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76 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT

Notes to the Consolidated Financial Statements

Millions฀of฀dollars,฀except฀per-share฀amounts

 OTHER CONTINGENCIES AND COMMITMENTS – Continued

principally฀as฀conditions฀of฀sale฀of฀the฀company’s฀interest฀in฀cer-

tain฀operations,฀to฀provide฀a฀source฀of฀liquidity฀to฀the฀guaranteed฀

parties฀and฀in฀connection฀with฀company฀marketing฀programs.฀

No฀amounts฀of฀the฀company’s฀obligations฀under฀these฀guarantees฀

are฀recorded฀as฀liabilities.฀About฀70฀percent฀of฀the฀total฀amounts฀

guaranteed฀will฀expire฀by฀2009.฀The฀company฀would฀be฀required฀

to฀perform฀under฀the฀terms฀of฀the฀guarantees฀should฀an฀entity฀

be฀in฀default฀of฀its฀loan฀or฀contract฀terms,฀generally฀for฀the฀full฀

amounts฀disclosed.฀Approximately฀$70฀of฀the฀guarantees฀have฀

recourse฀provisions,฀which฀enable฀the฀company฀to฀recover฀any฀pay-

ments฀made฀under฀the฀terms฀of฀the฀guarantees฀from฀securities฀held฀

over฀the฀guaranteed฀parties’฀assets.

At฀December฀31,฀2004,฀ChevronTexaco฀also฀had฀outstand-

ing฀guarantees฀for฀approximately฀$215฀of฀Equilon฀debt฀and฀leases.฀

Following฀the฀February฀2002฀disposition฀of฀its฀interest฀in฀Equilon,฀

the฀company฀received฀an฀indemniﬁcation฀from฀Shell฀Oil฀Com-

pany฀for฀any฀claims฀arising฀from฀the฀guarantees.฀The฀company฀

has฀not฀recorded฀a฀liability฀for฀these฀guarantees.฀Approximately฀

45฀percent฀of฀the฀amounts฀guaranteed฀will฀expire฀by฀2009,฀with฀

the฀guarantees฀of฀the฀remaining฀amounts฀expiring฀by฀2019.

Indemniﬁcations฀ The฀company฀provided฀certain฀indemnities฀of฀

contingent฀liabilities฀of฀Equilon฀and฀Motiva฀to฀Shell฀Oil฀Com-

pany฀(Shell)฀and฀Saudi฀Reﬁning,฀Inc.,฀in฀connection฀with฀the฀

February฀2002฀sale฀of฀the฀company’s฀interests฀in฀those฀invest-

ments.฀The฀indemnities฀cover฀certain฀contingent฀liabilities,฀

including฀those฀associated฀with฀the฀Unocal฀patent฀litigation.฀The฀

company฀would฀be฀required฀to฀perform฀should฀the฀indemniﬁed฀

liabilities฀become฀actual฀losses.฀Should฀that฀occur,฀the฀com-

pany฀could฀be฀required฀to฀make฀future฀payments฀up฀to฀$300.฀

Through฀the฀end฀of฀2004,฀the฀company฀paid฀approximately฀$28฀

under฀these฀contingencies฀and฀had฀agreed฀to฀pay฀approximately฀

$10฀additional฀under฀an฀award฀of฀arbitration,฀subject฀to฀minor฀

adjustments฀yet฀to฀be฀resolved.฀The฀company฀may฀receive฀addi-

tional฀requests฀for฀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฀forma-

tion฀of฀Equilon฀and฀Motiva฀or฀that฀occurred฀during฀the฀periods฀

of฀Texaco’s฀ownership฀interests฀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฀

relating฀to฀Equilon฀indemnities฀must฀be฀asserted฀either฀as฀early฀

as฀February฀2007,฀or฀no฀later฀than฀February฀2009,฀and฀claims฀

relating฀to฀Motiva฀must฀be฀asserted฀no฀later฀than฀February฀2012.฀

Under฀the฀terms฀of฀the฀indemnities,฀there฀is฀no฀maximum฀limit฀

on฀the฀amount฀of฀potential฀future฀payments.฀The฀company฀

has฀not฀recorded฀any฀liabilities฀for฀possible฀claims฀under฀these฀

indemnities.฀The฀company฀posts฀no฀assets฀as฀collateral฀and฀has฀

made฀no฀payments฀under฀the฀indemnities.฀

The฀amounts฀payable฀for฀the฀indemnities฀described฀above฀

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.

Securitization฀ The฀company฀securitizes฀certain฀retail฀and฀trade฀

accounts฀receivable฀in฀its฀downstream฀business฀through฀the฀use฀

of฀qualifying฀SPEs.฀At฀December฀31,฀2004,฀approximately฀$1,200,฀

representing฀about฀10฀percent฀of฀ChevronTexaco’s฀total฀current฀

accounts฀receivables฀balance,฀were฀securitized.฀ChevronTexaco’s฀

total฀estimated฀ﬁnancial฀exposure฀under฀these฀securitizations฀at฀

December฀31,฀2004,฀was฀approximately฀$50.฀These฀arrangements฀

have฀the฀effect฀of฀accelerating฀ChevronTexaco’s฀collection฀of฀the฀

securitized฀amounts.฀In฀the฀event฀that฀the฀SPEs฀experience฀major฀

defaults฀in฀the฀collection฀of฀receivables,฀ChevronTexaco฀believes฀

that฀it฀would฀have฀no฀loss฀exposure฀connected฀with฀third-party฀

investments฀in฀these฀securitizations.

Long-Term฀Unconditional฀Purchase฀Obligations฀and฀Commitments,฀

Throughput฀Agreements,฀and฀Take-or-Pay฀Agreements฀ The฀com-

pany฀and฀its฀subsidiaries฀have฀certain฀other฀contingent฀liabilities฀

relating฀to฀long-term฀unconditional฀purchase฀obligations฀and฀

commitments,฀throughput฀agreements,฀and฀take-or-pay฀agree-

ments,฀some฀of฀which฀relate฀to฀suppliers’฀ﬁnancing฀arrangements.฀

The฀agreements฀typically฀provide฀goods฀and฀services,฀such฀as฀pipe-

line฀and฀storage฀capacity,฀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฀2005฀–฀$1,600;฀2006฀–฀$1,700;฀

2007฀–฀$1,600;฀2008฀–฀$1,500;฀2009฀–฀$1,500;฀2010฀and฀after฀

–฀$2,300.฀Total฀payments฀under฀the฀agreements฀were฀approxi-

mately฀$1,600฀in฀2004,฀$1,400฀in฀2003฀and฀$1,200฀in฀2002.

The฀most฀signiﬁcant฀take-or-pay฀agreement฀calls฀for฀the฀

company฀to฀purchase฀approximately฀55,000฀barrels฀per฀day฀of฀

reﬁned฀products฀from฀an฀equity฀afﬁliate฀reﬁner฀in฀Thailand.฀This฀

purchase฀agreement฀is฀in฀conjunction฀with฀the฀ﬁnancing฀of฀a฀

reﬁnery฀owned฀by฀the฀afﬁliate฀and฀expires฀in฀2009.฀The฀future฀

estimated฀commitments฀under฀this฀contract฀are:฀2005฀–฀$1,200;฀

2006฀–฀$1,200;฀2007฀–฀$1,300;฀2008฀–฀$1,300;฀and฀2009฀–฀$1,300.฀

Additionally,฀in฀2004฀the฀company฀entered฀into฀a฀20-year฀

agreement฀to฀acquire฀regasiﬁcation฀capacity฀at฀the฀Sabine฀Pass฀

LNG฀terminal.฀Payments฀of฀$1,200฀over฀the฀20-year฀period฀are฀

expected฀to฀commence฀in฀2010.

Minority฀Interests฀ The฀company฀has฀commitments฀of฀

approximately฀$172฀related฀to฀minority฀interests฀in฀subsidiary฀

companies.

Texaco฀Capital฀LLC,฀a฀wholly฀owned฀ﬁnancial฀subsidiary,฀

issued฀Deferred฀Preferred฀Shares,฀Series฀C,฀in฀December฀1995.฀

In฀February฀2005,฀the฀company฀redeemed฀current฀obligations฀

related฀to฀minority฀interests฀of฀approximately฀$140.

Environmental฀ The฀company฀is฀subject฀to฀loss฀contingencies฀pur-

suant฀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฀chemical฀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,฀oil฀ﬁelds,฀service฀stations,฀termi-

nals,฀and฀land฀development฀areas,฀whether฀operating,฀closed฀or฀

divested.฀These฀future฀costs฀are฀not฀fully฀determinable฀due฀to฀

such฀factors฀as฀the฀unknown฀magnitude฀of฀possible฀contamina-

tion,฀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฀environ-

mental฀obligations฀that฀are฀probable฀and฀reasonably฀estimable,฀

the฀amount฀of฀additional฀future฀costs฀may฀be฀material฀to฀results฀