CHEVRON CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
For the
quarterly period ended March 31,
2010
|
||
|
or
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission file number 001-00368
Chevron Corporation
(Exact name of registrant as
specified in its charter)
|
Delaware
|
94-0890210 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
|
|
6001 Bollinger Canyon Road,
|
94583-2324 | |
|
San Ramon, California
|
(Zip Code) | |
|
(Address of principal executive offices)
|
Registrant’s telephone number, including area code:
(925) 842-1000
NONE
(Former name or former address, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
þ
|
Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller Reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest
practicable date:
| Class | Outstanding as of March 31, 2010 | |
|
Common stock, $.75 par value
|
2,008,642,168 |
INDEX
1
Table of Contents
CAUTIONARY
STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on
Form 10-Q
of Chevron Corporation contains forward-looking statements
relating to Chevron’s operations that are based on
management’s current expectations, estimates and
projections about the petroleum, chemicals and other
energy-related industries. Words such as
“anticipates,” “expects,”
“intends,” “plans,” “targets,”
“projects,” “believes,” “seeks,”
“schedules,” “estimates,”
“budgets” and similar expressions are intended to
identify such forward-looking statements. These statements are
not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond
the company’s control and are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements. The reader should not place undue reliance on these
forward-looking statements, which speak only as of the date of
this report. Unless legally required, Chevron undertakes no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Among the important factors that could cause actual results to
differ materially from those in the forward-looking statements
are: changing crude-oil and natural-gas prices; changing
refining, marketing and chemical margins; actions of competitors
or regulators; timing of exploration expenses; timing of
crude-oil liftings; the competitiveness of alternate-energy
sources or product substitutes; technological developments; the
results of operations and financial condition of equity
affiliates; the inability or failure of the company’s
joint-venture partners to fund their share of operations and
development activities; the potential failure to achieve
expected net production from existing and future crude-oil and
natural-gas development projects; potential delays in the
development, construction or
start-up
of
planned projects; the potential disruption or interruption of
the company’s net production or manufacturing facilities or
delivery/transportation networks due to war, accidents,
political events, civil unrest, severe weather or crude-oil
production quotas that might be imposed by the Organization of
Petroleum Exporting Countries; the potential liability for
remedial actions or assessments under existing or future
environmental regulations and litigation; significant investment
or product changes under existing or future environmental
statutes, regulations and litigation; the potential liability
resulting from other pending or future litigation; the
company’s future acquisition or disposition of assets and
gains and losses from asset dispositions or impairments;
government-mandated sales, divestitures, recapitalizations,
industry-specific taxes, changes in fiscal terms or restrictions
on scope of company operations; foreign-currency movements
compared with the U.S. dollar; the effects of changed
accounting rules under generally accepted accounting principles
promulgated by rule-setting bodies; and the factors set forth
under the heading “Risk Factors” on pages 30 through
32 of the company’s 2009 Annual Report on
Form 10-K.
In addition, such statements could be affected by general
domestic and international economic and political conditions.
Unpredictable or unknown factors not discussed in this report
could also have material adverse effects on forward-looking
statements.
2
Table of Contents
FINANCIAL
INFORMATION
| Item 1. | Consolidated Financial Statements |
CHEVRON
CORPORATION AND SUBSIDIARIES
(Unaudited)
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
|
(Millions of dollars, except
|
||||||||
| per-share amounts) | ||||||||
|
Revenues and Other Income
|
||||||||
|
Sales and other operating revenues*
|
$ | 46,741 | $ | 34,987 | ||||
|
Income from equity affiliates
|
1,235 | 611 | ||||||
|
Other income
|
203 | 532 | ||||||
|
Total Revenues and Other Income
|
48,179 | 36,130 | ||||||
|
Costs and Other Deductions
|
||||||||
|
Purchased crude oil and products
|
27,144 | 20,400 | ||||||
|
Operating expenses
|
4,589 | 4,346 | ||||||
|
Selling, general and administrative expenses
|
1,042 | 977 | ||||||
|
Exploration expenses
|
180 | 381 | ||||||
|
Depreciation, depletion and amortization
|
3,082 | 2,867 | ||||||
|
Taxes other than on income*
|
4,472 | 3,978 | ||||||
|
Interest and debt expense
|
20 | 8 | ||||||
|
Total Costs and Other Deductions
|
40,529 | 32,957 | ||||||
|
Income Before Income Tax Expense
|
7,650 | 3,173 | ||||||
|
Income Tax Expense
|
3,070 | 1,319 | ||||||
|
Net Income
|
4,580 | 1,854 | ||||||
|
Less: Net income attributable to noncontrolling interests
|
28 | 17 | ||||||
|
Net Income Attributable to Chevron Corporation
|
$ | 4,552 | $ | 1,837 | ||||
|
Per Share of Common Stock:
|
||||||||
|
Net Income Attributable to Chevron Corporation
|
||||||||
|
— Basic
|
$ | 2.28 | $ | 0.92 | ||||
|
— Diluted
|
$ | 2.27 | $ | 0.92 | ||||
|
Dividends
|
$ | 0.68 | $ | 0.65 | ||||
|
Weighted Average Number of Shares Outstanding (000s)
|
||||||||
|
— Basic
|
1,994,983 | 1,991,128 | ||||||
|
— Diluted
|
2,004,217 | 1,999,509 | ||||||
|
|
||||||||
|
* Includes excise, value-added and similar taxes:
|
$ | 2,072 | $ | 1,910 | ||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
CHEVRON
CORPORATION AND SUBSIDIARIES
(Unaudited)
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Net Income
|
$ | 4,580 | $ | 1,854 | ||||
|
Currency translation adjustment
|
3 | (30 | ) | |||||
|
Unrealized holding loss on securities:
|
||||||||
|
Net loss arising during period
|
(1 | ) | (3 | ) | ||||
|
Derivatives:
|
||||||||
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Net derivatives gain (loss) on hedge transactions
|
1 | (49 | ) | |||||
|
Reclassification to net income of net realized loss
|
— | 1 | ||||||
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Income taxes on derivatives transactions
|
— | 16 | ||||||
|
Total
|
1 | (32 | ) | |||||
|
Defined benefit plans:
|
||||||||
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Actuarial loss:
|
||||||||
|
Amortization to net income of net actuarial loss
|
165 | 158 | ||||||
|
Prior service cost:
|
||||||||
|
Amortization to net income of net prior service credits
|
(15 | ) | (16 | ) | ||||
|
Defined benefit plans sponsored by equity affiliates
|
7 | (2 | ) | |||||
|
Income taxes on defined benefit plans
|
(58 | ) | (53 | ) | ||||
|
Total
|
99 | 87 | ||||||
|
Other Comprehensive Gain, Net of Tax
|
102 | 22 | ||||||
|
Comprehensive Income
|
4,682 | 1,876 | ||||||
|
Comprehensive income attributable to noncontrolling interests
|
(28 | ) | (17 | ) | ||||
|
Comprehensive Income Attributable to Chevron Corporation
|
$ | 4,654 | $ | 1,859 | ||||
See accompanying notes to consolidated financial statements.
4
Table of Contents
CHEVRON
CORPORATION AND SUBSIDIARIES
(Unaudited)
|
At March 31
|
At December 31
|
|||||||
| 2010 | 2009 | |||||||
|
(Millions of dollars, except
|
||||||||
| per-share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ 7,376 | $ 8,716 | ||||||
|
Time deposits
|
3,695 | — | ||||||
|
Marketable securities
|
84 | 106 | ||||||
|
Accounts and notes receivable, net
|
17,921 | 17,703 | ||||||
|
Inventories:
|
||||||||
|
Crude oil and petroleum products
|
4,213 | 3,680 | ||||||
|
Chemicals
|
387 | 383 | ||||||
|
Materials, supplies and other
|
1,478 | 1,466 | ||||||
|
Total inventories
|
6,078 | 5,529 | ||||||
|
Prepaid expenses and other current assets
|
5,672 | 5,162 | ||||||
|
Total Current Assets
|
40,826 | 37,216 | ||||||
|
Long-term receivables, net
|
2,399 | 2,282 | ||||||
|
Investments and advances
|
21,290 | 21,158 | ||||||
|
Properties, plant and equipment, at cost
|
191,977 | 188,288 | ||||||
|
Less: Accumulated depreciation, depletion and amortization
|
94,630 | 91,820 | ||||||
|
Properties, plant and equipment, net
|
97,347 | 96,468 | ||||||
|
Deferred charges and other assets
|
2,452 | 2,879 | ||||||
|
Goodwill
|
4,618 | 4,618 | ||||||
|
Total Assets
|
$168,932 | $164,621 | ||||||
| LIABILITIES AND EQUITY | ||||||||
|
Short-term debt
|
$ 302 | $ 384 | ||||||
|
Accounts payable
|
16,787 | 16,437 | ||||||
|
Accrued liabilities
|
5,209 | 5,375 | ||||||
|
Federal and other taxes on income
|
3,718 | 2,624 | ||||||
|
Other taxes payable
|
1,550 | 1,391 | ||||||
|
Total Current Liabilities
|
27,566 | 26,211 | ||||||
|
Long-term debt
|
9,793 | 9,829 | ||||||
|
Capital lease obligations
|
290 | 301 | ||||||
|
Deferred credits and other noncurrent obligations
|
17,277 | 17,390 | ||||||
|
Noncurrent deferred income taxes
|
11,328 | 11,521 | ||||||
|
Reserves for employee benefit plans
|
6,626 | 6,808 | ||||||
|
Total Liabilities
|
72,880 | 72,060 | ||||||
|
Preferred stock (authorized 100,000,000 shares,
$1.00 par value, none issued)
|
— | — | ||||||
|
Common stock (authorized 6,000,000,000 shares,
$.75 par value,
2,442,676,580 shares issued at March 31, 2010, and December 31, 2009) |
1,832 | 1,832 | ||||||
|
Capital in excess of par value
|
14,679 | 14,631 | ||||||
|
Retained earnings
|
109,484 | 106,289 | ||||||
|
Accumulated other comprehensive loss
|
(4,219 | ) | (4,321 | ) | ||||
|
Deferred compensation and benefit plan trust
|
(312 | ) | (349 | ) | ||||
|
Treasury stock, at cost (434,034,412 and 434,954,774 shares
at March 31, 2010, and December 31, 2009, respectively)
|
(26,115 | ) | (26,168 | ) | ||||
|
Total Chevron Corporation Stockholders’ Equity
|
95,349 | 91,914 | ||||||
|
Noncontrolling interests
|
703 | 647 | ||||||
|
Total Equity
|
96,052 | 92,561 | ||||||
|
Total Liabilities and Equity
|
$168,932 | $164,621 | ||||||
See accompanying notes to consolidated financial statements.
5
Table of Contents
CHEVRON
CORPORATION AND SUBSIDIARIES
(Unaudited)
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Operating Activities
|
||||||||
|
Net Income
|
$ | 4,580 | $ | 1,854 | ||||
|
Adjustments
|
||||||||
|
Depreciation, depletion and amortization
|
3,082 | 2,867 | ||||||
|
Dry hole expense
|
66 | 184 | ||||||
|
Distributions more (less) than income from equity affiliates
|
1 | (440 | ) | |||||
|
Net before-tax gains on asset retirements and sales
|
(165 | ) | (475 | ) | ||||
|
Net foreign currency effects
|
45 | 112 | ||||||
|
Deferred income tax provision
|
(104 | ) | (232 | ) | ||||
|
Net decrease (increase) in operating working capital
|
63 | (1,413 | ) | |||||
|
Increase in long-term receivables
|
(129 | ) | (105 | ) | ||||
|
Decrease in other deferred charges
|
14 | 103 | ||||||
|
Cash contributions to employee pension plans
|
(306 | ) | (91 | ) | ||||
|
Other
|
370 | 40 | ||||||
|
Net Cash Provided by Operating Activities
|
7,517 | 2,404 | ||||||
|
Investing Activities
|
||||||||
|
Capital expenditures
|
(3,967 | ) | (5,984 | ) | ||||
|
Proceeds and deposits related to asset sales
|
239 | 1,194 | ||||||
|
Purchases of time deposits
|
(3,695 | ) | — | |||||
|
Net sales of marketable securities
|
20 | 55 | ||||||
|
Net sales of other short-term investments
|
68 | 126 | ||||||
|
Net Cash Used for Investing Activities
|
(7,335 | ) | (4,609 | ) | ||||
|
Financing Activities
|
||||||||
|
Net payments of short-term obligations
|
(72 | ) | (1,237 | ) | ||||
|
Proceeds from issuance of long-term debt
|
— | 4,993 | ||||||
|
Repayments of long-term debt and other financing obligations
|
(25 | ) | (421 | ) | ||||
|
Cash dividends
|
(1,357 | ) | (1,295 | ) | ||||
|
Distributions to noncontrolling interests
|
(17 | ) | (7 | ) | ||||
|
Net sales of treasury shares
|
40 | 11 | ||||||
|
Net Cash (Used for) Provided by Financing Activities
|
(1,431 | ) | 2,044 | |||||
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
(91 | ) | (36 | ) | ||||
|
Net Change in Cash and Cash Equivalents
|
(1,340 | ) | (197 | ) | ||||
|
Cash and Cash Equivalents at January 1
|
8,716 | 9,347 | ||||||
|
Cash and Cash Equivalents at March 31
|
$ | 7,376 | $ | 9,150 | ||||
See accompanying notes to consolidated financial statements.
6
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| Note 1. | Interim Financial Statements |
The accompanying consolidated financial statements of Chevron
Corporation and its subsidiaries (the company) have not been
audited by an independent registered public accounting firm. In
the opinion of the company’s management, the interim data
include all adjustments necessary for a fair statement of the
results for the interim periods. These adjustments were of a
normal recurring nature. The results for the three-month period
ended March 31, 2010, are not necessarily indicative of
future financial results. The term “earnings” is
defined as net income attributable to Chevron Corporation.
Effective January 1, 2010, Chevron’s segment reporting
reflects the reclassification of certain businesses. Prior
period information was revised to conform to the 2010
presentation. Refer to “Note 5. Operating Segments and
Geographic Data” for a discussion of the changes.
Certain notes and other information have been condensed or
omitted from the interim financial statements presented in this
Quarterly Report on
Form 10-Q.
Therefore, these financial statements should be read in
conjunction with the company’s 2009 Annual Report on
Form 10-K.
Earnings for the first quarter 2010 included after-tax charges
of $175 million associated with employee reductions in the
downstream businesses and corporate staffs. Refer to
Note 15 of the Consolidated Financial Statements,
page 21, for further discussion.
Earnings for first quarter 2009 included after-tax gains of
$400 million on the sale of international downstream assets.
| Note 2. | Time Deposits |
In the first quarter 2010, the company began investing in bank
time deposits with maturities greater than 90 days. The
company believes that the investment in longer-term bank time
deposits is consistent with its cash management strategy to
preserve principal, maintain high levels of liquidity and earn a
competitive return.
| Note 3. | Noncontrolling Interests |
Ownership interests in the company’s subsidiaries held by
parties other than the parent are presented separately from the
parent’s equity on the Consolidated Balance Sheet. The
amount of consolidated net income attributable to the parent and
the noncontrolling interests are both presented on the face of
the Consolidated Statement of Income.
Activity for the equity attributable to noncontrolling interests
for the first three months of 2010 and 2009 is as follows:
| 2010 | 2009 | |||||||||||||||||||||||
|
Chevron Corporation
|
Noncontrolling
|
Total
|
Chevron Corporation
|
Noncontrolling
|
Total
|
|||||||||||||||||||
| Stockholders’ Equity | Interest | Equity | Stockholders’ Equity | Interest | Equity | |||||||||||||||||||
| (Millions of dollars) | ||||||||||||||||||||||||
|
Balance at January 1
|
$91,914 | $647 | $92,561 | $86,648 | $469 | $87,117 | ||||||||||||||||||
|
Net income
|
4,552 | 28 | 4,580 | 1,837 | 17 | 1,854 | ||||||||||||||||||
|
Dividends
|
(1,357 | ) | — | (1,357 | ) | (1,295 | ) | — | (1,295 | ) | ||||||||||||||
|
Distributions to noncontrolling interests
|
— | (17 | ) | (17 | ) | — | (7 | ) | (7 | ) | ||||||||||||||
|
Treasury shares, net
|
53 | — | 53 | 25 | — | 25 | ||||||||||||||||||
|
Other changes, net*
|
187 | 45 | 232 | 98 | 24 | 122 | ||||||||||||||||||
|
Balance at March 31
|
$95,349 | $703 | $96,052 | $87,313 | $503 | $87,816 | ||||||||||||||||||
| * | Includes components of comprehensive income, which are disclosed separately in the Consolidated Statement of Comprehensive Income. |
7
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 4. | Information Relating to the Consolidated Statement of Cash Flows |
The “Net decrease (increase) in operating working
capital” was composed of the following operating changes:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
(Increase) decrease in accounts and notes receivable
|
$ | (233 | ) | $ | 1,791 | |||
|
(Increase) decrease in inventories
|
(549 | ) | 308 | |||||
|
(Increase) decrease in prepaid expenses and other current assets
|
(603 | ) | 53 | |||||
|
Increase (decrease) in accounts payable and accrued liabilities
|
210 | (3,367 | ) | |||||
|
Increase (decrease) in income and other taxes payable
|
1,238 | (198 | ) | |||||
|
Net decrease (increase) in operating working capital
|
$ | 63 | $ | (1,413 | ) | |||
The “Net decrease (increase) in operating working
capital” includes reductions of $8 million and
$2 million for excess income tax benefits associated with
stock options exercised during the three months ended
March 31, 2010, and 2009, respectively. These amounts are
offset by an equal amount in “Net sales of treasury
shares.”
“Net Cash Provided by Operating Activities” included
the following cash payments for interest on debt and for income
taxes:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Interest on debt (net of capitalized interest)
|
$ | 70 | $ | — | ||||
|
Income taxes
|
1,885 | 1,173 | ||||||
The “Net sales of marketable securities” consisted of
the following gross amounts:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Marketable securities purchased
|
$— | $(3 | ) | |||||
|
Marketable securities sold
|
20 | 58 | ||||||
|
Net sales of marketable securities
|
$20 | $55 | ||||||
The “Net sales of treasury shares” represents the cost
of common shares acquired less the cost of shares issued for
share-based compensation plans. Net sales totaled
$40 million and $11 million in the first three months
of 2010 and 2009, respectively. No purchases were made under the
company’s stock repurchase program in the 2010 and 2009
periods.
8
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The major components of “Capital expenditures” and the
reconciliation of this amount to the capital and exploratory
expenditures, including equity affiliates, are as follows:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Additions to properties, plant and equipment
|
$ | 3,770 | $ | 3,664 | ||||
|
Additions to investments
|
150 | 224 | ||||||
|
Current-year dry-hole expenditures
|
62 | 159 | ||||||
|
Payments for other liabilities and assets, net
|
(15 | ) | 1,937 | |||||
|
Capital expenditures
|
3,967 | 5,984 | ||||||
|
Expensed exploration expenditures
|
114 | 197 | ||||||
|
Assets acquired through capital-lease obligations
|
3 | — | ||||||
|
Capital and exploratory expenditures, excluding equity affiliates
|
4,084 | 6,181 | ||||||
|
Company’s share of expenditures by equity affiliates
|
298 | 285 | ||||||
|
Capital and exploratory expenditures, including equity affiliates
|
$ | 4,382 | $ | 6,466 | ||||
“Payments for other liabilities and assets, net” in
the 2009 period includes $2 billion for a cash payment
related to an accrual recorded in 2008 for an upstream operating
agreement outside the United States.
| Note 5. | Operating Segments and Geographic Data |
Although each subsidiary of Chevron is responsible for its own
affairs, Chevron Corporation manages its investments in these
subsidiaries and their affiliates. The investments are grouped
into two business segments, Upstream and Downstream,
representing the company’s “reportable segments”
and “operating segments” as defined in accounting
standards for segment reporting (ASC 280). Upstream operations
consist primarily of exploring for, developing and producing
crude oil and natural gas; processing, liquefaction,
transportation and regasification associated with liquefied
natural gas (LNG); transporting crude oil by major international
oil export pipelines; transporting, storage and marketing of
natural gas; and a
gas-to-liquids
project. Downstream operations consist primarily of refining of
crude oil into petroleum products; marketing of crude oil and
refined products; transporting crude oil and refined products by
pipeline, marine vessel, motor equipment and rail car; and
manufacturing and marketing of commodity petrochemicals,
plastics for industrial uses and fuel and lubricant additives.
All Other activities of the company include mining operations,
power generation businesses, worldwide cash management and debt
financing activities, corporate administrative functions,
insurance operations, real estate activities, energy services,
alternative fuels and technology.
The segments are separately managed for investment purposes
under a structure that includes “segment managers” who
report to the company’s “chief operating decision
maker” (CODM) (terms as defined in the accounting
standards). The CODM is the company’s Executive Committee
(EXCOM), a committee of senior officers that includes the Chief
Executive Officer, and EXCOM reports to the Board of Directors
of Chevron Corporation.
The operating segments represent components of the company as
described in the accounting standards that engage in activities
(a) from which revenues are earned and expenses are
incurred; (b) whose operating results are regularly
reviewed by the CODM, which makes decisions about resources to
be allocated to the segments and to assess their performance;
and (c) for which discrete financial information is
available.
Segment managers for the reportable segments are directly
accountable to and maintain regular contact with the
company’s CODM to discuss the segment’s operating
activities and financial performance. The CODM approves annual
capital and exploratory budgets at the reportable segment level,
as well as reviews capital and exploratory funding for major
projects and approves major changes to the annual capital and
exploratory budgets. However,
9
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
business-unit
managers within the operating segments are directly responsible
for decisions relating to project implementation and all other
matters connected with daily operations. Company officers who
are members of EXCOM also have individual management
responsibilities and participate in other committees for
purposes other than acting as the CODM.
The activities reported in Chevron’s upstream and
downstream operating segments have changed effective
January 1, 2010. Chemicals businesses are now reported as
part of the downstream segment. In addition, the company’s
significant upstream-enabling operations, primarily a
gas-to-liquids
project and major international export pipelines, have been
reclassified from the downstream segment to the upstream
segment. Prior period information in this report has been
revised to conform to the 2010 presentation.
The company’s primary country of operation is the United
States of America, its country of domicile. Other components of
the company’s operations are reported as
“International” (outside the United States).
Segment Earnings
The company evaluates the performance of
its operating segments on an after-tax basis, without
considering the effects of debt financing interest expense or
investment interest income, both of which are managed by the
company on a worldwide basis. Corporate administrative costs and
assets are not allocated to the operating segments. However,
operating segments are billed for the direct use of corporate
services. Nonbillable costs remain at the corporate level in
“All Other.” Earnings by major operating area for the
three-month periods ended March 31, 2010 and 2009 are
presented in the following table:
Segment
Earnings
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Upstream
|
||||||||
|
United States
|
$ | 1,156 | $ | 27 | ||||
|
International
|
3,568 | 1,351 | ||||||
|
Total Upstream
|
4,724 | 1,378 | ||||||
|
Downstream
|
||||||||
|
United States
|
82 | 136 | ||||||
|
International
|
114 | 617 | ||||||
|
Total Downstream
|
196 | 753 | ||||||
|
Total Segment Earnings
|
4,920 | 2,131 | ||||||
|
All Other
|
||||||||
|
Interest Expense
|
(16 | ) | (6 | ) | ||||
|
Interest Income
|
10 | 13 | ||||||
|
Other
|
(362 | ) | (301 | ) | ||||
|
Net Income Attributable to Chevron Corporation
|
$ | 4,552 | $ | 1,837 | ||||
10
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Segment Assets
Segment assets do not include intercompany
investments or intercompany receivables. “All Other”
assets consist primarily of worldwide cash, cash equivalents,
time deposits and marketable securities; real estate;
information systems; mining operations; power generation
businesses; alternative fuels; technology companies; and assets
of the corporate administrative functions. Segment assets at
March 31, 2010, and December 31, 2009, are as follows:
Segment
Assets
|
At March 31
|
At December 31
|
|||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Upstream
|
||||||||
|
United States
|
$ 25,229 | $ 25,478 | ||||||
|
International
|
82,741 | 81,209 | ||||||
|
Goodwill
|
4,618 | 4,618 | ||||||
|
Total Upstream
|
112,588 | 111,305 | ||||||
|
Downstream
|
||||||||
|
United States
|
20,524 | 20,317 | ||||||
|
International
|
20,284 | 19,618 | ||||||
|
Total Downstream
|
40,808 | 39,935 | ||||||
|
Total Segment Assets
|
153,396 | 151,240 | ||||||
|
All Other
|
||||||||
|
United States
|
7,715 | 7,125 | ||||||
|
International
|
7,821 | 6,256 | ||||||
|
Total All Other
|
15,536 | 13,381 | ||||||
|
Total Assets — United States
|
53,468 | 52,920 | ||||||
|
Total Assets — International
|
110,846 | 107,083 | ||||||
|
Goodwill
|
4,618 | 4,618 | ||||||
|
Total Assets
|
$168,932 | $164,621 | ||||||
Segment Sales and Other Operating Revenues
Segment sales
and other operating revenues, including internal transfers, for
the three-month periods ended March 31, 2010 and 2009, are
presented in the following table. Products are transferred
between operating segments at internal product values that
approximate market prices. Revenues for the upstream segment are
derived primarily from the production and sale of crude oil and
natural gas, as well as the sale of third-party production of
natural gas. Revenues for the downstream segment are derived
from the refining and marketing of petroleum products such as
gasoline, jet fuel, gas oils, lubricants, residual fuel oils and
other products derived from crude oil. This segment also
generates revenues from the manufacture and sale of fuel and
lubricant additives and the transportation and trading of
refined products and crude oil. “All Other” activities
include revenues from mining operations, power generation
businesses, insurance operations, real estate activities and
technology companies.
11
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Sales and
Other Operating Revenues
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Upstream
|
||||||||
|
United States
|
$ | 6,593 | $ | 4,402 | ||||
|
International
|
9,548 | 6,405 | ||||||
|
Sub-total
|
16,141 | 10,807 | ||||||
|
Intersegment Elimination — United States
|
(3,473 | ) | (1,596 | ) | ||||
|
Intersegment Elimination — International
|
(5,705 | ) | (3,153 | ) | ||||
|
Total Upstream
|
6,963 | 6,058 | ||||||
|
Downstream
|
||||||||
|
United States
|
17,718 | 11,439 | ||||||
|
International
|
21,967 | 17,379 | ||||||
|
Sub-total
|
39,685 | 28,818 | ||||||
|
Intersegment Elimination — United States
|
(28 | ) | (26 | ) | ||||
|
Intersegment Elimination — International
|
(22 | ) | (13 | ) | ||||
|
Total Downstream
|
39,635 | 28,779 | ||||||
|
All Other
|
||||||||
|
United States
|
294 | 286 | ||||||
|
International
|
15 | 13 | ||||||
|
Sub-total
|
309 | 299 | ||||||
|
Intersegment Elimination — United States
|
(159 | ) | (145 | ) | ||||
|
Intersegment Elimination — International
|
(7 | ) | (4 | ) | ||||
|
Total All Other
|
143 | 150 | ||||||
|
Sales and Other Operating Revenues
|
||||||||
|
United States
|
24,605 | 16,127 | ||||||
|
International
|
31,530 | 23,797 | ||||||
|
Sub-total
|
56,135 | 39,924 | ||||||
|
Intersegment Elimination — United States
|
(3,660 | ) | (1,767 | ) | ||||
|
Intersegment Elimination — International
|
(5,734 | ) | (3,170 | ) | ||||
|
Total Sales and Other Operating Revenues
|
$ | 46,741 | $ | 34,987 | ||||
12
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 6. | Summarized Financial Data — Chevron U.S.A. Inc. |
Chevron U.S.A. Inc. (CUSA) is a major subsidiary of Chevron
Corporation. CUSA and its subsidiaries manage and operate most
of Chevron’s U.S. businesses. Assets include those
related to the exploration and production of crude oil, natural
gas and natural gas liquids and those associated with refining,
marketing, and supply and distribution of products derived from
petroleum, excluding most of the regulated pipeline operations
of Chevron. CUSA also holds the company’s investment in the
Chevron Phillips Chemical Company LLC joint venture, which is
accounted for using the equity method. The summarized financial
information for CUSA and its consolidated subsidiaries is as
follows:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Sales and other operating revenues
|
$ | 34,257 | $ | 23,811 | ||||
|
Total costs and other deductions
|
33,243 | 23,876 | ||||||
|
Net income (loss) attributable to CUSA
|
699 | (140 | ) | |||||
The amount of net loss attributable to CUSA for the three months
ended March 31, 2009 has been adjusted by an immaterial
amount associated with the allocation of income-tax liabilities
among Chevron Corporation subsidiaries.
|
At March 31
|
At December 31
|
|||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Current assets
|
$22,853 | $23,286 | ||||||
|
Other assets
|
32,472 | 32,827 | ||||||
|
Current liabilities
|
15,167 | 16,098 | ||||||
|
Other liabilities
|
14,037 | 14,625 | ||||||
|
Total CUSA net equity
|
$26,121 | $25,390 | ||||||
|
Memo: Total debt
|
$ 7,065 | $ 6,999 | ||||||
| Note 7. | Summarized Financial Data — Chevron Transport Corporation |
Chevron Transport Corporation Limited (CTC), incorporated in
Bermuda, is an indirect, wholly owned subsidiary of Chevron
Corporation. CTC is the principal operator of Chevron’s
international tanker fleet and is engaged in the marine
transportation of crude oil and refined petroleum products. Most
of CTC’s shipping revenue is derived by providing
transportation services to other Chevron companies. Chevron
Corporation has fully and unconditionally guaranteed this
subsidiary’s obligations in connection with certain debt
securities issued by a third party. Summarized financial
information for CTC and its consolidated subsidiaries is as
follows:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Sales and other operating revenues
|
$244 | $182 | ||||||
|
Total costs and other deductions
|
263 | 192 | ||||||
|
Net loss attributable to CTC
|
(21 | ) | (10 | ) | ||||
13
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
At March 31
|
At December 31
|
|||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Current assets
|
$350 | $377 | ||||||
|
Other assets
|
169 | 173 | ||||||
|
Current liabilities
|
111 | 115 | ||||||
|
Other liabilities
|
79 | 90 | ||||||
|
Total CTC net equity
|
$329 | $345 | ||||||
There were no restrictions on CTC’s ability to pay
dividends or make loans or advances at March 31, 2010.
| Note 8. | Income Taxes |
Taxes on income for the first quarter 2010 were
$3.1 billion, compared with $1.3 billion for the
corresponding period in 2009. The associated effective tax rates
(calculated as the amount of Income Tax Expense divided by
Income Before Income Tax Expense) were 40 percent and
42 percent, respectively.
The decline in the effective tax rate between the quarterly
periods was due to a lower effective tax rate in international
upstream operations, driven primarily by increased tax credits
and other benefits generated in foreign tax jurisdictions.
Tax positions for Chevron and its subsidiaries and affiliates
are subject to income tax audits by many tax jurisdictions
throughout the world. For the company’s major tax
jurisdictions, examinations of tax returns for certain prior tax
years had not been completed as of March 31, 2010. For
these jurisdictions, the latest years for which income tax
examinations had been finalized were as follows: United
States — 2005, Nigeria — 1994,
Angola — 2001 and Saudi Arabia — 2003.
The company engages in ongoing discussions with tax authorities
regarding the resolution of tax matters in the various
jurisdictions. Both the outcome of these tax matters and the
timing of resolution
and/or
closure of the tax audits are highly uncertain. However, it is
reasonably possible that developments on tax matters in certain
tax jurisdictions may result in significant increases or
decreases in the company’s total unrecognized tax benefits
within the next 12 months. Given the number of years that
still remain subject to examination and the number of matters
being examined in the various tax jurisdictions, we are unable
to estimate the range of possible adjustments to the balance of
unrecognized tax benefits.
| Note 9. | Employee Benefits |
Chevron has defined benefit pension plans for many employees.
The company typically prefunds defined benefit plans as required
by local regulations or in certain situations where prefunding
provides economic advantages. In the United States, all
qualified plans are subject to the Employee Retirement Income
Security Act (ERISA) minimum funding standard. The company does
not typically fund U.S. nonqualified pension plans
that are not subject to funding requirements under laws and
regulations because contributions to these pension plans may be
less economic and investment returns may be less attractive than
the company’s other investment alternatives.
The company also sponsors other postretirement (OPEB) plans that
provide medical and dental benefits, as well as life insurance
for some active and qualifying retired employees. The plans are
unfunded, and the company and the retirees share the costs.
Medical coverage for Medicare-eligible retirees in the
company’s main U.S. medical plan is secondary to
Medicare (including Part D) and the increase to the
company contribution for retiree medical coverage is limited to
no more than 4 percent each year. Certain life insurance
benefits are paid by the company.
14
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of net periodic benefit costs for 2010 and 2009
are as follows:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Pension Benefits
|
||||||||
|
United States
|
||||||||
|
Service cost
|
$ | 84 | $ | 67 | ||||
|
Interest cost
|
122 | 120 | ||||||
|
Expected return on plan assets
|
(135 | ) | (99 | ) | ||||
|
Amortization of prior-service credits
|
(2 | ) | (2 | ) | ||||
|
Amortization of actuarial losses
|
80 | 75 | ||||||
|
Settlement losses
|
55 | 50 | ||||||
|
Total United States
|
204 | 211 | ||||||
|
International
|
||||||||
|
Service cost
|
36 | 30 | ||||||
|
Interest cost
|
73 | 69 | ||||||
|
Expected return on plan assets
|
(58 | ) | (46 | ) | ||||
|
Amortization of prior-service costs
|
5 | 6 | ||||||
|
Amortization of actuarial losses
|
24 | 26 | ||||||
|
Total International
|
80 | 85 | ||||||
|
Net Periodic Pension Benefit Costs
|
$ | 284 | $ | 296 | ||||
|
Other Benefits*
|
||||||||
|
Service cost
|
$ | 10 | $ | 8 | ||||
|
Interest cost
|
43 | 44 | ||||||
|
Amortization of prior-service credits
|
(18 | ) | (20 | ) | ||||
|
Amortization of actuarial losses
|
6 | 7 | ||||||
|
Curtailment gains
|
— | (5 | ) | |||||
|
Net Periodic Other Benefit Costs
|
$ | 41 | $ | 34 | ||||
| * | Includes costs for U.S. and international OPEB plans. Obligations for plans outside the U.S. are not significant relative to the company’s total OPEB obligation. |
At the end of 2009, the company estimated it would contribute
$900 million to employee pension plans during 2010
(composed of $600 million for the U.S. plans and
$300 million for the international plans). Through
March 31, 2010, a total of $306 million was
contributed (including $266 million to the
U.S. plans). Total contributions for the full year are
currently estimated at $900 million ($600 million for
the U.S. plans and $300 million for the international
plans). Actual contribution amounts are dependent upon
plan-investment returns, changes in pension obligations,
regulatory environments and other economic factors. Additional
funding may ultimately be required if investment returns are
insufficient to offset increases in plan obligations.
During the first three months of 2010, the company contributed
$46 million to its OPEB plans. The company anticipates
contributing about $162 million during the remainder of
2010.
15
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 10. | Litigation |
MTBE
Chevron and many other companies in the petroleum
industry have used methyl tertiary butyl ether (MTBE) as a
gasoline additive. Chevron is a party to 51 pending lawsuits and
claims, the majority of which involve numerous other petroleum
marketers and refiners. Resolution of these lawsuits and claims
may ultimately require the company to correct or ameliorate the
alleged effects on the environment of prior release of MTBE by
the company or other parties. Additional lawsuits and claims
related to the use of MTBE, including personal-injury claims,
may be filed in the future. The company’s ultimate exposure
related to pending lawsuits and claims is not determinable, but
could be material to net income in any one period. The company
no longer uses MTBE in the manufacture of gasoline in the United
States.
Ecuador
Chevron is a defendant in a civil lawsuit before
the Superior Court of Nueva Loja in Lago Agrio, Ecuador, brought
in May 2003 by plaintiffs who claim to be representatives of
certain residents of an area where an oil production consortium
formerly had operations. The lawsuit alleges damage to the
environment from the oil exploration and production operations
and seeks unspecified damages to fund environmental remediation
and restoration of the alleged environmental harm, plus a health
monitoring program. Until 1992, Texaco Petroleum Company
(Texpet), a subsidiary of Texaco Inc., was a minority member of
this consortium with Petroecuador, the Ecuadorian state-owned
oil company, as the majority partner; since 1990, the operations
have been conducted solely by Petroecuador. At the conclusion of
the consortium and following an independent third-party
environmental audit of the concession area, Texpet entered into
a formal agreement with the Republic of Ecuador and Petroecuador
for Texpet to remediate specific sites assigned by the
government in proportion to Texpet’s ownership share of the
consortium. Pursuant to that agreement, Texpet conducted a
three-year remediation program at a cost of $40 million.
After certifying that the sites were properly remediated, the
government granted Texpet and all related corporate entities a
full release from any and all environmental liability arising
from the consortium operations.
Based on the history described above, Chevron believes that this
lawsuit lacks legal or factual merit. As to matters of law, the
company believes first, that the court lacks jurisdiction over
Chevron; second, that the law under which plaintiffs bring the
action, enacted in 1999, cannot be applied retroactively; third,
that the claims are barred by the statute of limitations in
Ecuador; and, fourth, that the lawsuit is also barred by the
releases from liability previously given to Texpet by the
Republic of Ecuador and Petroecuador. With regard to the facts,
the company believes that the evidence confirms that
Texpet’s remediation was properly conducted and that the
remaining environmental damage reflects Petroecuador’s
failure to timely fulfill its legal obligations and
Petroecuador’s further conduct since assuming full control
over the operations.
In April 2008, a mining engineer appointed by the court to
identify and determine the cause of environmental damage, and to
specify steps needed to remediate it, issued a report
recommending that the court assess $8 billion, which would,
according to the engineer, provide financial compensation for
purported damages, including wrongful death claims, and pay for,
among other items, environmental remediation, health care
systems and additional infrastructure for Petroecuador. The
engineer’s report also asserted that an additional
$8.3 billion could be assessed against Chevron for unjust
enrichment. The engineer’s report is not binding on the
court. Chevron also believes that the engineer’s work was
performed and his report prepared in a manner contrary to law
and in violation of the court’s orders. Chevron submitted a
rebuttal to the report in which it asked the court to strike the
report in its entirety. In November 2008, the engineer revised
the report and, without additional evidence, recommended an
increase in the financial compensation for purported damages to
a total of $18.9 billion and an increase in the assessment
for purported unjust enrichment to a total of $8.4 billion.
Chevron submitted a rebuttal to the revised report, which the
court dismissed. In September 2009, following the disclosure by
Chevron of evidence that the judge participated in meetings in
which businesspeople and individuals holding themselves out as
government officials discussed the case and its likely outcome,
the judge presiding over the case petitioned to be recused. In
late September 2009, the judge was recused, and in October 2009,
the full chamber of the provincial court affirmed the recusal,
resulting in the appointment of a new judge. In February 2010,
in accordance with local court process, another judge was
elected as president of the provincial court and will preside
over the trial.
16
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The court has completed most of the procedural aspects of the
case and could render a judgment at any time. Chevron will
continue a vigorous defense of any attempted imposition of
liability. In the event of an adverse trial court judgment,
Chevron would expect to pursue its appeals in Ecuador. Because
Chevron has no substantial assets in Ecuador, Chevron would
expect enforcement actions following any adverse judgment to be
brought in other jurisdictions. Chevron would expect to contest
any such actions. The ultimate outcome, including any financial
effect on Chevron, remains uncertain.
Management does not believe an estimate of a reasonably possible
loss (or a range of loss) can be made in this case. Due to the
defects associated with the engineer’s report, management
does not believe the report has any utility in calculating a
reasonably possible loss (or a range of loss). Moreover, the
highly uncertain legal environment surrounding the case provides
no basis for management to estimate a reasonably possible loss
(or a range of loss).
| Note 11. | Other Contingencies and Commitments |
Guarantees
The company and its subsidiaries have certain
other contingent liabilities with respect to guarantees, direct
or indirect, of debt of affiliated companies or third parties.
Under the terms of the guarantee arrangements, generally the
company would be required to perform should the affiliated
company or third party fail to fulfill its obligations under the
arrangements. In some cases, the guarantee arrangements may have
recourse provisions that would enable the company to recover any
payments made under the terms of the guarantees from assets
provided as collateral.
Off-Balance-Sheet Obligations
The company and its
subsidiaries have certain other contingent liabilities relating
to long-term unconditional purchase obligations and commitments,
including throughput and
take-or-pay
agreements, some of which relate to suppliers’ financing
arrangements. The agreements typically provide goods and
services, such as pipeline and storage capacity, drilling rigs,
utilities, and petroleum products, to be used or sold in the
ordinary course of the company’s business.
Indemnifications
The company provided certain indemnities
of contingent liabilities of Equilon and Motiva to Shell and
Saudi Refining, Inc., in connection with the February 2002 sale
of the company’s interests in those investments. The
company would be required to perform if the indemnified
liabilities become actual losses. Were that to occur, the
company could be required to make future payments up to
$300 million. Through March 2010, the company paid
$48 million under these indemnities and continues to be
obligated for possible additional indemnification payments in
the future.
The company has also provided indemnities relating to contingent
environmental liabilities related to assets originally
contributed by Texaco to the Equilon and Motiva joint ventures
and environmental conditions that existed prior to the formation
of Equilon and Motiva or that occurred during the period of
Texaco’s ownership interest in the joint ventures. In
general, the environmental conditions or events that are subject
to these indemnities must have arisen prior to December 2001.
Claims had to be asserted by February 2009 for Equilon
indemnities and must be asserted no later than February 2012 for
Motiva indemnities. Under the terms of these indemnities, there
is no maximum limit on the amount of potential future payments.
In February 2009, Shell delivered a letter to the company
purporting to preserve unmatured claims for certain Equilon
indemnities. The letter itself provides no estimate of the
ultimate claim amount. Management does not believe this letter
or any other information provides a basis to estimate the
amount, if any, of a range of loss or potential range of loss
with respect to either the Equilon or the Motiva indemnities.
The company posts no assets as collateral and has made no
payments under the indemnities.
The amounts payable for the indemnities described in the
preceding paragraph are to be net of amounts recovered from
insurance carriers and others and net of liabilities recorded by
Equilon or Motiva prior to September 30, 2001, for any
applicable incident.
In the acquisition of Unocal, the company assumed certain
indemnities relating to contingent environmental liabilities
associated with assets that were sold in 1997. The acquirer of
those assets shared in certain environmental remediation costs
up to a maximum obligation of $200 million, which had been
reached at December 31, 2009. Under the indemnification
agreement, after reaching the $200 million obligation,
Chevron is solely responsible
17
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
until April 2022, when the indemnification expires. The
environmental conditions or events that are subject to these
indemnities must have arisen prior to the sale of the assets in
1997.
Although the company has provided for known obligations under
this indemnity that are probable and reasonably estimable, the
amount of additional future costs may be material to results of
operations in the period in which they are recognized. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity.
Environmental
The company is subject to loss
contingencies pursuant to laws, regulations, private claims and
legal proceedings related to environmental matters that are
subject to legal settlements or that in the future may require
the company to take action to correct or ameliorate the effects
on the environment of prior release of chemicals or petroleum
substances, including MTBE, by the company or other parties.
Such contingencies may exist for various sites, including, but
not limited to, federal Superfund sites and analogous sites
under state laws, refineries, crude-oil fields, service
stations, terminals, land development areas, and mining
operations, whether operating, closed or divested. These future
costs are not fully determinable due to such factors as the
unknown magnitude of possible contamination, the unknown timing
and extent of the corrective actions that may be required, the
determination of the company’s liability in proportion to
other responsible parties, and the extent to which such costs
are recoverable from third parties.
Although the company has provided for known environmental
obligations that are probable and reasonably estimable, the
amount of additional future costs may be material to results of
operations in the period in which they are recognized. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such
expenditures have had, or will have, any significant impact on
the company’s competitive position relative to other
U.S. or international petroleum or chemical companies.
Financial Instruments
The company believes it has no
material market or credit risks to its operations, financial
position or liquidity as a result of its commodities and other
derivative activities.
Equity Redetermination
For crude-oil and natural-gas
producing operations, ownership agreements may provide for
periodic reassessments of equity interests in estimated
crude-oil and natural-gas reserves. These activities,
individually or together, may result in gains or losses that
could be material to earnings in any given period. One such
equity redetermination process has been under way since 1996 for
Chevron’s interests in four producing zones at the Naval
Petroleum Reserve at Elk Hills, California, for the time when
the remaining interests in these zones were owned by the
U.S. Department of Energy. A wide range remains for a
possible net settlement amount for the four zones. For this
range of settlement, Chevron estimates its maximum possible net
before-tax liability at approximately $200 million, and the
possible maximum net amount that could be owed to Chevron is
estimated at about $150 million. The timing of the
settlement and the exact amount within this range of estimates
are uncertain.
Other Contingencies
On April 26, 2010, a California
appeals court issued a ruling related to the adequacy of an
Environmental Impact Report (EIR) supporting the issuance of
certain permits by the city of Richmond, California, to replace
and upgrade certain facilities at Chevron’s refinery in
Richmond. The company is evaluating the ruling and its options
going forward, which may include seeking a review of the
decision by the California Supreme Court, requesting the city to
revise the EIR to address the issues identified by the Court of
Appeal, or other actions. Management believes the outcomes
associated with the potential options for the project are
uncertain. Due to the uncertainty of the company’s future
course of action, or potential outcomes of any action or
combination of actions, management does not believe an estimate
of the financial effects, if any, of the ruling can be made at
this time. However, the company’s ultimate exposure may be
significant to net income in any one future period.
Chevron receives claims from and submits claims to customers;
trading partners; U.S. federal, state and local regulatory
bodies; governments; contractors; insurers; and suppliers. The
amounts of these claims, individually and in the aggregate, may
be significant and take lengthy periods to resolve.
18
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company and its affiliates also continue to review and
analyze their operations and may close, abandon, sell, exchange,
acquire or restructure assets to achieve operational or
strategic benefits and to improve competitiveness and
profitability. These activities, individually or together, may
result in gains or losses in future periods.
| Note 12. | Fair Value Measurements |
Accounting standards for fair-value measurement (ASC
820) establish a framework for measuring fair value and
stipulate disclosures about fair-value measurements. The
standards apply to recurring and nonrecurring financial and
nonfinancial assets and liabilities that require or permit
fair-value measurements. Among the required disclosures is the
fair-value hierarchy of inputs the company uses to value an
asset or a liability. The three levels of the fair-value
hierarchy are described as follows:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets and liabilities. For the company, Level 1
inputs include exchange-traded futures contracts for which the
parties are willing to transact at the exchange-quoted price and
marketable securities that are actively traded.
Level 2: Inputs other than Level 1 that are
observable, either directly or indirectly. For the company,
Level 2 inputs include quoted prices for similar assets or
liabilities, prices obtained through third-party broker quotes
and prices that can be corroborated with other observable inputs
for substantially the complete term of a contract.
Level 3: Unobservable inputs. The company does not use
Level 3 inputs for any of its recurring fair-value
measurements. Level 3 inputs may be required for the
determination of fair value associated with certain nonrecurring
measurements of nonfinancial assets and liabilities.
The fair value hierarchy for recurring assets and liabilities
measured at fair value at March 31, 2010 and
December 31, 2009, is as follows:
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
|
Prices in
|
Prices in
|
|||||||||||||||||||||||||||||||
|
Active
|
Active
|
|||||||||||||||||||||||||||||||
|
Markets for
|
Markets for
|
|||||||||||||||||||||||||||||||
|
Identical
|
Other
|
Identical
|
Other
|
|||||||||||||||||||||||||||||
|
Assets/
|
Observable
|
Unobservable
|
At
|
Assets/
|
Observable
|
Unobservable
|
||||||||||||||||||||||||||
|
At March 31
|
Liabilities
|
Inputs
|
Inputs
|
December 31
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||||||||||||||
| 2010 | (Level 1) | (Level 2) | (Level 3) | 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
| (Millions of dollars) | ||||||||||||||||||||||||||||||||
|
Marketable Securities
|
$ 84 | $ 84 | $ — | $— | $106 | $106 | $ — | $— | ||||||||||||||||||||||||
|
Derivatives
|
190 | 31 | 159 | — | 127 | 14 | 113 | — | ||||||||||||||||||||||||
|
Total Recurring Assets at Fair Value
|
$274 | $115 | $159 | $— | $233 | $120 | $113 | $— | ||||||||||||||||||||||||
|
Derivatives
|
$217 | $142 | $ 75 | $— | $101 | $ 20 | $ 81 | $— | ||||||||||||||||||||||||
|
Total Recurring Liabilities at Fair Value
|
$217 | $142 | $ 75 | $— | $101 | $ 20 | $ 81 | $— | ||||||||||||||||||||||||
Marketable Securities
The company calculates fair value
for its marketable securities based on quoted market prices for
identical assets and liabilities. The fair values reflect the
cash that would have been received if the instruments were sold
at March 31, 2010.
Derivatives
The company records its derivative
instruments — other than any commodity derivative
contracts that are designated as normal purchase and normal
sale — on the Consolidated Balance Sheet at fair
value, with virtually all the offsetting amount to the
Consolidated Statement of Income. For derivatives with identical
or similar provisions as contracts that are publicly traded on a
regular basis, the company uses the market values of the
publicly traded instruments as an input for fair-value
calculations.
19
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company’s derivative instruments principally include
crude-oil, natural-gas and refined-product futures, swaps,
options and forward contracts. Derivatives classified as
Level 1 include futures, swaps and options contracts traded
in active markets such as the New York Mercantile Exchange.
Derivatives classified as Level 2 include swaps, options,
and forward contracts principally with financial institutions
and other oil and gas companies, the fair values for which are
obtained from third-party broker quotes, industry pricing
services and exchanges. The company obtains multiple sources of
pricing information for the Level 2 instruments. Since this
pricing information is generated from observable market data, it
has historically been very consistent. The company does not
materially adjust this information. The company incorporates
internal review, evaluation and assessment procedures, including
a comparison of Level 2 fair values derived from the
company’s internally developed forward curves (on a sample
basis) with the pricing information to document reasonable,
logical and supportable fair-value determinations and proper
level of classification.
Impairments of “Properties, plant and equipment”
The company did not have any assets and liabilities measured
at fair value on a nonrecurring basis to report in the first
quarter 2010. Before-tax losses associated with the impairment
of property, plant and equipment held and used and held for sale
in the first quarter 2009 were $110 million and
$44 million, respectively. The losses in the comparative
period were the result of fair values determined both from
internal cash-flow models, using discount rates consistent with
those used by the company to evaluate cash flows of other assets
of a similar nature, and from bids received from prospective
buyers of assets held for sale.
Assets and Liabilities not Required to be Measured at Fair
Value
The company holds cash equivalents and bank time
deposits in U.S. and
non-U.S. portfolios.
The instruments classified as cash equivalents are primarily
bank time deposits with maturities of 90 days or less and
money market funds. “Cash and cash equivalents” had
carrying/fair values of $7.4 billion and $8.7 billion
at March 31, 2010 and December 31, 2009, respectively.
The instruments held in “Time deposits” are bank time
deposits with maturities greater than 90 days, and had
carrying/fair values of $3.7 billion at March 31,
2010. The fair values of cash, cash equivalents and bank time
deposits reflect the cash that would have been received or paid
if the instruments were settled at March 31, 2010.
“Cash and cash equivalents” does not include
investments with a carrying/fair value of $55 million and
$123 million at March 31, 2010 and December 31,
2009, respectively. These investments are restricted funds
related to an international upstream development project and
Pascagoula Refinery projects, which are reported in
“Deferred charges and other assets” on the
Consolidated Balance Sheet. Long-term debt of $5.7 billion
had an estimated fair value of $6.2 billion at both
March 31, 2010 and December 31, 2009.
Fair values of other financial instruments at March 31,
2010 were not material.
| Note 13. | Derivative Instruments and Hedging Activities |
The company’s derivative instruments principally include
crude-oil, natural-gas and refined-product futures, swaps,
options and forward contracts. None of the company’s
derivative instruments are designated as a hedging instrument,
although certain of the company’s affiliates make such
designation. The company’s derivatives are not material to
the company’s financial position, results of operations or
liquidity. The company believes it has no material market or
credit risks to its operations, financial position or liquidity
as a result of its commodities and other derivatives activities.
20
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Derivative instruments measured at fair value at March 31,
2010 and December 31, 2009, and their classification on the
Consolidated Balance Sheet and Consolidated Statement of Income
are as follows:
Consolidated
Balance Sheet:
Fair Value of Derivatives not Designated as Hedging Instruments
Fair Value of Derivatives not Designated as Hedging Instruments
|
Asset Derivatives —
|
Liability Derivatives —
|
|||||||||||||||||||
| Fair Value | Fair Value | |||||||||||||||||||
|
(Millions of Dollars)
|
||||||||||||||||||||
|
Type
of
|
Balance Sheet
|
At March 31
|
At December 31
|
Balance Sheet
|
At March 31
|
At December 31
|
||||||||||||||
| Derivative Contract | Classification | 2010 | 2009 | Classification | 2010 | 2009 | ||||||||||||||
|
Commodity
|
Accounts and
notes receivable, net |
$141 | $ 99 | Accounts payable | $172 | $ 73 | ||||||||||||||
|
Commodity
|
Long-term receivables, net | 49 | 28 | Deferred credits and other noncurrent obligations | 45 | 28 | ||||||||||||||
| $190 | $127 | $217 | $101 | |||||||||||||||||
Consolidated
Statement of Income: The Effect of Derivatives not
Designated as Hedging Instruments
Designated as Hedging Instruments
|
Gain/(Loss)
|
||||||||||
|
Three Months Ended
|
||||||||||
| March 31 | ||||||||||
| 2010 | 2009 | |||||||||
|
Type
of
|
||||||||||
| Derivative Contract | Statement of Income Classification | (Millions of dollars) | ||||||||
|
Foreign Exchange
|
Other income | $ | — | $ | (44 | ) | ||||
|
Commodity
|
Sales and other operating revenues | 6 | 73 | |||||||
|
Commodity
|
Purchased crude oil and products | (31 | ) | 64 | ||||||
| $ | (25 | ) | $ | 93 | ||||||
| Note 14. | New Accounting Standards |
Transfers and Servicing (ASC 860), Accounting for Transfers
of Financial Assets (ASU
2009-16)
The FASB issued ASU
2009-16
in
December 2009. This standard became effective for the company on
January 1, 2010. ASU
2009-16
changes how companies account for transfers of financial assets
and eliminates the concept of qualifying special-purpose
entities. Adoption of the guidance did not have an effect on the
company’s results of operations, financial position or
liquidity.
Consolidation (ASC 810), Improvements to Financial Reporting
by Enterprises Involved With Variable Interest Entities (ASU
2009-17)
The FASB issued ASU
2009-17
in
December 2009. This standard became effective for the company on
January 1, 2010. ASU
2009-17
requires the enterprise to qualitatively assess if it is the
primary beneficiary of a variable-interest entity (VIE), and, if
so, the VIE must be consolidated. Adoption of the standard did
not have an impact on the company’s results of operations,
financial position or liquidity.
| Note 15. | Restructuring and Reorganization Costs |
In the first quarter 2010, the company announced employee
reduction programs related to the restructuring and
reorganization of its downstream businesses and corporate
staffs. Approximately 3,200 employees in the refining,
marketing, and supply and trading operations, and
600 employees from corporate staffs, are expected to be
terminated under the programs. About 1,900 of the affected
positions are located in the United States. It is
21
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
anticipated that 2,400 employees of the total covered under
the programs will be terminated during 2010, and the programs
are expected to be completed by the end of 2011.
A before-tax charge of $244 million ($175 million
after-tax) was recorded in the first quarter 2010, with
$191 million reported as “Operating Expenses” and
$53 million as “Selling, general and administrative
expenses” on the Consolidated Statement of Income. The
accrued liability is classified as current on the Consolidated
Balance Sheet. Approximately $80 million ($50 million
after-tax) is associated with terminations in the
U.S. Downstream, $127 million ($100 million
after-tax) in International Downstream and $37 million
($25 million after-tax) in All Other.
| Amounts Before Tax | ||||
| (Millions of dollars) | ||||
|
Balance at January 1, 2010
|
$ — | |||
|
Accruals/adjustments
|
244 | |||
|
Payments
|
— | |||
|
Balance at March 31, 2010
|
$244 | |||
22
Table of Contents
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
First
Quarter 2010 Compared With First Quarter 2009
Key
Financial Results
Earnings
by Business Segment
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Upstream(1)
|
||||||||
|
United States
|
$ | 1,156 | $ | 27 | ||||
|
International
|
3,568 | 1,351 | ||||||
|
Total Upstream
|
4,724 | 1,378 | ||||||
|
Downstream(1)
|
||||||||
|
United States
|
82 | 136 | ||||||
|
International
|
114 | 617 | ||||||
|
Total Downstream
|
196 | 753 | ||||||
|
Total Segment Earnings
|
4,920 | 2,131 | ||||||
|
All Other
|
(368 | ) | (294 | ) | ||||
|
Net Income Attributable to Chevron Corporation(2)(3)
|
$ | 4,552 | $ | 1,837 | ||||
|
|
||||||||
|
(1) 2009 information has been revised to conform with the 2010
segment presentation
|
||||||||
|
(2) Includes foreign currency effects
|
$ | (198 | ) | $ | (54 | ) | ||
|
(3) Also referred to as “earnings” in the discussions
that follow.
|
||||||||
Net income attributable to Chevron Corporation
for the
first quarter 2010 was $4.6 billion ($2.27 per
share — diluted), compared with $1.8 billion
($0.92 per share — diluted) in the corresponding 2009
period.
The activities reported in Chevron’s upstream and
downstream operating segments have changed effective
January 1, 2010. Results for the Chemicals businesses are
now reported as part of the downstream segment. In addition, the
company’s significant upstream-enabling operations,
primarily a
gas-to-liquids
project and major international export pipelines, have been
reclassified from the downstream segment to the upstream
segment. Prior period information in this report has been
revised to conform to the 2010 presentation.
Upstream
earnings in the first quarter 2010 were
$4.7 billion, compared with $1.4 billion in the 2009
quarter. The increase between the comparative periods was driven
by higher prices for crude oil and natural gas, and increased
production of crude oil.
Downstream
earnings were $196 million in the first
quarter 2010, compared with $753 million in the
year-earlier period. The decrease was primarily associated with
absence of 2009 gains on sales of assets and charges in 2010
related to planned employee reductions.
Refer to pages 27 through 29 for additional discussion of
results by business segment and “All Other” activities
for the first quarter 2010 versus the same period in 2009.
Business
Environment and Outlook
Chevron is a global energy company with significant business
activities in the following countries: Angola, Argentina,
Australia, Azerbaijan, Bangladesh, Brazil, Cambodia, Canada,
Chad, China, Colombia, Democratic Republic of the Congo,
Denmark, Indonesia, Kazakhstan, Myanmar, the Netherlands,
Nigeria, Norway, the
23
Table of Contents
Partitioned Zone between Saudi Arabia and Kuwait, the
Philippines, Republic of the Congo, Singapore, South Africa,
South Korea, Thailand, Trinidad and Tobago, the United Kingdom,
the United States, Venezuela, and Vietnam.
Earnings of the company depend largely on the profitability of
its upstream and downstream business segments. The single
biggest factor that affects the results of operations for both
segments is movement in the price of crude oil. In the
downstream business, crude oil is the largest cost component of
refined products. The overall trend in earnings is typically
less affected by results from the company’s other
activities and investments. Earnings for the company in any
period may also be influenced by events or transactions that are
infrequent or unusual in nature.
The company’s operations, especially Upstream, can also be
affected by changing economic, regulatory and political
environments in the various countries in which it operates,
including the United States. Civil unrest, acts of violence or
strained relations between a government and the company or other
governments may impact the company’s operations or
investments. Those developments have at times significantly
affected the company’s operations and results and are
carefully considered by management when evaluating the level of
current and future activity in such countries.
To sustain its long-term competitive position in the upstream
business, the company must develop and replenish an inventory of
projects that offer attractive financial returns for the
investment required. Identifying promising areas for
exploration, acquiring the necessary rights to explore for and
to produce crude oil and natural gas, drilling successfully, and
handling the many technical and operational details in a safe
and cost-effective manner are all important factors in this
effort. Projects often require long lead times and large capital
commitments. From time to time, certain governments have sought
to renegotiate contracts or impose additional costs on the
company. Governments may attempt to do so in the future. The
company will continue to monitor these developments, take them
into account in evaluating future investment opportunities, and
otherwise seek to mitigate any risks to the company’s
current operations or future prospects.
The company also continually evaluates opportunities to dispose
of assets that are not expected to provide sufficient long-term
value or to acquire assets or operations complementary to its
asset base to help augment the company’s financial
performance and growth. Asset dispositions and restructurings
may also occur in future periods and could result in significant
gains or losses.
In recent years, Chevron and the oil and gas industry at large
experienced an increase in certain costs that exceeded the
general trend of inflation in many areas of the world. This
increase in costs affected the company’s operating expenses
and capital programs for all business segments, but particularly
for Upstream. Softening of these cost pressures started in late
2008 and continued through most of 2009. Industry costs began to
level out in the fourth quarter 2009 and were essentially
unchanged during first quarter 2010. The company continues to
actively manage its schedule of work, contracting, procurement
and supply-chain activities to effectively manage costs. (Refer
to the “Upstream” section below for a discussion of
the trend in crude-oil prices.)
The company closely monitors developments in the financial and
credit markets, the level of worldwide economic activity and the
implications to the company of movements in prices for crude oil
and natural gas. Management takes these developments into
account in the conduct of daily operations and for business
planning. The company remains confident of its underlying
financial strength to address potential challenges presented in
the current environment. (Refer also to the “Liquidity and
Capital Resources” section beginning on page 32.)
Comments related to earnings trends for the company’s major
business areas are as follows:
Upstream
Earnings for the upstream segment are closely
aligned with industry price levels for crude oil and natural
gas. Crude-oil and natural-gas prices are subject to external
factors over which the company has no control, including product
demand connected with global economic conditions, industry
inventory levels, production quotas imposed by the Organization
of Petroleum Exporting Countries (OPEC), weather-related damage
and disruptions, competing fuel prices, and regional supply
interruptions or fears thereof that may be caused by military
conflicts, civil unrest or political uncertainty. Moreover, any
of these factors could also inhibit the company’s
production capacity in an affected region. The company monitors
developments closely in the countries in which it operates and
holds investments, and attempts to manage risks in operating its
facilities and businesses. Besides the impact of the fluctuation
in prices for crude oil and natural gas, the longer-term trend
in earnings for the upstream segment is
24
Table of Contents
also a function of other factors, including the company’s
ability to find or acquire and efficiently produce crude oil and
natural gas, changes in fiscal terms of contracts and changes in
tax laws and regulations.
Price levels for capital and exploratory costs and operating
expenses associated with the production of crude oil and natural
gas can also be subject to external factors beyond the
company’s control. External factors include not only the
general level of inflation but also commodity prices and prices
charged by the industry’s material and service providers,
which can be affected by the volatility of the industry’s
own
supply-and-demand
conditions for such materials and services. Capital and
exploratory expenditures and operating expenses also can be
affected by damage to production facilities caused by severe
weather or civil unrest.
The chart below shows the trend in benchmark prices for West
Texas Intermediate (WTI) crude oil and U.S. Henry Hub
natural gas. During 2009, industry price levels for WTI ranged
from $34 to $81 per barrel and finished the year at $79 per
barrel. During the first quarter 2010, WTI averaged $79 and
ended April at $86.
|
A differential in crude-oil prices exists between high quality (high-gravity, low-sulfur) crudes and those of lower-quality (low-gravity, high-sulfur). The amount of the differential in any period is associated with the supply of heavy crude available versus the demand that is a function of the number of refineries that are able to process this lower quality feedstock into light products (motor gasoline, jet fuel, aviation gasoline and diesel fuel). The differential widened in first quarter 2010 | |
| primarily due to greater availability of lower quality crudes. Chevron produces or shares in the production of heavy crude oil in California, Chad, Indonesia, the Partitioned Zone between Saudi Arabia and Kuwait, Venezuela and in certain fields in Angola, China and the United Kingdom sector of the North Sea. (See page 31 for the company’s average U.S. and international crude-oil realizations.) | ||
In contrast to price movements in the global market for crude
oil, price changes for natural gas in many regional markets are
more closely aligned with
supply-and-demand
conditions in those markets. In the United States, prices at
Henry Hub averaged about $5.29 per thousand cubic feet (MCF) in
the first quarter 2010, compared with about $4.40 during the
first quarter 2009. At the end of April 2010, the Henry Hub spot
price was about $3.94 per MCF. Fluctuations in the price for
natural gas in the United States are closely associated with
customer demand relative to the volumes produced in North
America and the level of inventory in underground storage.
Certain international natural-gas markets in which the company
operates have different supply, demand and regulatory
circumstances, which historically have resulted in lower average
sales prices for the company’s production of natural gas in
these locations. Chevron continues to invest in long-term
projects in these locations to install infrastructure to produce
and liquefy natural gas for transport by tanker to other markets
where greater demand results in higher prices. International
natural-gas realizations averaged about $4.60 per MCF during
first quarter 2010, compared with about $4.20 in the same
quarter last year. (See page 31 for the company’s
average natural gas realizations for the U.S. and
international regions.)
The company’s worldwide net oil-equivalent production in
first quarter 2010 averaged 2.78 million barrels per day.
About one-fifth of the company’s net oil-equivalent
production in the first quarter occurred in the OPEC-member
countries of Angola, Nigeria and Venezuela and in the
Partitioned Zone between Saudi Arabia and Kuwait. OPEC quotas
had no effect on the company’s net crude-oil production for
the first quarter 2010, while production in the first quarter
2009 was reduced by approximately 50,000 barrels per day.
At the March 2010 meeting, members of OPEC supported maintaining
production quotas in effect since December 2008.
The company currently estimates that oil-equivalent production
in 2010 will average approximately 2.73 million barrels per
day. This estimate is subject to many factors and uncertainties,
including additional quotas that may be imposed by OPEC, price
effects on production volumes calculated under
production-sharing and variable-royalty provisions of certain
agreements, changes in fiscal terms or restrictions on the scope
of company operations, delays in project startups, fluctuations
in demand for natural gas in various markets, weather conditions
that may shut in
25
Table of Contents
production, civil unrest, changing geopolitics, delays in
completion of maintenance turnarounds,
greater-than-expected
declines in production from mature fields, or other disruptions
to operations. The outlook for future production levels is also
affected by the size and number of economic investment
opportunities and, for new large-scale projects, the time lag
between initial exploration and the beginning of production.
Investments in upstream projects generally begin well in advance
of the start of the associated crude-oil and natural-gas
production. A significant majority of Chevron’s upstream
investment is made outside the United States.
On April 20, 2010, an incident occurred on a deepwater
drilling rig in the Gulf of Mexico, resulting in loss of life,
the sinking of the rig and a significant oil spill. The rig was
drilling an exploratory well at the BP-operated Macondo
prospect. Chevron is not a participant in the well. To date, the
company’s operations have not been impacted by the
incident. The future effects of this incident, including any new
or additional regulation that may be adopted in response, are
not known at this time.
Refer to the “Results of Operations” section on pages
27 and 28 for additional discussion of the company’s
upstream business.
Downstream
Earnings for the downstream segment are
closely tied to margins on the refining, manufacturing and
marketing of products that include gasoline, diesel, jet fuel,
lubricants, fuel oil, fuel and lubricant additives, and
petrochemicals. Industry margins are sometimes volatile and can
be affected by the global and regional
supply-and-demand
balance for refined products and petrochemicals and by changes
in the price of refinery crude-oil feedstocks, petrochemical
feedstocks and fuel costs. Industry margins can also be
influenced by inventory levels, geopolitical events, cost of
materials and services, refinery or chemical plant capacity
utilization, maintenance programs and disruptions at refineries
or chemical plants resulting from unplanned outages due to
severe weather, fires or other operational events.
Other factors affecting profitability for downstream operations
include the reliability and efficiency of the company’s
refining and marketing network, the effectiveness of the
crude-oil and product-supply functions and the volatility of
tanker-charter rates for the company’s shipping operations,
which are driven by the industry’s demand for crude-oil and
product tankers. Other factors beyond the company’s control
include the general level of inflation and energy costs to
operate the company’s refinery and distribution network.
The company’s most significant marketing areas are the West
Coast of North America, the U.S. Gulf Coast, Latin America,
Asia, southern Africa and the United Kingdom. Chevron operates
or has significant ownership interests in refineries in each of
these areas except Latin America. The company plans to
discontinue, by the end of the third quarter 2010, sales of
Chevron- and Texaco-branded motor fuels in the District of
Columbia, Delaware, Indiana, Kentucky, North Carolina, New
Jersey, Maryland, Ohio, Pennsylvania, South Carolina, Virginia,
West Virginia and parts of Tennessee, where the company sold to
retail customers through approximately 1,100 stations and to
commercial and industrial customers through supply arrangements.
During 2009, sales in these markets represented approximately
8 percent of the company’s total U.S. retail fuel
sales volumes. Additionally, in January 2010, the company sold
the rights to the Gulf trademark in the United States and its
territories that it had previously licensed for use in the
U.S. Northeast and Puerto Rico.
The company’s refining and marketing margins in the first
quarter 2010 continued to be weak due to challenging industry
conditions, including weak demand in certain regions reflecting
the economic slowdown, excess refined-product supplies and
surplus refining capacity. Expecting these conditions to
continue for the next several years, in the first quarter 2010,
the company announced that its downstream businesses will be
restructured to improve operating efficiency and achieve
sustained improvement in financial performance. As part of this
restructuring, employee-reduction programs were announced for
the United States and International downstream operations.
Approximately 3,200 employees in the refining, marketing,
and supply and trading operations are expected to be terminated
under the programs. About 1,300 of the affected positions are
located in the United States. It is anticipated that
2,000 employees will be terminated during 2010, and the
programs are expected to be completed by the end of 2011. Refer
to Note 15 of the Consolidated Financial Statements,
page 21, for further discussion. The company is also
soliciting bids for 13 U.S. terminals and certain
operations in Europe (including the company’s Pembroke
Refinery), the Caribbean and select Central America markets.
These potential market exits, dispositions of assets and other
actions, may result in gains or losses in future periods.
26
Table of Contents
Refer to the “Results of Operations” section on pages
28 and 29 for additional discussion of the company’s
downstream operations.
All Other
consists of mining operations, power generation
businesses, worldwide cash management and debt financing
activities, corporate administrative functions, insurance
operations, real estate activities, alternative fuels, and
technology companies. In the first quarter 2010,
employee-reduction programs were announced for the corporate
staffs. Approximately 600 employees from the corporate
staffs are expected to be terminated under the programs by the
end of 2011, including 400 that will be terminated during 2010.
Refer to Note 15 of the Consolidated Financial Statements,
page 21, for further discussion.
Operating
Developments
Noteworthy operating developments for the upstream business in
recent months included the following:
United
States
| • | Achieved “first oil” at the nonoperated Perdido deepwater project in the Gulf of Mexico. Located in nearly 8,000 feet of water, Perdido is also the world’s deepest offshore oil and gas drilling and production spar. Chevron has a 37.5 percent working interest in the Perdido regional host facility. |
| • | Commenced exploratory drilling operations with a second ultra-deep water drillship at the Moccasin prospect in the Gulf of Mexico. |
| • | Bid successfully for new exploration acreage in the recent central Gulf of Mexico lease sale. |
In the downstream business, the company continued to progress
restructuring plans to streamline its operations.
Results
of Operations
Business Segments
The following section presents the
results of operations for the company’s business
segments — Upstream and Downstream — as
well as for “All Other” — the departments
and companies managed at the corporate level. (Refer to
Note 5 beginning on page 9 for a discussion of the
company’s “reportable segments,” as defined under
the accounting standards for segment reporting.)
Upstream
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
U.S. Upstream Earnings
|
$1,156 | $27 | ||||||
U.S. upstream earnings of $1.16 billion in the first
quarter 2010 were up $1.13 billion from a year earlier.
Higher prices for crude oil and natural gas increased earnings
by about $1.1 billion, and higher liquids production in the
first quarter 2010 benefitted earnings by approximately
$150 million. Partially offsetting these effects was higher
depreciation expense.
The company’s average realization per barrel of crude oil
and natural gas liquids was approximately $71 in the 2010
quarter, compared with $36 a year ago. The average natural-gas
realization in the first quarter 2010 was $5.29 per thousand
cubic feet, up from $4.14 in last year’s first quarter.
Net oil-equivalent production of 734,000 barrels per day in
the first quarter 2010 was up 63,000 barrels per day, or
about 9 percent, from a year earlier. The increase was
primarily associated with new production, mostly from the
start-up
of
the Tahiti Field in second quarter 2009 and
ramp-up
of
the Blind Faith Field, which began production in late 2008,
along with the restoration of volumes that were offline in the
first quarter 2009 due to 2008 hurricanes in the Gulf of Mexico.
The net liquids component of production was up 15 percent
to 505,000 barrels per day in the 2010 first quarter while
net natural-gas production of 1.38 billion cubic feet per
day was unchanged between periods.
27
Table of Contents
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
International Upstream Earnings*
|
$3,568 | $1,351 | ||||||
|
|
||||||||
|
* Includes foreign currency effects
|
$ (102 | ) | $ 34 | |||||
International upstream earnings of $3.57 billion increased
$2.22 billion from the first quarter 2009. Higher prices
for crude oil and natural gas in the first quarter 2010
benefitted earnings by about $1.7 billion. Higher sales
volumes increased earnings by about $140 million, while
various tax benefits increased earnings by approximately
$400 million.
The average realization per barrel of crude oil and natural gas
liquids in the 2010 quarter was $70, compared with $39 a year
earlier. The average natural-gas realization in the 2010 first
quarter was $4.61 per thousand cubic feet, up from $4.21 in last
year’s first quarter.
Net oil-equivalent production of 2.05 million barrels per
day in the first quarter 2010 increased 3 percent, or
57,000 barrels per day, from a year ago. The increase
included approximately 115,000 barrels per day associated
with the
ramp-up
of
several major capital projects — the expansion at
Tengiz in Kazakhstan, Agbami in Nigeria, and
Tombua-Landana
and Mafumeira Norte in Angola. The absence of the first quarter
2009 OPEC production curtailments was more than offset by the
impact in first quarter 2010 of higher prices on certain
production-sharing and variable-royalty agreements. The net
liquids component of production increased about 3 percent
from a year ago to 1.43 million barrels per day and net
natural gas production was up about 2 percent to
3.72 billion cubic feet per day.
Downstream
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
U.S. Downstream Earnings
|
$82 | $136 | ||||||
U.S. downstream earned $82 million in the first
quarter 2010, compared with earnings of $136 million a year
earlier. Lower refined-product margins of approximately
$150 million and charges related to employee reductions of
approximately $50 million were partially offset by an
increase of about $100 million in earnings from chemical
operations, primarily from the 50 percent-owned Chevron
Phillips Chemical Company LLC.
Refinery crude-input of 889,000 barrels per day in the
first quarter 2010 decreased 49,000 barrels per day from
the year-ago period primarily due to weaker demand for refined
products and planned shutdown activity at the refinery in
Richmond, California.
Refined-product sales of 1.35 million barrels per day were
down 54,000 barrels per day from the first quarter 2009,
mainly due to lower jet fuel and fuel oils sales. Branded
gasoline sales decreased 5 percent to 581,000 barrels
per day due mainly to lower demand.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
International Downstream Earnings*
|
$114 | $617 | ||||||
|
|
||||||||
|
* Includes foreign currency effects
|
$(98 | ) | $(59 | ) | ||||
International downstream earned $114 million in the first
quarter 2010, compared with earnings of $617 million a year
earlier. The decline was due mainly to the absence of 2009 gains
of about $400 million from asset sales and charges in the
first quarter 2010 of about $100 million for employee
reductions.
Refinery crude-input of 992,000 barrels per day was
essentially unchanged from the first quarter 2009.
28
Table of Contents
Total refined-product sales of 1.7 million barrels per day
in the 2010 first quarter were 12 percent lower than a year
earlier, due mainly to asset sales in certain countries in
Africa and Latin America since the first quarter of last year.
Excluding the impact of 2009 asset sales, sales volumes were
down 5 percent between periods mainly due to reduced
trading activities in Europe.
All
Other
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Net Charges*
|
$(368 | ) | $(294 | ) | ||||
|
|
||||||||
|
* Includes foreign currency effects
|
$2 | $(29 | ) | |||||
All Other consists of mining operations, power generation
businesses, worldwide cash management and debt financing
activities, corporate administrative functions, insurance
operations, real estate activities, alternative fuels, and
technology companies.
Net charges in the first quarter 2010 were $368 million,
compared with $294 million in the year-ago period. The
increase between periods is primarily due to higher corporate
tax expense and the effects of charges related to reductions in
corporate staffs. Foreign-currency effects reduced net charges
by $2 million in the 2010 quarter, compared with a
$29 million increase in net charges last year.
Consolidated
Statement of Income
Explanations of variations between periods for certain income
statement categories are provided below:
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Sales and other operating revenues
|
$46,741 | $34,987 | ||||||
Sales and other operating revenues for the first quarter 2010
increased $12 billion mainly due to higher prices for crude
oil, natural gas and refined products.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Income from equity affiliates
|
$1,235 | $611 | ||||||
Income from equity affiliates increased in the first quarter
2010 mainly due to higher upstream-related earnings from
Tengizchevroil in Kazakhstan and Petropiar in Venezuela, as a
result of higher prices for crude oil. Downstream-related
earnings were higher between the periods due primarily to higher
earnings from Chevron Phillips Chemical Company LLC, as a result
of higher margins on the sales of commodity chemicals.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Other income
|
$203 | $532 | ||||||
Other income for the quarterly period in 2010 decreased mainly
due to lower gains on asset sales, partially offset by favorable
foreign-exchange effects.
29
Table of Contents
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Purchased crude oil and products
|
$27,144 | $20,400 | ||||||
The increase in crude-oil and product purchases in the 2010
period was primarily the result of higher prices for crude oil,
natural gas and refined products.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Operating, selling, general and administrative expenses
|
$5,631 | $5,323 | ||||||
Operating, selling, general and administrative expenses
increased approximately $300 million between quarters,
primarily due to charges of $244 million related to
employee reductions.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Exploration expenses
|
$180 | $381 | ||||||
The decline in exploration expenses between quarters was
primarily due to lower amounts for well write-offs.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Depreciation, depletion and amortization
|
$3,082 | $2,867 | ||||||
The increase in first quarter 2010 was mainly associated with
about $300 million from higher crude-oil and natural-gas
production, partially offset by the absence of upstream asset
impairments.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Taxes other than on income
|
$4,472 | $3,978 | ||||||
Taxes other than on income increased primarily due to higher
import duties in the company’s U.K. downstream operations.
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
| (Millions of dollars) | ||||||||
|
Income tax expense
|
$3,070 | $1,319 | ||||||
Effective income tax rates for the 2010 and 2009 first quarters
were 40 percent and 42 percent, respectively.
The decline in the effective tax rate between the quarterly
periods was due to a lower effective tax rate in international
upstream operations, driven primarily by increased tax credits
and other benefits generated in foreign tax jurisdictions.
30
Table of Contents
Selected
Operating Data
The following table presents a comparison of selected operating
data:
Selected
Operating Data(1)(2)
|
Three Months Ended
|
||||||||
| March 31 | ||||||||
| 2010 | 2009 | |||||||
|
U.S. Upstream
|
||||||||
|
Net crude oil and natural gas liquids production (MBPD)
|
505 | 441 | ||||||
|
Net natural gas production (MMCFPD)(3)
|
1,378 | 1,379 | ||||||
|
Net oil-equivalent production (MBOEPD)
|
734 | 671 | ||||||
|
Sales of natural gas (MMCFPD)
|
6,006 | 6,374 | ||||||
|
Sales of natural gas liquids (MBPD)
|
22 | 13 | ||||||
|
Revenue from net production
|
||||||||
|
Liquids ($/Bbl)
|
$ | 70.53 | $ | 36.00 | ||||
|
Natural gas ($/MCF)
|
$ | 5.29 | $ | 4.14 | ||||
|
International Upstream
|
||||||||
|
Net crude oil and natural gas liquids production (MBPD)(4)
|
1,428 | 1,385 | ||||||
|
Net natural gas production (MMCFPD)(3)
|
3,723 | 3,642 | ||||||
|
Net oil-equivalent production (MBOEPD)(3)(4)
|
2,049 | 1,992 | ||||||
|
Sales of natural gas (MMCFPD)
|
4,117 | 4,257 | ||||||
|
Sales of natural gas liquids (MBPD)
|
26 | 22 | ||||||
|
Revenue from liftings
|
||||||||
|
Liquids ($/Bbl)
|
$ | 70.05 | $ | 39.43 | ||||
|
Natural gas ($/MCF)
|
$ | 4.61 | $ | 4.21 | ||||
|
U.S. and International Upstream
|
||||||||
|
Total net oil-equivalent production (MBOEPD)(3)(4)
|
2,783 | 2,663 | ||||||
|
U.S. Downstream
|
||||||||
|
Gasoline sales (MBPD)(5)
|
715 | 704 | ||||||
|
Other refined-product sales (MBPD)
|
634 | 699 | ||||||
|
Total refined-product sales (MBPD)
|
1,349 | 1,403 | ||||||
|
Sales of natural gas liquids (MBPD)
|
138 | 138 | ||||||
|
Refinery input (MBPD)
|
889 | 938 | ||||||
|
International Downstream
|
||||||||
|
Gasoline sales (MBPD)(5)
|
385 | 493 | ||||||
|
Other refined-product sales (MBPD)
|
797 | 978 | ||||||
|
Share of affiliate sales (MBPD)
|
543 | 489 | ||||||
|
Total refined-product sales (MBPD)
|
1,725 | 1,960 | ||||||
|
Sales of natural gas liquids (MBPD)
|
76 | 94 | ||||||
|
Refinery input (MBPD)
|
992 | 985 | ||||||
|
|
||||||||
|
(1) Includes company share of equity affiliates
|
||||||||
|
(2) MBPD — thousands of barrels per day;
MMCFPD — millions of cubic feet per day;
Bbl — Barrel; MCF — thousands of cubic feet;
oil-equivalent gas conversion ratio is 6,000 cubic feet of
natural gas = 1 barrel of crude oil; MBOEPD —
thousands of barrels of oil-equivalent per day.
|
||||||||
|
(3) Includes natural gas consumed in operations (MMCFPD):
|
||||||||
|
United States
|
67 | 59 | ||||||
|
International(6)
|
490 | 493 | ||||||
|
(4) Includes: Canada — synthetic oil
|
23 | 25 | ||||||
|
Venezuela affiliate — synthetic oil
|
30 | 28 | ||||||
|
(5) Includes branded and unbranded gasoline.
|
||||||||
|
(6) 2009 conformed to 2010 presentation.
|
31
Table of Contents
Liquidity
and Capital Resources
Cash, cash equivalents, time deposits and marketable
securities
totaled approximately $11.2 billion at
March 31, 2010, up $2.4 billion from year-end 2009.
