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, 2007

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 Section 13 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 or a non-accelerated filer. (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer þ

Accelerated Filer o Non-Accelerated Filer 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 stock held by nonaffiliates of the registrant was approximately $47.1 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $57.88 per share of Common Stock on June 30, 2007. 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, 2008, there were 822,567,021 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement, filed in connection with its May 2, 2008, 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
	Capital Expenditures	4
	Employees	4
	Environmental Regulation	4
	Available Information	4
Item 1A	Risk Factors	5
Item 1B	Unresolved Staff Comments	6
Item 3	Legal Proceedings	6
Item 4	Submission of Matters to a Vote of Security Holders	6
	Executive Officers	6

Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities	7
Item 6	Selected Financial Data	9
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
	(Incorporating Item 7A)	9
	Strategy	9
	Oil and Gas Segment	11
	Chemical Segment	16
	Corporate and Other	16
	Segment Results of Operations	16
	Significant Items Affecting Earnings	18
	Taxes	19
	Consolidated Results of Operations	19
	Consolidated Analysis of Financial Position	20
	Liquidity and Capital Resources	21
	Off-Balance-Sheet Arrangements	22
	Lawsuits, Claims, Commitments, Contingencies and Related Matters	23
	Environmental Liabilities and Expenditures	24
	Foreign Investments	26
	Critical Accounting Policies and Estimates	26
	Significant Accounting Changes	28
	Derivative Activities and Market Risk	29
	Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data	31
Item 8	Financial Statements and Supplementary Data	32
	Management's Annual Assessment of and Report on Internal Control Over Financial Reporting	32
	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	33
	Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	34
	Consolidated Statements of Income	35
	Consolidated Balance Sheets	36
	Consolidated Statements of Stockholders’ Equity	38
	Consolidated Statements of Comprehensive Income	38
	Consolidated Statements of Cash Flows	39
	Notes to Consolidated Financial Statements	40
	Quarterly Financial Data (Unaudited)	73
	Supplemental Oil and Gas Information (Unaudited)	75
	Financial Statement Schedule:
	Schedule II – Valuation and Qualifying Accounts	83
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
Item 9A	Controls and Procedures	84
	Disclosure Controls and Procedures	84

Part III

Item 10	Directors, Executive Officers and Corporate Governance	84
Item 11	Executive Compensation	84
Item 12	Security Ownership of Certain Beneficial Owners and Management	84
Item 13	Certain Relationships and Related Transactions and Director Independence	84
Item 14	Principal Accountant Fees and Services	84

Part IV

Item 15

Exhibits and Financial Statement Schedules

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 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 two industry segments operated by OPC's subsidiaries and affiliates. The subsidiaries and other affiliates in the oil and gas segment explore for, develop, produce and market crude oil, natural gas liquids (NGL) and natural gas. The subsidiaries and other affiliates in the chemical segment (OxyChem) manufacture and market basic chemicals, vinyls and performance chemicals. For financial information by segment and by geographic area, see Note 15 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 at the Permian Basin in west Texas and New Mexico, Elk Hills and other locations in California, the Hugoton field in Kansas and Oklahoma, Utah and western Colorado. International operations are located in Argentina, Bolivia, Colombia, Libya, Oman, Qatar, the United Arab Emirates (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, Production and Properties

The table below shows Occidental’s total oil and natural gas proved reserves and production in 2007, 2006 and 2005. See the MD&A section of this report, Note 16 to the Consolidated Financial Statements and the information under the caption “Supplemental Oil and Gas Information” in Item 8 of this report for certain details regarding Occidental’s oil and gas proved reserves, the estimation process and production by country. On May 1, 2007, Occidental reported to the United States Department of Energy on Form EIA-28 proved oil and gas reserves at December 31, 2006. The amounts reported were the same as those reported in Occidental’s 2006 Annual Report.

Comparative Oil and Gas Proved Reserves and Production

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

	2007					2006					2005
RESERVES	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)
United States	1,707		2,672	2,152		1,660		2,424	2,064		1,616		2,323	2,003
International	519		1,171	714		553		1,300	769		346		1,051	521
Consolidated Subsidiaries ^(c)	2,226		3,843	2,866	^(d)	2,213		3,724	2,833	^(d)	1,962		3,374	2,524	^(d)
Other Interests ^(e)	(2	)	—	(2	)	30		—	30		45		—	45
PRODUCTION
United States	95		216	131		94		214	130		87		199	120
International	70		45	78		66		23	70		48		16	51
Consolidated Subsidiaries ^(c)	165		261	209		160		237	200		135		215	171
Other Interests ^(e)	(1	)	—	(1	)	7		8	8		7		6	8

(a)	Includes natural gas liquids and condensate.
(b)	Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on energy content of six Mcf of gas to one barrel of oil.
(c)	Occidental has classified its Pakistan, Horn Mountain and Ecuador operations as discontinued operations on a retrospective application basis and excluded them from this table.
(d)	Stated on a net basis and after applicable royalties. Includes reserves related to production-sharing contracts (PSCs) and other economic arrangements. Proved reserves from PSCs in the Middle East/North Africa and from other economic arrangements in the United States were 449 million BOE (MMBOE) and 104 MMBOE in 2007, 486 MMBOE and 119 MMBOE in 2006 and 472 MMBOE and 104 MMBOE in 2005, respectively.
(e)	The 2007 amounts reflect the minority interest in a Colombia subsidiary, partially offset by Occidental's share of reserves and production from an equity investee in Yemen. The 2006 and 2005 amounts include Occidental's share of reserves and production from an equity investee in Yemen and a Russian joint venture, partially offset by the minority interest in a Colombian subsidiary. Occidental's joint venture interest in Russia was sold in 2007.

Competition and Sales and Marketing

As a producer of crude oil and natural gas, Occidental competes with numerous other domestic and foreign private and government producers. Crude 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 on 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 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. Occidental focuses its operations in its core areas of the United States, the Middle East/North Africa and Latin America.

CHEMICAL OPERATIONS

General

OxyChem manufactures and markets basic chemicals, vinyls and performance chemicals. For additional information regarding Occidental’s chemical segment, see the information under the caption “Chemical Segment” in the MD&A section of this report.

Products and Properties

OxyChem owns and operates chemical manufacturing plants at 23 domestic sites in Alabama, Georgia, Illinois, Kansas, Kentucky, Louisiana, New Jersey, New York, Ohio, Pennsylvania and Texas and at 3 international sites in Brazil, Canada and Chile. OxyChem produces the following chemical products:

Principal Products	Major Uses	Annual Capacity ^(a)
*Basic Chemicals*
Chlorine	Chlorovinyl chain and water treatment	4.0 million tons^(b)
Caustic Soda	Pulp, paper and aluminum production	4.3 million tons^(b)
Chlorinated organics	Silicones, paint stripping, pharmaceuticals and refrigerants	0.9 billion pounds
Potassium chemicals	Glass, fertilizers, cleaning products and rubber	0.3 million tons
Ethylene dichloride (EDC)	Raw material for vinyl chloride monomer (VCM)	2.4 billion pounds ^(b)
*Vinyls*
VCM	Precursor for polyvinyl chloride (PVC)	6.2 billion pounds
PVC	Piping, medical, building materials and automotive products	4.3 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	0.7 million tons

(a)	Estimated at December 31, 2007.
(b)	Includes gross capacity of a joint venture in Brazil, owned 50 percent by Occidental.

CAPITAL EXPENDITURES

For information on capital expenditures, see the information under the heading “Capital Expenditures” in the MD&A section of this report.

EMPLOYEES

Occidental employed approximately 9,700 people at December 31, 2007, 6,600 of whom were located in the United States. Occidental employed approximately 5,200 people in oil and gas operations and 3,100 people in chemical operations. An additional 1,400 people were employed in administrative and headquarters functions. Approximately 800 United States-based employees and 150 foreign-based employees are represented by labor unions.

Occidental has a long-standing policy to provide fair and equal employment opportunities to all people without regard to race, color, religion, ethnicity, gender, national origin, disability, age, sexual orientation, veteran status or any other legally impermissible factor. Occidental maintains diversity and outreach programs.

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 filed electronically with 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.)

ITEM 1A RISK FACTORS

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

Occidental’s financial results typically correlate closely to the volatile prices it obtains for its commodities. Drilling and exploration activity levels, inventory levels, production disruptions, the actions of OPEC, competing fuel prices, prevailing currency exchange rates, price speculation, changes in consumption patterns, weather and geophysical and technical limitations and other matters discussed in this item affect the supply of oil and gas and contribute 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 cycles. Occidental also depends on feedstocks and energy to produce chemicals, which are commodities subject to significant price fluctuations.

Occidental’s oil and gas business operates in highly competitive environments, which affect, among other things, its profitability and its ability to grow production and replace reserves.

Occidental’s future oil and gas production and its 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, some of which are larger and better funded, may be willing to accept greater risks or have special competencies. Industry competition for reserves may influence Occidental to:

Ø	shift toward higher risk exploration activity;
Ø	pay more for investment opportunities;
Ø	purchase properties or take on projects of lesser quality; or
Ø	delay expected reserve replacement efforts.

In addition, rising exploration and development activity in the industry generally increases the competition for and costs of, and delays access to, services and supplies needed for production.

Governmental actions and political instability may affect Occidental’s results of operations.

Occidental’s businesses are subject to the decisions of many governments and political interests. As a result, Occidental faces risks of:

Ø	changes in laws and regulations, including those related to taxes, royalty rates, permitted production rates, import, export and use of products, environmental protection, climate change and energy security, all of which may increase costs or reduce the demand for Occidental's products;
Ø	expropriation or reduction of entitlements to produce hydrocarbons; and
Ø	refusal to extend or grant, 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, restrictions on production equipment imports and sanctions that prevent continued operations. Exposure to such risks may increase as a greater percentage of Occidental’s future oil and gas production comes from foreign sources.

Occidental’s businesses may experience uninsured 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.

Occidental’s reserves are based on professional judgments and may be subject to revision.

Calculations of 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 prospects and stock price could be adversely affected.

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

Occidental may misinterpret geologic or engineering data, encounter unexpected geologic conditions or find reserves of disappointing quality or quantity, which may result in significant losses on exploration or development efforts. Occidental bears the risks of project delays and cost overruns due to escalating costs for materials and labor, equipment failures, approval delays, construction delays, border disputes and other associated risks.

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 delays; miscalculate reserves or production or experience changed circumstances; 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.

Information related to competition, foreign operations, litigation, environmental matters, derivatives and market risks, and oil and gas reserve estimation fluctuations appears under the headings: “Business and Properties — Oil & Gas Operations — Competition and Sales and Marketing,” “MD&A — Oil & Gas Segment — Business Review ,” and “— Industry Outlook” and “Chemical Segment — Business Review,” and “ — Industry Outlook,” “Lawsuits, Claims, Commitments, Contingencies and Related Matters,” “Environmental Liabilities and Expenditures,” “Foreign Investments” and “Critical Accounting Policies and Estimates,” and “Derivative Activities and Market Risk.”

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 3 LEGAL PROCEEDINGS

Two OPC subsidiaries have entered into a settlement with the Office of the District Attorney (ODA) for Ventura County, California, acting on behalf of the California Department of Fish and Game (Department), to resolve alleged statutory violations arising from past releases of petroleum and production waters from operations in Ventura County acquired in early 2006. The settlement requires the subsidiaries to pay $150,000 in civil penalties, $98,640 for alleged damages to natural resources and $109,248 to reimburse costs incurred by the Department, and to install a leak detection system on certain oil and produced water transfer pipelines for an amount no less than $150,000. The settlement is expected to be entered as a Final Judgment and Permanent Injunction by a Ventura County Superior Court in the first quarter of 2008.

For additional information regarding legal proceedings, see the information in Note 9 to the Consolidated Financial Statements, which is incorporated herein by reference.

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 2007.

EXECUTIVE OFFICERS

The current term of employment of each executive officer of Occidental will expire at the May 2, 2008 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 22, 2008	Positions with Occidental and Subsidiaries and Five-Year Employment History
Dr. Ray R. Irani	73	Chairman and Chief Executive Officer since 1990; Director since 1984; Member of Executive Committee and Dividend Committee; 2005-2007, President.
Stephen I. Chazen	61	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	67	Executive Vice President, General Counsel and Secretary since 1993.
Richard W. Hallock	63	Executive Vice President — Human Resources since 1994.
James M. Lienert	55	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.
John W. Morgan	54	Executive Vice President since 2001; 1998-2001, Executive Vice President — Operations; Occidental Oil and Gas Corporation (OOGC): President — Western Hemisphere since 2005; 2004, President; 2001-2004, Executive Vice President — Worldwide Production.
R. Casey Olson	54	Executive Vice President since 2005; 2001-2005, Vice President; OOGC: President — Eastern Hemisphere since 2005; Occidental Development Company: 2004, President; Occidental Middle East Development Company: 2001-2003, President.
James R. Havert	66	Vice President and Treasurer since 1998.
Jim A. Leonard	58	Vice President and Controller since 2005; 2000-2005, Senior Assistant Controller; OOGC: 2000-2005, Senior Vice President — Finance.
B. Chuck Anderson	48	Occidental Chemical Corporation: President 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 40,214 stockholders of record at December 31, 2007, and by at least 345,000 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.

In 2007, the quarterly dividends declared for the common stock were $0.22 per share for the first two quarters of 2007 and $0.25 for the last two quarters of 2007 ($0.94 for the year). On February 14, 2008, a quarterly dividend of $0.25 per share ($1.00 on an annualized basis) was declared on the common stock, payable on April 15, 2008 to stockholders of record on March 10, 2008. 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, 2007, 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))

9,940,164

$35.83

59,464,546 *

* Includes, with respect to:
•	the 1995 Incentive Stock Plan, 5,602 shares reserved for issuance pursuant to deferred stock units awards;
•	the 2001 Incentive Compensation Plan, 1,235,966 shares at maximum payout level (617,983 at target level) reserved for issuance pursuant to outstanding performance stock awards, 178,000 shares reserved for issuance pursuant to restricted stock unit awards, 577,916 shares reserved for issuance pursuant to deferred stock unit awards and 767 shares reserved for issuance as dividend equivalents on deferred stock unit awards; and
•	the 2005 Long-Term Incentive Plan, 709,734 shares at maximum payout level (354,867 at target level) reserved for issuance pursuant to outstanding performance stock awards, 1,341,797 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, 784,308 shares at maximum payout level (522,872 at target level) reserved for issuance pursuant to total shareholder return incentive awards and 367,732 shares reserved for issuance pursuant to deferred stock unit awards.
Of the 52,746,724 shares that are not reserved for issuance under the 2005 Long-Term Incentive Plan, approximately 43.3 million shares are available 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 award. Subject to the share count requirement, not more than the approximate 43.3 million shares may be issued or reserved for issuance for options, rights and warrants as well as performance stock awards, restricted stock unit awards, performance restricted stock unit awards, total shareholder return incentive awards, stock bonuses and dividend equivalents.

SHARE REPURCHASE ACTIVITIES

Occidental’s share repurchase activities for the year ended December 31, 2007, 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

First Quarter 2007

6,991,271

$45.89

6,989,956

Second Quarter 2007

4,188,481

$56.42

3,716,500

Third Quarter 2007

6,236,667

$56.63

5,876,500

October 1 - 31, 2007

758,183

^(a,b)

$66.22

437,500

November 1 - 30, 2007

2,012,800

$68.43

2,012,800

December 1 - 31, 2007

443,175

^(a)

$70.69

300,000

Fourth Quarter 2007

3,214,158

$68.22

2,750,300

Total 2007

20,630,577

$54.75

19,333,256

6,342,944

^(c,d)

(a)	Occidental purchased from the trustee of Occidental's defined contribution savings plan 320,492 shares in October and 143,175 shares in December.
(b)	Amount includes employee stock-for-stock exercises of 191 shares in October 2007.
(c)	Occidental has authorized a buy back of 55 million shares for its share repurchase program.
(d)	In February 2008, Occidental increased the number of shares authorized for its previously announced share repurchase program from 55 to 75 million.

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, 2007. 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.

In 2007, Occidental revised its peer group by including two international-based oil and gas companies to reflect the peer companies that Occidental competes against for major global projects and removing Hess Corporation, which is primarily a domestic company with significant refining operations. The revised 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 revised peer group includes five years of historical performance data as noted above for the common stock of each of the companies. The prior peer group used in the analysis last year consisted of Anadarko Petroleum Corporation, Apache Corporation, Chevron Corporation, ConocoPhillips, Devon Energy Corporation, ExxonMobil Corporation, Hess Corporation and Occidental.

12/31/02		12/31/03	12/31/04	12/31/05	12/31/06	12/31/07
	$100	$153	$216	$301	$374	$599
	100	126	163	194	255	333
	100	125	156	182	226	283
	100	129	143	150	173	183
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

For the years ended December 31,	2007			2006			2005			2004			2003
RESULTS OF OPERATIONS ^(a)
Net sales	$	18,784		$	17,175		$	14,153		$	10,400		$	8,598
Income from continuing operations	$	5,078		$	4,202		$	4,838		$	2,197		$	1,410
Net income	$	5,400		$	4,191		$	5,293		$	2,574		$	1,537
Basic earnings per common share from continuing operations	$	6.08		$	4.93		$	6.00		$	2.78		$	1.84
Basic earnings per common share	$	6.47		$	4.92		$	6.56		$	3.25		$	2.00
Diluted earnings per common share	$	6.44		$	4.87		$	6.47		$	3.21		$	1.98
FINANCIAL POSITION ^(a)
Total assets	$	36,519		$	32,431		$	26,170		$	21,440		$	18,210
Long-term debt, net and trust preferred securities ^(b)	$	1,741		$	2,619		$	2,873		$	3,345		$	4,446
Stockholders’ equity	$	22,823		$	19,252		$	15,091		$	10,597		$	7,970
MARKET CAPITALIZATION ^(c)	$	63,573		$	41,013		$	32,121		$	23,153		$	16,349
CASH FLOW
Cash provided by operating activities	$	6,798		$	6,353		$	5,337		$	3,878		$	3,074
Capital expenditures	$	(3,497	)	$	(2,987	)	$	(2,295	)	$	(1,703	)	$	(1,481	)
Cash provided (used) by all other investing activities, net	$	369		$	(1,396	)	$	(866	)	$	(725	)	$	(650	)
DIVIDENDS PER COMMON SHARE	$	0.94		$	0.80		$	0.645		$	0.55		$	0.52
BASIC SHARES OUTSTANDING (thousands)		834,932			852,550			806,600			791,159			767,887

(a)	See the MD&A section of this report and the "Notes to Consolidated Financial Statements" for information regarding accounting changes, asset acquisitions and dispositions, discontinued operations, environmental remediation, other costs and other items affecting comparability.
(b)	On January 20, 2004, Occidental redeemed the trust preferred securities.
(c)	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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Incorporating Item 7A)

STRATEGY

General

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’s business is divided into two segments conducted through oil and gas subsidiaries and their affiliates and chemical subsidiaries and their affiliates. Occidental aims to generate superior total returns to stockholders using the following strategy:

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

Occidental prefers to own large, long-lived "legacy" oil and gas assets, like those in California and the Permian Basin, that tend to have moderate decline rates, 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 throughout the business cycle. During periods of high commodity prices, Occidental expects to use most of its cash flow after capital expenditures to enhance stockholders' returns by continuing its program for evaluating dividend increases and potential stock repurchases.

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.

Oil and Gas

Segment Income

($ millions)

The oil and gas business seeks to add new oil and natural gas reserves at a pace ahead of production while keeping costs incurred for finding and development among the lowest in the industry. 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 buying and selling assets 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. See "Oil and Gas Segment — Business Review" for a discussion of these changes.

In addition, Occidental has continued to make capital contributions and investments in the Dolphin Project in Qatar and the United Arab Emirates (UAE), the Mukhaizna project in Oman, and Libya 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 and the integration of Vintage Petroleum, Inc. (Vintage) and Plains Exploration and Production Company (Plains) operations acquired in 2006.

At the end of 2007, the Elk Hills and Permian assets made up 66 percent of Occidental’s consolidated proven oil reserves and 44 percent of its consolidated proven gas reserves. On a barrels of oil equivalent (BOE) basis, these assets accounted for 61 percent of Occidental’s consolidated reserves. In 2007, the combined production from these assets averaged approximately 286,000 barrels of oil equivalent (BOE) per day.

Chemical

Segment Income

($ 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 coproduced with caustic soda, after which chlorine and ethylene are converted through a series of intermediate products into PVC. OxyChem's focus on chlorovinyls permits it to take advantage of economies of scale.

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;
Ø	Return on capital employed; 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.

Debt Structure

Occidental’s year-end 2007 total debt-to-capitalization ratio declined to 7 percent from 36 percent at the end of 2003. During that time, Occidental has reduced its debt over 60 percent while increasing its stockholders' equity by 186 percent.

Since the second quarter of 2005, Occidental’s long-term senior unsecured debt has been rated A- by Standard and Poor’s Corporation, A3 by Moody’s Investors Service (Moody's), and A(Low) by Dominion Bond Rating Service. In July 2007, Fitch Ratings upgraded Occidental's long-term senior unsecured debt rating from A- to A. In December 2007, Moody's and Standard and Poor's raised their outlook on Occidental's credit ratings from stable to positive. 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.

Return on Equity

Annual 2007 ^(a)		Three-Year Average 2005 - 2007 ^(b)
26%		29%

(a)	The Return on Equity for 2007 was calculated by dividing Occidental's 2007 net income by the average equity balance in 2007.
(b)	The three-year average Return on Equity was calculated by dividing the average net income over the three-year period 2005-2007 by the average equity balance over the same period.

Occidental has focused on achieving top quartile return on equity. In 2007, Occidental's return on equity was 26 percent and the three-year average return on equity was 29 percent. During the same three-year period, Occidental increased its stockholders’ equity by 115 percent and its annual dividend by 82 percent while its stock price increased by 164 percent.

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 yearly oil prices strengthened in 2007 over 2006 levels and ended the year higher than 2006 year-end levels. During 2007, Occidental experienced an improvement in its price differential between the average West Texas Intermediate (WTI) price and Occidental's realized prices. Occidental’s realized price as a percentage of WTI was approximately 90 percent and 87 percent for 2007 and 2006, respectively. Prices and differentials can vary significantly, even on a short-term basis, making it difficult to forecast realized prices. The average WTI market price for 2007 was $72.32 per barrel compared with $66.23 per barrel in 2006. Occidental's average realized price for oil in 2007 was $64.77 per barrel, compared with $57.81 per barrel in 2006.

The average New York Mercantile Exchange (NYMEX) domestic natural gas prices decreased approximately 9 percent from 2006. For 2007, NYMEX gas prices averaged $7.12/Mcf compared with $7.82/Mcf for 2006.

Business Review

All production and reserves figures are net to Occidental unless otherwise specified.

Worldwide Production

(thousands BOE/day)

Acquisitions and Dispositions

In June 2007, Occidental completed a fair value exchange in which BP p.l.c. (BP) acquired Occidental's oil and gas interests in Horn Mountain and received cash. Occidental acquired oil and gas interests in the Permian Basin and a gas processing plant in Texas from BP. Occidental also sold its oil and gas interests in Pakistan to BP. As a result of these transactions, both the Horn Mountain and Pakistan operations were classified as discontinued operations for all periods presented. The twelve months of 2007 include after-tax gains of $230 million related to these transactions.

In January 2007, Occidental sold its 50-percent joint venture interest in Russia for an after-tax gain of approximately $412 million.

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 oil production. Occidental is the largest producer in the Permian Basin with an approximate 16-percent net share of the total Permian Basin oil production. Occidental also produces and processes natural gas and natural gas liquids (NGL) in the Permian Basin.

A significant portion of Occidental's Permian Basin interests were obtained through the acquisition of Altura Energy Ltd. in 2000. Additional acquisitions of oil and gas producing property interests were subsequently made. Occidental's total share of Permian Basin oil, gas and NGL production averaged approximately 198,000 BOE per day in 2007. At the end of 2007, Occidental's Permian Basin properties had 1.2 billion BOE in proved reserves.

Occidental's Permian Basin production is diversified across a large number of producing areas. In 2007, Wasson San Andres was Occidental's largest Permian producing field with an average of approximately 38,000 BOE per day of production and with 311 million BOE of proved reserves at year-end. This field represents 19 percent of Occidental's 2007 daily Permian Basin production and 26 percent of its year-end Permian Basin proved reserves.

Occidental’s interests in the Permian Basin offer additional development and exploitation potential. During 2007, Occidental drilled approximately 225 wells on its operated properties and participated in additional wells drilled on outside-operated interests. Occidental conducted significant development activity on nine carbon dioxide (CO₂) projects during 2007, 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 127 well service units working in the Permian area during 2007 performing well maintenance and workovers.

Approximately 60 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 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

Elk Hills

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 non-unit properties. The Elk Hills field is the largest producer of gas in California. Oil and gas production in 2007 from the Elk Hills properties was approximately 88,000 BOE per day. During 2007, Occidental continued to perform infill drilling, field extensions and recompletions identified by advanced reservoir characterization techniques, resulting in 246 new wells being drilled and 507 wells being worked over. At the end of 2007, the Elk Hills properties had an estimated 519 million BOE of proved reserves.

Vintage Production California

In 2006, Occidental combined its California properties acquired from Vintage and Plains with existing California properties (excluding the Elk Hills, THUMS and Tidelands Oil Production Company (Tidelands) properties). The combined properties produce oil and gas from more than 50 fields, located mainly in the Ventura, San Joaquin and Sacramento basins.

Oil and gas production from Vintage Production California in 2007 averaged approximately 22,000 BOE per day. At the end of 2007, the combined properties had an estimated 138 million BOE of proved reserves.

THUMS and Tidelands

Occidental owns THUMS, which conducts the field operations for an oil production unit offshore Long Beach, California. Occidental acquired Tidelands in 2006. 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 production sharing contract (PSC), whereby Occidental’s share of production and reserves vary inversely with oil prices. 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.

For 2007, Occidental's production from THUMS averaged 20,000 BOE per day and proved reserves totaled 97 million BOE at year-end.

Hugoton and Other

Occidental owns a large concentration of gas reserves, production interests and royalty interests in the Hugoton area of Kansas and Oklahoma.

Occidental also has over 29,000 net acres in the Piceance Basin in western Colorado. During 2007, Occidental drilled 56 wells in the basin.

In 2007, Occidental’s Hugoton and other operations produced approximately 30,000 BOE per day. At December 31, 2007, proved reserves totaled 154 million BOE from Hugoton and other operations.

Middle East/North Africa

Dolphin Project

Occidental's investment in the Dolphin Project, which was acquired in 2002, consists of two separate economic interests held through two separate legal entities. One entity, OXY Dolphin E&P, LLC, owns 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. This undivided interest is proportionately consolidated in Occidental's financial statements.

A second entity, OXY Dolphin Pipeline, LLC, owns 24.5 percent of the stock of Dolphin Energy Limited (Dolphin Energy), and is recorded as an equity investment.

Dolphin Energy is the operator under the DPSA on behalf of the three DPSA participants, including Occidental. Dolphin Energy owns and operates a 230-mile-long, 48-inch natural gas pipeline, which transports dry natural gas from Qatar to the UAE. The transportation of gas through the pipeline started in the first quarter of 2007 using third-party natural gas and production under the DPSA began in July 2007 from Qatar’s North Field replacing the third-party natural gas. 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 was approximately 36,000 BOE per day in the fourth quarter of 2007 with production expected to increase to approximately 55,000 BOE per day in 2008. At December 31, 2007, Occidental’s share of proved oil and gas reserves from the Dolphin Project was 234 million BOE.

The Dolphin Project is expected to cost approximately $5.7 billion in total, including investments in the local UAE eastern gas distribution system, the Al Ain-Fujairah and Taweelah-Fujairah pipelines, which were added to improve the natural gas distribution

system but were not contained in the original scope of the Dolphin Project. Occidental expects to invest approximately $1.4 billion of this total, with $1.1 billion invested as of December 31, 2007.

At the end of 2007, all offshore facilities within the original scope of the project have been completed along with construction of three of the four trains in the onshore gas processing and compression plant at Ras Laffan. The fourth train is expected to be completed in the first quarter of 2008.

The pipeline has a capacity to transport up to 3.2 billion cubic feet (Bcf) of natural gas per day. Demand for natural gas in the UAE and Oman continues to grow 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 the Dolphin Project, Occidental participates in two production projects in Qatar: Idd El Shargi North Dome (ISND) and Idd El Shargi South Dome (ISSD). In 2007, Occidental continued development of the ISND and ISSD fields to recover additional reserves through advanced drilling techniques and waterflood expansion. Capital expenditures in Qatar for the ISND and ISSD projects were $237 million in 2007.

In October 2007, Occidental acquired Anadarko Petroleum Corporation’s 92.5-percent interest in an exploration and production sharing agreement covering Blocks 12 and 13 located offshore Qatar. Block 13 is an exploration block.

These projects 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 production from Block 12, ISND and ISSD averaged 48,000 BOE in 2007. Proved reserves reported for these properties totaled 128 million BOE at December 31, 2007.

Yemen

Occidental owns contractual interests in three producing blocks in Yemen, including a 38-percent direct-working interest in the Masila field, a 40.4-percent interest in the East Shabwa field, comprising a 28.6-percent direct-working interest and an 11.8-percent equity interest in an unconsolidated entity, and a 75-percent interest in Block S-1, which was part of the Vintage acquisition. In addition, Occidental owns an 80-percent working interest in Block 20 and is currently awaiting final approval from the Yemen government for a 75-percent working interest in Block 75.

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.

At December 31, 2007, production from the Yemen properties was 27,000 BOE per day and proved reserves totaled 24 million BOE.

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, and Block 54, with a 70-percent working interest. Occidental’s share of production from Blocks 9, 27 and 53 averaged 25,000 BOE per day in 2007.

The Block 9 agreement provides for two 10-year extensions and Occidental and its partner agreed with the Government of Oman to the first 10-year extension through December 7, 2015.

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 2007, Occidental had drilled over 175 new wells and continued implementation of a major pattern steam flood project. As of year-end 2007, the exit rate of gross daily production had nearly tripled from the production rate of September 2005. Occidental plans to steadily increase production through continued expansion of the steam flood project.

The exploitation 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 new PSC for Block 54 with the Government of Oman in June 2006 with an initial exploration phase of four years.

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 proved reserves for all the Oman properties totaled 65 million BOE at December 31, 2007.

Libya

In 2005, Occidental signed an agreement with the Libya 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. Occidental’s rights in the producing fields extend through 2009 and early 2010. 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. Production during 2007 averaged 22,000 BOE per day. At year-end 2007, proved reserves reported for Occidental’s Libya assets totaled 16 million BOE.

In November 2007, Occidental announced that it had reached an agreement with NOC on new 30-year contracts for major field redevelopment and exploration in the Sirte Basin. The new contracts are subject to approval of the Libyan government. Total expected capital investment is estimated to be $5 billion over the next five years, of which Occidental's portion will be approximately $1.9 billion. Under the new

contracts, Occidental (which has a 75-percent working interest) and its partner would pay a signature bonus of $1 billion, of which Occidental's share is $750 million and which is payable over a three-year period. Occidental and its partner would also contribute 50 percent of the development capital to the project and receive approximately 10 to 12 percent of the gross production, depending on the specific field.

Latin America

Argentina

Substantially all of Occidental’s Argentina assets were obtained as part of the acquisition of Vintage in 2006. The 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 2007, Occidental drilled 153 new wells and performed a number of recompletions and well repairs. Occidental expects to increase production significantly over the next four years through aggressive drilling, waterflooding and EOR projects. In 2008, Occidental plans to drill 220 wells, complete the eight waterflood projects initiated in 2007 and implement a number of new waterflood projects.

Occidental’s share of production from Argentina averaged 36,000 BOE per day in 2007. Proved reserves from these assets totaled 177 million BOE at December 31, 2007.

Bolivia

In 2006, Occidental’s operating subsidiary 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.

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, 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 (LCI) 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 refineries.

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

Occidental's share of 2007 production from its Colombia operations was 37,000 BOE per day and proved reserves reported for these interests totaled 57 million BOE at the end of 2007.

Production-Sharing Contracts

Occidental conducts its operations in Qatar, Oman and Yemen under PSCs and, under such contracts, receives a share of production and reserves to recover its costs and an additional share for profit. In addition, Occidental's share of production and reserves from THUMS and Tidelands 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 oil prices rise and increases when oil prices decline. Overall, Occidental’s net economic benefit from these contracts is greater at higher oil prices.

Proved Reserves

Proved 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.

Again in 2007, Ryder Scott has compared Occidental’s methods and procedures for estimating oil and gas reserves to generally accepted industry standards and has reviewed certain data, methods and procedures used in estimating reserves volumes, the economic evaluations and reserves classifications. Ryder Scott reviewed the specific application of such methods and procedures for a selection of oil and gas fields considered to be a valid representation of Occidental’s total reserves portfolio. In 2007, Ryder Scott reviewed approximately 10 percent of Occidental’s oil and gas reserves. Since being engaged in 2003, Ryder Scott has reviewed Occidental’s reserve estimation methods and procedures for approximately 57 percent of Occidental’s reported oil and gas reserves.

Based on this review, including the data, technical processes and interpretations presented by Occidental, Ryder Scott has concluded that the methodologies used by Occidental in preparing the relevant estimates generally comply with current Securities and Exchange Commission (SEC) standards. Ryder Scott has not been engaged to render an opinion as to the reserves volumes reported by Occidental.

Proved Reserve Additions

Occidental's consolidated subsidiaries had proved reserves at year-end 2007 of 2,866 million BOE, as compared with the year-end 2006 amount of 2,833 million BOE. The increase in the consolidated subsidiaries’ reserves from all sources was 242 million BOE, which was comprised of an increase of 297 million BOE from proved developed reserves, partially offset by a decrease of 55 million BOE from proved undeveloped reserves.

Proved developed reserves represented approximately 80 percent of Occidental’s total proved reserves at year-end 2007 compared to 78 percent at year-end 2006.

Proved Reserve Additions - Consolidated Subsidiaries - 2007

In Millions of BOE
Revisions of previous estimates	(95	)
Improved Recovery	253
Extensions and Discoveries	24
Purchases	60
Total Additions	242

Proved reserves consisted of 78 percent crude oil and condensate and 22 percent natural gas.

Revisions of Previous Estimates

In 2007, Occidental experienced a reduction of 95 million BOE of proved reserves through negative revisions of previous estimates, primarily in the Dolphin Project, Qatar, Elk Hills, THUMS and Argentina, partially offset by positive revisions in Permian and Hugoton. Oil price changes affect proved reserves recorded by Occidental. For example, if oil prices increased by $5 per barrel, less oil volume is required to recover costs, and PSCs would reduce Occidental's share of proved reserves by approximately 8 million BOE. Conversely, if oil prices dropped by $5 per barrel, Occidental's share of proved reserves would increase by a similar amount. Oil price changes also tend to affect the economic lives of proved reserves from other contracts, 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 oil and gas reserves makes it more likely future reserve revisions will be positive rather than negative.

Improved Recovery

In 2007, Occidental added reserves of 253 million BOE through improved recovery. In the United States, improved recovery additions were 64 million BOE in the Elk Hills field, 52 million BOE in the Permian Basin and 29 million BOE in western Colorado. Foreign additions included 32 million BOE in Oman, 17 million BOE in Colombia and 15 million BOE in Qatar. The Elk Hills operations employ infill drilling and both gas flood and water flood techniques. In the Permian Basin, the increased reserves were primarily attributable to enhanced recovery techniques, such as drilling additional CO₂ flood and water flood wells.

Extensions and Discoveries

Occidental obtains reserve additions from extensions and discoveries, which are dependent on successful exploitation programs. In 2007, as a result of such programs, Occidental added reserves of 24 million BOE, including 15 million BOE in Argentina, 3 million BOE in Oman and 2 million BOE in the Permian Basin.

The success of improved recovery, 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 reserve additions continue at similar levels.

Purchases of Proved Reserves

In 2007, Occidental purchased reserves of 60 million BOE, of which 50 million BOE were in the United States and 10 million BOE were in the Middle East/North Africa. Occidental continues to add reserves through acquisitions when properties are available at prices it deems reasonable. Acquisitions are dependent on successful bidding and negotiating of oil and gas contracts at attractive terms. As market conditions change, the available supply of properties may increase or decrease accordingly.

Proved Undeveloped Reserves

Occidental had proved undeveloped reserve additions of 202 million BOE resulting from improved recovery, extensions and discoveries and purchases, primarily in the Elk Hills field, the Permian Basin, Oman and Argentina. Elk Hills provided 19 percent of this increase. These proved undeveloped reserve additions were offset by reserve transfers to the proved developed category as a result of 2007 development programs. The Dolphin Project transferred 101 million BOE to the proved developed category during 2007, with no remaining undeveloped reserves at year end. In the United States, the Elk Hills field and the Permian Basin each transferred 21 million BOE into proved developed reserves from proved undeveloped reserves.

Industry Outlook

The petroleum industry is highly competitive and subject to significant volatility due to numerous market forces. Crude oil and natural gas prices are affected by market fundamentals such as weather, inventory levels, competing fuel prices, overall demand and the availability of supply.

Worldwide oil prices rose throughout 2007 and reached historical highs during the last half of the year. Continued economic growth, resulting in increased demand, and concerns about supply availability, could result in continued high prices. A lower demand growth rate could result in lower crude oil prices.

Oil prices have significantly affected profitability and returns for Occidental and other upstream producers. Oil prices cannot be predicted with any certainty. The WTI price has averaged approximately $38 per barrel over the past ten years. However, the industry has historically experienced wide fluctuations in prices. See the "Oil and Gas Segment — Business Environment" section above for further information.

While local supply/demand fundamentals are a decisive factor 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 $5.03 per Mcf.

CHEMICAL SEGMENT

Business Environment

The chemical segment results decreased in 2007 due to the softening United States housing market and continued high feedstock costs, which led to lower margins in the PVC business. This was partially offset by an increase in demand for United States products in export markets in 2007 aided by expanding international economies along with favorable foreign currency exchange rates.

Business Review

Basic Chemicals

During 2007, demand and pricing for basic chemical products generally remained strong, although demand for domestic chlorine slightly weakened compared to 2006 due to a slowdown in the United States housing sector. Domestic industry demand for liquid caustic soda in 2007 was virtually flat compared to the prior year; however, industry export demand increased over 2006. Export demand was supported by increasing alumina capacity in South America as well as favorable currency exchange rates. Margins in 2007 continued at 2006 levels as pricing and feedstock costs remained relatively unchanged. Pricing for liquid caustic soda started the year strong and increased every quarter of 2007 aided by unplanned global supply disruptions and a strong export market. OxyChem’s chlor-alkali operating rate for 2007 was 92 percent, which was the same as the industry average operating rate for 2007.

Vinyls

Domestic demand for PVC in 2007 was 5 percent below 2006 as a result of the significant slump in housing. This was partially offset by exports from the United States, which were up 40 percent in 2007 over 2006, resulting in overall demand for PVC being down 2 percent in 2007. Compared to 2006, margins in 2007 decreased as price increases were not able to compensate for raw material cost increases. From early 2007 to the end of the year, industry PVC prices increased by 31 percent while the cost of ethylene increased by 56 percent. OxyChem operated its PVC facilities at an average operating rate of 78 percent for 2007, compared to the North American industry average of 85 percent.

Industry Outlook

In 2007, Occidental's chemical business earnings were lower than 2006, primarily due to the weakening of the United States housing market.

Future performance will depend on the recovery of United States construction activity, global economic activity, the competitiveness of the United States in the world economy, feedstock and energy pricing, and the impact of additional production capacity entering the market place.

Basic Chemicals

Forecasts of a slowing United States economy offset by a continued strong export market in 2008 are expected to result in demand levels similar to 2007 levels. Despite continued pressure on the vinyls market, margins in 2008 are expected to remain similar to 2007, but could weaken in the second half due to the anticipated impact of capacity additions in mid 2008.

Vinyls

Industry-wide PVC operating rates are expected to be lower in 2008 as a result of weak demand, especially in housing, coupled with the start-up of new capacity in the first half of the year. Exports of United States produced products are expected to maintain their competitive advantage due to the weak United States dollar. Cost pressures are also expected to continue due to high feedstock costs.

CORPORATE AND OTHER

Corporate and Other includes investments in two cogeneration facilities in Taft, Louisiana and Ingleside, Texas and two common carrier pipelines in the Permian Basin, one of which was purchased in 2007, which are used in corporate-directed activities.

In 2007, Occidental resolved certain legal disputes that resulted in a gain of approximately $112 million.

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. All share and per share amounts discussed and disclosed in this Annual Report on Form 10-K reflect the effect of the stock split.

In October 2006, Occidental sold 10 million shares of Lyondell Chemical Company's (Lyondell) common stock in a registered public offering for a pre-tax gain of $90 million and gross proceeds of $250 million. In 2007, Occidental sold all of its remaining shares of Lyondell common stock (approximately 21 million shares) for a pre-tax gain of $326 million and gross proceeds of $672 million.

SEGMENT RESULTS OF OPERATIONS

The following discussion of Occidental’s two operating segments and corporate items should be read in conjunction with Note 15 to the Consolidated Financial Statements.

Segment earnings generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses, discontinued operations and the cumulative effect of changes in accounting principles, but include gains and losses from dispositions of segment assets and results and other earnings from the segments' equity investments.

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,	2007			2006			2005
NET SALES
Oil and Gas	$	13,918		$	12,190		$	9,361
Chemical		4,664			4,815			4,641
Other ^(a)		202			170			151
	$	18,784		$	17,175		$	14,153
EARNINGS(LOSS)
Oil and Gas ^(b)	$	8,318		$	6,880		$	5,662
Chemical ^(c)		601			906			614
		8,919			7,786			6,276
Unallocated corporate items
Interest expense, net ^(d)		(199	)		(131	)		(201	)
Income taxes ^(e)		(3,507	)		(3,354	)		(1,841	)
Other ^(f)		(135	)		(99	)		604
Income from continuing
operations		5,078			4,202			4,838
Discontinued operations, net ^(g)		322			(11	)		452
Cumulative effect of changes in
accounting principles, net		—			—			3
Net Income	$	5,400		$	4,191		$	5,293
Basic Earnings per
Common Share	$	6.47		$	4.92		$	6.56

(a)	These amounts represent revenue from cogeneration plants and common carrier pipelines.
(b)	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 loss from the impairment of properties. The 2007, 2006 and 2005 amounts include interest income of $10 million, $10 million and $11 million, respectively, from loans made to an equity investee.
(c)	The 2005 amount includes a $139 million charge for the write-off of two previously idled chemical plants and one operating plant and an additional charge of $20 million for the write-down of another chemical plant.
(d)	The 2007, 2006 and 2005 amounts include $167 million, $31 million and $42 million, respectively, of interest charges to redeem or purchase and retire various debt issues.
(e)	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. The 2005 amount includes a $335 million tax benefit due to the reversal of tax reserves no longer required, a $619 million tax benefit resulting from a closing agreement with the U.S. Internal Revenue Service resolving certain foreign tax credit issues and a $10 million charge related to a state income tax issue.
(f)	The 2007 amount includes a $326 million pre-tax gain from the sale of Occidental’s remaining investment in 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. The 2005 amount includes a $726 million pre-tax gain from Valero Energy Corporation's (Valero) acquisition of Premcor, Inc, (Premcor) and the subsequent sale of the Valero shares received and a $140 million pre-tax gain from the sale of 11 million shares of Lyondell common stock.
(g)	In June 2007, Occidental completed an exchange of oil and gas interests in Horn Mountain with BP for oil and gas interests in the Permian Basin and a gas processing plant in Texas. Occidental 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 $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,	2007			2006			2005
Segment Sales	$	13,918		$	12,190		$	9,361
Segment Earnings	$	8,318		$	6,880		$	5,662
Net Production per Day
United States
Crude oil and liquids (MBBL)
California		89			86			76
Permian		167			167			161
Hugoton and other		4			3			3
Total		260			256			240
Natural Gas (MMCF)
California		254			256			242
Hugoton and other		153			138			133
Permian		186			194			170
Total		593			588			545
Latin America
Crude oil (MBBL)
Argentina		32			33			—
Colombia		42			38			36
Total		74			71			36
Natural Gas (MMCF)
Argentina		22			17			—
Bolivia		18			17			—
Total		40			34			—
Middle East/North Africa
Crude oil (MBBL)
Oman		20			18			17
Dolphin		4			—			—
Qatar		48			43			42
Yemen		25			29			28
Libya		22			23			8
Total		119			113			95
Natural Gas (MMCF)
Oman		30			30			44
Dolphin		51			—			—
Total		81			30			44
Barrels of Oil Equivalent (MBOE) ^(a)
Subtotal Consolidated
Subsidiaries		573			549			469
Colombia-minority interest		(5	)		(5	)		(4	)
Yemen-Occidental net interest		2			1			1
Total Worldwide Production
(MBOE) ^(b)		570			545			466

(See footnotes on next page)

Oil and Gas (continued)

In millions, except as indicated	2007		2006		2005
Average Sales Prices
Crude Oil Prices ($ per bbl)
United States	$	65.67	$	57.84	$	50.12
Latin America	$	56.66	$	52.40	$	51.18
Middle East/North Africa ^(c)	$	69.24	$	61.58	$	49.88
Total consolidated subsidiaries	$	64.86	$	57.81	$	50.19
Other interests	$	68.74	$	62.59	$	50.42
Total worldwide ^(b)	$	64.77	$	57.81	$	50.18
Gas Prices ($ per Mcf)
United States	$	6.53	$	6.49	$	7.10
Latin America	$	2.66	$	2.00	$	—
Total worldwide ^(b)	$	5.68	$	6.00	$	6.64
Expensed Exploration ^(d)	$	422	$	296	$	310
Capital Expenditures
Development	$	2,945	$	2,454	$	1,811
Exploration	$	159	$	155	$	246
Other	$	102	$	94	$	51

(a)	Natural gas volumes have been converted to BOE based on energy content of six Mcf of gas to one barrel of oil.
(b)	Occidental has classified its Pakistan, Horn Mountain and Ecuador 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 and 18,000 BOE per day in 2005. Excluded production from Horn Mountain operations averaged 13,000 BOE per day in 2006 and 14,000 BOE per day in 2005. Excluded production from Ecuador operations averaged 43,000 BOE per day for the first five months of 2006 and 42,000 BOE per day in 2005. Also excluded is production from a Russian joint venture (sold in January 2007), which averaged 27,000 BOE per day and 28,000 BOE per day in 2006 and 2005, respectively.
(c)	These prices exclude the impact of taxes owed by Occidental but paid by governmental entities on its behalf.
(d)	Includes dry hole write-offs and lease impairments of $247 million in 2007, $115 million in 2006 and $216 million in 2005.

Oil and gas segment earnings in 2007 were $8.3 billion, compared to $6.9 billion in 2006. Oil and gas segment earnings in 2007 include 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 depreciation, depletion and amortization (DD&A) rates and higher operating and exploration expenses.

Oil and gas segment earnings in 2006 were $6.9 billion, compared to $5.7 billion in 2005. The increase in oil and gas segment earnings was primarily due to higher crude oil prices and oil and gas production, partially offset by higher operating expenses, including increased DD&A, which was driven by higher volumes and rates.

Average consolidated production costs for 2007 were $12.87 per BOE, compared to the average 2006 production cost of $11.70 per BOE. The increases resulted from higher field operating and maintenance costs.

Chemical

In millions	2007		2006		2005
Segment Sales	$	4,664	$	4,815	$	4,641
Segment Earnings	$	601	$	906	$	614
Capital Expenditures	$	251	$	251	$	173

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

Chemical segment earnings in 2006 were $906 million, compared to $614 million in 2005. The increase in chemical segment earnings is primarily due to higher margins in chlorine, caustic soda and PVC.

SIGNIFICANT ITEMS AFFECTING EARNINGS

The following table sets forth the effects of significant transactions and events affecting Occidental’s earnings that vary widely and unpredictably in nature, timing and amount for the years ended December 31, 2007, 2006 and 2005:

Significant Items Affecting Earnings

Benefit (Charge) (in millions)	2007			2006			2005
OIL AND GAS
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			—			—
Impairments		(74	)		—			—
Contract settlement		—			—			(26	)
Hurricane insurance charge		—			—			(18	)
Total Oil and Gas	$	588		$	—		$	(44	)
CHEMICAL
Write-off of plants	$	—		$	—		$	(159	)
Hurricane insurance charge		—			—			(11	)
Total Chemical	$	—		$	—		$	(170	)
CORPORATE
Gain on sale of Lyondell shares	$	326		$	90		$	140
Debt purchase expense		(167	)		(31	)		(42	)
Facility closure		(47	)		—			—
Severance charge		(25	)		—			—
Deferred tax write-off due to
compensation program changes ^(a)		—			(40	)		—
Litigation settlements		—			108			—
Gain on sale of Premcor-Valero shares		—			—			726
State tax issue charge ^(a)		—			—			(10	)
Settlement of federal tax issue ^(a)		—			—			619
Reversal of tax reserves ^(a)		—			—			335
Equity investment impairment		—			—			(15	)
Equity investment hurricane insurance
charge		—			—			(2	)
Hurricane insurance charge		—			—			(10	)
Tax effect of pre-tax adjustments		(2	)		(41	)		(219	)
Discontinued operations, net of tax ^(a)		322			(11	)		452
Cumulative effect of changes in
accounting principles, net of tax ^(a)		—			—			3
Total Corporate and Other	$	407		$	75		$	1,977

(a)	Amounts shown after tax.

TAXES

Deferred tax liabilities, net of deferred tax assets of $1.7 billion, were $2.1 billion at December 31, 2007. The current portion of the deferred tax assets of $230 million is included in prepaid expenses and other. The net deferred tax assets 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	2007			2006			2005
EARNINGS
Oil and Gas ^(a)	$	8,318		$	6,880		$	5,662
Chemical		601			906			614
Corporate and Other ^(b)		(334	)		(230	)		403
Pre-tax income ^(a)		8,585			7,556			6,679
Income tax expense
Federal and State		1,558			1,625			592
Foreign ^(a)		1,949			1,729			1,249
Total		3,507			3,354			1,841
Income from continuing operations	$	5,078		$	4,202		$	4,838
Worldwide effective tax rate		41%			44%			28%

(a)	Revenues, oil and gas pre-tax income and income tax expense include taxes owed by Occidental but paid by governmental entities on its behalf of $1.3 billion, $1.1 billion and $887 million for the years ended December 31, 2007, 2006 and 2005, respectively.
(b)	The 2005 amount includes a $726 million pre-tax gain from Valero's acquisition of Premcor Inc. (Premcor) and the subsequent sale of all of the Valero shares received.

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.

Occidental's 2006 worldwide effective tax rate was 44 percent. The lower income tax rate for reported income in 2005, compared to 2006, resulted from a $335 million 2005 tax benefit due to the reversal of tax reserves no longer required and a $619 million 2005 tax benefit resulting from a closing agreement with the IRS resolving certain foreign tax credit issues.

CONSOLIDATED RESULTS OF OPERATIONS

Selected Revenue Items

In millions	2007		2006		2005
Net sales	$	18,784	$	17,175	$	14,153
Interest, dividends and other income	$	355	$	381	$	181
Gains on disposition of assets, net	$	874	$	118	$	870

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

The increase in net sales in 2006, compared to 2005, reflects higher crude oil prices and oil and gas production and higher chemical prices, partially offset by lower natural gas prices.

Interest, dividends and other income of 2007 includes $112 million of gains from litigation settlements.

The increase in interest, dividends and other income in 2006, compared to 2005, is primarily due to a $108 million gain related to litigation settlements and interest income earned on a higher level of cash and cash equivalents.

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.

Gains on disposition of assets, net in 2005 include a gain of $726 million resulting from Valero’s acquisition of Premcor and the subsequent sale of all of the Valero shares received and a gain of $140 million on the sale of 11 million shares of Lyondell stock.

Selected Expense Items

In millions	2007		2006		2005
Cost of sales ^(a)	$	6,627	$	6,192	$	5,336
Selling, general and administrative
and other operating expenses	$	1,561	$	1,356	$	1,310
Depreciation, depletion and
amortization	$	2,379	$	2,008	$	1,372
Exploration expense	$	422	$	296	$	310
Interest and debt expense, net	$	339	$	291	$	293

(a)	Excludes depreciation, depletion and amortization of $2,338 million in 2007, $1,978 million in 2006 and $1,334 million in 2005.

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

Cost of sales increased in 2006, compared to 2005, due to higher crude oil and natural gas production, maintenance, workover and utility costs and higher ad valorem and export taxes.

Selling, general and administrative and other operating expenses increased in 2007, compared to 2006, due to 2007 severance charges, higher production taxes 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.

Selling, general and administrative and other operating expenses increased in 2006, compared to 2005, due to higher crude oil and natural gas production taxes and increases in stock-based and incentive compensation expense.

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

DD&A increased in 2006, compared to 2005, due to increased production, mainly from the Vintage acquisition and higher costs of new reserve additions resulting in a higher DD&A rate.

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

Interest and debt expense in 2007, 2006 and 2005 included pre-tax debt repayment expenses of $167 million, $35 million and $42 million, respectively. Excluding the effect of these debt repayment charges, interest expense decreased in 2007, compared to 2006, due to lower debt levels and lower effective interest rates.

Selected Other Items

In millions	2007			2006			2005
Provision for income taxes	$	3,507		$	3,354		$	1,841
Income from equity investments	$	(82	)	$	(183	)	$	(232	)
Discontinued operations, net	$	322		$	(11	)	$	452

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

The increase in the provision for income taxes in 2006, compared to 2005, was due to an increase in income before taxes in 2006, a $335 million 2005 tax benefit due to the reversal of tax reserves no longer required, and a $619 million 2005 tax benefit related to the resolution of certain IRS tax issues.

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.

The decrease in income from equity investments in 2006, compared to 2005, is mainly due to the change in Occidental’s accounting for its Lyondell shares from equity method to available-for-sale investment in May 2006.

Discontinued operations in 2007 include 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 include 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 includes $285 million after-tax income for the operations of Horn Mountain and Pakistan as well as the Vintage assets that were held for sale.

Discontinued operations in 2005 include after-tax income from Ecuador, Horn Mountain and Pakistan operations.

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	2007		2006
CURRENT ASSETS
Cash and cash equivalents	$	1,964	$	1,339
Short-term investments		—		240
Trade receivables, net		4,973		2,825
Receivables from joint ventures, partnerships
and other		416		499
Inventories		910		825
Prepaid expenses and other		332		257
Assets of discontinued operations		—		184
Total current assets	$	8,595	$	6,169
Investments in unconsolidated entities	$	783	$	1,344
Property, plant and equipment, net	$	26,278	$	24,138
CURRENT LIABILITIES
Current maturities of long-term debt and notes
payable	$	47	$	171
Accounts payable		4,263		2,263
Accrued liabilities		1,399		1,532
Dividends payable		212		188
Domestic and foreign income taxes		227		396
Liabilities of discontinued operations		118		145
Total current liabilities	$	6,266	$	4,695
Long-term debt, net	$	1,741	$	2,619
Deferred credits and other liabilities-income taxes	$	2,324	$	2,366
Deferred credits and other liabilities-other	$	3,156	$	2,952
Long-term liabilities of discontinued operations	$	174	$	195
Minority interest	$	35	$	352
Stockholders’ equity	$	22,823	$	19,252

Assets

See "Cash Flow Analysis" for discussion about the change in cash and cash equivalents.

The decrease in short-term investments was due to the sale of Occidental's investments in auction rate securities. The increase in trade receivables, net was due to higher crude oil and natural gas prices and volumes during the fourth quarter of 2007 compared to 2006. The decrease in receivables from joint ventures, partnerships and other was due to mark-to-market adjustments on derivative instruments. The increase in inventories was due to an increase in materials and supplies, mainly in Colombia and Libya, and higher purchases from third parties in the marketing and trading operations. The increase in prepaid expense and other was due to increases in current deferred tax assets and higher prepaid insurance premiums. The decrease in assets of discontinued operations was due to the sale of Pakistan operations and an exchange involving the Horn Mountain operations with BP during 2007.

The decrease in investments in unconsolidated entities was due to the sale of 21 million shares of Lyondell and the sale of Occidental’s interest in a Russian joint venture. The increase in property, plant and equipment (PP&E), net was due to capital expenditures in 2007 and various oil and gas acquisitions, offset by 2007 DD&A and sales of various oil and gas assets.

Liabilities and Stockholders' Equity

The increase in accounts payable was due to higher prices and volumes for purchased crude oil and natural gas in the marketing and trading operations. In 2007, the decrease in accrued liabilities was due to contract bonus payments in Oman, contingent payments related to acquisitions and 2006 accruals for interest that were paid for in the debt tender offers. The decrease in domestic and foreign income taxes was due to the adoption of Financial Accounting Standards Board (FASB) Interpretation (FIN) 48.

The decrease in long-term debt, net was due to the January 2007 debt repurchases under cash tender offers, the May 2007 redemption of the Vintage senior notes due 2012 and required debt payments. The increase in deferred credits and other liabilities – other was due to an increase in asset retirement obligations and higher mark-to-market adjustments on derivative instruments. The decrease in minority interest was due to Occidental's purchase of the minority interest in a chemical operation from a third party.

The increase in stockholders' equity reflects net income for 2007 partially offset by treasury stock repurchases of approximately 20.6 million shares in 2007 and dividend payments.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007, Occidental had approximately $2.0 billion in cash on hand. Although income and cash flows are largely dependent on oil and gas prices and production, Occidental believes that cash on hand and cash generated from operations will be sufficient to fund its operating needs, capital expenditure requirements, dividend payments, anticipated acquisitions, debt payments and purchases under its announced common stock repurchase program. If needed, Occidental could access its existing credit facilities.

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 2007. Available but unused lines of committed bank credit totaled approximately $1.5 billion at December 31, 2007.

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.

At December 31, 2007, under the most restrictive covenants of certain financing agreements, Occidental's capacity for additional unsecured borrowing was approximately $54.8 billion, and the capacity for the payment of cash dividends and other distributions on, and for acquisitions of, Occidental's capital stock was approximately $20.8 billion, assuming that such dividends, distributions and acquisitions were made without incurring additional borrowing.

In May 2007, Occidental redeemed all $276 million of the outstanding principal amount of its 8.25-percent Vintage Petroleum, LLC (Vintage) senior notes due 2012. In January 2007, Occidental completed cash tender offers for its 10.125-percent senior debentures due 2009, 9.25-percent senior debentures due 2019, 8.75-percent medium-term notes due 2023, 7.2-percent senior debentures due 2028 and 8.45-percent senior notes due 2029, resulting in the repurchase of a portion of these debt instruments totaling $659 million in principal amount. The redemption and repurchases resulted in a pre-tax interest expense of $167 million.

In the first quarter of 2005, Occidental filed a shelf registration statement for up to $1.5 billion of various securities. As of December 31, 2007, no securities had been issued under this shelf.

Cash Flow Analysis

In millions	2007		2006		2005
Net cash provided by operating
activities	$	6,798	$	6,353	$	5,337

The increase in operating cash flow in 2007, compared to 2006, resulted from higher crude oil prices and higher oil and gas production 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 production increased by over 4 percent compared to 2006. The increase in production was mainly due to the start-up of the Dolphin Project production in the third quarter of 2007.

Increases in the costs of producing oil and gas, such as purchased goods and services, and higher utility, maintenance and gas plant costs, partially offset the effect of increases in realized crude oil prices. Other cost elements, such as labor costs and overhead, are not significant drivers of cash flow because they are mainly fixed within a narrow range over the short to intermediate term. These cost increases had a much smaller effect on cash flow than the higher crude oil prices and higher crude oil and natural gas production.

Most major chemical prices, especially PVC, decreased in 2007, compared to 2006, which reduced chemical margins. The overall impact of the chemical price decreases on cash flow was much less significant than the increase in crude oil prices because the chemical segment earnings and cash flow are significantly smaller that those for the oil and gas segment.

The significant increase in operating cash flow in 2006, compared to 2005, resulted from several factors. The most important drivers were higher crude oil prices, higher oil and gas production and, to a much lesser extent, higher chemical margins, partially offset by the effects of lower gas prices and reduced cash flow from

discontinued operations. In 2006, Occidental’s realized crude oil prices increased by 15 percent and its oil and gas production increased by over 17 percent compared to 2005. The increase in production was mainly due to the 11 months of production from the Vintage acquisition.

Increases in the costs of producing oil and gas, such as purchased goods and services, and higher utility costs, gas plant costs and ad valorem and export taxes, partially offset the effect of oil price increases. The cost increases had a smaller effect on cash flow than the higher crude oil prices and the higher crude oil and natural gas production.

Most major chemical prices increased in 2006, compared to 2005, at a higher rate than ethylene costs, thereby improving chemical margins. The overall impact of the chemical price changes on cash flow was much less than for oil and gas price changes because the chemical segment earnings and cash flow are significantly smaller than those for the oil and gas segment.

Other non-cash charges to income in 2007 included deferred compensation, stock incentive plan amortization and environmental remediation accruals. Other non-cash charges to income in 2006 included stock incentive plan amortization, deferred compensation and environmental remediation accruals. Other non-cash charges to income in 2005 included chemical asset write-downs, deferred compensation, stock incentive plan amortization and environmental remediation accruals.

In millions		2007			2006			2005
Net cash used by investing activities		$	(3,128	)	$	(4,383	)	$	(3,161	)

The 2007 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 amount includes the cash payments associated with the acquisition of Vintage and the property acquisition from Plains, partially offset by cash proceeds from the Vintage assets subsequently sold and from the sale of Lyondell shares.

The 2005 amount includes the cash payments for several Permian Basin acquisitions, the acquisition of the Vulcan chlor-alkali manufacturing facilities and the payments to re-enter Libya and to assume operations of the Mukhaizna field in Oman. These were partially offset by the cash proceeds from the sale of the Premcor-Valero shares and the Lyondell shares.

Also, see the "Capital Expenditures" section below.

In millions		2007			2006			2005
Net cash used by financing activities		$	(3,045	)	$	(2,819	)	$	(1,187	)

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 the Vintage senior notes due 2012. 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 Occidental’s stock repurchase plan and net debt payments of approximately $900 million.

The 2005 amount includes net debt payments of approximately $900 million.

Occidental paid common stock dividends of $765 million in 2007, $646 million in 2006 and $483 million in 2005.

Capital Expenditures

In millions	2007		2006		2005
Oil and Gas	$	3,206	$	2,703	$	2,108
Chemical		251		251		173
Corporate and Other		40		33		14
Total ^(a)	$	3,497	$	2,987	$	2,295

(a)	Excludes acquisitions. Amounts are included in net cash used by investing activities discussed above.

Occidental’s capital spending estimate for 2008 is approximately $3.8 to $3.9 billion. Most of the capital spending increase will be allocated to oil and gas exploration, production and development activities for the Colombia LCI project and the Vintage properties in Argentina and California.

Commitments at December 31, 2007, for major capital expenditures during 2008 and thereafter were approximately $330 million. Occidental will fund these commitments and capital expenditures with cash from operations.

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. The accounting and financial statement treatment of these transactions is a result of the varying methods of funding employed. Occidental also makes commitments on behalf of unconsolidated entities. These transactions, or groups of transactions, are recorded in compliance with generally accepted accounting principles (GAAP) and, unless otherwise noted, are not reflected on Occidental’s balance sheets. The following is a description of the business purpose and nature of these transactions.

Dolphin Project

See "Oil and Gas Segment — Business Review — Middle East/North Africa — 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 proceeds of the new bridge loan were used to pay off amounts outstanding on a previous bridge loan and are being used to fund the construction of the Dolphin Project.

The new bridge loan has a term of four years, is a revolving credit facility through April 2008 and may be 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 of Dolphin Energy. At December 31, 2007, Occidental’s portion of the bridge loan and financing facility was $816 million. Occidental had recorded $588 million on the balance sheet at December 31, 2007, for the combined bridge loan and financing facility. The remaining amounts of the bridge loan and financing facility drawdowns are discussed in the "Guarantees" section below.

Ecuador

In Ecuador, Occidental has a 14-percent interest in the Oleoducto de Crudos Pesados Ltd. (OCP) oil export pipeline. As of December 31, 2007, Occidental’s net investment in and advances to the project totaled $69 million. Occidental reports this investment in its consolidated financial statements using the equity method of accounting. 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. Occidental’s guarantee of its share of the ship-or-pay obligations provides the lenders the right to require Occidental to make an advance tariff payment as a result of the expropriation, which has not been exercised to date. At December 31, 2007, the total pre-tax advance tariff of approximately $89 million was accrued in Occidental’s consolidated financial statements. This advance tariff would be used by the pipeline company to service or prepay project debt. At December 31, 2007, Occidental also had obligations relating to performance bonds totaling $14 million.

Leases

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

Guarantees

Occidental has entered into various 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).

At December 31, 2007, the notional amount of the guarantees that are subject to the reporting requirements of FIN 45 was approximately $250 million, which consists of Occidental’s guarantee of equity investees’ debt, primarily from the Dolphin Project equity investment, and other commitments.

Contractual Obligations

The table below summarizes and cross-references certain contractual obligations that are reflected in the Consolidated Balance Sheets as of December 31, 2007 and/or disclosed in the accompanying Notes.

			Payments Due by Year
Contractual Obligations (in millions)	Total		2008		2009 to 2010		2011 to 2012		2013 and thereafter
Consolidated
Balance Sheet
Long-term debt
(Note 5) ^(a)	$	1,777	$	35	$	923	$	436	$	383
Capital leases
(Note 6)		37		1		2		2		32
Other liabilities ^(b)		7,468		5,618		713		412		725
Other Obligations
Operating leases
(Note 6) ^(c)		1,305		207		229		151		718
Purchase
obligations ^{(d, e)}		6,980		2,145		2,253		1,430		1,152
Total	$	17,567	$	8,006	$	4,120	$	2,431	$	3,010

(a)	Excludes unamortized debt discount and interest expense on the debt. As of December 31, 2007, interest on long-term debt totaling $767 million is payable in the following years (in millions): 2008 - $105, 2009 to 2010 - $149, 2011 to 2012 - $112 and 2013 and thereafter - $401.
(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)	Includes long-term purchase contracts and purchase orders and contracts for goods and services used in manufacturing and producing operations in the normal course of business. Some of these arrangements involve take-or-pay commitments but they do not represent debt obligations. Long-term material purchase contracts are discounted using a 6.4-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 have been named in many lawsuits, claims and other legal proceedings. These actions 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 and civil penalties; 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.

Since 2004, Occidental Chemical Corporation (OCC) has been served with ten lawsuits filed in Nicaragua by approximately 2,600 individual plaintiffs. These individuals allege that they have sustained several billion dollars of personal injury damages as a result of their alleged exposure to a pesticide. OCC is aware of, but has not been served in, 23 additional cases in Nicaragua, which Occidental understands make similar allegations. In the opinion of management, the claims against OCC are without merit because, among other things, OCC believes that none of the pesticide it manufactured was ever sold or used in Nicaragua. Under the applicable Nicaraguan statute, defendants are required to pay pre-trial deposits so large as to effectively prohibit defendants from participating fully in their defense. OCC filed a response to the complaints contesting jurisdiction without posting such pre-trial deposit. In 2004, the judge in one of the cases (Osorio case) ruled the court had jurisdiction over the defendants, including OCC, and that the plaintiffs had waived the requirement of the pre-trial deposit. In order to preserve its jurisdictional defense, OCC elected not to make a substantive appearance in the Osorio case. In 2005, the judge in the Osorio case entered judgment against several defendants, including OCC, for damages totaling approximately $97 million. In December 2006, the court in a second case in Nicaragua (Rios case) entered a judgment against several defendants, including OCC, for damages totaling approximately $800 million. While preserving its jurisdictional defenses, OCC has appealed the judgments in the Osorio and Rios cases. In September 2007, the plaintiffs in the Osorio case filed an action in state court in Florida seeking to enforce the Nicaraguan judgment. That action was removed to and is presently pending in federal court. OCC has no assets in Nicaragua and, in the opinion of management, any judgment rendered under the statute, including in the Osorio and Rios cases, would be unenforceable 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. Taxable years prior to 2001 are generally closed for U.S. federal and state corporate income tax purposes. Corporate tax returns for taxable years 2001 through the current year are in various stages of audit by the U.S. Internal Revenue Service. Disputes may arise during the course of such audits as to facts and matters of law.

Occidental has entered into agreements providing for future payments to secure terminal and pipeline capacity, drilling services, electrical power, steam and certain chemical raw materials. At December 31, 2007, the net present value of the fixed and determinable portion of the obligations under these agreements, which were used to collateralize financings of the respective suppliers, aggregated $52 million, which was payable as follows (in millions): 2008 – $12, 2009 – $10, 2010 – $10, 2011 – $9, 2012 – $8 and thereafter – $3. Fixed payments under these agreements were $18 million in 2007, $18 million in 2006 and $17 million in 2005. See "Off-Balance-Sheet Arrangements — Contractual Obligations" for further information.

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. See "Off-Balance-Sheet Arrangements" for further information. Some of these commitments, although not fixed or determinable, involve capital expenditures and are part of the $3.8 to $3.9 billion in capital expenditures estimated for 2008.

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, 2007, 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.

It is impossible at this time to determine the ultimate liabilities that OPC and its subsidiaries may incur resulting from any lawsuits, claims and proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities. If these matters were to be ultimately resolved unfavorably at amounts substantially exceeding Occidental’s reserves, an outcome not currently anticipated, 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. Costs associated with environmental compliance have increased over time and are expected to rise in the future. Environmental expenditures related to current operations are factored into the overall business planning process and are considered an integral part of production in manufacturing quality products responsive to market demand.

Environmental Remediation

The laws that require or address environmental remediation may apply retroactively to past waste disposal practices and releases of substances to the environment. In many cases, the laws apply regardless of fault, legality of the original activities or current ownership or control of sites. OPC or certain of its subsidiaries participate in environmental assessments and cleanups under these laws at currently-owned facilities, previously-owned sites and third-party sites. Also, OPC or certain of its subsidiaries have been involved in a substantial number of governmental and private proceedings involving historical practices at various sites including, in some instances, having been named in proceedings under CERCLA and similar federal, state, local and foreign environmental laws. These proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages and civil penalties.

As of December 31, 2007, Occidental, through a wholly owed subsidiary, participated in or monitored ongoing or recent assessments, remediation, proceedings or information requests at 163 sites. Thirty-nine of those sites are currently listed or proposed for listing by the U.S. Environmental Protection Agency on the National Priorities List.

The following table presents Occidental’s environmental remediation reserves at December 31, 2007, 2006 and 2005, grouped by three categories of environmental remediation sites:

$ amounts in millions	2007			2006			2005
	# of Sites	Reserve Balance		# of Sites	Reserve Balance		# of Sites	Reserve Balance
CERCLA &
equivalent sites	105	$	225	105	$	226	128	$	236
Active facilities	17		99	21		116	18		114
Closed or sold
facilities	41		133	40		70	39		68
Total	163	$	457	166	$	412	185	$	418

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

In millions	2007			2006			2005
Balance - Beginning of Year	$	412		$	418		$	375
Remediation expenses
and interest accretion		108			48			63
Changes from acquisitions		5			17			45
Payments		(68	)		(71	)		(71	)
Other		—			—			6
Balance - End of Year	$	457		$	412		$	418

Occidental expects to expend funds equivalent to about half of the current environmental reserve over the next four years and the balance over the next ten or more years. Occidental believes it is reasonably possible that it will continue to incur additional liabilities beyond those recorded for environmental remediation at these sites. The range of reasonably possible loss for existing environmental remediation matters could be up to $400 million beyond the amount accrued.

For management’s opinion with respect to environmental matters, refer to the "Lawsuits, Claims, Commitments, Contingencies and Related Matters" section above.

CERCLA and Equivalent Sites

As of December 31, 2007, OPC or certain of its subsidiaries have been named in 105 CERCLA or equivalent proceedings, as shown below.

Description ($ amounts in millions)	# of Sites	Reserve Balance
Minimal/No exposure ^(a)	85	$	7
Reserves between $1-10 MM	14		47
Reserves over $10 MM	6		171
Total	105	$	225

(a)

Includes 30 sites for which Maxus Energy Corporation has retained the liability and indemnified Occidental, 6 sites where Occidental has denied liability without challenge, 31 sites where Occidental’s reserves are less than $50,000 each, and 18 sites where reserves are between $50,000 and $1 million each.

The six sites with individual reserves over $10 million in 2007 include a former copper mining and smelting operation in Tennessee, two closed landfills in western New York and groundwater treatment facilities at three closed chemical plants (Montague, Michigan, western New York and Tacoma, Washington).

Active Facilities

Certain subsidiaries of OPC are currently addressing releases of substances from past operations at 17 active facilities. Four assets — a chemical plant in Louisiana, a chemical plant in Kansas and certain oil and gas properties and pipeline systems in the southwestern United States — account for 69 percent of the reserves associated with these facilities.

Closed or Sold Facilities

There are 41 other sites formerly owned or operated by certain subsidiaries of OPC that have ongoing environmental remediation requirements in which OPC or its subsidiaries are involved. Four sites account for 70 percent of the reserves associated with this group. The four sites are: an active refinery in Louisiana where Occidental indemnifies the current owner and operator for certain remedial actions, a water treatment facility at a former coal mine in Pennsylvania, a closed chemical plant in Pennsylvania and a former phosphorous processing and recovery facility in Tennessee.

Environmental Costs

Occidental’s costs, some of which may include estimates, relating to compliance with environmental laws and regulations, are shown below for each segment:

In millions	2007		2006		2005
Operating Expenses
Oil and Gas	$	108	$	95	$	65
Chemical		80		73		67
	$	188	$	168	$	132
Capital Expenditures
Oil and Gas	$	59	$	55	$	43
Chemical		14		25		21
	$	73	$	80	$	64
Remediation Expenses
Corporate	$	107	$	47	$	62

Operating expenses are incurred on a continual basis. Capital expenditures relate to longer-lived improvements in currently operating facilities. Remediation expenses relate to existing conditions caused by past operations and do not contribute to current or future revenue generation. Although total costs may vary in any one year, over the long term, segment operating and capital expenditures for environmental compliance generally are expected to increase.

Occidental presently estimates that capital expenditures for environmental compliance will be approximately $91 million for 2008 and $93 million for 2009.

FOREIGN INVESTMENTS

Portions of Occidental’s assets are located outside of North America. At December 31, 2007, the carrying value of Occidental’s assets in countries outside North America aggregated approximately $10.0 billion, or approximately 28 percent of Occidental’s total assets at that date. Of such assets, approximately $5.9 billion are located in the Middle East/North Africa and approximately $4.1 billion are located in Latin America. For the year ended December 31, 2007, net sales outside North America totaled $6.3 billion, or approximately 33 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 each 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 crude oil, natural gas and NGLs 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.

Several factors could change Occidental’s recorded 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, sustained 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 recorded 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 reserves were initially recorded. Occidental's revisions to proved reserves were negative for 2007 and amounted to approximately 3 percent of the total reserves for the year. Occidental’s revisions to proved reserves were positive for 2006 and amounted to less than 1 percent of the total reserves for the year. In 2005, revisions to proved reserves were negative and amounted to less than 1 percent of the total reserves for the year. Occidental's revisions to proved reserves have been positive for seven of the last ten years. Additionally, Occidental is required to perform impairment tests pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, 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.

If Occidental’s consolidated oil and gas reserves were to change based on the factors mentioned above, the most significant impact would be on the DD&A rate. For example, a 5-percent increase in the amount of consolidated oil and gas reserves would change the rate from $9.61 per barrel to $9.13 per barrel, which would increase pre-tax income by $100 million annually. A 5-percent decrease in the oil and gas reserves would change the rate from $9.61 per barrel to $10.09 per barrel and would result in a decrease in pre-tax income of $100 million annually.

DD&A of oil and gas producing properties is determined by the unit-of-production method and could change with revisions to estimated proved reserves. 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, 2007, the capitalized costs attributable to unproved properties, net of accumulated valuation allowance, were $1.4 billion. The unproved amounts are not subject to DD&A or impairment until a determination is made as to the existence of proven reserves. As exploration and development work progresses, if reserves on these properties are proven, capitalized costs attributable to the properties will be subject to depreciation and depletion. If the exploration and development work were to be unsuccessful, the capitalized costs of the properties related to this unsuccessful work would be expensed in the year in which the determination was made. The timing of any

writedowns of these unproven properties, if warranted, depends upon the nature, timing and extent of future exploration and development activities and their results. Occidental believes its exploration and development efforts will allow it to realize the unproved property balance.

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 life of the facilities. The estimated useful lives of Occidental’s chemical assets, which range from 3 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 significantly decrease. 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, feedstock costs, energy prices, environmental regulations and technological changes.

Occidental performs impairment tests on its assets, per SFAS No. 144, 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 $2.6 billion and its depreciation expense for 2008 is expected to be approximately $320 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 $16 million per year.

Environmental Liabilities and Expenditures

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Reserves for estimated costs that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves and the reasonably possible range of loss, Occidental refers to currently available information, including relevant past experience, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management’s estimate of the most likely cost to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. Environmental reserves are recorded on a discounted basis only when a reserve is initially established and the aggregate amount of the estimated costs for a specific site and the timing of cash payments are reliably determinable. The reserve methodology for a specific site is not modified once it has been established. Recoveries and reimbursements are recorded in income when receipt is probable. As of December 31, 2007 and 2006, Occidental has not accrued any reimbursements or indemnification recoveries for environmental remediation matters as assets.

Many factors could result in changes to Occidental’s environmental reserves and reasonably possible range of loss. The most significant are:

Ø	The original cost estimate may have been inaccurate.
Ø	Modified remedial measures might be necessary to achieve the required remediation results. Occidental generally assumes that the remedial objective can be achieved using the most cost-effective technology reasonably expected to achieve that objective. Such technologies may include air sparging or phyto-remediation of shallow groundwater, or limited surface soil removal or in-situ treatment producing acceptable risk assessment results. Should such remedies fail to achieve remedial objectives, more intensive or costly measures may be required.
Ø	The remedial measure might take more or less time than originally anticipated to achieve the required contaminant reduction. Site-specific time estimates can be affected by factors such as groundwater capture rates, anomalies in subsurface geology, interactions between or among water-bearing zones and non-water-bearing zones, or the ability to identify and control contaminant sources.
Ø	The regulatory agency might ultimately reject or modify Occidental’s proposed remedial plan and insist upon a different course of action.

Additionally, other events might occur that could affect Occidental’s future remediation costs, such as:

Ø	The discovery of more extensive contamination than had been originally anticipated. For some sites with impacted groundwater, accurate definition of contaminant plumes requires years of monitoring data and computer modeling. Migration of contaminants may follow unexpected pathways along geologic anomalies that could initially go undetected. Additionally, the size of the area requiring remediation may change based upon risk assessment results following site characterization or interim remedial measures.
Ø	Improved remediation technology might decrease the cost of remediation. In particular, for groundwater remediation sites with projected long-term operation and maintenance, the development of more effective treatment technology, or acceptance of alternative and more cost-effective treatment methodologies such as bioremediation, could significantly affect remediation costs.
Ø	Laws and regulations might change to impose more or less stringent remediation requirements.

At sites involving multiple parties, Occidental provides environmental reserves based upon its expected share of liability. When other parties are jointly liable, the financial viability of the parties, the degree of their commitment to participate and the consequences to Occidental of their failure to participate are evaluated 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 other potentially responsible parties, with whom it is alleged to be jointly liable, 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:

Category 1: CERCLA or equivalent sites wherein Occidental and other alleged potentially responsible parties share the cost of remediation in accordance with negotiated or prescribed allocations;

Category 2: Oil and gas joint ventures wherein each joint venture partner pays its proportionate share of remedial cost; or

Category 3: Contractual arrangements typically relating to purchases and sales of property wherein the parties to the transaction agree to methods of allocating the costs of environmental remediation.

In all three of these categories, Occidental records as a reserve its expected net cost of remedial activities, as adjusted by recognition for any nonperforming parties.

In addition to the costs of investigating and implementing remedial measures, which often take in excess of ten years at CERCLA sites, Occidental’s reserves include management’s estimates of the cost of operation and maintenance of remedial systems. To the extent that the remedial systems are modified over time in response to significant changes in site-specific data, laws, regulations, technologies or engineering estimates, Occidental reviews and changes the reserves accordingly on a site-specific basis.

If the environmental reserve balance were to either increase or decrease based on the factors mentioned above, the amount of the increase or decrease would be immediately recognized in earnings. For example, if the reserve balance were to decrease by 10 percent, Occidental would record a pre-tax gain of $46 million. If the reserve balance were to increase by 10 percent, Occidental would record an additional remediation expense of $46 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 so that they are adequately reserved on the balance sheet.

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, the outcome of legal proceedings, settlements or other factors.

SIGNIFICANT ACCOUNTING CHANGES

Listed below are significant changes in accounting principles.

Future Accounting Changes

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Occidental is currently assessing the effect of SFAS No. 157 on its financial statements.

SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provides entities the option to measure certain financial instruments at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Occidental is currently assessing the effect of SFAS No. 159 on its financial statements.

EITF Issue No. 07-1

In December 2007, the FASB finalized the provisions of the Emerging Issues Task Force (EITF) Issue No. 07-1, "Accounting for Collaborative Arrangements." This EITF Issue provides guidance and requires financial statement disclosures for collaborative arrangements. EITF Issue No. 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Occidental is currently assessing the effect of EITF Issue No. 07-1 on its financial statements but it is not expected to be material.

SFAS No. 141(R)

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

SFAS No. 160

In December 2007, FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51." This statement provides new accounting guidance and disclosure and presentation requirements for noncontrolling interests in a subsidiary. SFAS No. 160 is effective for the first fiscal year beginning on or after December 15, 2008. Occidental is currently assessing the effect of SFAS No. 160 on its financial statements.

Recently Adopted Accounting Changes

FIN No. 48

In June 2006, the FASB issued FIN No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109." This interpretation specifies that benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of realization upon ultimate settlement exceeds 50 percent. Occidental adopted FIN No. 48 on January 1, 2007.

The following table shows the effect of adopting FIN No. 48 on the consolidated balance sheet at January 1, 2007 (in millions):

	Debit/(Credit)
Domestic and foreign income taxes – Current	$	140
Deferred and other domestic and foreign income taxes	$	(8	)
Deferred credits and other liabilities – Other	$	100
Minority interest	$	(13	)
Retained earnings	$	(219	)

FSP AUG AIR-1

In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1, "Accounting for Planned Major Maintenance Activities," which is effective for the first fiscal year beginning after December 15, 2006. This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities, which was used by certain operations of Occidental. When Occidental adopted FSP AUG AIR-1 on January 1, 2007, those operations changed to the deferral method of accounting for planned major maintenance activities. The adoption of FSP AUG AIR-1 was retrospectively applied to all periods presented and the impact to the income statements for the years ended December 31, 2006 and 2005 was immaterial.

The following table shows the effects of adopting FSP AUG AIR-1 on the consolidated balance sheet at January 1, 2007 (in millions):

	Debit/(Credit)
Prepaid expenses and other	$	1
Property, plant and equipment, net	$	(16	)
Other assets	$	91
Accrued liabilities	$	43
Deferred and other domestic and foreign income taxes	$	(40	)
Minority interest	$	(11	)
Retained earnings	$	(68	)

SFAS No. 158

In September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)." This statement requires an employer to recognize the overfunded or underfunded amounts of its defined benefit pension and postretirement plans as an asset or liability and recognize changes in the funded status of these plans in the year in which the changes occur through other comprehensive income (OCI), if they are not recognized in the income statement. The statement also requires a company to use the date of its fiscal year-end to measure the plans. The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The requirement to use the fiscal year-end as the measurement date is effective for fiscal years ending after December 15, 2008. Occidental adopted this statement on December 31, 2006, and recorded an additional liability of $233 million and a reduction of accumulated OCI, deferred tax liabilities, other assets and minority interest of $168 million, $104 million, $42 million and $3 million, respectively.

DERIVATIVE ACTIVITIES AND MARKET RISK

General

Occidental's market risk exposures relate primarily to commodity prices. Occidental has entered into derivative instrument transactions to reduce these price fluctuations. 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.

Commodity Price Risk

General

Occidental’s results are sensitive to fluctuations in crude oil and natural gas prices. Based on current levels of production, if oil prices vary overall by $1 per barrel, it would have an estimated annual effect on pre-tax income of approximately $151 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 $96 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; however, changes in cost usually offset part of the effect of price changes on margins. If chlorine and caustic soda prices vary by $10/ton, it would have a pre-tax annual effect on income of approximately $15 million and $30 million, respectively. If PVC prices vary by $.01/lb, it would have a pre-tax annual effect on income of approximately $30 million. If ethylene dichloride (EDC) prices vary by $10/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 improvement of price changes can be mitigated. According to Chemical Market Associates, Inc., December 2007 average contract prices were: chlorine—$323/ton, caustic soda—$498/ton, PVC—$0.67/lb and EDC—$310/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 and to mitigate fluctuations in commodity-related cash flows. Occidental enters into low-risk marketing and trading activities through its separate marketing organization, which operates under established policy controls and procedures. With respect to derivatives used in its oil and gas marketing operations, Occidental utilizes a

combination of futures, forwards, options and swaps to offset various physical transactions. Occidental's use of derivatives in marketing and trading activities relates primarily to managing cash flows from third-party purchases, which includes Occidental’s periodic gas storage activities.

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 the Trading Control Officer. The Trading Control Officer provides an independent and separate check on results of 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 reconcile the changes in the net fair value of Occidental’s marketing and trading contracts, a portion of which are hedges, during 2007 and 2006, and segregate the open contracts at December 31, 2007 by maturity periods.

In millions	2007			2006
Fair value of contracts outstanding at
beginning of year – unrealized losses	$	(355	)	$	(457	)
Losses on contracts realized or otherwise
settled during the year		106			106
Changes in fair value attributable to changes in
valuation techniques and assumptions		—			—
Losses or other changes in fair value		(327	) ^(a)		(4	)
Fair value of contracts outstanding at end of
year – unrealized losses	$	(576	)	$	(355	)

(a)	Primarily relates to price changes on existing production hedges.

	Maturity Periods
Source of Fair Value – unrealized (losses) gains	2008			2009 to 2010			2011 to 2012			2013 and thereafter			Total Fair Value
Prices actively quoted	$	131		$	7		$	4		$	2		$	144
Prices provided by
other external
sources		1			3			(3	)		(2	)		(1	)
Prices based on
models and other
valuation methods ^(a)		(233	)		(337	)		(149	)		—			(719	)
Total	$	(101	)	$	(327	)	$	(148	)	$	—		$	(576	)

(a)	The underlying prices utilized for the fair value calculations of the options are based on monthly NYMEX published prices. These prices are entered into an industry standard options pricing model to determine fair value.

Production Hedges

In 2005, Occidental entered into a series of fixed price swaps and collar agreements that qualify as cash-flow hedges for the sale of a portion of its crude oil production. Additionally, Occidental acquired oil and gas fixed price and basis swaps with the Vintage acquisition. The fixed price swaps and the basis swaps expired in 2007. The collar agreements continue to the end of 2011. The 2007 volume that was hedged was less than 3 percent of Occidental’s 2007 crude oil and natural gas production. Information about these cash-flow hedges, which are included in the total fair value of ($576) million in the table above, is presented in a tabular presentation below as of December 31, 2007 (volumes in thousands of barrels):

	Crude Oil – Collars
	Daily Volume	Average Floor	Average Cap
2008	14	$34.07	$47.47
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		($715)

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 2007.

Interest Rate Risk

General

Occidental's exposure to changes in interest rates relates primarily to its long-term debt obligations. In 2005, Occidental terminated all of its interest-rate swaps that were accounted for as fair-value hedges. These hedges had effectively converted approximately $1.7 billion of fixed-rate debt to variable-rate debt. The fair value of the swaps at termination resulted in a gain of approximately $20 million, which was recorded into income when the debt was paid in 2005 and 2006. The amount of interest expense recorded in the income statement was lower, as a result of the swaps and recognition of the gain, by approximately $13 million and $21 million for the years ended December 31, 2006 and 2005, respectively.

Tabular Presentation of Interest Rate Risk

In millions of U.S. dollars, except rates

The table below provides information about Occidental's debt obligations which are sensitive to changes in interest rates. 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)
2008	$	35	$	—	$	35
2009		96		588		684
2010		239		—		239
2011		—		68		68
2012		368		—		368
2013		—		—		—
Thereafter		337		46		383
Total	$	1,075	$	702	$	1,777
Average interest rate		7.10%		5.35%		6.41%
Fair Value	$	1,189	$	702	$	1,891

(a)	Excludes unamortized net discounts of $1 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

A few of 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 a