Chevron 2005 Annual Report Download - page 83

CHEVRON CORPORATION 2005 ANNUAL REPORT 81
Energy Inc. (formerly Caltex Corporation), Unocal Corpora-
tion (Unocal) and Texaco Inc. (Texaco). 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
taxes for all years under examination or subject to future
examination.
Guarantees At December 31, 2005, the company and its
subsidiaries provided, either directly or indirectly, guarantees
of $985 for notes and other contractual obligations of affi li-
ated companies and $294 for third parties, as described by
major category below. There are no material amounts being
carried as liabilities for the company’s obligations under these
guarantees.
Of the $985 guarantees provided to affi liates, $806
related to borrowings for capital projects or general corporate
purposes. These guarantees were undertaken to achieve lower
interest rates and generally cover the construction periods of
the capital projects. Included in these amounts are Unocal-
related guarantees of approximately $230 associated with a
construction completion guarantee for the debt fi nancing of
Unocal’s equity interest in the Baku-Tbilisi-Ceyhan (BTC)
crude oil pipeline project. Approximately 95 percent of the
$806 guaranteed will expire between 2006 and 2010, with
the remaining guarantees expiring by the end of 2015. Under
the terms of the guarantees, the company would be required
to fulfi ll the guarantee should an affi liate be in default of its
loan terms, generally for the full amounts disclosed. There
are no recourse provisions, and no assets are held as collateral
for these guarantees. The other guarantees of $179 represent
obligations in connection with pricing of power-purchase
agreements for certain of the company’s cogeneration affi li-
ates. Under the terms of these guarantees, the company may
be required to make payments under certain conditions if the
affi liates do not perform under the agreements. There are no
provisions for recourse to third parties, and no assets are held
as collateral for these pricing guarantees.
Of the $294 in guarantees provided to third par-
ties, approximately $150 related to construction loans to
host governments of certain of the company’s international
upstream operations. The remaining guarantees of $144 were
provided principally as conditions of sale of the company’s
interest in certain operations, to provide a source of liquidity
to the guaranteed parties and in connection with company
marketing programs. No amounts of the company’s obliga-
tions under these guarantees are recorded as liabilities. About
85 percent of the $294 in guarantees expire by 2010, with
the remainder expiring after 2010. 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 $85 of the guar-
antees have recourse provisions, which enable the company to
recover any payments made under the terms of the guarantees
from securities held over the guaranteed parties’ assets.
At December 31, 2005, Chevron also had outstanding
guarantees for about $190 of Equilon debt and leases. Follow-
ing the February 2002 disposition of its interest in Equilon,
the company received an indemnifi cation from Shell Oil
Company (Shell) for any claims arising from the guarantees.
The company has not recorded a liability for these guarantees.
Approximately 50 percent of the amounts guaranteed will
expire within the 2006 through 2010 period, with the guaran-
tees of the remaining amounts expiring by 2019.
Indemnifi cations The company provided certain indemni-
ties of contingent liabilities of Equilon and Motiva to Shell
and Saudi Refi ning, Inc., in connection with the February
2002 sale of the company’s interests in those investments.
The company would be required to perform if the indemni-
fi ed liabilities become actual losses. Were that to occur, the
company could be required to make future payments up to
$300. Through the end of 2005, the company paid approxi-
mately $38 under these indemnities. The company expects to
receive additional requests for indemnifi cation payments in
the future.
The company has also provided indemnities relating to
contingent environmental liabilities related to assets origi-
nally contributed by Texaco to the Equilon and Motiva joint
ventures and environmental conditions that existed prior to
the formation of Equilon and Motiva or that occurred dur-
ing the periods of Texaco’s ownership interest 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.
In the acquisition of Unocal, the company assumed certain
indemnities relating to contingent environmental liabilities
associated with assets of Unocal’s 76 Products Company busi-
ness that existed prior to its sale in 1997. Under the terms of
these indemnities, there is no maximum limit on the amount
of potential future payments by the company; however, the
purchaser shares certain costs under this indemnity up to an
aggregate cap of $200. Claims relating to these indemnities
must be asserted by April 2022. Through the end of 2005,
NOTE 23. OTHER CONTINGENCIES AND
COMMITMENTS – Continued