The recent seizure of Occidental's Block 15 investment in Ecuador will result in Occidental recording in the second quarter of 2006 a net year-to-date after-tax charge of $306 million, ($0.71 per share) in discontinued operations. This charge will cause first quarter 2006 diluted earnings per share from continuing operations to change to $2.67 per share from the previous disclosure of $2.83 per share. Occidental expects second quarter 2006 diluted earnings per share from continuing operations to be between $2.70 and $2.80 per share.
On May 15, 2006, Ecuador's Minister of Energy terminated Occidental's
contract for the operation of Block 15, which comprises all its oil producing operations in the country, and the Government of Ecuador seized Occidental's Block 15 assets shortly thereafter. The process resulting in this action began more than two years ago shortly after Occidental prevailed, by unanimous decision of an international arbitration panel, in a legal dispute over tax refunds that the Government of Ecuador wrongfully withheld from Occidental. The panel's decision was subsequently upheld by a London court.
As a result of the seizure, Occidental has classified its Block 15 operations as discontinued operations. In the second quarter of 2006, Occidental will record a net year-to-date after-tax charge of $306 million, ($0.71 per share) in discontinued operations. This discontinued operations amount comprises after-tax charges for the write-off of the investment in Ecuador, as well as ship or pay obligations entered into with OCP Pipeline to ship oil produced at Block 15, partially offset by $109 million net of tax income from operations in the first five months of 2006.
Occidental will report its Block 15 results for current and prior
periods as discontinued operations in its statements of income and cash flows in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Balance sheet amounts will be reclassified to assets of
discontinued operations and liabilities of discontinued operations. Oil & Gas disclosures will be adjusted to exclude the Ecuadorian
operations.
On May 17, 2006, Occidental filed an arbitration claim against the Government of Ecuador, seeking redress for illegal confiscation of Occidental's Block 15 operations in Ecuador. The company filed its claim with the International Centre for Settlement of Investment Disputes in Washington DC, invoking the protections of the US-Ecuador
Bilateral Investment Treaty. Occidental requested that the arbitration panel order interim relief by restoring its rights in Ecuador and preventing Ecuador from replacing Occidental with another third party operator in Block 15 until its claims can be decided, a process that could take well over a year.
