OCCIDENTAL PETROLEUM CORP DE

MANAGEMENT’S DISCUSSION AND ANALYSIS

CHEMICAL SEGMENT

OxyChem concentrates on the chlorovinyls chain, beginning with the co-production of caustic soda and chlorine. Caustic soda and chlorine are marketed to external customers. In addition, chlorine, together with ethylene, is converted through a series of intermediate products into PVC. OxyChem seeks to be a low-cost producer in order to generate cash flow in excess of its normal capital expenditure requirements and achieve above-cost-of-capital returns. OxyChem’s focus on chlorovinyls allows it to maximize the benefits of integration and take advantage of economies of scale. Capital is employed to sustain production capacity and to focus on projects and developments designed to improve the competitiveness of segment assets. Acquisitions and plant development opportunities may be pursued when they are expected to enhance the existing core chlor-alkali and PVC businesses or take advantage of other specific opportunities. The expansion and conversion of the Battleground chlor-alkali plant to membrane technology commenced in 2023 with completion expected in 2026. In 2023, capital expenditures for OxyChem totaled $535 million.

BUSINESS ENVIRONMENT

Although the United States economic growth was slightly higher than that of 2022, demand for domestically produced products decreased, including liquid caustic soda and PVC. High global inflationary pressures resulted in slowing demand for many products, as ethylene and energy costs remained advantaged over global pricing. Caustic soda prices were lower in 2023 and PVC pricing decreased slightly in 2023 after moving downward significantly during the second half of 2022, as supply chain constraints, high interest rates, global logistics and high inflation continued to disrupt global supply and demand balances.

BASIC CHEMICALS

Chlor-alkali operating rates decreased in 2023 as global demand weakened in the face of inflationary pressures. As a result of weakening demand in most segments, pricing and margins declined across the year, and most notably on alkali products.

VINYLS

Domestic PVC demand softened for a second consecutive year in 2023, resulting in a 13% year over year decrease in demand. To offset domestic losses and maintain utilization rates, USGC export volume increased by 30% compared to 2022. Year over year industry operating rates were down 1% in 2023 due to weak global market conditions. High interest rates, slowing housing starts, and inflation continue to keep a ceiling on domestic PVC demand. PVC exports represented 36% of total North American sales in 2023 compared to 27% in 2022.

OUTLOOK

Industry performance will depend on the health of the global economy. Response to inflation will continue to control the housing and construction sectors during 2024. Product margins will depend on market supply and demand balances, feedstock and energy prices, supply chain interruptions, labor constraints and inflation. Sustained strong performance in the petroleum industry should strengthen the demand and margins for some of Occidental’s products that are consumed by industry participants. U.S. commodity export markets could be impacted by the relative strength of the U.S. dollar. Approximately $0.7 billion of Occidental’s worldwide capital budget is expected to be allocated to OxyChem in 2024.

BASIC CHEMICALS

Demand for basic chemicals is expected to improve moderately in 2024. Demand in most market segments is expected to follow the trend of the general economy throughout 2024. Demand for chlorine and derivatives should show gradual improvement across the year as both domestic and international growth slowly returns in most segments. Demand for alkali products should increase in 2024, as demand rebounds in all major segments, including pulp and paper, industrial, and alumina markets.

VINYLS

Single family housing starts steadily improved throughout 2023, offset by a declining multi-family housing market. Total housing starts are expected to be relatively flat next year, which will have little positive impact to domestic PVC demand in 2024. However, domestic infrastructure projects and recovering global demand are expected to slightly boost overall PVC demand year over year in 2024. New domestic PVC capacity will come online during 2024, which may have a negative impact on prices as the new production is placed into a bearish PVC market.