		4,601	2,978	^(d)	2,226		3,843	2,866	^(d)	2,213		3,724	2,833	^(d)
SALES VOLUMES
United States	96		215	132		95		216	131		94		214	130
International	74		92	89		70		45	78		66		23	70
Consolidated Subsidiaries ^(c)	170		307	221		165		261	209		160		237	200

(a)	Includes NGLs and condensate.
(b)	Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on energy content of six thousand cubic feet (Mcf) of gas to one barrel of oil.
(c)	Occidental has classified its Pakistan (in 2007), Horn Mountain (in 2007) and Ecuador (in 2006) operations as discontinued operations on a retrospective application basis and excluded them from this table.
(d)	Stated on a net basis after applicable royalties. Includes proved reserves related to production-sharing contracts (PSCs) and other similar economic arrangements of 826 million BOE (MMBOE) in 2008, 603 MMBOE in 2007 and 657 MMBOE in 2006.

Competition and Sales and Marketing

As a producer of oil and natural gas, Occidental competes with numerous other domestic and foreign private and government producers. Oil and natural gas are commodities that are sensitive to prevailing global and, in certain cases, local conditions of supply and demand and are sold at "spot" or contract prices or through the futures markets to refiners and other market participants. Occidental competes by developing and producing its worldwide oil and gas reserves cost-effectively and acquiring rights to explore and develop in areas with known oil and gas deposits. Occidental also competes by increasing production through enhanced oil recovery projects in mature and underdeveloped fields and making strategic acquisitions.

CHEMICAL OPERATIONS

OxyChem manufactures and markets basic chemicals, vinyls and performance chemicals.

OxyChem owns and operates manufacturing plants at 21 domestic sites in Alabama, Georgia, Illinois, Kansas, Louisiana, New Jersey, New York, Ohio, Pennsylvania and Texas and at three international sites in Brazil, Canada and Chile. OxyChem produces the following products:

Principal Products	Major Uses	Annual Capacity
*Basic Chemicals*
Chlorine	Chlorovinyl chain and water treatment	4.0 million tons ^(a)
Caustic Soda	Pulp, paper and aluminum production	4.2 million tons ^(a)
Chlorinated organics	Silicones, paint stripping, pharmaceuticals and refrigerants	0.9 billion pounds
Potassium chemicals	Glass, fertilizers, cleaning products and rubber	0.4 million tons
Ethylene dichloride (EDC)	Raw material for vinyl chloride monomer (VCM)	2.4 billion pounds ^(a)
*Vinyls*
VCM	Precursor for polyvinyl chloride (PVC)	6.2 billion pounds
PVC	Piping, medical, building materials and automotive products	3.7 billion pounds
*Performance Chemicals*
Chlorinated isocyanurates	Swimming pool sanitation and disinfecting products	131 million pounds
Resorcinol	Tire manufacture, wood adhesives and flame retardant synergist	50 million pounds
Sodium silicates	Soaps, detergents and paint pigments	0.6 million tons

(a)	Includes gross capacity of a joint venture in Brazil, owned 50 percent by Occidental.

MIDSTREAM, MARKETING AND OTHER OPERATIONS

The midstream and marketing operations gather, treat, process, transport, store, trade and market crude oil, natural gas, NGLs, condensate and CO₂ and generate and market power.

Below is a description of midstream and marketing operations:

Location	Description	Annual Capacity
*Gas Plants*
California, Colorado and Permian Basin	Occidental-operated and third-party operated gas gathering, treating, compression and processing systems, and CO₂ processing	1.680 billion cubic feet per day
*Pipelines*
Permian Basin	Common carrier oil pipeline and storage system	350,000 barrels of oil per day 5.0 million barrels of oil storage 2,750 miles of pipeline
Permian Basin - CO₂ pipelines	Pipeline systems transporting CO₂to oil and gas producing locations	1.425 billion cubic feet per day
Qatar - Dolphin Pipeline	24.5% equity investment in natural gas transport pipeline	3.2 billion cubic feet of natural gas per day^(a)
Western and Southern United States and Canada	Minority investment in partnerships involved in pipeline transportation and storage and marketing of oil, gas and related petroleum products	20,000 miles of pipeline and gathering systems 23 million barrels of oil storage
*Marketing and Trading*
Texas	Purchases and markets Occidental and third-party oil, gas and power	Not applicable
*Power Generation*
California, Texas and Louisiana	Occidental-owned power and steam generation facilities and 50% equity investment in a power generation facility	1,800 megawatts per hour and 1.6 million pounds of steam per hour

(a)	Capacity requires additional gas compression and customer contracts.

CAPITAL EXPENDITURES

For information on capital expenditures, see the information under the heading "Liquidity and Capital Resources — Capital Expenditures" in the MD&A section of this report.

EMPLOYEES

Occidental employed approximately 10,400 people at December 31, 2008, 6,900 of whom were located in the United States. Occidental employed approximately 6,200 people in the oil and gas and midstream and marketing segments and 3,100 people in the chemical segment. An additional 1,100 people were employed in administrative and headquarters functions. Approximately 800 United States-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.

ENVIRONMENTAL REGULATION

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.

AVAILABLE INFORMATION

Occidental makes the following information available free of charge through its web site at www.oxy.com:

Ø	Forms 10-K, 10-Q, 8-K and amendments to these forms as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC);
Ø	Other SEC filings, including Forms 3, 4 and 5; and
Ø	Corporate governance information, including its corporate governance guidelines, board-committee charters and Code of Business Conduct. (See Part III Item 10 of this report for further information.)

Information contained on Occidental's web site is not part of this annual report.

ITEM 1A RISK FACTORS

Volatile global and local commodity pricing strongly affects Occidental’s results of operations.

Occidental’s financial results typically correlate closely to the prices it obtains for its products. Changes in consumption patterns, global and local economic conditions, inventory levels, production disruptions, the actions of OPEC, currency exchange rates, speculation, worldwide drilling and exploration activities, weather, geophysical and technical limitations and other matters may affect the supply and demand dynamics of oil and gas, contributing to price volatility.

Demand and, consequently, the price obtained for Occidental’s chemical products correlate strongly to the health of the United States and global economy, as well as chemical industry expansion and contraction cycles. Occidental also depends on feedstocks and energy to produce chemicals, which are commodities subject to significant price fluctuations.

Recent global economic conditions have driven oil and gas prices down to levels last seen in 2004. These conditions may continue for an extended period.

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.

Occidental’s oil and gas production and results of operations depend, in part, on its ability to profitably acquire, develop or find additional reserves. Occidental replaces significant amounts of its reserves through acquisitions and large development projects. Occidental has many competitors (including national oil companies), some of which are larger and better funded, may be willing to accept greater risks or have special competencies. Competition for reserves may make it more difficult to find attractive investment opportunities or require delay of expected reserve replacement efforts. Cash conservation considerations during periods of low product prices may delay production growth and reserve replacement efforts.

Governmental actions, political instability and labor unrest 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:

Ø	new or amended laws and regulations, including those related to taxes, royalty rates, profit repatriation, permitted production rates, import, export and use of equipment and environmental protection, all of which may increase costs or reduce the demand for Occidental's products;
Ø	reduction of entitlements to produce oil and gas; and
Ø	refusal or delay in the extension or grant of, exploration, production or development contracts.

Occidental may experience adverse consequences, such as risk of loss or production limitations, because certain of its foreign operations are located in countries occasionally affected by political instability, armed conflict, terrorism, insurgency, civil unrest, security problems, labor unrest, OPEC production restrictions, equipment import restrictions and sanctions. Exposure to such risks may increase if a greater percentage of Occidental’s future oil and gas production comes from foreign sources.

Occidental faces risks associated with its mergers, acquisitions and divestitures.

Occidental’s merger, acquisition and divestiture activities carry risks that it may: not fully realize anticipated benefits due to less than expected reserves or production or changed circumstances, such as prices; bear unexpected integration costs or experience other integration difficulties; experience share price declines based on the market’s evaluation of the activity; assume or retain liabilities that are greater than anticipated; or be unable to resell acquired assets as planned or at planned prices.

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, as well as oil and gas prices, capital costs and operating costs. If Occidental were required to make unanticipated significant negative reserve revisions, its results of operations and stock price could be adversely affected.

Occidental may incur significant losses in exploration activities or delays or cost overruns in development efforts.

Exploration is inherently risky. Exploration and development activities are subject to misinterpretation of geologic or engineering data, unexpected geologic conditions or finding reserves of disappointing quality or quantity, which may result in significant losses. Occidental bears the risks of project delays and cost overruns due to equipment failures, approval delays, construction delays, escalating costs for materials and labor, border disputes and other associated risks in its development efforts.

Concerns about climate change or energy dependence may affect Occidental’s operations or results of operations.

There is an ongoing scientific effort to assess and quantify the effects of climate change and the potential human influences on climate, and related efforts by certain U.S. and foreign jurisdictions to propose or adopt legislation, regulations or policies seeking to control or reduce emissions of “greenhouse gases” or consumption of fossil fuels. As a result of these efforts, Occidental faces risks of delays in new or expanded development projects and increases in taxes. Occidental also faces risks of increases in the costs to produce, reductions in the demand for, and restrictions on the use of, its products.

Occidental’s businesses may experience catastrophic events.

The occurrence of natural disasters, such as earthquakes, hurricanes and floods, and events such as well blowouts, oilfield fires, industrial accidents and other events that cause operations to cease, may affect Occidental’s businesses. 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 reserve 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," "Lawsuits, Claims, Commitments, Contingencies and Related Matters," "Environmental Liabilities and Expenditures," "Foreign Investments," "Critical Accounting Policies and Estimates," and "Derivative Activities and Market Risk."

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 3 LEGAL PROCEEDINGS

For information regarding legal proceedings, see the information under the caption, "Lawsuits, Claims, Commitments, Contingencies and Related Matters" in the MD&A section of this report and in Note 9 to the Consolidated Financial Statements.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of Occidental’s security holders during the fourth quarter of 2008.

EXECUTIVE OFFICERS

The current term of employment of each executive officer of Occidental will expire at the May 1, 2009 organizational meeting of the Board of Directors or when a successor is selected. The following table sets forth the executive officers and significant employees of Occidental:

Name	Age at February 24, 2009	Positions with Occidental and Subsidiaries and Five-Year Employment History
Dr. Ray R. Irani	74	Chairman and Chief Executive Officer since 1990; Director since 1984; Member of Executive Committee and Dividend Committee; 2005-2007, President.
Stephen I. Chazen	62	President since 2007; Chief Financial Officer since 1999; 2005-2007, Senior Executive Vice President; 1994-2004, Executive Vice President, Corporate Development.
Donald P. de Brier	68	Executive Vice President, General Counsel and Secretary since 1993.
James M. Lienert	56	Executive Vice President — Finance and Planning since 2006; 2004-2006, Vice President; Occidental Chemical Corporation: 2004-2006, President; 2000-2002, Senior Vice President, Basic Chemicals; OxyVinyls: 2002-2004, Senior Vice President.
R. Casey Olson	55	Executive Vice President since 2005; 2001-2005, Vice President; Occidental Oil and Gas Corporation (OOGC): President — Oxy Oil & Gas, International since 2008; President, Eastern Hemisphere 2005-2008; Occidental Development Company: 2004, President; Occidental Middle East Development Company: 2001-2003, President.
Martin A. Cozyn	48	Executive Vice President, Human Resources since 2008; Nortel Networks Corp.: 2005-2008, Vice President, Global Human Resources; 2002-2004, Vice President, Global Operations HR & Talent Strategy.
Roy Pineci	46	Vice President, Controller and Principal Accounting Officer since 2008; 2007-2008, Senior Vice President, Finance — Oil and Gas; 2005-2007, Vice President — Internal Audit; KPMG LLP: 2002-2005, Partner.
William E. Albrecht	57	Vice President since 2008; OOGC: President — Oxy Oil & Gas, USA since 2008; 2007-2008, Vice President, California Operations; Noble Royalties, Inc.: 2006-2007, President of Acquisitions and Divestitures; EOG Resources, Inc.: 1998-2006, Vice President of Acquisitions and Engineering.
B. Chuck Anderson	49	President of Occidental Chemical Corporation since 2006; 2004-2006, Executive Vice President — Chlorovinyls; 2002-2004, Senior Vice President — Basic Chemicals; 2000-2002, President — OxyVinyls.

Part II

ITEM 5

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

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 38,791 stockholders of record at December 31, 2008, and by approximately 410,000 additional stockholders whose shares were held for them in street name or nominee accounts. The common stock is listed and traded principally 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.

In May 2006, Occidental amended its Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 1.1 billion. The par value per share remained unchanged.

On August 1, 2006, Occidental effected a two-for-one stock split in the form of a stock dividend to stockholders of record as of that date with distribution of the shares on August 15, 2006. The total number of authorized shares of common stock authorized for issuance and associated par value per share were unchanged by this action. All share and per-share amounts have been adjusted to reflect this stock split.

The quarterly dividends declared on the common stock were $0.25 per share for the first quarter of 2008 and $0.32 for the last three quarters of 2008 ($1.21 for the year). On February 5, 2009, a quarterly dividend of $0.32 per share ($1.28 on an annualized basis) was declared on the common stock, payable on April 15, 2009 to stockholders of record on March 10, 2009. The declaration of future cash 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, pursuant to which options, rights or warrants or other equity awards may be granted, have been approved by the stockholders. See Note 12 to the Consolidated Financial Statements for further information on the material terms of these plans.

The following is a summary of the shares reserved for issuance as of December 31, 2008, pursuant to outstanding options, rights or warrants or other equity awards granted under Occidental’s equity compensation plans:

a)	Number of securities to be issued upon exercise of outstanding options, warrants and rights		b)	Weighted-average exercise price of outstanding options, warrants and rights		c)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
3,977,959			$34.94			56,641,658 *

* Includes, with respect to:
•	the 1995 Incentive Stock Plan, 5,602 shares reserved for issuance pursuant to deferred stock unit awards;
•	the 2001 Incentive Compensation Plan, 487,032 shares at maximum payout level (243,516 at target level) reserved for issuance pursuant to outstanding performance stock awards, 54,800 shares reserved for issuance pursuant to restricted stock unit awards, 12,949 shares reserved for issuance pursuant to deferred stock unit awards and 834 shares reserved for issuance as dividend equivalents on deferred stock unit awards; and
•	the 2005 Long-Term Incentive Plan, 679,998 shares at maximum payout level (339,999 at target level) reserved for issuance pursuant to outstanding performance stock awards, 378,010 shares reserved for issuance pursuant to restricted stock unit awards, 1,516,000 shares at maximum payout level (758,000 at target level) reserved for issuance pursuant to outstanding performance-based restricted share units and 1,400,321 shares at maximum payout level (933,547 at target level) reserved for issuance pursuant to total shareholder return incentive awards.
Of the 52,095,360 shares that are not reserved for issuance under the 2005 Long-Term Incentive Plan, approximately 44.1 million shares are available for issuance after giving effect to the provision of the plan that each award, other than options and stock appreciation rights, must be counted against the number of shares available for issuance as three shares for every one share covered by the award. Subject to this share count requirement, not more than the approximate 44.1 million shares may be issued or reserved for issuance for options, rights, warrants and other forms of stock compensation.