Cash provided by operating activities in the first three months
of 2010 was $7.5 billion, up from $2.4 billion in the
year-ago period due mainly to increased earnings driven by
higher prices for crude oil and natural gas. These strong
operating cash flows funded the company’s $4.1 billion
capital and exploratory program and $1.4 billion of
dividend payments to common shareholders during the first three
months of 2010. In the first quarter of 2010, the company also
invested $3.7 billion in bank time deposits with maturities
greater than 90 days.
Dividends
The company paid dividends of $1.4 billion
to common stockholders during the first three months of 2010. In
April 2010, the company increased its quarterly dividend by
5.9 percent to 72 cents per common share payable on
June 10, 2010 to shareholders of record on May 19,
2010.
Debt and Capital Lease Obligations
Chevron’s total
debt and capital lease obligations were $10.4 billion at
March 31, 2010, down from $10.5 billion at
December 31, 2009.
The company’s debt and capital lease obligations due within
one year, consisting primarily of commercial paper and the
current portion of long-term debt, totaled $4.5 billion at
March 31, 2010 and $4.6 billion at December 31,
2009. Of these amounts, $4.2 billion was reclassified to
long-term at the end of both periods. At March 31, 2010,
settlement of these obligations was not expected to require the
use of working capital within one year, as the company had the
intent and the ability, as evidenced by committed credit
facilities, to refinance them on a long-term basis.
At March 31, 2010, the company had $5.1 billion in
committed credit facilities with various major banks, which
enable the refinancing of short-term obligations on a long-term
basis. These facilities support commercial paper borrowing and
can also be used for general corporate purposes. The
company’s practice has been to continually replace expiring
commitments with new commitments on substantially the same
terms, maintaining levels management believes appropriate. Any
borrowings under the facilities would be unsecured indebtedness
at interest rates based on London Interbank Offered Rate or an
average of base lending rates published by specified banks and
on terms reflecting the company’s strong credit rating. No
borrowings were outstanding under these facilities at
March 31, 2010. In addition, in March 2010, the prior shelf
registration expired, and the company filed a new automatic
shelf registration statement for an unspecified amount of
nonconvertible debt securities issued or guaranteed by the
company.
The company has outstanding public bonds issued by Chevron
Corporation, Chevron Corporation Profit Sharing/Savings Plan
Trust Fund, Texaco Capital Inc. and Union Oil Company of
California. All of these securities are the obligations of, or
guaranteed by, Chevron Corporation and are rated AA by Standard
and Poor’s Corporation and Aa1 by Moody’s Investors
Service. The company’s U.S. commercial paper is rated
A-1+
by
Standard and Poor’s and
P-1
by
Moody’s. All of these ratings denote high-quality,
investment-grade securities.
The company’s future debt level is dependent primarily on
results of operations, the capital-spending program and cash
that may be generated from asset dispositions. The company
believes that it has substantial borrowing capacity to meet
unanticipated cash requirements and that during periods of low
prices for crude oil and natural gas and narrow margins for
refined products and commodity chemicals, it has the flexibility
to increase borrowings
and/or
modify capital-spending plans to continue paying the common
stock dividend and maintain the company’s high-quality debt
ratings.
Common Stock Repurchase Program
In September 2007, the
company authorized the acquisition of up to $15 billion of
its common shares at prevailing prices, as permitted by
securities laws and other legal requirements and subject to
market conditions and other factors. The program is for a period
of up to three years and may be discontinued at any time prior
to expiration of the program in the third quarter 2010. The
company did not acquire any shares during the first three months
of 2010 and does not plan to acquire any shares in the second
quarter 2010. From the inception of the program, the company has
acquired 119 million shares at a cost of $10.1 billion.
32
Table of Contents
Noncontrolling Interests
The company reported
noncontrolling interests of $703 million and
$647 million at March 31, 2010 and December 31,
2009, respectively. Distributions to noncontrolling interests
totaled $17 million during the first three months of 2010.
Current Ratio
— current assets divided by
current liabilities. The current ratio was 1.5 at March 31,
2010, and 1.4 at December 31, 2009. The current ratio is
adversely affected by the fact that Chevron’s inventories
are valued on a
Last-In,
First-Out Basis. At March 31, 2010, the book value of
inventory was lower than replacement costs.
Debt Ratio
— total debt as a percentage of
total debt plus Chevron Corporation Stockholders’ Equity.
This ratio was 9.8 percent at March 31, 2010, and
10.3 percent at year-end 2009.
Pension Obligations
At the end of 2009, the company
estimated it would contribute $900 million to employee
pension plans during 2010 (composed of $600 million for the
U.S. plans and $300 million for the international
plans). Through March 31, 2010, a total of
$306 million was contributed (including $266 million
to the U.S. plans). Total estimated contributions for the
full year continue to be $900 million, but the company may
contribute an amount that differs from this estimate. Actual
contribution amounts are dependent upon investment returns,
changes in pension obligations, regulatory environments and
other economic factors. Additional funding may ultimately be
required if investment returns are insufficient to offset
increases in plan obligations.
Capital and Exploratory Expenditures
Total expenditures,
including the company’s share of spending by affiliates,
were $4.4 billion in the first three months of 2010,
compared with $6.5 billion in the corresponding 2009
period. The amounts included the company’s share of
affiliates’ expenditures of about $298 million and
$285 million in the 2010 and 2009 periods, respectively.
Outlays in the 2009 period included $2 billion for the
extension of an upstream concession. Expenditures for upstream
projects in the first three months of 2010 were about
$3.9 billion, representing 89 percent of the
companywide total.
Capital
and Exploratory Expenditures by Major Operating Area
| Three Months Ended March 31 | ||||||||
| 2010 | 2009 | |||||||
|
United States
|
||||||||
|
Upstream
|
$ | 853 | $ | 1,025 | ||||
|
Downstream
|
272 | 398 | ||||||
|
All Other
|
34 | 69 | ||||||
|
Total United States
|
1,159 | 1,492 | ||||||
|
International
|
||||||||
|
Upstream
|
3,029 | 4,742 | ||||||
|
Downstream
|
194 | 231 | ||||||
|
All Other
|
— | 1 | ||||||
|
Total International
|
3,223 | 4,974 | ||||||
|
Worldwide
|
$ | 4,382 | $ | 6,466 | ||||
Contingencies
and Significant Litigation
MTBE
Chevron and many other companies in the petroleum
industry have used methyl tertiary butyl ether (MTBE) as a
gasoline additive. Chevron is a party to 51 pending lawsuits and
claims, the majority of which involve numerous other petroleum
marketers and refiners. Resolution of these lawsuits and claims
may ultimately require the company to correct or ameliorate the
alleged effects on the environment of prior release of MTBE by
the company or other parties. Additional lawsuits and claims
related to the use of MTBE, including personal-injury claims,
may be filed in the future. The company’s ultimate exposure
related to pending lawsuits and claims is not determinable, but
could be material to net income in any one period. The company
no longer uses MTBE in the manufacture of gasoline in the United
States.
33
Table of Contents
Ecuador
Chevron is a defendant in a civil lawsuit before
the Superior Court of Nueva Loja in Lago Agrio, Ecuador, brought
in May 2003 by plaintiffs who claim to be representatives of
certain residents of an area where an oil production consortium
formerly had operations. The lawsuit alleges damage to the
environment from the oil exploration and production operations
and seeks unspecified damages to fund environmental remediation
and restoration of the alleged environmental harm, plus a health
monitoring program. Until 1992, Texaco Petroleum Company
(Texpet), a subsidiary of Texaco Inc., was a minority member of
this consortium with Petroecuador, the Ecuadorian state-owned
oil company, as the majority partner; since 1990, the operations
have been conducted solely by Petroecuador. At the conclusion of
the consortium and following an independent third-party
environmental audit of the concession area, Texpet entered into
a formal agreement with the Republic of Ecuador and Petroecuador
for Texpet to remediate specific sites assigned by the
government in proportion to Texpet’s ownership share of the
consortium. Pursuant to that agreement, Texpet conducted a
three-year remediation program at a cost of $40 million.
After certifying that the sites were properly remediated, the
government granted Texpet and all related corporate entities a
full release from any and all environmental liability arising
from the consortium operations.
Based on the history described above, Chevron believes that this
lawsuit lacks legal or factual merit. As to matters of law, the
company believes first, that the court lacks jurisdiction over
Chevron; second, that the law under which plaintiffs bring the
action, enacted in 1999, cannot be applied retroactively; third,
that the claims are barred by the statute of limitations in
Ecuador; and, fourth, that the lawsuit is also barred by the
releases from liability previously given to Texpet by the
Republic of Ecuador and Petroecuador. With regard to the facts,
the company believes that the evidence confirms that
Texpet’s remediation was properly conducted and that the
remaining environmental damage reflects Petroecuador’s
failure to timely fulfill its legal obligations and
Petroecuador’s further conduct since assuming full control
over the operations.
In April 2008, a mining engineer appointed by the court to
identify and determine the cause of environmental damage, and to
specify steps needed to remediate it, issued a report
recommending that the court assess $8 billion, which would,
according to the engineer, provide financial compensation for
purported damages, including wrongful death claims, and pay for,
among other items, environmental remediation, health care
systems and additional infrastructure for Petroecuador. The
engineer’s report also asserted that an additional
$8.3 billion could be assessed against Chevron for unjust
enrichment. The engineer’s report is not binding on the
court. Chevron also believes that the engineer’s work was
performed and his report prepared in a manner contrary to law
and in violation of the court’s orders. Chevron submitted a
rebuttal to the report in which it asked the court to strike the
report in its entirety. In November 2008, the engineer revised
the report and, without additional evidence, recommended an
increase in the financial compensation for purported damages to
a total of $18.9 billion and an increase in the assessment
for purported unjust enrichment to a total of $8.4 billion.
Chevron submitted a rebuttal to the revised report, which the
court dismissed. In September 2009, following the disclosure by
Chevron of evidence that the judge participated in meetings in
which businesspeople and individuals holding themselves out as
government officials discussed the case and its likely outcome,
the judge presiding over the case petitioned to be recused. In
late September 2009, the judge was recused, and in October 2009,
the full chamber of the provincial court affirmed the recusal,
resulting in the appointment of a new judge. In February 2010,
in accordance with local court process, another judge was
elected as president of the provincial court and will preside
over the trial.
The court has completed most of the procedural aspects of the
case and could render a judgment at any time. Chevron will
continue a vigorous defense of any attempted imposition of
liability. In the event of an adverse trial court judgment,
Chevron would expect to pursue its appeals in Ecuador. Because
Chevron has no substantial assets in Ecuador, Chevron would
expect enforcement actions following any adverse judgment to be
brought in other jurisdictions. Chevron would expect to contest
any such actions. The ultimate outcome, including any financial
effect on Chevron, remains uncertain.
Management does not believe an estimate of a reasonably possible
loss (or a range of loss) can be made in this case. Due to the
defects associated with the engineer’s report, management
does not believe the report has any utility in calculating a
reasonably possible loss (or a range of loss). Moreover, the
highly uncertain legal environment surrounding the case provides
no basis for management to estimate a reasonably possible loss
(or a range of loss).
34
Table of Contents
Guarantees
The company and its subsidiaries have certain
other contingent liabilities with respect to guarantees, direct
or indirect, of debt of affiliated companies or third parties.
Under the terms of the guarantee arrangements, generally the
company would be required to perform should the affiliated
company or third party fail to fulfill its obligations under the
arrangements. In some cases, the guarantee arrangements may have
recourse provisions that would enable the company to recover any
payments made under the terms of the guarantees from assets
provided as collateral.
Off-Balance-Sheet Obligations
The company and its
subsidiaries have certain other contingent liabilities relating
to long-term unconditional purchase obligations and commitments,
including throughput and
take-or-pay
agreements, some of which relate to suppliers’ financing
arrangements. The agreements typically provide goods and
services, such as pipeline and storage capacity, drilling rigs,
utilities, and petroleum products, to be used or sold in the
ordinary course of the company’s business.
Indemnifications
The company provided certain indemnities
of contingent liabilities of Equilon and Motiva to Shell and
Saudi Refining, Inc., in connection with the February 2002 sale
of the company’s interests in those investments. The
company would be required to perform if the indemnified
liabilities become actual losses. Were that to occur, the
company could be required to make future payments up to
$300 million. Through March 2010, the company paid
$48 million under these indemnities and continues to be
obligated for possible additional indemnification payments in
the future.
The company has also provided indemnities relating to contingent
environmental liabilities related to assets originally
contributed by Texaco to the Equilon and Motiva joint ventures
and environmental conditions that existed prior to the formation
of Equilon and Motiva or that occurred during the period of
Texaco’s ownership interest in the joint ventures. In
general, the environmental conditions or events that are subject
to these indemnities must have arisen prior to December 2001.
Claims had to be asserted by February 2009 for Equilon
indemnities and must be asserted no later than February 2012 for
Motiva indemnities. Under the terms of these indemnities, there
is no maximum limit on the amount of potential future payments.
