Occidental Petroleum Corporation

10-K 1 form10k-2006.htm FORM 10-K Occidental Petroleum Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006

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

Commission File Number 1-9210

Occidental Petroleum Corporation
(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ YES o NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (Note: Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections). o YES
þ NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ YES
o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act).
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 $42.6 billion, computed by reference to the closing price on the New York Stock Exchange composite tape of $51.28 per share of Common Stock on June 30, 2006. Shares of Common Stock held by each executive officer and director have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of potential affiliate status is not a conclusive determination for other purposes.

At January 31, 2007, there were approximately 838,100,111 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement, filed in connection with its May 4, 2007, Annual Meeting of Stockholders, are incorporated by reference into Part III.

TABLE OF CONTENTS

		Page
Part I
Items 1 and 2	Business and Properties	3
	General	3
	Oil and Gas Operations	3
	Chemical Operations	4
	Capital Expenditures	4
	Employees	4
	Environmental Regulation	5
	Available Information	5
Item 1A	Risk Factors	5
Item 1B	Unresolved Staff Comments	6
Item 3	Legal Proceedings	6
Item 4	Submission of Matters to a Vote of Security Holders	6
	Executive Officers	6
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities	7
Item 6	Selected Financial Data	9
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Incorporating Item 7A)	9
	Strategy	9
	Oil and Gas Segment	11
	Chemical Segment	16
	Corporate and Other	17
	Segment Results of Operations	17
	Significant Items Affecting Earnings	19
	Taxes	20
	Consolidated Results of Operations	20
	Consolidated Analysis of Financial Position	21
	Liquidity and Capital Resources	22
	Off-Balance-Sheet Arrangements	24
	Lawsuits, Claims, Commitments, Contingencies and Related Matters	25
	Environmental Liabilities and Expenditures	26
	Foreign Investments	27
	Critical Accounting Policies and Estimates	27
	Significant Accounting Changes	30
	Derivative Activities and Market Risk	31
	Safe Harbor Discussion Regarding Outlook and Other Forward-Looking Data	33
Item 8	Financial Statements and Supplementary Data	34
	Management's Annual Assessment of and Report on Internal Control Over Financial Reporting	34
	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	35
	Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	36
	Consolidated Statements of Income	37
	Consolidated Balance Sheets	38
	Consolidated Statements of Stockholders’ Equity	40
	Consolidated Statements of Comprehensive Income	40
	Consolidated Statements of Cash Flows	41
	Notes to Consolidated Financial Statements	42
	Quarterly Financial Data (Unaudited)	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, Executive Officers and Corporate Governance	89
Item 11	Executive Compensation	89
Item 12	Security Ownership of Certain Beneficial Owners and Management	89
Item 13	Certain Relationships and Related Transactions and Director Independence	89
Item 14	Principal Accountant Fees and Services	89
Part IV
Item 15	Exhibits and Financial Statement Schedules	90

Part I
ITEMS 1 AND 2 BUSINESS AND PROPERTIES

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

GENERAL

Occidental’s principal businesses consist of two industry segments operated by OPC's subsidiaries. The subsidiaries and other affiliates in the oil and gas segment explore for, develop, produce and market crude oil and natural gas. The subsidiaries and other affiliates in the chemical segment (OxyChem) manufacture and market basic chemicals, vinyls and performance chemicals. For financial information by segment and by geographic area, see Note 15 to the Consolidated Financial Statements of Occidental (Consolidated Financial Statements).

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

OIL AND GAS OPERATIONS
General

Occidental’s domestic oil and gas operations are principally located at the Permian Basin in west Texas and New Mexico, Elk Hills and other locations in California, the Hugoton field in Kansas and Oklahoma, the Gulf of Mexico and western Colorado. International operations are located in Argentina, Bolivia, Colombia, Libya, Oman, Pakistan, Qatar, Russia (sold in January 2007), 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 2006, 2005 and 2004. See the MD&A section of this report, Note 18 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 12, 2006, Occidental reported to the United States Department of Energy on Form EIA-28 proved oil and gas reserves at December 31, 2005. The amounts reported were the same as the amounts reported in Occidental’s 2005 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

	2006					2005					2004
RESERVES	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)	Oil	^(a)	Gas	BOE	^(b)
United States	1,678		2,442	2,085		1,636		2,338	2,026		1,494		2,101	1,844
International	556		1,368	784		350		1,140	540		395		874	541
Consolidated Subsidiaries ^(c)	2,234		3,810	2,869	^(d)	1,986		3,478	2,566	^(d)	1,889		2,975	2,385	^(d)
Other Interests ^(e)	30		—	30		45		—	45		43		—	43
PRODUCTION
United States	98		217	134		92		202	126		93		186	124
International	68		51	77		50		44	57		49		47	57
Consolidated Subsidiaries ^(c)	166		268	211		142		246	183		142		233	181
Other Interests ^(e)	7		8	8		7		6	8		9		—	9

(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)	Occidental has classified its Ecuador block 15 operations as discontinued operations on a retrospective application basis and excluded them from this table.
(d)	Stated on a net basis and after applicable royalties. Includes reserves related to production-sharing contracts (PSCs) and other economic arrangements. Proved reserves from PSCs in the Middle East/North Africa and from other economic arrangements in the United States were 486 million barrels of oil equivalent (MMBOE) and 119 MMBOE in 2006, 472 MMBOE and 104 MMBOE in 2005 and 450 MMBOE and 90 MMBOE in 2004, respectively.
(e)	Includes Occidental's share of reserves and production from equity investees in Russia (sold in January 2007) 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/North Africa and Latin America.

CHEMICAL OPERATIONS
General

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

Products and Properties

OxyChem owns and operates chemical manufacturing plants at 23 sites in the United States and 3 sites internationally. OxyChem permanently shut down its mercaptans facility in Baytown, Texas in the fourth quarter of 2006 and its polyvinyl chloride (PVC) facility in Alberta, Canada in the first quarter of 2006. OxyChem produces the following chemical products:

Principal Products	Major Uses	Annual Capacity ^(a)		Location
*Basic Chemicals*
Chlorine	Chlorovinyl chain and water treatment	–	3.7 million tons ^(b)	–	Alabama, Kansas, Louisiana, New York and Texas
Chlorine	Chlorovinyl chain and water treatment	–	0.3 million tons ^(c)	–	Brazil and Chile
Caustic Soda	Pulp, paper and aluminum production	–	3.9 million tons ^(b)	–	Kansas, Louisiana, New York, and Texas
Caustic Soda	Pulp, paper and aluminum production	–	0.4 million tons ^(c)	–	Brazil and Chile
Chlorinated organics	Silicones, paint stripping, pharmaceuticals and refrigerants	–	0.9 billion pounds	–	Louisiana and Kansas
Potassium chemicals	Glass, fertilizers, cleaning products and rubber	–	0.3 million tons	–	Alabama
Ethylene dichloride (EDC)	Raw material for vinyl chloride monomer (VCM)	–	2.1 billion pounds	–	Louisiana
Ethylene dichloride (EDC)	Raw material for vinyl chloride monomer (VCM)	–	0.3 billion pounds ^(c)	–	Brazil
*Vinyls*
VCM	Precursor for PVC	–	6.2 billion pounds ^(b)	–	Texas
PVC	Piping, insulation, flooring, medical and automotive products and packaging	–	3.7 billion pounds ^(b)	–	Kentucky, New Jersey and Texas
PVC		–	0.6 billion pounds	–	Canada
*Performance Chemicals*
Chlorinated isocyanurates	Swimming pool sanitation and disinfecting products	–	131 million pounds	–	Illinois and Louisiana
Resorcinol	Tire manufacture, wood adhesives and flame retardant synergist	–	50 million pounds	–	Pennsylvania
Sodium silicates	Soaps, detergents and paint pigments	–	0.7 million tons	–	Georgia, Ohio, Illinois, New Jersey, Texas and Alabama

(a)	Estimated at December 31, 2006.
(b)	Includes gross capacity of the OxyVinyls partnership, owned 76 percent by Occidental.
(c)	Includes gross capacity of a joint venture in Brazil, owned 50 percent by Occidental.

CAPITAL EXPENDITURES

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

EMPLOYEES

Occidental employed 8,886 people at December 31, 2006, 6,711 of whom were located in the United States. Occidental employed 4,429 people in oil and gas operations and 3,160 people in chemical operations. An additional 1,297 people were employed in administrative and headquarters functions. Approximately 900 United States-based employees and 250 foreign-based employees are represented by labor unions.

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

ENVIRONMENTAL REGULATION

For environmental regulation information, including associated costs, see the information under the heading "Environmental Liabilities and Expenditures" in the MD&A section of this report.

AVAILABLE INFORMATION

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

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

ITEM 1A RISK FACTORS

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

Occidental’s financial results typically correlate closely to the volatile prices it obtains for its commodities. Drilling and exploration activity levels, inventory levels, production disruptions, the actions of OPEC (influencing prices or limiting Occidental's production), competing fuel prices, price speculation, changes in consumption patterns, weather and geophysical and technical limitations affect the supply of oil and gas and contribute to price volatility.

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

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

Occidental’s future oil and gas production and its results of operations depend, in part, on its ability to profitably acquire, develop or find additional reserves. Over the past several years Occidental increasingly has replaced reserves through acquisitions. Occidental has many competitors, some of which are larger and better funded, may be willing to accept greater risks or have special competencies. Industry competition for reserves may influence Occidental to:

Ø	shift toward higher risk exploration activity;
Ø	pay more for reinvestment opportunities;
Ø	purchase lesser quality properties; or
Ø	delay expected reserve replacement efforts.

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

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

Occidental’s domestic and foreign oil and gas business is subject to the decisions of many governments and political interests. As a result, Occidental faces risks of:

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

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

Occidental’s businesses may experience uninsured catastrophic events.

The occurrence of natural disasters, such as earthquakes, hurricanes and floods, in locations where Occidental operates and events such as well blowouts, oilfield fires, and industrial accidents may affect Occidental’s businesses. Third-party insurance may not provide adequate coverage or Occidental may be self-insured with respect to the related losses.

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

Calculations of reserves depend on estimates concerning reservoir characteristics and recoverability, as well as oil and gas prices, capital costs and operating costs. If Occidental were required to make unanticipated significant negative reserve revisions, its prospects and stock price may be adversely affected.

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

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

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

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

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

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 3 LEGAL PROCEEDINGS

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

An OPC subsidiary is engaged in discussions with the Texas Commission on Environmental Quality (TCEQ) to voluntarily resolve alleged environmental law violations. The alleged violations include exceeding emissions limitations, and failing to meet operating, reporting and recordkeeping requirements relating to a natural gas processing plant in west Texas acquired by the subsidiary in 2005. The TCEQ seeks an administrative penalty of approximately $200,000 although the subsidiary expects to resolve the allegations for less.

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 2006.

EXECUTIVE OFFICERS

The current term of employment of each executive officer of Occidental will expire at the May 4, 2007 organizational meeting of the Board of Directors or when a successor is selected. The following table sets forth the executive officers and significant employees of Occidental:

Name	Age at February 27, 2007	Positions with Occidental and Subsidiaries and Five-Year Employment History
Dr. Ray R. Irani	72	Chairman and Chief Executive Officer since 1990; President since 2005; Director since 1984; Member of Executive Committee and Dividend Committee.
Stephen I. Chazen	60	Senior Executive Vice President since 2004; Chief Financial Officer since 1999; 1994-2004, Executive Vice President — Corporate Development.
Donald P. de Brier	66	Executive Vice President, General Counsel and Secretary since 1993.
Richard W. Hallock	62	Executive Vice President — Human Resources since 1994.
James M. Lienert	54	Executive Vice President — Finance and Planning since 2006; 2004-2006, Vice President; Occidental Chemical Corporation: 2004-2006, President; 2000-2002, Senior Vice President — Basic Chemicals; OxyVinyls: 2002-2004, Senior Vice President.
John W. Morgan	53	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	53	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	65	Vice President and Treasurer since 1998.
Jim A. Leonard	57	Vice President and Controller since 2005; 2000-2005, Senior Assistant Controller; OOGC: 2000-2005, Senior Vice President — Finance.
B. Chuck Anderson	47	Occidental Chemical Corporation: President since 2006; 2004-2006, Executive Vice President — Chlorovinyls; 2002-2004, Senior Vice President — Basic Chemicals; 2000-2002, President — OxyVinyls.

Part II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

TRADING PRICE RANGE AND DIVIDENDS

This section incorporates by reference the quarterly financial data appearing under the caption "Quarterly Financial Data (Unaudited)" after the Notes to the Consolidated Financial Statements and the information appearing under the caption "Liquidity and Capital Resources" in the MD&A section of this report. Occidental’s common stock was held by 41,949 stockholders of record at December 31, 2006, with an estimated 306,994 additional stockholders whose shares were held for them in street name or nominee accounts. The common stock is listed and traded principally on the New York Stock Exchange. The quarterly financial data, which are included in this report after the Notes to the Consolidated Financial Statements, set forth the range of trading prices for the common stock as reported on the composite tape of the New York Stock Exchange and quarterly dividend information.

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

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

In 2006, the quarterly dividends declared for the common stock were $0.18 per share for the first two quarters of 2006 and $0.22 for the last two quarters of 2006 ($0.80 for the year). On February 15, 2007, a quarterly dividend of $0.22 per share ($0.88 on an annualized basis) was declared on the common stock, payable on April 15, 2007 to stockholders of record on March 9, 2007. 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, 2006, 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))
12,852,466			$32.45			31,327,693 *

* Includes, with respect to:
(a)	the 1995 Incentive Stock Plan, 571,438 shares reserved for issuance pursuant to deferred stock unit awards;
(b)	the 2001 Incentive Compensation Plan, 2,406,382 shares at maximum payout level (1,203,191 at target level) reserved for issuance pursuant to outstanding performance stock awards, 758,410 shares reserved for issuance pursuant to restricted stock unit awards, 2,226,172 shares reserved for issuance pursuant to deferred stock unit awards and 1,842 shares reserved for issuance as dividend equivalents on deferred stock unit awards; and
(c)	the 2005 Long-Term Incentive Plan, 396,640 shares at maximum payout level (198,320 at target level) reserved for issuance pursuant to outstanding performance stock awards, 2,392,114 shares reserved for issuance pursuant to restricted stock unit awards, 1,516,000 shares at maximum payout level (758,000 at target level) reserved for issuance pursuant to outstanding performance-based restricted share units and 367,736 shares reserved for issuance pursuant to deferred stock unit awards.
Of the 21,894,150 shares that are not reserved for issuance under the 2005 Long-Term Incentive Plan, approximately 14.5 million shares are available after giving effect to the provision of the plan that each award, other than options and stock appreciation rights, must be counted against the number of shares available for issuance as three shares for every one share covered by award. Subject to the share count requirement, not more than the approximate 14.5 million shares may be issued or reserved for issuance for options, rights and warrants as well as performance stock awards, restricted stock awards, performance restricted stock awards, stock bonuses and dividend equivalents.

SHARE REPURCHASE ACTIVITIES

Occidental’s share repurchase activities for the year ended December 31, 2006, 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 ^(b)

Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs

First Quarter 2006

4,823,880

^(a)

$ 45.89

4,410,800

Second Quarter 2006

15,252,546

^(a)

$ 49.05

15,080,600

Third Quarter 2006

6,629,901

^(a)

$ 47.98

6,118,800

October 1 - 31, 2006

1,421,400

$ 45.64

1,421,400

November 1 - 30, 2006

444,900

$ 47.67

444,900

December 1 - 31, 2006

1,994,301

^(a)

$ 49.85

1,847,300

Fourth Quarter 2006

3,860,601

$ 48.05

3,713,600

Total 2006

30,566,928

$ 48.20

29,323,800

10,676,200

^(b,c)

(a)	Amount includes shares purchased from the trustee of Occidental's defined contribution savings plan totaling 413,080 shares in the first quarter, 171,946 shares in the second quarter, 511,101 shares in the third quarter and 147,001 shares in December.
(b)	In 2005, Occidental announced a common stock repurchase program. Occidental is authorized to repurchase 40 million shares of its common stock under the program.
(c)	In February 2007, Occidental increased the number of shares authorized for its previously announced share repurchase program from 40 million to 55 million.

PERFORMANCE GRAPH

The following graph compares the yearly percentage change in Occidental’s cumulative total return on its common stock with the cumulative total return of the Standard & Poor's 500 Stock Index and with that of Occidental’s peer group over the five-year period ended on December 31, 2006. The graph assumes that $100 was invested in Occidental common stock, in the stock of the companies in the Standard & Poor's 500 Index and in a portfolio of the peer group companies weighted by their relative market values each year and that all dividends were reinvested. The peer group used in the analysis consists of Anadarko Petroleum Corporation, Apache Corporation, Chevron Corporation, ConocoPhillips, Devon Energy Corporation, ExxonMobil Corporation, Hess Corporation and Occidental. The peer group changed from the prior year since certain companies which were included in the peer group have been acquired.

		12/31/2001	12/31/2002	12/31/2003	12/31/2004	12/31/2005	12/31/2006
	Occidental	$100	$111	$170	$240	$334	$415
	Peer Group	100	88	111	144	172	225
	S&P 500	100	78	100	111	117	135
The information provided in this Performance Graph shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act), other than as provided in Item 201 to Regulation S-K under the Exchange Act, or subject to the liabilities of Section 18 of the Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent Occidental specifically requests that it be treated as soliciting material or specifically incorporates it by reference.

ITEM 6 SELECTED FINANCIAL DATA

Five-Year Summary of Selected Financial Data
Dollar amounts in millions, except per-share amounts

For the years ended December 31,	2006			2005			2004			2003			2002
RESULTS OF OPERATIONS ^(a)
Net sales	$	17,661		$	14,597		$	10,879		$	9,020		$	7,149
Income from continuing operations	$	4,435		$	5,040		$	2,406		$	1,559		$	1,167
Net income	$	4,182		$	5,281		$	2,568		$	1,527		$	989
Basic earnings per common share from continuing operations	$	5.20		$	6.25		$	3.04		$	2.03		$	1.55
Basic earnings per common share	$	4.90		$	6.55		$	3.24		$	1.99		$	1.31
Diluted earnings per common share	$	4.86		$	6.45		$	3.20		$	1.97		$	1.30
Core earnings ^(b)	$	4,349		$	3,732		$	2,299		$	1,599		$	1,003
FINANCIAL POSITION ^(a)
Total assets	$	32,355		$	26,108		$	21,391		$	18,168		$	16,548
Long-term debt, net and trust preferred securities ^(c)	$	2,619		$	2,873		$	3,345		$	4,446		$	4,452
Stockholders’ equity	$	19,184		$	15,032		$	10,550		$	7,929		$	6,318
MARKET CAPITALIZATION	$	42,515		$	32,129		$	23,153		$	16,349		$	10,750
CASH FLOW
Cash provided by operating activities	$	6,353		$	5,337		$	3,878		$	3,074		$	2,100
Capital expenditures	$	(3,005	)	$	(2,324	)	$	(1,720	)	$	(1,523	)	$	(1,145	)
Cash used by all other investing activities, net	$	(1,378	)	$	(837	)	$	(708	)	$	(608	)	$	(551	)
DIVIDENDS PER COMMON SHARE	$	0.80		$	0.645		$	0.55		$	0.52		$	0.50
BASIC SHARES OUTSTANDING (thousands)		852,550			806,600			791,159			767,887			752,380

(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 and reconciliation to net income, 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’s business is divided into two segments conducted through oil and gas subsidiaries and their affiliates and chemical subsidiaries and their affiliates (OxyChem).

STRATEGY
General

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

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

Occidental prefers to own large, long-lived "legacy" oil and gas assets, like those in California and the Permian Basin, that tend to have moderate decline rates, enhanced secondary and tertiary recovery opportunities and economies of scale that lead to cost-effective production. Management expects such assets to contribute substantially to earnings and cash flow after invested capital.

At Occidental, maintaining financial discipline means investing capital in projects that management expects will generate above-cost-of-capital returns throughout the business cycle. During periods of high commodity prices, Occidental expects to use most of its cash flow after capital expenditures and dividends to improve the potential for 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.

Oil and Gas

Segment Income
($ millions)

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

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

Over the past several years, Occidental has strengthened its asset base within each of the core areas. Occidental has invested in, and disposed of, assets with the goal of raising the average performance and potential of its assets. See "Oil and Gas Segment — Business Review" for a discussion of these changes.

In addition, Occidental has continued to make capital contributions and investments in the Dolphin Project in Qatar and the UAE and in Libya, and assumed operations in the Mukhaizna field in Oman for future growth opportunities, not for current production.

In 2006, Occidental acquired Vintage Petroleum, Inc. (Vintage) which it expects to provide growth in production, primarily from the Vintage Argentina assets.

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 and the integration of the Vintage and Plains Exploration and Production Company (Plains) operations acquired in 2006.

At the end of 2006, the Elk Hills and Permian assets made up 64 percent of Occidental’s consolidated proven oil reserves and 43 percent of its consolidated proven gas reserves. On a barrels of oil equivalent (BOE) basis, they accounted for 59 percent of Occidental’s consolidated reserves. In 2006, the combined production from these assets averaged approximately 290,000 BOE per day.

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 beginning with chlorine, which is coproduced with caustic soda, and then chlorine and ethylene are converted, through a series of intermediate products, into polyvinyl chloride (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
12/31/02	$	4,759		43%
12/31/03	$	4,570		37%
12/31/04	$	3,905		27%
12/31/05	$	3,019		17%
12/31/06	$	2,890		13%

(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 2006 total debt-to-capitalization ratio declined to 13 percent from the 43-percent level that existed at the end of 2002. The decrease in the total debt-to-capitalization ratio in 2006 compared with 2002 resulted from total debt reductions of 39 percent combined with an increase in stockholders' equity of 204 percent over the same period.

Since the second quarter of 2005, Occidental’s long-term senior unsecured debt has been rated A- by Standard and Poor’s Corporation, A3 by Moody’s Investors Service, A- by Fitch Ratings and A(Low) by Dominion Bond Rating Service. A security rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating.

Return on Equity

Annual 2006 ^(a)		Three-Year Average 2004 - 2006 ^(b)
24%		30%

(a)	The Return on Equity for 2006 was calculated by dividing Occidental's 2006 earnings applicable to common stock by the average equity balance in 2006.
(b)	The three-year average Return on Equity was calculated by dividing the average earnings applicable to common stock over the three-year period 2004-2006 by the average equity balance over the same period.

Occidental has focused on achieving top quartile return on equity. In 2006, Occidental's return on equity was 24 percent and the three-year average return on equity was 30 percent. During the same three-year period, Occidental increased its stockholders’ equity by 142 percent and its quarterly dividend by 60 percent while its stock price increased by 131 percent.

OIL AND GAS SEGMENT
Business Environment

Oil and gas prices are the major variables that drive the industry’s short and intermediate term financial performance. Average yearly oil prices strengthened in 2006 over 2005 levels but ended the year even with 2005 year-end 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. Occidental’s realized price as a percentage of WTI was approximately 85 percent and 87 percent for 2006 and 2005, respectively. Prices and differentials can vary significantly, even on a short-term basis, making it difficult to forecast realized prices. The average WTI market price for 2006 was $66.23 per barrel compared with $56.56 per barrel in 2005. Occidental's average realized price for oil in 2006 was $56.57, compared with $49.18 in 2005.

The average NYMEX domestic natural gas prices decreased approximately 4 percent from 2005. For 2006, NYMEX gas prices averaged $7.82/Mcf compared with $8.11/Mcf for 2005.

Business Review

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

Worldwide Production
(thousands BOE/day)

Acquisitions

In January 2006, Occidental completed the merger of Vintage into a wholly-owned Occidental subsidiary. As a result, Occidental acquired assets in Argentina, California, Yemen, Bolivia and the Permian Basin in Texas. See the applicable sections below for further information. Occidental paid $1.3 billion in cash to former Vintage shareholders, issued approximately 56 million shares of Occidental common stock, which were valued at $2.1 billion, and assumed Vintage’s debt, which had an estimated fair value of $585 million at closing. During 2006, Occidental divested a portion of Vintage’s assets for consideration of approximately $1.0 billion.

In September 2006, Occidental acquired oil and gas assets from Plains for $859 million. The principal properties acquired are adjacent to Occidental’s existing operations in California and the Permian Basin in west Texas.

Occidental’s production from the Vintage acquisition averaged 53,000 BOE per day in 2006. During the fourth quarter of 2006, production from the Plains assets averaged 6,000 BOE per 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. In 2006, Occidental made additional acquisitions of oil and gas producing properties near the field for approximately $434 million. Most of these properties were obtained as part of the acquisition from Plains discussed above. Oil and gas production in 2006 from these properties and the field was approximately 91,000 BOE per day. During 2006, Occidental performed infill drilling, field extensions and recompletions identified by advanced reservoir characterization techniques resulting in 277 new wells being drilled and 479 wells being worked over. In addition, an air separation unit was installed to enhance

oil recovery with nitrogen injection. As a result of these activities and acquisitions, Occidental was able to maintain production at 2005 levels. Since its acquisition, total Elk Hills oil and gas production has been approximately 301 million BOE. At the end of 2006, the property had an estimated 484 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 the total United States oil production. Occidental is the largest producer in the Permian Basin with an approximate 16-percent net share of the total Permian Basin oil production. Occidental also produces and processes natural gas and natural gas liquids (NGL) in the Permian Basin.

Most of Occidental's Permian Basin interests were obtained through the acquisition of Altura in 2000 for approximately $3.6 billion. In 2005 and 2006, Occidental made several additional acquisitions of oil and gas producing property interests for approximately $1.7 billion and $290 million (including approximately $175 million related to the acquisition of Vintage and the property acquisitions from Plains), respectively.

Occidental's total share of Permian Basin oil, gas and NGL production averaged 199,000 BOE per day in 2006 compared to 189,000 BOE per day in 2005. At the end of 2006, 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 2006 included Wasson San Andres, Slaughter, Levelland, North Cowden, Wasson Clearfork and Salt Creek, which contributed 20 percent, 9 percent, 5 percent, 4 percent, 4 percent and 4 percent, respectively, to Occidental’s 2006 Permian BOE production.

Occidental’s interests in the Permian Basin offer additional development and exploitation potential. During 2006, Occidental drilled approximately 260 wells on its operated properties and participated in wells drilled on outside operated interests. Occidental conducted significant development activity on eight carbon dioxide (CO2) projects during 2006, including implementation of new floods and expansion of existing CO2 floods. Occidental also focused on improving the performance of existing wells. Occidental had an average of 122 well service units working in the Permian area during 2006 performing well maintenance and workovers.

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

Vintage California

In 2006, Occidental combined its California properties acquired from Vintage and Plains with existing California properties (excluding the Elk Hills, THUMS and Tidelands Oil Production Company (Tidelands) properties). The combined properties produce oil and gas from more than 50 fields, spread over 500 miles mainly in the Ventura, San Joaquin and Sacramento basins. Oil and gas average production in 2006 was approximately 17,000 BOE per day. At the end of 2006, the combined properties had an estimated 128 million BOE of proved reserves.

THUMS

Occidental purchased THUMS, the field contractor for an oil production unit offshore Long Beach, California, in 2000. Since then, Occidental has implemented a successful development plan. Occidental's share of production from THUMS is subject to contractual arrangements similar to a production sharing contract (PSC), whereby Occidental’s share of production varies inversely with oil prices. For 2006, production from THUMS averaged 19,000 BOE per day.

Gulf of Mexico

Occidental has a one-third interest in the deep-water Horn Mountain oil field, which is Occidental's only property in the Gulf of Mexico. BP p.l.c. (BP) is the operator. For 2006, Occidental's production at Horn Mountain averaged 13,000 BOE per day.

Hugoton and Other

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

Also, Occidental has over 28,000 net acres in the Piceance Basin in western Colorado. During 2006, Occidental drilled 43 development wells and started operation of a newly constructed gas processing facility.

Occidental acquired Tidelands in 2006. Tidelands is the field contractor for an onshore oil production unit in Long Beach, California. Occidental’s share of production from Tidelands is subject to contractual arrangements similar to a PSC, whereby Occidental’s share of production varies inversely with oil prices. Tidelands also is subject to cost-plus contracts.

Occidental’s Hugoton and other operations produced 26,000 BOE per day.

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 (PP&E). 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 participants, 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 $4.8 billion in total, including investments in the local UAE eastern gas distribution system and the Al Ain-Fujairah pipelines, which were added to improve the natural gas distribution system but were not contained in the original scope of the Dolphin Project. Occidental expects to invest approximately $1.2 billion of this total. The project is being financed by a combination of participant investment and project financing. During 2007, Occidental expects to spend a combined total of approximately $185 million for the gas exploration and development activity and the investment in Dolphin Energy, compared to $361 million in 2006.

In 2003, the Government of Qatar approved the final field development plan for the Dolphin Project. Construction of an onshore gas processing and compression plant at Ras Laffan in Qatar commenced in 2004 and is continuing. The pipeline is projected to start up with temporary third-party gas volumes in the first quarter of 2007. The gas volumes produced under the Dolphin DPSA are expected to replace the temporary third-party gas commencing with the start-up of the onshore gas plant in mid-2007.

Based on existing supply contracts, the Dolphin Project is expected to export approximately 2.0 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 continue to pursue an agreement to secure an additional supply of gas from Qatar.

To date, Occidental has recorded 265 million BOE of proved oil and gas reserves for the Dolphin Project DPSA activity. Proved developed, non-producing oil and gas reserves are 133 million BOE, with the rest included in proved undeveloped reserves. No revenue or production costs were recorded in 2006 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 continues to target the development and recovery of additional reserves in both the ISND and ISSD fields by applying advanced drilling systems and improved reservoir management techniques. Capital expenditures in Qatar for the ISSD and ISND projects were $257 million in 2006.

Occidental’s net share of combined production from the two fields averaged 43,000 barrels per day in 2006.

Yemen

Occidental owns interests in four blocks in Yemen, including a 38-percent direct-working interest in the Masila fields, a 40.4-percent interest in the East Shabwa field, comprising a 28.6-percent direct-working interest and an 11.8-percent equity interest in an unconsolidated entity, and a 75-percent interest in Block S-1, which was part of the Vintage acquisition. Average production was 30,000 barrels of oil per day in 2006, with 19,000 coming from Masila, 6,500 from East Shabwa and the remainder from Block S-1. In addition, Occidental owns and operates an 80-percent working interest in Block 20 and is finalizing the PSC for Block 75, which was acquired in an exploration bid round.

Oman

Occidental's Oman business includes Block 9 and Block 27, where it holds a 65-percent working interest in each, Block 53, where it holds a 45-percent working interest and Block 54, where it holds a 70-percent working interest. Occidental is the operator of all four blocks where production averaged 23,000 BOE per day in 2006, with 19,000 BOE coming from Block 9, 3,000 BOE from Block 53 and the remainder from Block 27. 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.

Occidental (and its Block 53 partners) signed a new PSC for the Mukhaizna field with the Government of Oman in 2005. In September 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. By the end of 2006, Occidental had increased gross production to 11,000 barrels of oil per day. Occidental plans to use horizontal well steamflood technology to steadily increase production.

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 began production in June 2006, well ahead of the planned start-up timing of October 2006.

Occidental (and its Block 54 partners) signed a new PSC for Block 54 with the Government of Oman in June 2006. The initial exploration phase is four years beginning in July 2006.

In March 2004, Occidental began selling gas from Block 9 to the Government of Oman under a gas sales agreement. Under the agreement, Occidental (and its Block 9 partner) must supply approximately 114 MMcf per day of natural gas until December 31, 2007. Occidental’s minimum delivery obligation is approximately 89 percent of the expected average gross production. In 2006, Occidental (and its partner) supplied an average of approximately 116 MMcf per day of natural gas under the agreement. As of December 31, 2006, the gross proved gas reserves from Block 9 comprise approximately 590 percent of the minimum gas still to be delivered under the agreement.

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.

In 2006, the United States effectively eliminated the last of the economic sanctions.

In 2005, the Libyan authorities approved the terms of Occidental’s participation in the assets that it left in 1986. This re-entry agreement allowed 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 these 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 September 2005 and production during 2006 averaged 23,000 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 each area. 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 perform a minimum exploration work program valued at $125 million over the commitment period.

In 2006, approximately 10,000 kilometers of seismic data was acquired for the onshore areas which will provide the basis for analysis and selection of the initial exploration prospects to be drilled by Occidental. Onshore seismic acquisition and analysis activity is planned to continue into 2007. In the offshore areas, the operator acquired approximately 9,400 kilometers of seismic data in preparation for the planned 2007 drilling program.

In November 2006, Occidental commenced drilling of the first exploration well in the onshore program, which is undergoing evaluation. A second rig is expected to begin drilling in the first quarter of 2007 and a substantial portion of the exploration drilling obligations is expected to be completed during the next 18-month period.

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 17,000 BOE per day in 2006.

Russia

In January 2007, Occidental sold its 50-percent interest in the Vanyoganneft joint venture to TNK-BP for approximately $485 million. At year-end, Occidental's proved Vanyoganneft reserves were an estimated 33 million BOE and its production was approximately 27,000 BOE per day in 2006. Occidental recorded a gain of approximately $400 million resulting from the sale in the first quarter of 2007.

Latin America
Argentina

Substantially all of Occidental’s Argentina assets were obtained as part of the acquisition of Vintage in 2006. The assets consist of 22 concessions, 19 of which Occidental operates with a 100-percent working interest, located in the San Jorge Basin in Southern Argentina and the Cuyo Basin and Neuquén Basin in Western Argentina.

During 2006, Occidental drilled 135 new wells and performed a number of recompletions and well repairs. Occidental expects to significantly increase production over the next five years through aggressive drilling, waterflooding and EOR projects. Occidental is planning to drill 190 wells and implement a number of waterflood projects in 2007.

Occidental’s share of production from Argentina averaged 36,000 BOE per day in 2006.

Bolivia

In 2006, Occidental’s operating subsidiary acquired working interests in four Blocks located in the Tarija, Chuquisaca and Santa Cruz regions of Bolivia as part of the Vintage acquisition. Production for 2006 was approximately 3,000 BOE per day. In 2006, Bolivia initiated a nationalization process pursuant to which Occidental's operating subsidiary entered into two new operations contracts with commercial terms that, among other things, provide Bolivia greater operational control and control over the commercialization of hydrocarbons.

Colombia

Occidental is the operator of the Caño Limón field where its share of production averaged 28,000 barrels of oil per day in 2006. 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 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, commenced in May 2006. Production from the field and two adjacent fields was 4,000 BOE per day in 2006.

In 2005, Occidental signed a new agreement with Ecopetrol for an EOR project in the La Cira-Infantas field, located in central Colombia. In December 2006, Occidental completed the second pilot phase and agreed with Ecopetrol to enter into a third and commercial phase of the project. In 2006, Occidental’s share of production was 1,000 BOE per day. Production from La Cira-Infantas is transported by the Ecopetrol pipeline and sold to an Ecopetrol refinery.

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

Ecuador

In May 2006, Ecuador terminated Occidental's contract for the operation of Block 15, which comprised all of its oil-producing operations in the country, and seized Occidental's Block 15 assets. The process resulting in this action began shortly after Occidental prevailed, by unanimous decision of an international arbitration panel subsequently upheld by a London court, in a legal dispute over tax refunds that Ecuador wrongfully withheld. Occidental immediately filed an arbitration claim against Ecuador, seeking redress for illegal confiscation of the Block 15 operations with the International Centre for Settlement of Investment Disputes in Washington, D.C., invoking the protections of the U.S. - Ecuador Bilateral Investment Treaty. As a result of the seizure, Occidental classified its Block 15 operations as discontinued operations. In 2006, Occidental recorded a net after-tax charge of $296 million in discontinued operations. This amount consists of after-tax charges for the write-off of the investment in Block 15 in Ecuador, as well as ship-or-pay obligations entered into with respect to the Oleoducto de Crudos Pesados, Ltd. (OCP) pipeline in Ecuador to ship oil produced in Block 15, partially offset by $109 million after-tax income from operations for the first five months of 2006. Occidental’s Block 15 assets and liabilities are classified as assets and liabilities of discontinued operations on the consolidated balance sheets on a retrospective basis.

In addition, Occidental has a 14-percent interest in the OCP oil export pipeline. 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 and Tidelands are 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 has retained Ryder Scott Company, L.P. (Ryder Scott), independent petroleum engineering consultants, to review its annual oil and gas reserve estimation processes since 2004.

Again in 2006, Ryder Scott has compared Occidental’s methods and procedures for estimating oil and gas reserves to generally accepted industry standards and has reviewed certain data, methods and procedures used in estimating reserves volumes, the economic evaluations and reserves classifications. Ryder Scott reviewed the specific application of such methods and procedures for a selection of oil and gas fields considered to be a valid representation of Occidental’s total reserves portfolio. In 2006, Ryder Scott reviewed 10.5 percent of Occidental’s oil and gas reserves. Since being engaged in 2004, Ryder Scott has reviewed Occidental’s reserve estimation methods and procedures for approximately 49 percent of Occidental’s oil and gas reserves.

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

Proved Reserve Additions

Occidental consolidated subsidiaries had proved reserves at year-end 2006 of 2,869 million BOE, as compared with the year-end 2005 amount of 2,566 million BOE. Additionally, Occidental’s investments in other interests had proved reserves of 30 million and 45 million BOE at year-end 2006 and 2005, respectively. The increase in the consolidated subsidiaries’ reserves from all sources was 518 million BOE, of which 289 million BOE were from proved developed reserves and 229 million BOE were from proved undeveloped reserves.

Proved developed reserves represent approximately 78 percent of Occidental’s total proved reserves at year-end 2006 compared to 74 percent at year-end 2005.

Proved Reserve Additions - Consolidated Subsidiaries - 2006

In Millions of BOE	Proved Developed		Proved Undeveloped	Proved Total
Revisions of previous estimates	(5	)	22	17
Improved Recovery	40		101	141
Extensions and Discoveries	22		12	34
Purchases	232		94	326
Total Additions	289		229	518

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

Revisions of Previous Estimates

In 2006, Occidental added net reserves of 17 million BOE through revisions of previous estimates, primarily in Libya, the Dolphin Project and Argentina, partially offset by negative revisions in the United States reflecting a reduction in gas prices. Oil price changes would affect proved reserves recorded by Occidental. For example, if oil prices increased by $5 per barrel, less oil volume is required to recover costs, and PSCs would reduce Occidental's share of proved reserves by approximately 9 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 2006, Occidental added reserves of 141 million BOE through improved recovery. In the United States, improved recovery additions were 43 million BOE in the Permian Basin and 28 million BOE in the Elk Hills field. Foreign additions included 23 million BOE in Argentina and 11 million BOE in Colombia. The Elk Hills operations employ infill drilling and both gas flood and water flood techniques. In the Permian Basin, the increased reserves were primarily attributable to enhanced recovery techniques, such as drilling additional CO2 flood and water flood wells.

Extensions and Discoveries

Occidental obtains reserve additions from extensions and discoveries, which are dependent on successful exploitation programs. In 2006, as a result of such programs, Occidental added reserves of 34 million BOE, consisting of 13 million BOE in the United States, 14 million BOE in the Middle East/North Africa and 7 million BOE in Argentina. In western Colorado, Occidental added approximately 4 million BOE from the extension of gas reserves, 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 2006, Occidental purchased reserves of 326 million BOE, of which 143 million BOE were in the United States and 178 million BOE were in Latin America. The Vintage acquisition added proved reserves of 160 million BOE in Argentina and 8 million BOE in Bolivia with the remainder in the United States and Yemen, of which 66 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

Occidental had proved undeveloped reserve additions of 207 million BOE resulting from improved recovery, extensions and discoveries and purchases, primarily in Argentina, the Permian Basin and the Elk Hills field. Argentina provided 46 percent of this increase. These proved undeveloped reserve additions were offset by reserve transfers of 275 million BOE to the proved developed category as a result of 2006 development programs. The Dolphin Project transferred 133 million BOE to the proved developed category during 2006. This transfer, along with other revisions, reduced the Dolphin Project's proved undeveloped reserves to 132 million BOE at December 31, 2006 from 250 million BOE at December 31, 2005. Overall, Occidental's proved undeveloped reserves decreased by 47 million BOE in 2006.

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 2006 remained at or near historical highs during the first three quarters of the year, but fell in the fourth quarter. Continued economic growth, resulting in increased demand, and concerns about supply availability, could result in continued high prices. A lower demand growth rate could result in lower crude oil prices.

Oil prices have significantly affected profitability and returns for Occidental and other upstream producers. Oil prices cannot be predicted with any certainty. The WTI price has averaged approximately $33 per barrel over the past ten years. However, the industry has historically experienced wide fluctuations in prices. During 2006, 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 approximately $4.60 per Mcf.

CHEMICAL SEGMENT
Business Environment

The chemical segment results improved in 2006 due to better margins despite higher feedstock costs. OxyChem also benefited from the mid-year 2005 acquisition of two basic chemical manufacturing facilities from Vulcan Materials Company (Vulcan) and realized substantial synergies and higher sales volumes.

Business Review
Basic Chemicals

During 2006, demand and pricing for basic chemical products generally remained strong while energy costs fell, which enabled OxyChem to realize above average margins. OxyChem’s chlor-alkali operating rate for 2006 was 91 percent, just slightly above the industry average operating rate of 90 percent. Industry demand for liquid caustic soda in 2006 was virtually flat compared to the prior year. Demand increased in the refining industry but was offset by reduced demand primarily in the organics and inorganics chemical market segments. Industry pricing for caustic soda started the year strong, but subsequently softened throughout the first three quarters of 2006. Caustic soda supply tightened in the fourth quarter due to lower chlorine demand resulting from a weakening vinyls sector and lower imports of caustic soda. This led to caustic soda price stabilization in the fourth quarter.

Vinyls

The PVC industry realized record level pricing and margins for 2006. Ethylene cost increases of 9 percent were partially offset by lower natural gas prices. Total PVC industry-wide demand in 2006 was 3 percent lower as compared with 2005. OxyChem operated its PVC facilities at an average operating rate of 82 percent for 2006, compared to the North American industry average of 87 percent.

Industry Outlook

In 2006, Occidental's chemical business core earnings increased by 16 percent compared to 2005, primarily due to the continued strong United States economy, higher sales volumes, largely due to the full year impact of the Vulcan operating assets, and improving margins.

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

Basic Chemicals

Forecasts of a slowing economy offset by a stabilizing residential construction market in 2007 are expected to result in demand levels similar to average 2006 levels. Despite first quarter pressure on pricing from a weak vinyls market, margins in 2007 are expected to remain strong, but could weaken in the fourth quarter due to the anticipated impact of capacity additions in late 2007.

Vinyls

Industry-wide PVC operating rates are expected to be lower in 2007 as a result of weak demand in the first quarter coupled with the start-up of new capacity later in the year.

Lower cost Far East Asian PVC production has resulted in a significant increase in imports of PVC and finished goods into the Western Hemisphere.

CORPORATE AND OTHER

Corporate and Other includes the investments in Lyondell Chemical Company (Lyondell) and Premcor, Inc., (Premcor), a leased cogeneration facility in Taft, Louisiana and a 1,300-mile oil pipeline and gathering system located in the Permian Basin, which is used in corporate-directed oil and gas marketing and trading operations. It also includes a cogeneration facility at Ingleside, Texas, in which Occidental held a 50-percent interest, and acquired the remaining 50-percent interest in October 2006. The Premcor investment was sold in 2005.

Since December 31, 2006, Occidental has resolved certain legal disputes that it expects will result in a gain of approximately $108 million in the first quarter of 2007.

On August 1, 2006, Occidental effected a two-for-one stock split in the form of a stock dividend to shareholders of record as of that date with distribution of the shares on August 15, 2006. All share and per share amounts discussed and disclosed in this Annual Report on Form 10-K reflect the effect of the stock split.

Lyondell

In May 2006, Occidental lost significant influence over Lyondell and classified its Lyondell shares as an available-for-sale investment. In October 2006, Occidental sold 10 million shares of Lyondell's common stock in a registered public offering for a pre-tax gain of $90 million and gross proceeds of $250 million. At December 31, 2006, Occidental owned 20.3 million Lyondell shares of common stock (8-percent ownership), with a carrying value of $519 million, and warrants to purchase an additional five million shares of Lyondell common stock. In February 2007, Occidental exercised these warrants and received approximately 700,000 shares of Lyondell stock. Following this transaction, Occidental owned approximately 21 million shares of Lyondell common stock.

Premcor

Valero Energy Corp.’s (Valero) 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 in 2005.

SEGMENT RESULTS OF OPERATIONS

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

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

The following table sets forth the sales and earnings of each operating segment and corporate items:

In millions, except per share amounts For the years ended December 31,	2006			2005			2004
SALES
Oil and Gas	$	12,676		$	9,805		$	7,093
Chemical		4,815			4,641			3,675
Other ^(a)		170			151			111
	$	17,661		$	14,597		$	10,879
EARNINGS(LOSS)
Oil and Gas ^(b)	$	7,239		$	5,968		$	4,021
Chemical ^(c)		901			607			414
		8,140			6,575			4,435
Unallocated corporate items
Interest expense, net ^(d)		(131	)		(201	)		(240	)
Income taxes ^(e)		(3,466	)		(1,927	)		(1,639	)
Other ^(f)		(108	)		593			(150	)
Income from continuing operations		4,435			5,040			2,406
Discontinued operations, net ^(g)		(253	)		238			162
Cumulative effect of changes in accounting principles, net		—			3			—
Net Income	$	4,182		$	5,281		$	2,568
Basic Earnings per Common Share	$	4.90		$	6.55		$	3.24

(a)	These amounts represent revenue from a Taft, Louisiana cogeneration plant and the Permian Basin pipeline and gathering system.
(b)	The 2006, 2005 and 2004 amounts include interest income of $10 million, $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 operating plant and an additional charge of $20 million for the write-down of another chemical plant.
(d)	The 2006, 2005 and 2004 amounts include $31 million, $42 million and $17 million, respectively, of interest charges to redeem or purchase and retire various debt issues.
(e)	As a result of changes in compensation programs in 2006, Occidental wrote off approximately $40 million of the related deferred tax asset that had been recognized in the financial statements prior to the changes. The 2005 amount includes a $335 million tax benefit due to the reversal of tax reserves no longer required, a $619 million tax benefit resulting from a closing agreement with the U.S. Internal Revenue Service resolving certain foreign tax credit issues and a $10 million charge related to a state income tax issue. The 2004 amount includes $47 million of credits related to tax settlements with the IRS.
(f)	The 2006 amount includes a $90 million pre-tax gain from the sale of 10 million shares of Lyondell, a $108 million pre-tax gain related to litigation settlements, $54 million of corporate equity-method investment income and $47 million of environmental remediation expenses. The 2005 amount includes a $726 million pre-tax gain from Valero’s acquisition of Premcor and the subsequent sale of the Valero shares received, a $140 million pre-tax gain from the sale of 11 million shares of Lyondell common stock, $71 million of corporate equity-method investment income and $62 million of environmental remediation expense. The 2004 amount includes a $121 million pre-tax gain on the issuance of Lyondell common stock, $12 million of corporate equity-method investment income and $59 million of environmental remediation expense.
(g)	In the second quarter of 2006, Ecuador’s Minister of Energy terminated Occidental’s contract for the operation of Block 15 and the Government of Ecuador seized Occidental’s Block 15 assets shortly thereafter. As a result of the seizure, Occidental has classified its Block 15 operations as discontinued operations on a retrospective application basis. The 2006 discontinued operations amount also includes income from Vintage properties that were held for sale. The 2004 amount also includes the specialty resins business that was classified as a discontinued operation in 2004.

Oil and Gas

In millions, except as indicated	2006			2005			2004
Segment Sales	$	12,676		$	9,805		$	7,093
Segment Earnings	$	7,239		$	5,968		$	4,021
Core Earnings ^(a)	$	7,239		$	6,012		$	4,021
Net Production per Day
United States
Crude oil and liquids (MBBL)
California		86			76			78
Permian		167			161			154
Horn Mountain		12			13			19
Hugoton and other	3			3			3
Total		268			253			254
Natural Gas (MMCF)
California		256			242			237
Hugoton and other		138			133			127
Permian		194			170			130
Horn Mountain	7			8			13
Total		595			553			507
Latin America
Crude oil (MBBL)
Argentina		33			—			—
Colombia	38			36			37
Total		71			36			37
Natural Gas (MMCF)
Argentina		17			—			—
Bolivia	17			—			—
Total		34			—			—
Middle East/North Africa
Crude oil (MBBL)
Oman		18			17			13
Qatar		43			42			45
Yemen		29			28			32
Libya	23			8			—
Total		113			95			90
Natural Gas (MMCF)
Oman		30			44			55
Other Eastern Hemisphere
Crude oil (MBBL)
Pakistan		4			5			7
Natural Gas (MMCF)
Pakistan		76			77			75
Barrels of Oil Equivalent (MBOE) ^(b)
Subtotal Consolidated Subsidiaries		578			501			494
Colombia-minority interest		(5	)		(4	)		(4	)
Russia-Occidental net interest ^(c)		27			28			29
Yemen-Occidental net interest	1			1			1
Total Worldwide Production (MBOE) ^(d)		601			526			520
(See footnotes on next page)

Oil and Gas (continued)

In millions, except as indicated	2006		2005		2004
Average Sales Prices
Crude Oil Prices ($ per bbl)
United States	$	58.13	$	50.21	$	37.72
Latin America	$	52.40	$	51.18	$	36.85
Middle East/North Africa ^(e)	$	61.58	$	49.88	$	34.88
Other Eastern Hemisphere	$	56.70	$	46.84	$	33.13
Total consolidated subsidiaries	$	57.95	$	50.19	$	36.79
Other interests	$	34.25	$	36.16	$	23.83
Total worldwide ^(d)	$	56.57	$	49.18	$	35.79
Gas Prices ($ per Mcf)
United States	$	6.51	$	7.11	$	5.35
Latin America	$	2.00	$	—	$	—
Middle East/North Africa ^(e)	$	0.97	$	0.96	$	0.97
Other Eastern Hemisphere	$	2.94	$	2.44	$	2.25
Total consolidated subsidiaries	$	5.66	$	6.11	$	4.56
Other interests	$	0.14	$	0.16	$	—
Total worldwide ^(d)	$	5.50	$	5.98	$	4.56
Expensed Exploration ^(f)	$	295	$	314	$	214
Capital Expenditures
Development	$	2,394	$	1,769	$	1,335
Exploration	$	132	$	258	$	83
Other ^(g)	$	195	$	110	$	108

(a)	For an explanation of core earnings and reconciliation to net income, see "Significant Items Affecting Earnings."
(b)	Natural gas volumes have been converted to equivalent BOE based on energy content of 6,000 cubic feet (one thousand cubic feet is referred to as a “Mcf”) of gas to one barrel of oil.
(c)	Sold in January 2007.
(d)	Occidental has classified its Ecuador Block 15 operations as discontinued operations on a retrospective application basis and excluded them from this table. Excluded production from the Block 15 operations averaged 43,000 BOE per day for the first five months of 2006, 42,000 BOE per day in 2005 and 46,000 BOE per day in 2004.
(e)	These prices exclude the impact of taxes owed by Occidental but paid by governmental entities on its behalf.
(f)	Includes dry hole write-offs and lease impairments of $114 million in 2006, $220 million in 2005 and $155 million in 2004.
(g)	Includes capitalized portion of injected CO2 of $64 million, $59 million and $54 million in 2006, 2005 and 2004, respectively. Excludes acquisitions.

Core earnings in 2006 were $7.2 billion, compared to $6.0 billion in 2005. The increase in core earnings is primarily due to higher crude oil prices and oil and gas production, partially offset by higher operating expenses, including a depreciation, depletion and amortization (DD&A) increase, which was driven by higher volumes and rates.

Core earnings in 2005 were $6.0 billion, compared with $4.0 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.

Average consolidated production costs for 2006 were $11.23 per BOE, compared to the average 2005 production cost of $8.81 per BOE. At least 41 percent of the increase was a result of higher energy prices pushing up utility costs, gas plant costs and ad valorem and export taxes, and the impact on Occidental's PSCs of lower volumes due to higher energy prices. These cash operating cost increases included $0.57 per barrel for taxes and $0.33 per barrel for higher energy costs. The remaining increase of $1.52 per barrel was the result of higher workover, maintenance and lifting costs. Maintenance costs increased by $116 million, while workovers, ad valorem taxes and utilities each accounted for approximately $55 million in higher costs during 2006.

Also, see "Production-Sharing Contracts" above.

Chemical

In millions	2006		2005		2004
Segment Sales	$	4,815	$	4,641	$	3,675
Segment Earnings	$	901	$	607	$	414
Core Earnings ^(a)	$	901	$	777	$	414
Capital Expenditures	$	251	$	173	$	155

(a)	For an explanation of core earnings and reconciliation to net income, see "Significant Items Affecting Earnings."

Core earnings in 2006 were $901 million, compared to $777 million in 2005. The increase in core earnings is primarily due to higher margins in chlorine, caustic soda and PVC.

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, partially offset by higher energy and feedstock 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-Generally Accepted Accounting Principles (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 GAAP.

Significant Items Affecting Earnings

Benefit (Charge) (in millions)	2006			2005			2004
NET INCOME	$	4,182		$	5,281		$	2,568
OIL AND GAS
Segment Earnings	$	7,239		$	5,968		$	4,021
Less:
Contract settlement		—			(26	)		—
Hurricane insurance charge	—			(18		)	—
Segment Core Earnings	$	7,239		$	6,012		$	4,021
CHEMICAL
Segment Earnings	$	901		$	607		$	414
Less:
Write-off of plants		—			(159	)		—
Hurricane insurance charge	—			(11		)	—
Segment Core Earnings	$	901		$	777		$	414
TOTAL SEGMENT CORE EARNINGS	$	8,140		$	6,789		$	4,435
CORPORATE
Results ^(a)	$	(3,958	)	$	(1,294	)	$	(1,867	)
Less:
Debt purchase expense		(31	)		(42	)		—
Trust preferred redemption charge		—			—			(11	)
Gain on sale of Lyondell shares		90			140			—
Gain on sale of Premcor-Valero shares		—			726			—
Gain on Lyondell stock issuance		—			—			121
State tax issue charge ^(b)		—			(10	)		—
Settlement of federal tax issue ^(b)		—			619			47
Reversal of tax reserves ^(b)		—			335			—
Deferred tax write-off due to compensation program changes ^(b)		(40	)		—			—
Equity investment impairment		—			(15	)		—
Equity investment hurricane insurance charge		—			(2	)		—
Hurricane insurance charge		—			(10	)		(15	)
Litigation settlements		108			—			—
Tax effect of pre-tax adjustments		(41	)		(219	)		(35	)
Discontinued operations, net of tax ^(b)		(253	)		238			162
Cumulative effect of changes in accounting principles, net of tax ^(b)		—			3			—
CORPORATE CORE RESULTS	$	(3,791	)	$	(3,057	)	$	(2,136	)
TOTAL CORE EARNINGS	$	4,349		$	3,732		$	2,299

(a)	Includes net interest expense, income taxes, general and administrative and other expense, and certain non-core items.
(b)	Amounts shown after tax.

TAXES

Deferred tax liabilities, net of deferred tax assets of $1.4 billion, were $2.1 billion at December 31, 2006. The current portion of the deferred tax assets of $190 million is included in prepaid expenses and other. The net deferred tax assets are expected to be realized through future operating income and reversal of temporary differences.

Worldwide Effective Tax Rate

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

In millions	2006			2005			2004
REPORTED INCOME
Oil and Gas ^(a)	$	7,239		$	5,968		$	4,021
Chemical		901			607			414
Corporate and Other	(239		)	392			(390		)
Pre-tax income		7,901			6,967			4,045
Income tax expense
Federal and State		1,713			665			941
Foreign ^(a)		1,753			1,262			698
Total		3,466			1,927			1,639
Income from continuing operations	$	4,435		$	5,040		$	2,406
Worldwide effective tax rate		44%			28%			41%
CORE INCOME
Oil and Gas ^(a)	$	7,239		$	6,012		$	4,021
Chemical		901			777			414
Corporate and Other	(406		)	(405		)	(485		)
Pre-tax income		7,734			6,384			3,950
Income tax expense
Federal and State		1,632			1,390			953
Foreign ^(a)		1,753			1,262			698
Total		3,385			2,652			1,651
Core income	$	4,349		$	3,732		$	2,299
Worldwide effective tax rate		44%			42%			42%

(a)	Revenues, oil and gas pre-tax income and income tax expense include taxes owed by Occidental but paid by governmental entities on its behalf of $1.1 billion, $887 million and $525 million for the years ended December 31, 2006, 2005 and 2004, respectively.

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

CONSOLIDATED RESULTS OF OPERATIONS

Selected Revenue Items

In millions	2006		2005		2004
Net sales	$	17,661	$	14,597	$	10,879
Interest, dividends and other income	$	381	$	181	$	144
Gain on disposition of assets, net	$	118	$	870	$	1

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

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

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

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

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

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	2006		2005		2004
Cost of sales ^(a)	$	6,284	$	5,425	$	4,418
Selling, general and administrative and other operating expenses	$	1,371	$	1,324	$	936
Depreciation, depletion and amortization	$	2,042	$	1,422	$	1,251
Exploration expense	$	295	$	314	$	214
Interest and debt expense, net	$	291	$	293	$	260

(a)	Excludes depreciation, depletion and amortization of $2,011 million in 2006, $1,383 million in 2005 and $1,213 million in 2004.

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

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

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

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.

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

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 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.

Interest and debt expense in 2006, 2005 and 2004 included pre-tax debt repayment expenses of $35 million, $42 million and $17 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.

Selected Other Items

In millions	2006			2005			2004
Provision for income taxes	$	3,466		$	1,927		$	1,639
Income from equity investments	$	(182	)	$	(232	)	$	(113	)
Gain on Lyondell stock issuance	$	—		$	—		$	(121	)

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

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

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 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	2006		2005
CURRENT ASSETS
Cash and cash equivalents	$	1,339	$	2,188
Short-term investments		240		252
Trade receivables, net		2,825		2,531
Receivables from joint ventures, partnerships and other		499		568
Inventories		825		716
Prepaid expenses and other		256		255
Assets of discontinued operations	22		427
Total current assets	$	6,006	$	6,937
Long-term receivables, net	$	231	$	377
Investments in unconsolidated entities	$	1,344	$	1,209
Property, plant and equipment, net	$	24,316	$	17,171
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities	$	171	$	46
Accounts payable		2,263		2,046
Accrued liabilities		1,575		1,569
Dividends payable		188		147
Domestic and foreign income taxes		396		326
Liabilities of discontinued operations	131		138
Total current liabilities	$	4,724	$	4,272
Long-term debt, net	$	2,619	$	2,873
Deferred credits and other liabilities-income taxes	$	2,326	$	970
Deferred credits and other liabilities-other	$	2,966	$	2,621
Long-term liabilities of discontinued operations	$	195	$