Chevron 2007 Annual Report Download - page 44

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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remediation costs up to a maximum obligation of $200 mil-
lion, which had not been reached as of December 31, 2007.
Securitization During 2007, the company completed the
sale of its U.S. proprietary consumer credit card business and
related receivables. This transaction included terminating
the qualifying Special Purpose Entity (SPE) that was used to
securitize associated retail accounts receivable.
Through the use of another qualifying SPE, the
company had $675 million of securitized trade accounts
receivable related to its downstream business as of December
31, 2007. This arrangement has the effect of accelerating
Chevron’s collection of the securitized amounts. Chevron’s
total estimated financial exposure under this securitization at
December 31, 2007, was $65 million. In the event that the
SPE experiences major defaults in the collection of receiv-
ables, Chevron believes that it would have no additional loss
exposure connected with third-party investments in this
securitization.
Minority Interests The company has commitments of
$204 million related to minority interests in subsidiary
companies.
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
purchase obligations and commitments, including throughput
and take-or-pay agreements, some of which relate to suppliers’
financing 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: 2008 – $4.7 billion;
2009 – $3.3 billion; 2010 – $3.3 billion; 2011 – $1.9 billion;
2012 – $1.3 billion; 2013 and after – $4.9 billion. A portion
of these commitments may ultimately be shared with project
partners. Total payments under the agreements were approxi-
mately $3.7 billion in 2007, $3.0 billion in 2006 and $2.1
billion in 2005.
The following table summarizes the company’s significant
contractual obligations:
Contractual Obligations
Millions of dollars Payments Due by Period
2009– After
Total 2008 2011 2012 2012
On Balance Sheet:1
Short-Term Debt2 $ 1,162 $ 1,162 $ – $ – $ –
Long-Term Debt2 5,664 – 4,926 33 705
Noncancelable Capital
Lease Obligations 406 – 193 61 152
Interest 3,950 360 899 292 2,399
Off-Balance-Sheet:
Noncancelable Operating
Lease Obligations 3,167 513 1,255 293 1,106
Throughput and
Take-or-Pay Agreements 13,118 3,699 4,783 618 4,018
Other Unconditional
Purchase Obligations3 6,300 988 3,779 653 880
1 Does not include amounts related to the company’s income tax liabilities associated with
uncertain tax positions. The company is unable to make reasonable estimates for the
periods in which these liabilities may become due. The company does not expect settle-
ment of such liabilities will have a material effect on its results of operations, consolidated
financial position or liquidity in any single period.
2 $4.4. billion of short-term debt that the company expects to refinance is included in
long-term debt. The repayment schedule above reflects the projected repayment of the
entire amounts in the 2009–2011 period.
3 Does not include obligations to purchase the company’s share of natural gas liquids and
regasified natural gas associated with operations of the 36.4 percent-owned Angola LNG
affiliate. The LNG plant is expected to commence operations in 2012 and is designed to
produce 5.2 million metric tons of liquefied natural gas and related natural gas liquids
per year. Volumes and prices associated with these purchase obligations are neither fixed
nor determinable.
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No material change in market risk occurred between 2006
and 2007 for the financial and derivative instruments dis-
cussed below. The hypothetical variances used in this section
were selected for illustrative purposes only and do not repre-
sent the company’s estimation of market changes. The actual
impact of future market changes could differ materially due
to factors discussed elsewhere in this report, including those
set forth under the heading “Risk Factors” in Part I, Item 1A,
of the company’s 2007 Annual Report on Form 10-K.
Commodity Derivative Instruments Chevron is exposed to
market risks related to the price volatility of crude oil, refined
products, natural gas, natural gas liquids, liquefied natural gas
and refinery feedstocks.
The company uses derivative commodity instruments to
manage these exposures on a portion of its activity, including
firm commitments and anticipated transactions for the pur-
chase, sale and storage of crude oil, refined products, natural
gas, natural gas liquids and feedstock for company refineries.
The company also uses derivative commodity instruments for
limited trading purposes. The results of this activity were not
material to the company’s financial position, net income or
cash flows in 2007.