In February 2009, Shell delivered a letter to the company
purporting to preserve unmatured claims for certain Equilon
indemnities. The letter itself provides no estimate of the
ultimate claim amount. Management does not believe this letter
or any other information provides a basis to estimate the
amount, if any, of a range of loss or potential range of loss
with respect to either the Equilon or the Motiva indemnities.
The company posts no assets as collateral and has made no
payments under the indemnities.
The amounts payable for the indemnities described in the
preceding paragraph are to be net of amounts recovered from
insurance carriers and others and net of liabilities recorded by
Equilon or Motiva prior to September 30, 2001, for any
applicable incident.
In the acquisition of Unocal, the company assumed certain
indemnities relating to contingent environmental liabilities
associated with assets that were sold in 1997. The acquirer of
those assets shared in certain environmental remediation costs
up to a maximum obligation of $200 million, which had been
reached at December 31, 2009. Under the indemnification
agreement, after reaching the $200 million obligation,
Chevron is solely responsible until April 2022, when the
indemnification expires. The environmental conditions or events
that are subject to these indemnities must have arisen prior to
the sale of the assets in 1997.
Although the company has provided for known obligations under
this indemnity that are probable and reasonably estimable, the
amount of additional future costs may be material to results of
operations in the period in which they are recognized. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity.
Environmental
The company is subject to loss
contingencies pursuant to laws, regulations, private claims and
legal proceedings related to environmental matters that are
subject to legal settlements or that in the future may require
the company to take action to correct or ameliorate the effects
on the environment of prior release of chemicals or petroleum
substances, including MTBE, by the company or other parties.
Such contingencies may exist for various sites, including, but
not limited to, federal Superfund sites and analogous sites
under state laws, refineries, crude-oil fields, service
stations, terminals, land development areas, and mining
operations, whether operating, closed or divested. These future
costs are not fully determinable due to such factors as the
unknown magnitude of possible contamination, the unknown timing
and extent of the corrective actions that may be required, the
determination of
35
Table of Contents
the company’s liability in proportion to other responsible
parties, and the extent to which such costs are recoverable from
third parties.
Although the company has provided for known environmental
obligations that are probable and reasonably estimable, the
amount of additional future costs may be material to results of
operations in the period in which they are recognized. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such
expenditures have had, or will have, any significant impact on
the company’s competitive position relative to other
U.S. or international petroleum or chemical companies.
Financial Instruments
The company believes it has no
material market or credit risks to its operations, financial
position or liquidity as a result of its commodities and other
derivative activities.
Equity Redetermination
For crude-oil and natural-gas
producing operations, ownership agreements may provide for
periodic reassessments of equity interests in estimated
crude-oil and natural-gas reserves. These activities,
individually or together, may result in gains or losses that
could be material to earnings in any given period. One such
equity redetermination process has been under way since 1996 for
Chevron’s interests in four producing zones at the Naval
Petroleum Reserve at Elk Hills, California, for the time when
the remaining interests in these zones were owned by the
U.S. Department of Energy. A wide range remains for a
possible net settlement amount for the four zones. For this
range of settlement, Chevron estimates its maximum possible net
before-tax liability at approximately $200 million, and the
possible maximum net amount that could be owed to Chevron is
estimated at about $150 million. The timing of the
settlement and the exact amount within this range of estimates
are uncertain.
Tax positions for Chevron and its subsidiaries and affiliates
are subject to income tax audits by many tax jurisdictions
throughout the world. For the company’s major tax
jurisdictions, examinations of tax returns for certain prior tax
years had not been completed as of March 31, 2010. For
these jurisdictions, the latest years for which income tax
examinations had been finalized were as follows: United
States — 2005, Nigeria — 1994,
Angola — 2001 and Saudi Arabia — 2003.
Settlement of open tax years, as well as tax issues in other
countries where the company conducts its businesses, is not
expected to have a material effect on the consolidated financial
position or liquidity of the company and, in the opinion of
management, adequate provision has been made for income and
franchise taxes for all years under examination or subject to
future examination.
Other Contingencies
On April 26, 2010, a California
appeals court issued a ruling related to the adequacy of an
Environmental Impact Report (EIR) supporting the issuance of
certain permits by the city of Richmond, California, to replace
and upgrade certain facilities at Chevron’s refinery in
Richmond. The company is evaluating the ruling and its options
going forward, which may include seeking a review of the
decision by the California Supreme Court, requesting the city to
revise the EIR to address the issues identified by the Court of
Appeal, or other actions. Management believes the outcomes
associated with the potential options for the project are
uncertain. Due to the uncertainty of the company’s future
course of action, or potential outcomes of any action or
combination of actions, management does not believe an estimate
of the financial effects, if any, of the ruling can be made at
this time. However, the company’s ultimate exposure may be
significant to net income in any one future period.
Chevron receives claims from and submits claims to customers;
trading partners; U.S. federal, state and local regulatory
bodies; governments; contractors; insurers; and suppliers. The
amounts of these claims, individually and in the aggregate, may
be significant and take lengthy periods to resolve.
The company and its affiliates also continue to review and
analyze their operations and may close, abandon, sell, exchange,
acquire or restructure assets to achieve operational or
strategic benefits and to improve competitiveness and
profitability. These activities, individually or together, may
result in gains or losses in future periods.
New
Accounting Standards
Transfers and Servicing (ASC 860), Accounting for Transfers
of Financial Assets (ASU
2009-16)
The FASB issued ASU
2009-16
in
December 2009. This standard became effective for the company on
January 1, 2010. ASU
2009-16
changes how companies account for transfers of financial assets
and eliminates the concept of qualifying
36
Table of Contents
special-purpose entities. Adoption of the guidance did not have
an effect on the company’s results of operations, financial
position or liquidity.
Consolidation (ASC 810), Improvements to Financial Reporting
by Enterprises Involved With Variable Interest Entities (ASU
2009-17)
The FASB issued ASU
2009-17
in
December 2009. This standard became effective for the company on
January 1, 2010. ASU
2009-17
requires the enterprise to qualitatively assess if it is the
primary beneficiary of a variable-interest entity (VIE), and, if
so, the VIE must be consolidated. Adoption of the standard did
not have an impact on the company’s results of operations,
financial position or liquidity.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Information about market risks for the three months ended
March 31, 2010, does not differ materially from that
discussed under Item 7A of Chevron’s 2009 Annual
Report on
Form 10-K.
| Item 4. | Controls and Procedures |
(a) Evaluation of disclosure controls and procedures
The company’s management has evaluated, with the
participation of the Chief Executive Officer and Chief Financial
Officer, the effectiveness of the company’s disclosure
controls and procedures (as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) as of the end of
the period covered by this report. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that the company’s disclosure controls and procedures were
effective as of March 31, 2010.
(b) Changes in internal control over financial reporting
During the quarter ended March 31, 2010, there were no
changes in the company’s internal control over financial
reporting that have materially affected, or are reasonably
likely to materially affect, the company’s internal control
over financial reporting.
OTHER
INFORMATION
| Item 1. | Legal Proceedings |
Government Proceedings
In March 2010, the United States
Department of Justice (DOJ) indicated that it intends to seek a
civil penalty against the company’s service station
operations in Puerto Rico for alleged violations of the
Commonwealth of Puerto Rico’s underground storage tank
regulations. The alleged violations include failure to test leak
detectors, perform release monitoring and maintain compliance
records. The DOJ’s action may result in payment of a civil
penalty exceeding $100,000.
In the first quarter 2010, Chevron preliminarily agreed to pay
the New Mexico Environmental Department a $182,000 civil penalty
and undertake certain corrective measures with respect to
alleged violations of the agency’s air pollution
regulations identified in a June 12, 2009 notice of
violation. The alleged violations involved allegations related
to pump repairs, blowdown events, deviation reports and testing
of the facility flare at the company’s Buckeye
CO
2
Plant located southeast of Lovington, New Mexico.
| Item 1A. | Risk Factors |
Chevron is a major fully integrated petroleum company with a
diversified business portfolio, a strong balance sheet, and a
history of generating sufficient cash to fund capital and
exploratory expenditures and to pay dividends. Nevertheless,
some inherent risks could materially impact the company’s
financial results of operations or financial condition.
Information about risk factors for the three months ended
March 31, 2010, does not differ materially from that set
forth in Part I, Item 1A, of Chevron’s 2009
Annual Report on
Form 10-K.
37
Table of Contents
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
CHEVRON
CORPORATION
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Maximum
|
||||||||||||||||
|
Total
|
Total Number of
|
Number of Shares
|
||||||||||||||
|
Number of
|
Average
|
Shares Purchased as
|
that May Yet Be
|
|||||||||||||
|
Shares
|
Price Paid
|
Part of Publicly
|
Purchased Under
|
|||||||||||||
|
Period
|
Purchased(1) | per Share | Announced Program | the Program(2) | ||||||||||||
|
January 1-31, 2010
|
144,058 | 75.69 | — | |||||||||||||
|
February 1-28, 2010
|
285 | 73.51 | — | |||||||||||||
|
March 1-31, 2010
|
— | — | — | |||||||||||||
|
Total
|
144,343 | 75.68 | — | |||||||||||||
| (1) | Pertains to common shares repurchased during the three-month period ended March 31, 2010, from company employees for required personal income tax withholdings on the exercise of the stock options issued to management, long-term incentive plans and former Texaco Inc. stock option plans. Also includes shares delivered or attested to in satisfaction of the exercise price by holders of certain former Texaco Inc. employee stock options exercised during the three-month period ended March 31, 2010. | |
| (2) | In September 2007, the company authorized common stock repurchases of up to $15 billion that may be made at prevailing prices as permitted by securities laws and other requirements, and subject to market conditions and other factors. The program is authorized for a period of up to three years, expiring in September 2010, and may be discontinued at any time. As of March 31, 2010, 118,996,749 shares had been acquired under this program for $10.1 billion. No share repurchases occurred during the first three months of 2010. |
38
Table of Contents
| Item 6. | Exhibits |
|
Exhibit
|
||
|
Number
|
Description
|
|
|
(4)
|
Pursuant to the Instructions to Exhibits, certain instruments defining the rights of holders of long-term debt securities of the company and its consolidated subsidiaries are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the corporation and its subsidiaries on a consolidated basis. A copy of such instrument will be furnished to the Commission upon request. | |
|
(12.1)
|
Computation of Ratio of Earnings to Fixed Charges | |
|
(31.1)
|
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Executive Officer | |
|
(31.2)
|
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Financial Officer | |
|
(32.1)
|
Section 1350 Certification by the company’s Chief Executive Officer | |
|
(32.2)
|
Section 1350 Certification by the company’s Chief Financial Officer | |
|
(101.INS)
|
XBRL Instance Document | |
|
(101.SCH)
|
XBRL Schema Document | |
|
(101.CAL)
|
XBRL Calculation Linkbase Document | |
|
(101.LAB)
|
XBRL Label Linkbase Document | |
|
(101.PRE)
|
XBRL Presentation Linkbase Document | |
|
(101.DEF)
|
XBRL Definition Linkbase Document |
Attached as Exhibit 101 to this report are documents
formatted in XBRL (Extensible Business Reporting Language).
Users of this data are advised pursuant to Rule 406T of
Regulation S-T
that the interactive data file is deemed not filed or part of a
registration statement or prospectus for purposes of
section 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of section 18 of the Securities
Exchange Act of 1934, and otherwise not subject to liability
under these sections. The financial information contained in the
XBRL-related documents is “unaudited” or
“unreviewed.”
39
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Chevron Corporation
(Registrant)
(Registrant)
/s/
Matthew
J. Foehr
Matthew J. Foehr, Vice President and Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
Date: May 5, 2010
40
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
||
|
Number
|
Description
|
|
|
(4)
|
Pursuant to the Instructions to Exhibits, certain instruments defining the rights of holders of long-term debt securities of the company and its consolidated subsidiaries are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the corporation and its subsidiaries on a consolidated basis. A copy of such instrument will be furnished to the Commission upon request. | |
|
(12.1)*
|
Computation of Ratio of Earnings to Fixed Charges | |
|
(31.1)*
|
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Executive Officer | |
|
(31.2)*
|
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Financial Officer | |
|
(32.1)*
|
Section 1350 Certification by the company’s Chief Executive Officer | |
|
(32.2)*
|
Section 1350 Certification by the company’s Chief Financial Officer | |
|
(101.INS)*
|
XBRL Instance Document | |
|
(101.SCH)*
|
XBRL Schema Document | |
|
(101.CAL)*
|
XBRL Calculation Linkbase Document | |
|
(101.LAB)*
|
XBRL Label Linkbase Document | |
|
(101.PRE)*
|
XBRL Presentation Linkbase Document | |
|
(101.DEF)*
|
XBRL Definition Linkbase Document |
Attached as Exhibit 101 to this report are documents
formatted in XBRL (Extensible Business Reporting Language).
Users of this data are advised pursuant to Rule 406T of
Regulation S-T
that the interactive data file is deemed not filed or part of a
registration statement or prospectus for purposes of
section 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of section 18 of the Securities
Exchange Act of 1934, and otherwise not subject to liability
under these sections. The financial information contained in the
XBRL-related documents is “unaudited” or
“unreviewed.”
| * | Filed herewith. |
Copies of above exhibits not contained herein are available to
any security holder upon written request to the Corporate
Governance Department, Chevron Corporation, 6001 Bollinger
Canyon Road, San Ramon, California
94583-2324.
41
TABLE OF CONTENTS
Part IItem 1. Consolidated Financial StatementsNote 1. Interim Financial StatementsNote 2. Time DepositsNote 3. Noncontrolling InterestsNote 4. Information Relating To The Consolidated Statement Of Cash FlowsNote 5. Operating Segments and Geographic DataNote 6. Summarized Financial Data Chevron U.s.a. IncNote 7. Summarized Financial Data Chevron Transport CorporationNote 8. Income TaxesNote 9. Employee BenefitsNote 10. LitigationNote 11. Other Contingencies and CommitmentsNote 12. Fair Value MeasurementsNote 13. Derivative Instruments and Hedging ActivitiesNote 14. New Accounting StandardsNote 15. Restructuring and Reorganization CostsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits