Occidental Petroleum California Oil Story Could Get More Interesting

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1 EQUITY RESEARCH COMPANY UPDATE April 30, 2012 Stock Rating: OUTPERFORM mo. Price Target $ OXY - NYSE $ Yr. EPS Gr. Rate NA 52-Wk Range $ $66.36 Shares Outstanding 811.1M Float 800.3M Market Capitalization $73,984.5M Avg. Daily Trading Volume 3,844,449 Dividend/Div Yield $2.16/2.37% Book Value $46.40 Fiscal Year Ends Dec 2012E ROE 16.8 % LT Debt $5,871.0M Preferred NA Common Equity $37,620M Convertible Available No EPS Diluted Q1 Q2 Q3 Q4 Year Mult. 2010A x 2011A x 2012E 1.92A x Prior (E) NM 2013E x Prior (E) NM ENERGY/OIL & GAS Occidental Petroleum California Oil Story Could Get More Interesting SUMMARY OXY continues to grow its domestic oil and NGLs production, mainly from the Permian Basin and California, where it is one of the largest leaseholders. While the Permian will remain a key strategic asset for the company, conventional and unconventional oil potential in California has attracted investors' attention in recent years and many believe it is the key to the company's future oil production growth, reserve additions, financial results and valuation. With $3.8B cash, $5.9B debt, and positive free cash flow, OXY has the financial flexibility to grow its dividend, make tactical acquisitions and repurchase its shares when the price dips below a certain level the company considers to be cheap. Our new estimates reflect updated guidance. KEY POINTS 1Q12 Results. Earnings were $1.56B, or $1.92/share, matching consensus, but down 2% from 1Q11 and 5% sequentially. Earnings were 89% Upstream, 6% Chemical and 5% Midstream & Marketing. Earnings were impacted by production disruptions, a 10 mboed under-lift, and weak chemical results, partly offset by higher oil production and prices. Upstream. Production averaged 755 mboed, up 3% from a year ago and 1% sequentially, with higher domestic output and a resumption of Libyan volumes offsetting weather and geopolitical disruptions and 10 mboed in PSC impacts (YoY). Production mix was 72% liquids and 60% US. Realizations averaged $69.30/boe, up 9% and 6%. Other Businesses. Chemical earnings were $184M, down 16% from a year ago, driven by lower demand for exports and de-icing products and higher costs, but up 28% sequentially on stronger PVC consumption. Midstream & Marketing earnings were $131M, up 15% and 87%, mostly from trading. Financial Condition. Operating cash flow of $2.95B funded $2.4B in CAPEX and around $440M of dividends. CAPEX increased 82% from a year ago due to projects like Shah sour gas and the Elk Hills gas plant. Debt of $5.9B was flat sequentially. Stock Performance. OXY shares declined 2.1% YTD, vs. 1% for peers and a gain of up 11.7% for the S&P 500. OXY is trading 22% below its 12-month high and 38% from its low, vs. 26% and 33% for peers and 1% and 31% for the S&P 500. Stock Price Performance Company Description Occidental is an oil and gas exploration and production company in the US with a growing presence in the Middle East, Colombia, Russia and Pakistan. OXY has more than 3.3 bboe of proved reserve and 730 mboed of production, a majority in the US. Fadel Gheit fadel.gheit@opco.com Robert Du Boff, CFA Robert.DuBoff@opco.com Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures and Certifications" section at the end of this report for important disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. Oppenheimer & Co Inc. 85 Broad Street, New York, NY Tel: Fax:

2 1Q12 Results Net income was $1.6 billion or $1.92/share, down 2% from a year ago and 5% sequentially, despite higher production and realized prices, compared with the prior periods. Earnings were reduced by.05/share as a result of higher insurgent activity in Colombia, maintenance in Qatar, labor dispute in Yemen, and weather disruption at Elk Hills, which were partially offset by oil increased volumes in Libya. Table 1: Segment Earnings ($ in millions, except per share data) % of 1Q12/ 2012E/ 1Q12 Total 1Q11 4Q E 2011 Oil & Gas 2,504 89% 0% -1% 10,327 0% Chemical 184 7% -16% 28% % Midstream 131 5% 15% 87% 468 5% Operating Earnings 2, % -1% 2% 11,497-1% Corporate & Other Exp. (1,259) 1% 13% -5,032 6% Adjusted Net Income 1,560-2% -5% 6,465-5% Adjusted EPS Diluted $1.92-2% -5% $7.97-5% Production Total production averaged a record 755 mboed in 1Q12, up more than 3% from a year ago and 1% sequentially. Sales volumes averaged 745, or 10 mboed below production, which is a larger than usual underlift due to shipment timing, mainly in Libya and Iraq. Table 2: Production Profile % of 1Q12/ 2012E/ 1Q12 Total 1Q11 4Q E 2011 U.S. Oil (mbd) % 10% 2% % NGL (mbd) 72 10% 22% 3% 74 8% Gas (mmcf/d) % 14% 0% 838 7% Total (mboed) % 13% 1% 468 9% Foreign Oil (mbd) % -12% -2% 211-4% NGL (mbd) 9 1% -18% 0% 9 0% Gas (mmcf/d) % 6% 7% 462 5% Total (mboed) % -8% 0% 297-2% Worldwide Oil (mbd) % -2% 0% 466 4% NGL (mbd) 81 11% 16% 3% 83 5% Gas (mmcf/d) 1,297 29% 11% 2% 1,301 6% Total (mboed) % 3% 1% 766 4% United States. OXY is the largest liquids producer in the U.S. lower 48, which averaged 244 mbd, up 10% and 2% from the prior periods. Total US production was 455 mboed, the sixth consecutive record, and was 53% oil, 17% NGL, and 30% gas, and was up 13% and 1% from the prior periods, respectively. Weather-related power outages in California reduced Elk Hills gas production. Latin America. Production averaged 26 mbd, including 24 mbd in Colombia, which was reduced by 7 mbd due to pipeline disruptions from higher insurgent activity. Middle East. Libyan production averaged 20 mbd, including additional entitlements related to the post-2011 civil war. Iraq production averaged 5 mbd, a decline of 4 mbd sequentially, mainly as a result of reduced capital spending. Production in Yemen averaged 17 mbd, down by 6 mbd sequentially, reflecting the expiration of the Masila field in December, partially offset by typically higher cost production. Oman production was 40 mbd, down 2 mbd sequentially due to operational issues. Qatar production averaged 72 mbd, down 4 mbd sequentially due to maintenance in March. Total production from Dolphin and Bahrain increased 3 mbd sequentially, reflecting higher average oil prices from 1Q11 and impacts on PSC. 2

3 Prices & Profits Oil prices averaged $107.98/b, up 17% from a year ago and 8% sequentially. NGL prices averaged $52.51/b, flat with a year ago, but down 5% sequentially, while gas prices averaged $2.22/mcf, down 27% and 19%, respectively. Realized oil prices in 1Q12 averaged 105% of WTI and 91% of Brent Price. NGL prices were 51% of WTI, which was low by historical averages (73% of WTI) reflecting oversupply. Price changes impact OXY pretax quarterly income by $36 million for every $1/b change in oil prices, $8 million for a $1/b change in NGL prices, and $70 million for every $1/mcf change in natural gas prices. Table 3: Average Realization 1Q12/ 2012E/ 1Q12 1Q11 4Q E 2011 U.S. Oil ($/b) $ % 10% $ % NGL ($/b) $ % -8% $ % Gas ($/mcf) $ % -21% $ % Total ($/boe) $ % 4% $ % Foreign Oil ($/b) $ % 8% $ % NGL ($/b) $ % 8% $ % Gas ($/mcf) $1.05 4% -9% $3.34 3% Total ($/boe) $ % 9% $ % Worldwide Oil ($/b) $ % 8% $ % NGL ($/b) $ % -5% $ % Gas ($/mcf) $ % -19% $ % Total ($/boe) $ % 6% $ % Production costs averaged $14/boe in 1Q12, up from $12.84/boe for the full year 2011 and in line with $14.22/boe in 4Q11. The cost increase reflects higher well maintenance activity. Taxes other than on income, which are directly related to product prices, were $2.49/b in 1Q12, compared to $2.21/b for full year Exploration expense in 1Q12 was $98 million, in line with guidance. Chemicals & Midstream Chemicals earnings were $184 million, down 16% from a year ago, but up 28% sequentially. The decline from 1Q11 was due to lower export volumes and higher raw material costs, caused by a rapid increase in ethylene prices. The sequential improvement was due to improved domestic demand for polyvinyl chloride, helped by unseasonably mild weather, which started the construction season earlier. Calcium chloride sales volumes for de-icing applications declined sharply due to the mild winter weather. Midstream earnings were $131 million, up 87% sequentially, with most of the gain driven by improved marketing and trading results. Financial Condition The effective tax rate was 42% and was above guidance due to higher Libya production. Operating cash flow was $2.8 billion, up $600 million from the 1Q11 level, and cash on hand funded $2.4 billion in CAPEX, $375 million in dividends, and $300 million increase in working capital, resulting in a $3.8 billion cash balance at the end of the quarter. CAPEX was down sequentially, and was 84% in Oil and Gas, 14% in Midstream, 2% Chemicals. Debt ratio was 13%. OXY increased its annual dividends by.32, or 17%, to $2.16 per share. Table 4: Financials ($ in millions, except per share data) 1Q12/ 2012E/ 1Q12 1Q11 4Q E 2011 Total Debt 5,873 24% 0% 5,871 0% Equity 38,747 15% 3% 42,339 13% Debt Ratio 13% % - Operating Cash Flow 2,954 5% -4% 12,203 2% CFPS $3.64 5% -4% $ % Free Cash Flow % -28% 2,153 NM CAPEX 2,412 82% -5% 8,300 10% Total Dividend % 17% 1,751 22% 3

4 Share Repurchase. OXY repurchases its shares only when it determines that they are cheap, but SEC rules restrict share repurchase during reporting periods and other major events even during periods of sharp decline. OXY has a $3.8 billion cash balance, which must be invested profitably, but it is under no pressure to make acquisitions, unless an attractive deal comes up. At present, it does not see any bargains out there and is very cautious about large-scale acreage acquisitions. OXY indicated that capital requests from its divisions are almost double its spending budget because of its ample potential opportunities in California and in the Permian. Operational Update All of OXY's domestic production growth in 1Q12 growth was in liquids, up from 310 mbd to 316 mbd, while gas production was flat. OXY, like other operators, is sharply reducing gas drilling in response to low gas prices and expects to reduce drilling activity in the liquids-rich gas plays if the current low NGL prices continue. California. The rig count at the end of 1Q12 was unchanged and is expected to remain at current levels through the middle of the year. OXY is seeing improvement in securing drilling permits and has received approved field rules and new permits for injection wells and drilling locations. OXY expects to maintain its CAPEX at current levels through the first half of the year, which should allow production growth, and intends to review spending for the second half of the year to reflect improvement in the regulatory environment. Beginning in 2011, OXY increased its development program focus on opportunities outside its traditional Elk Hills area, where production declined by 14%, while the rest of its California production from conventional steam and shale programs increased by 30% with all of the increase driven by liquids. Excluding Elk Hills, liquids production increased by 17 mbd, or 35%, and OXY expects most of the California production growth in the near future to come from liquids as it expects to drill far fewer gas wells. OXY believes that a large increase in rig count in California is counterproductive under the current circumstances and it expects to add rigs in 4Q12 once the pace of new drilling permits becomes clearer, because it is difficult to drop rigs in California, since it is almost the only company drilling in California. The new Elk Hills gas plant should improve operating efficiency and production in 2H12. The plant is on schedule and is in start-up mode, but given the low gas prices it is likely to operate well below design capacity. OXY has a large gas drilling inventory in California, which would likely be drilled when gas prices recover. OXY intends to shift the high-pressure gas to the new plant and keep the low pressure gas in the old plant. Permian Basin. OXY is running 26 rigs in the basin, up three rigs during the quarter, and expects to maintain the current rig count this year. OXY has 2.9 million gross acres (1 million net acres) in several plays in the Permian basin that are expected to drive its future growth. In addition, OXY has interests in 74 wells drilled by partners in 1Q12 and expects 300 additional during the rest of the year. OXY expects half of its rigs in the Basin in 2012 to drill Wolfberry development wells, and the other half to be drilling development wells in some of the other plays in the basin. OXY has eight rigs currently running on its CO2 flood program, drilling largely infill development wells. OXY has resolved issues surrounding the CO2 Century plant, operated by Sandridge. OXY expects that the CO2 production would grow, not be flat, and that it has a large amount of CO2. OXY has two rigs drilling horizontal Wolfcamp wells and two rigs drilling the Bone Springs horizontals. Mid-Continent/Other. In the Williston, OXY had 13 rigs running at the end of 1Q12 down from 14 at the end of 2011, and expects to reduce the number to six rigs by the end of this year as the company continues to shift capital to California and the Permian. International Operations U.A.E. The Al Hosn Gas project is 38% complete, is progressing as planned, and accounted for 10% of OXY total capital program in 1Q12; if spending continues at current levels, OXY expects total CAPEX to exceed current guidance. Total development spending is expected to be within guidance. Oman. OXY is currently running 15 rigs in Oman, including 10 rigs in the north, and is working in the new Block 62, and still working Blocks 9 and 27. It is also revamping many of its facilities to achieve consistent production over 100 mbd (gross) in the north. OXY believes that it still has many more opportunities in Oman. It expects to reach 110 mbd (gross) production from the current 98 mbd level. 4

5 Iraq. Gross field production was 180 mbd when OXY took over operations and is currently 260 mbd. OXY estimates the recent permit approvals on contract awards can get gross production up to mbd over the next three years. Although production is behind the original schedule there has been some progress recently. Spending in Iraq declined from 4Q11 levels as a result of contract approval delays, although the pace has accelerated recently as the government approved several contacts, covering drilling completion services, work-overs, and logistics support. 2Q12 Guidance Oil & Gas. OXY expects its domestic production to increase by 3-4 mboed per month to quarterly average of 455 mboed, or a 6-8 mboed increase for the quarter. Colombia's 1Q12 production, which was reduced by 7 mbd due to pipeline disruption, is expected to be restored in 2Q12. Libyan production is expected to average 11 mboed in 2Q12 and to increase gradually in 2H12, reaching 14 mboed by year end. Iraqi production will reflect capital spending levels depending on contract approvals. Plant shutdowns, which reduced Dolphin production in January and February, rose sharply. Production is expected to increase modestly in 2Q12. In the rest of the Middle East, production is expected to be similar to 1Q12. OXY estimates that every $5/b change in oil prices would impact its PSC volumes by 3 mbd. OXY expects exploration expense of about $125 million for seismic and drilling for exploration programs in 2Q12. Chemicals. OXY expects earnings of $175 million with benefits from lower natural gas prices and improvements in the exports of VCM and polyvinyl chloride to be offset by planned maintenance turnarounds, and weaker domestic PVC demand, following an unusually strong start in 1Q12. Earnings Estimates We expect earnings of $6.5 billion this year, or $7.97/share, cash flow of $12.2 billion, and EBITDA of $16 billion this year and earnings of $6.8 billion, or $8.35/share, cash flow of $12.6 billion, and EBITDA of $16.8 billion next year. Our earnings and cash flow estimates are based on realized oil and gas prices that are linked to benchmark prices adjusted for normal quality and location discounts. These benchmarks for 2012 are currently $118.82/b Brent, $104.08/b WTI, and $2.36/mcf for Henry Hub natural gas. For 2013, they are $112.28/b Brent, $103.50/b WTI, and $3.23/mcf Henry Hub natural gas. We expect production to average 766 mboed this year and 812 mboed next year. Assuming CAPEX of $8.3 billion this year and $8.55 billion next year excluding acquisitions, and dividends of $1.75 billion both years, we expect OXY will generate free cash flow of $2.15 billion this year and $2.3 billion in Relative Valuation OXY is trading at lower P/E multiples, but higher P/CF multiples to its peers of large E&P companies, based on 2012 consensus estimates. Dividend yield is the highest among peers and double the peer average. OXY dividend payout ratios of 26% of earnings and 15% of cash flow are double the peer average. Its return on average capital employed is the highest in the group, more than 50% above the peer average, and its net debt ratio of 5% is the second lowest in the group with a 23% average. OXY has the highest unit profit in the group and its implied reserve value (IRV) of around $29/boe is slightly above the peer average of $27/boe. 5

6 $ mm $/boe $/boe $ mm mboed Occidental Petroleum E&P Peer Rankings $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 Exhibit 1: 2011 Adjusted Net Income Exhibit 2: 2011 Production $1, ($1,000) OXY APA DVN MRO HES CHK APC MUR EOG NBL SWN 0 APA OXY APC DVN CHK EOG HES MRO SWN NBL MUR Other Upstream Gas Liquids Exhibit 3: 4Q11 Average Realized Prices Exhibit 4: 4Q11 E&P Unit Profit $80.00 $25.00 $70.00 $60.00 $20.00 $50.00 $15.00 $40.00 $30.00 $10.00 $20.00 $10.00 $ HES MRO MUR OXY APA APC EOG NBL DVN CHK SWN.00 OXY HES MRO APA MUR DVN CHK NBL APC SWN EOG 12,000 Exhibit 5: 2012E CAPEX Exhibit 6: 2012E CAPEX/Operating Cash Flow 200% 10,000 8, % 6, % 4,000 2,000 50% 0 APA OXY CHK DVN EOG APC HES MRO NBL MUR SWN 0% OXY MRO APC APA MUR NBL DVN HES EOG SWN CHK 6

7 $/bbl $ bn Occidental Petroleum Exhibit 7: Net Debt Ratio 80 Exhibit 8: Market Capitalization 50% 40% 60 30% 20% 40 10% 0% 20-10% MUR OXY DVN APA SWN HES EOG NBL MRO CHK APC 0 OXY APA APC EOG DVN MRO HES NBL CHK SWN MUR Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Exhibit 9: 2012 P/E Exhibit 10: 2012 P/CF APA HES MRO MUR OXY DVN CHK NBL APC EOG SWN 0 HES APA CHK MRO MUR DVN APC EOG OXY NBL SWN Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Exhibit 11: Implied Reserve Value 2.5% Exhibit 12: Dividend Yield $40.00 $35.00 $30.00 $ % 1.5% $ % $15.00 $ % $ CHK DVN MRO MUR APC APA HES OXY SWN EOG NBL 0.0% OXY MRO MUR CHK DVN NBL HES APA EOG APC SWN Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. 7

8 Occidental Petroleum Summarized Income and Operating Model Q11 2Q11 3Q11 4Q Q12E 2Q12E 3Q12E 4Q E 1Q13E 2Q13E 3Q13E 4Q13E 2013E Operating Earnings US 4,011 1,127 1,274 1,185 1,191 4,778 1,150 1,138 1,256 1,339 4,884 1,374 1,398 1,411 1,432 5,614 Foreign 3,349 1,383 1,349 1,427 1,346 5,506 1,353 1,385 1,380 1,326 5,444 1,298 1,274 1,250 1,224 5,046 Oil & Gas 7,360 2,510 2,624 2,612 2,537 10,283 2,504 2,523 2,636 2,665 10,327 2,672 2,671 2,661 2,656 10,660 Chemicals Midstream, mktg & other Operating Earnings 8,270 2,843 3,064 2,934 2,751 11,592 2,819 2,886 2,898 2,894 11,497 2,970 3,019 2,905 2,887 11,781 Interest expense Other expense (income) Pretax 7,768 2,664 2,930 2,862 2,590 11,046 2,699 2,765 2,776 2,772 11,013 2,848 2,898 2,783 2,766 11,296 Income taxes (3,143) (1,071) (1,111) (1,087) (949) (4,218) (1,139) (1,134) (1,138) (1,137) (4,548) (1,139) (1,159) (1,113) (1,106) (4,518) Net Income 4,625 1,593 1,819 1,775 1,641 6,828 1,560 1,631 1,638 1,636 6,465 1,709 1,739 1,670 1,660 6,777 Tax rate 40% 40% 38% 38% 37% 38% 42% 41% 41% 41% 41% 40% 40% 40% 40% 40% Net Operating Income 4,625 1,593 1,819 1,775 1,641 6,828 1,560 1,631 1,638 1,636 6,465 1,709 1,739 1,670 1,660 6,777 EPS Diluted $5.68 $1.96 $2.23 $2.18 $2.02 $8.40 $1.92 $2.01 $2.02 $2.02 $7.97 $2.11 $2.14 $2.06 $2.05 $8.35 Average Diluted shares Cash Flow 8,152 2,808 2,944 3,196 3,067 12,015 2,954 3,055 3,083 3,111 12,203 3,115 3,165 3,129 3,160 12,569 Cash Flow/Share $10.04 $3.46 $3.62 $3.93 $3.78 $14.80 $3.64 $3.77 $3.80 $3.84 $15.06 $3.84 $3.91 $3.86 $3.90 $15.51 CAPEX 4,096 1,325 1,633 2,011 2,549 7,518 2,412 1,985 1,955 1,948 8,300 2,120 2,125 2,150 2,155 8,550 Acquisitions/Sales 0 3, , Share Repurchase Dividend 1, , , ,751 Free Cash Flow 2,984 (1,855) (837) , ,269 EBITDA 11,566 3,733 3,903 3,858 3,689 15,183 3,904 3,996 4,038 4,065 16,003 4,183 4,249 4,174 4,199 16,805 EBITDA/Share $14.24 $4.59 $4.80 $4.75 $4.55 $18.70 $4.82 $4.93 $4.98 $5.02 $19.74 $5.16 $5.24 $5.15 $5.18 $20.73 Production Total Oil (mbd) Total Gas (mmcf/d) 1,164 1,169 1,201 1,257 1,266 1,224 1,297 1,293 1,302 1,311 1,301 1,320 1,335 1,354 1,365 1,344 US Foreign Worldwide (mboed) Oil & Gas Prices WTI ($/b) $79.38 $94.08 $ $89.56 $93.90 $95.02 $ $ $ $ $ $ $ $ $ $ Brent ($/b) $80.16 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Henry Hub ($/mcf) $4.39 $4.14 $4.36 $4.19 $3.61 $4.07 $2.61 $2.05 $2.19 $2.62 $2.36 $3.10 $3.12 $3.24 $3.46 $3.23 Realizations US ($/boe) $60.06 $64.30 $70.59 $65.09 $66.37 $66.59 $69.26 $69.10 $70.49 $72.05 $70.22 $73.42 $73.11 $72.54 $72.72 $72.95 Foreign ($/boe) $57.32 $79.29 $87.08 $84.22 $85.39 $84.00 $92.74 $93.42 $91.48 $89.96 $91.90 $88.72 $86.88 $84.92 $83.77 $86.07 Oil- US $73.77 $88.04 $98.74 $89.78 $94.50 $92.77 $ $ $ $ $ $ $ $ $ $ Oil- Foreign $75.17 $95.96 $ $ $ $ $ $ $ $ $ $ $ $ $ $ Consolidated - Oil Worldwide $74.52 $92.14 $ $97.24 $99.62 $98.09 $ $ $ $ $ $ $ $ $ $ Gas US $4.54 $4.21 $4.27 $4.23 $3.59 $4.08 $2.84 $2.23 $2.38 $2.85 $2.58 $3.38 $3.40 $3.53 $3.77 $3.52 Gas Foreign $2.80 $1.01 $1.06 $1.11 $1.15 $3.24 $1.05 $1.09 $1.08 $1.06 $3.34 $1.04 $1.03 $1.03 $1.01 $3.16 Consolidated - Gas Worldwide $4.31 $3.05 $3.12 $3.12 $2.76 $3.89 $2.22 $1.83 $1.92 $2.21 $2.50 $2.55 $2.55 $2.62 $2.76 $3.38 Worldwide ($/boe) $61.41 $63.59 $67.67 $63.89 $65.66 $66.76 $69.30 $69.26 $69.25 $69.52 $70.12 $69.90 $69.16 $68.22 $67.98 $

9 Occidental Petroleum Oil and Gas Price Sensitivity Analysis Production Profile OXY Stock Price $90.36 /sh Dividend $1,751 mm Oil Gas Total Shares Outstanding 811 mm Yield 2.4% Region mbd mmcfd mboed Mix Market Capitalization $73.3 bn Cash (12/31/11) $3,781 mm US % 2012E CAPEX $8,300 mm Net Debt $2,090 mm Other % Income Tax Rate 41% Net Debt Ratio 5% Total 465 1, % Chemicals Estimate $701 mm Mix 68% 32% Oil Gas Earnings Cash Flow EBITDA Free Cash Multiples $/b $/mcf $mm $/sh $mm $/sh $mm $/sh $mm $/sh P/E P/CF EV/EBITDA ,379 $ ,450 $ ,246 $ ,399 $ ,216 $ ,258 $ ,970 $ ,208 $ ,053 $ ,067 $ ,694 $ ,016 $ ,890 $ ,876 $ ,417 $ ,825 $ ,727 $ ,684 $ ,141 $ ,634 $ ,375 $ ,272 $ ,546 $ ,221 $ ,212 $ ,081 $ ,269 $ ,030 $ ,049 $ ,890 $ ,993 $ ,839 $ ,886 $ ,698 $ ,717 $ ,648 $ ,723 $ ,507 $ ,441 $ ,456 $ ,372 $ ,095 $ ,845 $ ,044 $ ,209 $ ,903 $ ,569 $ ,853 $ ,046 $ ,712 $ ,293 $ ,661 $ ,883 $ ,521 $ ,016 $ ,470 $ ,720 $ ,329 $ ,740 $ ,279 $ ,369 $ ,917 $ ,145 $ $ ,206 $ ,726 $ ,869 $ ,043 $ ,534 $ ,592 $ ,880 $ ,343 $ ,316 $ ,717 $ ,152 $ ,040 $ ,366 $5.39 9,739 $ ,444 $15.35 (311) (.38) ,203 $5.19 9,548 $ ,168 $15.01 (503) (.62) ,040 $4.98 9,357 $ ,892 $14.67 (694) (.86) ,877 $4.78 9,166 $ ,616 $14.33 (885) ($1.09) ,714 $4.58 8,974 $ ,339 $13.99 (1,076) ($1.33) Sensitivity Oil ($90-$100/b) 1,003 $1.24 1,178 $1.45 1,700 $ Year Gas ($2-$3/mcf) Year Source: Company information and Oppenheimer & Co. estimates. Oil price is NYMEX WTI. Assumes a 10% premium for Brent. 9

10 (mboed) (boed / share) ($mm) ($/share) ($mm) ($mm) Occidental Petroleum Occidental 5-Year Operating Summary Earnings Summary Chemical Earnings Summary $8,000 $10 $875 $6,000 $4,000 $2,000 $8 $6 $4 $2 $750 $625 $500 $375 $250 Income EPS $125 Source: Company data and Oppenheimer & Co. Inc. Equity Research Cash Flow & CAPEX $15,000 $12,000 $9,000 $6,000 $3,000 Source: Company data and Oppenheimer & Co. Inc. Equity Research Cash Flow Summary $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $18 $15 $12 $9 $6 $3 Cash Flow CAPEX Cash Flow CFPS Source: Company data and Oppenheimer & Co. Inc. Equity Research Unit Profit ($/boe) $35 $30 $25 $20 $15 $10 $5 Source: Company data and Oppenheimer & Co. Inc. Equity Research ROACE 30% 25% 20% 15% 10% 5% 0% Foreign US Total Source: Company data and Oppenheimer & Co. Inc. Equity Research Source: Company data and Oppenheimer & Co. Inc. Equity Research 800 Production Profile Production per Share Natural Gas Oil

11 Investment Thesis We believe that OXY's upside potential is greater than the downside risk from lower crude oil and, to a lesser extent, gas prices. With oil and NGLs accounting for more than 70% of its production, OXY's earnings and cash flow are more highly leveraged to crude oil prices than its large E&P peers, which are primarily natural gas producers. A strong balance sheet and capital discipline, coupled with low cost structure and high operating efficiency, remain the cornerstones of OXY's competitive advantage. Price Target Calculation Our $125/share price target represents multiples of 15.7X P/E and 8.3X P/CF, compared with peer average multiples of 13.2X and 4.8X, respectively, based on 2012 consensus estimates. Our target implies multiples above the peer average but within the company's 5-year range. OXY has the highest return on average capital employed and second highest dividend among peers, and one of the strongest balance sheets. Its implied reserve value of roughly $29/boe is slightly above the peer average of nearly $27. Key Risks to Price Target OXY financial results are highly dependent on the price of crude oil, which accounts for 75% of production. A steep decline in oil prices below $70/b could sharply reduce OXY's earnings and cash flow and limit its financial flexibility and ability to fund its operations and to maintain its quarterly cash dividend. Important Disclosures and Certifications Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc: Stock Prices as of April 30, 2012 Apache Corporation (APA - NYSE, 95.94, OUTPERFORM) Anadarko Petroleum (APC - NYSE, 73.21, OUTPERFORM) Chesapeake Energy (CHK - NYSE, 18.44, OUTPERFORM) Devon Energy Corporation (DVN - NYSE, 69.85, OUTPERFORM) EOG Resources, Inc. (EOG - NYSE, , OUTPERFORM) Hess Corporation (HES - NYSE, 52.14, OUTPERFORM) Marathon Oil (MRO - NYSE, 29.34, OUTPERFORM) Murphy Oil Corporation (MUR - NYSE, 54.97, OUTPERFORM) Noble Energy, Inc. (NBL - NYSE, 99.32, PERFORM) Southwestern Energy Co. (SWN - NASDAQ, 31.58, PERFORM) 11

12 All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager. Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next months. Underperform (U) - Stock expected to underperform the S&P 500 within the next months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group. Distribution of Ratings/IB Services Firmwide IB Serv/Past 12 Mos. Rating Count Percent Count Percent OUTPERFORM [O] PERFORM [P] UNDERPERFORM [U]

13 Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform. Company Specific Disclosures Oppenheimer & Co. Inc. makes a market in the securities of OXY. A member of the household of an Oppenheimer & Co. Inc. research analyst who covers this company has a long position in DVN. The Oppenheimer & Co. Inc. analyst(s) who covers this company also has a long position in APA, APC, DVN and HES. The analyst/associate/member of the analyst's or associate's household owns a long position in DVN. Additional Information Available Please log on to or write to Oppenheimer & Co. 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