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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
22 Chevron Corporation 2013 Annual Report
Derivative Commodity Instruments Chevron is
exposed to market risks related to the price volatility of crude
oil, rened products, natural gas, natural gas liquids, lique-
ed natural gas and renery feedstocks. e company uses
derivative commodity instruments to manage these exposures
on a portion of its activity, including rm commitments and
anticipated transactions for the purchase, sale and storage of
crude oil, rened products, natural gas, natural gas liquids
and feedstock for company reneries. e company also
uses derivative commodity instruments for limited trading
purposes. e results of these activities were not material to
the company’s nancial position, results of operations or cash
ows in 2013.
e company’s market exposure positions are monitored
on a daily basis by an internal Risk Control group in accor-
dance with the company’s risk management policies, which
have been approved by the Audit Committee of the com-
pany’s Board of Directors.
Derivatives beyond those designated as normal purchase
and normal sale contracts are recorded at fair value on the
Consolidated Balance Sheet with resulting gains and losses
reected in income. Fair values are derived principally from
published market quotes and other independent third-party
quotes. e change in fair value of Chevron’s derivative
commodity instruments in 2013 was not material to the
company’s results of operations.
e company uses the Monte Carlo simulation method
with a 95 percent condence level as its Value-at-Risk (VaR)
model to estimate the maximum potential loss in fair value
from the eect of adverse changes in market conditions on
derivative commodity instruments held or issued. A one-day
holding period is used on the assumption that market-risk
positions can be liquidated or hedged within one day. Based
on these inputs, the VaR for the company’s primary risk
exposures in the area of derivative commodity instruments at
December 31, 2013 and 2012 was not material to the compa-
ny’s cash ows or results of operations.
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 reected in
income. ere were no open foreign currency derivative con-
tracts at December 31, 2013.
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 reected in income. At year-end
2013, 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 aliates. ese arrange-
ments include long-term supply or otake agreements and
long-term purchase agreements. Refer to “Other Information”
in Note 12 of the Consolidated Financial Statements, page 46,
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 47 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 47.
Environmental 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 2013 2012 2011
Balance at January 1 $ 1,403 $ 1,404 $ 1,507
Net Additions 488 428 343
Expenditures (435) (429) (446)
Balance at December 31 $ 1,456 $ 1,403 $ 1,404