Chevron 2006 Annual Report Download - page 41

CHEVRON CORPORATION 2006 ANNUAL REPORT 39
not recorded a liability for these guarantees. Approximately
50 percent of the amounts guaranteed will expire within
the 2007 through 2011 period, with the guarantees of the
remaining amounts expiring by 2019.
Indemnifi cations The company provided certain indem-
nities 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 million. Through the end of 2006, the company paid
approximately $48 million under these indemnities and con-
tinues to be obligated for possible additional 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 period 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 indemni-
ties must be asserted either as early as February 2007 or
no later than February 2009, and claims relating to Motiva
indemnities must be asserted either as early as February 2007
or no later than February 2012. Under the terms of these
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 that were sold in 1997. Under
the indemnifi cation agreement, the company’s liability is
unlimited until April 2022, when the liability expires. The
acquirer shares in certain environmental remediation costs
up to a maximum obligation of $200 million, which had not
been reached as of December 31, 2006.
Securitization The company securitizes certain retail and
trade accounts receivable in its downstream business through
the use of qualifying Special Purpose Entities (SPEs). At
December 31, 2006, approximately $1.2 billion, represent-
ing about 7 percent of Chevron’s total current accounts and
notes receivable balance, were securitized. Chevron’s total
estimated fi nancial exposure under these securitizations at
December 31, 2006, was approximately $80 million. These
arrangements have the effect of accelerating Chevron’s collec-
tion of the securitized amounts. In the event that the SPEs
experience major defaults in the collection of receivables,
Chevron believes that it would have no loss exposure con-
nected with third-party investments in these securitizations.
Long-Term Unconditional Purchase Obligations and
Commitments, Including Throughput and Take-or-Pay Agree-
ments The company and its subsidiaries have certain other
contingent liabilities relating to long-term unconditional pur-
chase obligations and commitments, including throughput
and take-or-pay agreements, some of which relate to suppliers’
fi nancing arrangements. The agreements typically provide
goods and services, such as pipeline and storage capacity,
drilling rigs, 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: 2007 – $3.2 billion; 2008
– $1.7 billion; 2009 – $2.1 billion; 2010 – $1.9 billion; 2011
– $0.9 billion; 2012 and after – $4.1 billion. A portion of
these commitments may ultimately be shared with project
partners. Total payments under the agreements were approxi-
mately $3.0 billion in 2006, $2.1 billion in 2005 and $1.6
billion in 2004.
Minority Interests The company has commitments of $209
million related to minority interests in subsidiary companies.
The following table summarizes the company’s signifi cant
contractual obligations:
Contractual Obligations
Millions of dollars Payments Due by Period
2008– After
Total 2007 2010 2011 2011
On Balance Sheet:
Short-Term Debt1 $ 2,159 $ 2,159 $ – $ – $ –
Long-Term Debt1,2 7,405 – 5,868 50 1,487
Noncancelable Capital
Lease Obligations 274 – 138 40 96
Interest 5,269 491 1,173 366 3,239
Off-Balance-Sheet:
Noncancelable Operating
Lease Obligations 3,058 509 1,374 311 864
Throughput and
Take-or-Pay Agreements 9,796 2,765 3,027 475 3,529
Other Unconditional
Purchase Obligations 4,072 383 2,696 427 566
1 $4.5 billion of short-term debt that the company expects to refi nance is included in
long-term debt. The repayment schedule above refl ects the projected repayment of the
entire amounts in the 2008–2010 period.
2 Includes guarantees of $213 of ESOP (employee stock ownership plan) debt due after
2007. The 2007 amount of $20, which was scheduled for payment on the fi rst business
day of January 2007, was paid in late December 2006.
FINANCIAL AND DERIVATIVE INSTRUMENTS
Commodity Derivative Instruments Chevron is exposed to
market risks related to the price volatility of crude oil, refi ned
products, natural gas, natural gas liquids, liquefi ed natural gas
and refi nery feedstocks.
The company uses derivative commodity instruments to
manage these exposures on a portion of its activity, includ-
ing: fi rm commitments and anticipated transactions for the
purchase, sale and storage of crude oil, refi ned products,
natural gas, natural gas liquids and feedstock for company
refi neries. The company also uses derivative commodity
instruments for limited trading purposes. The results of this
activity were not material to the company’s fi nancial position,
net income or cash fl ows in 2006.
The company’s market exposure positions are moni-
tored and managed on a daily basis by an internal Risk