Chevron 2009 Annual Report Download - page 42

40 Chevron Corporation 2009 Annual Report
FS-PB
Properties, Plant and Equipment The successful efforts
method is used for crude-oil and natural-gas exploration and
production activities. All costs for development wells, related
plant and equipment, proved mineral interests in crude oil
and natural gas properties, and related asset retirement obli-
gation (ARO) assets are capitalized. Costs of exploratory
wells are capitalized pending determination of whether the
wells found proved reserves. Costs of wells that are assigned
proved reserves remain capitalized. Costs also are capitalized
for exploratory wells that have found crude-oil and natural
gas reserves even if the reserves cannot be classified as proved
when the drilling is completed, provided the exploratory
well has found a sufficient quantity of reserves to justify its
completion as a producing well and the company is making
sufficient progress assessing the reserves and the economic
and operating viability of the project. All other exploratory
wells and costs are expensed. Refer to Note 19, beginning
on page 57, for additional discussion of accounting for
suspended exploratory well costs.
Long-lived assets to be held and used, including proved
crude-oil and natural-gas properties, are assessed for pos-
sible impairment by comparing their carrying values with
their asso ciated undiscounted future net before-tax cash
flows. Events that can trigger assessments for possible impair-
ments include write-downs of proved reserves based on field
performance, significant decreases in the market value of
an asset, significant change in the extent or manner of use
of or a physical change in an asset, and a more-likely-than-
not expectation that a long-lived asset or asset group will be
sold or otherwise disposed of significantly sooner than the
end of its previously estimated useful life. Impaired assets
are written down to their estimated fair values, generally
their discounted future net before-tax cash flows. For proved
crude-oil and natural-gas properties in the United States,
the company generally performs the impairment review on
an individual field basis. Outside the United States, reviews
are performed on a country, concession, development area
or field basis, as appropriate. In the refining, marketing,
transportation and chemicals areas, impairment reviews are
generally done on the basis of a refinery, a plant, a marketing
area or marketing assets by country. Impairment amounts are
recorded as incremental “Depreciation, depletion and amorti-
zation” expense.
Long-lived assets that are held for sale are evaluated for
possible impairment by comparing the carrying value of the
asset with its fair value less the cost to sell. If the net book
value exceeds the fair value less cost to sell, the asset is consid-
ered impaired and adjusted to the lower value.
As required under accounting standards for asset retire-
ment and environmental obligations (Accounting Standards
Codification (ASC) 410), the fair value of a liability for an
ARO is recorded as an asset and a liability when there is a
legal obligation associated with the retirement of a long-lived
asset and the amount can be reasonably estimated. Refer also
to Note 23, on page 67, relating to AROs.
Depreciation and depletion of all capitalized costs of
proved crude-oil and natural-gas producing properties, except
mineral interests, are expensed using the unit-of-production
method generally by individual field, as the proved developed
reserves are produced. Depletion expenses for capitalized
costs of proved mineral interests are recognized using the
unit-of-production method by individual field as the related
proved reserves are produced. Periodic valuation provisions
for impairment of capitalized costs of unproved mineral inter-
ests are expensed.
Depreciation and depletion expenses for mining assets
are determined using the unit-of-production method as the
proved reserves are produced. The capitalized costs of all
other plant and equipment are depreciated or amortized over
their estimated useful lives. In general, the declining-balance
method is used to depreciate plant and equipment in the
United States; the straight-line method generally is used to
depreciate international plant and equipment and to amortize
all capitalized leased assets.
Gains or losses are not recognized for normal retirements
of properties, plant and equipment subject to composite
group amortization or depreciation. Gains or losses from
abnormal retirements are recorded as expenses and from
sales as “Other income.”
Expenditures for maintenance (including those for
planned major maintenance projects), repairs and minor
renewals to maintain facilities in operating condition are
generally expensed as incurred. Major replacements and
renewals are capitalized.
Goodwill Goodwill resulting from a business combination
is not subject to amortization. As required by accounting
standards for goodwill (ASC 350), the company tests such
goodwill at the reporting unit level for impairment on an
annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount.
Environmental Expenditures Environmental expenditures that
relate to ongoing operations or to conditions caused by past
operations are expensed. Expenditures that create future ben-
efits or contribute to future revenue generation are capitalized.
Liabilities related to future remediation costs are recorded
when environmental assessments or cleanups or both are
probable and the costs can be reasonably estimated. For the
company’s U.S. and Canadian marketing facilities, the accrual
is based in part on the probability that a future remediation
commitment will be required. For crude-oil, natural-gas and
mineral-producing properties, a liability for an ARO is made,
Note 1 Summary of Significant Accounting Policies – Continued
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts