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LEASE COMMITMENTS | 12 Months Ended
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Dec. 31, 2019
Leases [Abstract] |
LEASE COMMITMENTS |
NOTE 8 - LEASE COMMITMENTS
On January 1, 2019, Occidental adopted ASC 842 using the modified retrospective approach, which provided a method for recording existing leases at adoption and did not require restatement of prior year amounts and disclosures, which continue to be reflected in accordance with ASC 840. Occidental elected certain practical expedients as follows: Ø Leases that commenced before the effective date carried forward their historical lease classification.
Ø | Existing or expired land easements as of December 31, 2018, were not reassessed to determine whether or not they contained a lease.
Ø | Leases with a lease term of 12 months or less from lease commencement date are considered short-term leases and not recorded on the Consolidated Balance Sheet; however, the lease expenditures recognized are captured and reported as incurred.
Ø | For asset classes, except long-term drilling rigs, Occidental elected to account for the lease and non-lease components as a single lease component as the non-lease portions were not significant to separate in determining the lease liability. For long-term drilling rig contracts, Occidental bifurcated the lease and non-lease components using relative fair value as a stand-alone selling price between the asset rental and the services obtained.
ASC 842 requires lessees to recognize a ROU asset and lease liability for all long-term leases. A ROU asset represents Occidental’s right to use an underlying asset for the lease term and the associated lease liability represents the discounted obligation of future minimum lease payments. Occidental identifies leases through its accounts payable and contract monitoring process. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU assets include the discounted obligation in addition to any upfront payments or costs incurred during the contract execution of the lease and amortized on a straight-line basis over the course of the lease term. Except for leases with explicitly defined contract terms, Occidental utilizes judgment to assess likelihood of renewals, terminations and purchase options, in order to determine the lease term. Occidental uses the incremental borrowing rate at commencement date to determine the present value of lease payments. The incremental borrowing rate equates to the rate of interest that Occidental would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain leases include variable lease payments which are over and above the minimum lease liability used to derive the ROU asset and lease liability and are based on the underlying asset’s operations. These variable lease costs are reported in the lease cost classification table. Recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The criteria for distinguishing between finance and operating leases are substantially similar to the criteria under ASC 840. For Occidental operations, adoption of ASC 842 resulted in recording of net lease assets and lease liabilities of $772 million as of January 1, 2019. There was no material impact to net income, cash flows, or stockholders’ equity. ACQUISITION IMPACT ASC 805 Business Combinations requires lease-related assets and liabilities acquired to be measured as if the lease were new at the acquisition date. Occidental measured the Anadarko lease agreements using Occidental’s incremental borrowing rates. This resulted in Anadarko assets and lease liabilities of $503 million and $574 million, respectively, excluding the Africa Assets at the Acquisition date, being evaluated and adjusted, as necessary, for above- or below -market impacts. For the leases acquired through the Acquisition, Occidental will retain the previous lease classification. The following table reconciles the undiscounted cash flows related to the operating and finance lease liabilities assumed in the Acquisition and recorded on the Consolidated Balance Sheet at the Acquisition date:
millions | Operating Leases |  |  | Finance Leases |  |  | Total |
2019 | $ | 90 |  |  | $ | 7 |  |  | $ | 97 |
2020 | 172 |  |  | 17 |  |  | 189 |
2021 | 64 |  |  | 16 |  |  | 80 |
2022 | 42 |  |  | 13 |  |  | 55 |
2023 | 28 |  |  | 8 |  |  | 36 |
Thereafter | 136 |  |  | 43 |  |  | 179 |
Total lease payments | $ | 532 |  |  | $ | 104 |  |  | $ | 636 |
Less: Interest | (44 | ) |  | (18 | ) |  | (62 | )
Total lease liabilities (a) | $ | 488 |  |  | $ | 86 |  |  | $ | 574 |
(a) | Excluded operating and finance leases associated with the Africa Assets of $74 million and $201 million, respectively.
Additionally, Occidental has elected short-term lease treatment for those acquired lease contracts which, at the Acquisition date, had a remaining lease term of 12 months or less. NATURE OF LEASES Occidental’s operating lease agreements include leases for oil and gas exploration and development equipment, including offshore and onshore drilling rigs of $217 million, compressors of $162 million and other field equipment of $389 million, which are recorded gross on the Consolidated Balance Sheet and in the lease cost disclosures below. Contract expiration terms generally range from 2 to 9 years. Further, actual expenditures are netted against joint-interest recoveries on the statement of operations through the normal joint-interest billing process. Occidental’s leases also include pipelines, rail cars, storage facilities, easements and real estate of $659 million, which typically are not associated with joint-interest recoveries. Real estate leases have contract expiration terms ranging from 1 to 14 years. Occidental’s finance lease agreements include leases for oil and gas exploration and development equipment, as well as real estate offices, compressors, and field equipment of approximately $398 million. The following table presents lease balances and their location on the Consolidated Balance Sheet at December 31, 2019:
millions |  | Balance sheet location |  | 2019
Assets: |  |  |  |
Operating |  | Operating lease assets |  | $ | 1,385 |
Finance |  | Property, plant and equipment |  | 397 |
Total lease assets |  |  |  | $ | 1,782 |
Liabilities: |  |  |  |
Current |  |  |  |
Operating |  | Current operating lease liabilities |  | $ | 569 |
Finance |  | Current maturities of long-term debt |  | 51 |
Non-current |  |  |  |
Operating |  | Deferred credits and other liabilities - Operating lease liabilities |  | 854 |
Finance |  | Long-term debt, net |  | 347 |
Total lease liabilities |  |  |  | $ | 1,821 |
At December 31, 2019, Occidental’s leases expire based on the following schedule:
millions | Operating Leases(a) |  |  | Finance Leases(b) |  |  | Total |
2020 | $ | 555 |  |  | $ | 53 |  |  | $ | 608 |
2021 | 408 |  |  | 45 |  |  | 453 |
2022 | 136 |  |  | 41 |  |  | 177 |
2023 | 99 |  |  | 37 |  |  | 136 |
2024 | 81 |  |  | 34 |  |  | 115 |
Thereafter | 254 |  |  | 275 |  |  | 529 |
Total lease payments | 1,533 |  |  | 485 |  |  | 2,018 |
Less: Interest | (110 | ) |  | (87 | ) |  | (197 | )
Total lease liabilities | $ | 1,423 |  |  | $ | 398 |  |  | $ | 1,821 |
(a) | The weighted-average remaining lease term is 4.6 years and the weighted-average discount rate is 2.53%.
(b) | The weighted-average remaining lease term is 11.6 years and the weighted-average discount rate is 3.74%.
At December 31, 2018, future undiscounted net minimum fixed lease payments for non-cancellable operating leases, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows:
millions |  | Operating Leases |
2019 |  | $ | 186 |
2020 |  | 147 |
2021 |  | 96 |
2022 |  | 68 |
2023 |  | 49 |
Thereafter |  | 158 |
Total minimum lease payments(a) |  | $ | 704 |
(a) | The amount represents the future undiscounted cash flows at December 31, 2018, excluding any amount associated with the Acquisition.
The following tables present Occidental’s total lease cost and classifications, as well as cash paid for amounts included in the measurement of operating and finance lease liabilities:
millions | Year ended December 31, 2019 |
Lease cost classification(a)
Operating lease costs(b) |  |
Property, plant and equipment, net |  | $ | 449 |
Operating expense and cost of sales |  | 391 |
Selling, general and administrative expenses |  | 92 |
Finance lease cost |  |
Amortization of ROU assets |  | 19 |
Interest on lease liabilities |  | 2 |
Total lease cost |  | $ | 953 |
(a) | Amounts reflected are gross before joint-interest recoveries.
(b) | Included short-term lease cost of $404 million for the twelve months ended December 31, 2019, and variable lease cost of $162 million for the twelve months ended December 31, 2019.
millions | Year ended December 31, 2019 |
Operating cash flows |  | $ | 262 |
Investing cash flows |  | $ | 112 |
Financing cash flows (a) |  | $ | 19 |
(a) Excludes cash received of approximately $300 million associated with the failed sale-leaseback, see Note 4 - Acquisitions, Dispositions and Other.
LEASE COMMITMENTS |
NOTE 8 - LEASE COMMITMENTS
On January 1, 2019, Occidental adopted ASC 842 using the modified retrospective approach, which provided a method for recording existing leases at adoption and did not require restatement of prior year amounts and disclosures, which continue to be reflected in accordance with ASC 840. Occidental elected certain practical expedients as follows: Ø Leases that commenced before the effective date carried forward their historical lease classification.
Ø | Existing or expired land easements as of December 31, 2018, were not reassessed to determine whether or not they contained a lease.
Ø | Leases with a lease term of 12 months or less from lease commencement date are considered short-term leases and not recorded on the Consolidated Balance Sheet; however, the lease expenditures recognized are captured and reported as incurred.
Ø | For asset classes, except long-term drilling rigs, Occidental elected to account for the lease and non-lease components as a single lease component as the non-lease portions were not significant to separate in determining the lease liability. For long-term drilling rig contracts, Occidental bifurcated the lease and non-lease components using relative fair value as a stand-alone selling price between the asset rental and the services obtained.
ASC 842 requires lessees to recognize a ROU asset and lease liability for all long-term leases. A ROU asset represents Occidental’s right to use an underlying asset for the lease term and the associated lease liability represents the discounted obligation of future minimum lease payments. Occidental identifies leases through its accounts payable and contract monitoring process. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU assets include the discounted obligation in addition to any upfront payments or costs incurred during the contract execution of the lease and amortized on a straight-line basis over the course of the lease term. Except for leases with explicitly defined contract terms, Occidental utilizes judgment to assess likelihood of renewals, terminations and purchase options, in order to determine the lease term. Occidental uses the incremental borrowing rate at commencement date to determine the present value of lease payments. The incremental borrowing rate equates to the rate of interest that Occidental would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain leases include variable lease payments which are over and above the minimum lease liability used to derive the ROU asset and lease liability and are based on the underlying asset’s operations. These variable lease costs are reported in the lease cost classification table. Recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The criteria for distinguishing between finance and operating leases are substantially similar to the criteria under ASC 840. For Occidental operations, adoption of ASC 842 resulted in recording of net lease assets and lease liabilities of $772 million as of January 1, 2019. There was no material impact to net income, cash flows, or stockholders’ equity. ACQUISITION IMPACT ASC 805 Business Combinations requires lease-related assets and liabilities acquired to be measured as if the lease were new at the acquisition date. Occidental measured the Anadarko lease agreements using Occidental’s incremental borrowing rates. This resulted in Anadarko assets and lease liabilities of $503 million and $574 million, respectively, excluding the Africa Assets at the Acquisition date, being evaluated and adjusted, as necessary, for above- or below -market impacts. For the leases acquired through the Acquisition, Occidental will retain the previous lease classification. The following table reconciles the undiscounted cash flows related to the operating and finance lease liabilities assumed in the Acquisition and recorded on the Consolidated Balance Sheet at the Acquisition date:
millions | Operating Leases |  |  | Finance Leases |  |  | Total |
2019 | $ | 90 |  |  | $ | 7 |  |  | $ | 97 |
2020 | 172 |  |  | 17 |  |  | 189 |
2021 | 64 |  |  | 16 |  |  | 80 |
2022 | 42 |  |  | 13 |  |  | 55 |
2023 | 28 |  |  | 8 |  |  | 36 |
Thereafter | 136 |  |  | 43 |  |  | 179 |
Total lease payments | $ | 532 |  |  | $ | 104 |  |  | $ | 636 |
Less: Interest | (44 | ) |  | (18 | ) |  | (62 | )
Total lease liabilities (a) | $ | 488 |  |  | $ | 86 |  |  | $ | 574 |
(a) | Excluded operating and finance leases associated with the Africa Assets of $74 million and $201 million, respectively.
Additionally, Occidental has elected short-term lease treatment for those acquired lease contracts which, at the Acquisition date, had a remaining lease term of 12 months or less. NATURE OF LEASES Occidental’s operating lease agreements include leases for oil and gas exploration and development equipment, including offshore and onshore drilling rigs of $217 million, compressors of $162 million and other field equipment of $389 million, which are recorded gross on the Consolidated Balance Sheet and in the lease cost disclosures below. Contract expiration terms generally range from 2 to 9 years. Further, actual expenditures are netted against joint-interest recoveries on the statement of operations through the normal joint-interest billing process. Occidental’s leases also include pipelines, rail cars, storage facilities, easements and real estate of $659 million, which typically are not associated with joint-interest recoveries. Real estate leases have contract expiration terms ranging from 1 to 14 years. Occidental’s finance lease agreements include leases for oil and gas exploration and development equipment, as well as real estate offices, compressors, and field equipment of approximately $398 million. The following table presents lease balances and their location on the Consolidated Balance Sheet at December 31, 2019:
millions |  | Balance sheet location |  | 2019
Assets: |  |  |  |
Operating |  | Operating lease assets |  | $ | 1,385 |
Finance |  | Property, plant and equipment |  | 397 |
Total lease assets |  |  |  | $ | 1,782 |
Liabilities: |  |  |  |
Current |  |  |  |
Operating |  | Current operating lease liabilities |  | $ | 569 |
Finance |  | Current maturities of long-term debt |  | 51 |
Non-current |  |  |  |
Operating |  | Deferred credits and other liabilities - Operating lease liabilities |  | 854 |
Finance |  | Long-term debt, net |  | 347 |
Total lease liabilities |  |  |  | $ | 1,821 |
At December 31, 2019, Occidental’s leases expire based on the following schedule:
millions | Operating Leases(a) |  |  | Finance Leases(b) |  |  | Total |
2020 | $ | 555 |  |  | $ | 53 |  |  | $ | 608 |
2021 | 408 |  |  | 45 |  |  | 453 |
2022 | 136 |  |  | 41 |  |  | 177 |
2023 | 99 |  |  | 37 |  |  | 136 |
2024 | 81 |  |  | 34 |  |  | 115 |
Thereafter | 254 |  |  | 275 |  |  | 529 |
Total lease payments | 1,533 |  |  | 485 |  |  | 2,018 |
Less: Interest | (110 | ) |  | (87 | ) |  | (197 | )
Total lease liabilities | $ | 1,423 |  |  | $ | 398 |  |  | $ | 1,821 |
(a) | The weighted-average remaining lease term is 4.6 years and the weighted-average discount rate is 2.53%.
(b) | The weighted-average remaining lease term is 11.6 years and the weighted-average discount rate is 3.74%.
At December 31, 2018, future undiscounted net minimum fixed lease payments for non-cancellable operating leases, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows:
millions |  | Operating Leases |
2019 |  | $ | 186 |
2020 |  | 147 |
2021 |  | 96 |
2022 |  | 68 |
2023 |  | 49 |
Thereafter |  | 158 |
Total minimum lease payments(a) |  | $ | 704 |
(a) | The amount represents the future undiscounted cash flows at December 31, 2018, excluding any amount associated with the Acquisition.
The following tables present Occidental’s total lease cost and classifications, as well as cash paid for amounts included in the measurement of operating and finance lease liabilities:
millions | Year ended December 31, 2019 |
Lease cost classification(a)
Operating lease costs(b) |  |
Property, plant and equipment, net |  | $ | 449 |
Operating expense and cost of sales |  | 391 |
Selling, general and administrative expenses |  | 92 |
Finance lease cost |  |
Amortization of ROU assets |  | 19 |
Interest on lease liabilities |  | 2 |
Total lease cost |  | $ | 953 |
(a) | Amounts reflected are gross before joint-interest recoveries.
(b) | Included short-term lease cost of $404 million for the twelve months ended December 31, 2019, and variable lease cost of $162 million for the twelve months ended December 31, 2019.
millions | Year ended December 31, 2019 |
Operating cash flows |  | $ | 262 |
Investing cash flows |  | $ | 112 |
Financing cash flows (a) |  | $ | 19 |
(a) Excludes cash received of approximately $300 million associated with the failed sale-leaseback, see Note 4 - Acquisitions, Dispositions and Other.

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