Occidental Petroleum (OXY) Risk Analysis

Occidental’s businesses are subject to the actions and decisions of many federal, state, local and international governments and political interests. As a result, Occidental faces risks of: ¦New or amended laws and regulations, or new or different applications or interpretations of existing laws and regulations, including those related to drilling, manufacturing or production processes (including flaring and well stimulation techniques such as hydraulic fracturing and acidization), pipelines, labor and employment, taxes, royalty rates, permitted production rates, entitlements, import, export and use of raw materials, equipment or products, use or increased use of land, water and other natural resources, air emissions, water recycling and disposal, waste minimization and disposal, safety, the manufacturing of chemicals, asset integrity management, the marketing or export of commodities, security, environmental protection, and climate change-related and sustainability initiatives, all of which may restrict or prohibit activities of Occidental or its contractors, increase Occidental’s costs or reduce demand for Occidental’s products. In addition, violation of certain governmental laws and regulations may result in strict, joint and several liability and the imposition of significant civil and criminal fines and penalties; ¦Refusal of, or delay in, the extension or grant of exploration, development or production contracts; and ¦Development delays and cost overruns due to approval delays for, or denial of, drilling, construction, environmental and other regulatory approvals, permits and authorizations. In November 2021, Congress passed and President Biden signed the Infrastructure Investment and Jobs Act. This law reinstates the federal Superfund excise taxes on various chemicals that OxyChem manufactures. These excise taxes could lead to higher costs and impact margins. In November 2021, the House of Representatives passed the Build Back Better Act (BBB), which contains several climate-related provisions. While the BBB was not enacted in 2021, renewed efforts are expected in 2022 to legislate BBB or portions thereof. Provisions, if any, that reduce demand for oil and gas could negatively affect Occidental’s revenue. In November 2021, the U.S. Department of the Interior (DOI) released its Report on the Federal Oil and Gas Leasing Program, recommending increasing royalty rates and rents for drilling programs on federal public lands and in federal offshore waters, in addition to prioritizing leasing in areas with known resource potential and in proximity to existing oil and gas infrastructure and avoiding leasing in areas with competing uses such as recreation, wildlife habitat, conservation and historical and cultural resources. If enacted, the regulations could increase royalties payable to the federal government and limit future potential drilling sites. In January 2022, the U.S. District Court for the District of Columbia issued a decision to invalidate the results of Bureau of Ocean Energy Management’s oil and gas lease sale in the Gulf of Mexico, of which Occidental was the high bidder on 30 additional new blocks located nearby to its existing host platforms, ruling that the environmental analysis of GHG emissions was inadequate under the National Environmental Policy Act (NEPA). The DOI, which oversees federal oil and gas development, is currently reviewing the decision. The decision does not affect Occidental’s existing leases or operations, but restrictions or uncertainty regarding federal lease sales and associated NEPA requirements could impact the ability to develop resources in areas outside of existing leases. In January 2021, the Colorado Oil and Gas Conservation Commission (COGCC) adopted new regulations that impose siting requirements or “setbacks” on certain oil and gas drilling locations based on the distance of a proposed well pad to occupied structures. Pursuant to the regulations, well pads cannot be located within 500 feet of an occupied structure without the consent of the property owner. As part of the permitting process, the COGCC will consider a series of siting requirements for all drilling locations located between 500 feet and 2,000 feet of an occupied structure. Alternatively, the operator may seek a waiver from each owner and tenant within the designated distance. Occidental has a dedicated, multidisciplinary stakeholder relations team that conducts regulatory and community outreach with respect to its permit applications and operations in Colorado. While Occidental has not been denied any permits, and received its first approved Oil and Gas Development Plan permit under the new state regulations in the fourth quarter of 2021, any significant delays could result in changes to our development program in the DJ Basin and our ability to establish new proved undeveloped (PUD) locations by meeting the SEC’s “reasonably certain” threshold for adding PUD reserves. Texas and New Mexico have experienced an increase in seismic activity, with events measuring magnitude 3 or greater in each state. In the fourth quarter of 2021, both states issued new guidelines for operators to prevent or mitigate seismic activity, focused on produced water disposal wells. These guidelines also require operators to implement response plans for activities within agency-designated seismic response areas. These states have curtailed water disposal and suspended permits in seismic response areas, particularly in deep disposal wells. Occidental does not operate deep disposal wells in the seismic response areas established by the state agencies to date, and its shallow disposal wells have been authorized to operate at agency-approved volume limits. Occidental also has central water treatment and recycling facilities that reduce the need for disposal of produced water. While Occidental’s ability to drill and complete wells or to dispose of surplus produced water has not been impacted by these seismic guidelines to date, increased seismicity, or regulatory responses to seismic events, could impact the location, timing and cost of Occidental’s development program and existing operations in seismic response areas. In addition, Occidental has experienced and may continue to experience adverse consequences, such as risk of loss or production limitations, because certain of its international operations are located in countries affected by political instability, nationalizations, corruption, armed conflict, terrorism, insurgency, civil unrest, security problems, labor unrest, Organization of the Petroleum Exporting Countries (OPEC) production restrictions, equipment import restrictions and sanctions. Exposure to such risks may increase if a greater percentage of Occidental’s future oil and gas production or revenue comes from international sources.