Chevron 2005 Annual Report Download - page 102

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100 CHEVRON CORPORATION 2005 ANNUAL REPORT
The standardized measure of discounted future net cash
fl ows, related to the preceding proved oil and gas reserves, is
calculated in accordance with the requirements of FAS 69.
Estimated future cash infl ows from production are computed
by applying year-end prices for oil and gas to year-end quan-
tities of estimated net proved reserves. Future price changes
are limited to those provided by contractual arrangements
in existence at the end of each reporting year. Future devel-
opment and production costs are those estimated future
expenditures necessary to develop and produce year-end
estimated proved reserves based on year-end cost indices,
assuming continuation of year-end economic conditions,
and include estimated costs for asset retirement obligations.
Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates. These rates refl ect
allowable deductions and tax credits and are applied to
estimated future pretax net cash fl ows, less the tax basis of
related assets. Discounted future net cash fl ows are calculated
using 10 percent midperiod discount factors. Discounting
requires a year-by-year estimate of when future expenditures
will be incurred and when reserves will be produced.
The information provided does not represent manage-
ment’s estimate of the company’s expected future cash fl ows
or value of proved oil and gas reserves. Estimates of proved
reserve quantities are imprecise and change over time as new
information becomes available. Moreover, probable and pos-
sible reserves, which may become proved in the future, are
excluded from the calculations. The arbitrary valuation pre-
scribed under FAS 69 requires assumptions as to the timing
and amount of future development and production costs. The
calculations are made as of December 31 each year and should
not be relied upon as an indication of the company’s future
cash fl ows or value of its oil and gas reserves. In the following
table, “Standardized Measure Net Cash Flows” refers to the
standardized measure of discounted future net cash fl ows.
TABLE VI – STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES
Supplemental Information on Oil and Gas Producing Activities – Continued