Chevron 2011 Annual Report Download - page 24

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
22 Chevron Corporation 2011 Annual Report
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Millions of dollars 2011 2010
Crude Oil $ 22 $ 15
Natural Gas 4 4
Rened Products 11 14
Foreign Currency e company may enter into foreign
currency derivative contracts to manage some of its foreign
currency exposures. ese exposures include revenue and
anticipated purchase transactions, including foreign currency
capital expenditures and lease commitments. e foreign cur-
rency derivative contracts, if any, are recorded at fair value on
the balance sheet with resulting gains and losses reected in
income. ere were no open foreign currency derivative con-
tracts at December 31, 2011.
Interest Rates e company may enter into interest rate
swaps from time to time as part of its overall strategy to
manage the interest rate risk on its debt. Interest rate swaps,
if any, are recorded at fair value on the balance sheet with
resulting gains and losses reected in income. At year-end
2011, the company had no interest rate swaps.
Transactions With Related Parties
Chevron enters into a number of business arrangements with
related parties, principally its equity aliates. ese arrange-
ments include long-term supply or otake agreements and
long-term purchase agreements. Refer to “Other Information”
in Note 12 of the Consolidated Financial Statements, page 48,
for further discussion. Management believes these agreements
have been negotiated on terms consistent with those that
would have been negotiated with an unrelated party.
Litigation and Other Contingencies
MTBE Information related to methyl tertiary butyl ether
(MTBE) matters is included on page 49 in Note 14 to
the Consolidated Financial Statements under the heading
“MTBE.”
Ecuador Information related to Ecuador matters is
included in Note 14 to the Consolidated Financial Statements
under the heading “Ecuador”, beginning on page 49.
Environmental e company is subject to loss contin-
gencies pursuant to laws, regulations, private claims and legal
proceedings related to environmental matters that are subject
to legal settlements or that in the future may require the
company to take action to correct or ameliorate the eects on
the environment of prior release of chemicals or petroleum
substances, including MTBE, by the company or other par-
ties. Such contingencies may exist for various sites, including,
but not limited to, federal Superfund sites and analogous sites
under state laws, reneries, crude oil elds, service stations,
terminals, land development areas, and mining operations,
whether operating, closed or divested. ese future costs are
not fully determinable due to such factors as the unknown
magnitude of possible con-
tamination, the unknown
timing and extent of the
corrective actions that may
be required, the determina-
tion of the company’s
liability in proportion to
other responsible parties,
and the extent to which
such costs are recoverable
from third parties.
Although the company
has provided for known
environmental obliga-
tions 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. e company does not expect these costs will
have a material eect on its consolidated nancial position or
liquidity. Also, the company does not believe its obligations to
make such expenditures have had, or will have, any signicant
impact on the company’s competitive position relative to other
U.S. or international petroleum or chemical companies.
e following table displays the annual changes to the
company’s before-tax environmental remediation reserves,
including those for federal Superfund sites and analogous
sites under state laws.
Millions of dollars 2011 2010 2009
Balance at January 1 $ 1,507 $ 1,700 $ 1,818
Net Additions 343 220 351
Expenditures (446) (413) (469)
Balance at December 31 $ 1,404 $ 1,507 $ 1,700
Included in the $1,404 million year-end 2011 reserve
balance were remediation activities at approximately 180 sites
for which the company had been identied as a potentially
responsible party or otherwise involved in the remediation by
the U.S. Environmental Protection Agency (EPA) or other
regulatory agencies under the provisions of the federal Super-
fund law or analogous state laws. e company’s remediation
reserve for these sites at year-end 2011 was $185 million.
e federal Superfund law and analogous state laws provide
for joint and several liability for all responsible parties. Any
future actions by the EPA or other regulatory agencies to
require Chevron to assume other potentially responsible
parties’ costs at designated hazardous waste sites are not
expected to have a material eect on the company’s results
ofoperations, consolidated nancial position or liquidity.
0
2000
1500
500
1000
Year-End Environmental
Remediation Reserves
Millions of dollars
Reserves for environmental
remediation at the end of 2011 were
down 7 percent from the prior year.
$1,404
0807 09 10 11