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66 Chevron Corporation 2012 Annual Report
Note 23
Asset Retirement Obligations
e company records the fair value of a liability for an asset
retirement obligation (ARO) as an asset and liability when
there is a legal obligation associated with the retirement of a
tangible long-lived asset and the liability can be reasonably
estimated. e 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. is uncertainty about the
timing and/or method of settlement is factored into the mea-
surement of the liability when sucient information exists
to reasonably estimate fair value. Recognition of the ARO
includes: (1) the present value of a liability and osetting
asset, (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.
AROs are primarily recorded for the company’s crude
oil and natural gas producing assets. No signicant AROs
associated with any legal obligations to retire downstream
long-lived assets have been recognized, as indeterminate set-
tlement dates for the asset retirements prevent estimation of
the fair value of the associated ARO. e company performs
periodic reviews of its downstream long-lived assets for any
changes in facts and circumstances that might require recog-
nition of a retirement obligation.
e following table indicates the changes to the company’s
before-tax asset retirement obligations in 2012, 2011 and 2010:
2012 2011 2010
Balance at January 1 $ 12,767 $ 12,488 $ 10,175
Liabilities incurred 133 62 129
Liabilities settled (966) (1,316) (755)
Accretion expense 629 628 513
Revisions in estimated cash ows 708 905 2,426
Balance at December 31 $ 13, 271 $ 12,767 $ 12,488
e long-term portion of the $13,271 balance at the end
of 2012 was $12,375.
Note 24
Other Financial Information
Earnings in 2012 included gains of approximately $2,800
relating to the sale of nonstrategic properties. Of this amount,
approximately $2,200 and $600 related to upstream and
downstream assets, respectively. Earnings in 2011 included
gains of approximately $1,300 relating to the sale of nonstra-
tegic properties. Of this amount, approximately $800 and
$500 related to downstream and upstream assets, respectively.
Other nancial information is as follows:
Year ended December 31
2012 2011 2010
Total nancing interest and debt costs $ 242 $ 288 $ 317
Less: Capitalized interest 242 288 267
Interest and debt expense $ – $ – $ 50
Research and development expenses $ 648 $ 627 $ 526
Foreign currency eects* $ (454) $ 121 $ (423)
*
Includes $(202), $(27) and $(71) in 2012, 2011 and 2010, respectively, for the com-
pany’s share of equity aliates’ foreign currency eects.
e excess of replacement cost over the carrying value of
inventories for which the last-in, rst-out (LIFO) method is
used was $9,292 and $9,025 at December 31, 2012 and 2011,
respectively. Replacement cost is generally based on average
acquisition costs for the year. LIFO prots (charges) of $121,
$193 and $21 were included in earnings for the years 2012,
2011 and 2010, respectively.
e company has $4,640 in goodwill on the Consoli-
dated Balance Sheet related to the 2005 acquisition of Unocal
and to the 2011 acquisition of Atlas Energy, Inc. Under the
accounting standard for goodwill (ASC 350), the company
tested this goodwill for impairment during 2012 and con-
cluded no impairment was necessary.
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts