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 $2.0 billion for the first nine months of 2009 on net sales of $10.9 billion, compared to net income of $6.4 billion on net sales of $20.2 billion for the same period of 2008. Diluted earnings per common share (EPS) were $2.43 and $7.77 for the first nine months of 2009 and 2008, respectively. Occidental reported net income of $927 million for the third quarter of 2009 on net sales of $4.1 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 $1.14 for the third quarter of 2009 compared to diluted EPS of $2.77 for the same period in 2008.

Net income for the three and nine months ended September 30, 2009, compared to the same periods of 2008, reflected lower crude oil and natural gas prices, lower margins and volumes in the chemical segment and lower margins in the gas processing business, partially offset by higher oil and gas sales volumes and lower operating expenses, and for the three-month periods only, by better results in marketing operations.

Net income for the nine months ended September 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 nine months ended September 30, 2009, compared to the same periods of 2008, reflected lower oil, gas, caustic soda and polyvinyl chloride prices and lower volumes for chlorine, caustic soda, potassium hydroxide and polyvinyl chloride, partially offset by higher oil and gas sales volumes.

The decrease in cost of sales for the three and nine months ended September 30, 2009, compared to the same periods in 2008, was due to lower oil and gas operating costs, lower volumes for chlorine, caustic soda, potassium hydroxide and polyvinyl chloride and lower feedstock and energy costs.

The decrease in the provision for domestic and foreign income taxes for the three and nine months ended September 30, 2009, compared to the same periods in 2008, was due to lower income before taxes and reduced effective tax rates which reflect the relinquishment of international exploration contracts.

Selected Analysis of Financial Position

See "Liquidity and Capital Resources" for discussion about the change in cash and cash equivalents. The decrease in marketing, trading assets and other was due to lower receivables from derivative financial instruments, joint ventures and collection of federal tax receivables. The increase in investments in unconsolidated entities was due to the equity income from the unconsolidated investments and an investment in a pipeline network, offset by dividends received from the unconsolidated entities. The increase in property, plant and equipment was due to capital expenditures, partially offset by depreciation, depletion and amortization.

The decrease in current maturities of long-term debt and notes payable as of September 30, 2009, compared to December 31, 2008, was due to the retirement of the $600 million debt associated with the Dolphin Project, partially offset by 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 was due to lower operating costs. The increase in long-term debt, net, was attributable to the second quarter 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 due in the first quarter of 2010. The increase in stockholders' equity reflected net income for the first nine months 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 nine months ended September 30, 2009 and 2008 (in millions):

                                                      Periods Ended September 30
                                              Three Months           Nine Months
                                           2009       2008       2009       2008
Net Sales(a)
Oil and Gas                             $ 3,089   $  5,422   $  7,952   $ 15,441
Chemical                                    842      1,454      2,445      4,107
Midstream, Marketing and Other              285        381        763      1,204
Eliminations                               (112 )     (197 )     (296 )     (556 )
                                        $ 4,104   $  7,060   $ 10,864   $ 20,196
Segment Earnings (b)
Oil and Gas (c)                         $ 1,464   $  3,618   $  3,092   $ 10,312
Chemical                                     72        219        356        542
Midstream, Marketing and Other               77         66        154        350
                                          1,613      3,903      3,602     11,204

Unallocated Corporate Items
Interest expense, net (b)                   (33 )       (3 )      (76 )      (10 )
Income taxes                               (549 )   (1,546 )   (1,245 )   (4,511 )
Other expense, net (b)                     (102 )      (82 )     (297 )     (292 )

Income from continuing operations (c)       929      2,272      1,984      6,391
Discontinued operations, net (b)             (2 )       (1 )       (7 )       23
Net income (c)                          $   927   $  2,271   $  1,977   $  6,414

(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 $14 million and $38 million for the three months ended September 30, 2009 and 2008, respectively, and $35 million and $104 million for the nine months ended September 30, 2009 and 2008, respectively.

Significant Items Affecting Earnings

The following table sets forth, for the three and nine months ended September
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 September 30
                                                Three Months       Nine 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                          $     ?    $    ?   $  (40 ) $    ?
Railcar leases                                   ?         ?      (15 )      ?
Tax effect of pre-tax adjustments                ?         ?       22        ?
Discontinued operations, net*                   (2 )      (1 )     (7 )     23
Total Corporate                            $    (2 )  $   (1 ) $  (40 ) $   23
Total                                      $    (2 )  $   (1 ) $  (48 ) $   23

*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 for the three and nine months ended
September 30, 2009 and 2008 (in millions):


                                                      Periods Ended September 30
                                               Three Months          Nine Months
                                             2009      2008      2009       2008
Oil & Gas earnings (a)(b)                 $ 1,464   $ 3,618   $ 3,092   $ 10,312
Chemical earnings                              72       219       356        542
Midstream, Marketing and Other earnings        77        66       154        350
Unallocated corporate items                  (135 )    ( 85 )    (373 )     (302 )
Pre-tax income (b)                          1,478     3,818     3,229     10,902

Income tax expense
Federal and state                             189       716       349      2,123
Foreign (a)                                   360       830       896      2,388
Total                                         549     1,546     1,245      4,511

Income from continuing operations (b)     $   929   $ 2,272   $ 1,984   $  6,391

Worldwide effective tax rate                  37%       40%       39%        41%

(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 $338 million and $730 million for the three months ended September 30, 2009 and 2008, respectively, and $827 million and $1,801 million for the nine months ended September 30, 2009 and 2008, respectively.
(b) Represents amounts after deducting noncontrolling interest amounts of $14 million and $38 million for the three months ended September 30, 2009 and 2008, respectively, and $35 million and $104 million for the nine months ended September 30, 2009 and 2008, respectively.

Oil and Gas Segment

The following tables set forth the sales volumes and production of oil and
liquids and natural gas per day for the three and nine months ended September
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 September 30
                                                     Three Months       Nine Months
Sales Volumes per Day                              2009      2008     2009     2008
Oil and Liquids (MBBL)
United States                                       269       261      271      260
Middle East/North Africa                            132       117      139      127
Latin America                                        74        81       83       75

Natural Gas (MMCF)
United States                                       653       570      632      584
Middle East                                         230       190      241      200
Latin America                                        45        45       47       40

Barrels of Oil Equivalent (MBOE) per day (a)
Consolidated subsidiaries                           630       593      646      599
Other interests                                      (2 )      (5 )     (3 )     (5 )
Worldwide sales volumes                             628       588      643      594

Production per Day
Oil and Liquids (MBBL)
United States                                       269       261      271      260
Middle East/North Africa                            136       118      140      127
Latin America                                        74        82       82       76

Natural Gas (MMCF)
United States                                       653       570      632      584
Middle East                                         230       190      241      200
Latin America                                        45        45       47       40

Barrels of Oil Equivalent (MBOE) per day (a)
Consolidated subsidiaries                           634       595      646      600
Other interests                                      (2 )      (4 )     (3 )     (4 )
Worldwide production                                632       591      643      596

(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 September 30
                                        Three Months          Nine Months
Average Sales Prices                 2009       2008      2009       2008
Crude Oil ($/BBL)
United States                     $ 63.37   $ 109.50   $ 52.04   $ 104.82
Middle East/North Africa          $ 66.04   $ 114.11   $ 53.55   $ 106.81
Latin America                     $ 55.40   $  77.76   $ 46.51   $  78.23
Total consolidated subsidiaries   $ 62.72   $ 104.26   $ 51.41   $ 100.41
Other interests                   $ 71.18   $  94.17   $ 57.61   $ 110.39
Worldwide                         $ 62.79   $ 104.15   $ 51.44   $ 100.39

Natural Gas ($/MCF)
United States                     $  3.04   $   9.35   $  3.15   $   9.18
Latin America                     $  2.87   $   4.40   $  3.04   $   4.22
Worldwide                         $  2.53   $   7.11   $  2.59   $   6.95

Oil and gas segment earnings for the three and nine months ended September 30, 2009, were $1.5 billion and $3.1 billion, respectively, compared to $3.6 billion and $10.3 billion, respectively, for the same periods of 2008. The decrease in oil and gas segment earnings for the three and nine months ended September 30, 2009, compared to the same periods of 2008, reflected lower crude oil and natural gas prices, partially offset by higher oil and gas sales volumes and lower operating expenses.

In the third quarter of 2009, the average West Texas Intermediate (WTI) price was $68.30 per barrel and the average New York Mercantile Exchange (NYMEX) price for natural gas was $3.60 per million British Thermal Units (BTUs), compared to $117.98 per barrel and $10.72 per million BTUs, respectively, for the third quarter of 2008. Occidental's realized oil price for the third quarter of 2009 was $62.79 per barrel, compared to $104.15 per barrel for the third 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 $23 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 of nearly seven percent for the three months ended September 30, 2009, compared to the same period of 2008, included increases of 22,000 BOE per day from domestic operations, 16,000 BOE per day from Oman and 10,000 BOE per day from Dolphin, partially offset by 8,000 BOE per day lower volumes from Argentina. The increase in sales volumes for the nine months ended September 30, 2009, compared to the same period in 2008, included increases of 19,000 BOE per day from domestic operations, 17,000 BOE per day from Oman, 9,000 BOE per day from Dolphin and 7,000 BOE per day from Argentina, partially offset by a 11,000 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 $10.15 per BOE and $10.27 per BOE for the three and nine months ended September 30, 2009, respectively. This decline was due to lower workover, maintenance and utilities costs and the effect of higher production sharing volumes.

In July 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. As of quarter-end, Occidental was producing approximately 26,000 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. The DPSA is expected to become effective in the fourth quarter of 2009. Under this agreement, a Joint Operating Company will serve as operator for the project under the DPSA.

