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 of $1.1 billion for the first six months of 2009 on net sales of $6.8 billion, compared to net income of $4.1 billion on net sales of $13.1 billion for the same period of 2008. Diluted earnings per common share (EPS) were $1.29 and $5.00 for the first six months of 2009 and 2008, respectively. Occidental reported net income of $682 million for the second quarter of 2009 on net sales of $3.7 billion, compared to net income of $2.3 billion on net sales of $7.1 billion for the same period of 2008. Diluted EPS were $0.84 for the second quarter of 2009 compared to diluted EPS of $2.78 for the same period in 2008.

Net income for the three and six months ended June 30, 2009, compared to the same period of 2008, reflected lower crude oil and natural gas prices, higher depreciation, depletion and amortization (DD&A) rates and lower margins in the gas processing, marketing and power generation businesses, partially offset by higher oil and gas sales volumes and lower selling, general and administrative and other operating expenses.

Net income for the six months ended June 30, 2009, included after-tax charges of $26 million for severance, $10 million for railcar leases and $5 million for rig termination costs.

Unless indicated otherwise, net income and EPS refer to net income attributable to common stock.

Selected Income Statement Items

The decrease in net sales for the three and six months ended June 30, 2009, compared to the same periods of 2008, reflected lower crude oil and natural gas prices and lower volumes in chlorine, caustic soda and polyvinyl chloride, partially offset by higher oil and gas sales volumes.

The decrease in cost of sales for the three and six months ended June 30, 2009, compared to the same period of 2008, was due to lower oil and gas operating costs as well as lower feedstock and energy costs, partially offset by higher DD&A rates in the oil and gas segment, and lower volumes in chlorine, caustic soda and polyvinyl chloride in the chemical segment.

The decrease in the provision for domestic and foreign income taxes for the three and six months ended June 30, 2009, compared to the same periods of 2008, was due to lower income before taxes and reduced effective tax rates for each of the two periods reflecting tax benefits from the relinquishment of international exploration contracts during 2009.

Selected Analysis of Financial Position

See "Liquidity and Capital Resources" for discussion about the change in cash and cash equivalents. The decrease in trade receivables, net at June 30, 2009, compared to December 31, 2008, was due to lower natural gas prices and volumes during the second quarter of 2009, compared to the fourth quarter of 2008, partially offset by higher crude oil prices during the second quarter of 2009, compared to the fourth quarter of 2008. The decrease in marketing and trading assets and other was due to lower receivables from joint ventures and collection of federal tax receivables. The increase in property, plant and equipment was due to capital expenditures, partially offset by DD&A.

The increase in current maturities of long-term debt and notes payable at June 30, 2009, compared to December 31, 2008, was due to the maturities of the 4.25-percent medium-term senior notes in the first quarter of 2010. The decrease in accounts payable and accrued liabilities reflected lower gas prices and volumes in the marketing and trading operations and the 2009 payments related to higher capital spending and operating expenses during the fourth quarter of 2008, which were accrued at year-end, partially offset by increased volumes and prices and mark-to-market adjustments in crude oil marketing. The increase in long-term debt, net was due to the May 2009 issuance of $750 million of 4.125-percent senior unsecured notes due on June 1,

2016, partially offset by the maturities of the 4.25-percent medium-term senior notes in the first quarter of 2010. The increase in stockholders' equity reflected net income for the first half of 2009, partially offset by dividend payments.

Segment Operations

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

Segment earnings generally exclude income taxes, interest income, interest expense, environmental remediation expenses, unallocated corporate expenses and discontinued operations, but include gains and losses from dispositions of segment assets and income from the segments' equity investments. Seasonality is not a primary driver of changes in Occidental's consolidated quarterly earnings during the year.

The following table sets forth the sales and earnings of each operating segment and corporate items for the three and six months ended June 30, 2009 and 2008 (in millions):

                                                          Periods Ended June 30
                                              Three Months           Six Months
                                           2009       2008      2009       2008
Net Sales(a)
Oil and Gas                             $ 2,726   $  5,501   $ 4,863   $ 10,019
Chemical                                    811      1,386     1,603      2,653
Midstream, Marketing and Other              250        418       478        823
Eliminations                               (100 )     (189 )    (184 )     (359 )
                                        $ 3,687   $  7,116   $ 6,760   $ 13,136
Segment Earnings (b)
Oil and Gas (c)                         $ 1,083   $  3,806   $ 1,628   $  6,694
Chemical                                    115        144       284        323
Midstream, Marketing and Other               63        161        77        284
                                          1,261      4,111     1,989      7,301

Unallocated Corporate Items
Interest expense, net (b)                   (23 )       (7 )     (43 )       (7 )
Income taxes                               (455 )   (1,671 )    (696 )   (2,965 )
Other expense, net (b)                      (99 )     (133 )    (195 )     (210 )

Income from continuing operations (c)       684      2,300     1,055      4,119
Discontinued operations, net (b)             (2 )       (3 )      (5 )       24
Net income (c)                          $   682   $  2,297   $ 1,050   $  4,143

(a) Intersegment sales are generally made at prices approximately equal to those that the selling entity is able to obtain in third-party transactions.
(b) Refer to "Significant Items Affecting Earnings," "Oil and Gas Segment," "Chemical Segment," "Midstream, Marketing and Other Segment" and "Corporate" discussions that follow.
(c) Represents amounts attributable to common stock shown after deducting noncontrolling interest amounts of $12 million and $37 million for the three months ended June 30, 2009 and 2008, respectively, and $21 million and $66 million for the six months ended June 30, 2009 and 2008, respectively.

Significant Items Affecting Earnings

The following table sets forth, for the three and six months ended June 30, 2009 and 2008, the effects of significant transactions and events affecting Occidental's earnings that vary widely and unpredictably in nature, timing and amount (in millions):

                                                       Periods Ended June 30
                                              Three Months        Six Months
                                             2009     2008     2009     2008
Oil & Gas
Rig terminations                          $     ?   $    ?   $   (8 ) $    ?
Total Oil and Gas                         $     ?   $    ?   $   (8 ) $    ?

Chemical
No significant items affecting earnings   $     ?   $    ?   $    ?   $    ?
Total Chemical                            $     ?   $    ?   $    ?   $    ?

Midstream, Marketing and Other
No significant items affecting earnings   $     ?   $    ?   $    ?   $    ?
Total Midstream, Marketing and Other      $     ?   $    ?   $    ?   $    ?

Corporate
Severance accrual                         $    (8 ) $    ?   $  (40 ) $    ?
Railcar leases                                  ?        ?      (15 )      ?
Tax effect of pre-tax adjustments               3        ?       22        ?
Discontinued operations, net*                  (2 )     (3 )     (5 )     24
Total Corporate                           $    (7 ) $   (3 ) $  (38 ) $   24
Total                                     $    (7 ) $   (3 ) $  (46 ) $   24

Worldwide Effective Tax Rate



The following table sets forth the calculation of the worldwide effective tax
rate for income from continuing operations for the three and six months ended
June 30, 2009 and 2008 (in millions):



                                                          Periods Ended June 30
                                               Three Months          Six Months
                                             2009      2008      2009      2008
Oil & Gas earnings (a)(b)                 $ 1,083   $ 3,806   $ 1,628   $ 6,694
Chemical earnings                             115       144       284       323
Midstream, Marketing and Other earnings        63       161        77       284
Unallocated corporate items                  (122 )    (140 )    (238 )    (217 )
Pre-tax income(b)                           1,139     3,971     1,751     7,084

Income tax expense
Federal and state                             148       801       160     1,407
Foreign (a)                                   307       870       536     1,558
Total                                         455     1,671       696     2,965

Income from continuing operations(b)      $   684   $ 2,300   $ 1,055   $ 4,119

Worldwide effective tax rate                  40%       42%       40%       42%

(a) Oil and gas pre-tax income and income tax expense include income taxes owed by Occidental but paid by governmental entities on its behalf of $287 million and $582 million for the three months ended June 30, 2009 and 2008, respectively, and $489 million and $1,070 million for the six months ended June 30, 2009 and 2008, respectively.
(b) Represents amounts after deducting noncontrolling interest amounts of $12 million and $37 million for the three months ended June 30, 2009 and 2008, respectively, and $21 million and $66 million for the six months ended June 30, 2009 and 2008, respectively.

Oil and Gas Segment

The following tables set forth the sales volumes and production of oil, NGLs and natural gas per day for the three and six months ended June 30, 2009 and 2008. The difference between the sales volumes and production per day is generally due to the timing of shipments at Occidental's international locations where product is loaded onto tankers. Sales at these locations are not recognized until title passes, which generally occurs when a tanker is loaded.

                                                       Periods Ended June 30
                                                 Three Months     Six Months
Sales Volumes per Day                            2009    2008    2009   2008
Oil and Liquids (MBBL)
United States                                     267     258     271    260
Middle East/North Africa                          144     132     142    132
Latin America                                      85      65      88     72

Natural Gas (MMCF)
United States                                     621     602     621    591
Middle East                                       265     188     247    205
Latin America                                      49      35      49     39

Barrels of Oil Equivalent (MBOE) per day (a)
Consolidated subsidiaries                         652     593     654    603
Other interests                                    (3 )    (5 )    (3 )   (5 )
Worldwide sales volumes                           649     588     651    598

Production per Day
Oil and Liquids (MBBL)
United States                                     267     258     271    260
Middle East/North Africa                          142     128     143    131
Latin America                                      85      67      85     72

Natural Gas (MMCF)
United States                                     621     602     621    591
Middle East                                       265     188     247    205
Latin America                                      49      35      49     39

Barrels of Oil Equivalent (MBOE) per day (a)
Consolidated subsidiaries                         650     590     652    602
Other interests                                    (3 )    (4 )    (3 )   (4 )
Worldwide production                              647     586     649    598

(a) Natural gas volumes have been converted to barrels of oil equivalent (BOE) based on energy content of 6,000 cubic feet (one thousand cubic feet is referred to as "Mcf") of gas to one barrel of oil.

                                                    Periods Ended June 30
                                        Three Months           Six Months
Average Sales Prices                 2009       2008      2009       2008
Crude Oil ($/BBL)
United States                     $ 55.55   $ 114.88   $ 46.43   $ 102.47
Middle East/North Africa          $ 53.43   $ 113.64   $ 47.60   $ 103.47
Latin America                     $ 46.08   $  87.78   $ 42.71   $  76.47
Total consolidated subsidiaries   $ 53.07   $ 110.08   $ 46.03   $  98.13
Other interests                   $ 39.70   $ 125.59   $ 50.04   $ 118.93
Worldwide                         $ 52.97   $ 110.12   $ 46.05   $  98.16

Natural Gas ($/MCF)
United States                     $  2.87   $   9.99   $  3.20   $   9.09
Latin America                     $  2.75   $   4.50   $  3.11   $   4.11
Worldwide                         $  2.34   $   7.71   $  2.61   $   6.87

Oil and gas segment earnings for the three and six months ended June 30, 2009, were $1.1 billion and $1.6 billion, respectively, compared to $3.8 billion and $6.7 billion, respectively, for the same periods of 2008. The decrease in oil and gas segment earnings for the three and six months ended June 30, 2009, compared to the same periods of 2008, reflected lower crude oil and natural gas prices and higher DD&A rates, partially offset by higher oil and gas sales volumes and lower selling, general and administrative and other operating expenses.

In the second quarter of 2009, the average West Texas Intermediate (WTI) price was $59.62 per barrel and the average New York Mercantile Exchange (NYMEX) price for natural gas was $3.83 per million British Thermal Units (BTUs), compared to $123.98 per barrel and $10.43 per million BTUs, respectively, for the second quarter of 2008. Occidental's realized oil price for the second quarter of 2009 was $52.97 per barrel, compared to $110.12 per barrel for the second quarter of 2008. Based on the current levels of production and prices, if domestic natural gas prices vary by $0.50 per million BTUs, it would have an estimated effect on quarterly pre-tax income of approximately $20 million, while a $1.00 per-barrel change in oil prices would have a quarterly pre-tax impact of approximately $39 million. If production levels change, the sensitivity of Occidental's results to oil and gas prices also would change.

The increase in sales volumes for the three months ended June 30, 2009, compared to the same period of 2008 includes increases of 20,000 BOE per day from Dolphin (reflecting higher cost recovery volumes), 18,000 BOE per day from Argentina (including new production and the positive effects of fewer strikes), 17,000 BOE per day from Oman and 12,000 BOE per day from domestic operations; partially offset by a 19,000 BOE per day reduction due to the new contract terms in Libya. The increase in sales volumes for the six months ended June 30, 2009, compared to the same period in 2008, includes increases of 16,000 BOE per day from Oman, 16,000 BOE per day from domestic operations, 14,000 BOE per day from Argentina and 10,000 BOE per day from Dolphin; partially offset by a 16,000 BOE per day reduction due to the new contract terms in Libya.

Oil and gas cash production costs, excluding production and property taxes, declined from $12.13 per BOE for the total year 2008 to $10.17 per BOE and $10.32 per BOE for the three and six months ended June 30, 2009, respectively. This decline is due to lower workover, maintenance and utilities costs and the effect of higher production sharing volumes.

On July 22, 2009, Occidental announced that it had made a significant discovery of oil and gas reserves in Kern County, California. The bulk of the discovery's producing zones are conventional oil and gas bearing formations with approximately two-thirds of the discovery believed to be natural gas. Occidental is currently producing over 18,000 gross BOE per day from this multi-pay zone discovery area. Occidental's interest in the discovery area is approximately 80 percent.

In April 2009, Occidental and its partner signed a Development and Production Sharing Agreement (DPSA) with the National Oil and Gas Authority of Bahrain for further development of the Bahrain Field. Under this agreement, a Joint Operating Company will be formed to serve as operator for the project under the DPSA. Occidental's net share of production is expected to be approximately 28,000 BOE per day in 2010 growing to 56,000 BOE per day by 2015.

Chemical Segment

Chemical segment earnings for the three and six months ended June 30, 2009, were $115 million and $284 million, respectively, compared to $144 million and $323 million for the same periods of 2008. The decrease in chemical segment earnings for the three and six months ended June 30, 2009, compared to the same periods of 2008, reflected the continued weakness in the U.S. housing, automotive and durable goods sectors, resulting in lower volumes for chlorine, caustic soda and polyvinyl chloride. The lower volumes were offset partially by lower feedstock and energy costs.

Midstream, Marketing and Other Segment

Midstream and marketing segment earnings for the three and six months ended June 30, 2009, were $63 million and $77 million, respectively, compared to $161 million and $284 million for the same periods of 2008. The decrease in midstream and marketing earnings reflected lower margins in the gas processing, marketing and power generation businesses.

Corporate

During the six months ended June 30, 2009, Occidental recorded pre-tax charges of $40 million for severance, of which $8 million was recorded in the three months ended June 30, 2009, and $15 million related to railcars sub-leased to a company that recently filed for bankruptcy reorganization.

In May 2009, Occidental issued $750 million of 4.125-percent senior unsecured notes, receiving $740 million of net proceeds. Interest on the notes will be payable semi-annually in arrears on June 1 and December 1 of each year. The notes will mature on June 1, 2016.

Liquidity and Capital Resources

At June 30, 2009, Occidental had approximately $1.8 billion in cash on hand. Available but unused lines of committed bank credit totaled approximately $1.5 billion at June 30, 2009. Income and cash flows are largely dependent on oil and gas prices, which have fallen steeply since mid-2008, and sales volumes. Occidental believes that cash on hand and cash generated from operations will be sufficient to fund its operating needs, planned capital expenditures and dividends. In July 2009, Dolphin refinanced its current debt to longer-term debt. In connection with this activity, Occidental repaid its portion of the Dolphin debt, which was approximately $600 million and was included in current maturities of long-term debt and notes payable on the June 30, 2009 balance sheet.

Occidental's cash flow from operations for the six months ended June 30, 2009 was approximately $2.2 billion, net of cash used for working capital of $555 million. The working capital use was the result of payments for higher capital spending and other operating expenses during the fourth quarter of 2008, which were accrued at year-end, slightly offset by lower receivables due to the decline in oil and gas prices. Occidental's cash provided by operating activities for the first six months of 2008 was $5.0 billion. The most important sources of the decrease in operating cash flow in 2009, compared to 2008, were lower oil and natural gas prices. In the first six months of 2009, compared to the same period in 2008, Occidental's average worldwide realized oil price was lower by 53 percent and Occidental's average realized natural gas price decreased 65 percent in the U.S., where approximately 68 percent of Occidental's natural gas was produced. In addition, the decrease in NGL prices in 2009, compared to 2008, resulted in lower gas processing margins in the midstream and marketing segment. The overall impact of the chemical and midstream and marketing segments' margins on cash flow was less

significant than the decreases in oil and gas prices because the chemical and midstream and marketing segments' earnings and cash flows are significantly smaller than those for the oil and gas segment.

Occidental's net cash used by investing activities was $2.4 billion for the first six months of 2009, compared to $4.2 billion for the same period of 2008. The 2009 amount included cash payments for scheduled signing bonuses and acquisitions of various oil and gas and chemical interests of $534 million. The 2008 amount included cash payments for signing bonuses and acquisitions of oil and gas interests from Plains Exploration & Production Company for $1.5 billion. Capital expenditures for the first six months of 2009 were $1.9 billion, including $1.5 billion for oil and gas. Capital expenditures for the first six months of 2008 were $1.9 billion, including $1.6 billion for oil and gas.

Occidental's net cash provided by financing activities was $219 million in the first six months of 2009, compared to $1.3 billion used by financing activities for the same period of 2008. The 2009 amount included net proceeds of $740 million from the issuance of 4.125-percent senior notes due 2016 and dividend payments of $520 million. The 2008 amount included $860 million of cash paid for repurchases of Occidental's common stock and $413 million of dividend payments.

At June 30, 2009, under the most restrictive covenants of existing financing agreements, Occidental's capacity for additional unsecured borrowing was approximately $66.1 billion, and the capacity for the payment of cash dividends and other distributions on, and for acquisitions of, Occidental's capital stock was approximately $25.4 billion, assuming that such dividends, distributions and acquisitions were made without incurring additional borrowing.

Occidental's capital spending estimate for 2009 is approximately $3.6 billion and will focus on the goal of keeping Occidental's returns well above its cost of capital given current oil and gas prices and the cost environment.

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. Occidental's environmental compliance costs have generally increased over time and could continue to rise in the future. Occidental factors environmental expenditures for its operations into its business planning process as an integral part of producing quality products responsive to market demand.

The laws that require or address environmental remediation, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar federal, state, local and foreign laws, may apply retroactively and regardless of fault, the legality of the original activities or the current ownership or control of sites. OPC or certain of its subsidiaries participate in or actively monitor a range of remedial activities and government or private proceedings under these laws with respect to alleged past practices at operating, closed and third-party sites. Remedial activities may include one or more of the following: investigation involving sampling, modeling, risk assessment or monitoring; cleanup measures involving removal, treatment or disposal; or operation and maintenance of remedial systems. The environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties, injunctive relief and government oversight costs.

As of June 30, 2009, Occidental participated in or monitored remedial activities or proceedings at 167 sites. The following table presents Occidental's environmental remediation reserves as of June 30, 2009, the current portion of which is included in accrued liabilities ($68 million) and the remainder in deferred credits and other liabilities - other ($339 million). The reserves are grouped in the following four categories of environmental remediation sites: (1) sites listed or proposed for listing by the U.S. Environmental Protection Agency on the CERCLA National Priorities List (CERCLA NPL); (2) other third-party sites; (3) Occidental-operated sites; and (4) Occidental's closed or non-operated sites.

                                             Number      Reserve Balance
                                            of Sites      (in millions)
CERCLA NPL sites                                40        $        58
Other third-party sites                         77                107
Occidental-operated sites                       19                119
Occidental's closed or non-operated sites       31                123
Total                                          167        $       407

As of June 30, 2009, Occidental's environmental reserves exceeded $10 million at 13 of the 167 sites described above, and 114 of the sites had reserves from $0 to $1 million. Occidental expects to expend funds corresponding to about half of the current environmental reserves over the next four years and the balance over the subsequent ten or more years. Occidental believes its range of reasonably possible additional loss beyond those liabilities recorded for environmental remediation at the sites described above could be up to $400 million. The status of Occidental's involvement with the sites and related significant assumptions have not changed materially since December 31, 2008.

Refer to the "Environmental Liabilities and Expenditures" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Occidental's Annual Report on Form 10-K for the year ended December 31, 2008 for additional information regarding Occidental's environmental expenditures.

Lawsuits, Claims, Commitments, Contingencies and Related Matters

OPC or certain of its subsidiaries are named, in the normal course of business, in lawsuits, claims and other legal proceedings that seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. OPC or certain of its subsidiaries also have been named in proceedings under CERCLA and similar federal, state, local and foreign environmental laws. These environmental proceedings seek funding or performance of remediation and, in some cases, compensation for alleged property damage, punitive damages, civil penalties and injunctive relief; however, Occidental is usually one of many . . .