Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

10. Fair Value Measurements

Occidental has categorized its assets and liabilities that are measured at fair value, based on the priority of the inputs to the valuation techniques, in a three-level fair value hierarchy: Level 1 — using quoted prices in active markets for identical assets or liabilities; Level 2 — using observable inputs other than quoted prices; and Level 3 — using unobservable inputs.  Transfers between levels, if any, are recognized at the end of each reporting period.

Fair Values — Recurring

Occidental primarily applies the market approach for recurring fair value measurements, maximizes its use of observable inputs and minimizes its use of unobservable inputs. Occidental utilizes the mid-point price between bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value. In addition to using market data, Occidental makes assumptions in valuing its assets and liabilities, including assumptions about the risks inherent in the inputs to the valuation technique.  For assets and liabilities carried at fair value, Occidental measures fair value using the following methods:

Trading securities — Quoted prices in active markets exist and are used to provide fair values for these instruments. These securities are classified as Level 1.

Commodity derivatives — Occidental values exchange-cleared commodity derivatives using closing prices provided by the exchange as of the balance sheet date.  These derivatives are classified as Level 1. Over-the-Counter (OTC) financial commodity contracts, options and physical commodity forward purchase and sale contracts are generally valued using quotations provided by brokers or industry-standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility factors, credit risk and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.  Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace. Occidental classifies these measurements as Level 2.

Occidental generally uses an income approach to measure fair value when there is not a market-observable price for an identical or similar asset or liability.  This approach utilizes management’s assumptions regarding expectations of projected cash flows, and discounts the expected cash flows using a risk-adjusted discount rate.

The following tables provide fair value measurement information for such assets and liabilities that are measured on a recurring basis as of September 30, 2011 and December 31, 2010 (in millions):

	Fair Value Measurements at September 30, 2011 Using
Description	Level 1		Level 2		Level 3		Netting and Collateral		(a)	Total Fair Value
Assets:
Trading equity securities — natural resources industry	$	139	$	—	$	—	$	—		$	139
Commodity derivatives	727		911		—		(1,390		)	248
Total assets	$	866	$	911	$	—	$	(1,390	)	$	387
Liabilities:
Commodity derivatives	$	697	$	1,027	$	—	$	(1,431	)	$	293
Total liabilities	$	697	$	1,027	$	—	$	(1,431	)	$	293

	Fair Value Measurements at December 31, 2010 Using
Description	Level 1		Level 2		Level 3		Netting and Collateral		(a)	Total Fair Value
Assets:
Trading equity securities — natural resources industry	$	116	$	—	$	—	$	—		$	116
Trading U.S. treasury securities	10		—		—		—			10
Commodity derivatives	178		797		—		(680		)	295
Total assets	$	304	$	797	$	—	$	(680	)	$	421
Liabilities:
Commodity derivatives	$	201	$	916	$	—	$	(736	)	$	381
Total liabilities	$	201	$	916	$	—	$	(736	)	$	381

(a)Represents the impact of netting assets, liabilities and collateral when a legal right of offset exists.

Fair Values - Nonrecurring

During the three and nine months ended September 30, 2011 and 2010, Occidental did not have any assets or liabilities measured at fair value on a non-recurring basis.

Other Financial Instruments

The carrying amounts of cash and cash equivalents and other on-balance-sheet financial instruments, other than fixed-rate debt, approximate fair value.  The cost, if any, to terminate off-balance-sheet financial instruments is not significant.  Occidental estimates the fair value of fixed-rate debt based on the quoted market prices for those instruments or on quoted market yields for similarly rated debt instruments, taking into account such similar instruments’ maturities.  The estimated fair values of Occidental’s debt, as of September 30, 2011 and December 31, 2010, were approximately $6.2 billion and $5.5 billion, respectively, compared to carrying values of $5.9 billion and $5.1 billion, respectively.