• Financial Highlights
• Management's Discussion and Analysis
• Consolidated Financial Statements
• Notes to the Consolidated Financial Statements
  • Note 1. Summary of Significant Accounting Policies
  • Note 2. Acquisition of Unocal Corporation
  • Note 3. Information Relating to the Consolidated Statement of Cash Flows
  • Note 4. Summarized Financial Data – Chevron U.S.A. Inc.
  • Note 5. Summarized Financial Data – Chevron Transport Corporation Ltd.
  • Note 6. Stockholders’ Equity
  • Note 7. Financial and Derivative Instruments
  • Note 8. Operating Segments and Geographic Data
  • Note 9. Lease Commitments
  • Note 10. Restructuring and Reorganization Costs
  • Note 11. Investments and Advances
  • Note 12. Properties, Plant and Equipment
  • Note 13. Accounting for Buy/Sell Contracts
  • Note 14. Litigation
  • Note 15. Taxes
  • Note 16. Short-Term Debt
  • Note 17. Long-Term Debt
  • Note 18. New Accounting Standards
  • Note 19. Accounting for Suspended Exploratory Wells
  • Note 20. Employee Benefit Plans
  • Note 21. Stock Options and Other Share-Based Compensation
  • Note 22. Other Contingencies and Commitments
  • Note 23. Asset Retirement Obligations
  • Note 24. Other Financial Information
  • Note 25. Earnings Per Share
• Five-Year Operating Summary
• Five-Year Financial Summary
• Supplemental Information on Oil and Gas Producing Activities

Note 23. Asset Retirement Obligations

Millions of dollars

The company accounts for asset retirement obligations (ARO) in accordance with Financial Accounting Standards Board (FASB) Statement No. 143, Accounting for Asset Retirement Obligations (FAS 143). This accounting standard applies to the fair value of a liability for an ARO that is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. Obligations associated with the retirement of these assets require recognition in certain circumstances: (1) the present value of a liability and offsetting asset for an ARO, (2) the subsequent accretion of that liability and depreciation of the asset, and (3) the periodic review of the ARO liability estimates and discount rates. In 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — An Interpretation of FASB Statement No. 143 (FIN 47), which was effective for the company on December 31, 2005. FIN 47 clarifies that the phrase "conditional asset retirement obligation," as used in FAS 143, refers to a legal obligation to perform asset retirement activity for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the company. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Uncertainty about the timing and/or method of settlement of a conditional ARO should be factored into the measurement of the liability when sufficient information exists. FAS 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an ARO. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. In adopting FIN 47, the company did not recognize any additional liabilities for conditional AROs due to an inability to reasonably estimate the fair value of those obligations because of their indeterminate settlement dates.

FAS 143 and FIN 47 primarily affect the company's accounting for crude oil and natural gas producing assets. No significant AROs associated with any legal obligations to retire refining, marketing and transportation (downstream) and chemical long-lived assets have been recognized, as indeterminate settlement dates for the asset retirements prevent estimation of the fair value of the associated ARO. The company performs periodic reviews of its downstream and chemical long-lived assets for any changes in facts and circumstances that might require recognition of a retirement obligation.

The following table indicates the changes to the company's before-tax asset retirement obligations in 2007, 2006 and 2005:

	2007	2006	2005
Balance at January 1	$ 5,773	$ 4,304	$ 2,878
Liabilities assumed in the Unocal acquisition	–	–	1,216
Liabilities incurred	178	153	90
Liabilities settled	(818)	(387)	(172)
Accretion expense	399*	275	187
Revisions in estimated cash flows	2,721	1,428	105
Balance at December 31	$ 8,253	$ 5,773	$ 4,304

* Includes $175 for revision to the ARO liability retained on properties that had been sold.

In the table above, the amounts for 2007 and 2006 associated with "Revisions in estimated cash flows" reflect increasing costs to abandon onshore and offshore wells, equipment and facilities, including $1,128 in 2006 for the estimated costs to dismantle and abandon wells and facilities damaged by 2005 hurricanes in the U.S. Gulf of Mexico. The long-term portion of the $8,253 balance at the end of 2007 was $7,555.