Chevron 2009 Annual Report Download - page 69

Chevron Corporation 2009 Annual Report 67
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States include the Resource Conservation and Recovery Act
and various state or local regulations. No single remediation
site at year-end 2009 had a recorded liability that was
material to the company’s results of operations, consolidated
financial position or liquidity.
It is likely that the company will continue to incur
additional liabilities, beyond those recorded, for environ-
mental remediation relating to past operations. These
future costs are not fully determinable due to such factors
as the unknown magnitude of possible contamination, the
unknown timing and extent of the corrective actions that
may be required, the determination of the company’s liability
in proportion to other responsible parties, and the extent to
which such costs are recoverable from third parties.
Refer to Note 23 for a discussion of the company’s asset
retirement obligations.
Equity Redetermination For oil and gas producing opera-
tions, ownership agreements may provide for periodic
reassessments of equity interests in estimated crude-oil and
natural-gas reserves. These activities, individually or together,
may result in gains or losses that could be material to earn-
ings in any given period. One such equity redetermination
process has been under way since 1996 for Chevron’s inter-
ests in four producing zones at the Naval Petroleum Reserve
at Elk Hills, California, for the time when the remaining
interests in these zones were owned by the U.S. Department
of Energy. A wide range remains for a possible net settle-
ment amount for the four zones. For this range of settlement,
Chevron estimates its maximum possible net before-tax lia-
bility at approximately $200, and the possible maximum net
amount that could be owed to Chevron is estimated at about
$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 significant and take lengthy
periods to resolve.
The company and its affiliates also continue to review
and analyze their operations and may close, abandon, sell,
exchange, acquire or restructure assets to achieve operational
or strategic benefits and to improve competitiveness and prof-
itability. These activities, individually or together, may result
in gains or losses in future periods.
Note 22 Other Contingencies and Commitments – Continued
Note 23
Asset Retirement Obligations
In accordance with accounting standards for asset retirement
obligations (ASC 410), the company records the fair value of
a liability for an asset retirement obligation (ARO) when
there is a legal obligation associated with the retirement of a
tangible long-lived asset and the liability can be reasonably
estimated. The legal obligation to perform the asset retire-
ment activity is unconditional even though uncertainty may
exist about the timing and/or method of settlement that may
be beyond the company’s control. This uncertainty about the
timing and/or method of settlement is factored into the mea-
surement of the liability when sufficient information exists to
reasonably estimate fair value. The legal obligations associ-
ated with the retirement of the tangible long-lived assets
require recognition in certain circumstances including: (1)
the present value of a liability and offsetting asset for an
ARO, (2) the subsequent accretion of that liability and depre-
ciation of the asset, and (3) the periodic review of the ARO
liability estimates and discount rates.
Accounting standards for asset retirement obligations
primarily affect the company’s accounting for crude-oil and
natural-gas producing assets. No significant AROs associated
with any legal obligations to retire refining, marketing and
transportation (downstream) and chemical long-lived assets
have been recognized, as indeterminate settlement dates for
the asset retirements prevent estimation of the fair value of
the associated ARO. The company performs periodic reviews
of its downstream and chemical long-lived assets for any
changes in facts and circumstances that might require recog-
nition of a retirement obligation.
The following table indicates the changes to the com-
pany’s before-tax asset retirement obligations in 2009, 2008
and 2007:
2009 2008 2007
Balance at January 1 $ 9,395 $ 8,253 $ 5,773
Liabilities incurred 144 308 178
Liabilities settled (757) (973) (818)
Accretion expense 463 430 399*
Revisions in estimated cash flows 930 1,377 2,721
Balance at December 31 $ 10,175 $ 9,395 $ 8,253
* Includes $175 for revision to the ARO liability retained on properties that had
been sold.
In the table above, the amounts associated with “Revisions
in estimated cash flows” reflect increasing costs to abandon
onshore and offshore wells, equipment and facilities. The long-
term portion of the $10,175 balance at the end of 2009 was
$9,289.