SHARE REPURCHASE ACTIVITIES

Occidental’s share repurchase activities for the year ended December 31, 2008 were as follows:

Period

Total
Number
of Shares
Purchased

Average
Price
Paid
per Share

Total Number of Shares Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs ^(a)

First Quarter 2008

6,253,932

$69.68

6,111,975

Second Quarter 2008

5,143,716

$88.14

4,684,150

Third Quarter 2008

8,391,244

$74.05

8,391,244

October 1 - 31, 2008

—

November 1 - 30, 2008

—

December 1 - 31, 2008

—

Fourth Quarter 2008

—

Total 2008

19,788,892

$76.33

19,187,369

27,155,575

(a)	In February 2008 and July 2008, Occidental increased the number of shares authorized for its share repurchase program from 55 to 75 million and from 75 to 95 million, respectively.

PERFORMANCE GRAPH

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 and with that of Occidental’s peer group over the five-year period ended on December 31, 2008. The graph assumes that $100 was invested in Occidental common stock, in the stock of the companies in the Standard & Poor's 500 Index and in a portfolio of the peer group companies weighted by their relative market values each year and that all dividends were reinvested.

Occidental's peer group consists of Anadarko Petroleum Corporation, Apache Corporation, BP p.l.c. (BP), Chevron Corporation, ConocoPhillips, Devon Energy Corporation, ExxonMobil Corporation, Royal Dutch Shell plc and Occidental. Analysis for the peer group includes five years of historical performance data as noted above for the common stock of each of the companies.

12/31/03		12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
	$100	$141	$197	$244	$392	$311
	100	125	145	180	226	170
	100	111	116	135	142	90
The information provided in this Performance Graph shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act), other than as provided in Item 201 to Regulation S-K under the Exchange Act, or subject to the liabilities of Section 18 of the Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent Occidental specifically requests that it be treated as soliciting material or specifically incorporates it by reference.

ITEM 6 SELECTED FINANCIAL DATA

Five-Year Summary of Selected Financial Data

Dollar amounts in millions, except per-share amounts

As of and for the years ended December 31,	2008			2007			2006			2005			2004
RESULTS OF OPERATIONS ^(a)
Net sales	$	24,217		$	18,784		$	17,175		$	14,153		$	10,400
Income from continuing operations	$	6,839		$	5,078		$	4,202		$	4,838		$	2,197
Net income	$	6,857		$	5,400		$	4,191		$	5,293		$	2,574
Basic earnings per common share from continuing operations	$	8.37		$	6.08		$	4.93		$	6.00		$	2.78
Basic earnings per common share	$	8.39		$	6.47		$	4.92		$	6.56		$	3.25
Diluted earnings per common share	$	8.35		$	6.44		$	4.87		$	6.47		$	3.21
FINANCIAL POSITION ^(a)
Total assets	$	41,537		$	36,519		$	32,431		$	26,170		$	21,440
Long-term debt, net	$	2,049		$	1,741		$	2,619		$	2,873		$	3,345
Stockholders’ equity	$	27,300		$	22,823		$	19,252		$	15,091		$	10,597
MARKET CAPITALIZATION ^(b)	$	48,607		$	63,573		$	41,013		$	32,121		$	23,153
CASH FLOW
Cash provided by operating activities	$	10,652		$	6,798		$	6,353		$	5,337		$	3,878
Capital expenditures	$	(4,664	)	$	(3,360	)	$	(2,857	)	$	(2,200	)	$	(1,631	)
Cash (used) provided by all other investing activities, net	$	(4,793	)	$	232		$	(1,526	)	$	(961	)	$	(797	)
Cash used by financing activities	$	(1,382	)	$	(3,045	)	$	(2,819	)	$	(1,187	)	$	(821	)
DIVIDENDS PER COMMON SHARE	$	1.21		$	0.94		$	0.80		$	0.645		$	0.55
BASIC SHARES OUTSTANDING (thousands)		817,635			834,932			852,550			806,600			791,159

(a)	See the MD&A section of this report and the Notes to Consolidated Financial Statements for information regarding acquisitions and dispositions, discontinued operations and other items affecting comparability.
(b)	Market capitalization is calculated by multiplying the year-end total shares of common stock outstanding, net of shares held in treasury stock, by the year-end closing stock price.

ITEM 7 AND 7A

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

STRATEGY

General

In this report, "Occidental" refers to Occidental Petroleum Corporation (OPC), and/or one or more entities in which it owns a majority voting interest (subsidiaries). Occidental's principal businesses consist of three industry segments operated by OPC's subsidiaries and affiliates. The oil and gas segment explores for, develops, produces and markets crude oil, natural gas liquids (NGLs), condensate and natural gas. The chemical segment (OxyChem) manufactures and markets basic chemicals, vinyls and performance chemicals. The midstream, marketing and other segment (midstream and marketing) gathers, treats, processes, transports, stores, trades and markets crude oil, natural gas, NGLs, condensate and carbon dioxide (CO₂) and generates and markets power. Unless otherwise indicated hereafter, discussion of oil or oil and liquids refers to crude oil, NGLs and condensate. In addition, discussions of oil and gas production or volumes, in general, refer to sales volumes unless context requires or it is indicated otherwise.

Occidental aims to generate superior total returns to stockholders using the following strategies:

Ø	Focus on large, long-lived oil and gas assets with long-term growth potential;
Ø	Maintain financial discipline and a strong balance sheet;
Ø	Manage the chemical segment to provide cash in excess of normal capital expenditures; and
Ø	Manage the midstream and marketing segment to generate returns in excess of Occidental's cost of capital.

Occidental prefers to own 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. Management expects such assets to contribute substantially to earnings and cash flow after invested capital.

At Occidental, maintaining financial discipline means investing capital in projects that management expects will generate above-cost-of-capital returns through their life cycle. Occidental expects to use most of any excess cash flow after capital expenditures to enhance stockholders' returns by continuing its program for evaluating dividend increases, potential stock repurchases and acquisition opportunities.

The chemical business is not managed with a growth strategy. Capital is expended to operate the chemical business in a safe and environmentally sound way, to sustain production capacity and to focus on projects designed to improve the competitiveness of these assets. Asset acquisitions may be pursued when they are expected to enhance the existing core chlor-alkali and polyvinyl chloride (PVC) businesses. Historically, the chemical segment has generated cash flow exceeding its normal capital expenditure requirements.

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 operates in and around Occidental's asset base and provides low cost services to other segments as well as to third parties, and operates gas plants, oil, gas and CO₂ pipeline systems, storage facilities and a trading and marketing business. Capital is expended to operate those facilities in a safe and environmentally sound way, to sustain or, where appropriate, increase operational capacity and to improve the competitiveness of Occidental's assets.

Oil and Gas

Segment Earnings

($ millions)

The oil and gas business seeks to add new oil and natural gas reserves at a pace ahead of production while minimizing costs incurred for finding and development. The oil and gas business implements this strategy within the limits of the overall corporate strategy primarily by:

Ø	Continuing to add commercial reserves through a combination of focused exploration and development programs conducted in and around Occidental’s core areas, which are the United States, the Middle East/North Africa and Latin America;
Ø	Pursuing commercial opportunities in core areas to enhance the development of mature fields with large volumes of remaining oil by applying appropriate technology and advanced reservoir-management practices; and
Ø	Maintaining a disciplined approach in acquisitions and divestitures at attractive prices.

Over the past several years, Occidental has strengthened its asset base within each of the core areas. Occidental has invested in, and disposed of, assets with the goal of raising the average performance and potential of its assets.

In addition, Occidental has continued to make capital contributions and investments in the Dolphin Project in Qatar and the United Arab Emirates (UAE) and the Mukhaizna project in Oman for continued growth opportunities.

Occidental’s overall performance during the past several years reflects the successful implementation of its strategy to enhance the development of mature fields, beginning with the acquisition of the Elk Hills oil and gas field in California in 1998, followed by a series of purchases in the Permian Basin in west Texas and New Mexico, the integration of Vintage Petroleum, Inc. (Vintage) operations acquired in 2006, and Plains Exploration & Production Company (Plains) assets acquired in 2006 and 2008, as well as the investment in the Dolphin Project, which began operations in 2007.

At the end of 2008, the Elk Hills and Permian assets made up 60 percent of Occidental’s consolidated proved oil reserves and 37 percent of its consolidated proved gas reserves. On a barrels of oil equivalent (BOE) basis, these assets accounted for 54 percent of Occidental’s consolidated proved reserves. In 2008, the combined production from these assets was approximately 282,000 BOE per day.

Chemical

Segment Earnings

($ millions)

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 permits it to maximize the benefits of integration and allows it to take advantage of economies of scale.

Midstream, Marketing and Other

Segment Earnings

($ millions)

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 operates in and around Occidental's asset base and provides low cost services to other segments as well as to third parties, and operates gas plants, oil, gas and CO₂ pipeline systems, storage facilities and a trading and marketing business. Capital is expended to operate those facilities in a safe and environmentally sound way, to sustain, or, where appropriate, increase operational capacity and to improve the competitiveness of Occidental's assets.

Key Performance Indicators

General

Occidental seeks to ensure that it meets its strategic goals by continuously measuring its success in maintaining below average debt levels and top quartile performance compared to its peers in:

Ø	Total return to stockholders;
Ø	Return on equity (ROE);
Ø	Return on capital employed (ROCE); and
Ø	Other segment-specific measurements such as profit per unit produced, cost to produce each unit, cash flow per unit, cost to find and develop new reserves, reserves replacement percentage and other similar measures.

During the three-year period from 2006 to 2008, Occidental increased its annual dividend by 78 percent while its stock price increased by 50 percent.

Occidental focuses on achieving top quartile ROE and ROCE. Occidental has delivered such returns even after considering that during 2008 and the three-year period from 2006 to 2008, Occidental increased its stockholders’ equity by 20 percent and 81 percent, respectively.

	Annual 2008 ^(a)	Three-Year Average 2006 - 2008 ^(b)
ROE	27%	26%
ROCE	25%	23%

(a)	The ROE and ROCE for 2008 were calculated by dividing Occidental's 2008 net income (taking into account cost of capital for ROCE) by its average equity and capital employed, respectively, during 2008.
(b)	The three-year average ROE and ROCE were calculated by dividing the average net income (taking into account cost of capital for ROCE) over the three-year period 2006-2008 by the average equity and capital employed, respectively, over the same period.

Debt Structure

Occidental’s year-end 2008 total debt-to-capitalization ratio declined to 9 percent from 27 percent at the end of 2004. During that time, Occidental has reduced its debt over 29 percent while increasing its stockholders' equity by 158 percent.

Since 2007, Occidental’s long-term senior unsecured debt has been rated A by Fitch Ratings. In 2008, Occidental's long-term senior unsecured debt was upgraded from A- to A by Standard and Poor's Ratings Services, from A3 to A2 by Moody's Investors Service and from A(low) to A by Dominion Bond Rating 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

Business Environment

Oil and gas prices are the major variables that drive the industry’s short and intermediate term financial performance. Average oil prices were stronger in 2008 over 2007, as a result of steadily increasing prices during the first half of the year followed by a steep price decline in the second half, and ended the year lower than the 2007 year-end levels. West Texas Intermediate (WTI) settled at $145.31 per barrel on July 3, 2008, up from $95.98 per barrel as of December 31, 2007, and then dropped to $44.60 per barrel at the end of 2008. The average WTI market price for 2008 was $99.65 per barrel compared with $72.32 per barrel in 2007. Occidental’s realized price for crude oil as a percentage of average WTI prices was approximately 89 percent and 90 percent for 2008 and 2007, respectively. 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.

The average New York Mercantile Exchange (NYMEX) domestic natural gas price in 2008 increased approximately 27 percent from 2007. For 2008, NYMEX gas prices averaged $9.01 per Mcf compared with $7.12 per Mcf for 2007, but was $5.62 per Mcf as of December 31, 2008.

Business Review

All sales, production and reserves volumes are net to Occidental unless otherwise specified.

Worldwide Sales Volumes

(thousands BOE/day)

Acquisitions

In February 2008, Occidental purchased from Plains a 50-percent interest in oil and gas properties in the Permian Basin and western Colorado for approximately $1.5 billion. In December 2008, Occidental purchased the remainder of Plains' interests in the same assets for approximately $1.2 billion.

In June 2008, Occidental and its partner signed 30-year agreements (including a potential 5-year extension) with the Libyan National Oil Company (NOC) to upgrade its existing petroleum contracts in Libya. The new agreements increased Occidental's after-tax economic returns while allowing NOC and Occidental to design and implement major field redevelopment and exploration programs in the Sirte Basin. Occidental will contribute 37.5 percent of the development capital. Under these contracts, Occidental will pay $750 million as its share of a signature bonus. Occidental made its first payment in the amount of $450 million in June 2008. Occidental's remaining annual payments of $150 million each, are due in each of the next two years.

Production-Sharing Contracts (PSC)

Occidental conducts its operations in Qatar, Oman, Libya and Yemen and the Dolphin Project under PSCs. Under such contracts, Occidental receives a share of production and reserves to recover its costs and generally an additional share for profit. In addition, Occidental's share of production and reserves from THUMS, Tidelands 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.

United States

1. Elk Hills and other interests

2. Long Beach

3. Midcontinent / Rockies

4. Permian Basin

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 19 percent of the total United States crude oil production. Occidental is the largest producer of crude oil in the Permian Basin with an approximate 16-percent net share of the total production. Occidental also produces and processes natural gas and NGLs in the Permian Basin.

A significant portion of Occidental's Permian Basin interests were obtained through the acquisition of Altura Energy Ltd. in 2000, as well as the properties obtained from Plains in 2008 and 2006. Occidental's total share of Permian Basin oil and gas production was approximately 198,000 BOE per day in 2008. At the end of 2008, Occidental's Permian Basin properties had 1.1 billion BOE in proved reserves.

Occidental's Permian Basin production is diversified across a large number of producing areas. In 2008, Wasson San Andres was Occidental's largest Permian producing field with approximately 35,000 BOE per day of production and 277 million BOE of proved reserves at year-end. This field represents approximately 18 percent of Occidental's 2008 daily Permian Basin production and 25 percent of its year-end Permian Basin proved reserves.

Occidental’s interests in the Permian Basin offer additional development and exploitation potential. During 2008, Occidental drilled approximately 280 wells on its operated properties and participated in additional wells drilled on third-party-operated properties. Occidental conducted significant development activity on 11 carbon dioxide (CO₂) projects during 2008, including implementation of new floods and expansion of existing CO₂ floods. Occidental also focused on improving the performance of existing wells. Occidental had an average of 150 well service units working in the Permian area during 2008 performing well maintenance and workovers.

Approximately 66 percent of Occidental’s Permian Basin 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 acts as a solvent, causing the oil to flow more freely into producing wells. These CO₂ flood operations make Occidental a world leader in the application of this technology.

California

Occidental's California operations consist of Elk Hills, THUMS, Tidelands and other interests in the Ventura, San Joaquin and Sacramento basins.

Occidental's interest at Elk Hills includes the Elk Hills oil and gas field in the southern portion of California’s San Joaquin Valley, which it operates with an approximately 78-percent interest, and other adjacent properties. The Elk Hills field is the largest producer of gas in California. Oil and gas production in 2008 from the Elk Hills properties was approximately 84,000 BOE per day. During 2008, Occidental continued to perform infill drilling, field extensions and recompletions identified by advanced reservoir characterization techniques, resulting in 275 new wells being drilled and 550 wells being worked over. At the end of 2008, the Elk Hills properties had an estimated 491 million BOE of proved reserves.

Occidental owns interests in California properties in the Ventura, San Joaquin and Sacramento basins, other than Elk Hills. The combined properties produce oil and gas from more than 50 fields. Oil and gas production from these properties in 2008 was approximately 24,000 BOE per day. At the end of 2008, the combined properties had an estimated 118 million BOE of proved reserves.

THUMS conducts the field operations for an oil production unit offshore Long Beach, California. Tidelands is the contract operator for an onshore oil production unit in Long Beach, California. Occidental's share of production and reserves from both properties is subject to contractual arrangements similar to a PSC. For 2008, Occidental's share of production from THUMS and Tidelands was approximately 20,000 BOE per day and proved reserves totaled 99 million BOE at year-end.

Midcontinent and Rockies

Occidental owns 739,000 acres in a large concentration of gas reserves, production interests and royalty interests in Kansas and Oklahoma where it drilled 87 company-operated wells in 2008.

Occidental also has over 77,000 net acres in western Colorado, including the properties acquired in 2008 from Plains where it drilled 68 company-operated wells in 2008.

In 2008, Occidental’s Midcontinent and Rockies operations produced approximately 35,000 BOE per day. At December 31, 2008, proved reserves for these operations totaled 250 million BOE.

Middle East/North Africa

1. Libya

2. Yemen

3. Oman

4. United Arab Emirates

5. Qatar

Dolphin Project

Occidental's investment in the Dolphin Project, which was acquired in 2002, consists of two separate economic interests through which Occidental owns (i) a 24.5-percent undivided interest in the assets and liabilities associated with a Development and Production Sharing Agreement (DPSA) with the Government of Qatar to develop and produce natural gas and NGLs in Qatar’s North Field for 25 years from the start of production, with a provision to request a 5-year extension; and (ii) a 24.5-percent interest in the stock of Dolphin Energy Limited (Dolphin Energy).

Dolphin Energy is the operator under the DPSA and owns and operates a 230-mile-long, 48-inch natural gas pipeline (Dolphin Pipeline), which transports dry natural gas from Qatar to the UAE. Production of natural gas and NGLs under the DPSA from Qatar's North Field began during mid-2007 and, since mid-2008, production has been at full capacity of the plant. Occidental’s share of production was approximately 52,000 BOE per day in 2008. At December 31, 2008, Occidental’s share of proved oil and gas reserves from the Dolphin Project was 298 million BOE.

The pipeline has a capacity to transport up to 3.2 billion cubic feet (Bcf) of natural gas per day and currently transports approximately 2 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.

Qatar

In addition to its participation in the Dolphin Project, 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, and Al Rayyan (Block 12), with a 92.5-percent working interest. Additionally, Occidental holds a 92.5-percent working interest in the Block 13 exploration block.

In 2008, Occidental received approval from the Government of Qatar for the third phase of field development of the ISND field. Drilling under this phase is expected to continue through 2010, focusing on continued development of the mature reservoirs, while further delineating and developing the less mature reservoirs.

Occidental’s share of production from ISND, ISSD and Block 12 was approximately 47,000 BOE per day in 2008. Proved reserves for these properties totaled 150 million BOE as of December 31, 2008.

Yemen

Occidental owns contractual interests in three producing blocks in Yemen, including a 38-percent direct-working interest in the Masila field, which expires in December 2011, a 40.4-percent interest in the East Shabwa field, including an 11.8-percent equity interest in an unconsolidated entity, and a 75-percent working interest in Block S-1. In addition, Occidental owns a 75-percent working interest in Block 75.

Occidental's share of production from the Yemen properties was 21,000 BOE per day in 2008. Proved reserves for these properties totaled 28 million BOE as of December 31, 2008.

Oman

In Oman, Occidental is the operator of Block 9 and Block 27, with a 65-percent working interest in each, Block 53, with a 45-percent working interest, Block 54, with a 70-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. In September 2005, Occidental assumed operations of the Mukhaizna field. The Mukhaizna field, located in Oman’s south central interior, was discovered in 1975 and was brought into production in 2000. By the end of 2008, Occidental had drilled over 370 new wells and continued implementation of a major pattern steam flood project. As of year-end 2008, the exit rate of gross daily production was over six times higher than the production rate in September 2005, reaching over 50,000 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 30 years beginning in September 2005. Occidental and its partners began production in June 2006.

Occidental and its partners signed a PSC for Block 54 with the Government of Oman in June 2006 with an initial exploration phase of four years.

Occidental was awarded Block 62 in November 2008 under a 20-year contract. Block 62 is comprised of both development and exploration opportunities targeting gas and condensate resources.

Occidental's share of production from the Oman properties was approximately 27,000 BOE per day in 2008, and proved reserves totaled 142 million BOE as of December 31, 2008.

Libya

In 2005, Occidental signed an agreement with the Libyan National Oil Corporation (NOC) which allowed it to re-enter the country and participate in exploration and production operations in the Sirte Basin, which it left in 1986 pursuant to United States law. This re-entry agreement allowed Occidental to return to its Libyan operations on generally the same terms in effect when activities were suspended.

As discussed previously, in June 2008, Occidental and its partner signed new agreements with NOC to upgrade its existing contracts for up to 30 years.

Occidental's share of production during 2008 was approximately 15,000 BOE per day. In the second half of 2008, production was approximately 8,000 BOE per day as a result of the new agreements. At year-end 2008, proved reserves for Occidental’s Libya assets totaled 28 million BOE.

Abu Dhabi

In October 2008, Occidental announced the signing of the preliminary agreement with Abu Dhabi National Oil Company to appraise and develop the Jarn Yaphour and Ramhan oil and gas fields in the Emirate of Abu Dhabi. Occidental would operate both fields and hold a 100-percent interest in the newly created concessions. First production from the Jarn Yaphour field, located onshore, could be as early as 2010. Gross production from the initial development is anticipated to be approximately 10,000 BOE per day. At the Ramhan field, located in shallow water offshore, gross production also is expected to be approximately 10,000 BOE per day, if initial development is technically and commercially successful. First production from the Ramhan field could commence as early as 2011.

Latin America

1. Colombia

2. Bolivia

3. Argentina

Argentina

The Argentina assets consist of 23 concessions located in the San Jorge Basin in southern Argentina and the Cuyo Basin and Neuquén Basin in western Argentina. Occidental operates 20 of the concessions with a 100-percent working interest.

During 2008, Occidental drilled 162 new wells and performed a number of recompletions and well repairs. Occidental plans to increase production through drilling, waterflooding and EOR projects.

Occidental’s share of production from Argentina was approximately 36,000 BOE per day in 2008. Proved reserves from these assets totaled 160 million BOE at December 31, 2008.

Bolivia

In 2006, Occidental acquired working interests in four blocks located in the Tarija, Chuquisaca and Santa Cruz regions of Bolivia as part of the Vintage acquisition. At the end of 2006, Occidental signed two new operation contracts with commercial terms that provide Bolivia with greater operational control and control over the commercialization of hydrocarbons. These contracts went into effect in May 2007. During 2008, Occidental completed two workovers in Naranjillos Field.

Colombia

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 the four contracts are 42 percent (39 percent starting January 1, 2009), 44 percent, 53 percent and 61 percent, respectively. Colombia's national oil company, Ecopetrol, operates the Caño Limón-Coveñas oil pipeline and marine-export terminal. The pipeline transports oil produced from the Llanos Norte Basin for export to international markets.

In the Middle-Magdalena Basin, Occidental signed an agreement with Ecopetrol in 2005 for an EOR project in the La Cira-Infantas field, in which Occidental holds a 48-percent working interest. In December 2006, Occidental entered into the commercial phase of the project. Production from the field is transported by Ecopetrol through its pipeline and sold to Ecopetrol.

Additionally, Occidental holds various working interests in two exploration blocks.

Occidental's share of 2008 production from its Colombia operations was approximately 37,000 BOE per day and proved reserves for these interests totaled 85 million BOE at the end of 2008.

Proved Reserves

Occidental's consolidated subsidiaries had proved reserves at year-end 2008 of 2,978 million BOE, as compared with the year-end 2007 amount of 2,866 million BOE. Proved reserves consisted of 74 percent oil and 26 percent natural gas. Proved developed reserves represented approximately 74 percent of Occidental’s total proved reserves at year-end 2008 compared to 80 percent at year-end 2007.

Proved Reserve Additions

The total proved reserve additions from consolidated subsidiaries from all sources were 463 million BOE in 2008, before the effect of price-related revisions. The total revisions were as follows:

In millions of BOE
Revisions of previous estimates	(18	)
Improved recovery	247
Extensions and discoveries	24
Purchases and divestitures	210
Total additions excluding price revisions	463
Price revisions	(127	)
Total additions including price revisions	336

Revisions of Previous Estimates

In 2008, Occidental experienced a reduction, before the effect of price revisions, of 18 million BOE of proved reserves through negative revisions of previous estimates, primarily in the Permian Basin, California and Argentina, partially offset by positive revisions in the Middle East/North Africa. Occidental experienced an additional negative net price-related revision of 127 million BOE that was attributable to changes in the prices of oil and gas from year-end 2007 to year-end 2008. Negative domestic price revisions were partially offset by positive price revisions in the Middle East/North Africa as a result of the impact of PSCs. 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 would result in a reduction of Occidental's share of proved reserves. Conversely, when oil prices drop, Occidental's share of proved reserves would increase for these PSCs. Oil and natural gas price changes also tend to affect the economic lives of proved reserves, primarily in domestic properties, in a manner partially offsetting the PSC reserve volume changes. 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.

Improved Recovery

In 2008, Occidental added reserves of 247 million BOE through improved recovery. In the United States, improved recovery additions were 146 million BOE. Latin America additions were 52 million BOE and Middle East/North Africa added 49 million BOE. These improved recovery additions were attributable to EOR techniques, such as CO₂, water and steam injection programs, as well as Occidental's ongoing development programs.

Extensions and Discoveries

Occidental also obtains reserve additions from extensions and discoveries, which are dependent on successful exploitation programs. In 2008, as a result of such programs, Occidental added proved reserves of 24 million BOE, primarily associated with its California operations.

The success of extension and discovery projects depends on reservoir characteristics and technology improvements, as well as oil and gas prices, capital costs 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.

Purchases and Divestitures of Proved Reserves

In 2008, Occidental purchased proved reserves of 210 million BOE (207 million BOE net of divestitures), all of which were in the United States. 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.

Proved Undeveloped Reserves

In 2008, Occidental had proved undeveloped reserve additions of 317 million BOE resulting from improved recovery, extensions and discoveries and purchases, primarily in the Midcontinent and Rockies, the Permian Basin, Elk Hills, and Oman. These proved undeveloped reserve additions were offset by reserves transfers of 99 million BOE to the proved developed category as a result of the 2008 development programs. In the United States, the Elk Hills and Permian Basin properties both transferred 22 million BOE into proved developed reserves from proved undeveloped reserves.

Reserves Evaluation and Review Process

A senior corporate officer of Occidental is responsible for the internal audit and review of its oil and gas reserves data. In addition, a Corporate Reserves Review Committee (Reserves Committee) has been established, consisting of senior corporate officers, to monitor and review Occidental's oil and gas reserves. The Reserves Committee reports to the Audit Committee of Occidental's Board of Directors periodically throughout the year. Occidental has retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its annual oil and gas reserve estimation processes since 2003.

In 2008, Ryder Scott compared Occidental’s methods and procedures for estimating oil and gas reserves to generally accepted industry standards and reviewed certain pertinent facts interpreted and assumptions made in estimating the proved reserves volumes, preparing the economic evaluations and determining reserves classifications. 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 total reserves portfolio. In 2008, Ryder Scott reviewed approximately 22 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 66 percent of Occidental’s proved oil and gas reserves.

Based on its reviews, including the data, technical processes and interpretations presented by Occidental, Ryder Scott has concluded that the overall procedures and methodologies utilized in determining the proved reserves for the reviewed properties as estimated by Occidental are reasonable and consistent with generally accepted industry standards and comply with current Securities and Exchange Commission (SEC) standards. Ryder Scott has not been engaged to render an opinion as to the reasonableness of reserves quantities reported by Occidental.

Industry Outlook

The petroleum industry is highly competitive and subject to significant volatility due to numerous market forces affecting supply and demand. Worldwide oil prices experienced a high degree of volatility during 2008. WTI settled at $145.31 per barrel on July 3, 2008, up from $95.98 per barrel as of December 31, 2007, and then dropped to $44.60 per barrel at the end of 2008. While many factors precipitated these price fluctuations, the worldwide drop in demand for oil caused by the global economic crisis appears to have been the major contributor to the significant and steady drop in oil prices in the second half of 2008.

In the near term, a continued global economic downturn could have a depressing effect on oil prices, while recently announced and enacted production cuts by OPEC members and certain other producing nations, as well as other potential similar future actions of these countries, could offset the effects of falling demand. In the longer term, a recovery in global economic conditions should result in increased demand, which, coupled with concerns about supply availability, could result in higher prices. A lower long-term demand growth rate could result in lower oil prices. The factors discussed above make it impossible to predict the future direction of oil prices with a reliable degree of certainty. However, Occidental is adjusting to current economic conditions by reducing its operating expenses and adjusting capital expenditures with the goal of keeping returns well above its cost of capital. Typical industry response to sustained deterioration in product prices would be to limit drilling and other growth activities.

While local supply and demand fundamentals, as well as availability of transportation capacity from producing areas, are decisive factors affecting domestic natural gas prices over the long term, day-to-day prices may be more volatile in the futures markets, such as on the NYMEX and other exchanges, making it difficult to forecast prices with any degree of confidence. Over the last ten years, the NYMEX gas price has averaged approximately $5.72 per Mcf.

CHEMICAL SEGMENT

Business Environment

The chemical segment earnings increased in 2008 despite the deepening global economic downturn. Higher prices and margins for caustic soda were the primary drivers of the earnings improvement. Increased demand for and competitiveness of domestically produced products in export markets, aided by favorable feedstock prices and foreign currency exchange rates, also contributed to the improved earnings. Partially

offsetting these improvements was the continued fallout from the eroding United States housing market, which resulted in lower domestic demand and earnings in the PVC business.

Business Review

Basic Chemicals

During 2008, demand and pricing for basic chemical products generally remained strong, although U.S. chlorine demand fell further compared to 2007 due to the acceleration of the economic downturn late in the year. Exports of chlorine-derived products remained steady throughout 2008 due to the weakness of the U.S. dollar along with various feedstock cost advantages. Domestic industry demand for caustic soda in 2008 remained relatively stable until the fourth quarter when demand weakened due to the slowing economic conditions. The tight caustic supply during 2008 was due in part to the demand weakness of the co-produced product chlorine. Caustic soda exports also remained strong throughout the year. As a result, caustic soda pricing increased each quarter of 2008, which enabled the industry to realize improved margins over 2007. OxyChem’s chlor-alkali operating rate for 2008 was 85 percent of capacity, which was higher than the industry average operating rate, but lower than the 2007 operating rate of 92 percent.

Vinyls

Domestic demand for PVC in 2008 was 17 percent below 2007 as a result of the significant slump in housing and automotive industries. This decline was partially offset by exports, which were up 27 percent in 2008 over 2007, resulting in an overall decline in PVC demand of 13 percent. Compared to 2007, PVC prices increased 24 percent, but a 16-percent increase in ethylene costs and a significant volume decline resulted in lower earnings in the PVC business.

Industry Outlook

Future performance will depend on the recovery of domestic housing and construction markets, global economic recovery, the competitiveness of the United States in the world markets and feedstock and energy pricing.

Basic Chemicals

Operating rates would continue to be challenged throughout the year if demand remains suppressed in chlorine, vinyls and various chlorine-derivative markets. Demand for basic chemical products could decline further in 2009 as the U.S. housing, automotive and durable goods sectors are expected to remain weak. Margins are expected to be similar to 2008 as pricing for caustic soda is generally expected to remain strong. The anticipated strong caustic pricing is due to the continued weak demand for its co-product chlorine.

Vinyls

Industry-wide PVC operating rates are expected to be lower in 2009 as a result of weak demand, especially in housing. In addition, exports are expected to decline in 2009 due to raw material cost parity with other industrialized regions.

MIDSTREAM, MARKETING AND OTHER SEGMENT

Business Environment

The midstream and marketing segment gathers, treats, processes, transports, stores, trades and markets crude oil, natural gas, NGLs, condensate and CO₂ and generates and markets power. Midstream and marketing’s 2008 earnings increased, reflecting an increase in gas processing margins at the Dolphin Pipeline investment.

Business Review

Oil and Gas Marketing and Trading

The marketing and trading group markets substantially all of Occidental’s oil and gas production. Marketing and trading earnings are affected primarily by margins in oil and gas transportation and storage programs. These operations periodically use derivative instruments to maximize realized prices for Occidental's products and in third-party marketing and trading activities.

In 2008, Occidental’s marketing operations earnings declined due to lower margins in oil marketing.

Gas Processing Plants and CO₂ Fields and Facilities

Occidental processes its and third-party domestic wet gas to extract NGLs and other gas by-products, including CO₂, and deliver dry gas to pipelines. Margins result from the difference between inlet costs of gas and market prices for NGLs.

In June 2008, Occidental signed an agreement for a third party to construct a west Texas gas processing plant and pipeline infrastructure that will provide CO₂ for Occidental’s EOR projects in the Permian Basin. Occidental will own and operate the new facility and pipeline system and expects to incur capital expenditures of approximately $1.1 billion over several years of which it had spent approximately $115 million as of December 31, 2008.

Occidental’s 2008 earnings from these operations improved due to higher gas processing margins.

Pipeline Transportation

Margin and cash flow from pipeline transportation operations mainly reflect volumes shipped. The Dolphin Pipeline investment contributes significantly to pipeline transportation results. See "Oil and Gas Segment —Middle East/North Africa — Dolphin Project." In August 2008, Occidental purchased a minority interest in a North American oil and gas pipeline entity for approximately $330 million.

Occidental’s 2008 pipeline transportation earnings improved due to increased earnings from the Dolphin Pipeline investment.

Power Generation Facilities

Earnings from power generation facilities represent the sales of excess steam and power to third parties.

Occidental’s 2008 earnings from these facilities increased due to higher margins between the selling prices of power and steam and the cost of gas used in their production.

Industry Outlook

Occidental expects future performance of the midstream and marketing segment to remain relatively stable unless it makes significant acquisitions or dispositions.

CORPORATE

In July 2008, Occidental purchased a 15-percent interest in the Joslyn Oil Sands Project (Joslyn) in northern Alberta, Canada, for approximately $500 million in cash.

SEGMENT RESULTS OF OPERATIONS

Segment earnings generally 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:

In millions, except per share amounts

For the years ended December 31,	2008			2007			2006
NET SALES ^(a)
Oil and Gas	$	18,187		$	13,304		$	11,712
Chemical		5,112			4,664			4,815
Midstream, Marketing and Other		1,598			1,388			934
Eliminations ^(a)		(680	)		(572	)		(286	)
	$	24,217		$	18,784		$	17,175
EARNINGS (LOSS)
Oil and Gas ^(b)	$	10,651		$	7,957		$	6,676
Chemical ^(c)		669			601			906
Midstream, Marketing and Other		520			367			201
		11,840			8,925			7,783
Unallocated corporate items
Interest expense, net ^(d)		(26	)		(199	)		(131	)
Income taxes ^(e)		(4,629	)		(3,507	)		(3,354	)
Other ^(f)		(346	)		(141	)		(96	)
Income from continuing operations		6,839			5,078			4,202
Discontinued operations, net ^(g)		18			322			(11	)
Net Income	$	6,857		$	5,400		$	4,191
Basic Earnings per Common Share	$	8.39		$	6.47		$	4.92

(a)	Intersegment sales are generally made at prices approximately equal to those that the selling entity is able to obtain in third-party transactions and eliminate upon consolidation.
(b)	The 2008 amount includes a $599 million fourth quarter pre-tax charge for asset impairments, including undeveloped acreage in Argentina and Yemen and domestic producing properties (included in depreciation, depletion and amortization expense), and a $58 million fourth quarter pre-tax charge for the termination of rig contracts. The 2007 amount includes an after-tax gain of $412 million from the sale of Occidental's interest in a Russian joint venture, an after-tax gain of $112 million from certain litigation settlements, a pre-tax gain of $103 million from the sale of exploration properties, a pre-tax gain of $35 million from the sale of miscellaneous domestic oil and gas interests and a $74 million pre-tax charge for exploration impairments. The 2008, 2007 and 2006 amounts include interest income of $9 million, $10 million and $10 million, respectively, from loans made to an equity investee.
(c)	The 2008 amount includes a pre-tax charge of $90 million for plant closure and impairments.
(d)	The 2007 and 2006 amounts include $167 million and $31 million, respectively, of interest charges to redeem or purchase and retire various debt issues.
(e)	The 2008 amount includes tax benefits of $148 million resulting from relinquishment of exploration properties. As a result of changes in compensation programs in 2006, Occidental wrote off approximately $40 million of the related deferred tax asset that had been recognized in the financial statements prior to the changes.
(f)	The 2007 amount includes a $326 million pre-tax gain from the sale of Occidental’s remaining investment in Lyondell Chemical Company (Lyondell), a $47 million pre-tax charge for a plant closure and related environmental remediation reserve and a $25 million pre-tax severance charge. The 2006 amount includes a $90 million pre-tax gain from the sale of 10 million shares of Lyondell and a $108 million pre-tax gain related to litigation settlements.
(g)	In June 2007, Occidental completed an exchange of oil and gas interests in Horn Mountain with BP p.l.c. (BP) for oil and gas interests in the Permian Basin and a gas processing plant in Texas. Occidental also sold its oil and gas interests in Pakistan to BP. The 2007 amount includes after-tax income of $326 million related to these transactions and their operating results and a $4 million after-tax charge from assets classified to discontinued operations in 2006. In January 2006, Occidental completed the merger of Vintage into a subsidiary and classified certain assets and liabilities as held for sale. In May 2006, Ecuador terminated Occidental’s contract for the operation of Block 15. The 2006 amount includes a $253 million after-tax loss for Ecuador and the Vintage properties held for sale (and subsequently sold in 2006) and $242 million after-tax income for the operations of Horn Mountain and Pakistan.

Oil and Gas

In millions, except as indicated
For the years ended December 31,	2008		2007		2006
Segment Sales	$	18,187	$	13,304	$	11,712
Segment Earnings	$	10,651	$	7,957	$	6,676

The following tables set forth the sales volumes and production of oil and liquids and natural gas per day for each of the three years in the period ended December 31, 2008. The differences between the sales volumes and production per day are generally due to the timing of shipments at Occidental’s international locations where product is loaded onto tankers. Sale at these locations is not recognized until a tanker is loaded and title passes.

Sales Volumes per Day	2008		2007		2006
United States
Oil and liquids (MBBL)
California	89		89		86
Permian	168		167		167
Midcontinent and Rockies	6		4		3
Total	263		260		256
Natural gas (MMCF)
California	235		254		256
Permian	181		186		194
Midcontinent and Rockies	171		153		138
Total	587		593		588
Latin America
Crude oil (MBBL)
Argentina	32		32		33
Colombia	43		42		38
Total	75		74		71
Natural gas (MMCF)
Argentina	21		22		17
Bolivia	21		18		17
Total	42		40		34
Middle East/North Africa
Oil and liquids (MBBL)
Oman	23		20		18
Dolphin	21		4		—
Qatar	47		48		43
Yemen	21		25		29
Libya	15		22		23
Total	127		119		113
Natural gas (MMCF)
Oman	24		30		30
Dolphin	184		51		—
Total	208		81		30
Barrels of Oil Equivalent (MBOE) ^(a)
Subtotal Consolidated Subsidiaries	605		573		549
Colombia-minority interest	(6	)	(5	)	(5	)
Yemen-Occidental net interest	2		2		1
Total Worldwide Sales Volumes (MBOE) ^(b)	601		570		545

(See footnotes following the Average Sales Price table)

Production per Day	2008		2007		2006
United States
Oil and liquids (MBBL)	263		260		256
Natural gas (MMCF)	587		593		588
Latin America
Crude oil (MBBL)
Argentina	34		33		32
Colombia	44		42		38
Total	78		75		70
Natural gas (MMCF)	42		40		34
Middle East/North Africa
Oil and liquids (MBBL)
Oman	23		19		18
Dolphin	20		5		—
Qatar	47		47		44
Yemen	21		25		28
Libya	15		21		21
Total	126		117		111
Natural gas (MMCF)	208		81		30
Barrels of Oil Equivalent (MBOE) ^(a)
Subtotal Consolidated Subsidiaries	607		571		546
Colombia-minority interest	(6	)	(6	)	(5	)
Yemen-Occidental net interest	2		2		2
Total Worldwide Production (MBOE) ^(b)	603		567		543

(See footnotes following the Average Sales Price table)

In millions, except as indicated	2008		2007		2006
Average Sales Prices
Crude Oil Prices ($ per bbl)
United States	$	91.16	$	65.67	$	57.84
Latin America	$	70.53	$	56.66	$	52.40
Middle East/North Africa ^(c)	$	94.70	$	69.24	$	61.58
Total consolidated subsidiaries	$	88.34	$	64.86	$	57.81
Other interests	$	96.30	$	68.74	$	62.59
Total worldwide ^(b)	$	88.26	$	64.77	$	57.81
Gas Prices ($ per Mcf)
United States	$	8.03	$	6.53	$	6.49
Latin America	$	4.43	$	2.66	$	2.00
Total worldwide ^(b)	$	6.10	$	5.68	$	6.00
Expensed Exploration ^(d)	$	408	$	422	$	296
Capital Expenditures
Development	$	3,563	$	2,676	$	2,302
Exploration	$	258	$	156	$	133
Other	$	24	$	33	$	54

(a)	Natural gas volumes have been converted to BOE based on energy content of six thousand cubic feet (Mcf) of gas to one barrel of oil.
(b)	Occidental has classified its Pakistan (in 2007), Horn Mountain (in 2007) and Ecuador (in 2006) operations as discontinued operations on a retrospective application basis and excluded them from this table. Excluded production from Pakistan operations averaged 17,000 BOE per day in 2006. Excluded production from Horn Mountain operations averaged 13,000 BOE per day in 2006. Excluded production from Ecuador operations averaged 43,000 BOE per day for the first five months of 2006. Also excluded is production from a Russian joint venture (sold in January 2007), which averaged 27,000 BOE per day in 2006.
(c)	These prices exclude the impact of income taxes owed by Occidental but paid by governmental entities on its behalf.
(d)	Includes dry hole write-offs and lease impairments of $325 million in 2008, $247 million in 2007 and $115 million in 2006.

Oil and gas segment earnings in 2008 were $10.7 billion, compared to $8.0 billion in 2007. The increase in segment earnings reflects higher average oil and natural gas prices and increased oil and gas volumes, which were offset by higher operating expenses and production taxes and increased depreciation, depletion and amortization (DD&A) rates. Oil and gas segment earnings in 2008 include pre-tax foreign exchange gains of $74 million, a pre-tax charge of $599 million for asset impairments consisting of undeveloped acreage in Argentina and Yemen and impairments of producing properties in the U.S. and a pre-tax charge of $58 million for termination of rig contracts.

Average consolidated production costs for 2008, excluding taxes other than on income, were $12.13 per BOE, compared to the average 2007 production cost of $10.37 per BOE. The increases resulted from higher production, maintenance and workover costs.

Oil and gas segment earnings in 2007 were $8.0 billion, compared to $6.7 billion in 2006. Oil and gas segment earnings in 2007 included an after-tax gain of $412 million from the sale of Occidental’s interest in a Russian joint venture, an after-tax gain of $112 million from certain litigation settlements, a pre-tax gain of $103 million from the sale of exploration properties, a pre-tax gain of $35 million from the sale of miscellaneous domestic oil and gas interests and a $74 million pre-tax loss from the impairment of properties. In addition to the matters discussed above, oil and gas segment earnings for 2007, compared to 2006, reflected higher crude oil prices and higher oil and gas production, partially offset by increased DD&A rates and higher operating and exploration expenses.

Chemical

In millions	2008		2007		2006
Segment Sales	$	5,112	$	4,664	$	4,815
Segment Earnings	$	669	$	601	$	906
Capital Expenditures	$	240	$	245	$	248

Chemical segment earnings in 2008 were $669 million, compared to $601 million in 2007. The increase in segment earnings is primarily due to higher caustic soda margins, partially offset by lower volumes in chlorine, caustic soda and PVC and a $90 million charge for plant closure and impairments.

Chemical segment earnings in 2007 were $601 million, compared to $906 million in 2006. The decrease in segment earnings was primarily due to lower margins in PVC.

Midstream, Marketing and Other

In millions	2008		2007		2006
Segment Sales	$	1,598	$	1,388	$	934
Segment Earnings	$	520	$	367	$	201
Capital Expenditures	$	492	$	243	$	103

Midstream and marketing segment earnings in 2008 were $520 million, compared to $367 million in 2007. The increase in segment earnings in 2008 reflects higher income from the Dolphin Pipeline and higher margins in gas processing.

The increase in segment earnings in 2007, compared to 2006, was primarily due to higher natural gas trading margins and, to a lesser degree, increased crude oil trading margins.

SIGNIFICANT ITEMS AFFECTING EARNINGS

The following table sets forth, for the years ended December 31, 2008, 2007 and 2006, the effects of significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount:

Significant Items Affecting Earnings

Benefit (Charge) (in millions)	2008			2007			2006
OIL AND GAS
Asset impairments	$	(599	)	$	(74	)	$	—
Rig contract terminations		(58	)		—			—
Gain on sale of a Russian joint venture ^(a)		—			412			—
Legal settlements ^(a)		—			112			—
Gain on sale of exploration properties		—			103			—
Gain on sale of oil and gas interests		—			35			—
Total Oil and Gas	$	(657	)	$	588		$	—
CHEMICAL
Plant closure and impairments	$	(90	)	$	—		$	—
Total Chemical	$	(90	)	$	—		$	—
MIDSTREAM, MARKETING AND OTHER
No significant items affecting earnings	$	—		$	—		$	—
Total Midstream, Marketing and Other	$	—		$	—		$	—
CORPORATE
Gain on sale of Lyondell shares	$	—		$	326		$	90
Debt purchase expense		—			(167	)		(31	)
Facility closure		—			(47	)		—
Severance charge		—			(25	)		—
Deferred tax write-off due to compensation program changes ^(a)		—			—			(40	)
Litigation settlements		—			—			108
Tax effect of pre-tax adjustments		238			(2	)		(41	)
Discontinued operations, net of tax		18			322			(11	)
Total Corporate	$	256		$	407		$	75

(a)

Amounts shown after tax.

TAXES

Deferred tax liabilities, net of deferred tax assets of $1.4 billion, were $2.5 billion at December 31, 2008. The current portion of the deferred tax assets of $200 million is included in prepaid expenses and other. The deferred tax assets, net of allowances, are expected to be realized through future operating income and reversal of temporary differences.

Worldwide Effective Tax Rate

The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:

In millions	2008			2007			2006
EARNINGS
Oil and Gas ^(a)	$	10,651		$	7,957		$	6,676
Chemical		669			601			906
Midstream, Marketing and Other		520			367			201
Unallocated Corporate Items		(372	)		(340	)		(227	)
Pre-tax income ^(a)		11,468			8,585			7,556
Income tax expense
Federal and State		2,188			1,558			1,625
Foreign ^(a)		2,441			1,949			1,729
Total		4,629			3,507			3,354
Income from continuing operations	$	6,839		$	5,078		$	4,202
Worldwide effective tax rate		40%			41%			44%

(a)

Revenues, oil and gas pre-tax income and income tax expense include income taxes owed by Occidental but paid by governmental entities on its behalf of $2.1 billion, $1.3 billion and $1.1 billion for the years ended December 31, 2008, 2007 and 2006, respectively.

Occidental’s 2008 worldwide tax rate was 40 percent, which is comparable to 2007.

Occidental’s 2007 worldwide effective tax rate was 41 percent. The decrease in the income tax rate in 2007, compared to 2006, resulted from lower taxes on the 2007 sale of certain properties.

CONSOLIDATED RESULTS OF OPERATIONS

The changes in the following components of Occidental's results of operations are discussed below:

Selected Revenue and Other Income Items

In millions	2008		2007		2006
Net sales	$	24,217	$	18,784	$	17,175
Interest, dividends and other income	$	236	$	355	$	381
Gains on disposition of assets, net	$	27	$	874	$	118

The increase in net sales in 2008, compared to 2007, reflects higher average oil and natural gas prices and higher oil and gas volumes, including increased volumes from the Dolphin Project, offset by lower volumes from PSCs and the new Libya contract.

The increase in net sales in 2007, compared to 2006, reflects higher crude oil prices and increased oil and gas volumes, including production from the start-up of the Dolphin Project in the third quarter of 2007.

Interest, dividends and other income in 2007 and 2006 included gains related to litigation settlements of $112 million and $108 million, respectively.

Gains on disposition of assets, net in 2007, includes a $326 million gain from the sale of 21 million shares of Lyondell, a $412 million gain from the sale of Occidental’s interest in a Russian joint venture and a gain of $103 million from the sale of exploration properties in West Africa.

Gains on disposition of assets, net in 2006, includes a gain of $90 million from the sale of 10 million shares of Lyondell stock.

Selected Expense Items

In millions	2008		2007		2006
Cost of sales ^(a)	$	7,423	$	6,454	$	6,009
Selling, general and administrative and other operating expenses	$	1,257	$	1,320	$	1,145
Depreciation, depletion and amortization	$	2,710	$	2,379	$	2,008
Taxes other than on income	$	588	$	414	$	394
Exploration expense	$	327	$	364	$	296
Interest and debt expense, net	$	129	$	339	$	291

(a)

Excludes depreciation, depletion and amortization of $2,664 million in 2008, $2,338 million in 2007 and $1,978 million in 2006.

Cost of sales increased in 2008, compared to 2007, due to higher oil and natural gas volumes, as well as higher maintenance, workover, field operating and feedstock costs.

Cost of sales increased in 2007, compared to 2006, due to higher oil and natural gas production and maintenance costs and higher chemicals feedstock costs.

Selling, general and administrative and other operating expenses decreased in 2008, compared to 2007, due to a decrease in equity compensation expense and foreign exchange gains of $91 million, which were partially offset by rig contract termination charges of $58 million.

Selling, general and administrative and other operating expenses increased in 2007, compared to 2006, due to 2007 severance charges and higher stock-based and incentive compensation expense. The increase in stock-based and incentive compensation expense in 2007, compared to 2006, resulted from a 58-percent increase in Occidental's stock price and higher net income, which increased the performance measures used to value certain of the existing stock-based awards, partially offset by a decrease in the value of awards granted in 2007.

DD&A increased in 2008, compared to 2007, due to the increase in sales volumes, mainly from the Dolphin Project, and higher DD&A rates caused by the cost of new proved reserve additions being higher than the existing average rates, especially in Latin America and the Middle East/North Africa. The 2008 amount also included a charge of $42 million for domestic asset impairments.

DD&A increased in 2007, compared to 2006, due to increased sales volumes, mainly from the Dolphin Project, and higher costs of new proved reserve additions resulting in a higher DD&A rate.

The increase in taxes other than on income in 2008, compared to 2007, reflects higher production taxes resulting from higher net sales as well as an increase in ad valorem taxes due to increases in oil and gas property values.

Exploration expense decreased in 2008, compared to 2007, due to decreases in Colombia and Middle East/North Africa. The 2007 amount included expenses for exploration properties in West Africa, which were sold in the third quarter of 2007.

Exploration expense increased in 2007, compared to 2006, due to increases in the Colombia and Middle East/North Africa exploration programs and impairments in California.

Interest and debt expense in 2007 and 2006 included pre-tax debt repayment expenses of $167 million and $35 million, respectively. Excluding the effect of the 2007 debt repayment charges, interest expense decreased in 2008, compared to 2007, due to lower average debt levels and lower effective interest rates.

Selected Other Items

In millions	2008			2007			2006
Provision for income taxes	$	4,629		$	3,507		$	3,354
Income from equity investments	$	(213	)	$	(82	)	$	(183	)
Discontinued operations, net	$	18		$	322		$	(11	)

The increase in the provision for income taxes in 2008, compared to 2007, was due to higher income before taxes in 2008. The 2008 worldwide effective tax rate was comparable to 2007.

The increase in the provision for income taxes in 2007, compared to 2006, was due to higher income before taxes in 2007.

The increase in income from equity investments in 2008, compared to 2007, was due to higher income from the Dolphin Pipeline.

The decrease in income from equity investments in 2007, compared to 2006, was due to the sale of Occidental’s interest in Lyondell and a Russian joint venture.

Discontinued operations in 2007 included after-tax income of $326 million for the operations of Horn Mountain and Pakistan that were sold as part of a series of transactions with BP as well as the results of operations of these assets before disposal.

Discontinued operations in 2006 included a $296 million after-tax loss for Ecuador after Occidental's contract for its Block 15 operations was terminated in May 2006. The 2006 amount also included $285 million of after-tax income for the operations of Horn Mountain and Pakistan as well as the Vintage assets that were held for sale and subsequently sold in 2006.

CONSOLIDATED ANALYSIS OF FINANCIAL POSITION

The changes in the following components of Occidental’s balance sheet are discussed below:

Selected Balance Sheet Components

In millions	2008		2007
CURRENT ASSETS
Cash and cash equivalents	$	1,777	$	1,964
Trade receivables, net		3,117		4,973
Marketing and trading assets and other		1,012		416
Inventories		958		910
Prepaid expenses and other		308		332
Total current assets	$	7,172	$	8,595
Investments in unconsolidated entities	$	1,263	$	783
Property, plant and equipment, net	$	32,266	$	26,278
Long-term receivables and other assets, net	$	836	$	863
CURRENT LIABILITIES
Current maturities of long-term debt and notes payable	$	698	$	47
Accounts payable		3,306		4,263
Accrued liabilities		1,861		1,611
Domestic and foreign income taxes		158		227
Liabilities of discontinued operations		111		118
Total current liabilities	$	6,134	$	6,266
Long-term debt, net	$	2,049	$	1,741
Deferred credits and other liabilities-income taxes	$	2,660	$	2,324
Deferred credits and other liabilities-other	$	3,217	$	3,156
Long-term liabilities of discontinued operations	$	152	$	174
Stockholders’ equity	$	27,300	$	22,823

Assets

See "Liquidity and Capital Resources — Cash Flow Analysis" for discussion about the change in cash and cash equivalents.

The decrease in trade receivables, net was due to lower oil and natural gas prices offset slightly by higher volumes during the fourth quarter of 2008, compared to the fourth quarter of 2007. The increase in marketing and trading assets and other was attributable to fair value adjustments on derivatives and increases of federal tax and joint venture receivables. The increase in investments in unconsolidated entities reflected the 2008 minority interest acquisitions in a North American oil and gas pipeline entity and a gas processing plant and pipeline and the increase in equity income from the Dolphin Project pipeline investment.

The increase in property, plant and equipment, net was due to capital expenditures, the purchases of oil and gas interests from Plains and an interest in Joslyn, the Libya signature bonus and the acquisitions of other various oil and gas interests, partially offset by 2008 DD&A.

Liabilities and Stockholders' Equity

The increase in current maturities of long-term debt and notes payable is due to the 2009 maturities of the Dolphin Energy loans and Occidental's 10 1/8-percent senior notes. The decrease in accounts payable reflected lower crude oil prices and volumes in the marketing and trading operations during the fourth quarter of 2008 compared to the fourth quarter of 2007. The increase in accrued liabilities was due to the accrual of the current portion of the unpaid Libya signature bonus and higher ad valorem taxes, rig contract termination, payroll and contractor accruals, partially offset by fair value adjustments on derivatives. The increase in long-term debt, net was due to the 2008 issuance of $1 billion of 7-percent senior notes, partially offset by the reduction resulting from the Dolphin loans and the 10 1/8-percent senior notes being moved to current maturities. The increase in deferred credits and other liabilities – income taxes is due to the additional deferred taxes recorded as part of the Joslyn acquisition. The increase in stockholders’ equity reflected net income for 2008, partially offset by 2008 treasury stock repurchases of approximately 19.8 million shares and dividend payments.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, Occidental had approximately $1.8 billion in cash on hand. Income and cash flows are largely dependent on oil and gas prices, which have fallen steeply since mid-2008, and sales volumes. Occidental believes that cash on hand and cash generated from operations will be sufficient to fund its operating needs, planned capital expenditures, dividends and debt payments. If needed, Occidental could access its existing credit facilities.

In the third quarter of 2008, Occidental filed a shelf registration statement which facilitates issuing senior debt securities. In October 2008, Occidental issued $1 billion of 7-percent senior notes receiving $985 million of net proceeds using this shelf registration. Interest on the notes will be payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2009. The notes will mature on November 1, 2013. As of December 31, 2008, no other securities were issued under the shelf.

In September 2006, Occidental amended and restated its $1.5 billion bank credit (Credit Facility) to, among other things, lower the interest rate and extend the term to September 2011. In September 2007, participating lenders extended the maturity date on $1.4 billion of aggregate loan commitments under the Credit Facility to September 2012. The Credit Facility provides for the termination of the loan commitments and requires immediate repayment of any outstanding amounts if certain events of default occur or if Occidental files for bankruptcy. Occidental did not draw down any amounts under the Credit Facility during 2008. Available but unused lines of committed bank credit totaled approximately $1.5 billion at December 31, 2008.

None of Occidental's committed bank credits contain material adverse change (MAC) clauses or debt rating triggers that could restrict Occidental's ability to borrow under these lines. Occidental's credit facilities and debt agreements do not contain rating triggers that could terminate bank commitments or accelerate debt in the event of a ratings downgrade. Up to $350 million of the Credit Facility is available in the form of letters of credit.

As of December 31, 2008, under the most restrictive covenants of certain financing agreements, Occidental's capacity for additional unsecured borrowing was approximately $65.3 billion, and the capacity for the payment of cash dividends and other distributions on, and for acquisitions of, Occidental's capital stock was approximately $25.1 billion, assuming that such dividends, distributions and acquisitions were made without incurring additional borrowing. Since 2007, Occidental’s long-term senior unsecured debt has been rated A by Fitch Ratings. In 2008, Occidental's long-term senior unsecured debt was upgraded from A- to A by Standard and Poor’s Ratings Services, from A3 to A2 by Moody’s Investors Service and from A (low) to A by Dominion Bond Rating 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.

In May 2007, Occidental redeemed all $276 million of the outstanding principal amount of its 8.25-percent Vintage senior notes due 2012. In January 2007, Occidental completed cash tender offers for portions of various debt instruments totaling $659 million in principal amount. The redemption and repurchases resulted in a pre-tax interest expense of $167 million.

Cash Flow Analysis

In millions		2008			2007			2006
Net cash provided by operating activities		$	10,652		$	6,798		$	6,353

The most important sources of the increase in operating cash flow in 2008, compared to 2007, were higher average oil and natural gas prices and, to a lesser extent, higher oil and gas sales volumes. The increased operating cash flow also reflects the higher caustic soda margins and higher margins in gas processing in 2008 in the chemical and midstream and marketing businesses, respectively. In 2008, compared to 2007, Occidental’s global realized crude oil prices increased by 36 percent and realized natural gas prices increased by 23 percent in the U.S., where approximately 70 percent of Occidental's natural gas was produced. Occidental’s oil and gas sales volumes increased by 5 percent in 2008, mainly due to the increase in production from the Dolphin Project.

The increase in operating cash flow in 2007, compared to 2006, resulted from higher oil prices and higher oil and gas sales volumes partially offset by the effects of lower chemical margins, particularly PVC, and reduced cash flow from discontinued operations. In 2007, Occidental’s realized crude oil prices increased 12 percent and its oil and gas sales volumes increased by over 4 percent compared to 2006. The increase in sales volumes was mainly due to the start-up of the Dolphin Project production in the third quarter of 2007.

Increases, in each case, from the previous year, in the costs of producing oil and gas, such as purchased goods and services, and higher utility, maintenance, workover and gas plant costs, and higher production and ad valorem taxes partially offset the effect of increases in realized oil and natural gas prices and volumes in both 2008 and 2007. Other cost elements, such as labor costs and overhead, are not significant drivers of changes in cash flow because they are relatively stable within a narrow range over the short to intermediate term. These cost increases had a much smaller effect on cash flow than the higher oil and gas prices and higher oil and natural gas sales volumes.

Most of Occidental's major chemical product prices, especially caustic soda, increased in 2008, compared to 2007, which increased margins. The increase in NGL prices in 2008, compared to 2007, resulted in higher gas processing margins in the midstream and marketing segment. The overall impact of the chemical product price increases and gas processing margins on cash flow was less significant than the increases in oil and gas prices because the chemical and midstream and marketing segments' earnings and cash flow were significantly smaller than those for the oil and gas segment.

Other non-cash charges to income in 2008, 2007 and 2006 included stock incentive plan amortization, deferred compensation and environmental remediation accruals. The 2008 amount also included a charge of $557 million for asset impairments of undeveloped acreage in Argentina and Yemen and a $90 million charge for chemical plant closure and impairments.

In millions	2008			2007			2006
Capital expenditures ^(a)
Oil and Gas	$	(3,845	)	$	(2,865	)	$	(2,489	)
Chemical		(240	)		(245	)		(248	)
Midstream and Marketing		(492	)		(243	)		(103	)
Corporate		(87	)		(7	)		(17	)
Total		(4,664	)		(3,360	)		(2,857	)
Other investing activities, net		(4,793	)		232			(1,526	)
Net cash used by investing activities	$	(9,457	)	$	(3,128	)	$	(4,383	)

(a)

Excludes acquisitions, which are included in other investing activities, net.

Occidental’s capital spending estimate for 2009 is approximately $3.5 billion and will focus on the goal of keeping Occidental's returns well above its cost of capital given current oil and gas prices and the cost environment. Occidental has accumulated a sizable inventory of projects, of which a substantial portion can be delayed until industry costs are aligned with product prices. Occidental will continue to fully fund much of its Middle East operations, the exploration programs in California, Utah and Argentina, and the midstream and marketing and CO₂ programs, which it believes have higher return and growth potential.

The 2008 other investing activities, net amount includes cash payments for the acquisitions of oil and gas interests from Plains for $2.7 billion, an interest in Joslyn for approximately $500 million, a minority interest in a North American oil and gas pipeline entity for approximately $330 million and approximately $700 million of various other acquisitions. The 2008 amount also includes the first payment of the signature bonus under the Libya agreements of $450 million.

The 2007 other investing activities, net amount includes cash proceeds of $672 million from the sale of 21 million shares of Lyondell, $485 million received from the sale of Occidental’s interest in a Russian joint venture, $509 million from the sale of other businesses and properties, and $250 million from the sale of auction rate securities. The 2007 amount also includes the cash paid for the acquisitions of various oil and gas and chemical interests, a Permian Basin common carrier pipeline system and a gas processing plant in Texas totaling $1.4 billion.

The 2006 other investing activities, net amount includes the cash payments associated with the acquisition of Vintage and a property acquisition from Plains, partially offset by cash proceeds from the Vintage assets subsequently sold and from the sale of Lyondell shares.

Commitments at December 31, 2008, for major fixed and determinable capital expenditures during 2009 and thereafter were approximately $1.1 billion. Occidental expects to fund these commitments and capital expenditures with cash from operations.

In millions		2008			2007			2006
Net cash used by financing activities		$	(1,382	)	$	(3,045	)	$	(2,819	)

The 2008 amount includes the net proceeds of $985 million from the issuance of $1 billion of 7-percent senior notes. The 2008 amount also includes $1.5 billion of cash paid for repurchases of 19.8 million shares of Occidental’s common stock at an average price of $76.33 per share.

The 2007 amount includes net debt payments of $1.2 billion, including the repurchase of various debt issues under cash tender offers and the redemption of Vintage notes. The 2007 amount also included $1.1 billion of cash paid for repurchases of 20.6 million shares of Occidental’s common stock at an average price of $54.75 per share.

The 2006 amount consists of $1.5 billion of cash paid for stock repurchases and net debt payments of approximately $900 million.

Occidental also paid common stock dividends of $940 million in 2008, $765 million in 2007 and $646 million in 2006.

OFF-BALANCE-SHEET ARRANGEMENTS

In the course of its business activities, Occidental pursues a number of projects and transactions to meet its core business objectives. Occidental also makes commitments on behalf of unconsolidated entities. Some of these projects, transactions and commitments (off-balance-sheet arrangements) are not reflected on Occidental’s balance sheets, as a result of the application of generally accepted accounting principles (GAAP) to their specific terms. The following is a description of the business purpose and nature of these off-balance-sheet arrangements.

Dolphin Project

See "Oil and Gas Segment — Business Review — Middle East/North Africa — Dolphin Project" and "Midstream, Marketing and Other Segment — Business Review — Dolphin Project" for further information about the structure of the Dolphin Project.

In July 2005, Dolphin Energy entered into a bridge loan in an amount of $2.45 billion. The new bridge loan had a term of four years as a revolving credit facility through April 2008 and was converted to a term loan thereafter. In September 2005, Dolphin Energy entered into an agreement with banks to provide a $1.0 billion facility to fund the construction of a certain portion of the Dolphin Project. Occidental guarantees 24.5 percent of both of these obligations. At December 31, 2008, Occidental’s portion of the bridge loan and financing facility was $845 million. Of this amount, Occidental had recorded $600 million as its proportionately consolidated share on the balance sheet at December 31, 2008. At December 31, 2008, the remaining $245 million of the bridge loan and financing facility represents a substantial majority of Occidental's guarantees discussed in the "Guarantees" section.

Ecuador

In Ecuador, Occidental has a 14-percent interest in the Oleoducto de Crudos Pesados Ltd. (OCP) oil export pipeline, which Occidental records as an equity investment. The project was funded in part by senior project debt, which is to be repaid with the proceeds of ship-or-pay tariffs of certain upstream producers in Ecuador. In May 2006, Ecuador terminated Occidental's contract for the operation of Block 15, which comprised all of its oil-producing operations in the country, and seized Occidental's Block 15 assets. As of December 31, 2008, Occidental's net investment in and advances to the project totaled $66 million and Occidental had accrued $263 million for related obligations, including all tariffs.

Leases

Occidental has entered into various operating-lease agreements, mainly for railcars, power plants, manufacturing facilities and office space. Occidental leases assets when leasing offers greater operating flexibility. Lease payments are expensed mainly as cost of sales. For more information, see "Contractual Obligations."

Guarantees

Occidental has guaranteed equity investees' debt and has entered into various other guarantees including performance bonds, letters of credit, indemnities, commitments and other forms of guarantees provided by Occidental to third parties, mainly to provide assurance that OPC or its subsidiaries and affiliates will meet their various obligations (guarantees).

Contractual Obligations

The table below summarizes and cross-references certain contractual obligations that are reflected in the Consolidated Balance Sheets as of December 31, 2008 and/or disclosed in the accompanying Notes.

			Payments Due by Year
Contractual Obligations (in millions)	Total		2009		2010 and 2011		2012 and 2013		2014 and thereafter
Consolidated Balance Sheet
Long-term debt (Note 5) ^(a)	$	2,749	$	691	$	307	$	1,368	$	383
Capital leases (Note 6)		32		1		2		2		27
Other liabilities ^(b)		6,661		4,892		725		266		778
Other Obligations
Operating leases (Note 6) ^(c)		1,223		164		237		149		673
Purchase obligations ^{(d, e)}		7,650		1,753		2,525		1,932		1,440
Total	$	18,315	$	7,501	$	3,796	$	3,717	$	3,301

(a)	Excludes unamortized debt discount and interest expense on the debt. As of December 31, 2008, interest on long-term debt totaling $899 million is payable in the following years (in millions): 2009 - $147, 2010 and 2011 - $252, 2012 and 2013 - $187, 2014 and thereafter - $313.
(b)	Includes accounts payable, certain accrued liabilities and obligations under postretirement benefit and deferred compensation plans.
(c)	Amounts have not been reduced for sublease rental income.
(d)	Amounts represent long-term agreements to purchase goods and services used in the normal course of business that are enforceable and legally binding. Some of these arrangements involve take-or-pay commitments but they do not represent debt obligations. Material long-term purchase contracts are discounted at 6.1-percent discount rate.
(e)	Amounts exclude purchase obligations related to oil and gas marketing and trading activities where an offsetting sales position exists.

LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS

OPC or certain of its subsidiaries are named, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. OPC or certain of its subsidiaries also have been named in proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, state, local and foreign environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief; however, Occidental is usually one of many companies in these proceedings and has to date been successful in sharing response costs with other financially sound companies. With respect to all such lawsuits, claims and proceedings, including environmental proceedings, Occidental accrues reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Environmental matters are further discussed under the caption "Environmental Liabilities and Expenditures" below.

Lawsuits have been filed in Nicaragua against OxyChem and other companies that once manufactured or used a pesticide, dibromochloropropane (DBCP). These lawsuits claim damages of several billion dollars for alleged personal injuries. In the opinion of management, the claims against OxyChem are without merit because, among other things, the DBCP it manufactured was never sold or used in Nicaragua. In order to preserve its jurisdictional defense, OxyChem elected not to make a substantive appearance in these cases. Nicaraguan courts have entered judgments of approximately $900 million against four defendants, including OxyChem. Under Nicaraguan law, the judgments would be shared equally among the defendants. The plaintiffs attempted to enforce one judgment in Miami. In January 2009, the federal district court in Miami granted summary judgment in favor of OxyChem and refused to enforce the judgment. OxyChem has no assets in Nicaragua and, in the opinion of management, no such Nicaraguan judgment would be enforceable in the United States.

During the course of its operations, Occidental is subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. While the audits for taxable years through 2007 have concluded for U.S. federal income tax purposes, the 2008 taxable year is currently under audit by the U.S. Internal Revenue Service pursuant to its compliance assurance program (CAP). Foreign government tax authorities are in various stages of auditing Occidental, and income taxes for taxable years from 2000 through 2008 remain subject to examination in certain jurisdictions. During the course of such audits, disputes have arisen and other disputes may arise as to facts and matters of law.

Occidental has entered into agreements providing for future payments to secure terminal and pipeline capacity, drilling rigs and services, electrical power, steam and certain chemical raw materials. Occidental has certain other commitments under contracts, guarantees and joint ventures, including purchase commitments for goods and services at market-related prices and certain other contingent liabilities. Occidental's capital spending estimate for 2009 is approximately $3.5 billion. At December 31, 2008, commitments for major fixed and determinable capital expenditures during 2009 and thereafter were approximately $1.1 billion.

Occidental has indemnified various parties against specified liabilities that those parties might incur in the future in connection with purchases and other transactions that they have entered into with Occidental. These indemnities usually are contingent upon the other party incurring liabilities that reach specified thresholds. As of December 31, 2008, Occidental is not aware of circumstances that it believes would reasonably be expected to lead to future indemnity claims against it in connection with these transactions that would result in payments materially in excess of reserves.

The ultimate amount of losses and the timing of any such losses that OPC and its subsidiaries may incur resulting from currently outstanding lawsuits, claims and proceedings, audits, commitments, contingencies and related matters cannot be determined reliably at this time. If these matters were ultimately resolved unfavorably at amounts substantially exceeding Occidental’s reserves, an outcome not currently expected, it is possible that such outcome could have a material adverse effect upon Occidental’s consolidated financial position or results of operations. However, after taking into account reserves, management does not expect the ultimate resolution of any of these matters to have a material adverse effect upon Occidental’s consolidated financial position or results of operations.

ENVIRONMENTAL LIABILITIES AND EXPENDITURES

Occidental’s operations are subject to stringent federal, state, local and foreign laws and regulations relating to improving or maintaining environmental quality. Occidental’s environmental compliance costs have generally increased over time and could continue to rise in the future. Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.

Environmental Remediation

The laws that require or address environmental remediation, including CERCLA and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures involving removal, treatment or disposal; or operation and maintenance of remedial systems. The environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.

As of December 31, 2008, Occidental participated in or monitored remedial activities or proceedings at 166 sites.

The following table presents Occidental’s environmental remediation reserves as of December 31, 2008, 2007 and 2006, grouped in the following four categories of environmental remediation sites: (1) sites listed or proposed for listing by the U.S. Environmental Protection Agency on the CERCLA National Priorities List (CERCLA NPL); (2) other third-party sites; (3) Occidental-operated sites; and (4) Occidental's closed or non-operated sites.

$ amounts in millions	2008			2007			2006
	# of Sites	Reserve Balance		# of Sites	Reserve Balance		# of Sites	Reserve Balance
CERCLA NPL sites	40	$	60	39	$	81	37	$	77
Other third-party sites	76		117	79		124	84		123
Occidental-operated sites	19		127	18		121	20		138
Occidental's closed or non-operated sites	31		135	27		131	25		74
Total	166	$	439	163	$	457	166	$	412

As of December 31, 2008, Occidental’s environmental reserves exceeded $10 million each at 14 of the 166 sites described above, and 115 of the sites had reserves from $0 to $1 million each.

As of December 31, 2008, two landfills in western New York owned by Occidental accounted for 65 percent of its reserves associated with CERCLA NPL sites. Maxus Energy Corporation has retained the liability and indemnified Occidental for 17 of the remaining 38 CERCLA NPL sites.

As of December 31, 2008, Maxus has also retained the liability and indemnified Occidental for 14 of the 76 other third-party sites. Two of the remaining 62 other third-party sites — a former copper mining and smelting operation in Tennessee and an active refinery in Louisiana where Occidental reimburses the current owner and operator for certain remedial activities — accounted for 60 percent of Occidental’s reserves associated with these sites.

Five sites — chemical plants in Kansas, Louisiana and New York and two groups of oil and gas properties in the southwestern United States — accounted for 71 percent of Occidental’s reserves associated with its operated sites. Five other sites — former chemical plants in Delaware, Michigan, Tennessee and Washington and a closed coal mine in Pennsylvania — accounted for 71 percent of the reserves associated with Occidental's closed or non-operated sites.

The following table shows environmental reserve activity for the past three years:

In millions	2008			2007			2006
Balance - Beginning of Year	$	457		$	412		$	418
Remediation expenses and interest accretion		29			108			48
Changes from acquisitions/dispositions		25			5			17
Payments		(72	)		(68	)		(71	)
Balance - End of Year	$	439		$	457		$	412

Occidental expects to expend funds corresponding to about half of the current environmental reserves over the next four years and the balance over the subsequent ten or more years. Occidental believes its range of reasonably possible additional loss beyond those liabilities recorded for environmental remediation at the sites described above could be up to $400 million. See "Critical Accounting Policies and Estimates — Environmental Liabilities and Expenditures" for additional information.

Environmental Costs

Occidental’s environmental costs, some of which may include estimates, are shown below for each segment for the years ended December 31:

In millions	2008		2007		2006
Operating Expenses
Oil and Gas	$	127	$	99	$	87
Chemical		85		80		73
Midstream and Marketing		20		9		8
	$	232	$	188	$	168
Capital Expenditures
Oil and Gas	$	104	$	55	$	51
Chemical		18		14		25
Midstream and Marketing		6		4		4
	$	128	$	73	$	80
Remediation Expenses
Corporate	$	28	$	107	$	47

Operating expenses are incurred on a continual basis. Capital expenditures relate to longer-lived improvements in currently operating properties. Remediation expenses relate to existing conditions from past operations.

Occidental presently estimates capital expenditures for environmental compliance of approximately $120 million for 2009.

FOREIGN INVESTMENTS

Many of Occidental’s assets are located outside of North America. At December 31, 2008, the carrying value of Occidental’s assets in countries outside North America aggregated approximately $11.2 billion, or approximately 27 percent of Occidental’s total assets at that date. Of such assets, approximately $6.9 billion are located in the Middle East/North Africa and approximately $4.3 billion are located in Latin America. For the year ended December 31, 2008, net sales outside North America totaled $8.8 billion, or approximately 36 percent of total net sales.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The process of preparing financial statements in accordance with GAAP requires the management of Occidental to make estimates and judgments regarding certain items and transactions. It is possible that materially different amounts could be recorded if these estimates and judgments change or if the actual results differ from these estimates and judgments. Occidental considers the following to be its most critical accounting policies and estimates that involve the judgment of Occidental’s management. There has been no material change to these policies over the past three years. The selection and development of these critical accounting policies and estimates have been discussed with the Audit Committee of the Board of Directors.

Oil and Gas Properties

Occidental uses the successful efforts method to account for its oil and gas properties. Under this method, costs of acquiring properties, costs of drilling successful exploration wells and development costs are capitalized. The costs of exploratory wells are initially capitalized pending a determination of whether proved reserves have been found. At the completion of drilling activities, the costs of exploratory wells remain capitalized if a determination is made that proved reserves have been found. If no proved reserves have been found, the costs of the related exploratory wells are charged to expense. In some cases, a determination of proved reserves cannot be made at the completion of drilling, requiring additional testing and evaluation of the wells. Occidental's practice is to expense the costs of such exploratory wells if a determination of proved reserves has not been made within a twelve-month period after drilling is complete. Occidental has no proved oil and gas reserves for which the determination of commercial viability is subject to the completion of major additional capital expenditures.

Annual lease rentals and geological, geophysical and seismic costs are expensed as incurred.

Proved oil and gas reserves are the estimated quantities of oil and natural gas that geological and engineering data demonstrate, with reasonable certainty, can be recovered in future years from known reservoirs under existing economic and operating conditions considering future production and development costs. Depreciation and depletion of oil and gas producing properties is determined by the unit-of-production method.

Several factors could change Occidental’s proved oil and gas reserves. Occidental receives a share of production from PSCs to recover its costs and an additional share for profit. Occidental’s share of production and reserves from these contracts decreases when oil prices rise and increases when oil prices decline. Overall, Occidental’s net economic benefit from these contracts is greater at higher oil prices. In other contractual arrangements, lower product prices may lead to a situation where production of proved reserves becomes uneconomical. Estimation of future production and development costs is also subject to change partially due to factors beyond Occidental's control, such as energy costs and inflation or deflation of oil field service costs. These factors, in turn, could lead to changes in the quantity of proved reserves. An additional factor that could result in a change of proved reserves is the reservoir decline rates differing from those estimated when the proved reserves were initially recorded. Occidental's revisions to proved reserves were negative for 2008, which was largely due to changes in oil and gas prices from year-end 2007 to year-end 2008. Excluding price revisions, the negative revisions amounted to less than one percent of the total proved reserves for 2008. Occidental’s revisions to proved reserves were negative for 2007 and amounted to less than three percent of the total proved reserves for the year. Occidental's revisions to proved reserves have been positive for six of the last ten years.

If Occidental’s consolidated proved oil and gas reserves were to change based on the factors mentioned above, the most significant impact would be on the DD&A rate, which is determined using the unit-of-production method. For example, a 5-percent increase in the amount of consolidated oil and gas reserves would change the rate from $10.17 per barrel to $9.69 per barrel, which would increase pre-tax income by $106 million annually. A 5-percent decrease in the oil and gas reserves would change the rate from $10.17 per barrel to $10.71 per barrel and would result in a decrease in pre-tax income of $119 million annually. The change in the DD&A rate over the past three years due to revisions of previous proved reserve estimates has been immaterial.

A portion of the carrying value of Occidental’s oil and gas properties is attributable to unproved properties. At December 31, 2008, the net capitalized costs attributable to unproved properties were $2.3 billion. The unproved amounts are not subject to DD&A or impairment until a determination is made as to the existence of proved reserves. As exploration and development work progresses, if reserves on these properties are proved, capitalized costs attributable to the properties will be subject to depreciation and depletion. If the exploration and development work were to be unsuccessful, or management's plans changed with respect to these properties, as a result of economic, operating or contractual conditions, the capitalized costs of the related properties would be expensed in the period in which the determination was made. The timing of any writedowns of these unproved properties, if warranted, depends upon management's plans and the nature, timing and extent of future exploration and development activities and their results. Occidental believes its current plans and exploration and development efforts will allow it to realize its unproved property balance. Additionally, Occidental performs impairment tests with respect to its proved properties generally when prices decline other than temporarily, reserve estimates change significantly or other significant events occur that may impact the ability to realize the recorded asset amounts. Impairment tests incorporate a number of assumptions involving expectations of future cash flows, which can change significantly over time. These assumptions include estimates of future product prices, which Occidental bases on forward price curves, estimates of oil and gas reserves and estimates of future expected operating and development costs.

The steady increase in oil and gas prices over the past several years has also caused steep increases in capital and operating costs, including costs of materials and supplies and oil field services. The rapid and significant decline in product prices in the second half of 2008 has resulted in capital and operating costs that are not aligned with current product prices. Current pricing, coupled with a sustained high production cost environment, could cause management's plans to change with respect to unproved properties and could cause the carrying values of proved properties to be unrealizable. Such circumstances could result in impairments in the carrying values of proved or unproved properties or both.

Chemical Assets

The most critical accounting policy affecting Occidental’s chemical assets is the determination of the estimated useful lives of its PP&E. Occidental's chemical plants are depreciated using either the unit-of-production or straight-line method, based upon the estimated useful lives of the facilities. The estimated

useful lives of Occidental’s chemical assets, which range from three years to 50 years, are used to compute depreciation expense and are also used for impairment tests. The estimated useful lives used for the chemical facilities are based on the assumption that Occidental will provide an appropriate level of annual expenditures to ensure productive capacity is sustained. Without these continued expenditures, the useful lives of these plants could decrease significantly. Other factors that could change the estimated useful lives of Occidental’s chemical plants include sustained higher or lower product prices, which are particularly affected by both domestic and foreign competition, demand, feedstock costs, energy prices, environmental regulations and technological changes.

Occidental performs impairment tests on its assets whenever events or changes in circumstances lead to a reduction in the estimated useful lives or estimated future cash flows that would indicate that the carrying amount may not be recoverable, or when management’s plans change with respect to those assets.

Occidental's net PP&E for chemicals is approximately $2.5 billion and its depreciation expense for 2009 is expected to be approximately $260 million. If the estimated useful lives of Occidental’s chemical plants were to decrease based on the factors mentioned above, the most significant impact would be on depreciation expense. For example, a reduction in the remaining useful lives of one year would increase depreciation and reduce pre-tax earnings by approximately $30 million per year.

Midstream, Marketing and Other Assets

The most critical accounting policies affecting Occidental’s midstream and marketing assets are accounting for derivative instruments and the determination of the estimated useful lives of its PP&E.

Derivative instruments are carried at fair value. Occidental applies either fair value or cash flow hedge accounting when transactions meet specified criteria for hedge accounting treatment. If the derivative does not qualify as a hedge or is not designated as a hedge, any fair value gains or losses are recognized in earnings. If the derivative qualifies for hedge accounting and is designated and documented as a hedge, the gain or loss on the derivative is either recognized in income with an offsetting adjustment to the basis of the item being hedged for fair value hedges, or deferred in Other Comprehensive Income to the extent the hedge is effective for cash flow hedges. Cash flow hedge-realized gains and losses, and any ineffectiveness, are classified within the net sales line item. Gains and losses are reported net in the income statement and are also netted on the balance sheets when a right of offset exists.

A hedge is regarded as highly effective and qualifies for hedge accounting if, at inception and throughout its life, it is expected that changes in the fair value or cash flows of the hedged item are almost fully offset by the changes in the fair value or changes in cash flows of the hedging instrument and actual effectiveness is within a range of 80 to 125 percent. In the case of hedging a forecasted transaction, the transaction must be probable and must present an exposure to variations in cash flows that could ultimately affect reported net income or loss. Occidental discontinues hedge accounting when it determines that a derivative has ceased to be highly effective as a hedge; when the derivative expires, or is sold, terminated, or exercised; when the hedged item matures or is sold or repaid; or when a forecasted transaction is no longer deemed probable.

Occidental's midstream and marketing assets are depreciated using either the unit-of-production or straight-line method, based upon the estimated useful lives of the assets. Occidental performs impairment tests on its assets whenever events or changes in circumstances lead to a reduction in the estimated useful lives or estimated future cash flows that would indicate that the carrying amount may not be recoverable, or when management’s plans change with respect to those assets.

Environmental Liabilities and Expenditures

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Occidental records environmental reserves for estimated remediation costs that relate to existing conditions from past operations when environmental remediation efforts are probable and the costs can be reasonably estimated. In determining the reserves and the range of reasonably possible additional loss, Occidental refers to currently available information, including relevant past experience, remedial objectives, available technologies, applicable laws and regulations and cost-sharing arrangements. Occidental bases environmental reserves on management’s estimate of the most likely cost to be incurred, using the most cost-effective technology reasonably expected to achieve the remedial objective. Occidental periodically reviews reserves and adjusts them as new information becomes available. Occidental records environmental reserves on a discounted basis only when the aggregate amount and the timing of cash payments are reliably determinable at the time the reserves are established. The reserve methodology with respect to discounting for a specific site is not modified once it has been established. Occidental generally records reimbursements or recoveries of environmental remediation costs in income when received. As of December 31, 2008, 2007 and 2006, Occidental has not accrued any reimbursements or recoveries.

Many factors could affect Occidental’s future remediation costs and result in adjustments to its environmental reserves and range of reasonably possible additional loss. The most significant are: (1) cost estimates for remedial activities may be inaccurate; (2) the length of time, type or amount of remediation necessary to achieve the remedial objective may change due to factors such as site conditions, the ability to identify and control contaminant sources or the discovery of additional contamination; (3) the regulatory agency may ultimately reject or modify Occidental’s proposed remedial plan; (4) improved or alternative remediation technologies may change remediation costs; and (5) laws and regulations may impose more or less stringent remediation requirements or affect cost sharing or allocation of liability.

At sites involving multiple parties, Occidental provides environmental reserves based upon its expected share of liability. Occidental evaluates the financial viability of other parties with whom it is alleged to be jointly liable, the degree of their commitment to participate and the consequences to Occidental of their failure to participate when estimating Occidental's ultimate share of liability. Based on these factors,

Occidental believes that it will not be required to assume a share of liability of such other potentially responsible parties in an amount that would have a material effect on Occidental’s consolidated financial position, liquidity or results of operations.

Most cost-sharing arrangements with other parties fall into one of the following three categories: (1) environmental proceedings that result in a negotiated or prescribed allocation of remediation costs among Occidental and other alleged potentially responsible parties; (2) oil and gas ventures in which each participant pays its proportionate share of remediation costs reflecting its working interest; or (3) contractual arrangements, typically relating to purchases and sales of properties, in which the parties to the transaction agree to methods of allocating remediation costs.

In all three of these categories, Occidental records reserves at its expected net cost of remedial activities.

In addition to the costs of investigations and cleanup measures, which often take in excess of ten years at CERCLA NPL sites, Occidental’s reserves include management’s estimates of the costs to operate and maintain remedial systems. If remedial systems are modified over time in response to significant changes in site-specific data, laws, regulations, technologies or engineering estimates, Occidental reviews and adjusts its reserves accordingly.

If Occidental adjusts the environmental reserve balance based on the factors described above, the amount of the increase or decrease would be recognized in earnings. For example, if the reserve balance were reduced by 10 percent, Occidental would record a pre-tax gain of $44 million. If the reserve balance were increased by 10 percent, Occidental would record an additional remediation expense of $44 million.

Other Loss Contingencies

Occidental is involved with numerous lawsuits, claims, proceedings and audits in the normal course of its operations. Occidental records a loss contingency for these matters when it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In addition, Occidental discloses, in aggregate, its exposure to loss in excess of the amount recorded on the balance sheet for these matters if it is reasonably possible that an additional material loss may be incurred. Occidental reviews its loss contingencies on an ongoing basis.

These reserves are based on judgments made by management with respect to the likely outcome of these matters and are adjusted as appropriate. Management’s judgments could change based on new information, changes in laws or regulations, changes in management’s plans or intentions and the outcome of legal proceedings, settlements or other factors. See "Lawsuits, Claims, Commitments and Related Matters" for additional information.

SIGNIFICANT ACCOUNTING CHANGES

Listed below are significant changes in accounting principles.

Future Accounting Changes

SFAS No. 141(R)

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141(R), "Business Combinations." This statement provides new accounting guidance and disclosure requirements for business combinations and is effective for business combinations which occur starting with the first fiscal year beginning on or after December 15, 2008.

SFAS No. 160

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements." This statement provides new accounting guidance and disclosure and presentation requirements for noncontrolling interests in an entity. SFAS No. 160 is effective for the first fiscal year beginning on or after December 15, 2008. Occidental does not expect the effect of this statement on its financial statements to be material.

SFAS No. 161

In March 2008, the FASB issued SFAS No. 161, which provides new disclosure requirements for an entity’s derivative and hedging activities. SFAS No. 161 is effective for periods beginning after November 15, 2008. Occidental does not expect the effect of this statement on its financial statements to be material.

FSP EITF Issue No. 03-6-1

In June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) Issue No. 03-6-1. This FSP concluded that instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing basic earnings per share under the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 with prior period retrospective application. Occidental does not expect the effect of this FSP on its financial statements to be material.

FSP SFAS No. 132(R)-1

In December 2008, the FASB issued FSP SFAS No. 132(R)-1. This FSP requires companies to enhance disclosures related to the assets held in defined benefit plans and other post-retirement benefits. Occidental will be required to provide greater detail as to the categories of plan assets as well as the level within the fair value hierarchy discussed in SFAS No. 157, in which the plan assets fall. This FSP is effective for financial statements issued for fiscal years ending after December 15, 2009. Occidental does not expect the effect of this FSP on its financial statements to be material.

Recently Adopted Accounting Changes

SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, which allows companies to measure individually selected financial instruments at fair value. SFAS No. 159 is effective for financial statements issued for periods beginning after November 15, 2007. Since Occidental did not elect the fair value option on any qualifying financial instruments at any time during 2008, this statement has had no impact on Occidental’s financial statements.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for periods beginning after November 15, 2007. In February 2008, the FASB issued FSP FAS 157-2, which defers the effective date of SFAS No. 157 for non-financial assets and liabilities that are not recorded at fair value on a recurring basis until periods beginning after November 15, 2008. Occidental adopted the non-deferred portion of SFAS No. 157 on January 1, 2008 on a prospective basis. See Note 11 to the Consolidated Financial Statements for further information. In October 2008, the FASB issued FSP FAS 157-3, which became effective immediately and clarified the application of SFAS No. 157 in a market that is not active. The adoption of FSP FAS 157-3 has not had a material impact on Occidental’s financial statements.

DERIVATIVE ACTIVITIES AND MARKET RISK

General

Occidental is exposed to risk that is inherent with changing commodity price risk. In order to mitigate price risk, Occidental, from time to time, enters into derivative transactions. A derivative is an instrument that, among other characteristics, derives its value from changes in another instrument or variable.

In general, the fair value recorded for derivative instruments is based on quoted market prices, dealer quotes and the Black Scholes or similar valuation models, as applicable.

Commodity Price Risk

General

Occidental’s results are sensitive to fluctuations in oil and natural gas prices. Based on current levels of production, if oil prices vary by $1 per barrel, it would have an estimated annual effect on pre-tax income of approximately $150 million. If domestic natural gas prices vary by $0.50 per Mcf, it would have an estimated annual effect on pre-tax income of approximately $93 million. If production levels change in the future, the sensitivity of Occidental’s results to oil and gas prices also would change.

Occidental’s results are also sensitive to fluctuations in chemical prices. If chlorine and caustic soda prices vary by $10 per ton, it would have a pre-tax annual effect on income of approximately $10 million and $30 million, respectively. If PVC prices vary by $.01 per lb, it would have a pre-tax annual effect on income of approximately $30 million. If ethylene dichloride (EDC) prices vary by $10 per ton, it would have a pre-tax annual effect on income of approximately $5 million. Historically, product price changes either precede or follow raw material and feedstock product price changes; therefore, the margin effect of price changes are generally mitigated over time. According to Chemical Market Associates, Inc., December 2008 average contract prices were: chlorine—$220 per ton, caustic soda—$1,080 per ton, PVC—$0.44 per lb and EDC—$40 per ton.

Marketing and Trading Operations

Occidental periodically uses different types of derivative instruments to achieve the best prices for oil and gas. Derivatives have been used by Occidental to reduce its exposure to price volatility on a small portion of its production. Occidental enters into low-risk marketing and trading activities through its separate marketing organization, which operates under established policy controls and procedures. Occidental's marketing and trading operations utilize a combination of futures, forwards, options and swaps to mitigate the price risk associated with various physical transactions.

Risk Management

Occidental conducts its risk management activities for energy commodities (which include buying, selling, marketing, trading, and hedging activities) under the controls and governance of its risk control policy. The President and Chief Financial Officer and the Risk Management Committee, comprising members of Occidental's management, oversee these controls, which are implemented and enforced by a Trading Control Officer. The Trading Control Officer provides an independent and separate check on marketing and trading activities. Controls for energy commodities include limits on value at risk, limits on credit, limits on trading, segregation of duties, delegation of authority and a number of other policy and procedural controls.

Fair Value of Marketing and Trading Derivative Contracts

The following tables show the changes in the net fair value of Occidental’s marketing and trading derivative contracts, a portion of which are hedges, during 2008 and 2007, and segregate the open contracts at December 31, 2008 by maturity periods.

In millions	2008			2007
Fair value of contracts outstanding at beginning of year – unrealized losses	$	(576	)	$	(355	)
Losses on contracts realized or otherwise settled during the year		101			106
Changes in fair value attributable to changes in valuation techniques and assumptions		(1	)		—
Gains (Losses) or other changes in fair value^(a)		337			(327	)
Fair value of contracts outstanding at end of year – unrealized losses	$	(139	)	$	(576	)

(a)

Primarily relates to price changes on existing production hedges.

	Maturity Periods
Source of Fair Value – unrealized (losses) gains (in millions)	2009			2010 and 2011			2012 and 2013		2014 and thereafter		Total Fair Value
Prices actively quoted	$	(87	)	$	3		$	—	$	—	$	(84	)
Prices provided by other external sources		133			(190	)		1		1		(55	)
Total	$	46		$	(187	)	$	1	$	1	$	(139	)

During the next twelve months, Occidental expects that approximately $48 million of net derivative after-tax gains included in Accumulated Other Comprehensive Income, based on their valuation as of December 31, 2008, will be recognized in earnings. Hedge ineffectiveness did not have a material impact on earnings for any of the years ended December 31, 2008, 2007 and 2006.

Production Hedges

Occidental holds a series of collar agreements that qualify as cash-flow hedges for the sale of a small portion of its crude oil production. These agreements continue to the end of 2011. The 2008 volume that was hedged was less than 3 percent of Occidental’s 2008 crude oil production. Further detail about these cash-flow hedges, which are included in the total fair value of ($139) million in the table above, is presented below as of December 31, 2008 (volumes in thousands of barrels):

	Crude Oil – Collars
	Daily Volume	Average Floor	Average Cap
2009	13	$33.15	$47.41
2010	12	$33.00	$46.35
2011	12	$32.92	$46.27

($ millions)		Crude Oil – Collars
Fair value liability		($253)

Quantitative Information

Occidental uses value at risk to estimate the potential effects of changes in fair values of commodity-based derivatives and commodity contracts used in marketing and trading activities. This method determines the maximum potential negative short-term change in fair value with a 95-percent level of confidence. The marketing and trading value at risk was immaterial during all of 2008.

Interest Rate Risk

General

Occidental's exposure to changes in interest rates relates primarily to its long-term debt obligations, and is not expected to be material.

Tabular Presentation of Interest Rate Risk

In millions of U.S. dollars, except rates

The table below provides information about Occidental's debt obligations. Debt amounts represent principal payments by maturity date.

Year of Maturity	U.S. Dollar Fixed-Rate Debt		U.S. Dollar Variable-Rate Debt		Grand Total ^(a)
2009	$	91	$	600	$	691
2010		239		—		239
2011		—		68		68
2012		368		—		368
2013		1,000		—		1,000
Thereafter		337		46		383
Total	$	2,035	$	714	$	2,749
Average interest rate		7.05%		3.45%		6.11%
Fair Value	$	2,212	$	714	$	2,927

(a)

Excludes unamortized net discounts of $9 million.

Credit Risk

Occidental’s energy contracts are spread among several counterparties. Creditworthiness is reviewed before doing business with a new counterparty and on an ongoing basis. Occidental monitors aggregated counterparty exposure relative to credit limits. Credit exposure for each customer is monitored for outstanding balances, current month activity, and forward mark-to-market exposure. Losses associated with credit risk have been immaterial for all years presented.

Foreign Currency Risk

Occidental’s foreign operations have currency risk. Occidental manages its exposure primarily by balancing monetary assets and liabilities and maintaining cash positions in foreign currencies only at levels necessary for operating purposes. Most international crude oil sales are denominated in U.S. dollars. Additionally, all of Occidental’s consolidated foreign oil and gas subsidiaries have the U.S. dollar as the functional currency. As of December 31, 2008 and 2007, Occidental had not entered into any foreign currency derivative instruments. The effect of exchange rates on transactions in foreign currencies is included in periodic income.

SAFE HARBOR DISCUSSION REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA

Portions of this report, including Items 1 and 2 and the information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," including the information under the sub captions "Strategy," "Oil and Gas Segment — Industry Outlook," "Chemical Segment — Industry Outlook," and Midstream, Marketing and Other Segment — Industry Outlook" contain forward-looking statements and involve risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows and business prospects. Words such as "estimate," "project," "predict," "will," "would," "could," "may," "might," "anticipate," "plan," "intend," "believe," "expect" or similar expressions that convey the uncertainty of future events or outcomes generally identify 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 any forward-looking statements as a result of new information, future events or otherwise. Material risks that may affect Occidental’s results of operations and financial position appear in Part I, Item 1A "Risk Factors," and elsewhere.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT'S ANNUAL ASSESSMENT OF AND REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Occidental Petroleum Corporation and subsidiaries (Occidental) is responsible for establishing and maintaining adequate internal control over financial reporting. Occidental’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Occidental’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Occidental’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that Occidental’s receipts and expenditures are being made only in accordance with authorizations of Occidental’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Occidental’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of Occidental’s internal control system as of December 31, 2008 based on the criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, 2008, Occidental’s system of internal control over financial reporting is effective.

Occidental’s independent auditors, KPMG LLP, have issued an audit report on Occidental’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Stockholders

Occidental Petroleum Corporation:

We have audited the accompanying consolidated balance sheets of Occidental Petroleum Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Occidental Petroleum Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As explained in Note 3 to the consolidated financial statements, effective January 1, 2008, the Company changed its method of measuring fair value for financial assets and liabilities; as explained in Note 10 to the consolidated financial statements, effective January 1, 2007, the Company changed its method of accounting for uncertain tax positions; and, as explained in Note 13 to the consolidated financial statements, effective December 31, 2006, the Company changed its method of accounting for defined benefit pension and other postretirement plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Occidental Petroleum Corporation and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Los Angeles, California

February 24, 2009

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders

Occidental Petroleum Corporation:

We have audited Occidental Petroleum Corporation and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Assessment of and Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, Occidental Petroleum Corporation and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Occidental Petroleum Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated February 24, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Los Angeles, California

February 24, 2009

Consolidated Statements of Income

In millions, except per-share amounts

Occidental Petroleum Corporation

and Subsidiaries

For the years ended December 31,	2008			2007			2006
REVENUES AND OTHER INCOME
Net sales	$	24,217		$	18,784		$	17,175
Interest, dividends and other income		236			355			381
Gains on disposition of assets, net		27			874			118
		24,480			20,013			17,674
COSTS AND OTHER DEDUCTIONS
Cost of sales (excludes depreciation, depletion and amortization of $2,664 in 2008, $2,338 in 2007 and $1,978 in 2006)		7,423			6,454			6,009
Selling, general and administrative and other operating expenses		1,257			1,320			1,145
Depreciation, depletion and amortization		2,710			2,379			2,008
Taxes other than on income		588			414			394
Environmental remediation		28			107			47
Exploration expense		327			364			296
Charges for impairments		647			58			—
Interest and debt expense, net		129			339			291
		13,109			11,435			10,190
INCOME BEFORE INCOME TAXES AND OTHER ITEMS		11,371			8,578			7,484
Provision for domestic and foreign income taxes		4,629			3,507			3,354
Minority interest		116			75			111
Income from equity investments		(213	)		(82	)		(183	)
INCOME FROM CONTINUING OPERATIONS		6,839			5,078			4,202
Discontinued operations, net		18			322			(11	)
NET INCOME	$	6,857		$	5,400		$	4,191
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations	$	8.37		$	6.08		$	4.93
Discontinued operations, net		0.02			0.39			(0.01	)
BASIC EARNINGS PER COMMON SHARE	$	8.39		$	6.47		$	4.92
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations	$	8.33		$	6.05		$	4.88
Discontinued operations, net		0.02			0.39			(0.01	)
DILUTED EARNINGS PER COMMON SHARE	$	8.35		$	6.44		$	4.87
DIVIDENDS PER COMMON SHARE	$	1.21		$	0.94		$	0.80

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Balance Sheets

In millions

Occidental Petroleum Corporation

and Subsidiaries

Assets at December 31,	2008			2007
CURRENT ASSETS
Cash and cash equivalents	$	1,777		$	1,964
Trade receivables, net of reserves of $45 in 2008 and $35 in 2007		3,117			4,973
Marketing and trading assets and other		1,012			416
Inventories		958			910
Prepaid expenses and other		308			332
Total current assets		7,172			8,595
INVESTMENTS IN UNCONSOLIDATED ENTITIES		1,263			783
PROPERTY, PLANT AND EQUIPMENT
Oil and gas segment		40,091			32,624
Chemical segment		5,090			5,049
Midstream, marketing and other segment		2,445			1,898
Corporate		1,102			345
		48,728			39,916
Accumulated depreciation, depletion and amortization		(16,462	)		(13,638	)
		32,266			26,278
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET		836			863
TOTAL ASSETS	$	41,537		$	36,519

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Balance Sheets

In millions, except share and per-share amounts

Occidental Petroleum Corporation

and Subsidiaries

Liabilities and Stockholders’ Equity at December 31,	2008			2007
CURRENT LIABILITIES
Current maturities of long-term debt and notes payable	$	698		$	47
Accounts payable		3,306			4,263
Accrued liabilities		1,861			1,611
Domestic and foreign income taxes		158			227
Liabilities of discontinued operations		111			118
Total current liabilities		6,134			6,266
LONG-TERM DEBT, NET		2,049			1,741
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes		2,660			2,324
Long-term liabilities of discontinued operations		152			174
Other		3,217			3,156
		6,029			5,654
CONTINGENT LIABILITIES AND COMMITMENTS
MINORITY INTEREST		25			35
STOCKHOLDERS' EQUITY
Common stock, $0.20 par value, authorized 1.1 billion shares, outstanding shares: 2008 — 881,423,225 and 2007 — 877,123,937		176			175
Treasury stock: 2008 — 71,176,487 shares and 2007 — 51,388,016 shares		(4,121	)		(2,610	)
Additional paid-in capital		7,113			7,071
Retained earnings		24,684			18,819
Accumulated other comprehensive loss		(552	)		(632	)
		27,300			22,823
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	41,537		$	36,519

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Stockholders’ Equity

In millions

Occidental Petroleum Corporation

and Subsidiaries

													Accumulated
							Additional						Other
	Common			Treasury			Paid-in			Retained			Comprehensive
	Stock			Stock			Capital			Earnings			Income (Loss)
Balance, December 31, 2005	$	161		$	(8	)	$	4,827		$	10,484		$	(373	)
Net income		—			—			—			4,191			—
Pension and postretirement adjustments, net of tax		—			—			—			—			(168	)
Other comprehensive income, net of tax		—			—			—			—			208
Dividends on common stock		—			—			—			(688	)		—
Issuance of common stock, net		11	^(a)		—			2,064	^(a)		—			—
Exercises of options and other, net		2			—			14			—			—
Purchases of treasury stock		—			(1,473	)		—			—			—
Balance, December 31, 2006	$	174		$	(1,481	)	$	6,905		$	13,987		$	(333	)
Net income		—			—			—			5,400			—
Uncertain tax positions adjustment		—			—			—			219			—
Other comprehensive loss, net of tax		—			—			—			—			(299	)
Dividends on common stock		—			—			—			(787	)		—
Issuance of common stock, net		—			—			94			—			—
Exercises of options and other, net		1			—			72			—			—
Purchases of treasury stock		—			(1,129	)		—			—			—
Balance, December 31, 2007	$	175		$	(2,610	)	$	7,071		$	18,819		$	(632	)
Net income		—			—			—			6,857			—
Other comprehensive income, net of tax		—			—			—			—			80
Dividends on common stock		—			—			—			(992	)		—
Issuance of common stock, net		—			—			36			—			—
Exercises of options and other, net		1			—			6			—			—
Purchases of treasury stock		—			(1,511	)		—			—			—
Balance, December 31, 2008	$	176		$	(4,121	)	$	7,113		$	24,684		$	(552	)

(a)

Amounts reflect stock issued for the Vintage acquisition.

Consolidated Statements of Comprehensive Income

In millions

For the years ended December 31,	2008			2007			2006
Net income	$	6,857		$	5,400		$	4,191
Other comprehensive income (loss) items:
Foreign currency translation adjustments ^(a)		(24	)		14			5
Unrealized gains (losses) on derivatives ^(b)		207			(243	)		32
Pension and postretirement adjustments ^(c)		(184	)		(13	)		(3	)
Reclassification of realized losses (gains) on derivatives and securities ^(d)		68			(156	)		(3	)
Unrealized gains on securities ^(e)		13			99			177
Other comprehensive income (loss), net of tax		80			(299	)		208
Comprehensive income	$	6,937		$	5,101		$	4,399

(a)	Net of tax of $0 in all three years.
(b)	Net of tax of ($118), $139 and ($18) in 2008, 2007 and 2006, respectively.
(c)	Net of tax of $110, $8 and $1 in 2008, 2007 and 2006, respectively.
(d)	Net of tax of ($39), $159 and $66 in 2008, 2007 and 2006, respectively. Amounts represent the recognition of the 2007 gain on the sale of the remaining Lyondell Chemical Company (Lyondell) shares and the 2006 gain on the partial sale of Lyondell shares.
(e)	Net of tax of ($7), ($56) and ($102) in 2008, 2007 and 2006, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

In millions

Occidental Petroleum Corporation

and Subsidiaries

For the years ended December 31,	2008			2007			2006
CASH FLOW FROM OPERATING ACTIVITIES
Net income	$	6,857		$	5,400		$	4,191
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations, net		(18	)		(322	)		11
Depreciation, depletion and amortization of assets		2,710			2,379			2,008
Deferred income tax provision		268			35			98
Other noncash charges to income		1,187			945			588
Gains on disposition of assets, net		(27	)		(874	)		(118	)
Income from equity investments		(213	)		(82	)		(183