Chemical Segment

Chemical segment earnings for the three and nine months ended September 30, 2009, were $72 million and $356 million, respectively, compared to $219 million and $542 million for the same periods of 2008. The decrease in chemical segment earnings for the three months ended September 30, 2009, compared to the same period of 2008, reflected the continued weakness in the U.S. housing, automotive and durable goods sectors, resulting in lower margins for caustic soda and polyvinyl chloride and lower volumes for chlorine, caustic soda, potassium hydroxide and polyvinyl chloride. The decrease in chemical segment earnings for the nine months ended September 30, 2009, compared to the same period of 2008, reflected lower volumes and prices for chlorine, caustic soda and polyvinyl chloride due to the economic slowdown, partially offset by lower feedstock and energy costs.

Midstream, Marketing and Other Segment

Midstream and marketing segment earnings for the three and nine months ended September 30, 2009, were $77 million and $154 million, respectively, compared to $66 million and $350 million for the same periods of 2008. The increase in midstream and marketing earnings for the three months ended September 30, 2009, compared to the same period of 2008, reflected better results in marketing operations, partially offset by lower margins in the gas processing business. The decrease in midstream and marketing earnings for the nine months ended September 30, 2009, compared to the same period of 2008, reflected lower margins in the gas processing business.

In October 2009, Occidental announced it signed an agreement to purchase Phibro LLC (Phibro) from Citigroup Inc. for approximately net asset value as of the closing date, which is anticipated to be by the end of the year. Phibro, primarily a trader in oil and gas, will become a part of Occidental's midstream and marketing segment.

Corporate

During the nine months ended September 30, 2009, Occidental recorded pre-tax charges of $40 million for severance 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 September 30, 2009, Occidental had approximately $1.6 billion in cash on hand. Available but unused lines of committed bank credit totaled approximately $1.5 billion at September 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, Occidental repaid its $600 million debt associated with the Dolphin Project's then-existing debt. Occidental had also guaranteed a portion of such debt, $245 million; Occidental's guarantees on such debt were consequently terminated. Also in July 2009, Dolphin Energy refinanced its then-existing debt on a limited-recourse basis. Occidental provided limited guarantees in connection with Dolphin Energy's new financing. The fair values of the new guarantees are insignificant.

Occidental's cash flow from operations for the nine months ended September 30, 2009 was approximately $3.8 billion, net of cash used for working capital of $826 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, and higher receivables due to increasing oil and gas prices since the 2008 year-end. Occidental's cash provided by operating activities for the first nine months of 2008 was $8.1 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 nine months of 2009, compared to the same period in 2008, Occidental's average worldwide realized oil price was lower by 49 percent and Occidental's average realized natural gas price decreased 66 percent in the U.S., where approximately 69 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 $3.2 billion for the first nine months of 2009, compared to $6.5 billion for the same period of 2008. The 2009 amount included cash payments for scheduled foreign bonuses and acquisitions of various oil and gas and chemical interests of $582 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, an interest in the Joslyn Oil Sands Project for approximately $500 million, a Libya signature bonus for approximately $450 million and an equity interest in a U.S. oil and gas pipeline entity for approximately $330 million. Capital expenditures for the first nine months of 2009 were $2.6 billion, including $2.1 billion for oil and gas. Capital expenditures for the first nine months of 2008 were $3.1 billion, including $2.5 billion for oil and gas.

Occidental's net cash used by financing activities was $764 million in the first nine months of 2009, compared to $2.2 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, Occidental's payment of $600 million of debt associated with the Dolphin Project and dividend payments of $794 million. The 2008 amount included $1.5 billion of cash paid for repurchases of Occidental's common stock and $677 million of dividend payments.

At September 30, 2009, under the most restrictive covenants of existing financing agreements, Occidental's capacity for additional unsecured borrowing was approximately $68.7 billion, and the capacity for the payment of cash dividends and other distributions on, and for acquisitions of, Occidental's capital stock was approximately $26.4 billion, assuming that such dividends, distributions and acquisitions were made without incurring additional borrowing.

Occidental's capital spending estimate for 2009 is approximately $3.7 billion and will focus on the goal of keeping Occidental's returns well above its cost of capital.

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 including sampling, modeling, risk assessment or monitoring; cleanup measures including 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 September 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 September 30, 2009, the current portion of which is included in accrued liabilities ($67 million) and the remainder in deferred credits and other liabilities - other ($334 million). The reserves are grouped in four categories of environmental remediation sites - sites listed or proposed for listing by the U.S. Environmental Protection Agency on the CERCLA National Priorities List (NPL) as well as non-NPL third-party sites, Occidental-operated sites and closed or non-operated Occidental sites.

                                           Number      Reserve Balance
                                          of Sites      (in millions)
NPL sites                                     40        $        56
Third-party sites                             77                 99
Occidental-operated sites                     19                127
Closed or non-operated Occidental sites       31                119
Total                                        167        $       401

As of September 30, 2009, Occidental's environmental reserves exceeded $10 million at 14 of the 167 sites described above, and 117 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 $390 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 . . .