Chevron 2005 Annual Report Download - page 45

CHEVRON CORPORATION 2005 ANNUAL REPORT 43
ing but were not limited to, former refi neries, transportation
and distribution facilities and service stations, former crude
oil and natural gas fi elds and mining operations, as well as
active mining operations. Other liability additions during
2005 for heritage-Chevron related primarily to refi ned-prod-
uct marketing sites and various operating, closed or divested
facilities in the United States.
The company manages environmental liabilities under
specifi c sets of regulatory requirements, which in the United
States include the Resource Conservation and Recovery Act
and various state or local regulations. No single remediation
site at year-end 2005 had a recorded liability that was mate-
rial to the company’s fi nancial position, results of operations
or liquidity.
As of December 31, 2005, Chevron was involved with
the remediation activities of 221 sites for which it had been
identifi ed as a potentially responsible party or otherwise by
the U.S. Environmental
Protection Agency (EPA)
or other regulatory agen-
cies under the provisions
of the federal Superfund
law or analogous state
laws. The company’s
remediation reserve for
these sites at year-end
2005 was $139 million.
The federal Superfund
law and analogous state
laws provide for joint and
several liability for all
responsible parties. Any
future actions by the EPA
or other regulatory agen-
cies to require Chevron to
assume other potentially
responsible parties’ costs
at designated hazardous
waste sites are not expected to have a material effect on the
company’s consolidated fi nancial position or liquidity.
Of the remaining year-end 2005 environmental reserves
balance of $1,330 million, $855 million related to approxi-
mately 2,250 sites for the company’s U.S. downstream
operations, including refi neries and other plants, marketing
locations (i.e., service stations and terminals) and pipelines.
The remaining $475 million was associated with various sites
in the international downstream ($101 million), upstream
($257 million), chemicals ($50 million) and other ($67
million). Liabilities at all sites, whether operating, closed or
divested, were primarily associated with the company’s plans
and activities to remediate soil and/or groundwater contami-
nation or both. These and other activities include one or
more of the following: site assessment; soil excavation; offsite
disposal of contaminants; onsite containment, remediation
and/or extraction of petroleum hydrocarbon liquid and vapor
from soil; groundwater extraction and treatment; and moni-
toring of the natural attenuation of the contaminants.
It is likely that the company will continue to incur
additional liabilities, beyond those recorded, for environ-
mental remediation relating to past operations. These
future costs are not fully determinable due to such factors
as the unknown magnitude of possible contamination, 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 amount of future costs may be material to the company’s
results of operations in the period in which they are recog-
nized, the company does not expect these costs will have a
material adverse effect on its consolidated fi nancial position
or liquidity. Also, the company does not believe its obliga-
tions to make such expenditures have had, or will have, any
signifi cant impact on the company’s competitive position
relative to other U.S. or international petroleum or chemical
companies.
Effective January 1, 2003, the company implemented
Financial Accounting Standards Board Statement No. 143,
“Accounting for Asset Retirement Obligations” (FAS 143).
Under FAS 143, the fair value of a liability for an asset retire-
ment obligation is recorded when there is a legal obligation
associated with the retirement of long-lived assets and the
liability can be reasonably estimated. The liability balance of
$4.3 billion for asset retirement obligations at year-end 2005
related primarily to upstream and coal properties.
For the company’s other ongoing operating assets, such as
refi neries and chemicals facilities, no provisions are made for
exit or cleanup costs that may be required when such assets
reach the end of their useful lives unless a decision to sell or
otherwise abandon the facility has been made, as the inde-
terminate settlement dates for the asset retirements prevent
estimation of the fair value of the asset retirement obligation.
Refer also to Note 24, beginning on page 83, related to
FAS 143 and the company’s adoption in 2005 of FIN 47,
FASB Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations – An Interpretation of FASB Statement
No. 143” (FIN 47), and the discussion of “Environmental
Matters” on page 45.
Income Taxes The company calculates its income tax
expense and liabilities quarterly. These liabilities gener-
ally are not fi nalized with the individual taxing authorities
until several years after the end of the annual period for
which income taxes have been calculated. The U.S. federal
income tax liabilities have been settled through 1996 for
Chevron Corporation (formerly ChevronTexaco Corpora-
tion) and 1997 for Chevron Global Energy Inc. (formerly
Caltex Corporation), Unocal Corporation (Unocal), and
Texaco Inc. (Texaco). The company’s California franchise
tax liabilities have been settled through 1991 for Chevron,
1998 for Unocal and through 1987 for Texaco. Settlement of
open tax years, as well as tax issues in other countries where
the company conducts its businesses, is not expected to have
a material effect on the consolidated fi nancial position or
liquidity of the company and, in the opinion of management,
adequate provision has been made for income and franchise
$1,469
0
1600
1200
400
800
0201 03 04 05
YEAR-END ENVIRONMENTAL
REMEDIATION RESERVES
Millions of dollars
Reserves for environmental remedia-
tion increased 40 percent from
2004, mainly due to the assumption
of Unocal environmental liabilities.