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CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 77 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 77

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฀com-

pany฀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฀petro-

leum฀or฀chemical฀companies.฀

ChevronTexaco’s฀environmental฀reserve฀as฀of฀December฀

31,฀2004,฀was฀$1,047.฀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฀and฀local฀regulations.฀No฀single฀

remediation฀site฀at฀year-end฀2004฀had฀a฀recorded฀liability฀that฀was฀

material฀to฀the฀company’s฀ﬁnancial฀position,฀results฀of฀operations฀

or฀liquidity.

Included฀in฀the฀year-end฀2004฀balance฀was฀$107฀related฀to฀

sites฀for฀which฀ChevronTexaco฀had฀been฀identiﬁed฀by฀the฀U.S.฀

Environmental฀Protection฀Agency฀or฀other฀regulatory฀agencies฀

under฀the฀provisions฀of฀the฀federal฀Superfund฀law฀or฀analo-

gous฀state฀laws฀as฀a฀“potentially฀responsible฀party”฀or฀otherwise฀

involved฀in฀the฀remediation.

Of฀the฀remaining฀year-end฀2004฀environmental฀reserves฀

balance฀of฀$940,฀$712฀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฀stations฀and฀ter-

minals)฀and฀pipelines.฀The฀remaining฀$228฀was฀associated฀with฀

various฀sites฀in฀the฀international฀downstream฀($111),฀upstream฀

($69)฀and฀chemicals฀($48).฀Liabilities฀at฀all฀sites,฀whether฀oper-

ating,฀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฀dis-

posal฀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.

Global฀Operations฀ ChevronTexaco฀and฀its฀afﬁliates฀conduct฀busi-

ness฀activities฀in฀approximately฀180฀countries.฀Areas฀in฀which฀

the฀company฀and฀its฀afﬁliates฀have฀signiﬁcant฀operations฀include฀

the฀United฀States,฀Canada,฀Australia,฀the฀United฀Kingdom,฀Nor-

way,฀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฀CPC฀afﬁli-

ate฀operates฀in฀Russia฀and฀Kazakhstan.฀The฀company’s฀TCO฀

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฀

operates,฀including฀the฀United฀States.฀As฀has฀occurred฀in฀the฀past,฀

actions฀could฀be฀taken฀by฀host฀governments฀to฀increase฀public฀

ownership฀of฀the฀company’s฀partially฀or฀wholly฀owned฀businesses฀

 OTHER CONTINGENCIES AND COMMITMENTS – Continued or฀assets฀or฀to฀impose฀additional฀taxes฀or฀royalties฀on฀the฀compa-

ny’s฀operations฀or฀both.

In฀certain฀locations,฀host฀governments฀have฀imposed฀restric-

tions,฀controls฀and฀taxes,฀and฀in฀others,฀political฀conditions฀

have฀existed฀that฀may฀threaten฀the฀safety฀of฀employees฀and฀the฀

company’s฀continued฀presence฀in฀those฀countries.฀Internal฀unrest,฀

acts฀of฀violence฀or฀strained฀relations฀between฀a฀host฀government฀

and฀the฀company฀or฀other฀governments฀may฀affect฀the฀company’s฀

operations.฀Those฀developments฀have฀at฀times฀signiﬁcantly฀

affected฀the฀company’s฀related฀operations฀and฀results฀and฀are฀

carefully฀considered฀by฀management฀when฀evaluating฀the฀level฀

of฀current฀and฀future฀activity฀in฀such฀countries.

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฀ChevronTexaco’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.฀ChevronTexaco฀currently฀estimates฀its฀maximum฀pos-

sible฀net฀before-tax฀liability฀at฀approximately฀$200.฀At฀the฀same฀

time,฀a฀possible฀maximum฀net฀amount฀that฀could฀be฀owed฀to฀

ChevronTexaco฀is฀estimated฀at฀about฀$50.฀The฀timing฀of฀the฀

settlement฀and฀the฀exact฀amount฀within฀this฀range฀of฀estimates฀

were฀uncertain.

Other฀Contingencies฀ ChevronTexaco฀receives฀claims฀from฀and฀

submits฀claims฀to฀customers,฀trading฀partners,฀U.S.฀federal,฀state฀

and฀local฀regulatory฀bodies,฀host฀governments,฀contractors,฀

insurers,฀and฀suppliers.฀The฀amounts฀of฀these฀claims,฀individu-

ally฀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.





The฀company฀adopted฀Financial฀Accounting฀Standards฀Board฀

Statement฀No.฀143,฀“Accounting฀for฀Asset฀Retirement฀Obliga-

tions”฀(FAS฀143),฀effective฀January฀1,฀2003.฀This฀accounting฀

standard฀applies฀to฀the฀fair฀value฀of฀a฀liability฀for฀an฀asset฀retire-

ment฀obligation฀that฀is฀recorded฀when฀there฀is฀a฀legal฀obligation฀

associated฀with฀the฀retirement฀of฀a฀tangible฀long-lived฀asset฀and฀

the฀liability฀can฀be฀reasonably฀estimated.฀Obligations฀associated฀

with฀the฀retirement฀of฀these฀assets฀require฀recognition฀in฀certain฀

circumstances:฀(1)฀the฀present฀value฀of฀a฀liability฀and฀offsetting฀

asset฀for฀an฀ARO,฀(2)฀the฀subsequent฀accretion฀of฀that฀liability฀

and฀depreciation฀of฀the฀asset,฀and฀(3)฀the฀periodic฀review฀of฀the฀

ARO฀liability฀estimates฀and฀discount฀rates.฀FAS฀143฀primarily฀

affects฀the฀company’s฀accounting฀for฀crude฀oil฀and฀natural฀gas฀

producing฀assets฀and฀differs฀in฀several฀respects฀from฀previous฀

accounting฀under฀FAS฀19,฀“Financial฀Accounting฀and฀Reporting฀by฀

Oil฀and฀Gas฀Producing฀Companies.”