Occidental Petroleum Corporation Form 10-K

10-K 1 form10k-2005.htm FORM 10-K Occidental Petroleum Corporation Form 10-K

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, 2005

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 codee		(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. o

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). þ Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer

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 $30.9 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $76.93 per share of Common Stock on June 30, 2005. 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 affiliate status is not a conclusive determination for other purposes.

At January 31, 2006, there were approximately 402,283,188 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement, filed in connection with its May 5, 2006, Annual Meeting of Stockholders, are incorporated by reference into Part III.

TABLE OF CONTENTS

		Page
Part I
Items 1 and 2	Business and Properties	4
	General	4
	Oil and Gas Operations	4
	Chemical Operations	5
	Capital Expenditures	6
	Employees	6
	Environmental Regulation	6
	Available Information	6
Item 1A	Risk Factors	6
Item 3	Legal Proceedings	8
Item 4	Submission of Matters to a Vote of Security Holders	9
	Executive Officers	9
Part II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	10
Item 6	Selected Financial Data	11
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Incorporating Item 7A)	11
	Strategy	11
	Oil and Gas Segment	13
	Chemical Segment	18
	Corporate and Other	19
	Segment Results of Operations	20
	Significant Items Affecting Earnings	22
	Taxes	22
	Consolidated Results of Operations	23
	Consolidated Analysis of Financial Position	24
	Liquidity and Capital Resources	25
	Off-Balance-Sheet Arrangements	27
	Lawsuits, Claims, Commitments, Contingencies and Related Matters	28
	Environmental Liabilities and Expenditures	29
	Foreign Investments	30
	Critical Accounting Policies and Estimates	31
	Significant Accounting Changes	33
	Derivative Activities and Market Risk	35
	Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data	37
Item 8	Financial Statements and Supplementary Data	38
	Management's Annual Assessment of and Report on Internal Control Over Financial Reporting	38
	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	39
	Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	40
	Consolidated Statements of Income	41
	Consolidated Balance Sheets	42
	Consolidated Statements of Stockholders’ Equity	44
	Consolidated Statements of Comprehensive Income	44
	Consolidated Statements of Cash Flows	45
	Notes to Consolidated Financial Statements	46
	Quarterly Financial Data (Unaudited)	78
	Supplemental Oil and Gas Information (Unaudited)	80
	Financial Statement Schedule:
	Schedule II – Valuation and Qualifying Accounts	88
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	89
Item 9A	Controls and Procedures	89
	Disclosure Controls and Procedures	89
Part III
Item 10	Directors and Executive Officers of the Registrant	89
Item 11	Executive Compensation	89
Item 12	Security Ownership of Certain Beneficial Owners and Management	89
Item 13	Certain Relationships and Related Transactions	89
Item 14	Principal Accountant Fees and Services	89
Part IV
Item 15	Exhibits and Financial Statement Schedules	89

Part I

ITEMS 1 AND 2 BUSINESS AND PROPERTIES

In this report, "Occidental" refers to Occidental Petroleum Corporation, a Delaware corporation, and/or one or more entities in which it owns a majority voting interest (subsidiaries). 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. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas. The chemical segment manufactures and markets 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 in Elk Hills and other smaller locations in California, the Hugoton field in Kansas and Oklahoma, the Permian Basin in west Texas and New Mexico, the Gulf of Mexico and western Colorado. International operations are located in Colombia, Ecuador, Libya, Oman, Pakistan, Qatar, Russia, the United Arab Emirates (UAE) and Yemen. Occidental also has exploration interests in several other countries. 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 2005, 2004 and 2003. 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 13, 2005, Occidental reported to the United States Department of Energy on Form EIA-28 proved oil and gas reserves at December 31, 2004. The amounts reported were the same as the amounts reported in Occidental’s 2004 Annual Report.

Comparative Oil and Gas Proved Reserves and Production

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


	2005					2004					2003
RESERVES	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)
United States	1,636		2,338	2,026		1,494		2,101	1,844		1,500		1,826	1,804
International	446		1,140	636		499		874	645		490		759	617
Consolidated Subsidiaries	2,082		3,478	2,662	^(c)	1,993		2,975	2,489	^(c)	1,990		2,585	2,421	^(c)
Other Interests ^(d)	45		—	45		43		—	43		48		9	50
PRODUCTION
United States	92		202	126		93		186	124		93		194	125
International	66		44	73		66		47	74		60		27	65
Consolidated Subsidiaries	158		246	199		159		233	198		153		221	190
Other Interests ^(d)	7		6	8		9		—	9		10		—	10

(a)	Includes natural gas liquids and condensate.
(b)	Natural gas volumes have been converted to BOE based on energy content of 6,000 cubic feet (one thousand cubic feet is referred to as an "Mcf") of gas to one barrel of oil.
(c)	Stated on a net basis and after applicable royalties. Includes reserves related to production-sharing contracts and other economic arrangements. Proved reserves from production-sharing contracts in the Middle East and from other economic arrangements in the United States were 472 million barrels of oil equivalent (MMBOE) and 104 MMBOE in 2005, 450 MMBOE and 90 MMBOE in 2004 and 435 MMBOE and 90 MMBOE in 2003, respectively.
(d)	Includes Occidental's share of reserves and production from equity investees in Russia and Yemen, partially offset by minority interests for a Colombian affiliate.

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 on operations in its core areas of the United States, the Middle East and Latin America.

CHEMICAL OPERATIONS

General

Occidental manufactures and markets basic chemicals, vinyls, chlorinated organics and performance chemicals through various affiliates (collectively, OxyChem). 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 24 sites in the United States. OxyChem has a 50-percent equity investment in a Brazilian corporation that owns a chlor-alkali plant, a 50-percent equity investment in a corporation that produces antimony oxide in Mexico and a 50-percent interest in a general partnership that produces liquid and anhydrous potassium carbonate products in Alabama. OxyChem’s chlorine facilities in Delaware City, Delaware and Deer Park, Texas and its ethylene dichloride (EDC) facility in Ingleside, Texas were permanently shut down in the third quarter of 2005. In December 2005, OxyChem announced that it would permanently close its Alberta, Canada PVC manufacturing facility in the first quarter of 2006.

In 2005, OxyChem acquired two operating chemical assets in Louisiana and Kansas from Vulcan Materials Company (Vulcan).

The following information regarding production capacity reflects estimated annual capacity at December 31, 2005.

Basic Chemicals

OxyChem’s basic chemicals consist of chlorine and caustic soda, chlorinated organics, potassium chemicals and their derivatives.

Chlorine is used for chemical manufacturing in the chlorovinyl chain and for water treatment. OxyChem produces chlorine in Alabama, Kansas, Louisiana, New York, Texas, Brazil and Chile. Annual capacity was 3.6 million tons in the United States (including the gross 0.6-million-ton total annual capacity of the OxyVinyls partnership, owned 76 percent by Occidental and 24 percent by PolyOne Corporation) and 0.3 million tons in Brazil and Chile. The United States amount includes 0.8 million tons of capacity from the Vulcan chemical assets.

Caustic soda is used for pulp and paper production, alumina production and other chemical manufacturing. OxyChem produces caustic soda in Kansas, Louisiana, New York, Texas, Brazil and Chile. Annual capacity was 3.9 million tons in the United States (including the gross 0.7-million-ton total annual capacity of the OxyVinyls partnership) and 0.4 million tons in Brazil and Chile. The United States amount includes 0.8 million tons of capacity from the Vulcan chemical assets.

Potassium chemicals are used in glass, fertilizers, cleaning products and rubber. OxyChem produces potassium chemicals in Alabama where annual capacity was 328,000 tons.

EDC, a chlorine derivative, is a raw material for vinyl chloride monomer (VCM). OxyChem produces EDC in Louisiana and Brazil. Annual capacity was 2.1 billion pounds in the United States and 0.3 billion pounds in Brazil. The United States amount includes 0.6 billion pounds of capacity from the Vulcan chemical assets.

OxyChem’s acquisition of Vulcan’s chemical assets included certain chlorinated organic products that are used in silicones, paint stripping, pharmaceuticals and refrigerants.

Vinyls

OxyChem produces vinyls through its 76-percent interest in the OxyVinyls partnership. OxyChem’s vinyls products include polyvinyl chloride (PVC) and its precursors, VCM and EDC.

OxyChem produces VCM in Texas. Annual capacity was 6.2 billion pounds (consisting of the 2.4 billion-pound total annual capacity of OxyMar, which is 88-percent owned by OxyChem, and the 3.8 billion-pound total annual gross capacity of the OxyVinyls partnership).

PVC resins are used in piping, electrical insulation, external construction materials, flooring, medical and automotive products and packaging. OxyChem produces PVC resins in Kentucky, New Jersey, Texas and Canada. Gross annual PVC capacity of the OxyVinyls partnership was 4.3 billion pounds.

Performance Chemicals

OxyChem’s performance chemicals include chlorinated isocyanurates (estimated capacity of 131 million pounds produced in Illinois and Louisiana), resorcinol (estimated capacity of 50 million pounds produced in Pennsylvania), mercaptans (estimated capacity of 18 million pounds produced in Texas) and sodium silicates (estimated capacity of 722,000 tons produced in Georgia, Ohio, Illinois, New Jersey, Texas and Alabama).

Raw Materials, Intellectual Property, Marketing and Competition

Nearly all raw materials used in OxyChem’s operations are readily available from a variety of sources. Operations have not been curtailed due to any supply interruptions, except for limited supply interruptions along the Gulf Coast, which occurred in September and October 2005, caused by Hurricanes Katrina and Rita.

OxyChem does not regard its business as being materially dependent on any single patent, trademark or process.

OxyChem sells its products to industrial users or distributors located in the United States and in certain export markets where third party agents are utilized.

Occidental’s chemical business competes with numerous producers. Since most of OxyChem’s products are commodities, it competes primarily on the basis of price.

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 8,017 people at December 31, 2005, 6,335 of whom were located in the United States. Occidental employed 3,499 people in oil and gas operations and 3,341 people in chemical operations. An additional 1,177 people were employed in administrative and headquarters functions. Approximately 858 United States-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

EXTERNAL RISKS

Volatile global commodity pricing fluctuations beyond Occidental’s control strongly affect its revenues, profitability, operating cash flow and future growth rate.

As discussed in the section entitled "Derivative Activities and Market Risk — Commodity Price Risk — Production Hedges," Occidental’s financial results typically correlate closely to the price it obtains for its products in the global markets in which they compete. Oil and gas price changes also impact production and reserves because production-sharing contracts (PSCs) typically include terms that adjust Occidental’s share of production when prices change, and price changes also affect the profitability of production and the economic recoverability of reserves. Historically, prices for Occidental’s products have been volatile. A significant portion of the oil Occidental produces is sour crude, and the prices for sour crude tend to be lower. In addition, the price differential between sweet and sour crude varies based on their respective supply and demand dynamics.

Drilling and exploration activity levels, inventory levels, production disruptions, the actions of OPEC (increasing prices or limiting Occidental's production), price speculation and geophysical and technical limitations affect the global and, in some cases, local short-term and long-term supply of oil and gas and interact to contribute to price volatility. Because of the long lead times associated with drilling and exploration projects, Occidental may commit significant amounts of capital to oil and gas projects and cannot be certain of the level of demand that will exist when it finishes a project. The health of the global economy, alternative sources of energy, such as coal, and efforts at improving or implementing efficient consumption can also affect the demand for oil and gas.

Demand for Occidental’s chemical products correlates most strongly with the health of the global economy. Occidental also depends on feedstocks and energy to produce chemicals, both of which are commodities subject to significant price fluctuations.

Occidental’s businesses operate in a highly competitive environment, which affects its profitability and its ability to grow production and replace oil and gas reserves.

Occidental’s future oil and gas production and its profitability depend, in part, on its ability to acquire or find additional reserves at costs below the price at which it can sell the oil and gas it produces from them, after operating costs. Occidental can acquire reserves by purchasing existing production assets or by acquiring exploration rights and successfully drilling wells that produce hydrocarbons in commercial quantities. Industry competition for reserves may influence Occidental to:

Ø	shift toward higher risk exploration activity;

Ø	pay more for reinvestment opportunities;
Ø	purchase lesser quality properties; or
Ø	delay expected production activities.

Rising exploration and development activity in the industry generally increases the demand and, therefore, the costs of oil and gas services.

Participants in the chemical industry compete primarily based on price and the industry consists of many domestic and foreign competitors. In addition, the industry has historically experienced over-expansion when prices rise.

In both industries, Occidental uses nonproprietary technology and business management techniques, which limits its ability to achieve significant comparative production efficiencies.

Occidental’s businesses may experience catastrophic occurrences.

Natural disasters, such as hurricanes, occur regularly and may occasionally affect Occidental’s businesses. In addition, well blowouts and oilfield fires, armed conflicts, civil unrest and industrial accidents may occur and may affect Occidental’s businesses. Occidental maintains insurance against a number of these risks; however, it partially self-insures and insurance may not always provide the coverage expected or desired due to contractual limitations, unavailability, cost of insurance and the insurers' financial health.

Varied governmental and political actions affect Occidental’s results of operations.

The transnational character of Occidental’s oil and gas business subjects it to the decisions of many governments and political interests. As a result, Occidental faces increased risks of:

Ø	changes in laws and regulations, including those related to taxes, royalty rates, permitted production rates, import, export and use of products, and environmental protection;
Ø	expropriation or reduction of entitlements to produce hydrocarbons; and
Ø	refusal to extend exploration, production or development contracts.

For example, the Government of Ecuador has threatened to terminate Occidental’s Participation Contract for Block 15. See ”MD&A — Oil and Gas Segment — Business Review — Latin America — Ecuador.” When Occidental acquired Vintage Petroleum, Inc. (Vintage) at the end of January 2006, it gained operations in Argentina and Bolivia. Beginning in 2001, Argentina increased export taxes on oil and implemented stricter foreign exchange controls, mandatory export proceeds repatriation laws, export limitations and domestic sales price caps, some of which have since expired. In 2005, Bolivia approved a hydrocarbons bill that introduced a significant new production tax. Actions such as these may affect Occidental’s results of operations, financial position or the quantity of its oil and gas reserves.

Occidental operates some of its oil and gas business in countries that occasionally have experienced political instability, which increases Occidental’s risk of loss or delayed production associated with armed conflict, civil unrest, security problems, restrictions on production equipment imports and sanctions that prevent continued operations. Occidental may face the risk of increased costs if it is perceived not to be respecting or advancing the economic and social progress of the communities in which it operates. Since Occidental’s assets are long-lived, the magnitude of these risks can vary over the time it operates in a country.

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

Occidental periodically acquires and divests oil and gas reserves and chemical facilities. These activities carry risks that Occidental may:

Ø	not fully realize the anticipated benefits due to delay, miscalculation or changed circumstances;
Ø	bear greater-than-expected integration costs or difficulties;
Ø	be unable to successfully manage regulatory, tax or legal issues it assumes or retains;
Ø	experience lower stock values based on the market’s evaluation of the activity;
Ø	assume or retain liabilities that are greater than anticipated; or
Ø	be unable to resell acquired assets as planned or at prices planned.

Additionally, the assets Occidental acquires may not be as profitable as its current asset base.

Certain of Occidental’s major chemical products are coproduced in a fixed ratio, which limits its ability to exploit pricing opportunities.

Because chlorine and caustic soda must be produced together in a fixed ratio, an imbalance in demand between the products ultimately requires Occidental to reduce output or cut prices to restore demand balance. Either action limits Occidental’s profits on these commodities.

Technological developments may reduce the demand for oil and gas.

Rising oil and gas prices create incentives to find alternative energy sources and energy conservation measures that could replace or reduce oil and gas consumption over the long term.

INTERNAL RISKS

Occidental may incur significant costs in exploration or development efforts, which may prove unsuccessful or unprofitable.

Occidental may misinterpret geologic or engineering data, which may result in significant losses on unsuccessful exploration or development drilling efforts.

Occidental bears the risks of project delays and cost overruns due to unexpected geologic conditions, equipment failures, equipment delivery delays, accidents, adverse weather, government and joint venture partner approval delays, construction or start-up delays and other associated risks. Such risks may delay expected production and/or increase the costs of production.

Inadequate cost containment could reduce Occidental’s competitiveness.

Occidental works to minimize the costs associated with its businesses but the impact of its efforts may not be sufficient to offset any negative effects related to the main elements of cost, which consist of reserve acquisition costs for oil and gas and feedstock and energy costs for chemicals.

CROSS-REFERENCES TO OTHER RISK DISCUSSIONS

Additional risks related to competition, foreign operations, litigation, environmental matters, derivatives and market risks, and oil and gas reserve estimation fluctuations are discussed elsewhere in this report under the headings: BUSINESS AND PROPERTIES — “Oil & Gas Operations – Competition and Sales and Marketing,” “Chemical Operations – Competition;" MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS — “Oil & Gas Segment – Business Review – Proved Reserves Additions,” “Oil & Gas Segment – Industry Outlook,” “Chemical Segment – Business Environment,” “Chemical Segment – Industry Outlook,” “Lawsuits, Claims, Commitments, Contingencies and Related Matters,” “Environmental Liabilities and Expenditures,” “Foreign Investments,” “Critical Accounting Policies and Estimates,” and “Derivative Activities and Market Risk.”

ITEM 3 LEGAL PROCEEDINGS

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

The OxyVinyls partnership is engaged in voluntary discussions with federal, state and local environmental agencies with jurisdiction over four of its manufacturing facilities in an effort to reach an agreement to reduce VCM emissions and to resolve disputed administrative claims and allegations of past or ongoing environmental violations at those facilities, some of which claims allege penalties in excess of $100,000. OxyVinyls initiated discussions with the agencies following the successful conclusion of a similar agreement relating to an affiliate's former PVC manufacturing facility in Pottstown, Pennsylvania. If any agreement to reduce emissions and resolve the claims and allegations were reached, Occidental believes it would require the payment of penalties, or the performance of supplemental environmental projects, exceeding a total cost of $100,000. Occidental does not expect the resolution of this matter to have a material effect on its financial condition or results of operations.

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 2005.

EXECUTIVE OFFICERS

The current term of employment of each executive officer of the Registrant will expire at the May 5, 2006 organizational meeting of the Occidental Board of Directors or when a successor is selected. The following table sets forth the executive officers and significant employees of the Registrant:

Name	Age at February 28, 2006	Positions with Occidental and Subsidiaries and Five-Year Employment History
Dr. Ray R. Irani	71	Chairman and Chief Executive Officer since 1990; President since 2005; Director since 1984; Member of Executive Committee and Dividend Committee.
Stephen I. Chazen	59	Senior Executive Vice President since 2004; Chief Financial Officer since 1999; 1994-2004, Executive Vice President — Corporate Development.
Donald P. de Brier	65	Executive Vice President, General Counsel and Secretary since 1993.
Richard W. Hallock	61	Executive Vice President — Human Resources since 1994.
James M. Lienert	53	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; Oxy Services, Inc.: 1998-2000, Vice President — Finance.
John W. Morgan	52	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	52	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	64	Vice President and Treasurer since 1998; 1992-1998, Senior Assistant Treasurer.
Jim A. Leonard	56	Vice President and Controller since 2005; 2000-2005, Senior Assistant Controller; OOGC: 2000-2005, Senior Vice President — Finance.
B. Chuck Anderson	46	Occidental Chemical Corporation: President since 2006; 2004-2006, Executive Vice President — Chlorovinyls; 2002-2004, Senior Vice President — Basic Chemicals; 2000-2002, President — OxyVinyls; 1999-2000, Senior Vice President and General Manager — 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)" in Item 8 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 approximately 44,305 stockholders of record at December 31, 2005, with an estimated 331,476 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 2005, the quarterly declared dividend rate for the common stock was $0.31 per share for the first three quarters of 2005 and $0.36 for the fourth quarter of 2005 ($1.29 for the year). On February 16, 2006, a quarterly dividend of $0.36 per share ($1.44 per year) was declared on the common stock, payable on April 15, 2006 to stockholders of record on March 10, 2006. 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 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, 2005, pursuant to outstanding options, rights or warrants 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))
11,490,439		$38.87		19,798,405 *


* Includes, with respect to:
(a)	the 1995 Incentive Stock Plan, 1,593,844 shares reserved for issuance pursuant to deferred performance and restricted stock awards;
(b)	the 2001 Incentive Compensation Plan, 936,687 shares at maximum target level (919,041 at target level) reserved for issuance pursuant to outstanding performance stock awards, 775,906 shares reserved for issuance pursuant to restricted stock awards, 1,413,721 shares reserved for issuance pursuant to deferred restricted stock awards and 9,747 shares reserved for issuance as dividend equivalents; and
(c)	the 2005 Long-Term Incentive Plan, 1,200 shares at target and maximum level reserved for issuance pursuant to outstanding performance stock awards, 1,115,400 shares reserved for issuance pursuant to restricted stock awards.
Of the 13,951,900 shares that are not reserved for issuance, all are available under the 2005 Long-Term Incentive Plan and all may be issued or reserved for issuance for options, rights and warrants as well as performance stock awards, restricted stock awards, stock bonuses and dividend equivalents.

SHARE REPURCHASE ACTIVITIES

Occidental’s share repurchase activities for the three months ended December 31, 2005, 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
October 1 - 31, 2005	—	—	—	—
November 1 - 30, 2005	—	—	—	—
December 1 - 31, 2005	96,781 ^(a)	$82.60	—	—
Total	96,781	$82.60	—	10,000,000 ^(b)

(a)	Amount represents shares purchased by Occidental from the trustee of its defined contribution savings plan.
(b)	In 2005, Occidental announced a common stock repurchase program. Occidental plans to purchase at least ten million shares, from time to time, at prevailing prices as permitted by securities laws and other requirements. At December 31, 2005, no shares had been repurchased under this program.

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,	2005			2004			2003			2002			2001
RESULTS OF OPERATIONS ^(a)
Net sales	$	15,208		$	11,368		$	9,240		$	7,247		$	8,012
Income from continuing operations	$	5,272		$	2,606		$	1,601		$	1,181		$	1,182
Net income	$	5,281		$	2,568		$	1,527		$	989		$	1,154
Basic earnings per common share from
continuing operations	$	13.07		$	6.59		$	4.17		$	3.14		$	3.17
Basic earnings per common share	$	13.09		$	6.49		$	3.98		$	2.63		$	3.10
Diluted earnings per common share	$	12.91		$	6.40		$	3.93		$	2.61		$	3.09
Core earnings ^(b)	$	3,964		$	2,499		$	1,641		$	1,017		$	1,249
FINANCIAL POSITION ^(a)
Total assets	$	26,108		$	21,391		$	18,168		$	16,548		$	17,850
Long-term debt, net and trust preferred securities ^(c)	$	2,873		$	3,345		$	4,446		$	4,452		$	4,528
Common stockholders’ equity	$	15,032		$	10,550		$	7,929		$	6,318		$	5,634
MARKET CAPITALIZATION	$	32,129		$	23,153		$	16,349		$	10,750		$	9,926
CASH FLOW
Cash provided by operating activities	$	5,337		$	3,878		$	3,074		$	2,100		$	2,566
Capital expenditures	$	(2,423	)	$	(1,843	)	$	(1,600	)	$	(1,234	)	$	(1,305	)
Cash (used) provided by all other investing activities, net	$	(738	)	$	(585	)	$	(531	)	$	(462	)	$	654
DIVIDENDS PER COMMON SHARE	$	1.29		$	1.10		$	1.04		$	1.00		$	1.00
BASIC SHARES OUTSTANDING (thousands)	403,300			395,580			383,943			376,190			372,119

(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)	For an explanation of core earnings, see "Significant Items Affecting Earnings" in the MD&A section of this report.
(c)	On January 20, 2004, Occidental redeemed the trust preferred securities.

ITEM 7

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

In this report, the term "Occidental" refers to Occidental Petroleum Corporation (OPC) and/or one or more entities in which it owns a majority voting interest (subsidiaries). Occidental is divided into two segments: oil and gas and chemical.

STRATEGY

General

Occidental aims to generate competitive 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 substantial 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 and dividends to improve future earnings by making such investments.

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 lower manufacturing costs. Asset acquisitions may be pursued when they are expected to enhance the existing core chlor-alkali and PVC businesses. Historically, the chemical segment has generated cash flow exceeding its normal capital expenditure requirements. Occidental intends to invest this cash mainly in strategically attractive assets. As part of Occidental's strategy to grow its oil and gas business, any excess cash generated by the chemical segment may be used as part of the overall funding for oil and gas growth.

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 made acquisitions and investments in the Dolphin Project in Qatar and the UAE, re-entered Libya and assumed operations in the Mukhaizna field in Oman for future growth opportunities, not for current production.

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 followed by a series of purchases in the Permian Basin in west Texas and New Mexico.

At the end of 2005, the Elk Hills and Permian Basin assets made up 70 percent of Occidental’s consolidated proven oil reserves and 45 percent of its consolidated proven gas reserves. On a barrels of oil equivalent (BOE) basis, they accounted for 64 percent of Occidental’s consolidated reserves. In 2005, the combined production from these assets averaged approximately 279,000 BOE per day, which represents approximately 49 percent of Occidental’s total worldwide production. These assets also contributed approximately 48 percent of oil and gas segment earnings.

Chemical

Segment Income

($ millions)

OxyChem's strategy is to be a low-cost producer so that it can maximize its cash flow generation. OxyChem concentrates on the chlorovinyls chain where it begins with chlorine, which is coproduced with caustic soda, and then converts chlorine and ethylene, 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, reserve replacement percentage and other similar measures.

Debt Structure

Occidental's total debt and total debt-to-capitalization ratios are shown in the table below:


Date ($ amounts in millions)	Total Debt		^(a)	Total Debt-to- Capitalization Ratio
12/31/01	$	4,890		46%
12/31/02	$	4,759		43%
12/31/03	$	4,570		37%
12/31/04	$	3,905		27%
12/31/05	$	3,019		17%

(a)	Includes trust preferred securities (redeemed January 20, 2004), natural gas delivery commitment (terminated in 2002), subsidiary preferred stock and capital lease obligations.

As shown, Occidental’s year-end 2005 total debt-to-capitalization ratio declined to 17 percent from the 46-percent level that existed at the end of 2001. The decrease in the total debt-to-capitalization ratio in 2005 compared with 2001 resulted from total debt reductions of 38 percent combined with an increase in stockholders' equity of 167 percent over the same period.

Return on Equity

Annual 2005 ^(a)		Three-Year Average 2003 - 2005 ^(b)
41%		31%

(a)	The Return on Equity for 2005 was calculated by dividing Occidental's 2005 earnings applicable to common stock by the average equity balance in 2005.
(b)	The three-year average Return on Equity was calculated by dividing the average earnings applicable to common stock over the three-year period 2003-2005 by the average equity balance over the same period.

Occidental has focused on improving its return on equity. In 2005, Occidental's return on equity was 41 percent and the three-year average return on equity was 31 percent. During the same three-year period, Occidental increased its stockholders’ equity by 138 percent and its quarterly dividend by 38 percent and its stock price increased by 181 percent.

OIL AND GAS SEGMENT

Business Environment

Oil and gas prices are the major variables that drive the industry’s financial performance. Oil prices strengthened in 2005 over 2004 levels. During the year, Occidental experienced an increase in its price differential between the average West Texas Intermediate (WTI) price and Occidental's realized prices. However, Occidental’s realized price as a percentage of WTI was 85 percent for both years. Prices and differentials can vary significantly, even on a short-term basis, making forecasting realized prices difficult. The average WTI market price for 2005 was $56.56 per barrel compared with $41.40 per barrel in 2004. Occidental's average realized price for oil in 2005 was $48.20, compared with $35.09 in 2004.

Average NYMEX domestic natural gas prices increased approximately 37 percent from 2004. For 2005, NYMEX gas prices averaged $8.11/Mcf compared with $5.92/Mcf for 2004.

Business Review

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

Worldwide Production

(thousands BOE/day)

Elk Hills

Occidental operates the Elk Hills oil and gas field in the southern portion of California’s San Joaquin Valley with an approximate 78-percent interest. The field was acquired in 1998 for $3.5 billion and is the largest producer of gas in California. Oil and gas production in 2005 was approximately 90,000 BOE per day. During 2005, Occidental performed infill drilling, field extensions and recompletions identified by advanced reservoir characterization techniques. A record 291 new wells were drilled and 548 wells were worked over. In addition, a successful CO₂ pilot was completed during the year. As a result of these activities, Occidental was able to maintain production at 2004 levels. Since its acquisition, total Elk Hills oil and gas production has been approximately 268 million BOE. At the end of 2005, the property had an estimated 505 million BOE of proved reserves, compared to the 425 million BOE that were recorded at the time of the acquisition.

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 18 percent of total United States oil production. Occidental is the largest producer in the Permian Basin with an approximately 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.

Most of Occidental's Permian Basin interests were obtained through the acquisition of Altura in 2000 for approximately $3.6 billion.

In 2005, Occidental made several additional acquisitions of oil and gas producing property interests for approximately $1.7 billion. This was partially offset by cash proceeds totaling $171 million from dispositions of a portion of the acquired properties.

Occidental's total share of Permian Basin oil, gas and NGL production averaged 189,000 BOE per day in 2005 compared to 175,000 BOE per day in 2004. At the end of 2005, 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. The largest producing areas in 2005 included Wasson San Andres, Slaughter, Levelland, North Cowden and Wasson Clearfork, which contributed 20 percent, 10 percent, 5 percent, 5 percent and 4 percent, respectively, to Occidental’s 2005 Permian BOE production.

Occidental’s interests in the Permian Basin offer additional development and exploitation potential. During 2005, Occidental drilled approximately 250 wells on its operated properties and participated in wells drilled on outside operated interests. Occidental conducted significant development activity on five CO₂ projects during 2005, including implementation of new floods and expansion of existing CO₂ floods. Occidental also focused on improving performance of existing wells. Occidental had an average of 105 well service units working in the Permian area during 2005 performing well maintenance and workovers.

Approximately 60 percent of Occidental’s Permian Basin oil production is from fields that actively employ the application of carbon dioxide (CO₂) flood technology, an enhanced oil recovery technique. This involves injecting CO₂ into oil reservoirs where it acts as a solvent, causing the oil to flow more freely into producing wells. The size of these CO₂ flood operations makes Occidental a world leader in the application of this technology.

THUMS

Occidental purchased THUMS, the field contractor for an oil production unit offshore Long Beach, California, in 2000. Occidental's share of production from THUMS is subject to contractual arrangements similar to a PSC, whereby Occidental's share of production varies inversely with oil prices. For 2005, production from THUMS averaged 18,000 barrels per day.

Gulf of Mexico

Occidental has a one-third interest in the deep-water Horn Mountain oil field, which is Occidental's only asset in the Gulf of Mexico. BP p.l.c. (BP) is the operator. For 2005, Occidental's production at Horn Mountain averaged 14,000 BOE per day. In the second half of 2005, the Horn Mountain field was shut down for about 47 days due to the impact of the hurricanes in the Gulf of Mexico.

Hugoton and Other

Occidental owns other oil and gas interests including a large concentration of gas reserves, production interests and royalty interests in the Hugoton area of Kansas and Oklahoma. The Hugoton field is the largest natural gas field discovered in North America. Occidental’s Hugoton and other operations produced 133 MMcf of natural gas per day and 3,000 barrels of oil per day in 2005.

Occidental has over 28,000 net acres in the Piceance Basin in western Colorado. During 2004 and 2005, Occidental drilled 30 development wells, installed a 50 MMcf per day gas processing facility and the infrastructure required for future field development. Occidental has acquired seismic data covering 34 square miles of the Cascade Creek field.

Acquisition of Vintage Petroleum

In January 2006, Occidental completed the merger of Vintage Petroleum, Inc. (Vintage) into a wholly-owned Occidental subsidiary. Occidental acquired producing assets in Argentina, the United States, Yemen and Bolivia. The Argentine assets consist of 22 concessions, 19 of which Occidental will operate, located in the San Jorge Basin in Southern Argentina and the Cuyo Basin in western Argentina. Occidental paid $1.4 billion to former Vintage shareholders for the cash portion of the merger consideration and issued 28 million shares for the stock portion, which was valued at $2.1 billion. The value of Occidental’s shares was determined by the average share price for the five-day period beginning two days before the acquisition announcement. In addition, Occidental assumed Vintage’s debt, which had an estimated fair market value of $585 million at closing. Occidental intends to divest a portion of these assets.

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 condensate in Qatar’s North Field for 25 years from the start of production, with a provision to request a 5-year extension. The purchase price of the undivided working interest in the DPSA was approximately $60 million and was recorded in Property, Plant & Equipment. 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). The purchase price of Dolphin Energy stock totaled approximately $250 million and was recorded as an equity investment.

Dolphin Energy is the operator under the DPSA on behalf of the three DPSA contractors, including Occidental. Dolphin Energy also has the rights to build, own and operate a 260-mile-long, 48-inch natural gas pipeline, which will transport dry natural gas from Qatar to the UAE.

The Dolphin Project is expected to cost approximately $4.0 billion in total. Occidental expects to invest approximately $1 billion of this total. The project will be financed by a combination of participant investment and project financing. During 2006, Occidental expects to spend a combined total of approximately $430 million for the gas exploration and

development activity and the investment in Dolphin Energy, compared to $380 million in 2005.

In 2003, the Government of Qatar approved the final field development plan for the Dolphin Project. Construction of a gas processing and compression plant at Ras Laffan in Qatar, as well as two offshore gas production platforms, commenced in 2004 and is continuing. The projected start-up date for production is late 2006.

Based on existing supply contracts, the Dolphin Project is expected to export approximately 2 billion cubic feet (Bcf) of natural gas per day (plus associated liquids and byproducts). However, the pipeline is expected to have capacity to transport up to 3.2 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 pursue an agreement to secure an additional supply of gas from Qatar.

To date, Occidental has recorded 250 million BOE of proved undeveloped oil and gas reserves for the Dolphin Project DPSA activity. No revenue or production costs were recorded in 2005 for the Dolphin Project gas exploration and development activity.

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). Occidental is nearing completion of Phase II of full field development of ISND and is in the process of developing the ISSD field.

Occidental expects to continue increasing production and recoverable reserves under its existing agreement in the ISND field. Phase II is targeting the development and recovery of additional reserves by applying advanced drilling systems and improved reservoir characterization techniques. Capital expenditures in Qatar for the ISSD and ISND projects were $343 million in 2005 and are expected to be $268 million in 2006.

Occidental’s net share of combined production from the two fields averaged 42,000 barrels per day in 2005.

Yemen

In Yemen, Occidental owns a 38 percent direct-working interest in the Masila field in Block 14 and 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. Occidental’s production averaged 28,000 barrels of oil per day in 2005, with 24,000 coming from the Masila field and the remainder from East Shabwa. In addition, Occidental is the operator of Block 20, where it owns an 80-percent working interest.

In July 2005, Occidental was the successful bidder for Block 75 in Yemen’s exploration bid round and has been invited to finalize a PSC for the block.

Oman

Occidental's Oman business includes Block 9 and Block 27, where it holds a 65-percent working interest in each, and Block 53, where it holds a 45-percent working interest. Occidental is the operator of all three blocks where production averaged 24,000 BOE per day in 2005, with 23,000 BOE coming from Block 9 and the remainder from Block 53. The Block 9 agreement provides for two ten-year extensions and Occidental has agreed with the Government of Oman to the first ten-year extension through December 7, 2015.

In March 2004, Occidental began selling gas to the Government of Oman under a gas sales agreement, thereby allowing Occidental to produce previously stranded gas and condensates from Block 9. Under the agreement, Occidental (and its Block 9 partner) must supply approximately 114 MMcf per day of natural gas until December 31, 2007. Thereafter, Occidental will nominate quantities that it has available for delivery. In 2005, Occidental (and its partner) supplied an average of approximately 116 MMcf per day of natural gas to the Government under the gas sales agreement. The minimum gross quantities to be delivered under the gas sales agreement through December 31, 2007 represent approximately 93 percent of the expected average gross production of gas from Block 9 during that period. As of December 31, 2005, the gross proved gas reserves from Block 9 are approximately 373 percent of the total minimum of gas that remains to be delivered under the gas sales agreement.

In October 2005, Occidental received approval for development of the Khamilah field in Block 27. The exploitation term of the agreement is 30 years beginning in September 2005. Occidental plans to develop the reserves and commence production in Block 27 through capital-efficient investment and exploration.

Occidental (and its Block 53 partners) signed a new PSC for the Mukhaizna field with the Government of the Sultanate of Oman in July 2005. On September 1, 2005, Occidental assumed operations of the Mukhaizna field, where it holds a 45-percent working interest. The Mukhaizna field, located in Oman’s south central interior, was discovered in 1975 and was brought into production in 2000. Primary production peaked in the same year at 15,000 barrels of oil per day and by September 2005, had declined to 8,500 barrels of oil per day. Occidental plans to use horizontal well steamflood technology to steadily increase production.

Libya

Occidental suspended all activities in Libya in 1986 as a result of economic sanctions imposed by the United States government. During the imposition of sanctions, Occidental derived no economic benefit from its Libyan interests. In 2004, the United States government lifted all of the principal economic sanctions against Libya. However, Libya continues to be designated as a country supporting international terrorism under section 6(j) of the United States Export Administration Act and, as such, continues to be subject to certain limited sanctions.

On August 11, 2005, the Libyan authorities approved the terms of Occidental’s participation in the assets that it left in 1986, effective as of July 1, 2005. The agreement allows Occidental to return to its Libyan operations on generally the same terms in effect when activities were suspended. Those assets consist of three producing contracts in the Sirte Basin and four exploration blocks. Occidental paid approximately $133 million in re-entry bonuses, capital adjustment and work-in-progress payments and is required to pay $10 million per year while it continues to operate in Libya, as reimbursements for past development costs associated with the historical assets. In addition, Occidental committed to spend $90 million over the next five years in the four exploration blocks. Currently, Occidental’s rights in the producing fields extend through 2009 and early 2010. Occidental had its first lifting from its Libyan operations in late September and production during the fourth quarter of 2005 averaged 24,000 BOE per day.

Separately, in early 2005, Occidental participated in the EPSA IV exploration bid round in Libya. Occidental successfully bid on nine of the 15 areas available. Occidental is the operator for five onshore areas and has a 90-percent exploration working interest. In addition, Occidental holds a 35-percent exploration working interest in four offshore areas. Woodside Petroleum Ltd. is the operator for the offshore areas. Occidental paid approximately $90 million in exploration lease bonuses for these nine new areas and committed to spend an additional $125 million over the next five years.

Other Eastern Hemisphere

Pakistan

Occidental holds oil and gas working interests, that vary from 25 to 50 percent, in four Badin Blocks in Pakistan. BP is the operator. Occidental’s share of production was approximately 18,000 BOE per day in 2005.

Russia

In Russia, Occidental owns 50 percent of a joint venture company, Vanyoganneft, that operates in the western Siberian oil basin. Production for 2005 was approximately 28,000 BOE per day.

Latin America

Colombia

Occidental is the operator of the Caño Limón field with a 35-percent share of production, declining to 33.6 percent by mid-2006 and 31.5 percent by 2009. In mid-2006, if WTI exceeds $30 per barrel, Occidental’s share of production will decline an additional amount based on a sliding scale. Occidental's share of 2005 production averaged 32,000 barrels of oil per day. Colombia's national oil company, Ecopetrol, operates the Caño Limón-Coveñas oil pipeline and marine-export terminal. The pipeline transports oil produced from the Caño Limón field for export to international markets.

In September 2005, Occidental signed a new agreement with Ecopetrol for an enhanced oil recovery project in the La Cira-Infantas field, located in central Colombia. If conditions warrant, upon completion of the two pilot phases, Occidental will earn a 48 percent net share of production upon further development.

In November 2005, Ecopetrol approved development of the Caricare field, an exploration discovery under the Rondon Association Contract, adjacent to Caño Limón. Production from this field, where Occidental holds a 35-percent working interest, is expected to commence in May 2006.

Occidental holds various working interests in two additional exploration blocks.

Ecuador

Occidental operates Block 15 in Ecuador in which it holds a 60-percent economic interest. Although Occidental holds legal title to 100 percent of the Block 15 Participation Contract, it farmed out 40 percent of its economic interest related to Block 15 in 2000. Occidental's share of production averaged approximately 42,000 barrels of oil per day in 2005. In addition, Occidental has a 14-percent interest in the Oleoducto de Crudos Pesados Ltd. (OCP) oil export pipeline.

Development of existing fields, primarily Eden-Yuturi and the Indillana Complex, continued through 2005. Drilling and the installation of new wells nearly offset the natural decline of existing wells.

Foreign oil companies, including Occidental, have been paying a Value Added Tax (VAT), generally calculated on the basis of 10 to 12 percent of expenditures for goods and services used in the production of oil for export. Until 2001, oil companies, like other companies producing products for export, filed for and received reimbursement of VAT. In 2001, the Ecuador tax authority announced that the oil companies’ VAT payments did not qualify for reimbursement. In 2002, Occidental initiated an international arbitration proceeding against the Ecuadorian Government under the United States-Ecuador bilateral investment treaty based on Occidental’s belief that the Ecuadorian Government is arbitrarily and discriminatorily refusing to refund the VAT to Occidental. In July 2004, a tribunal of international arbitrators awarded Occidental compensation for VAT refunds from Occidental's Block 15 operations that were withheld by the Ecuadorian Government and indicated that similar VAT refunds should be paid going forward. The Ecuadorian Government has appealed the tribunal's decision and the appeals proceedings continue at present. In the event of an unfavorable outcome, the potential effect on Occidental's financial statements would not be material.

In September 2004, Occidental received formal notification that Petroecuador, the state oil company of Ecuador, was initiating proceedings to determine if Occidental had violated either its Participation Contract for Block 15 or the Ecuadorian Hydrocarbons Law and whether the alleged violations constitute grounds for terminating the Participation Contract. Block 15 operations represent approximately 7 percent of Occidental's 2005 consolidated production, 4 percent of its proved consolidated reserves, and 2 percent of its total property, plant and equipment (PP&E), net of accumulated depreciation, depletion and amortization (DD&A). In August 2005, Petroecuador issued a report

recommending that the Minister of Energy declare the termination of Occidental’s Participation Contract for Block 15. The principal allegation stated in the notice and the Petroecuador report is an assertion that Occidental should have obtained government approval for the farmout agreement entered into in 2000. In November 2005, the Minister of Energy, following the procedure set forth in the Ecuadorian Hydrocarbons Law, requested that Occidental respond to the allegations against it. In February 2006, Occidental submitted its response to the Minister of Energy, in which Occidental confirmed its belief that it has complied with all material obligations under the Participation Contract and Ecuadorian law, and that any termination of the contract based upon the stated allegations would be unfounded and would constitute an unlawful expropriation. Occidental has been cooperating with the Ecuadorian authorities in these proceedings, and will continue to strive for an amicable resolution. Occidental currently is unable to determine the outcome of these proceedings, but if there were to be a negotiated settlement, it is probable that the terms would effectively reduce the future profitability of Block 15 operations. See also "Off-Balance-Sheet Arrangements — Ecuador" for further information about the OCP pipeline.

Production-Sharing Contracts

Occidental conducts its operations in Qatar, Oman and Yemen under PSCs and, under such contracts, receives a share of production to recover its costs and an additional share for profit. In addition, Occidental's share of production from THUMS is subject to contractual arrangements similar to a PSC. Occidental’s share of production 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 - 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 retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its oil and gas reserve estimation processes in 2004 and 2005.

Ryder Scott compared Occidental’s methods and procedures for estimating oil and gas reserves to generally accepted industry standards and reviewed certain data, methods and procedures used in estimating reserve volumes, the economic evaluations and reserve 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.

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

Proved Reserve Additions

Occidental consolidated subsidiaries had proved reserves at year-end 2005 of 2,662 million BOE, as compared with the year-end 2004 amount of 2,489 million BOE. Additionally, Occidental’s investments in other interests had proved reserves of 45 million and 43 million BOE at year-end 2005 and 2004, respectively. The increase in the consolidated subsidiaries’ reserves from all sources was 380 million BOE, of which 232 million BOE were from proved developed reserves and 148 million BOE were from proved undeveloped reserves.

Proved developed reserves represent approximately 74 percent of Occidental’s total proved reserves.

Proved Reserve Additions - Consolidated Subsidiaries - 2005

In Millions of BOE	Proved Developed	Proved Undeveloped		Proved Total
Revisions due to change in price	1	(27	)	(26	)
Other revisions	62	(57	)	5
Improved Recovery	49	90		139
Extensions and Discoveries	21	102		123
Purchases	99	40		139
Total Additions	232	148		380

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

Revisions of Previous Estimates

In 2005, Occidental had net negative revisions of its proved reserves of 26 million BOE due to changes in price. The decrease was mainly due to negative revisions of 52 million BOE from the Dolphin Project, Qatar, Oman and Yemen where reserve amounts decrease when prices rise. These revisions were partially offset by positive revisions at domestic operations in Elk Hills and the Permian Basin. 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 7 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 would 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's 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 2005, Occidental added reserves of 139 million BOE through improved recovery, mainly in the Permian Basin, Elk Hills, and THUMS in the United States and also in Qatar. In an effort to partially mitigate the decline in oil and gas production from the Elk Hills field,

Occidental has successfully implemented an infill drilling program. The Elk Hills operations employ 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 which are dependent on successful exploitation programs. In 2005, Occidental added reserves of 123 million BOE, with 23 million BOE in the United States and 91 million BOE in the Middle East. In western Colorado, Occidental added approximately 9 million BOE from the extension of gas reserves to proved locations, most of which will require additional development capital.

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 2005, Occidental purchased reserves of 139 million BOE, of which 135 million BOE are in the United States. The reserve additions in the United States were from various acquisitions, primarily in the Permian Basin, of which 71 percent were proved developed reserves. Occidental continues to add reserves through acquisitions when properties are available at reasonable prices. 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

In 2005, Occidental's proved undeveloped reserves increased by 148 million BOE. This net increase resulted from improved recovery, extensions, discoveries and purchases, primarily in the Elk Hills field, in the Permian Basin, in western Colorado and in the Dolphin Project. The Dolphin Project accounted for 63 percent of the 2005 increase, and the projected start-up for Dolphin production is late 2006. These proved undeveloped additions were partially offset by reserve transfers to the proved developed category as a result of 2005 development programs.

For details of proved reserve activity by geographic areas, see the "Supplemental Oil and Gas Information (Unaudited)" section in Item 8.

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 in 2005 remained at or near historical highs. 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.

Historically, sustained high or low 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 $28.78 per barrel over the past ten years. However, the industry has historically experienced wide fluctuations in prices. During 2005, Occidental experienced an increase in its price differential of the average WTI price over Occidental's realized 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 $4.04 per Mcf.

CHEMICAL SEGMENT

Business Environment

The chemical segment experienced improved results in 2005 due to sustained demand coupled with improved margins despite sharply higher feedstock costs. The widespread impact of Hurricanes Katrina and Rita in the third quarter caused several disruptions among chlor-alkali producers and their customers. This resulted in a moderate softening of product demand.

Business Review

Chlor-alkali

Demand for chlor-alkali products began the year quite strong, which enabled OxyChem to realize robust margins despite escalating energy and raw material costs. While chlorine and caustic prices continued to rise throughout the year, the combination of softening demand, partly due to Hurricanes Katrina and Rita, and the rapid rise in energy and feedstock costs caused operating rates and profitability to fall in the latter part of the year. Key sectors, such as vinyls and pulp and paper, were operating at full capacity in the first half, resulting in a tight supply/demand balance for chlorine and caustic soda. Although demand remained relatively strong in the second half of the year, margins came under pressure as product became more available and industrial customers reduced purchases to control inventories and bolster cash flow.

Domestic chlorine demand fell 7 percent compared to 2004, as several sectors experienced slowdowns late in the year, which resulted in de-stocking of inventory amid the expectation of lower prices. Despite starting the year operating at near capacity, 2005 chlor-alkali industry operating rates fell to 90 percent for the year, down from 99 percent in 2004. OxyChem’s chlor-alkali operating rate for 2005 was 92 percent, slightly above the industry operating rate of 90 percent.

In September 2005, OxyChem decided to permanently close its Deer Park, Texas and Delaware City, Delaware chlor-alkali production facilities, and its

EDC facility in Ingleside, Texas. These sites were closed because they were not expected to regain an economically viable operating position in the future.

Vinyls

Increasing ethylene and natural gas prices led to a continuation of industry PVC price increases in 2005. Industry PVC prices increased 24 percent compared to 2004. These increases led to record high price levels in the fourth quarter of 2005.

Industry-wide total 2005 demand was 3 percent lower compared with 2004.

OxyChem operated its PVC facilities at an average operating rate of 88 percent for 2005, compared to the North American industry average of 89 percent.

In December 2005, OxyChem announced that it would permanently close its Alberta, Canada PVC manufacturing facility in the first quarter of 2006.

Acquisition of Vulcan Assets

In June 2005, Occidental completed the purchase of three chlor-alkali chemical manufacturing facilities from Vulcan for $214 million in cash, plus contingent payments based upon the future performance of these facilities and the assumption of certain liabilities. In order to facilitate receipt of regulatory approval for this acquisition, Occidental divested one of the facilities.

Exit of Vinyl Specialty Resins Business

At the end of 2004, Occidental decided to exit the vinyl specialty resins business for strategic and economic reasons. This resulted in the immediate closure of the Pottstown, Pennsylvania manufacturing facility. Occidental recorded an after-tax charge of $32 million in 2004 and classified this business as a discontinued operation.

Industry Outlook

Occidental's chemical business experienced improved profitability in 2005, 47 percent higher than 2004’s earnings. The major factors that contributed to this improved performance were the continued strong United States economy, higher margins and the acquisition of certain Vulcan chemical operating assets.

Continued strong performance will depend on global economic activity, the competitiveness of the United States in the world economy and the direction of the unprecedented high levels of feedstock and energy prices and their impact on margins. Reduced demand due to softening in the United States economy and continuation of the historically high levels of feedstock and energy prices could affect operating margins and reduce future profitability.

Construction of LNG terminals on the United States Gulf Coast could stabilize natural gas prices at a lower-than-current level and thereby help improve the competitive position of efficient Gulf Coast chemical facilities. However, this construction may not occur in the immediate future.

Chlor-alkali

Industry operating rates ended 2005 at 90 percent of capacity, which is a considerable decline from 2004’s performance of 99 percent. Demand growth is expected to be moderate despite the potential positive effect of Gulf Coast rebuilding efforts. However, due to the currently high level of energy and other key raw material costs, margins are expected to remain under pressure. Moreover, a significant portion of 2005 results were due to sharply higher caustic soda prices versus 2004. This price increase has led to additional United States imports and intense competition among producers for market share.

Vinyls

Industry-wide PVC operating rates are expected to be slightly lower in 2006 as a result of the restart of some idled capacity coupled with lower housing starts and reduced exports. VCM rates are expected to improve as Dow Chemical Company completes the announced shutdown of two production facilities.

The growing cost disparity in the vinyls chain between the United States Gulf Coast and southeast Asia, as well as the growth of acetylene-based PVC capacity in China, have resulted in a dramatic shift in trade flows and imports of PVC into the United States and Latin America.

CORPORATE AND OTHER

Corporate and Other includes the investments in Lyondell Chemical Company (Lyondell) and Premcor, Inc., (Premcor), and a leased cogeneration facility in Taft, Louisiana. The Premcor investment was sold in 2005. Beginning in 2004, Corporate and Other also included the results of a 1,300-mile oil pipeline and gathering system located in the Permian Basin, which was acquired in January 2004, and is used in corporate-directed oil and gas marketing and trading operations.

Lyondell

In November 2004, Lyondell acquired Millennium Chemicals Inc. (Millennium) by issuing additional shares of Lyondell common stock. Under SEC Staff Accounting Bulletin No. 51, Occidental was required to record its share of the increase in Lyondell's net equity resulting from this issuance. The effect of this was an increase in the carrying value of Occidental's investment in Lyondell and a pre-tax gain of $121 million. As a result of the stock issuance, Occidental's ownership percentage of Lyondell decreased from approximately 22 percent to 17 percent.

In 2005, Occidental sold 11 million shares of Lyondell common stock for gross proceeds of approximately $300 million. This sale resulted in a 2005 pre-tax gain of $140 million. At December 31, 2005, Occidental still owned 30.3 million shares of Lyondell common stock (12 percent ownership), with a carrying value of $468 million and a fair market value of $722 million, and warrants to purchase an additional five million shares of Lyondell common stock. Occidental has no current plans to divest the remaining Lyondell shares. However, Occidental regularly reviews and analyzes its investments and other operations in order to determine how its stockholders’ interests are best served. Occidental continues to account for this investment on the equity method since it has the ability to exercise significant influence over Lyondell.

Premcor

In 2005, Valero Energy Corp. (Valero) and Premcor executed a merger agreement for Valero to acquire Premcor. Occidental tendered its 9 million shares of Premcor common stock for cash and shares of Valero common stock pursuant to the Premcor-Valero agreement. Valero’s acquisition of Premcor resulted in a $704 million pre-tax gain and the subsequent sale of all of the Valero shares received resulted in an additional $22 million pre-tax gain.

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 interest income, interest expense, 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 from the segments' equity investments.

As of January 1, 2005, Occidental revised its reporting of segment earnings to show segment earnings before income taxes. All domestic and foreign income tax expense is now reflected in the “Corporate and Other” column. This change has been retrospectively applied to prior period results.

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,	2005			2004			2003
SALES
Oil and Gas	$	10,416		$	7,582		$	6,003
Chemical		4,641			3,675			3,092
Other ^(a)	151			111			145
	$	15,208		$	11,368		$	9,240
EARNINGS(LOSS)
Oil and Gas ^(b)	$	6,293		$	4,290		$	3,213
Chemical ^(c)	607			414			223
		6,900			4,704			3,436
Unallocated corporate items
Interest expense, net ^(d)
Debt and trust preferred
distributions		(201	)		(240	)		(333	)
Income taxes ^(e)		(2,020	)		(1,708	)		(1,231	)
Other ^(f)	593			(150		)	(271		)
Income from continuing
operations		5,272			2,606			1,601
Discontinued operations, net		6			(38	)		(6	)
Cumulative effect of changes in
accounting principles, net	3			—			(68		)
Net Income	$	5,281		$	2,568		$	1,527
Basic Earnings per
Common Share	$	13.09		$	6.49		$	3.98

(a)	The 2005 and 2004 amounts represent revenue from a Taft, Louisiana cogeneration plant and the Permian Basin pipeline and gathering system. The 2003 amount represents revenue from a Taft, Louisiana cogeneration plant.
(b)	The 2005 and 2004 amounts include interest income of $11 million and $18 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 currently operated plant and an additional charge of $20 million for the write-down of another chemical plant.
(d)	The 2005 amount includes $42 million of interest charges to redeem an unsecured subsidiary note and all of the outstanding 5.875-percent senior notes, 4.1-percent medium-term notes and 7.65-percent senior notes and to purchase in the open market and retire various amounts of Occidental senior notes and unsecured subsidiary notes. The 2004 amount includes $17 million of interest charges to redeem or repurchase various debt issues during the year. The 2003 amount includes a $61 million interest charge to repay a $450 million senior note that had 10 years of remaining life, but was subject to remarketing on April 1, 2003.
(e)	The 2005 amount includes a $335 million tax benefit due to the reversal of tax reserves no longer required as United States corporate returns for tax years 1998-2000 became closed by lapsing of the statute of limitations, a $619 million tax benefit resulting from a closing agreement with the IRS resolving certain foreign tax credit issues and a $10 million charge related to a state income tax issue. The 2004 amount includes $47 million of credits related to tax settlements with the IRS. The 2005 and 2004 amounts also reflect a lower United States income tax rate resulting from the crediting of foreign income taxes.
(f)	The 2005 amount includes a $726 million pre-tax gain from Valero’s acquisition of Premcor and the subsequent sale of the Valero common shares received, a $140 million pre-tax gain from the sale of 11 million shares of Lyondell common stock, which represented approximately 27 percent of Occidental’s investment, $95 million of corporate equity-method investment income and $62 million environmental remediation expense. The 2004 amount includes $169 million of corporate equity-method investment income, $59 million of environmental remediation expense and the costs attributable to the cogeneration plant in Taft, Louisiana. The 2003 amount includes $58 million of corporate equity-method investment losses and $63 million of environmental remediation expense.


Oil and Gas In millions, except as indicated	2005			2004			2003
Segment Sales	$	10,416		$	7,582		$	6,003
Segment Earnings	$	6,293		$	4,290		$	3,213
Core Earnings ^(a)	$	6,337		$	4,290		$	3,213
Net Production per Day
United States
Crude oil and liquids (MBBL)
California		76			78			81
Permian		161			154			150
Horn Mountain		13			19			21
Hugoton and other	3			3			4
Total		253			254			256
Natural Gas (MMCF)
California		242			237			252
Hugoton and other		133			127			138
Permian		170			130			129
Horn Mountain	8			13			13
Total		553			507			532
Latin America
Crude oil & condensate (MBBL)
Colombia		36			37			37
Ecuador	42			46			25
Total		78			83			62
Middle East/North Africa
Crude oil & condensate (MBBL)
Oman		17			13			12
Qatar		42			45			45
Yemen		28			32			35
Libya	8			—			—
Total		95			90			92
Natural Gas (MMCF)
Oman		44			55			—
Other Eastern Hemisphere
Crude oil & condensate (MBBL)
Pakistan		5			7			9
Natural Gas (MMCF)
Pakistan		77			75			74
Barrels of Oil Equivalent (MBOE)
Subtotal Consolidated Subsidiaries		543			540			520
Colombia-minority interest		(4	)		(4	)		(5	)
Russia-Occidental net interest		28			29			30
Yemen-Occidental net interest	1			1			2
Total Worldwide Production
(MBOE)	568			566			547


Oil and Gas (continued) In millions, except as indicated	2005		2004		2003
Average Sales Prices
Crude Oil Prices ($ per barrel)
United States	$	50.21	$	37.72	$	28.74
Latin America	$	45.43	$	33.09	$	27.21
Middle East/North Africa ^(b)	$	49.88	$	34.88	$	27.81
Other Eastern Hemisphere	$	46.84	$	33.13	$	26.61
Total consolidated subsidiaries	$	49.05	$	35.95	$	28.18
Other interests	$	36.16	$	23.83	$	15.95
Total worldwide	$	48.20	$	35.09	$	27.25
Gas Prices ($ per thousand cubic feet)
United States	$	7.11	$	5.35	$	4.81
Middle East/North Africa ^(b)	$	0.96	$	0.97	$	—
Other Eastern Hemisphere	$	2.44	$	2.25	$	2.04
Total consolidated subsidiaries	$	6.11	$	4.56	$	4.45
Other interests	$	0.16	$	—	$	—
Total worldwide	$	5.98	$	4.56	$	4.45
Expensed Exploration ^(c)	$	337	$	219	$	139
Capital Expenditures
Development	$	1,856	$	1,438	$	1,097
Exploration	$	269	$	102	$	43
Acquisitions and other ^{(d, e)}	$	111	$	109	$	97

(a)	For an explanation of core earnings, see "Significant Items Affecting Earnings."
(b)	These prices exclude taxes owed by Occidental but paid by governmental entities on its behalf.
(c)	Includes dry hole write-offs and lease impairments of $242 million in 2005, $159 million in 2004 and $80 million in 2003.
(d)	Includes capitalized portion of injected CO₂ of $59 million, $54 million and $48 million in 2005, 2004 and 2003, respectively.
(e)	Includes mineral acquisitions but excludes significant acquisitions individually discussed in this report.

Core earnings in 2005 were $6.3 billion, compared with $4.3 billion in 2004. The increase in core earnings is primarily due to higher prices and volumes for crude oil and natural gas, partially offset by higher operating expenses, higher exploration expense and increased DD&A rates.

Core earnings in 2004 were $4.3 billion, compared with $3.2 billion in 2003. The increase in core earnings primarily reflects the effect of higher crude oil and natural gas prices and higher crude oil volumes, partially offset by higher operating expenses, higher exploration expense and increased DD&A rates.

Average consolidated production costs for 2005 were $8.71 per BOE, compared to the average 2004 production cost of $6.95 per BOE. At least 62 percent of the increase was a result of higher energy prices, which increased utility, gas plant and CO₂ costs and ad valorem taxes, and the impact of higher crude oil prices on PSCs. The remaining cost increases were the result of workover, maintenance and other costs.

Occidental expects the first quarter 2006 production to be higher than the fourth quarter 2005 production.

Also, see "Production-Sharing Contracts" above.


Chemical In millions, except as indicated	2005		2004		2003
Segment Sales	$	4,641	$	3,675	$	3,092
Segment Earnings	$	607	$	414	$	223
Core Earnings ^(a)	$	777	$	414	$	223
Key Product Price Indexes (1987
through 1990 average price = 1.0)
Chlorine ^{(b, c)}		2.65		2.05		1.72
Caustic soda ^{(b, c)}		1.69		0.84		0.84
Ethylene dichloride ^{(b, c)}		1.44		1.56		1.16
PVC commodity resins ^(c)		1.32		1.08		0.89
Key Product Volumes
Chlorine (thousands of tons) ^{(b, d)}		3,118		2,892		2,733
Caustic soda (thousands of tons) ^(b)		3,178		3,109		2,764
Ethylene dichloride
(thousands of tons) ^(b)		682		458		546
PVC commodity resins
(millions of pounds)		3,977		4,208		3,954
Capital Expenditures ^(e)	$	173	$	155	$	344

(a)	For an explanation of core earnings, see "Significant Items Affecting Earnings."
(b)	The 2005 amounts include product volumes and prices from the Vulcan chemical operating assets.
(c)	Product volumes produced at former PolyOne and Vulcan facilities are excluded from the product price indexes.
(d)	Product volumes include those manufactured and consumed internally.
(e)	The 2003 amount includes $180 million for the purchase of a previously leased facility in LaPorte, Texas and $44 million related to the exercise of purchase options for certain leased railcars.

Core earnings in 2005 were $777 million, compared with $414 million in 2004. The increase in core earnings is primarily due to higher margins resulting from higher prices for chlorine, caustic soda and PVC resins, partially offset by higher energy and feedstock costs.

Core earnings were $414 million in 2004, compared with $223 million in 2003. The increase in core earnings reflects the impact of higher prices for most major products (PVC resins, EDC, chlorine and VCM), partially offset by higher energy and ethylene costs.

SIGNIFICANT ITEMS AFFECTING EARNINGS

Occidental’s results of operations often include the effects of significant transactions and events affecting earnings that vary widely and unpredictably in nature, timing and amount. Therefore, management uses a measure called "core earnings," which excludes those items. This non-GAAP measure is not meant to disassociate those items from management’s performance, but rather is meant to provide useful information to investors interested in comparing Occidental’s earnings performance between periods. Reported earnings are considered representative of management’s performance over the long term. Core earnings is not considered to be an alternative to operating income in accordance with generally accepted accounting principles.


Significant Items Affecting Earnings Benefit (Charge) (in millions)	2005			2004			2003
TOTAL REPORTED EARNINGS	$	5,281		$	2,568		$	1,527
OIL AND GAS
Segment Earnings	$	6,293		$	4,290		$	3,213
Less:
Contract settlement		(26	)		—			—
Hurricane insurance charge	(18		)	—			—
Segment Core Earnings	$	6,337		$	4,290		$	3,213
CHEMICAL
Segment Earnings	$	607		$	414		$	223
Less:
Write-off of plants		(159	)		—			—
Hurricane insurance charge	(11		)	—			—
Segment Core Earnings	$	777		$	414		$	223
TOTAL SEGMENT CORE EARNINGS	$	7,114		$	4,704		$	3,436
CORPORATE
Results ^(a)	$	(1,619	)	$	(2,136	)	$	(1,909	)
Less:
Debt purchase expense		(42	)		—			(61	)
Trust preferred redemption charge		—			(11	)		—
Gain on sale of Lyondell shares		140			—			—
Gain on sale of Premcor-Valero shares		726			—			—
Gain on Lyondell stock issuance		—			121			—
State tax issue charge		(10	)		—			—
Settlement of federal tax issue		619			47			—
Reversal of tax reserves		335			—			—
Equity investment impairment		(15	)		—			—
Equity investment hurricane insurance
charge		(2	)		—			—
Hurricane insurance charge		(10	)		(15	)		—
Tax effect of pre-tax adjustments		(219	)		(35	)		21
Discontinued operations, net of tax		6			(38	)		(6	)
Cumulative effect of changes in
accounting principles, net of tax	3			—			(68		)
CORPORATE CORE RESULTS	$	(3,150	)	$	(2,205	)	$	(1,795	)
TOTAL CORE EARNINGS	$	3,964		$	2,499		$	1,641

(a)	Includes interest expense, income taxes, general and administrative and other expense, and certain non-core items.

TAXES

Deferred tax liabilities, net of deferred tax assets of $1.1 billion, were $0.8 billion at December 31, 2005. The current portion of the deferred tax assets of $200 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 taxable temporary differences.

Worldwide Effective Tax Rate

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


In millions	2005			2004			2003
REPORTED INCOME
Oil and Gas ^(a)	$	6,293		$	4,290		$	3,213
Chemical		607			414			223
Corporate and Other	392			(390		)	(604		)
Pre-tax income		7,292			4,314			2,832
Income tax expense
Federal and State		671			946			673
Foreign ^(a)	1,349			762			558
Total	2,020			1,708			1,231
Income from continuing operations	$	5,272		$	2,606		$	1,601
Worldwide effective tax rate	28%			40%			43%
CORE INCOME
Oil and Gas ^(a)	$	6,337		$	4,290		$	3,213
Chemical		777			414			223
Corporate and Other	(405		)	(485		)	(543		)
Pre-tax income		6,709			4,219			2,893
Income tax expense
Federal and State		1,396			958			694
Foreign ^(a)	1,349			762			558
Total	2,745			1,720			1,252
Core income	$	3,964		$	2,499		$	1,641
Worldwide effective tax rate	41%			41%			43%

(a)	Revenues and income tax expense include taxes owed by Occidental but paid by governmental entities on its behalf. Oil and gas pre-tax income includes revenue amounts for the years ended December 31, 2005, 2004 and 2003, of $887 million, $525 million and $397 million, respectively.

Occidental's 2005 worldwide effective tax rate was 28 percent for reported income and 41 percent for core income. The decrease in the United States income tax rate for reported income in 2005, compared to 2004, resulted from a $335 million tax benefit due to the reversal of tax reserves no longer required as United States corporate returns for tax years 1998-2000 became closed due to the lapsing of statutes of limitations and a $619 million tax benefit resulting from a closing agreement with the IRS resolving certain foreign tax credit issues. The lower United States income tax rate in 2005 and 2004, compared to 2003, resulted from the crediting of foreign income taxes. Previously, Occidental deducted foreign income taxes in determining United States taxable income. An annual tax election permits a taxpayer to claim either a credit or a deduction for foreign income taxes, whichever is more beneficial. Occidental expects to continue its election to credit foreign income taxes in future years.

CONSOLIDATED RESULTS OF OPERATIONS


Selected Revenue Items In millions	2005		2004		2003
Net sales	$	15,208	$	11,368	$	9,240
Interest, dividends and other income	$	181	$	144	$	89
Gain on disposition of assets, net	$	870	$	1	$	32

The increase in net sales in 2005, compared to 2004, reflects higher crude oil, natural gas and chemical prices.

The increase in sales in 2004, compared to 2003, reflects higher crude oil, natural gas and chemical prices, higher crude oil production and higher chemical volumes, partially offset by lower domestic natural gas production volumes.

The increase in interest, dividends and other income in 2005, compared to 2004, reflects interest income earned on a higher level of cash and cash equivalents.

The increase in interest, dividends and other income in 2004, compared to 2003, is due to 2004 interest income earned from a loan made to an equity investee and a mark-to-market income adjustment for equity investee stock warrants.

Gain on disposition of assets, net in 2005 includes 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	2005		2004		2003
Cost of sales ^(a)	$	5,534	$	4,509	$	3,897
Selling, general and administrative
and other operating expenses	$	1,415	$	1,008	$	852
Depreciation, depletion and
amortization	$	1,485	$	1,303	$	1,175
Exploration expense	$	337	$	219	$	139
Interest and debt expense, net	$	293	$	260	$	332

(a)	Excludes depreciation, depletion and amortization of $1,445 million in 2005, $1,263 million in 2004 and $1,137 million in 2003.

Cost of sales increased in 2005, compared to 2004, mainly due to higher oil and gas production costs and higher energy and feedstock costs.

Cost of sales increased in 2004, compared to 2003, due primarily to higher oil and gas production volumes and other operating costs, higher energy and feedstock costs and higher crude oil volumes.

Selling, general and administrative and other operating expenses increased in 2005, compared to 2004, due to the chemical plant write-offs and writedowns in 2005, higher costs in oil and gas, including higher production-related taxes, and increases in share-based compensation expense.

Selling, general and administrative and other operating expenses increased in 2004, compared to 2003, mainly due to higher general and administrative costs for corporate infrastructure and general support areas and higher oil and gas costs, including higher production-related taxes and other operating costs.

DD&A increased in 2005, compared to 2004, due to higher costs of new reserve additions resulting in a higher DD&A rate.

The increase in DD&A in 2004, compared to 2003, was due to the increase in oil and gas production from the prior year and a higher DD&A rate.

The increase in exploration expense in 2005, compared to 2004, was due mostly to higher dry hole write-offs and impairment costs and higher seismic and geological and geophysical costs.

The increase in exploration expense in 2004, compared to 2003, was due mostly to higher dry hole write-offs and impairment costs in California and the Other Eastern Hemisphere region.

Interest and debt expense in 2005, 2004 and 2003 included pre-tax debt purchase charges of $42 million, $17 million and $61 million, respectively. Excluding the effects of these debt repayment charges, interest expense increased in 2005, compared to 2004, due to higher interest rates which were partially offset by lower debt levels. Interest and debt expense decreased in 2004, compared to 2003, due primarily to lower average debt levels.


Other Items In millions	2005			2004			2003
Provision for income taxes	$	2,020		$	1,708		$	1,231
(Income) loss from equity investments	$	(232	)	$	(113	)	$	9
Gain on Lyondell stock issuance	$	—		$	(121	)	$	—

The increase in the provision for income taxes in 2005, compared to 2004, was primarily due to an increase in income before taxes, partially offset by a $335 million tax benefit due to the reversal of tax reserves no longer required as United States corporate returns for tax years 1998-2000 became closed due to the lapsing of statutes of limitations and a $619 million tax benefit related to the resolution of certain IRS tax issues.

The increase in the provision for income taxes in 2004, compared to 2003, was primarily due to an increase in income before taxes, partially offset by the use of a lower tax rate in 2004 resulting from the crediting of foreign income taxes. See the "Taxes" section above for further information.

The increase in income from equity investments in 2005, compared to 2004, was due to improved results from the Lyondell equity investment and higher income from a Russian oil and gas equity investee.

The increase in the income from equity investments in 2004, compared to results reported in 2003, was mostly attributable to improved results from Lyondell and higher income from a Russian oil and gas equity investee.

The gain on Lyondell stock issuance in 2004 represents Occidental's share of the increase in Lyondell's net equity resulting from Lyondell's issuance of stock to purchase Millennium.

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	2005		2004
CURRENT ASSETS
Cash and cash equivalents	$	2,189	$	1,199
Short-term investments		252		250
Trade receivables, net		2,571		1,882
Receivables from joint ventures, partnerships
and other		570		353
Inventories		735		545
Prepaid expenses and other	257		202
Total current assets	$	6,574	$	4,431
Long-term receivables, net	$	377	$	239
Investments in unconsolidated entities	$	1,209	$	1,727
Property, plant and equipment, net	$	17,534	$	14,633
CURRENT LIABILITIES
Current maturities of long-term debt and capital
lease liabilities	$	46	$	459
Accounts payable		2,069		1,557
Accrued liabilities		1,635		1,034
Dividends payable		147		110
Domestic and foreign income taxes	383		263
Total current liabilities	$	4,280	$	3,423
Long-term debt, net	$	2,873	$	3,345
Deferred credits and other liabilities-income taxes	$	962	$	1,248
Deferred credits and other liabilities-other	$	2,621	$	2,498
Stockholders’ equity	$	15,032	$	10,550

The following analysis discusses increases and decreases in balance sheet items by comparing the balance at December 31, 2005, to the balance at December 31, 2004, unless otherwise indicated.

Assets

See “Cash Flow Analysis” for discussion about the increase in cash and cash equivalents. The increase in trade receivables is due to higher product prices and oil and gas sales volumes during the fourth quarter 2005 versus 2004. The increase in receivables from joint ventures, partnerships and other was due to higher mark-to-market adjustments on derivative financial instruments and higher account balances related to the oil and gas marketing and trading operations. The higher balance in inventories is due to higher oil and gas marketing and trading inventory due to higher prices and volumes during the fourth quarter 2005 versus 2004. The higher inventory balance is also due to an increase in chemical inventories.

The increase in long-term receivables reflects higher mark-to-market adjustments on long-term derivative financial instruments. The decrease in investment in unconsolidated subsidiaries is due to the sale of all of the shares of Premcor common stock and a partial sale of the Lyondell stock during the year. The increase in property, plant and equipment reflects capital expenditures and acquisitions, partially offset by DD&A expense.

Liabilities and Stockholders' Equity

Debt to Capitalization ^(a)

(a)	This ratio is computed by dividing year-end Total Debt, as shown in the “MD&A-Strategy-Key Performance Indicators-Debt Structure,” by the sum of year-end Total Debt plus year-end Stockholders’ Equity.

The decrease in current maturities of long-term debt and capital lease liabilities reflects the 2005 payment of the 7.65-percent senior notes that were classified as current in 2004. The higher balance in accounts payable is due to higher prices and volumes for purchased oil and gas in Occidental’s marketing and trading operations. The increase in accrued liabilities is primarily due to higher mark-to-market adjustments on derivative financial instruments and higher accruals mainly related to the Vulcan acquisition.

The higher balance in domestic and foreign income taxes-current reflects additional taxes payable due to higher income. The lower balance for long-term debt is due to various debt redemptions and repurchases throughout the year. The decrease in deferred credits and other liabilities – income taxes reflects the reduction in deferred taxes resulting from derivative activity in other comprehensive income (OCI) related to the production hedges and the sale of all of the shares of Valero common stock. The higher balance in deferred credits and other liabilities – other is due to an increase in long-term derivative liabilities related to crude oil production hedges, accruals related to the Permian Basin and Vulcan acquisitions and additional stock-based compensation liabilities, partially offset by the reduction in liabilities related to the IRS settlement and the reversal of tax reserves no longer required due to the lapsing of the statute of limitations.

The increase in stockholders’ equity reflects higher net income, partially offset by dividends paid a