THREAT OF TERROR ABROAD ISN'T NEW FOR OIL COMPANIES LIKE OCCIDENTAL

ARAUCA, Colombia -- Pools of oil gather along the Occidental pipeline
that runs through this vast savanna, the result of spills from
repeated bombings by rebel forces. On a recent helicopter tour,
Occidental Petroleum Corp. officials got word of yet another attack.
Their chopper cut through a cloud of thick smoke to take a look at the
crimson flames.

"It's frustrating," said Occidental's international chief of security,
using a global positioning device to pinpoint the exact location of
the oil break. "But we're pretty used to this by now."

Amid a 38-year-old civil war, Occidental faces a near-constant threat
of terrorism. Rebel groups have extorted local workers. Engineers have
been murdered. But the main focus of the guerrillas' wrath is the
470-mile oil pipeline that transports oil from the Cano Limon oil
field to a port on the Caribbean. Rebels bombed the pipeline a record
170 times last year, up from 99 attacks in 2000.

Two guerrilla groups, the National Liberation Army, or ELN, and the
Revolutionary Armed Forces of Colombia, or FARC, are battling for economic
and military control of the oil region here. The heightened attacks have
coincided with the recent arrival of the better-funded FARC, which draws
much of its income from cocaine trafficking and is trying to put a
stranglehold on the ELN, according to military officials and oil-company
executives. The U.S. has labeled both the ELN and FARC as terrorist
organizations. And for the first time, the U.S. government has proposed
dedicating funds to pipeline protection in Colombia: As a part of its 2003
budget proposal, the Bush administration on Monday proposed spending $98
million to help train local troops in pipeline protection.

The oil industry has since its earliest days operated in terror zones.
In West Africa, Chevron Corp. has for years produced oil amid a bloody
civil war. Last year, Exxon Mobil Corp. for several months shuttered
its onshore natural-gas operations in Aceh, Indonesia, where
separatists have waged a long guerrilla war against the government.
Since Sept. 11, the risk of operating in the Arab world has
intensified. More companies are discovering what the oil industry has
long known: that pushing forward in the face of terrorism is possible,
expensive and complicated in ways that aren't always obvious.

While many oil companies operating abroad have faced the threat of
terrorism, few have experienced a campaign of violence so directly
aimed at their core mission of exploration and production as has
Occidental, until recently among the biggest foreign oil producers in
Latin America. The rise in rebel attacks has cut Cano Limon's
production to 19 million barrels, a 58% reduction from the site's 1999
levels. "2001 was a terrible year," says Guimer Dominguez,
Occidental's president of Colombia operations.

Probably the most contentious issue for Los Angeles-based Occidental
is the company's reliance on the Colombian military for security. The
U.S. State Department cites the Colombian military for serious
human-rights violations, including extra-judicial killings. Impunity
remains a problem, with authorities seldom bringing high-ranking
police and security officers to justice. The State Department says
members of the security forces collaborate with paramilitary groups,
sharing information and even providing ammunition. Occidental has even
come under fire for contracting a high-tech surveillance plane that
may have played a role in a 1998 attack by the Colombian military in
which at least 17 civilians died. Occidental denies any involvement.
Colombian authorities are investigating the incident.

Occidental says that given the scope of the violence, it must work
with the military. The company says it has helped organize seminars
for the Colombian military on humanitarian law and human rights in
cooperation with the International Red Cross, but it must respect
Colombia's autonomy. "It's not our role to take the place of the
government," says Larry Meriage, a company spokesman.

Beyond human-rights concerns, Occidental must cope with the
practicalities of operations in a war zone. A few years ago, after
rebels stole employee cars and murdered two engineers in separate
incidents on the same day just 100 yards from the compound, Occidental
restricted most employees' travel outside the Cano Limon compound to
helicopters.

Occidental screens prospective contractors to ferret out spies.
Recently, when it moved equipment to drill a new well, it did so with
an army convoy, complete with air support. "It's a hell of an
operating environment out there," says Mr. Meriage. "Most [companies]
have cut and run."

One reason is that operating in Colombia has become more expensive.
Occidental officials say they pay about 50 cents in security costs for
each barrel of oil extracted. And the costs are climbing as attacks on
its pipeline rise. But Mr. Meriage says staying put is still worth it,
in large part because the oil is a relatively cheap $10 a barrel to
extract, including taxes.

When it was discovered in 1983 -- then with an estimated one billion
barrels of reserves -- Cano Limon was seen as a field that would
transform Occidental. But as oil royalties began gushing into Arauca,
the ELN frequently bombed the pipeline and shook down local repair
crews. Occidental acknowledged gifts of money, food and transportation
to the guerrillas. "We take care of the local population," said
Occidental's late founder Armand Hammer in 1985. "It has worked out so
far."

More Foe Than Friend?

The rebels, claiming Occidental was stealing Colombia's natural
resources, saw the company as more foe than friend, however. Late one
night in 1988, the ELN exploded a car bomb outside Occidental's
nine-story Colombian headquarters in Bogota, badly damaging the building.

Today Occidental says its employees and contractors are still shaken
down by FARC and ELN guerrillas, though the company says it has a
zero-tolerance policy for bribes, firing workers who pay off the
guerrillas. Despite the company's professed efforts, "it's impossible"
to know who is on the take, says Col. Gustavo Matamoros, second in
command of the army's forces in Arauca.

Meanwhile, the company houses executives in Bogota in high-rise
apartments and has them chauffeured in bulletproof cars by drivers who
vary their routes. An Occidental lawyer who recently visited Bogota
for the first time says two bodyguards followed him everywhere he went
in public.

For visitors arriving by chopper, the Occidental compound unfolds like
a small resort, with tennis courts and a swimming pool in view. Long
motel-style buildings with Spanish-tile roofs house workers. Army
personnel search bags. Security staff issue electronic key cards,
complete with employee photos and blood types. But the feeling of
safety is fleeting. The company has made it clear to employees that it
can't pay ransoms in the event of a kidnapping. Workers must show ID
cards at a half-dozen security checkpoints. Palm-reading devices
restrict access to executive offices. Security cameras are everywhere.

At Cano Limon, Occidental goes to great lengths, and costs, to isolate
its workers. The compound is a little more than an hour's drive from
the airport in Arauca, but when skirmishes between the rebels and the
military increased several years ago, Occidental discouraged driving.
The company also abandoned use of a nearby river to ferry workers to
Cano Limon. Instead, most workers fly in by helicopter for two-week
work stints.

Those who travel overland can suffer the consequences. Last April,
rebels seized a bus filled with 100 oil workers and security
contractors on their way to work. Most were released that night,
though about 30 were held for as many as four days and pumped for
security information. No one was injured.

Occidental's security chief brought in special dogs after a bomb in a
dump truck exploded in October 2000 just outside the main entrance.
The early-morning attack narrowly missed a bus filled with 40
secretaries and other local Arauca workers. The truck's bumper landed
50 feet in front of the bus and some workers said they felt the blast
from their dormitories. After the incident, Occidental built a new
access road about 300 feet farther out to keep potential explosions
away from employees. Occidental even imports mechanics from nearby
towns to Cano Limon rather than risk losing company cars to rebel
thieves in Arauca. "These are the hidden costs," says Mr. Dominguez,
Occidental's Colombian president.

Limiting Risk

Occidental tries to limit its risk of kidnappings by hiring Colombian
workers. It employs fewer than 10 foreign nationals in Colombia, none
at the compound. Most Colombian workers come from distant cities,
making them unlikely to be a source of information for the guerrillas
about military troop locations or security measures.

Local contractors are seen as such a source, and Occidental uses
psychologists to screen them. The local oil workers' union sees the
practice as an invasion of privacy. But company officials and
Colombian military officials say that locals face too much pressure to
meet guerrillas' demands.

Mr. Dominguez says Occidental has often suspended or canceled
contracts after discovering contractors were paying off rebels with
vacunas, or vaccinations, slang for protection money. "Everyone has
the ELN pistol to the side of his head," says Col. Matamoros.

The potential for violence and the specter of work stoppages have
taken a palpable toll on Cano Limon's workers. (So fearful are the
employees that Occidental asked that their names not be used.) A
contractor who works in the cafeteria said his dreams often
incorporate the shots in the night that he hears near the camp's
living quarters. The military routinely conducts training exercises at
night at Cano Limon, and there have been occasional firefights just
outside the compound's gates.

A worker in the legal department drives his unmarked sport-utility
vehicle outside the camp almost every day to deliver documents to
farmers and ranchers. Several years ago he was kidnapped by rebels and
held at gunpoint until the military staged a dramatic rescue. For
months, he says, he had nightmares in which he was unable to run from
his captors. But he explains that he has no intention of quitting
because his paycheck helps support his son, who is in graduate school
in the U.S. Occidental, he says, pays him twice what he'd earn working
for Ecopetrol, the state oil company.

Sitting in his office, Cano Limon's human-resources director
contemplates the latest figures: more than a third of Occidental
workers with suspended contracts because production had ground to a
halt. With crews racing to fix three holes in the pipeline, "There are
going to be a lot more suspensions," he says. "Morale is bruised right
now." Other fears persist. When activity at the camp is paralyzed, "we
are in more danger than ever," says the director, "because the tanks
are full of crude oil. So we have to have the emergency system
activated at all times and keep a minimum number of people to attend
to any eventual emergency."

Not everyone admits to feeling strain. An American executive who lives
in Bogota but visits Cano Limon several days a month says when he is
at the compound he drives around the production facilities and isn't
fazed by sporadic gunfire. "As someone who grew up on a lot of
military bases, and kind of lived that lifestyle, I am used to
military people being around," he says. "For us to operate, this is
just part of the business that we have to deal with."

While in Bogota, the executive has a driver and at least one
bodyguard. His two boys ride a bus to school and the family takes
weekend trips outside of town -- once the routes are cleared by
Occidental security officials and the military. He sometimes walks to
work or lunch, "as long as we vary the times we come and go." But in
his 20 years on the oil industry he says he has never been in a place
where production is shut down so often. "It weighs on you," he says.