Chevron 2009 Annual Report Download - page 23

Chevron Corporation 2009 Annual Report 21
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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
during 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 had to be asserted by February
2009 for Equilon indemnities and must be asserted no later
than February 2012 for Motiva indemnities. Under the
terms of these indemnities, there is no maximum limit on
the amount of potential future payments. In February 2009,
Shell delivered a letter to the company purporting to preserve
unmatured claims for certain Equilon indemnities. The letter
itself provides no estimate of the ultimate claim amount.
Management does not believe this letter or any other
information provides a basis to estimate the amount, if any,
of a range of loss or potential range of loss with respect to
either the Equilon or the Motiva indemnities. The company
posts no assets as collateral and has made no payments under
the indemnities.
The amounts payable for the indemnities described in
the preceding paragraph are to be net of amounts recov-
ered 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. The acquirer
of those assets shared in certain environmental remediation
costs up to a maximum obligation of $200 million, which
had been reached at December 31, 2009. Under the indem-
nification agreement, after reaching the $200 million
obligation, Chevron is solely responsible until April 2022,
when the indemnification expires. The environmental con-
ditions or events that are subject to these indemnities must
have arisen prior to the sale of the assets in 1997.
Although the company has provided for known obliga-
tions under this indemnity that are probable and reasonably
estimable, the amount of additional future costs may be
material to results of operations in the period in which they
are recognized. The company does not expect these costs will
have a material effect on its consolidated financial position or
liquidity.
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 suppli-
ers’ 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: 2010 – $7.5 billion;
2011 – $4.3 billion; 2012 – $1.4 billion; 2013 – $1.4 billion;
2014 – $1.0 billion; 2015 and after – $4.1 billion. A portion
of these commitments may ultimately be shared with project
was lower than replacement costs, based on average acquisition
costs during the year, by approximately $5.5 billion.
Interest Coverage Ratio –
income before income tax
expense, plus interest and
debt expense and amortiza-
tion of capitalized interest,
less net income attributable
to noncontrolling interests,
divided by before-tax inter-
est costs. The company’s
interest coverage ratio in
2009 was lower than 2008
and 2007 due to lower
before-tax income.
Debt Ratio – total debt
as a percentage of total debt
plus Chevron Corporation
Stockholders’ Equity. The
increase in 2009 over 2008
and 2007 was primarily due
to the increase in debt as a
result of the $5 billion issu-
ance of public bonds in
2009.
Guarantees, Off-Balance-Sheet Arrangements and
Contractual Obligations, and Other Contingencies
Direct Guarantee
Millions of dollars Commitment Expiration by Period
2011– 201 3 – After
Tot al 2010 2012 2014 2014
Guarantee of non-
consolidated affiliate or
joint-venture obligation $ 613 $ – $ 38 $ 77 $ 498
The company’s guarantee of approximately $600 million
is associated with certain payments under a terminal use
agreement entered into by a company affiliate. The terminal
is expected to be operational by 2012. Over the approximate
16-year term of the guarantee, the maximum guarantee
amount will be reduced over time as certain fees are paid by
the affiliate. There are numerous cross-indemnity agreements
with the affiliate and the other partners to permit recovery
of any amounts paid under the guarantee. Chevron has
recorded no liability for its obligation under this guarantee.
Indemnifications The company provided certain indem-
nities of contingent liabilities of Equilon and Motiva to Shell
and Saudi Refining, 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 indemnified
liabilities become actual losses. Were that to occur, the com-
pany could be required to make future payments up to $300
million. Through the end of 2009, the company had paid $48
million under these indemnities and continues to be obligated
for possible additional indemnification payments in the future.
The company has also provided indemnities relating to
contingent environmental liabilities related to assets originally
0.0
125.0
25.0
75.0
100.0
50.0
0
50
40
30
20
10
#024 – Debt Ratio – v4
Debt Ratio
Billions of dollars/Percent
Debt (left scale)
CVX Stockholders’ Equity (left scale)
Ratio (right scale)
The ratio of total debt to total
debt-plus-Chevron Corporation
Stockholders’ Equity increased to
10.3 percent at the end of 2009
due to the issuance of $5 billion in
public bonds.
0605 07 08 09
$102.4