Chevron 2004 Annual Report Download - page 57

CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 55
one฀or฀more฀of฀the฀following:฀(1)฀decisions฀on฀additional฀major฀
capital฀expenditures,฀(2)฀the฀results฀of฀additional฀exploratory฀
wells฀that฀are฀under฀way฀or฀firmly฀planned,฀and฀(3)฀securing฀final฀
regulatory฀approvals฀for฀development.฀Otherwise,฀well฀costs฀are฀
expensed฀if฀a฀determination฀as฀to฀whether฀proved฀reserves฀were฀
found฀cannot฀be฀made฀within฀one฀year฀following฀completion฀of฀
drilling.฀All฀other฀exploratory฀wells฀and฀costs฀are฀expensed.฀Refer฀
to฀Note฀21฀on฀page฀69฀for฀additional฀discussion฀of฀accounting฀for฀
suspended฀exploratory฀well฀costs.
Long-lived฀assets฀to฀be฀held฀and฀used,฀including฀proved฀
crude฀oil฀and฀natural฀gas฀properties,฀are฀assessed฀for฀possible฀
impairment฀by฀comparing฀their฀carrying฀values฀with฀their฀asso-
ciated฀undiscounted฀future฀net฀before-tax฀cash฀flows.฀Events฀
that฀can฀trigger฀assessments฀for฀possible฀impairments฀include฀
write-downs฀of฀proved฀reserves฀based฀on฀field฀performance,฀
significant฀decreases฀in฀the฀market฀value฀of฀an฀asset,฀significant฀
change฀in฀the฀extent฀or฀manner฀of฀use฀of฀or฀a฀physical฀change฀in฀
an฀asset,฀and฀a฀more-likely-than-not฀expectation฀that฀a฀long-lived฀
asset฀or฀asset฀group฀will฀be฀sold฀or฀otherwise฀disposed฀of฀signifi-
cantly฀sooner฀than฀the฀end฀of฀its฀previously฀estimated฀useful฀life.฀
Impaired฀assets฀are฀written฀down฀to฀their฀estimated฀fair฀values,฀
generally฀their฀discounted฀future฀net฀before-tax฀cash฀flows.฀For฀
proved฀crude฀oil฀and฀natural฀gas฀properties฀in฀the฀United฀States,฀
the฀company฀generally฀performs฀the฀impairment฀review฀on฀an฀
individual฀field฀basis.฀Outside฀the฀United฀States,฀reviews฀are฀per-
formed฀on฀a฀country,฀concession฀or฀field฀basis,฀as฀appropriate.฀
Globally฀in฀the฀refining,฀marketing,฀transportation฀and฀chemical฀
areas,฀impairment฀reviews฀are฀generally฀done฀on฀a฀refinery,฀plant,฀
marketing฀area฀or฀marketing฀assets฀by฀country฀basis.฀Impairment฀
amounts฀are฀recorded฀as฀incremental฀“Depreciation,฀depletion฀
and฀amortization”฀expense.
Long-lived฀assets฀that฀are฀held฀for฀sale฀are฀evaluated฀for฀pos-
sible฀impairment฀by฀comparing฀the฀carrying฀value฀of฀the฀asset฀with฀
its฀fair฀value฀less฀the฀cost฀to฀sell.฀If฀the฀net฀book฀value฀exceeds฀the฀
fair฀value฀less฀cost฀to฀sell,฀the฀asset฀is฀considered฀impaired฀and฀
adjusted฀to฀the฀lower฀value.
Effective฀January฀1,฀2003,฀the฀company฀implemented฀Finan-
cial฀Accounting฀Standards฀Board฀Statement฀No.฀143,฀“Accounting฀
for฀Asset฀Retirement฀Obligations฀(FAS฀143),”฀in฀which฀the฀fair฀
value฀of฀a฀liability฀for฀an฀asset฀retirement฀obligation฀is฀recorded฀
as฀an฀asset฀and฀a฀liability฀when฀there฀is฀a฀legal฀obligation฀associ-
ated฀with฀the฀retirement฀of฀a฀long-lived฀asset฀and฀the฀amount฀can฀
be฀reasonably฀estimated.฀Refer฀also฀to฀Note฀25฀on฀page฀77฀relating฀
to฀asset฀retirement฀obligations,฀which฀includes฀additional฀infor-
mation฀on฀the฀company’s฀adoption฀of฀FAS฀143.฀Previously,฀for฀
crude฀oil,฀natural฀gas฀and฀coal฀producing฀properties,฀a฀provision฀
was฀made฀through฀depreciation฀expense฀for฀anticipated฀abandon-
ment฀and฀restoration฀costs฀at฀the฀end฀of฀the฀property’s฀useful฀life.
Depreciation฀and฀depletion฀of฀all฀capitalized฀costs฀of฀proved฀
crude฀oil฀and฀natural฀gas฀producing฀properties,฀except฀mineral฀
interests,฀are฀expensed฀using฀the฀unit-of-production฀method฀by฀
individual฀field฀as฀the฀proved฀developed฀reserves฀are฀produced.฀
Depletion฀expenses฀for฀capitalized฀costs฀of฀proved฀mineral฀inter-
ests฀are฀recognized฀using฀the฀unit-of-production฀method฀by฀
individual฀field฀as฀the฀related฀proved฀reserves฀are฀produced.฀Peri-
odic฀valuation฀provisions฀for฀impairment฀of฀capitalized฀costs฀of฀
unproved฀mineral฀interests฀are฀expensed.
