Consolidated Results of Operations

Occidental (which means Occidental Petroleum Corporation (OPC) and/or one or more entities in which it owns a majority voting interest) reported net income for the first nine months of 2008 of $6.4 billion, on net sales of $20.2 billion, compared with net income of $3.9 billion, on net sales of $13.3 billion for the same period of 2007. Diluted earnings per common share were $7.79 and $4.69 for the first nine months of 2008 and 2007, respectively. Occidental reported net income for the third quarter of 2008 of $2.3 billion, on net sales of $7.1 billion, compared with net income of $1.3 billion, on net sales of $4.8 billion for the same period of 2007. Diluted earnings per common share were $2.78 for the third quarter of 2008, compared with diluted earnings per share of $1.58 for the same period of 2007.

Net income for the three and nine months ended September 30, 2008, compared to the same periods of 2007, reflected higher crude oil and natural gas prices, higher oil and gas production and lower exploration expense, which were partially offset by higher depreciation, depletion and amortization (DD&A) rates and operating expenses.

Net income for the three and nine months ended September 30, 2007, included a $42 million pre-tax gain from the sale of Lyondell Chemical Company (Lyondell) common stock, and a $103 million pre-tax gain from the sale of exploration properties, partially offset by a $74 million pre-tax charge from the impairment of assets. Net income for the first nine months of 2007 also included an additional $284 million pre-tax gain from the sale of Lyondell common stock, a $167 million pre-tax interest charge for the partial repurchase of various debt issues in the open market, a $412 million after-tax gain from the sale of Occidental's Russian joint venture interest and a $112 million after-tax gain from certain litigation settlements. Discontinued operations for the nine months ended September 30, 2007 included after-tax gains of $226 million from a series of transactions with BP p.l.c. (BP), as well as the results of operations of these assets before disposal.

Selected Income Statement Items

The increases in net sales of $2.2 billion and $6.9 billion for the three and nine months ended September 30, 2008, respectively, compared with the same periods of 2007, reflected higher worldwide crude oil and natural gas prices and higher oil and gas production, particularly from the Dolphin Project, which began production in the third quarter of 2007. The decrease in interest, dividends and other income of $106 million for the nine months ended September 30, 2008, compared with the same period of 2007, reflected $112 million of after-tax gains from certain litigation settlements in 2007. For the three months and nine months ended September 30, 2007, gains on disposition of assets included a $42 million pre-tax gain from the sale of Lyondell common stock and a $103 million pre-tax gain from the sale of exploration properties. For the nine months ended September 30, 2007, gains on disposition of assets also included a $412 million after-tax gain from the sale of Occidental's Russian joint venture interest, a $284 million pre-tax gain from the sale of Lyondell common stock and a $35 million pre-tax gain from the sale of miscellaneous domestic oil and gas interests.

The increase in cost of sales of $547 million and $1.4 billion for the three and nine months ended September 30, 2008, respectively, compared with the same periods of 2007, reflected higher DD&A rates, ad valorem taxes, and workover and field operating costs. The increase in selling, general and administrative and other operating expenses of $144 million for the nine months ended September 30, 2008, compared with the same period in 2007, reflected higher oil and gas production taxes. Environmental remediation expenses for the nine months ended September 30, 2007 reflected a $47 million pre-tax charge for plant closure and related environmental remediation reserve. Exploration expense for the three and nine months ended September 30, 2007, reflected a $74 million pre-tax charge for exploration impairments. Interest and debt expense, net for the nine months ended September 30, 2007, reflected pre-tax interest charges of $167 million for the purchase of various debt issues in the open market. Discontinued operations for the nine months ended September 30, 2007 included after-tax gains of $226 million from a series of transactions with BP, as well as the results of operations of these assets before disposal.

Selected Analysis of Financial Position

The increase in receivables, net of $1.5 billion at September 30, 2008, compared with December 31, 2007, reflected higher crude oil prices and sales volumes during the third quarter of 2008 compared to the fourth quarter of 2007. The increase in investments in unconsolidated entities of $467 million at September 30, 2008, compared with December 31, 2007, reflected the 2008 acquisitions of an equity investment in a U.S. oil and gas pipeline entity and the increase in equity income from the Dolphin pipeline investment. The increase in property, plant and equipment, net of $4.6 billion at September 30, 2008, compared with December 31, 2007, was due to capital expenditures, the purchase of oil and gas interests from Plains Exploration & Production Company and an interest in the Joslyn Oil Sands Project, the signature bonus from the Libya contracts and the acquisitions of other miscellaneous oil and gas interests, partially offset by DD&A.

The increase in current maturities of long-term debt and capital lease liabilities of $667 million at September 30, 2008, compared with December 31, 2007, was due to the reclassification from long-term debt, net for debt with current maturities at September 30, 2008, including the Dolphin Energy Ltd. loans. The increase in accounts payable of $644 million at September 30, 2008, compared with December 31, 2007, reflected higher crude oil prices, especially in the marketing and trading operations, during the third quarter of 2008 compared to the fourth quarter of 2007. The increase in accrued liabilities $394 million at September 30, 2008, compared with December 31, 2007, was mainly due to higher mark-to-market adjustments on derivative instruments, the accrual of the current portion of the signature bonus for the Libya agreements signed in June 2008 and higher ad valorem taxes. The decrease in long-term debt, net of $684 million at September 30, 2008, compared with December 31, 2007, was due to the reclassification from long-term debt, net to debt with current maturities at September 30, 2008. The increase in deferred credit and other liabilities - other of $310 million at September 30, 2008, compared with December 31, 2007, reflected the accrual of the noncurrent portion of the signature bonus and other long-term payables for the Libya agreements. The increase in stockholders' equity of $4.1 billion at September 30, 2008, compared with December 31, 2007, reflected net income for the nine months ended September 30, 2008, partially offset by year-to-date treasury stock repurchases of approximately 19.8 million shares and dividend payments.

Segment Operations

Occidental conducts its continuing operations through three operating segments:
(1) oil and gas, (2) chemical and (3) midstream, marketing and other activities. The oil and gas segment explores for, develops and produces crude oil, natural gas and natural gas liquids (NGLs). The chemical segment manufactures and markets basic chemicals, vinyls and performance chemicals. The midstream, marketing and other segment gathers, processes, transports, stores and markets crude oil, natural gas, NGLs and carbon dioxide (CO2) production, and generates electricity at various facilities.

Occidental changed its alignment of operating segments at the beginning of 2008. In previous years, oil and gas and a portion of the midstream, marketing and other activities were reported as a single oil and gas segment and some of the corporate-directed midstream, marketing and other activities were reported under corporate and other. In the last two years, the Dolphin pipeline began transporting natural gas to the United Arab Emirates and Occidental acquired a common carrier pipeline system in the Permian Basin, various gas processing plants and the remaining ownership interest in a cogeneration facility. The addition of these activities to the existing midstream and marketing infrastructure caused management to realign its operating segments in order to increase its focus on its midstream, marketing and other activities on a stand-alone basis. All segment information for prior periods has been revised to retrospectively reflect the current segment reporting structure. The change to segment reporting has no effect on Occidental's reported consolidated earnings.

                                                              Periods Ended September 30
                                              Three Months Ended       Nine Months Ended
                                                2008        2007         2008       2007
Net Sales
Oil and gas                               $    5,422    $  3,401   $   15,441   $  9,182
Chemical                                       1,454       1,241        4,107      3,530
Midstream, marketing and other                   381         337        1,204        975
Eliminations                                    (197 )      (138 )       (556 )     (420 )
Net Sales                                 $    7,060    $  4,841   $   20,196   $ 13,267
Segment Earnings (a)
Oil and gas                               $    3,618    $  1,955   $   10,312   $  5,496
Chemical                                         219         212          542        507
Midstream, marketing and other                    66          86          350        229
                                               3,903       2,253       11,204      6,232

Unallocated Corporate Items
Interest expense, net (a)                         (3 )       (11 )        (10 )     (186 )
Income taxes                                  (1,546 )      (862 )     (4,511 )   (2,450 )
Other (expense) income (a)                       (82 )       (64 )       (292 )       34
Income from Continuing Operations              2,272       1,316        6,391      3,630
Discontinued operations, net of tax (a)           (1 )         8           23        318
Net Income                                $    2,271    $  1,324   $    6,414   $  3,948

(a) Refer to "Significant Items Affecting Earnings", "Oil and Gas Segment", "Chemical Segment", "Midstream, Marketing and Other Segment" and "Corporate" discussions that follow.

