Chevron 2004 Annual Report Download - page 42

40 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2004฀had฀a฀recorded฀liability฀that฀
was฀material฀to฀the฀company’s฀
financial฀position,฀results฀of฀
operations฀or฀liquidity.
As฀of฀December฀31,฀2004,฀
ChevronTexaco฀was฀involved฀
with฀the฀remediation฀activities฀
of฀210฀sites฀at฀which฀it฀had฀been฀
identified฀as฀a฀potentially฀respon-
sible฀party฀or฀otherwise฀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฀compa-
ny’s฀remediation฀reserve฀for฀these฀
sites฀at฀year-end฀2004฀was฀$107฀
million.฀The฀federal฀Superfund฀
law฀and฀analogous฀state฀laws฀pro-
vide฀for฀joint฀and฀several฀liability฀
for฀all฀responsible฀parties.฀Any฀
future฀actions฀by฀the฀EPA฀or฀other฀regulatory฀agencies฀to฀require฀
ChevronTexaco฀to฀assume฀other฀potentially฀responsible฀parties’฀
costs฀at฀designated฀hazardous฀waste฀sites฀are฀not฀expected฀to฀have฀
a฀material฀effect฀on฀the฀company’s฀consolidated฀financial฀position฀
or฀liquidity.฀
Of฀the฀remaining฀year-end฀2004฀environmental฀reserves฀
balance฀of฀$940฀million,฀$712฀million฀related฀to฀more฀than฀2,000฀
sites฀for฀the฀company’s฀U.S.฀downstream฀operations,฀including฀
refineries฀and฀other฀plants,฀marketing฀locations฀(i.e.,฀service฀sta-
tions฀and฀terminals),฀and฀pipelines.฀The฀remaining฀$228฀million฀
was฀associated฀with฀various฀sites฀in฀the฀international฀downstream฀
($111฀million),฀upstream฀($69฀million)฀and฀chemicals฀($48฀mil-
lion).฀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.
It฀is฀likely฀that฀the฀company฀will฀continue฀to฀incur฀addi-
tional฀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.฀Although฀the฀amount฀of฀future฀
costs฀may฀be฀material฀to฀the฀company’s฀results฀of฀operations฀in฀
the฀period฀in฀which฀they฀are฀recognized,฀the฀company฀does฀not฀
expect฀these฀costs฀will฀have฀a฀material฀adverse฀effect฀on฀its฀con-
solidated฀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฀competi-
tive฀position฀relative฀to฀other฀U.S.฀or฀international฀petroleum฀or฀
chemical฀companies.
Prior฀to฀January฀1,฀2003,฀additional฀reserves฀for฀dismantle-
ment,฀abandonment฀and฀restoration฀of฀its฀worldwide฀oil฀and฀gas฀
and฀coal฀properties฀at฀the฀end฀of฀their฀productive฀lives,฀which฀
included฀costs฀related฀to฀environmental฀issues,฀were฀recognized฀
on฀a฀unit-of-production฀basis฀as฀accumulated฀depreciation,฀deple-
tion฀and฀amortization.฀Effective฀January฀1,฀2003,฀the฀company฀
implemented฀FAS฀143,฀“Accounting฀for฀Asset฀Retirement฀Obliga-
tions.”฀Under฀FAS฀143,฀the฀fair฀value฀of฀a฀liability฀for฀an฀asset฀
retirement฀obligation฀is฀recorded฀when฀there฀is฀a฀legal฀obligation฀
associated฀with฀the฀retirement฀of฀long-lived฀assets฀and฀the฀liability฀
can฀be฀reasonably฀estimated.฀The฀liability฀balance฀for฀asset฀retire-
ment฀obligations฀at฀year-end฀2004฀was฀$2.9฀billion.฀Refer฀also฀to฀
Note฀25฀on฀page฀77฀related฀to฀FAS฀143.
For฀the฀company’s฀other฀ongoing฀operating฀assets,฀such฀as฀
refineries฀and฀chemicals฀facilities,฀no฀provisions฀are฀made฀for฀
exit฀or฀cleanup฀costs฀that฀may฀be฀required฀when฀such฀assets฀reach฀
the฀end฀of฀their฀useful฀lives฀unless฀a฀decision฀to฀sell฀or฀otherwise฀
abandon฀the฀facility฀has฀been฀made,฀as฀the฀indeterminate฀settle-
ment฀dates฀for฀the฀asset฀retirements฀prevents฀estimation฀of฀the฀
fair฀value฀of฀the฀asset฀retirement฀obligation.
Refer฀to฀“Environmental฀Matters”฀on฀page฀42฀for฀additional฀
information฀related฀to฀environmental฀matters.
Income฀Taxes฀ The฀company฀estimates฀its฀income฀tax฀
expense฀and฀liabilities฀quarterly.฀These฀liabilities฀generally฀are฀
not฀finalized฀with฀the฀individual฀taxing฀authorities฀until฀several฀
years฀after฀the฀end฀of฀the฀annual฀period฀for฀which฀income฀taxes฀
have฀been฀estimated.฀The฀U.S.฀federal฀income฀tax฀liabilities฀
have฀been฀settled฀through฀1996฀for฀ChevronTexaco฀(formerly฀
Chevron),฀1997฀for฀ChevronTexaco฀Global฀Energy฀Inc.฀(formerly฀
Caltex),฀and฀1991฀for฀Texaco.฀California฀franchise฀tax฀liabilities฀
have฀been฀settled฀through฀1991฀for฀Chevron฀and฀through฀1987฀
for฀Texaco.฀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฀finan-
cial฀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.
Global฀Operations฀ ChevronTexaco฀and฀its฀affiliates฀have฀
operations฀in฀approximately฀180฀countries.฀Areas฀in฀which฀the฀
company฀and฀its฀affiliates฀have฀significant฀operations฀include฀the฀
United฀States,฀Canada,฀Australia,฀the฀United฀Kingdom,฀Norway,฀
Denmark,฀France,฀the฀Partitioned฀Neutral฀Zone฀between฀Kuwait฀
and฀Saudi฀Arabia,฀Republic฀of฀Congo,฀Angola,฀Nigeria,฀Chad,฀
South฀Africa,฀Indonesia,฀the฀Philippines,฀Singapore,฀China,฀
Thailand,฀Venezuela,฀Argentina,฀Brazil,฀Colombia,฀Trinidad฀and฀
Tobago,฀and฀South฀Korea.฀The฀company’s฀Caspian฀Pipeline฀Con-
sortium฀(CPC)฀affiliate฀operates฀in฀Russia฀and฀Kazakhstan.฀The฀
company’s฀Tengizchevroil฀affiliate฀operates฀in฀Kazakhstan.฀The฀
company’s฀CPChem฀affiliate฀manufactures฀and฀markets฀a฀wide฀
range฀of฀petrochemicals฀on฀a฀worldwide฀basis,฀with฀manufacturing฀
facilities฀in฀the฀United฀States,฀Puerto฀Rico,฀Singapore,฀China,฀
South฀Korea,฀Saudi฀Arabia,฀Qatar,฀Mexico฀and฀Belgium.฀
The฀company’s฀operations,฀particularly฀exploration฀and฀
production,฀can฀be฀affected฀by฀changing฀economic,฀regulatory฀
and฀political฀environments฀in฀the฀various฀countries฀in฀which฀it฀
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Millions of dollars
Reserves฀for฀environmental฀
remediation฀declined฀9฀percent฀
from฀2003.฀Expenditures฀for฀
remediation฀efforts฀outpaced฀
new฀liabilities.