Depreciation฀and฀depletion฀expenses฀for฀coal฀assets฀are฀
determined฀using฀the฀unit-of-production฀method฀as฀the฀proved฀
reserves฀are฀produced.฀The฀capitalized฀costs฀of฀all฀other฀plant฀
and฀equipment฀are฀depreciated฀or฀amortized฀over฀their฀estimated฀
useful฀lives.฀In฀general,฀the฀declining-balance฀method฀is฀used฀to฀
depreciate฀plant฀and฀equipment฀in฀the฀United฀States;฀the฀straight-
line฀method฀generally฀is฀used฀to฀depreciate฀international฀plant฀
and฀equipment฀and฀to฀amortize฀all฀capitalized฀leased฀assets.
Gains฀or฀losses฀are฀not฀recognized฀for฀normal฀retirements฀of฀
properties,฀plant฀and฀equipment฀subject฀to฀composite฀group฀amor-
tization฀or฀depreciation.฀Gains฀or฀losses฀from฀abnormal฀retirements฀
are฀recorded฀as฀expenses,฀and฀from฀sales฀as฀“Other฀income.”
Expenditures฀for฀maintenance,฀repairs฀and฀minor฀renewals฀to฀
maintain฀facilities฀in฀operating฀condition฀are฀generally฀expensed฀
as฀incurred.฀Major฀replacements฀and฀renewals฀are฀capitalized.
Environmental฀Expenditures฀ Environmental฀expenditures฀that฀
relate฀to฀ongoing฀operations฀or฀to฀conditions฀caused฀by฀past฀
operations฀are฀expensed.฀Expenditures฀that฀create฀future฀benefits฀
or฀contribute฀to฀future฀revenue฀generation฀are฀capitalized.
Liabilities฀related฀to฀future฀remediation฀costs฀are฀recorded฀
when฀environmental฀assessments฀or฀cleanups฀or฀both฀are฀probable฀
and฀the฀costs฀can฀be฀reasonably฀estimated.฀For฀the฀company’s฀
U.S.฀and฀Canadian฀marketing฀facilities,฀the฀accrual฀is฀based฀in฀
part฀on฀the฀probability฀that฀a฀future฀remediation฀commitment฀
will฀be฀required.฀For฀oil,฀gas฀and฀coal฀producing฀properties,฀a฀
liability฀for฀an฀asset฀retirement฀obligation฀is฀made,฀following฀
FAS฀143.฀Refer฀to฀“Properties,฀Plant฀and฀Equipment”฀in฀this฀
note฀for฀a฀discussion฀of฀FAS฀143.
For฀federal฀Superfund฀sites฀and฀analogous฀sites฀under฀state฀
laws,฀the฀company฀records฀a฀liability฀for฀its฀designated฀share฀of฀
the฀probable฀and฀estimable฀costs฀and฀probable฀amounts฀for฀other฀
potentially฀responsible฀parties฀when฀mandated฀by฀the฀regula-
tory฀agencies฀because฀the฀other฀parties฀are฀not฀able฀to฀pay฀their฀
respective฀shares.
The฀gross฀amount฀of฀environmental฀liabilities฀is฀based฀
on฀the฀company’s฀best฀estimate฀of฀future฀costs฀using฀currently฀
available฀technology฀and฀applying฀current฀regulations฀and฀the฀
company’s฀own฀internal฀environmental฀policies.฀Future฀amounts฀
are฀not฀discounted.฀Recoveries฀or฀reimbursements฀are฀recorded฀
as฀assets฀when฀receipt฀is฀reasonably฀assured.
Currency฀Translation฀ The฀U.S.฀dollar฀is฀the฀functional฀currency฀
for฀substantially฀all฀of฀the฀company’s฀consolidated฀operations฀
and฀those฀of฀its฀equity฀affiliates.฀For฀those฀operations,฀all฀gains฀
and฀losses฀from฀currency฀translations฀are฀currently฀included฀in฀
income.฀The฀cumulative฀translation฀effects฀for฀those฀few฀entities,฀
both฀consolidated฀and฀affiliated,฀using฀functional฀currencies฀
other฀than฀the฀U.S.฀dollar฀are฀included฀in฀the฀currency฀translation฀
adjustment฀in฀“Stockholders’฀equity.”
Revenue฀Recognition฀ Revenues฀associated฀with฀sales฀of฀crude฀oil,฀
natural฀gas,฀coal,฀petroleum฀and฀chemicals฀products,฀and฀all฀other฀
sources฀are฀recorded฀when฀title฀passes฀to฀the฀customer,฀net฀of฀royal-
ties,฀discounts฀and฀allowances,฀as฀applicable.฀Revenues฀from฀natural฀
gas฀production฀from฀properties฀in฀which฀ChevronTexaco฀has฀an฀
interest฀with฀other฀producers฀are฀generally฀recognized฀on฀the฀basis฀
of฀the฀company’s฀net฀working฀interest฀(entitlement฀method).฀
Refer฀to฀Note฀16฀on฀page฀65฀for฀a฀discussion฀of฀the฀accounting฀
for฀buy/sell฀arrangements.
Stock฀Compensation฀ At฀December฀31,฀2004,฀the฀company฀had฀
stock-based฀employee฀compensation฀plans,฀which฀are฀described฀
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued