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82 CHEVRON CORPORATION 2006 ANNUAL REPORT82 CHEVRON CORPORATION 2006 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts
$150. The timing of the settlement and the exact amount
within this range of estimates are uncertain.
Other Contingencies Chevron receives claims from and sub-
mits claims to customers; trading partners; U.S. federal, state
and local regulatory bodies; governments; contractors; insur-
ers; and suppliers. The amounts of these claims, individually
and in the aggregate, may be signifi cant and take lengthy
periods to resolve.
The company and its affi liates also continue to review
and analyze their operations and may close, abandon, sell,
exchange, acquire or restructure assets to achieve operational
or strategic benefi ts and to improve competitiveness and prof-
itability. These activities, individually or together, may result
in gains or losses in future periods.
NOTE 24.
ASSET RETIREMENT OBLIGATIONS
The company accounts for asset retirement obligations in
accordance with Financial Accounting Standards Board
Statement (FASB) No. 143, Accounting for Asset Retirement
Obligations (FAS 143). This accounting standard applies to
the fair value of a liability for an asset retirement obligation
(ARO) that is recorded when there is a legal obligation associ-
ated with the retirement of a tangible long-lived asset and
the liability can be reasonably estimated. Obligations associ-
ated 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. In 2005, the FASB issued FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations – An
Interpretation of FASB Statement No. 143 (FIN 47), which
was effective for the company on December 31, 2005. FIN
47 clarifi es that the phrase “conditional asset retirement
obligation,” as used in FAS 143, refers to a legal obligation to
perform asset retirement activity for which the timing and/or
method of settlement are conditional on a future event that
may or may not be within the control of the company. The
obligation to perform the asset retirement activity is uncon-
ditional even though uncertainty exists about the timing
and/or method of settlement. Uncertainty about the timing
and/or method of settlement of a conditional ARO should be
factored into the measurement of the liability when suffi cient
information exists. FAS 143 acknowledges that in some cases,
suffi cient information may not be available to reasonably
estimate the fair value of an ARO. FIN 47 also clarifi es when
an entity would have suffi cient information to reasonably
estimate the fair value of an ARO. In adopting FIN 47, the
company did not recognize any additional liabilities for con-
ditional AROs due to an inability to reasonably estimate the
fair value of those obligations because of their indeterminate
settlement dates.
FAS 143 and FIN 47 primarily affect the company’s
accounting for crude oil and natural gas producing assets.
No signifi cant AROs associated with any legal obligations to
retire refi ning, marketing and transportation (downstream)
and chemical long-lived assets have been recognized, as inde-
terminate settlement dates for the asset retirements prevented
estimation of the fair value of the associated ARO. The com-
pany performs periodic reviews of its downstream and chemical
long-lived assets for any changes in facts and circumstances that
might require recognition of a retirement obligation.
The following table indicates the changes to the com-
pany’s before-tax asset retirement obligations in 2006, 2005
and 2004:
2006 2005 2004
Balance at January 1 $ 4,304 $ 2,878 $ 2,856
Liabilities assumed in the
Unocal acquisition – 1,216 –
Liabilities incurred 153 90 37
Liabilities settled (387) (172) (426)
Accretion expense 275 187 93
Revisions in estimated cash fl ows 1,428* 105 318
Balance at December 31 $ 5,773 $ 4,304 $ 2,878
* Includes $1,128 associated with estimated costs to dismantle and abandon wells and facili-
ties damaged by the 2005 hurricanes in the Gulf of Mexico.
NOTE 25.
COMMON STOCK SPLIT
In September 2004, the company effected a two-for-one stock
split in the form of a stock dividend. The total number of
authorized common stock shares and associated par value
were unchanged by this action. All per-share amounts in the
fi nancial statements refl ect the stock split for all periods pre-
sented. The effect of the common stock split is refl ected on the
Consolidated Balance Sheet in “Common stock” and “Capital
in excess of par value.”
NOTE 23. OTHER CONTINGENCIES AND COMMITMENTS – Continued