Significant Items Affecting Earnings

The following table sets forth the effects on Occidental's earnings of significant transactions and events that vary widely and unpredictably in nature, timing and amount for the three and nine months ended September 30, 2008 and 2007 (in millions):

                                                     Periods Ended September 30
                                                Three Months        Nine Months
                                            2008        2007     2008      2007
Oil & Gas
Russian joint venture sale*               $    -    $      -    $   -   $   412
Legal settlements*                             -           -        -       112
Gain on sale of exploration properties         -         103        -       103
Exploration impairments                        -         (74 )      -       (74 )
Gain on sale of oil and gas interests          -          12        -        35
Total Oil and Gas                         $    -    $     41    $   -   $   588

Chemical
No Significant Items Affecting Earnings   $    -    $      -    $   -   $     -
Total Chemical                            $    -    $      -    $   -   $     -

Midstream, marketing and other
No Significant Items Affecting Earnings   $    -    $      -    $   -   $     -
Total Midstream, marketing and other      $    -    $      -    $   -   $     -

Corporate
Debt purchase expense                     $    -    $      -    $   -   $  (167 )
Gain on sale of Lyondell shares                -          42        -       326
Facility closure                               -           -        -       (47 )
Tax effect of pre-tax items                    -          23        -       (11 )
Discontinued operations, net*                 (1 )         8       23       318
Total Corporate                           $   (1 )  $     73    $  23   $   419
Total                                     $   (1 )  $    114    $  23   $ 1,007

* Amounts shown after tax.

Worldwide Effective Tax Rate



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



                                                      Periods Ended September 30
                                               Three Months          Nine Months
                                             2008      2007       2008      2007
Oil & Gas earnings (a)                    $ 3,618   $ 1,955   $ 10,312   $ 5,496
Chemical earnings                             219       212        542       507
Midstream, marketing and other earnings        66        86        350       229
Unallocated corporate items                   (85 )     (75 )     (302 )    (152 )
Pre-tax income                              3,818     2,178     10,902     6,080

Income tax expense
Federal and state                             716       363      2,123     1,085
Foreign (a)                                   830       499      2,388     1,365
Total                                       1,546       862      4,511     2,450

Income from continuing operations         $ 2,272   $ 1,316   $  6,391   $ 3,630

Worldwide effective tax rate                  40%       40%        41%       40%

(a) Revenues and income tax expense include taxes owed by Occidental but paid by governmental entities on its behalf. Oil and gas earnings and income tax expense each include the following amounts by period (in millions): third quarter 2008-$730 and third quarter 2007-$331, first nine months 2008-$1,801 and first nine months of 2007-$919.

Oil and Gas Segment



                                                           Periods Ended September 30
                                                 Three Months             Nine Months
Summary of Operating Statistics              2008        2007        2008        2007

Net Production per Day:
Crude Oil and Natural Gas Liquids
(MBBL)
United States                                 261         265         260         259
Middle East/North Africa                      117         109         127         115
Latin America                                  81          73          75          76

Natural Gas (MMCF)
United States                                 570         604         584         597
Middle East                                   190         103         200          54
Latin America                                  45          40          40          41

Barrels of Oil Equivalent (MBOE) per
day (a) (b)
Consolidated subsidiaries                     593         572         599         566
Other interests                                (5 )        (2 )        (5 )        (3 )
Worldwide production                          588         570         594         563

Average Sales Price: (b)
Crude Oil ($/BBL)
United States                            $ 109.50    $  68.83    $ 104.82    $  59.71
Middle East/North Africa                 $ 114.11    $  71.30    $ 106.81    $  63.93
Latin America                            $  77.76    $  60.77    $  78.23    $  53.00
Total consolidated subsidiaries          $ 104.26    $  67.87    $ 100.41    $  59.52
Other interests                          $  94.17    $  74.08    $ 110.39    $  65.30
Worldwide production                     $ 104.15    $  67.81    $ 100.39    $  59.47

Natural Gas ($/MCF)
United States                            $   9.35    $   5.90    $   9.18    $   6.45
Latin America                            $   4.40    $   2.68    $   4.22    $   2.31
Worldwide production                     $   7.11    $   5.05    $   6.95    $   5.78

(a) 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 a "Mcf") of gas to one barrel of oil.

(b) Occidental sold its interest in a Russian joint venture in January 2007. In June 2007, Occidental sold its Pakistan operations to BP and swapped its Horn Mountain operations to BP, classifying these operations as discontinued operations on a retrospective application basis. Horn Mountain, Pakistan and Russian joint venture production have been excluded for all periods for comparability.

Oil and gas segment earnings for the three and nine months ended September 30, 2008, were $3.6 billion and $10.3 billion, respectively, compared with $2.0 billion and $5.5 billion of segment earnings for the same periods of 2007. The increase in oil and gas segment earnings for the three and nine months ended September 30, 2008, compared to the same period of 2007, reflected higher crude oil and natural gas prices, higher oil and gas production and lower exploration expense, partially offset by higher DD&A rates and operating expenses.

Occidental's realized oil price for the third quarter of 2008 was $104.15 per barrel compared to $67.81 per barrel for the third quarter of 2007. Domestic realized gas prices increased from $5.90 per MCF in the third quarter of 2007 to $9.35 per MCF for the third quarter of 2008. Based on the 2008 third quarter prices, a change of 50 cents per million BTUs in NYMEX gas prices impacts quarterly oil and gas segment earnings by approximately $24 million, while a $1.00 per-barrel change in oil prices has a quarterly pre-tax impact of approximately $39 million.

The increase in production for the three months ended September 30, 2008, compared to the same period of 2007, was primarily due to an increase of 31,000 BOE per day from the Dolphin Project which began production in the third quarter of 2007, partially offset by 5,000 BOE per day lower volumes attributable to Hurricane Ike and 13,000 BOE per day lower volumes in Libya as a result of the new contract that became effective in the third quarter of 2008. The increase in production for the nine months ended September 30, 2008, compared to the same period of 2007, was primarily due to an increase of 44,000 BOE per day from the Dolphin Project, partially offset by 5,000 BOE per day lower volumes in Libya.

Average production cost for the first nine months of 2008 was $14.80 per BOE compared to the average annual 2007 production cost of $12.33 per BOE. Approximately 38 percent of the increase was a result of increased energy costs. The increases reflected higher production taxes and ad valorem taxes, workovers and field operating costs.

On June 23, 2008, Occidental signed 30-year agreements with the Libyan National Oil Company (NOC) to upgrade its existing petroleum contracts. Total expected capital investment is estimated to be $5 billion over the next five years, of which Occidental's portion will be approximately $1.9 billion. NOC will contribute 50 percent, Occidental will contribute 37.5 percent and its partner will contribute 12.5 percent of the development capital. Under these contracts, Occidental and its partner will pay a signature bonus of $1 billion, of which Occidental's share, 75 percent, is $750 million. Occidental and its partner made the first payment of $600 million, of which Occidental's share was $450 million, in June 2008. The remaining annual payments of $200 million, of which Occidental's share is $150 million, are due in each of the next two years. The new agreements allow NOC and Occidental to design and implement major field redevelopment and exploration programs in the Sirte Basin.

In February 2008, Occidental purchased from Plains Exploration & Production Company (Plains) a 50-percent interest in oil and gas properties in the Permian Basin and Colorado. In September 2008, Occidental entered into an agreement with Plains to purchase all of Plains' remaining interests in the Permian Basin and Colorado for the approximate purchase price of $1.25 billion, which is expected to close in the fourth quarter of 2008.

Chemical Segment

Chemical segment earnings for the three and nine months ended September 30, 2008, were $219 million and $542 million, respectively, compared with $212 million and $507 million for the same periods of 2007. The increase in chemical segment earnings for the three and nine months ended September 30, 2008, compared with the same periods of 2007, was due to higher caustic soda margins, partially offset by lower volumes and margins for chlorine and polyvinyl chloride.

Midstream, Marketing and Other Segment

Midstream, marketing and other segment earnings for the three and nine months ended September 30, 2008, were $66 million and $350 million, compared with $86 million and $229 million for the same periods of 2007. Midstream, marketing and other segment earnings for the three months ended September 30, 2008, reflected lower margins in crude oil marketing, partially offset by higher income from the Dolphin pipeline investment, which came on line in the second half of 2007, and higher margins in gas processing and power generation. Midstream, marketing and other segment earnings for the nine months ended September 30, 2008, reflected higher income from the Dolphin pipeline and higher NGL margins in the gas processing business, partially offset by lower margins in crude oil marketing.

In June 2008, Occidental signed an agreement with a third party to construct a west Texas gas processing plant and pipeline infrastructure that will provide carbon dioxide (CO2) for Occidental's enhanced oil recovery projects in the Permian Basin. Occidental will own and operate the new facility and pipeline system and is expected to incur capital expenditures of approximately $1.1 billion constructing this project over several years.

Corporate

In July 2008, Occidental purchased a 15-percent interest in the Joslyn Oil Sands Project in northern Alberta, Canada for approximately $500 million in cash. Occidental expects to spend approximately $2 billion over a number of years with production expected to commence in 2014.

In the nine month period ended September 30, 2007, Occidental recorded a $326 million pre-tax gain from the sale of 21.0 million shares of Lyondell stock, $167 million of pre-tax interest charges for the purchase of various debt issues in the open market and a $47 million pre-tax charge for a plant closure and related environmental remediation reserve.

Liquidity and Capital Resources

Occidental's net cash provided by operating activities was $8.1 billion for the first nine months of 2008, compared with $4.3 billion for the same period of 2007. The increase in operating cash flow in 2008, compared to 2007, reflected the effect of several drivers. The most important drivers were higher oil and natural gas prices and production. In the first nine months of 2008, compared to the same period in 2007, Occidental's realized oil price was higher by 69 percent and Occidental's realized natural gas price increased 42 percent in the U.S., where approximately 71 percent of Occidental's natural gas was produced. Oil and gas production increased approximately 5.5 percent in the first nine months of 2008, compared to the same period in 2007, mainly due to the start-up of the Dolphin Project in the second half of 2007.

Occidental's net cash used by investing activities was $6.6 billion for the first nine months of 2008, compared with $1.8 billion for the same period of 2007. The 2008 amount included cash payments for the acquisitions of oil and gas interests from Plains for $1.5 billion, an interest in the Joslyn Oil Sands Project for approximately $500 million and an equity interest in a U.S. oil and gas pipeline entity for approximately $330 million. The 2008 amount also includes the first payment of the signature bonus under the Libya agreements of $450 million. The 2007 amount included cash proceeds of $672 million from the sale of Lyondell common stock, $460 million from the sale of other businesses and properties, $485 million received from the sale of a joint venture interest in Russia, and $250 million from the sale of short-term investments. The 2007 amount also included cash paid for the acquisitions of various oil and gas interests, a common carrier pipeline system and a gas processing plant in Texas totaling $991 million. Capital expenditures for the first nine months of 2008 were $3.2 billion, including $2.6 billion for oil and gas. Capital expenditures for the first nine months of 2007 were $2.5 billion, including $2.2 billion for oil and gas.

Occidental's net cash used by financing activities was $2.1 billion in the first nine months of 2008, compared with $2.4 billion for the same period of 2007. The 2008 amount included $1.5 billion of cash paid for repurchases of 19.4 million shares of Occidental's common stock at an average price of $76.52 per share and dividend payments of $677 million. The weighted average basic shares outstanding for the nine months of 2008 totaled 820.1 million and the weighted average diluted shares outstanding totaled 823.8 million. At September 30, 2008, there were 810.1 million basic shares outstanding and the diluted shares were 813.8 million. Any future share repurchases will continue to be funded solely from available cash from operations. The 2007 amount included $910 million of cash paid for repurchases of Occidental's common stock, $1.0 billion of net debt payments which included the purchase of various debt issues in the open market and $557 million of dividend payments.

Available but unused lines of committed bank credit totaled approximately $1.5 billion at September 30, 2008, and cash and cash equivalents totaled $1.45 billion on the September 30, 2008 balance sheet.

At September 30, 2008, under the most restrictive covenants of certain financing agreements, Occidental's capacity for additional unsecured borrowing was approximately $65.4 billion, and the capacity for the payment of cash dividends and other distributions on, and for acquisitions of, Occidental's capital stock was approximately $25.0 billion, assuming that such dividends, distributions and acquisitions were made without incurring additional borrowing. Since year-end 2007, Occidental's long-term senior unsecured debt has been

upgraded from A- to A by Standard and Poor's Ratings Services, from A3 to A2 by Moody's Investors Service and from A (low) to A by Dominion Bond Rating Service.

In October 2008, Occidental issued $1 billion of 7% senior notes receiving $985 million of net proceeds. Interest on the notes will be payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2009. The notes will mature on November 1, 2013.

Occidental currently expects to spend approximately $4.5 to $4.7 billion on its 2008 capital spending program. Although its income and cash flows are largely dependent on oil and gas prices and production, Occidental believes that cash on hand and cash generated from operations will be sufficient to fund its operating needs, capital expenditure requirements, dividend payments and anticipated acquisitions.

Environmental Liabilities and Expenditures

Occidental's operations are subject to stringent federal, state, local and foreign laws and regulations relating to improving or maintaining environmental quality. The laws that require or address environmental remediation may apply retroactively to past waste disposal practices and releases of substances to the . . .