Chevron 2004 Annual Report Download - page 72

70 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Millions฀of฀dollars,฀except฀per-share฀amounts
 ACCOUNTING FOR EXPLORATORY WELLS – Continued
for฀the฀near฀future฀because฀the฀presence฀of฀hydrocarbons฀had฀
already฀been฀established฀and฀other฀activities฀were฀in฀process฀to฀
enable฀a฀future฀decision฀on฀project฀development.฀The฀balance฀
related฀to฀wells฀in฀areas฀for฀which฀drilling฀was฀under฀way฀or฀
firmly฀planned฀for฀the฀near฀future.
Of฀the฀$290,฀approximately฀$50฀related฀to฀the฀well฀costs฀
suspended฀one฀year฀or฀less฀since฀drilling฀was฀completed,฀and฀
$240฀related฀to฀costs฀suspended฀for฀more฀than฀one฀year฀since฀the฀
completion฀of฀drilling.฀Of฀the฀$240฀for฀11฀projects฀suspended฀for฀
more฀than฀one฀year฀since฀the฀completion฀of฀drilling,฀activities฀
associated฀with฀assessing฀the฀reserves฀and฀the฀projects’฀economic฀
viability฀included:฀(a)฀$75฀–฀discussions฀of฀joint฀development฀
with฀an฀operator฀in฀an฀adjacent฀field฀and฀selection฀of฀subsurface฀
and฀development฀plans,฀with฀front-end-engineering฀and฀design฀
(FEED)฀expected฀to฀begin฀in฀2005฀(one฀project);฀(b)฀$63฀–฀negoti-
ations฀with฀contractors฀for฀FEED฀and฀negotiations฀with฀potential฀
customers฀for฀natural฀gas฀(two฀projects);฀(c)฀$42฀–฀award฀of฀
contracts฀for฀FEED฀and฀finalization฀of฀fiscal฀issues฀with฀the฀host฀
country฀(one฀project);฀(d)฀$20฀–฀finalization฀of฀commercial฀terms฀
with฀partners฀with฀award฀of฀detailed฀engineering฀and฀design฀
contracts฀expected฀by฀the฀end฀of฀2005฀(one฀project);฀and฀(e)฀$40฀
–฀miscellaneous฀activities฀for฀projects฀with฀smaller฀amounts฀sus-
pended.฀Progress฀is฀being฀made฀on฀all฀projects฀in฀this฀category;฀
and฀the฀decision฀on฀the฀recognition฀of฀proved฀reserves฀under฀SEC฀
rules฀in฀some฀cases฀may฀not฀occur฀for฀several฀years฀because฀of฀the฀
complexity,฀scale฀and฀negotiations฀connected฀with฀the฀projects.
Included฀in฀the฀$449฀in฀the฀table฀on฀the฀preceding฀page฀for฀
year-end฀2004฀well฀costs฀were฀$42฀for฀four฀projects฀and฀$50฀for฀
one฀project฀that฀related฀to฀costs฀suspended฀in฀2000฀and฀1998,฀
respectively,฀when฀drilling฀in฀the฀associated฀project฀areas฀was฀
completed.฀Certain฀wells฀in฀the฀project฀areas฀may฀have฀been฀sus-
pended฀prior฀to฀these฀years฀of฀last฀drilling.฀Other฀well฀costs฀in฀the฀
$449฀total฀were฀associated฀with฀projects฀for฀which฀drilling฀was฀
completed฀since฀2000.
If฀an฀FSP฀is฀implemented฀similar฀to฀the฀draft฀issued฀in฀
February฀2005,฀the฀company฀does฀not฀believe฀it฀would฀result฀in฀
the฀immediate฀expensing฀of฀a฀significant฀amount฀of฀suspended-
well฀costs.฀However,฀the฀SEC฀staff฀has฀indicated฀that฀it฀generally฀
would฀not฀view฀conducting฀environmental฀and฀engineering฀
design฀studies฀as฀reasonable฀support฀for฀the฀suspending฀of฀costs฀
beyond฀one฀year฀after฀drilling฀is฀complete.฀If฀such฀restrictions฀
are฀included฀in฀the฀final฀FSP,฀the฀company฀may฀be฀required฀to฀
expense฀a฀significant฀amount฀for฀wells฀that฀had฀found฀sufficient฀
hydrocarbons฀to฀justify฀their฀completion฀as฀producing฀wells฀and฀
for฀projects฀the฀company฀continued฀to฀consider฀economically฀
and฀operationally฀viable.฀If฀a฀final฀rule฀required฀the฀company฀
to฀expense฀the฀entire฀$240฀before-tax฀carrying฀value฀for฀the฀11฀
projects฀referenced฀above฀that฀were฀suspended฀as฀of฀December฀31,฀
2004,฀for฀more฀than฀one฀year฀after฀the฀completion฀of฀drilling,฀the฀
after-tax฀charge฀to฀earnings฀would฀be฀$150.


The฀company฀has฀defined-benefit฀pension฀plans฀for฀many฀
employees.฀The฀company฀typically฀funds฀only฀those฀defined-
benefit฀plans฀for฀which฀funding฀is฀required฀under฀laws฀and฀
regulations.฀In฀the฀United฀States,฀this฀includes฀all฀qualified฀
tax-exempt฀plans฀subject฀to฀the฀Employee฀Retirement฀Income฀
Security฀Act฀(ERISA)฀minimum฀funding฀standard.฀The฀company฀
typically฀does฀not฀fund฀domestic฀nonqualified฀tax-exempt฀pen-
sion฀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฀plans฀
that฀provide฀medical฀and฀dental฀benefits,฀as฀well฀as฀life฀insur-
ance฀for฀some฀active฀and฀qualifying฀retired฀employees.฀The฀
plans฀are฀unfunded,฀and฀the฀company฀and฀the฀retirees฀share฀
the฀costs.฀In฀June฀2004,฀the฀company฀announced฀changes฀to฀its฀
primary฀U.S.฀postretirement฀benefit฀plan,฀which฀include฀a฀limit฀
on฀future฀increases฀in฀the฀company฀contribution,฀an฀increase฀in฀
service฀points฀(combination฀of฀age฀and฀years฀of฀company฀service)฀
required฀to฀receive฀full฀coverage,฀and฀the฀plan’s฀prescription฀drug฀
coverage฀for฀retirees฀becoming฀secondary฀to฀Medicare฀Part฀D.฀
Life฀insurance฀benefits฀are฀paid฀by฀the฀company฀and฀annual฀
contributions฀are฀based฀on฀actual฀plan฀experience.
The฀company฀uses฀a฀measurement฀date฀of฀December฀31฀to฀
value฀its฀pension฀and฀other฀postretirement฀benefit฀plan฀obligations.