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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) SEPTEMBER 16, 2004
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-9210 95-4035997
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code:
(310) 208-8800
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Check the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the Registrant under any of the following
provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 8 - OTHER EVENTS
Item 8.01. Other Events
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On September 16, 2004, Occidental Exploration and Production Company (OEPC),
Occidental Petroleum Corporation's operating subsidiary in Ecuador, received
formal notification from Petroecuador, the state oil company of Ecuador,
initiating proceedings to determine if OEPC violated the Hydrocarbons Law and
its Participation Contract for Block 15 with Petroecuador and whether such
alleged violations constitute grounds for terminating the Participation
Contract.
Occidental believes that it has complied with all material obligations under the
Participation Contract and that any termination of the Participation Contract by
Ecuador based upon these stated allegations would be unfounded and would
constitute an unlawful expropriation under international treaties.
ECUADOR VAT DISPUTE. On July 13, 2004, a tribunal of international arbitrators
formed under the US-Ecuador Bilateral Investment Treaty issued its unanimous
decision awarding approximately $75 million as compensation for value added tax
(VAT) refunds from the company's Block 15 operations in Ecuador that were held
to be wrongfully withheld by the Ecuadorian Government through December 31,
2003. The tribunal's decision also indicated that similar VAT refunds should be
paid going forward. Ecuador appealed the tribunal's decision. Ecuadorian press
reports have indicated that Ecuador's Attorney General assembled a team to
review OEPC's Participation Contract immediately after the tribunal issued its
award.
TRANSACTION WITH AEC IN 2000. One of the principal allegations in Petroecuador's
notice relates to the fact that OEPC did not obtain government approval of a
farmout agreement entered into in the year 2000 by OEPC with AEC Ecuador Ltd.
(AEC), a subsidiary of EnCana Corporation. This agreement, which was structured
in two phases and was separate and apart from the Participation Contract,
established certain rights and obligations strictly between OEPC and AEC. In the
initial phase, AEC received a 40% economic interest, vis-a-vis OEPC, in relation
to the Participation Contract. In the subsequent phase, which is expressly
subject to receipt of all governmental approvals, AEC could earn legal title to
40% of the Participation Contract, after complying with certain payment
obligations over a four-year period.
In October 2000, Occidental met with the Ecuadorian Minister of Energy and Mines
and explained the two-step structure of the transaction. Occidental and the
Minister then exchanged correspondence on the transaction. Occidental understood
that the Minister did not have any objection to the transaction with AEC and
that only the second step of the transaction required Government consent. In
accordance with Occidental's understanding of the instructions of the Minister
and with the completion of AEC's payment obligations, in July 2004 Occidental
formally requested the Government's approval to transfer legal title to 40% of
the Participation Contract to AEC. Occidental will complete the second step of
the AEC transaction only at such time as the Government approves the transfer of
legal title.
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Under the terms of the Participation Contract entered into in 1999, OEPC has the
right and obligation to explore and develop the crude oil resources in Block 15.
OEPC is required to pay 100% of all capital expenditures and operating costs
related to Block 15, including all taxes, and bears 100% of the risks involved
in the development of Block 15, including all operational and reserve risk. In
exchange, OEPC receives a variable share of Block 15 crude oil production.
During the first phase of the AEC transaction, OEPC has remained as the only
party with rights under, and responsibility for the performance of all
obligations derived from, the Participation Contract. AEC is not a party to the
Participation Contract, has no rights against Petroecuador under the agreement,
and has no obligations to Petroecuador. OEPC remains the operator of and has
made all investments and paid all taxes in Ecuador (including income tax,
production tax and exportation tax) relating to Block 15. Occidental guarantees
the performance of all of the obligations under the Participation Contract.
OEPC has recorded 100% of the investments and 100% of the revenues, costs and
expenses related to Block 15 in its Ecuadorian statutory accounts. Occidental
Petroleum Corporation's consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles,
appropriately reflect Occidental's 60% economic interest.
OTHER ALLEGED VIOLATIONS. With respect to the other alleged violations upon
which Petroecuador's notification is based, these alleged infractions are
technical in nature and Occidental believes they do not rise to the level of
termination, either individually or in the aggregate. There is an adequate
regulatory structure in place to investigate and sanction infractions of the
nature complained of in the notice. As to all such issues, OEPC has either
accepted the infraction and paid the related fine or is contesting the matter
through appropriate channels. With respect to allegations that OEPC has failed
to make required investments, over the past five years, and without having
received any objection from the Government regarding the AEC transaction,
Occidental has invested approximately $690 million in the exploration,
development and production activities of Block 15 during this period. Consistent
with the foregoing, OEPC has fully satisfied its investment commitments to date
in accordance with the Participation Contract.
OCCIDENTAL'S ECUADORIAN OPERATIONS. Occidental's Ecuadorian operations represent
approximately 8 percent of the company's current worldwide production,
approximately 4 percent of its proved reserves and approximately 2 percent of
the company's total property, plant and equipment, net of accumulated
depreciation, depletion and amortization.
ONGOING DISCUSSIONS. Occidental has communicated its position to the Ecuadorian
Government, is cooperating with the appropriate Ecuadorian authorities in the
current proceedings and will continue to strive for an amicable resolution which
will be in the best interest of all parties. However, Occidental intends to
vigorously defend itself, avail itself of its rights in all forums that are
contemplated in the Participation Contract and international treaties and will
resort to international arbitration in defense of its assets.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
(Registrant)
DATE: September 17, 2004 S. P. Dominick, Jr.
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S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
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