Income Taxes
The company calculates its income tax expense
and liabilities quarterly. These liabilities generally are subject
to audit and are not finalized with the individual taxing
authorities until several years after the end of the annual
period for which income taxes have been calculated. Refer to Note 16 for a discussion of the
periods for which tax returns have been audited for the company's
major tax jurisdictions and a discussion for all tax
jurisdictions of the differences between the amount of tax
benefits recognized in the financial statements and the
amount taken or expected to be taken in a tax return. The
company does not expect settlement of income tax liabilities
associated with uncertain tax positions will have a material
effect on its results of operations, consolidated financial position
or liquidity.
Guarantees
The company has issued a guarantee of approximately
$600 associated with certain payments under a
terminal use agreement entered into by a company affiliate.
The terminal is expected to be operational by 2012. Over the
approximate 16-year term of the guarantee, the maximum
guarantee amount will reduce over time as certain fees are
paid by the affiliate. There are numerous cross-indemnity
agreements with the affiliate and the other partners to permit
recovery of any amounts paid under the guarantee. Chevron
carries no liability for its obligation under this guarantee.
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. Through the end of 2008, the company paid $48 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 must be asserted no later than
February 2009 for Equilon indemnities and 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,
and management does not believe the letter provides a basis
to estimate the amount, if any, of a range of loss or potential
range of loss with respect to 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 on
the previous page 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. Under
the indemnification agreement, the company's liability
is unlimited until April 2022, when the indemnification
expires. The acquirer shares in certain environmental
remediation costs up to a maximum obligation of $200,
which had not been reached as of December 31, 2008.
Securitization
During 2008, the company terminated the
program used to securitize downstream-related trade accounts
receivable. At year-end 2007, the balance of securitized
receivables was $675 million. As of December 31, 2008, the
company had no other securitization arrangements in place.
Long-Term Unconditional Purchase Obligations and Commitments,
Including Throughput and Take-or-Pay Agreements
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. The aggregate
approximate amounts of required payments under these
various commitments are: 2009 – $6,405; 2010 – $3,964;
2011 – $3,578; 2012 – $1,473; 2013 – $1,329; 2014 and
after – $4,333. A portion of these commitments may ultimately
be shared with project partners. Total payments under
the agreements were approximately $5,100 in 2008 $3,700 in
2007 and $3,000 in 2006.
Minority Interests
The company has commitments of $469
related to minority interests in subsidiary companies.
Environmental
The company is subject to loss contingencies
pursuant to environmental laws and regulations 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.
Chevron's environmental reserve as of December 31,
2008, was $1,818. Included in this balance were remediation
activities of 248 sites for which the company had been identified
as a potentially responsible party or otherwise involved in
the remediation by the U.S. Environmental Protection Agency
(EPA) or other regulatory agencies under the provisions of the
federal Superfund law or analogous state laws. The company's
remediation reserve for these sites at year-end 2008 was $120.
The federal Superfund law and analogous state laws provide
for joint and several liability for all responsible parties. Any
future actions by the EPA or other regulatory agencies to
require Chevron to assume other potentially responsible parties'
costs at designated hazardous waste sites are not expected
to have a material effect on the company's results of operations,
consolidated financial position or liquidity.
Of the remaining year-end 2008 environmental reserves
balance of $1,698, $968 related to the company's U.S. downstream
operations, including refineries and other plants,
marketing locations (i.e., service stations and terminals), and
pipelines. The remaining $730 was associated with various
sites in international downstream ($117), upstream ($390),
chemicals ($154) and other businesses ($69). Liabilities at
all sites, whether operating, closed or divested, were primarily
associated with the company's plans and activities to
remediate soil or groundwater contamination or both. These
and other activities include one or more of the following: site
assessment; soil excavation; offsite disposal of contaminants;
onsite containment, remediation and/or extraction of petroleum
hydrocarbon liquid and vapor from soil; groundwater
extraction and treatment; and monitoring of the natural
attenuation of the contaminants.
The company manages environmental liabilities under
specific sets of regulatory requirements, which in the United
States include the Resource Conservation and Recovery Act
and various state or local regulations. No single remediation
site at year-end 2008 had a recorded liability that was material
to the company's results of operations, consolidated financial
position or liquidity.
It is likely that the company will continue to incur
additional liabilities, beyond those recorded, for environmental
remediation relating to past operations. 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.
Refer to Note 24 below for a discussion of the company's
Asset Retirement Obligations.
Equity Redetermination
For oil and 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, and the possible maximum net amount that
could be owed to Chevron is estimated at about $150. The
timing of the settlement and the exact amount within this
range of estimates are uncertain.
Other Contingencies
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.