e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the quarterly period ended September 30, 2006 |
or |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-368-2
Chevron Corporation
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
|
94-0890210 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
|
6001 Bollinger Canyon Road,
San Ramon, California |
|
94583-2324 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code:
(925) 842-1000
NONE
(Former name or former address, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o No þ
Indicate the number of shares of each of the issuers
classes of common stock, as of the latest practicable date:
|
|
|
Class |
|
Outstanding as of September 30, 2006 |
Common stock, $.75 par value |
|
2,179,982,547 |
INDEX
|
|
|
|
|
|
|
|
|
|
|
Page | |
|
|
|
|
No. | |
|
|
|
|
| |
|
|
Cautionary Statements Relevant to
Forward-Looking Information for the Purpose of Safe
Harbor Provisions of the Private Securities Litigation
Reform Act of 1995 |
|
|
2 |
|
|
PART I
FINANCIAL INFORMATION |
|
|
Consolidated Financial
Statements |
|
|
|
|
|
|
Consolidated Statement of Income for the
Three and Nine Months Ended September 30, 2006, and 2005 |
|
|
3 |
|
|
|
Consolidated Statement of Comprehensive
Income for the Three and Nine Months Ended September 30,
2006, and 2005 |
|
|
4 |
|
|
|
Consolidated Balance Sheet at
September 30, 2006, and December 31, 2005 |
|
|
5 |
|
|
|
Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 2006, and 2005 |
|
|
6 |
|
|
|
Notes to Consolidated Financial
Statements |
|
|
7-21 |
|
|
|
Managements Discussion and Analysis
of Financial Condition and Results of Operations |
|
|
22-38 |
|
|
|
Quantitative and Qualitative Disclosures
about Market Risk |
|
|
38 |
|
|
|
Controls and Procedures |
|
|
38 |
|
|
PART II
OTHER INFORMATION |
|
|
Legal Proceedings |
|
|
39 |
|
|
|
Risk Factors |
|
|
39 |
|
|
|
Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities |
|
|
39 |
|
|
|
Other Information |
|
|
39 |
|
|
|
Exhibits |
|
|
40 |
|
|
|
|
|
|
|
|
Signature |
|
|
41 |
|
Exhibits:
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
|
43 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
44-45 |
|
Section 1350 Certifications |
|
|
46-47 |
|
1
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING
INFORMATION
FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF
THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on
Form 10-Q of
Chevron Corporation contains forward-looking statements relating
to Chevrons operations that are based on managements
current expectations, estimates and projections about the
petroleum, chemicals and other energy-related industries. Words
such as anticipates, expects,
intends, plans, targets,
projects, believes, seeks,
schedules, estimates and similar
expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
other factors, some of which are beyond our control and are
difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such
forward-looking statements. The reader should not place undue
reliance on these forward-looking statements, which speak only
as of the date of this report. Unless legally required, Chevron
undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Among the important factors that could cause actual results to
differ materially from those in the forward-looking statements
are crude oil and natural gas prices; refining margins and
marketing margins; chemicals prices and competitive conditions
affecting supply and demand for aromatics, olefins and additives
products; actions of competitors; the competitiveness of
alternate energy sources or product substitutes; technological
developments; the results of operations and financial condition
of equity affiliates; inability or failure of the companys
joint-venture partners to fund their share of operations and
development activities; potential failure to achieve expected
net production from existing and future crude oil and natural
gas development projects; potential delays in the development,
construction or
start-up of planned
projects; potential disruption or interruption of the
companys net production or manufacturing facilities due to
war, accidents, political events, civil unrest or severe
weather; potential liability for remedial actions under existing
or future environmental regulations and litigation; significant
investment or product changes under existing or future
environmental statutes, regulations and litigation; potential
liability resulting from pending or future litigation; the
companys acquisition or disposition of assets;
government-mandated sales, divestitures, recapitalizations,
changes in fiscal terms or restrictions on scope of company
operations; the effects of changed accounting standards under
generally accepted accounting principles promulgated by
rule-setting bodies; and the factors set forth under the heading
Risk Factors on pages 31 and 32 of the
companys 2005 Annual Report on
Form 10-K. In
addition, such statements could be affected by general domestic
and international economic and political conditions.
Unpredictable or unknown factors not discussed herein also could
have material adverse effects on forward-looking statements.
2
PART I.
FINANCIAL INFORMATION
|
|
Item 1. |
Consolidated Financial Statements |
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars, except per-share amounts) | |
Revenues and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues(1)(2)
|
|
$ |
52,977 |
|
|
$ |
53,429 |
|
|
$ |
158,654 |
|
|
$ |
141,184 |
|
Income from equity affiliates
|
|
|
1,080 |
|
|
|
871 |
|
|
|
3,176 |
|
|
|
2,621 |
|
Other income
|
|
|
155 |
|
|
|
156 |
|
|
|
542 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues and Other Income
|
|
|
54,212 |
|
|
|
54,456 |
|
|
|
162,372 |
|
|
|
144,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Other Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil and products(2)
|
|
|
32,076 |
|
|
|
36,101 |
|
|
|
100,493 |
|
|
|
93,722 |
|
Operating expenses
|
|
|
3,650 |
|
|
|
3,190 |
|
|
|
10,532 |
|
|
|
8,372 |
|
Selling, general and administrative expenses
|
|
|
1,428 |
|
|
|
1,337 |
|
|
|
3,890 |
|
|
|
3,488 |
|
Exploration expenses
|
|
|
284 |
|
|
|
177 |
|
|
|
817 |
|
|
|
469 |
|
Depreciation, depletion and amortization
|
|
|
1,923 |
|
|
|
1,534 |
|
|
|
5,518 |
|
|
|
4,188 |
|
Taxes other than on income(1)
|
|
|
5,403 |
|
|
|
5,282 |
|
|
|
15,350 |
|
|
|
15,719 |
|
Interest and debt expense
|
|
|
104 |
|
|
|
136 |
|
|
|
359 |
|
|
|
347 |
|
Minority interests
|
|
|
20 |
|
|
|
24 |
|
|
|
68 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Other Deductions
|
|
|
44,888 |
|
|
|
47,781 |
|
|
|
137,027 |
|
|
|
126,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax Expense
|
|
|
9,324 |
|
|
|
6,675 |
|
|
|
25,345 |
|
|
|
18,038 |
|
Income Tax Expense
|
|
|
4,307 |
|
|
|
3,081 |
|
|
|
11,979 |
|
|
|
8,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
5,017 |
|
|
$ |
3,594 |
|
|
$ |
13,366 |
|
|
$ |
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
2.30 |
|
|
$ |
1.65 |
|
|
$ |
6.09 |
|
|
$ |
4.70 |
|
|
|
Diluted
|
|
$ |
2.29 |
|
|
$ |
1.64 |
|
|
$ |
6.06 |
|
|
$ |
4.68 |
|
|
Dividends
|
|
$ |
0.52 |
|
|
$ |
0.45 |
|
|
$ |
1.49 |
|
|
$ |
1.30 |
|
|
Weighted Average Number of Shares Outstanding (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,178,472 |
|
|
|
2,181,387 |
|
|
|
2,196,062 |
|
|
|
2,116,912 |
|
|
|
Diluted
|
|
|
2,189,688 |
|
|
|
2,193,851 |
|
|
|
2,206,385 |
|
|
|
2,127,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes excise, value-added and other similar taxes:
|
|
$ |
2,522 |
|
|
$ |
2,268 |
|
|
$ |
7,053 |
|
|
$ |
6,546 |
|
(2) Includes amounts in revenues for buy/sell contracts;
associated costs are in Purchased crude oil and
products. Refer to Note 15 on page 20:
|
|
$ |
|
|
|
$ |
6,588 |
|
|
$ |
6,725 |
|
|
$ |
17,925 |
|
Refer to accompanying notes to consolidated financial statements.
3
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Net Income
|
|
$ |
5,017 |
|
|
$ |
3,594 |
|
|
$ |
13,366 |
|
|
$ |
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(1 |
) |
|
|
(8 |
) |
|
|
39 |
|
|
|
(3 |
) |
|
Unrealized holding (loss) gain on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain arising during period
|
|
|
|
|
|
|
(4 |
) |
|
|
2 |
|
|
|
(13 |
) |
|
|
Reclassification to net income of net realized loss (gain)
|
|
|
10 |
|
|
|
|
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10 |
|
|
|
(4 |
) |
|
|
(93 |
) |
|
|
(13 |
) |
|
|
Net derivatives (loss) gain on hedge transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain on hedge transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before income taxes
|
|
|
1 |
|
|
|
(215 |
) |
|
|
1 |
|
|
|
(253 |
) |
|
|
|
|
Income taxes
|
|
|
1 |
|
|
|
79 |
|
|
|
4 |
|
|
|
93 |
|
|
|
|
Reclassification to net income of net realized loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before income taxes
|
|
|
6 |
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(5 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3 |
|
|
|
(136 |
) |
|
|
55 |
|
|
|
(160 |
) |
|
Minimum pension liability adjustment
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), net of tax
|
|
|
13 |
|
|
|
(148 |
) |
|
|
1 |
|
|
|
(175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$ |
5,030 |
|
|
$ |
3,446 |
|
|
$ |
13,367 |
|
|
$ |
9,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to accompanying notes to consolidated financial statements.
4
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30 | |
|
At December 31 | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars, except | |
|
|
per-share amounts) | |
ASSETS |
Cash and cash equivalents
|
|
$ |
11,226 |
|
|
$ |
10,043 |
|
Marketable securities
|
|
|
1,047 |
|
|
|
1,101 |
|
Accounts and notes receivable, net
|
|
|
18,738 |
|
|
|
17,184 |
|
Inventories:
|
|
|
|
|
|
|
|
|
|
Crude oil and petroleum products
|
|
|
4,159 |
|
|
|
3,182 |
|
|
Chemicals
|
|
|
278 |
|
|
|
245 |
|
|
Materials, supplies and other
|
|
|
770 |
|
|
|
694 |
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
5,207 |
|
|
|
4,121 |
|
Prepaid expenses and other current assets
|
|
|
2,206 |
|
|
|
1,887 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
38,424 |
|
|
|
34,336 |
|
Long-term receivables, net
|
|
|
2,305 |
|
|
|
1,686 |
|
Investments and advances
|
|
|
17,637 |
|
|
|
17,057 |
|
Properties, plant and equipment, at cost
|
|
|
134,689 |
|
|
|
127,446 |
|
Less: accumulated depreciation, depletion and amortization
|
|
|
67,801 |
|
|
|
63,756 |
|
|
|
|
|
|
|
|
|
|
Properties, plant and equipment, net
|
|
|
66,888 |
|
|
|
63,690 |
|
Deferred charges and other assets
|
|
|
4,208 |
|
|
|
4,428 |
|
Goodwill
|
|
|
4,659 |
|
|
|
4,636 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
134,121 |
|
|
$ |
125,833 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Short-term debt
|
|
$ |
2,289 |
|
|
$ |
739 |
|
Accounts payable
|
|
|
17,065 |
|
|
|
16,074 |
|
Accrued liabilities
|
|
|
3,940 |
|
|
|
3,690 |
|
Federal and other taxes on income
|
|
|
4,366 |
|
|
|
3,127 |
|
Other taxes payable
|
|
|
1,382 |
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
29,042 |
|
|
|
25,011 |
|
Long-term debt
|
|
|
7,822 |
|
|
|
11,807 |
|
Capital lease obligations
|
|
|
282 |
|
|
|
324 |
|
Deferred credits and other noncurrent obligations
|
|
|
10,894 |
|
|
|
10,507 |
|
Noncurrent deferred income taxes
|
|
|
12,462 |
|
|
|
11,262 |
|
Reserves for employee benefit plans
|
|
|
3,790 |
|
|
|
4,046 |
|
Minority interests
|
|
|
227 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
64,519 |
|
|
|
63,157 |
|
|
|
|
|
|
|
|
Preferred stock (authorized 100,000,000 shares,
$1.00 par value, none issued)
|
|
|
|
|
|
|
|
|
Common stock (authorized 4,000,000,000 shares,
$.75 par value, 2,442,676,580 shares issued at
September 30, 2006, and December 31, 2005)
|
|
|
1,832 |
|
|
|
1,832 |
|
Capital in excess of par value
|
|
|
14,111 |
|
|
|
13,894 |
|
Retained earnings
|
|
|
65,815 |
|
|
|
55,738 |
|
Notes receivable key employees
|
|
|
(2 |
) |
|
|
(3 |
) |
Accumulated other comprehensive loss
|
|
|
(428 |
) |
|
|
(429 |
) |
Deferred compensation and benefit plan trust
|
|
|
(474 |
) |
|
|
(486 |
) |
Treasury stock, at cost (262,694,033 and 209,989,910 shares
at September 30, 2006, and December 31, 2005,
respectively)
|
|
|
(11,252 |
) |
|
|
(7,870 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
69,602 |
|
|
|
62,676 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$ |
134,121 |
|
|
$ |
125,833 |
|
|
|
|
|
|
|
|
Refer to accompanying notes to consolidated financial statements.
5
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13,366 |
|
|
$ |
9,955 |
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
5,518 |
|
|
|
4,188 |
|
|
|
Dry hole expense
|
|
|
278 |
|
|
|
155 |
|
|
|
Distributions less than income from equity affiliates
|
|
|
(661 |
) |
|
|
(861 |
) |
|
|
Net before-tax gains on asset retirements and sales
|
|
|
(63 |
) |
|
|
(142 |
) |
|
|
Net foreign currency effects
|
|
|
291 |
|
|
|
35 |
|
|
|
Deferred income tax provision
|
|
|
765 |
|
|
|
733 |
|
|
|
Net increase in operating working capital
|
|
|
(52 |
) |
|
|
(192 |
) |
|
|
Minority interest in net income
|
|
|
68 |
|
|
|
63 |
|
|
|
Increase in long-term receivables
|
|
|
(582 |
) |
|
|
(98 |
) |
|
|
Decrease in other deferred charges
|
|
|
410 |
|
|
|
489 |
|
|
|
Cash contributions to employee pension plans
|
|
|
(219 |
) |
|
|
(119 |
) |
|
|
Other
|
|
|
(540 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
18,579 |
|
|
|
14,167 |
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Unocal Corporation, net of Unocal cash received
|
|
|
|
|
|
|
(5,934 |
) |
|
|
Capital expenditures
|
|
|
(9,667 |
) |
|
|
(5,476 |
) |
|
|
Proceeds from asset sales
|
|
|
640 |
|
|
|
2,490 |
|
|
|
Net sales of marketable securities
|
|
|
48 |
|
|
|
263 |
|
|
|
Repayment of loans by equity affiliates
|
|
|
53 |
|
|
|
48 |
|
|
|
Redemption of securities by equity affiliates
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities
|
|
|
(8,526 |
) |
|
|
(8,609 |
) |
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Net (payments) borrowings of short-term obligations
|
|
|
(476 |
) |
|
|
19 |
|
|
|
Repayments of long-term debt and other financing obligations
|
|
|
(1,873 |
) |
|
|
(123 |
) |
|
|
Cash dividends
|
|
|
(3,274 |
) |
|
|
(2,778 |
) |
|
|
Dividends paid to minority interests
|
|
|
(40 |
) |
|
|
(66 |
) |
|
|
Net purchases of treasury shares
|
|
|
(3,351 |
) |
|
|
(1,870 |
) |
|
|
Redemption of preferred stock of subsidiary
|
|
|
|
|
|
|
(140 |
) |
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used For Financing Activities
|
|
|
(9,014 |
) |
|
|
(4,938 |
) |
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
144 |
|
|
|
(103 |
) |
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
1,183 |
|
|
|
517 |
|
Cash and Cash Equivalents at January 1
|
|
|
10,043 |
|
|
|
9,291 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at September 30
|
|
$ |
11,226 |
|
|
$ |
9,808 |
|
|
|
|
|
|
|
|
Refer to accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim
Financial Statements
The accompanying consolidated financial statements of Chevron
Corporation and its subsidiaries (the company) have not been
audited by independent accountants. In the opinion of the
companys management, the interim data include all
adjustments necessary for a fair statement of the results for
the interim periods. These adjustments were of a normal
recurring nature, except for the items described in Note 2.
Certain notes and other information have been condensed or
omitted from the interim financial statements presented in this
Quarterly Report on
Form 10-Q.
Therefore, these financial statements should be read in
conjunction with the companys 2005 Annual Report on
Form 10-K.
The results for the three- and nine-month periods ended
September 30, 2006, are not necessarily indicative of
future financial results.
|
|
Note 2. |
Acquisition of Unocal Corporation |
On August 10, 2005, the company acquired Unocal
Corporation, an independent oil and gas exploration and
production company. Unocals principal upstream operations
were in North America and Asia, including the Caspian region.
Also located in Asia was Unocals geothermal energy
business. Other activities included ownership interests in
proprietary and common carrier pipelines, natural gas storage
facilities and mining operations.
The aggregate purchase price of Unocal was $17.3 billion. A
third-party appraisal firm was engaged to assist the company in
the process of determining the fair values of Unocals
tangible and intangible assets. The final purchase-price
allocation to the assets and liabilities acquired was completed
as of June 30, 2006.
The acquisition was accounted for under the rules of Financial
Accounting Standards Board (FASB) Statement No. 141,
Business Combinations. The following table
summarizes the final purchase-price allocation:
|
|
|
|
|
|
|
|
Millions of dollars |
|
|
|
Current assets
|
|
$ |
3,573 |
|
Investments and long-term receivables
|
|
|
1,695 |
|
Properties
|
|
|
17,285 |
|
Goodwill
|
|
|
4,820 |
|
Other assets
|
|
|
2,174 |
|
|
|
|
|
|
|
Total assets acquired
|
|
|
29,547 |
|
|
|
|
|
|
Current liabilities
|
|
|
(2,364 |
) |
Long-term debt and capital leases
|
|
|
(2,392 |
) |
Deferred income taxes
|
|
|
(4,009 |
) |
Other liabilities
|
|
|
(3,494 |
) |
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(12,259 |
) |
|
|
|
|
|
|
Net assets acquired
|
|
$ |
17,288 |
|
|
|
|
|
|
The $4.8 billion of goodwill, which represents benefits of
the acquisition that are additional to the fair values of the
other net assets acquired, was assigned to the upstream segment.
The goodwill is not deductible for tax purposes. The goodwill
balance was reviewed for possible impairment as of June 30,
2006, according to the requirements of FASB Statement
No. 142, Goodwill and Other Intangible
Assets, to test goodwill for impairment on an annual
basis. Goodwill was determined not to be impaired at that time,
and no events have occurred subsequently that would necessitate
an additional impairment review.
7
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3. |
Information Relating to the Statement of Cash Flows |
The Net increase in operating working capital was
composed of the following operating changes:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Increase in accounts and notes receivable
|
|
$ |
(1,130 |
) |
|
$ |
(3,725 |
) |
Increase in inventories
|
|
|
(1,087 |
) |
|
|
(402 |
) |
Decrease (increase) in prepaid expenses and other current assets
|
|
|
20 |
|
|
|
(144 |
) |
Increase in accounts payable and accrued liabilities
|
|
|
1,105 |
|
|
|
3,155 |
|
Increase in income and other taxes payable
|
|
|
1,040 |
|
|
|
924 |
|
|
|
|
|
|
|
|
|
Net increase in operating working capital
|
|
$ |
(52 |
) |
|
$ |
(192 |
) |
|
|
|
|
|
|
|
In accordance with the cash-flow classification requirements of
FAS 123R, Share-Based Payment, the
Net increase in operating working capital includes
reductions of $60 million and $24 million for excess
income tax benefits associated with stock options exercised
during the first nine months of 2006 and 2005, respectively.
These amounts are offset by Net purchases of treasury
shares. Refer to Note 9 beginning on page 15 for
additional information related to the companys adoption of
FAS 123R, Share-Based Payment.
Net Cash Provided by Operating Activities included the
following cash payments for interest on debt and for income
taxes:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Interest on debt (net of capitalized interest)
|
|
$ |
402 |
|
|
$ |
319 |
|
Income taxes
|
|
|
10,144 |
|
|
|
5,894 |
|
The Net sales of marketable securities consisted of
the following gross amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Marketable securities purchased
|
|
$ |
(820 |
) |
|
$ |
(665 |
) |
Marketable securities sold
|
|
|
868 |
|
|
|
928 |
|
|
|
|
|
|
|
|
|
Net sales of marketable securities
|
|
$ |
48 |
|
|
$ |
263 |
|
|
|
|
|
|
|
|
The Net purchases of treasury shares represents the
cost of common shares acquired in the open market less the cost
of shares issued for share-based compensation plans. Open-market
purchases totaled $3.7 billion and $2.2 billion in the
2006 and 2005 periods, respectively. Purchases in the first nine
months of 2006 were under the companys stock repurchase
program initiated in December 2005. The 2005 purchases related
to a program that began in April 2004 and was completed in
November 2005.
In May 2006, the companys investment in Dynegy
Series C preferred stock was redeemed at its face value of
$400 million. Upon redemption of the preferred stock, the
company recorded a gain of $130 million, of which
$105 million was reclassified from Other
Comprehensive Income. The $130 million gain is
included in the Consolidated Statement of Income as Income
from equity affiliates.
8
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major components of Capital expenditures and the
reconciliation of this amount to the capital and exploratory
expenditures, including equity affiliates, presented in
Managements Discussion and Analysis of Financial
Condition and Results of Operations, are presented in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Additions to properties, plant and equipment
|
|
$ |
8,834 |
|
|
$ |
5,158 |
|
Additions to investments
|
|
|
780 |
|
|
|
275 |
|
Current year dry hole expenditures
|
|
|
175 |
|
|
|
128 |
|
Payments for other liabilities and assets, net
|
|
|
(122 |
) |
|
|
(85 |
) |
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
9,667 |
|
|
|
5,476 |
|
Other exploration expenditures
|
|
|
539 |
|
|
|
314 |
|
Assets acquired through capital lease obligations
|
|
|
20 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
Capital and exploratory expenditures, excluding equity affiliates
|
|
|
10,226 |
|
|
|
5,943 |
|
Share of expenditures by equity affiliates
|
|
|
1,261 |
|
|
|
1,144 |
|
|
|
|
|
|
|
|
|
Capital and exploratory expenditures, including equity affiliates
|
|
$ |
11,487 |
|
|
$ |
7,087 |
|
|
|
|
|
|
|
|
|
|
Note 4. |
Operating Segments and Geographic Data |
Although each subsidiary of Chevron is responsible for its own
affairs, Chevron Corporation manages its investments in these
subsidiaries and their affiliates. For this purpose, the
investments are grouped as follows: upstream, downstream,
chemicals and all other. The first three of these groupings
represent the companys reportable segments and
operating segments as defined in FAS 131,
Disclosures about Segments of an Enterprise and Related
Information.
The segments are separately managed for investment purposes
under a structure that includes segment managers who
report to the companys chief operating decision
maker (CODM) (terms as defined in FAS 131). The CODM
is the companys Executive Committee, a committee of senior
officers that includes the chief executive officer, and that in
turn reports to the Board of Directors of Chevron Corporation.
The operating segments represent components of the company as
described in FAS 131 terms that engage in activities
(a) from which revenues are earned and expenses are
incurred; (b) whose operating results are regularly
reviewed by the CODM, which makes decisions about resources to
be allocated to the segments and to assess their performance;
and (c) for which discrete financial information is
available.
Segment managers for the reportable segments are directly
accountable to and maintain regular contact with the
companys CODM for the monitoring of the segments
operating activities and financial performance. The CODM
approves annual capital and exploratory budgets at the
reportable segment level, as well as reviews capital and
exploratory funding for major projects and approves major
changes to the annual capital and exploratory budgets. However,
business-unit managers within the operating segments are
directly responsible for decisions relating to project
implementation and all other matters connected with daily
operations. Company officers who are members of the Executive
Committee also have individual management responsibilities and
participate on other committees for purposes other than acting
as the CODM.
All Other activities include the companys
interest in Dynegy Inc. (Dynegy), mining operations of coal and
other minerals, power generation businesses, worldwide cash
management and debt financing activities, corporate
administrative functions, insurance operations, real estate
activities and technology companies.
The companys primary country of operation is the United
States of America, its country of domicile. Other components of
the companys operations are reported as
International (outside the United States).
9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment Earnings The company evaluates the performance of
its operating segments on an after-tax basis, without
considering the effects of debt financing interest expense or
investment interest income, both of which are managed by the
company on a worldwide basis. Corporate administrative costs and
assets are not allocated to the operating segments. However,
operating segments are billed for the direct use of corporate
services. Nonbillable costs remain at the corporate level in
All Other. Income by operating segment for the
three-and nine-month periods ended September 30, 2006 and
2005, is presented in the following table:
Segment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
1,269 |
|
|
$ |
1,206 |
|
|
$ |
3,384 |
|
|
$ |
2,945 |
|
|
International
|
|
|
2,234 |
|
|
|
2,117 |
|
|
|
6,849 |
|
|
|
5,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Upstream
|
|
|
3,503 |
|
|
|
3,323 |
|
|
|
10,233 |
|
|
|
8,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
831 |
|
|
|
139 |
|
|
|
1,595 |
|
|
|
595 |
|
|
International
|
|
|
610 |
|
|
|
434 |
|
|
|
1,424 |
|
|
|
1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Downstream
|
|
|
1,441 |
|
|
|
573 |
|
|
|
3,019 |
|
|
|
1,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
134 |
|
|
|
(7 |
) |
|
|
338 |
|
|
|
185 |
|
|
International
|
|
|
34 |
|
|
|
13 |
|
|
|
77 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemicals
|
|
|
168 |
|
|
|
6 |
|
|
|
415 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income
|
|
|
5,112 |
|
|
|
3,902 |
|
|
|
13,667 |
|
|
|
10,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(72 |
) |
|
|
(94 |
) |
|
|
(248 |
) |
|
|
(242 |
) |
|
Interest Income
|
|
|
107 |
|
|
|
73 |
|
|
|
280 |
|
|
|
187 |
|
|
Other
|
|
|
(130 |
) |
|
|
(287 |
) |
|
|
(333 |
) |
|
|
(649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
5,017 |
|
|
$ |
3,594 |
|
|
$ |
13,366 |
|
|
$ |
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment Assets Segment assets do not include intercompany
investments or intercompany receivables. All Other
assets consist primarily of worldwide cash, cash equivalents and
marketable securities, real estate, information systems, the
companys investment in Dynegy, mining operations of coal
and other minerals, power generation businesses, technology
companies and assets of the corporate administrative functions.
Segment assets at September 30, 2006, and December 31,
2005 follow:
Segment Assets
|
|
|
|
|
|
|
|
|
|
|
|
At September 30 | |
|
At December 31 | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Upstream
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
19,991 |
|
|
$ |
19,006 |
|
|
International
|
|
|
49,772 |
|
|
|
46,501 |
|
|
Goodwill
|
|
|
4,659 |
|
|
|
4,636 |
|
|
|
|
|
|
|
|
Total Upstream
|
|
|
74,422 |
|
|
|
70,143 |
|
|
|
|
|
|
|
|
Downstream
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
14,105 |
|
|
|
12,273 |
|
|
International
|
|
|
24,447 |
|
|
|
22,294 |
|
|
|
|
|
|
|
|
Total Downstream
|
|
|
38,552 |
|
|
|
34,567 |
|
|
|
|
|
|
|
|
Chemicals
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
2,601 |
|
|
|
2,452 |
|
|
International
|
|
|
789 |
|
|
|
727 |
|
|
|
|
|
|
|
|
Total Chemicals
|
|
|
3,390 |
|
|
|
3,179 |
|
|
|
|
|
|
|
|
Total Segment Assets
|
|
|
116,364 |
|
|
|
107,889 |
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
8,527 |
|
|
|
9,234 |
|
|
International
|
|
|
9,230 |
|
|
|
8,710 |
|
|
|
|
|
|
|
|
Total All Other
|
|
|
17,757 |
|
|
|
17,944 |
|
|
|
|
|
|
|
|
Total Assets United States
|
|
|
45,224 |
|
|
|
42,965 |
|
Total Assets International
|
|
|
84,238 |
|
|
|
78,232 |
|
Goodwill
|
|
|
4,659 |
|
|
|
4,636 |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
134,121 |
|
|
$ |
125,833 |
|
|
|
|
|
|
|
|
Segment Sales and Other Operating Revenues Upstream
segment revenues are derived primarily from the production and
sale of crude oil and natural gas, as well as the sale of
third-party production of natural gas. Revenues for the
downstream segment are derived from the refining and marketing
of petroleum products such as gasoline, jet fuel, gas oils,
kerosene, lubricants, residual fuel oils and other products
derived from crude oil. This segment also generates revenues
from the transportation and trading of crude oil and refined
products. Revenues for the chemicals segment are derived
primarily from the manufacture and sale of additives for
lubricants and fuels. All Other activities include
revenues from mining operations of coal and other minerals,
power generation businesses, insurance operations, real estate
activities and technology companies.
11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating-segment sales and other operating revenues, including
internal transfers, for the three- and nine-month periods ended
September 30, 2006 and 2005, are presented in the following
table. Products are transferred between operating segments at
internal product values that approximate market prices.
Sales and Other Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
7,470 |
|
|
$ |
6,852 |
|
|
$ |
21,683 |
|
|
$ |
16,416 |
|
|
International
|
|
|
8,400 |
|
|
|
6,740 |
|
|
|
24,286 |
|
|
|
16,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
15,870 |
|
|
|
13,592 |
|
|
|
45,969 |
|
|
|
33,284 |
|
|
Intersegment Elimination United States
|
|
|
(2,786 |
) |
|
|
(2,384 |
) |
|
|
(7,650 |
) |
|
|
(6,252 |
) |
|
Intersegment Elimination International
|
|
|
(4,828 |
) |
|
|
(3,889 |
) |
|
|
(13,073 |
) |
|
|
(9,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Upstream
|
|
|
8,256 |
|
|
|
7,319 |
|
|
|
25,246 |
|
|
|
17,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
18,985 |
|
|
|
22,604 |
|
|
|
59,131 |
|
|
|
58,785 |
|
|
International
|
|
|
25,344 |
|
|
|
23,149 |
|
|
|
73,209 |
|
|
|
64,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
44,329 |
|
|
|
45,753 |
|
|
|
132,340 |
|
|
|
122,816 |
|
|
Intersegment Elimination United States
|
|
|
(141 |
) |
|
|
(88 |
) |
|
|
(401 |
) |
|
|
(180 |
) |
|
Intersegment Elimination International
|
|
|
(11 |
) |
|
|
(1 |
) |
|
|
(27 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Downstream
|
|
|
44,177 |
|
|
|
45,664 |
|
|
|
131,912 |
|
|
|
122,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
161 |
|
|
|
127 |
|
|
|
469 |
|
|
|
427 |
|
|
International
|
|
|
304 |
|
|
|
236 |
|
|
|
848 |
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
465 |
|
|
|
363 |
|
|
|
1,317 |
|
|
|
1,113 |
|
|
Intersegment Elimination United States
|
|
|
(64 |
) |
|
|
(50 |
) |
|
|
(180 |
) |
|
|
(163 |
) |
|
Intersegment Elimination International
|
|
|
(40 |
) |
|
|
(33 |
) |
|
|
(122 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemicals
|
|
|
361 |
|
|
|
280 |
|
|
|
1,015 |
|
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
347 |
|
|
|
284 |
|
|
|
918 |
|
|
|
780 |
|
|
International
|
|
|
17 |
|
|
|
22 |
|
|
|
49 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
364 |
|
|
|
306 |
|
|
|
967 |
|
|
|
843 |
|
|
Intersegment Elimination United States
|
|
|
(176 |
) |
|
|
(131 |
) |
|
|
(469 |
) |
|
|
(352 |
) |
|
Intersegment Elimination International
|
|
|
(5 |
) |
|
|
(9 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Other
|
|
|
183 |
|
|
|
166 |
|
|
|
481 |
|
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Other Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
26,963 |
|
|
|
29,867 |
|
|
|
82,201 |
|
|
|
76,408 |
|
|
International
|
|
|
34,065 |
|
|
|
30,147 |
|
|
|
98,392 |
|
|
|
81,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
61,028 |
|
|
|
60,014 |
|
|
|
180,593 |
|
|
|
158,056 |
|
|
Intersegment Elimination United States
|
|
|
(3,167 |
) |
|
|
(2,653 |
) |
|
|
(8,700 |
) |
|
|
(6,947 |
) |
|
Intersegment Elimination International
|
|
|
(4,884 |
) |
|
|
(3,932 |
) |
|
|
(13,239 |
) |
|
|
(9,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales and Other Operating Revenues*
|
|
$ |
52,977 |
|
|
$ |
53,429 |
|
|
$ |
158,654 |
|
|
$ |
141,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes amounts in revenues for buy/sell contracts:
|
|
$ |
|
|
|
$ |
6,588 |
|
|
$ |
6,725 |
|
|
$ |
17,925 |
|
|
|
|
Substantially all of the amounts in each period related to the
downstream segment. Refer to Note 15 on page 20 for a
discussion on the companys adoption of
EITF 04-13,
Accounting for Purchases and Sales of Inventory with
the Same Counterparty. |
12
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5. |
Restructuring and Reorganization |
In connection with the Unocal acquisition, the company
implemented a restructuring and reorganization program as part
of the effort to capture the synergies of the combined
companies. The program is expected to be substantially completed
by the end of 2006 and is aimed at eliminating redundant
operations, consolidating offices and facilities and sharing
common services and functions.
As part of the restructuring and reorganization, approximately
600 employees were eligible for severance payments. Most of the
associated positions were in the United States and related
primarily to corporate and upstream executive and administrative
functions. By the end of the third quarter 2006, more than 500
of these employees had been terminated.
In connection with this restructuring and reorganization, an
accrual of $106 million was established as part of the
purchase accounting for the Unocal acquisition. Activity through
first nine months of 2006 for this accrual is shown in the table
below. The balance at September 30, 2006, was classified as
a current liability on the Consolidated Balance Sheet.
|
|
|
|
|
|
|
Amounts before tax | |
|
|
| |
|
|
(Millions of dollars) | |
Balance at January 1, 2006
|
|
$ |
44 |
|
Adjustments
|
|
|
(7 |
) |
Payments
|
|
|
(17 |
) |
|
|
|
|
Balance at September 30, 2006
|
|
$ |
20 |
|
|
|
|
|
Shown in the table below is the activity during the first nine
months of 2006 for the companys liability related to
various other reorganizations and restructurings across several
businesses and corporate departments. The balance at
September 30, 2006, was categorized as a current liability
on the Consolidated Balance Sheet.
|
|
|
|
|
|
|
Amounts before tax | |
|
|
| |
|
|
(Millions of dollars) | |
Balance at January 1, 2006
|
|
$ |
47 |
|
Adjustments
|
|
|
(8 |
) |
Payments
|
|
|
(20 |
) |
|
|
|
|
Balance at September 30, 2006
|
|
$ |
19 |
|
|
|
|
|
|
|
Note 6. |
Summarized Financial Data Chevron U.S.A. Inc. |
Chevron U.S.A. Inc. (CUSA) is a major subsidiary of Chevron
Corporation. CUSA and its subsidiaries manage and operate most
of Chevrons U.S. businesses. Assets include those
related to the exploration and production of crude oil, natural
gas and natural gas liquids and those associated with refining,
marketing, supply and distribution of products derived from
petroleum, other than natural gas liquids, excluding most of the
regulated pipeline operations of Chevron. CUSA also holds
Chevrons investments in the Chevron Phillips Chemical
Company LLC (CPChem) joint venture and Dynegy, which are
accounted for using the equity method.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Sales and other operating revenues
|
|
$ |
114,570 |
|
|
$ |
101,506 |
|
Costs and other deductions
|
|
|
108,081 |
|
|
|
97,397 |
|
Net income
|
|
|
4,424 |
|
|
|
2,905 |
|
13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
At September 30 | |
|
At December 31 | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Current assets
|
|
$ |
31,385 |
|
|
$ |
27,878 |
|
Other assets
|
|
|
22,374 |
|
|
|
20,611 |
|
Current liabilities
|
|
|
23,736 |
|
|
|
20,286 |
|
Other liabilities
|
|
|
10,352 |
|
|
|
12,897 |
|
|
|
|
|
|
|
|
Net equity
|
|
$ |
19,671 |
|
|
$ |
15,306 |
|
|
|
|
|
|
|
|
Memo: Total debt
|
|
$ |
6,024 |
|
|
$ |
8,353 |
|
|
|
Note 7. |
Summarized Financial Data Chevron Transport
Corporation |
Chevron Transport Corporation Limited (CTC), incorporated in
Bermuda, is an indirect, wholly owned subsidiary of Chevron
Corporation. CTC is the principal operator of Chevrons
international tanker fleet and is engaged in the marine
transportation of crude oil and refined petroleum products. Most
of CTCs shipping revenue is derived by providing
transportation services to other Chevron companies. Chevron
Corporation has guaranteed this subsidiarys obligations in
connection with certain debt securities issued by a third party.
Summarized financial information for CTC and its consolidated
subsidiaries is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Sales and other operating revenues
|
|
$ |
175 |
|
|
$ |
100 |
|
|
$ |
505 |
|
|
$ |
432 |
|
Costs and other deductions
|
|
|
149 |
|
|
|
108 |
|
|
|
445 |
|
|
|
338 |
|
Net income (loss)
|
|
|
27 |
|
|
|
(3 |
) |
|
|
60 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
At September 30 | |
|
At December 31 | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Current assets
|
|
$ |
353 |
|
|
$ |
358 |
|
Other assets
|
|
|
333 |
|
|
|
283 |
|
Current liabilities
|
|
|
96 |
|
|
|
119 |
|
Other liabilities
|
|
|
248 |
|
|
|
243 |
|
|
|
|
|
|
|
|
Net equity
|
|
$ |
342 |
|
|
$ |
279 |
|
|
|
|
|
|
|
|
There were no restrictions on CTCs ability to pay
dividends or make loans or advances at September 30, 2006.
Taxes on income for the third quarter and first nine months of
2006 were $4.3 billion and $12 billion, respectively,
compared with $3.1 billion and $8.1 billion for the
comparable periods in 2005. The associated effective tax rate
was 46 percent for the third quarters of 2006 and 2005. For
the comparative nine-month periods, the effective tax rates were
47 percent and 45 percent, respectively. The higher
tax rate in the 2006 nine-month period included the effect of
one-time charges totaling $300 million, including an
increase in tax rates on upstream operations in the U.K. North
Sea.
14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9. |
Stock Options and Other Share-Based Compensation |
Effective July 1, 2005, the company adopted the provisions
of Financial Accounting Standards Board (FASB) Statement
No. 123R, Share-Based Payment,
(FAS 123R) for its share-based compensation plans. The
company previously accounted for these plans under the
recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, (APB 25) and
related interpretations and disclosure requirements established
by FAS 123, Accounting for Stock-Based
Compensation.
The company adopted FAS 123R using the modified prospective
method and accordingly, results for prior periods were not
restated. The following table illustrates the effect on net
income and earnings per share as if the company had applied the
fair-value recognition provisions of FAS 123 to stock
options, stock appreciation rights, performance units and
restricted stock units for periods prior to adoption of
FAS 123R.
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30 | |
|
|
2005 | |
|
|
| |
|
|
(Millions of dollars, except | |
|
|
per-share amounts) | |
Net income, as reported
|
|
$ |
9,955 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
57 |
|
Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for awards, net of
related tax effects
|
|
|
(83 |
) |
|
|
|
|
Pro forma net income
|
|
$ |
9,929 |
|
|
|
|
|
Net income per share:
|
|
|
|
|
Basic as reported
|
|
$ |
4.70 |
|
Basic pro forma
|
|
$ |
4.69 |
|
Diluted as reported
|
|
$ |
4.68 |
|
Diluted pro forma
|
|
$ |
4.67 |
|
|
|
Note 10. |
Employee Benefits |
The company has defined benefit pension plans for many
employees. The company typically pre-funds defined benefit plans
as required by local regulations or in certain situations where
pre-funding provides economic advantages. In the United States,
this includes all qualified tax-exempt plans subject to the
Employee Retirement Income Security Act of 1974
(ERISA) minimum funding standard. The company does not
typically fund domestic nonqualified tax-exempt pension plans
that are not subject to funding requirements under laws and
regulations because contributions to these pension plans may be
less economic and investment returns may be less attractive than
the companys other investment alternatives.
The company also sponsors other postretirement plans that
provide medical and dental benefits, as well as life insurance
for some active and qualifying retired employees. The plans are
unfunded, and the company and the retirees share the costs. For
retiree medical coverage in the companys main
U.S. plan, the increase to the company contributions is
limited to no more than 4 percent each year, effective at
retirement. Certain life insurance benefits are paid by the
company and annual contributions are based on actual plan
experience.
15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit costs for 2006 and 2005
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
57 |
|
|
$ |
58 |
|
|
$ |
171 |
|
|
$ |
149 |
|
|
Interest cost
|
|
|
121 |
|
|
|
102 |
|
|
|
347 |
|
|
|
285 |
|
|
Expected return on plan assets
|
|
|
(138 |
) |
|
|
(115 |
) |
|
|
(414 |
) |
|
|
(323 |
) |
|
Amortization of prior-service costs
|
|
|
12 |
|
|
|
12 |
|
|
|
35 |
|
|
|
34 |
|
|
Recognized actuarial losses
|
|
|
28 |
|
|
|
55 |
|
|
|
107 |
|
|
|
134 |
|
|
Settlement losses
|
|
|
38 |
|
|
|
18 |
|
|
|
59 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
118 |
|
|
|
130 |
|
|
|
305 |
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
26 |
|
|
|
21 |
|
|
|
75 |
|
|
|
63 |
|
|
Interest cost
|
|
|
57 |
|
|
|
51 |
|
|
|
160 |
|
|
|
149 |
|
|
Expected return on plan assets
|
|
|
(61 |
) |
|
|
(53 |
) |
|
|
(164 |
) |
|
|
(157 |
) |
|
Amortization of transitional liabilities
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
Amortization of prior-service costs
|
|
|
4 |
|
|
|
4 |
|
|
|
10 |
|
|
|
12 |
|
|
Recognized actuarial losses
|
|
|
18 |
|
|
|
13 |
|
|
|
51 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
45 |
|
|
|
36 |
|
|
|
133 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Pension Benefit Costs
|
|
$ |
163 |
|
|
$ |
166 |
|
|
$ |
438 |
|
|
$ |
455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
7 |
|
|
$ |
8 |
|
|
$ |
27 |
|
|
$ |
22 |
|
|
Interest cost
|
|
|
46 |
|
|
|
42 |
|
|
|
133 |
|
|
|
120 |
|
|
Amortization of prior-service costs
|
|
|
(20 |
) |
|
|
(23 |
) |
|
|
(66 |
) |
|
|
(68 |
) |
|
Recognized actuarial losses
|
|
|
22 |
|
|
|
23 |
|
|
|
77 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Other Benefit Costs
|
|
$ |
55 |
|
|
$ |
50 |
|
|
$ |
171 |
|
|
$ |
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes costs for U.S. and international other postretirement
benefit plans. Obligations for plans outside the U.S. are
not significant relative to the companys total other
postretirement benefit obligation. |
At the end of 2005, the company estimated it would contribute
$300 million and $200 million to its U.S. and
international pension plans, respectively, during 2006. Through
September 30, 2006, a total of $220 million was
contributed, including approximately $100 million to the
U.S. plans. Estimated contributions for the full year
continue to be $500 million, but actual contribution
amounts are dependent upon investment returns, changes in
pension obligations, regulatory environments and other economic
factors. Additional funding may ultimately be required if
investment returns are insufficient to offset increases in plan
obligations.
During the first nine months of 2006, the company contributed
$160 million to its other postretirement benefit plans. The
company anticipates contributing an additional $60 million
during the remainder of 2006.
16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11. |
Accounting for Suspended Exploratory Wells |
The company accounts for the cost of exploratory wells in
accordance with FAS 19, Financial Accounting and
Reporting by Oil and Gas Producing Companies as
amended by FASB Staff Position
FAS 19-1,
Accounting for Suspended Well Costs, which
provides that an exploratory well continues to be capitalized
after the completion of drilling if certain criteria are met.
The companys capitalized cost of suspended wells at
September 30, 2006, was approximately $1.2 billion, an
increase of $130 million from year-end 2005 due mainly to
drilling activity in the United States. For the category of
exploratory well costs at year-end 2005 that were suspended more
than one year, a total of $70 million was expensed in the
first nine months of 2006.
|
|
Note 12. |
Asset Retirement Obligations |
As of September 30, 2006, the companys liability for
asset retirement obligations calculated in accordance with FASB
Statement No. 143, Accounting for Asset Retirement
Obligations, was approximately $5.4 billion,
compared with $4.3 billion at year-end 2005. The
$1.1 billion increase included approximately
$800 million associated with estimated costs to dismantle
and abandon wells and facilities damaged by last years
hurricanes in the Gulf of Mexico. The offset to the
$800 million increase in the abandonment liability was
recorded to operating expense in the second quarter, net of
approximately $400 million recoverable under the
companys insurance policies.
Chevron and many other companies in the petroleum industry have
used methyl tertiary butyl ether (MTBE) as a gasoline additive.
Chevron is a party to more than 70 lawsuits and claims, the
majority of which involve numerous other petroleum marketers and
refiners, related to the use of MTBE in certain oxygenated
gasolines and the alleged seepage of MTBE into groundwater.
Resolution of these actions may ultimately require the company
to correct or ameliorate the alleged effects on the environment
of prior release of MTBE by the company or other parties.
Additional lawsuits and claims related to the use of MTBE,
including personal-injury claims, may be filed in the future.
The companys ultimate exposure related to these lawsuits
and claims is not currently determinable, but could be material
to net income in any one period. The company currently does not
use MTBE in the manufacture of gasoline in the United States.
|
|
Note 14. |
Other Contingencies and Commitments |
Income Taxes The U.S. federal income tax liabilities
have been settled through 1996 for Chevron Corporation (formerly
ChevronTexaco Corporation) and 1997 for Chevron Global Energy
Inc. (formerly Caltex Corporation), and Unocal Corporation
(Unocal), and through 1991 for Texaco Inc. (Texaco). California
franchise tax liabilities have been settled through 1991 for
Chevron, 1998 for Unocal and through 1987 for Texaco.
Settlement of open tax years, as well as tax issues in other
countries where the company conducts its businesses, is not
expected to have a material effect on the consolidated financial
position or liquidity of the company and, in the opinion of
management, adequate provision has been made for income and
franchise taxes for all years under examination or subject to
future examination.
Guarantees The company and its subsidiaries have certain
other contingent liabilities with respect to guarantees, direct
or indirect, of debt of affiliated companies or others and
long-term unconditional purchase obligations and commitments,
throughput agreements and take-or-pay agreements, some of which
relate to suppliers financing arrangements. Under the
terms of the guarantee arrangements, generally the company would
be required to perform should the affiliated company or third
party fail to fulfill its obligations under the
17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
arrangements. In some cases, the guarantee arrangements have
recourse provisions that would enable the company to recover any
payments made under the terms of the guarantees from assets
provided as collateral.
Off-Balance-Sheet Obligations The company and its
subsidiaries have certain other contingent liabilities relating
to long-term unconditional purchase obligations and commitments,
throughput agreements, and take-or-pay agreements, some of which
relate to suppliers financing arrangements. The agreements
typically provide goods and services, such as pipeline and
storage capacity, utilities, and petroleum products, to be used
or sold in the ordinary course of the companys business.
Indemnifications The company provided certain indemnities
of contingent liabilities of Equilon and Motiva to Shell Oil
Company (Shell) and Saudi Refining Inc. in connection with the
February 2002 sale of the companys interests in those
investments. The company would be required to perform if the
indemnified liabilities become actual losses. Were that to
occur, the company could be required to make maximum future
payments up to $300 million. Through September 30,
2006, the company paid $48 million under these indemnities
and continues to be obligated for possible additional
indemnification payments in the future.
The company has also provided indemnities relating to contingent
environmental liabilities related to assets originally
contributed by Texaco to the Equilon and Motiva joint ventures
and environmental conditions that existed prior to the formation
of Equilon and Motiva or that occurred during the period of
Texacos ownership interests in the joint ventures. In
general, the environmental conditions or events that are subject
to these indemnities must have arisen prior to December 2001.
Claims relating to Equilon indemnities must be asserted either
as early as February 2007, or no later than February 2009, and
claims relating to Motiva must be asserted no later than
February 2012. Under the terms of these indemnities, there is no
maximum limit on the amount of potential future payments. The
company has not recorded any liabilities for possible claims
under these indemnities. The company posts no assets as
collateral and has made no payments under these indemnities.
The amounts payable for the indemnities described above are to
be net of amounts recovered from insurance carriers and others
and net of liabilities recorded by Equilon or Motiva prior to
September 30, 2001, for any applicable incident.
In the acquisition of Unocal, the company assumed certain
indemnities for contingent environmental liabilities associated
with Unocals 76 Products Company business that was sold in
1997. Under the indemnification agreement, the companys
liability is unlimited until April 2022, when the liability
expires. The acquirer shares in certain environmental
remediation costs up to a maximum obligation of $200 million,
which had not been incurred as of September 30, 2006.
Minority Interests The company has commitments of
$227 million related to minority interests in subsidiary
companies.
Environmental The company is subject to loss
contingencies pursuant to environmental laws and regulations
that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior
release of chemical or petroleum substances, including MTBE, by
the company or other parties. Such contingencies may exist for
various sites, including, but not limited to, federal Superfund
sites and analogous sites under state laws, refineries, crude
oil fields, service stations, terminals, land development areas,
and mining operations, whether operating, closed or divested.
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 companys 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
obligations 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. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such
18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expenditures have had or will have any significant impact on the
companys competitive position relative to other
U.S. or international petroleum or chemical companies.
Global Operations Chevron and its affiliates conduct
business activities in approximately 180 countries. Areas in
which the company and its affiliates have significant operations
or ownership interests include the United States, Canada,
Australia, the United Kingdom, Norway, Denmark, France, the
Netherlands, the Partitioned Neutral Zone between Kuwait and
Saudi Arabia, Republic of the Congo, Angola, Nigeria, Chad,
South Africa, Democratic Republic of the Congo, Indonesia,
India, Bangladesh, the Philippines, Myanmar, Singapore, China,
Thailand, Vietnam, Cambodia, Azerbaijan, Kazakhstan, Venezuela,
Argentina, Brazil, Colombia, Trinidad and Tobago and South
Korea. The companys Caspian Pipeline Consortium (CPC)
affiliate operates in Russia and Kazakhstan. The companys
Tengizchevroil (TCO) affiliate operates in Kazakhstan. Through
an affiliate, the company participates in the operation of the
Baku-Tbilisi-Ceyhan (BTC) pipeline through Azerbaijan, Georgia
and Turkey. Also through an affiliate, the company has an
interest in the Chad/ Cameroon pipeline. The companys
Petrolera Ameriven affiliate operates the Hamaca project in
Venezuela. The companys Chevron Phillips Chemical Company
LLC (CPChem) affiliate manufactures and markets a wide range of
petrochemicals on a worldwide basis, with manufacturing
facilities in the United States, Puerto Rico, Singapore, China,
South Korea, Saudi Arabia, Qatar and Belgium. The companys
GS Caltex affiliate manufactures and markets refined
products and petrochemicals in South Korea.
The companys operations, particularly exploration and
production, can be affected by changing economic, regulatory and
political environments in the various countries in which it
operates, including the United States. As has occurred in the
past, actions could be taken by governments to increase public
ownership of the companys partially or wholly owned
businesses or assets or to impose additional taxes or royalties
on the companys operations or both.
In certain locations, governments have imposed restrictions,
controls and taxes, and in others, political conditions have
existed that may threaten the safety of employees and the
companys continued presence in those countries. Internal
unrest, acts of violence or strained relations between a
government and the company or other governments may affect the
companys operations. Those developments have at times
significantly affected the companys related operations and
results and are carefully considered by management when
evaluating the level of current and future activity in such
countries.
Equity Redetermination For oil and gas producing
operations, 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 earnings in any given period. One such equity redetermination
process has been under way since 1996 for Chevrons
interests in four producing zones at the Naval Petroleum Reserve
at Elk Hills in 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 settlement
amount for the four zones. For this range of settlement, Chevron
estimates its maximum possible net before-tax liability at
approximately $200 million, and the possible maximum net
amount that could be owed to Chevron is estimated at about
$150 million. The timing of the settlement and the exact
amount within this range of estimates are uncertain.
Other Contingencies Chevron receives claims from and
submits claims to customers, trading partners,
U.S. federal, state and local regulatory bodies,
governments, contractors, insurers, 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
profitability. These activities, individually or together, may
result in gains or losses in future periods.
19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15. |
New Accounting Standards |
EITF Issue No. 04-13, Accounting for Purchases and
Sales of Inventory with the Same Counterparty
(Issue 04-13). The
company adopted the accounting prescribed by
Issue 04-13 on a
prospective basis from April 1, 2006.
Issue 04-13
requires that two or more legally separate exchange transactions
with the same counterparty, including buy/sell transactions, be
combined and considered as a single arrangement for purposes of
applying the provisions of Accounting Principles Board Opinion
No. 29, Accounting for Nonmonetary
Transactions, when the transactions are entered into
in contemplation of one another. In prior periods,
the company accounted for buy/sell transactions in the
Consolidated Statement of Income the same as a monetary
transaction purchases were reported as
Purchased crude oil and products; sales were
reported as Sales and other operating revenues.
With the companys adoption of
Issue 04-13,
buy/sell transactions from April 1, 2006, are netted
against each other on the Consolidated Statement of Income, with
no effect on net income. Amounts associated with buy/sell
transactions in periods prior to the second quarter 2006 are
shown as a footnote to the Consolidated Statement of Income on
page 3.
EITF Issue No. 06-3, How Sales Taxes Collected
from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
(Issue 06-3). In
September 2006, the FASB ratified the earlier EITF consensus on
Issue 06-3, which
will become effective for the company on January 1, 2007.
The new accounting standard requires that a company disclose its
policy for recording taxes assessed by a governmental authority
on a revenue-producing transaction between a seller and a
customer. In addition, for any such taxes that are reported on a
gross basis, a company is required to disclose the amounts of
those taxes. The companys policy in relation to
Issue 06-3 has
been to present the relevant taxes on a gross basis. The
associated amounts are shown as a footnote to the Consolidated
Statement of Income on page 3.
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48). In July
2006, the FASB issued FIN 48, which will become effective
for the company on January 1, 2007. This standard clarifies
the accounting for income tax benefits that are uncertain in
nature. Under FIN 48, a company will recognize a tax
benefit in the financial statements for an uncertain tax
position only if managements assessment is that its
position is more likely than not (i.e., a greater
than 50 percent likelihood) to be upheld on audit based
only on the technical merits of the tax position. This
accounting standard also provides guidance on thresholds,
measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition that is intended to provide better
financial-statement comparability among different companies.
Under the transition guidance for implementing FIN 48, any
required cumulative-effect adjustment will be recorded to
retained earnings as of January 1, 2007. The company does
not expect implementation of the standard will have a material
effect on its results of operations or financial position.
FASB Statement No. 157, Fair Value
Measurements (FAS 157). In September 2006, the
FASB issued FAS 157, which will become effective for the
company on January 1, 2008. This standard defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The Statement
does not require any new fair value measurements but would apply
to assets and liabilities that are required to be recorded at
fair value under other accounting standards. The impact, if any,
to the company from the adoption of FAS 157 in 2008 will
depend on the companys assets and liabilities at that time
that are required to be measured at fair value.
FASB Statement No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an Amendment of FASB Statements No. 87,
88, 106 and 132(R) (FAS 158). In September 2006,
the FASB issued FAS 158, which will become effective for
the company on December 31, 2006. This standard requires
the company to recognize the overfunded or underfunded status of
each of its defined benefit pension and other postretirement
benefit (OPEB) plans as an asset or liability and to reflect
changes in the
20
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
funded status through Accumulated other comprehensive
income, as a separate component of stockholders
equity, in the year in which they occur.
Based on estimates as of September 30, 2006, the company
anticipates total assets and stockholders equity upon
adoption of FAS 158 will be reduced by $2.5 billion.
This estimate will differ from the actual impacts at
December 31, 2006, which will be based on year-end pension
plan asset valuations and calculations of the companys
obligations as of year-end for pensions and other postretirement
benefit plans.
FASB Staff Position No. AUG AIR-1, Accounting for
Planned Major Maintenance Activities. In September
2006, the FASB issued Staff Position No. AUG AIR-1, which will
become effective for the company on January 1, 2007. The
Staff Position prohibits companies from recognizing planned
major maintenance cost by accruing a liability over several
reporting periods before the maintenance is performed or over
interim-reporting periods within the annual period in which the
cost is expected to be incurred. The company does not expect the
standard will have any effect on its results of operations or
financial position, as expenditures for routine and major
maintenance projects, repairs and minor renewals to maintain
facilities in operating condition are generally expensed as
incurred. Major replacements and renewals are capitalized.
In September 2006, the SEC staff also issued Staff
Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). While not an official rule or interpretation of
the SEC, SAB 108 was issued to address the diversity in practice
in quantifying misstatements from prior years and assessing
their effect on current year financial statements. The company
does not anticipate any impact to the preparation of its
year-end 2006 financial statements from adopting the guidance of
SAB 108.
21
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Third Quarter 2006 Compared with Third Quarter 2005
and Nine Months 2006 Compared with Nine Months 2005
Income by Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Income by Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream Exploration and Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
1,269 |
|
|
$ |
1,206 |
|
|
$ |
3,384 |
|
|
$ |
2,945 |
|
|
International
|
|
|
2,234 |
|
|
|
2,117 |
|
|
|
6,849 |
|
|
|
5,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Upstream
|
|
|
3,503 |
|
|
|
3,323 |
|
|
|
10,233 |
|
|
|
8,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downstream Refining, Marketing and
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
831 |
|
|
|
139 |
|
|
|
1,595 |
|
|
|
595 |
|
|
International
|
|
|
610 |
|
|
|
434 |
|
|
|
1,424 |
|
|
|
1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Downstream
|
|
|
1,441 |
|
|
|
573 |
|
|
|
3,019 |
|
|
|
1,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
168 |
|
|
|
6 |
|
|
|
415 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income
|
|
|
5,112 |
|
|
|
3,902 |
|
|
|
13,667 |
|
|
|
10,659 |
|
All Other
|
|
|
(95 |
) |
|
|
(308 |
) |
|
|
(301 |
) |
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income*
|
|
$ |
5,017 |
|
|
$ |
3,594 |
|
|
$ |
13,366 |
|
|
$ |
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes foreign currency effects
|
|
$ |
(111 |
) |
|
$ |
(52 |
) |
|
$ |
(275 |
) |
|
$ |
(19 |
) |
Net income for the 2006 third quarter was
$5.0 billion ($2.29 per share diluted),
compared with $3.6 billion ($1.64 per
share diluted) in the 2005 third quarter. Net income
for the first nine months of 2006 was $13.4 billion
($6.06 per share diluted), vs.
$10.0 billion ($4.68 per share diluted) in
the corresponding 2005 period. In the following discussion, the
term earnings is defined as segment income.
Upstream earnings in the third quarter 2006 were
$3.5 billion, compared with $3.3 billion in the
year-ago period. Earnings for the first nine months of 2006 were
$10.2 billion, vs. $8.5 billion a year earlier.
Results for both 2006 periods benefited from higher prices for
crude oil and an increase in oil-equivalent production that was
associated with the acquisition of Unocal in August 2005. (Refer
to Note 2 on page 7 for a discussion of the Unocal
acquisition.)
Downstream earnings were $1.4 billion in the third
quarter 2006, up from $0.6 billion a year earlier.
Nine-month 2006 earnings were $3.0 billion, vs.
$2.0 billion in the corresponding 2005 period. The earnings
improvement in both periods was driven mainly by increased
refinery utilization and improved refined-product margins in the
United States.
Chemicals earnings were $168 million, up from
$6 million in the 2005 third quarter. Earnings for the nine
months of 2006 were $415 million, up from $227 million
a year earlier.
Refer to pages 26 - 29 for additional discussion
of earnings by business segment for the third quarter and nine
months of 2006.
22
|
|
|
Business Environment and Outlook |
Chevrons current and future earnings depend largely on the
profitability of its upstream (exploration and production) and
downstream (refining, marketing and transportation) business
segments. The single biggest factor that affects the results of
operations for both segments is movement in the price of crude
oil. In the downstream business, crude oil is the largest cost
component of refined products. The overall trend in earnings is
typically less affected by results from the companys
chemical business and other activities and investments. Earnings
for the company in any period may also be influenced by events
or transactions that are infrequent and/or unusual in nature.
Chevron and the oil and gas industry at large are currently
experiencing an increase in certain costs that exceeds the
general trend of inflation in many areas of the world. This
increase in cost is affecting the companys operating
expenses for all business segments and capital expenditures,
particularly for the upstream business.
To sustain its long-term competitive position in the upstream
business, the company must develop and replenish an inventory of
projects that offer adequate financial returns for the
investment required. Identifying promising areas for
exploration, acquiring the necessary rights to explore for and
to produce crude oil and natural gas, drilling successfully, and
handling the many technical and operational details in a safe
and cost-effective manner, are all important factors in this
effort. Projects often require long lead times and large capital
commitments. Changes in economic, legal or political
circumstances can have significant effects on the profitability
of a project over its expected life. In the current environment
of higher commodity prices, certain governments have sought to
renegotiate contracts or impose additional costs on the company.
Other governments may attempt to do so in the future. The
company will continue to monitor these developments, take them
into account in evaluating future investment opportunities, and
otherwise seek to mitigate any risks to the companys
current operations or future prospects.
The company also continuously evaluates opportunities to dispose
of assets that are not key to providing sufficient long-term
value, or to acquire assets or operations complementary to its
asset base to help augment the companys growth. Asset
dispositions and restructurings may occur in future periods and
could result in significant gains or losses.
Comments related to the trend in earnings for the companys
major business areas are as follows:
Upstream Earnings for the upstream segment are closely
aligned with industry price levels for crude oil and natural
gas. Crude oil and natural gas prices are subject to external
factors over which the company has no control, including product
demand connected with global economic conditions, industry
inventory levels, production quotas imposed by the Organization
of Petroleum Exporting Countries (OPEC), weather-related damages
and disruptions, competing fuel prices, and regional supply
interruptions that may be caused by military conflicts, civil
unrest or political uncertainty. Moreover, any of these factors
could also inhibit the companys production capacity in an
affected region. The company monitors developments closely in
the countries in which it operates and holds investments, and
attempts to manage risks in operating its facilities and
business.
During 2005, industry price levels for West Texas Intermediate
(WTI), a benchmark crude oil, averaged $57 per barrel.
Prices trended upward in the first nine months of 2006, with WTI
averaging over $70 per barrel for the third quarter and $68
for the nine months. The benchmark price declined during October
2006, averaging $59 per barrel for the month. Among the factors
contributing to the decline in prices during October were ample
output and inventories of crude oil and refined products
worldwide. The improved supply and demand balance was due in
part to a relatively quiet storm season in the U.S. Gulf of
Mexico this year, enabling oil and gas production and refineries
to operate with significantly less downtime than a year ago.
During 2005 and the first nine months of 2006, a wide
differential in price existed between high quality, light-sweet
crude oils (such as the U.S. benchmark WTI) and heavier
types of crude. The price for heavier crudes has been dampened
because of ample supply and lower relative demand due to the
limited number of refineries that are able to process this
lower-quality feedstock into light products (i.e., motor
gasoline, jet fuel, aviation gasoline and diesel fuel). The
price for the higher-quality light-sweet crude oil, on the other
hand, has remained high, as the demand for light products, which
can be more easily manufactured by refineries from
23
light-sweet crude oil, has been strong worldwide. Chevron
produces heavy crude oil in California, Chad, Indonesia, the
Partitioned Neutral Zone (between Saudi Arabia and Kuwait),
Venezuela and in certain fields in Angola, China and the United
Kingdom North Sea. (Refer to page 32 for the companys
average U.S. and international crude oil prices.)
U.S. benchmark prices for Henry Hub natural gas averaged
$6.40 per thousand cubic feet (MCF) in the first nine
months of 2006, compared with about $7.50 for the corresponding
2005 period. The Henry Hub price for October 2006 averaged $5.40
per MCF. Fluctuations in the price for natural gas in the United
States are closely associated with the volumes produced in North
America and the inventory in underground storage relative to
customer demand. Natural gas prices in the United States are
also typically higher during the winter period, when demand for
heating is greatest.
In contrast to the United States, certain other regions of the
world in which the company operates have different supply,
demand and regulatory circumstances for natural gas, typically
resulting in significantly lower average sales prices for the
companys production. (Refer to page 32 for the
companys average natural gas prices for the U.S. and
international regions.) Additionally, excess supply conditions
that exist in certain parts of the world cannot easily serve to
mitigate the relatively high-price conditions in the United
States and other markets because of the lack of infrastructure
and the difficulties in transporting natural gas.
To help address this regional imbalance between supply and
demand for natural gas, Chevron is planning increased
investments in long-term projects in areas of excess supply to
install infrastructure to produce and liquefy natural gas for
transport by tanker, along with investments and commitments to
regasify the product in markets where demand is strong and
supplies are not as plentiful. Due to the significance of the
overall investment in these long-term projects, the natural gas
sales prices in the areas of excess supply (before the natural
gas is transferred to a company-owned or third-party processing
facility) are expected to remain well below sales prices for
natural gas that is produced much nearer to areas of high demand
and can be transported in existing natural gas pipeline networks
(as in the United States).
Besides the impact of the fluctuation in price for crude oil and
natural gas, the longer-term trend in earnings for the upstream
segment is also a function of other factors, including changes
in the companys crude oil and natural gas production
levels, changes in fiscal terms, the cost of goods and services,
and the companys ability to find or acquire and
efficiently produce crude oil and natural gas reserves.
With regard to the companys level of net oil-equivalent
production, approximately 25 percent of the companys
production in the first nine months of 2006 occurred in the
OPEC-member countries of Indonesia, Nigeria and Venezuela and in
the Partitioned Neutral Zone between Saudi Arabia and Kuwait.
The companys production level during the first nine months
of 2006 was not constrained in these areas by OPEC quotas. On
October 20, 2006 OPEC announced its decision to reduce
OPEC-member production quotas by 1.2 million barrels of
crude oil per day from current production level of
27.5 million barrels per day (4.4 percent), effective
November 1, 2006. The effect of this action, if any, on the
companys future production is uncertain.
In 2005, the Venezuelan government stipulated that
Chevrons Boscan and LL-652 operating service agreements be
converted to Empresas Mixtas (i.e., joint stock contractual
structures), with Petróleos de Venezuela, S.A. (PDVSA) as
majority shareholder. Chevron signed definitive agreements for
the contract conversions in July 2006, but the formation of the
two Empresa Mixta companies was delayed and they did not become
effective until October 9, 2006. From that date, Chevron
will report its equity share of the Boscan and LL-652
production, which is expected to be approximately
90,000 barrels per day less than what the company
previously reported under the operating service agreements. The
financial implications of the Empresa Mixta structure are not
expected to have a material effect on the companys results
of operations, consolidated financial position or liquidity.
In certain onshore areas of Nigeria, approximately
30,000 barrels per day of the companys net production
capacity remain shut in because of civil unrest and damages to
facilities that occurred in 2003. The company has adopted a
phased plan to restore this capacity as conditions permit.
24
In the first nine months of 2006, the companys worldwide
oil-equivalent production averaged 2.67 million barrels per
day, including the volumes produced from oil sands in Canada and
the production associated with the operating service agreements
in Venezuela. Beyond the known reduction of 90,000 barrels
per day associated with the Empresa Mixta conversions in
Venezuela, any estimate of future production is subject to many
uncertainties, including quotas that may be imposed by OPEC, the
price effect on production volumes calculated under
cost-recovery and variable-royalty provisions of certain
contracts, and production disruptions that could be caused by
severe weather, local civil unrest and changing geopolitics.
Future production levels also are affected by the size and
number of economic investment opportunities and, for new
large-scale projects, the time lag between initial exploration
and the beginning of production. Most of Chevrons upstream
investment is currently being made outside the United States.
Investments in upstream projects generally are made well in
advance of the start of the associated crude oil and natural gas
production.
Refer also to the Results of Operations on
pages 26 - 27 for additional discussion of U.S.
and international production trends.
Downstream Earnings for the downstream segment are
closely tied to global and regional supply and demand for
refined products and the associated effects on industry refining
and marketing margins. The companys core marketing areas
are the West Coast of North America, the U.S. Gulf Coast,
Latin America, Asia and sub-Saharan Africa. Earnings improved
during the first nine months of 2006, mainly as the result of
higher average margins for refined products and improved
operations at the companys refineries. Industry margins in
the future may be volatile, due primarily to changes in the
price of crude oil used for refinery feedstock, disruptions at
refineries resulting from maintenance programs and unplanned
outages, and levels of inventory and demand for refined products.
Other influences on the companys profitability in this
segment include the operating efficiencies and expenses of the
refinery network, including the effects of any downtime due to
planned and unplanned maintenance or severe weather, refinery
upgrade projects and operating incidents. The level of operating
expenses for the downstream segment can also be affected by the
volatility of charter expenses for the companys shipping
operations, which are driven by the industrys demand for
crude-oil and product tankers. Other factors affecting the
companys downstream profitability that are beyond the
companys control include the general level of inflation
and energy costs to operate the refinery network.
Refer also to the Results of Operations on
pages 27 - 28 for additional discussion of
downstream earnings.
Chemicals Earnings in the petrochemical business are
closely tied to global chemical demand, industry inventory
levels and plant capacity utilization. Additionally, feedstock
and fuel costs, which tend to follow crude oil and natural gas
price movements, influence earnings in this segment.
Refer also to the Results of Operations on page 28 for
additional discussion of chemical earnings.
Noteworthy operating developments and events in recent months
included the following:
|
|
|
|
|
United States Completion of a record setting
production test on the 50 percent-owned and operated
Jack #2 well, located 175 miles offshore
southwest of New Orleans in the U.S. Gulf of Mexico. The
production test is a
follow-up to the 2004
Jack discovery in Walker Ridge Block 758. The production
well test in 7,000 feet of water and 20,000 feet under
the sea floor is the deepest ever accomplished in the Gulf of
Mexico. |
|
|
|
United States Decision to develop the Great
White, Tobago and Silvertip fields located in the U.S. Gulf
of Mexico. The fields are expected to use a common producing
hub, the Perdido Regional Host, with a capacity of
130,000 barrels of oil-equivalent per day. First production
from the 37.5 percent-owned Perdido Regional Host is
anticipated in 2010. Chevrons ownership interests in the
fields are Great White 33.3 percent,
Tobago 57.5 percent and Silvertip
60 percent. |
|
|
|
Canada Decision to participate in the
expansion of the Athabasca Oil Sands Project (AOSP) in
Alberta, Canada. The expansion is expected to add
100,000 barrels per day of mining and upgrading |
25
|
|
|
|
|
capacity at an estimated cost of $10 billion. Completion of
the expansion is planned for 2010, increasing total capacity of
the project to approximately 255,000 barrels of oil per
day. Chevron holds a 20 percent nonoperated interest in
AOSP. |
Business Segments The following section presents the
results of operations for the companys business
segments upstream, downstream and
chemicals as well as for all
other the departments and companies managed at
the corporate level. (Refer to Note 4 beginning on
page 9 for a discussion of the companys
reportable segments, as defined in FAS 131,
Disclosures about Segments of an Enterprise and Related
Information.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
U.S. Upstream Income
|
|
$ |
1,269 |
|
|
$ |
1,206 |
|
|
$ |
3,384 |
|
|
$ |
2,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. upstream income of $1.27 billion in the third
quarter 2006 was up 5 percent from the year earlier.
Earnings between periods benefited by about $100 million
due to the net effect of higher prices for crude oil and natural
gas liquids and lower prices for natural gas. Third-quarter 2006
earnings also benefited from a 5 percent increase in
oil-equivalent production and a reduction in uninsured expenses
associated with hurricanes in the Gulf of Mexico in 2005.
Partially offsetting these contributions to earnings were the
effects of higher operating expenses and an increase in expense
for the depreciation of wells, equipment and facilities.
Nine-month 2006 earnings were approximately $3.4 billion,
up 15 percent from the same period in 2005. Higher average
prices for crude oil increased earnings about $900 million
between periods. Also benefiting earnings was a 4 percent
increase in oil-equivalent production. Partially offsetting
these benefits between periods were the effects of lower natural
gas prices and higher operating expenses, including
hurricane-related charges.
The average liquids realization in the third quarter was
$61.99 per barrel, up from $53.00. For the comparable
nine-month period, the average realization of $58.58 was up
29 percent from $45.30. The average natural gas realization
for the third quarter 2006 was $5.93 per thousand cubic
feet, down from $7.34 in the 2005 quarter. For the nine months,
the average realization was $6.41, down marginally from $6.49 in
2005.
Net oil-equivalent production was 772,000 barrels per day
in the third quarter 2006, up 5 percent from a year ago on
volumes associated with the Unocal acquisition. Nine-month
production increased 4 percent to 763,000 barrels per
day. The increase for the nine-month period was less than the
impact of the Unocal-related volumes due to adverse carryover
effects on production from last years hurricanes. The net
liquids component of oil-equivalent production was up
2 percent to 464,000 barrels per day for the quarter
and relatively flat at 460,000 for the first nine months. Net
natural gas production for the third quarter and first nine
months of 2006 averaged 1.8 billion cubic feet per day, up
10 percent and 11 percent, respectively, from the
year-ago periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
International Upstream Income*
|
|
$ |
2,234 |
|
|
$ |
2,117 |
|
|
$ |
6,849 |
|
|
$ |
5,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes foreign currency effects
|
|
$ |
(100 |
) |
|
$ |
(30 |
) |
|
$ |
(319 |
) |
|
$ |
9 |
|
26
International upstream income of $2.23 billion in the third
quarter 2006 increased $117 million from the 2005 period.
Higher prices for crude oil and natural gas benefited earnings
approximately $400 million. Also contributing to the
earnings improvement was a 6 percent increase in
oil-equivalent production. These benefits to earnings were
largely offset by one-time charges for income taxes, including
higher taxes on operations in the U.K. North Sea, and higher
exploration and operating expenses. Foreign currency effects
decreased earnings by $100 million in the third quarter
2006, compared with a decrease to earnings of $30 million
in the year-ago period. These changes between periods were
primarily due to the strengthening of the currencies of the
United Kingdom and Thailand against the U.S. dollar.
For the nine-month period, income was approximately
$6.8 billion, up $1.3 billion from the corresponding
2005 period. Higher prices for crude oil and natural gas in 2006
benefited earnings about $1.7 billion. An increase in
oil-equivalent production of 10 percent also contributed to
the profit improvement. Partially offsetting these benefits were
approximately $300 million of one-time charges for higher
income tax rates and settlement of tax claims. Operating
expenses were also higher in the first nine months of 2006.
Foreign currency effects reduced earnings $319 million in
the 2006 period, vs. a $9 million benefit to earnings in
2005. The change between periods was again due to strengthening
of the United Kingdom and Thailand currencies.
The average liquids realization for the third quarter 2006 was
$61.90 per barrel, an increase of 14 percent from
$54.26 in the 2005 period. For the first nine months of 2006,
the average realization was $59.70, compared with $46.67 for the
nine months of 2005. The average natural gas realization in the
2006 third quarter was $3.66 per thousand cubic feet, up
from $3.13 in the third quarter last year. Between nine-month
periods, the average natural gas realization increased
23 percent from a year ago to $3.75.
Net oil-equivalent production for both the third quarter and
first nine months of 2006 was 1.9 million barrels per day,
up 6 percent and 10 percent, respectively, from the
corresponding periods in 2005. The increase for both periods was
mostly attributable to the Unocal acquisition. The third-quarter
production increase also included higher output in Angola,
Trinidad and Tobago and Kazakhstan, the effects of which were
moderated by lower cost-oil recovery volumes in Indonesia and
the Philippines and by the effects of maintenance activities in
Venezuela and Denmark. The nine-month production increase
included the higher volumes in Angola and Trinidad and Tobago,
which were partially offset by lower cost-oil recovery in
Indonesia and the Philippines and by maintenance work in 2006 on
facilities in Canada at the Athabasca oil sands operation and at
the Captain Field in the United Kingdom. The net liquids
component of oil-equivalent production for the third quarter
2006 was 1.3 million barrels per day and essentially the
same for the nine-month period. Production for the quarter and
nine months was approximately 5 percent higher than in the
corresponding periods of 2005. Net natural gas production was
3.1 billion cubic feet per day for the 2006 quarter and
3.2 billion for the nine-months, up 12 percent and
34 percent from the year-ago periods, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
U.S. Downstream Income
|
|
$ |
831 |
|
|
$ |
139 |
|
|
$ |
1,595 |
|
|
$ |
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. downstream earnings of $831 million increased
$692 million from the 2005 third quarter. For the first
nine months of 2006, earnings were about $1.6 billion,
compared with $595 million in the corresponding 2005
period. Earnings for both comparative periods increased
primarily as a result of higher refined-product margins and
improved refinery utilization.
Crude oil inputs at the companys refineries in the third
quarter of 2006 were 967,000 barrels per day, up
34 percent from the year-ago period. Crude oil inputs of
947,000 barrels per day for the nine months increased
14 percent from the same period in 2005. The improved
utilization was associated mainly with downtime
27
during 2005 for maintenance and repairs, including an extended
outage in the third quarter 2005 at the companys refinery
in Pascagoula, Mississippi, due to hurricane damage.
Refined-product sales volumes in the third quarter 2006
increased 2 percent from a year earlier to
1,502,000 barrels per day. The reported sales volume for
2006 was on a different basis than in 2005 due to a change in
accounting rules that became effective April 1, 2006, for
certain purchase and sale contracts with the same counterparty.
(Refer to the discussion of New Accounting Standards
on page 20.) Prior to the accounting change, transactions
for these types of contracts were reported separately as a
purchase and a sale. The new accounting standard requires the
transactions to be netted. Excluding the impact of this new
accounting standard, sales of refined products were about
9 percent higher in the 2006 quarter, primarily the result
of higher refinery output. On the same adjusted basis for the
nine-month period, sales were approximately 5 percent
higher in 2006. Branded gasoline sales increased 3 percent
from last years third quarter and nine-month period,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
International Downstream Income*
|
|
$ |
610 |
|
|
$ |
434 |
|
|
$ |
1,424 |
|
|
$ |
1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes foreign currency effects
|
|
$ |
(21 |
) |
|
$ |
(22 |
) |
|
$ |
2 |
|
|
$ |
2 |
|
International downstream income of $610 million increased
$176 million from the third quarter 2005. Earnings for the
nine months of 2006 were $1.4 billion, up $61 million
from the 2005 period. The increase in both periods was
associated mainly with the benefit of higher refined-product
margins in the Asia-Pacific region and improved results from
crude oil and refined product trading activities.
The companys share of refinery crude-oil inputs was
1,055,000 barrels per day for the third quarter 2006, down
3 percent from the year earlier. For the nine months,
inputs were 3 percent higher at 1,067,000 barrels per
day. Total refined-product sales volumes were
2,148,000 barrels per day in the 2006 third quarter and
2,160,000 for the nine months, down 1 percent and
4 percent, respectively, from the year-ago periods. After
adjusting for the effect of the new accounting standard for
purchase and sale contracts, refined-product sales were higher
by 5 percent and 1 percent for the respective
comparative periods. The increase for the third quarter was
primarily associated with sales of jet fuel and gas oils in East
Africa and the Middle East.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Income*
|
|
$ |
168 |
|
|
$ |
6 |
|
|
$ |
415 |
|
|
$ |
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes foreign currency effects
|
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
(7 |
) |
|
$ |
|
|
Chemical operations earned $168 million in the third
quarter 2006, compared with $6 million in the 2005 period.
For the nine months, earnings increased $188 million from a
year ago to $415 million. Earnings for the
50 percent-owned Chevron Phillips Chemical Company LLC and
the companys Oronite subsidiary were both adversely
affected in the 2005 third quarter by disruptions and damages
caused by hurricanes in the Gulf of Mexico. Margins for
commodity chemicals and fuel and lubricant additives improved
between the comparative periods.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Net Charges*
|
|
$ |
(95 |
) |
|
$ |
(308 |
) |
|
$ |
(301 |
) |
|
$ |
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes foreign currency effects
|
|
$ |
6 |
|
|
$ |
(2 |
) |
|
$ |
49 |
|
|
$ |
(30 |
) |
All Other consists of the companys interest in Dynegy,
mining operations of coal and other minerals, power generation
businesses, worldwide cash management and debt financing
activities, corporate administrative functions, insurance
operations, real estate activities and technology companies.
Net charges were $95 million in the third quarter 2006,
compared with $308 million in the corresponding 2005
period. Net charges for the first nine months of 2006 were
$301 million, vs. $704 million in 2005. The reduction
in net charges for the quarter related mainly to lower expenses
for environmental and litigation matters, higher interest income
net of interest expense, and lower expenses for income taxes and
other corporate items. The lower
year-to-date charges in
2006 were also associated with a gain on the redemption of an
investment in Dynegy preferred stock, interest income net of
interest expense and a gain on the retirement of
$1.5 billion of Unocal debt. Foreign currency effects also
contributed to the reduction in net charges for both comparative
periods, although more significantly for the nine-months.
|
|
|
Consolidated Statement of Income |
Explanations are provided below of variations between periods
for certain income statement categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Sales and other operating revenues*
|
|
$ |
52,977 |
|
|
$ |
53,429 |
|
|
$ |
158,654 |
|
|
$ |
141,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes amount for buy/sell contracts
|
|
$ |
|
|
|
$ |
6,588 |
|
|
$ |
6,725 |
|
|
$ |
17,925 |
|
Sales and other operating revenues in both periods benefited
from increased production of crude oil and higher prices for
crude oil and refined products. For the quarterly period, these
effects were more than offset by the impact of the
accounting-standard change beginning April 1 for certain
purchase and sale contracts with the same counterparty.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Income from equity affiliates
|
|
$ |
1,080 |
|
|
$ |
871 |
|
|
$ |
3,176 |
|
|
$ |
2,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in income from equity affiliates in both periods
reflected improved results for Chevron Phillips Chemical Company
and Tengizchevroil in Kazakhstan, which were partially offset by
lower earnings at the Hamaca project in Venezuela. The nine
months also included an improvement in Dynegy-related earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Other income
|
|
$ |
155 |
|
|
$ |
156 |
|
|
$ |
542 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Other income was unchanged between the quarterly periods.
Reduced income for the nine months was primarily due to foreign
currency effects and the absence of a net gain from the sale of
a Canadian upstream equity investment in 2005. These effects
were partially offset in 2006 by higher interest income and a
net gain on the early retirement of the Unocal debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Purchased crude oil and products
|
|
$ |
32,076 |
|
|
$ |
36,101 |
|
|
$ |
100,493 |
|
|
$ |
93,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil and products for the quarterly and
nine-month 2006 periods increased on higher prices for crude oil
and refined products. More than offsetting the increase for the
quarterly period was the impact of the accounting-standard
change beginning April 1 for certain purchase and sale
contracts with the same counterparty.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months Ended | |
|
|
Ended September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Operating, selling, general and administrative expenses
|
|
$ |
5,078 |
|
|
$ |
4,527 |
|
|
$ |
14,422 |
|
|
$ |
11,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, general and administrative expenses in the
third quarter and nine months of 2006 increased 12 percent
and 22 percent, respectively, from the year-ago periods.
Expenses associated with the acquisition of Unocal are included
for nine months in 2006 vs. two months in 2005. Besides this
effect, an increase in labor and transportation expense for the
quarterly period was partially offset by lower uninsured costs
associated with the storms in the Gulf of Mexico last year. For
the nine months of 2006, expenses were higher for labor,
transportation, fuel and uninsured costs associated with the
storms in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Exploration expenses
|
|
$ |
284 |
|
|
$ |
177 |
|
|
$ |
817 |
|
|
$ |
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses in the 2006 periods increased mainly due to
higher amounts for well write-offs and geological and
geophysical costs for operations outside the United States and
the inclusion of expenses for the former Unocal operations for
nine months in 2006 vs. two months in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Depreciation, depletion and amortization
|
|
$ |
1,923 |
|
|
$ |
1,534 |
|
|
$ |
5,518 |
|
|
$ |
4,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in depreciation, depletion and amortization in both
comparative periods was mainly attributable to the inclusion of
Unocal-related amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Taxes other than on income
|
|
$ |
5,403 |
|
|
$ |
5,282 |
|
|
$ |
15,350 |
|
|
$ |
15,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Taxes other than on income increased in the third quarter 2006
mainly due to higher U.S. refined product sales. For the
year-to-date period,
taxes decreased, primarily due to lower sales volumes subject to
duties in the companys European downstream operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Interest and debt expense
|
|
$ |
104 |
|
|
$ |
136 |
|
|
$ |
359 |
|
|
$ |
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt expense in the third quarter 2006 decreased
primarily due to lower average debt balances, partially offset
by higher interest rates on variable-rate debt. For the
nine-month period, the increase was primarily the result of
higher average interest rates on variable-rate debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Millions of dollars) | |
Income tax expense
|
|
$ |
4,307 |
|
|
$ |
3,081 |
|
|
$ |
11,979 |
|
|
$ |
8,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rates for the third quarters of 2006 and
2005 were both 46 percent. For the
year-to-date periods,
the effective tax rates were 47 percent and
45 percent, respectively. The higher tax rate in the 2006
nine-month period included the effect of one-time charges
totaling $300 million, including an increase in tax rates
on upstream operations in the U.K. North Sea.
|
|
|
Information Relating to the Companys Investment in
Dynegy |
Chevron owns an approximate 20 percent equity interest in
the common stock of Dynegy Inc. (Dynegy), a provider of
electricity to markets and customers throughout the United
States.
Investment in Dynegy Common Stock At September 30,
2006, the carrying value of the companys investment in
Dynegy common stock was $260 million. This amount was about
$203 million below the companys proportionate
interest in Dynegys underlying net assets. This difference
is primarily the result of write-downs of the investment in 2002
for declines in the market value of the common shares below the
companys carrying value that were determined to be other
than temporary. The difference was assigned to the extent
practicable to specific Dynegy assets and liabilities, based
upon the companys analysis of the various factors
associated with the decline in value of the Dynegy shares. The
companys equity share of Dynegys reported earnings
is adjusted quarterly when appropriate to recognize a portion of
the difference between these allocated values and Dynegys
historical book values. The market value of the companys
investment in Dynegys common stock at September 30,
2006, was $537 million.
Investment in Dynegy Preferred Stock In May 2006, the
companys investment in Dynegy Series C preferred
stock was redeemed at its face value of $400 million. Upon
redemption of the preferred stock, the company recorded a gain
of $130 million, of which $105 million was
reclassified from Other Comprehensive Income.
Dynegy Proposed Business Combination with LS Power Group
Dynegy and LS Power Group, a privately held power plant
investor, developer and manager, announced on September 15,
2006, the companies had executed a definitive agreement to
combine Dynegys assets and operations with LS Power
Groups power-generation portfolio, and for Dynegy to
acquire a 50 percent ownership interest in a development
joint venture with LS Power. Upon close of the transaction,
Chevron will receive the same number of shares of the new
companys Class A common stock that it currently holds
in Dynegy. Chevrons ownership interest in the combined
company will be approximately 11 percent. The transaction
is subject to specified conditions, including the affirmative
vote of two-thirds of Dynegys public shareholders and the
receipt of regulatory approvals.
31
The following table presents a comparison of selected operating
data:
Selected Operating Data(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Nine Months | |
|
|
Ended | |
|
Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
U.S. Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Crude Oil and Natural Gas Liquids Production (MBPD)
|
|
|
464 |
|
|
|
455 |
|
|
|
460 |
|
|
|
459 |
|
|
Net Natural Gas Production (MMCFPD)(3)
|
|
|
1,846 |
|
|
|
1,676 |
|
|
|
1,820 |
|
|
|
1,633 |
|
|
Net Oil-Equivalent Production (MBOEPD)
|
|
|
772 |
|
|
|
735 |
|
|
|
763 |
|
|
|
731 |
|
|
Sales of Natural Gas (MMCFPD)
|
|
|
7,851 |
|
|
|
5,795 |
|
|
|
7,077 |
|
|
|
5,474 |
|
|
Sales of Natural Gas Liquids (MBPD)
|
|
|
125 |
|
|
|
170 |
|
|
|
121 |
|
|
|
170 |
|
|
Revenue from Net Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids ($/Bbl.)
|
|
$ |
61.99 |
|
|
$ |
53.00 |
|
|
$ |
58.58 |
|
|
$ |
45.30 |
|
|
|
Natural Gas ($/MCF)
|
|
$ |
5.93 |
|
|
$ |
7.34 |
|
|
$ |
6.41 |
|
|
$ |
6.49 |
|
International Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Crude Oil and Natural Gas Liquids Production (MBPD)
|
|
|
1,267 |
|
|
|
1,206 |
|
|
|
1,245 |
|
|
|
1,193 |
|
|
Net Natural Gas Production (MMCFPD)(3)
|
|
|
3,119 |
|
|
|
2,785 |
|
|
|
3,172 |
|
|
|
2,366 |
|
|
Net Oil-Equivalent Production (MBOEPD)(5)
|
|
|
1,928 |
|
|
|
1,813 |
|
|
|
1,908 |
|
|
|
1,729 |
|
|
Sales of Natural Gas (MMCFPD)(4)
|
|
|
3,367 |
|
|
|
2,689 |
|
|
|
3,443 |
|
|
|
2,247 |
|
|
Sales of Natural Gas Liquids (MBPD)(4)
|
|
|
105 |
|
|
|
124 |
|
|
|
101 |
|
|
|
116 |
|
|
Revenue from Liftings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids ($/Bbl.)
|
|
$ |
61.90 |
|
|
$ |
54.26 |
|
|
$ |
59.70 |
|
|
$ |
46.67 |
|
|
|
Natural Gas ($/MCF)
|
|
$ |
3.66 |
|
|
$ |
3.13 |
|
|
$ |
3.75 |
|
|
$ |
3.04 |
|
U.S. and International Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Oil-Equivalent Production, including Other Produced
Volumes (MBOEPD)(3)(5)
|
|
|
2,700 |
|
|
|
2,548 |
|
|
|
2,671 |
|
|
|
2,460 |
|
U.S. Downstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline Sales (MBPD)(6)
|
|
|
720 |
|
|
|
745 |
|
|
|
718 |
|
|
|
719 |
|
|
Other Refined Products Sales (MBPD)
|
|
|
782 |
|
|
|
733 |
|
|
|
783 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(7)
|
|
|
1,502 |
|
|
|
1,478 |
|
|
|
1,501 |
|
|
|
1,483 |
|
|
Refinery Input (MBPD)
|
|
|
967 |
|
|
|
719 |
|
|
|
947 |
|
|
|
828 |
|
International Downstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline Sales (MBPD)(4)(6)
|
|
|
472 |
|
|
|
524 |
|
|
|
490 |
|
|
|
546 |
|
|
Other Refined Products Sales (MBPD)(4)
|
|
|
1,138 |
|
|
|
1,150 |
|
|
|
1,163 |
|
|
|
1,209 |
|
|
Share of Affiliate Sales (MBPD)(4)
|
|
|
538 |
|
|
|
502 |
|
|
|
507 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(4)(7)
|
|
|
2,148 |
|
|
|
2,176 |
|
|
|
2,160 |
|
|
|
2,246 |
|
|
Refinery Input (MBPD)
|
|
|
1,055 |
|
|
|
1,088 |
|
|
|
1,067 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes company share of equity affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) MBPD Thousands of barrels per day;
MMCFPD Millions of cubic feet per day;
Bbl. Barrel; MCF
Thousands of cubic feet; Oil-equivalent gas
(OEG) conversion ratio is 6,000 cubic
feet of natural gas = 1 barrel of crude oil;
MBOEPD Thousands of barrels of
oil- equivalent per day.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) Includes natural gas consumed on lease (MMCFPD):(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
71 |
|
|
|
52 |
|
|
|
53 |
|
|
|
54 |
|
International
|
|
|
408 |
|
|
|
370 |
|
|
|
391 |
|
|
|
335 |
|
(4) 2005 conformed to 2006 presentation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) Includes other produced volumes (MBPD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athabasca oil
sands net
|
|
|
33 |
|
|
|
33 |
|
|
|
25 |
|
|
|
31 |
|
Boscan Operating Service
Agreement
|
|
|
108 |
|
|
|
111 |
|
|
|
109 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
141 |
|
|
|
144 |
|
|
|
134 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Includes branded and unbranded gasoline.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) Includes volumes for buy/sell contracts (MBPD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
104 |
|
|
|
35 |
|
|
|
89 |
|
International
|
|
|
|
|
|
|
129 |
|
|
|
32 |
|
|
|
135 |
|
32
|
|
|
Liquidity and Capital Resources |
Cash and cash equivalents and marketable securities
totaled $12.3 billion at September 30, 2006, up
$1.1 billion from year-end 2005. Cash provided by operating
activities in the first nine months of 2006 was
$18.6 billion, an amount sufficient for the companys
capital and exploratory program, payment of dividends to
stockholders, repayment of debt and repurchase of common stock.
Dividends The company paid dividends of $3.3 billion
to common stockholders during the first nine months of 2006.
Debt and Capital Lease and Minority Interest Obligations
Chevrons total debt and capital lease obligations were
$10.4 billion at September 30, 2006, vs.
$12.9 billion at December 31, 2005. The company also
had minority interest obligations of $227 million at
September 30, 2006. In the first quarter of 2006,
$185 million of Unocal bonds were retired at maturity. In
the second quarter, the company redeemed approximately
$1.7 billion of Unocal debt and recognized a
$92 million before-tax gain. In October 2006, a
$129 million Texaco Capital Inc. bond matured. Also in
October, the company issued notices to call Union Oil Company
bonds with face value of $156 million. These bonds are
expected to be retired in November 2006.
The companys debt and capital lease obligations due within
one year, consisting primarily of commercial paper and the
current portion of long-term debt, totaled $6.9 billion at
September 30, 2006, up from $5.6 billion at
December 31, 2005. Of these amounts, $4.6 billion and
$4.8 billion were reclassified to long-term at
September 30, 2006, and December 31, 2005,
respectively. At September 30, 2006, settlement of these
obligations was not expected to require the use of working
capital within one year, as the company had the intent and the
ability, as evidenced by committed credit facilities, to
refinance them on a long-term basis. The companys practice
has been to continually refinance its commercial paper,
maintaining levels it believes appropriate and economic.
At September 30, 2006, the company had $5.0 billion in
committed credit facilities with various major banks, which
permitted the refinancing of short-term obligations on a
long-term basis. These facilities support commercial paper
borrowing and also can be used for general corporate purposes.
The companys practice has been to continually replace
expiring commitments with new commitments on substantially the
same terms, maintaining levels management believes appropriate.
Any borrowings under the facilities would be unsecured
indebtedness at interest rates based on London Interbank Offered
Rate or an average of base lending rates published by specified
banks and on terms reflecting the companys strong credit
rating. No borrowings were outstanding under these facilities at
September 30, 2006. In addition, the company has three
existing effective shelf registrations on file with
the Securities and Exchange Commission that together would
permit additional registered debt offerings up to an aggregate
$3.8 billion of debt securities.
Debt issued or guaranteed by Chevron Corporation is rated AA by
Standard and Poors Corporation and Aa2 by Moodys
Investors Service. The bonds of Union Oil Company of California,
an indirect wholly owned subsidiary of Chevron, are rated AA by
Standard and Poors and A1 by Moodys. The
companys U.S. commercial paper is rated A-1+ by
Standard and Poors and P-1 by Moodys, and the
companys Canadian commercial paper is rated R-1
(middle) by Dominion Bond Rating Service. All of these
ratings denote high-quality, investment-grade securities.
The companys future debt level is dependent primarily on
results of operations, the capital-spending program and cash
that may be generated from asset dispositions. Further
reductions from debt balances at September 30, 2006, are
dependent upon many factors including managements
continuous assessment of debt as an appropriate component of the
companys overall capital structure. The company believes
it has substantial borrowing capacity to meet unanticipated cash
requirements, and, during periods of low prices for crude oil
and natural gas and narrow margins for refined products and
commodity chemicals, the company believes that it has the
flexibility to increase borrowings and/or modify capital
spending plans to continue paying the common stock dividend and
maintain the companys high-quality debt ratings.
Common Stock Repurchase Program In December 2005, the
company authorized the acquisition of up to $5 billion of
its common shares from time to time at prevailing prices, as
permitted by securities laws and
33
other legal requirements and subject to market conditions and
other factors. The program is for a period of up to three years
and may be discontinued at any time. During the third quarter
2006, 21.6 million shares were purchased in the open market
at a cost of $1.4 billion. From the inception of the
program in December 2005 through October 2006, the company had
purchased 69 million shares for $4.2 billion. The company
expects to complete the $5 billion stock buyback program by
the end of 2006.
Current Ratio current assets divided by
current liabilities. The current ratio was 1.3 at
September 30, 2006, down from 1.4 at December 31,
2005. The current ratio is adversely affected by the valuation
of Chevrons inventories on a LIFO basis. At year-end 2005,
the book value of inventory was lower than replacement costs,
based on average acquisition costs during the year, by
approximately $4.8 billion. The company does not consider
its inventory valuation methodology to affect liquidity.
Debt Ratio total debt as a percentage of
total debt plus equity. This ratio was 13 percent at
September 30, 2006, compared with 17 percent at
year-end 2005.
Pension Obligations At the end of 2005, the company
estimated it would contribute $300 million and
$200 million to its U.S. and international pension plans,
respectively, during 2006. Through September 30, 2006, a
total of $219 million was contributed, including
approximately $100 million to the U.S. plans.
Estimated contributions for the full year continue to be
$500 million, but actual contribution amounts are dependent
upon investment returns, changes in pension obligations,
regulatory environments and other economic factors. Additional
funding may ultimately be required if investment returns are
insufficient to offset increases in plan obligations.
Capital and Exploratory Expenditures Total expenditures,
including the companys share of spending by affiliates,
were $11.5 billion in the first nine months of 2006,
compared with $7.1 billion, excluding the cost of the
Unocal acquisition, in the corresponding 2005 period. The
amounts included the companys share of equity-affiliate
expenditures of about $1.3 billion and $1.1 billion in
the 2006 and 2005 periods, respectively. Expenditures for
upstream projects in 2006 were about $9.0 billion,
representing 78 percent of the companywide total.
Capital and Exploratory Expenditures by Major Operating
Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream
|
|
$ |
1,036 |
|
|
$ |
692 |
|
|
$ |
3,007 |
|
|
$ |
1,616 |
|
|
Downstream
|
|
|
279 |
|
|
|
272 |
|
|
|
723 |
|
|
|
505 |
|
|
Chemicals
|
|
|
45 |
|
|
|
37 |
|
|
|
86 |
|
|
|
80 |
|
|
All Other
|
|
|
113 |
|
|
|
85 |
|
|
|
267 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
1,473 |
|
|
|
1,086 |
|
|
|
4,083 |
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream
|
|
|
2,272 |
|
|
|
1,524 |
|
|
|
5,963 |
|
|
|
3,853 |
|
|
Downstream
|
|
|
363 |
|
|
|
280 |
|
|
|
1,402 |
|
|
|
761 |
|
|
Chemicals
|
|
|
15 |
|
|
|
9 |
|
|
|
32 |
|
|
|
24 |
|
|
All Other
|
|
|
5 |
|
|
|
8 |
|
|
|
7 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
2,655 |
|
|
|
1,821 |
|
|
|
7,404 |
|
|
|
4,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$ |
4,128 |
|
|
$ |
2,907 |
|
|
$ |
11,487 |
|
|
$ |
7,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies and Significant Litigation |
MTBE Chevron and many other companies in the petroleum
industry have used methyl tertiary butyl ether (MTBE) as a
gasoline additive. Chevron is a party to more than 70 lawsuits
and claims, the majority of
34
which involve numerous other petroleum marketers and refiners,
related to the use of MTBE in certain oxygenated gasolines and
the alleged seepage of MTBE into groundwater. Resolution of
these actions may ultimately require the company to correct or
ameliorate the alleged effects on the environment of prior
release of MTBE by the company or other parties. Additional
lawsuits and claims related to the use of MTBE, including
personal-injury claims, may be filed in the future.
The companys ultimate exposure related to these lawsuits
and claims is not currently determinable, but could be material
to net income in any one period. The company currently does not
use MTBE in the manufacture of gasoline in the United States.
Income Taxes Income Taxes The U.S. federal income
tax liabilities have been settled through 1996 for Chevron
Corporation (formerly ChevronTexaco Corporation) and 1997 for
Chevron Global Energy Inc. (formerly Caltex Corporation), and
Unocal Corporation (Unocal), and through 1991 for Texaco Inc.
(Texaco). California franchise tax liabilities have been settled
through 1991 for Chevron, 1998 for Unocal and through 1987 for
Texaco.
Settlement of open tax years, as well as tax issues in other
countries where the company conducts its businesses, is not
expected to have a material effect on the consolidated financial
position or liquidity of the company and, in the opinion of
management, adequate provision has been made for income and
franchise taxes for all years under examination or subject to
future examination.
Guarantees The company and its subsidiaries have certain
other contingent liabilities with respect to guarantees, direct
or indirect, of debt of affiliated companies or others and
long-term unconditional purchase obligations and commitments,
throughput agreements and take-or-pay agreements, some of which
relate to suppliers financing arrangements. Under the
terms of the guarantee arrangements, generally the company would
be required to perform should the affiliated company or third
party fail to fulfill its obligations under the arrangements. In
some cases, the guarantee arrangements have recourse provisions
that would enable the company to recover any payments made under
the terms of the guarantees from assets provided as collateral.
Off-Balance-Sheet Obligations The company and its
subsidiaries have certain other contingent liabilities relating
to long-term unconditional purchase obligations and commitments,
throughput agreements, and take-or-pay agreements, some of which
relate to suppliers financing arrangements. The agreements
typically provide goods and services, such as pipeline and
storage capacity, utilities, and petroleum products, to be used
or sold in the ordinary course of the companys business.
Indemnifications The company provided certain indemnities
of contingent liabilities of Equilon and Motiva to Shell Oil
Company (Shell) and Saudi Refining Inc. in connection with the
February 2002 sale of the companys interests in those
investments. The company would be required to perform if the
indemnified liabilities become actual losses. Were that to
occur, the company could be required to make maximum future
payments up to $300 million. Through September 30,
2006, the company paid $48 million under these indemnities
and continues to be obligated for possible additional
indemnification payments in the future.
The company has also provided indemnities relating to contingent
environmental liabilities related to assets originally
contributed by Texaco to the Equilon and Motiva joint ventures
and environmental conditions that existed prior to the formation
of Equilon and Motiva or that occurred during the period of
Texacos ownership interests in the joint ventures. In
general, the environmental conditions or events that are subject
to these indemnities must have arisen prior to December 2001.
Claims relating to Equilon indemnities must be asserted either
as early as February 2007, or no later than February 2009, and
claims relating to Motiva must be asserted no later than
February 2012. Under the terms of these indemnities, there is no
maximum limit on the amount of potential future payments. The
company has not recorded any liabilities for possible claims
under these indemnities. The company posts no assets as
collateral and has made no payments under these indemnities.
The amounts payable for the indemnities described above are to
be net of amounts recovered from insurance carriers and others
and net of liabilities recorded by Equilon or Motiva prior to
September 30, 2001, for any applicable incident.
35
In the acquisition of Unocal, the company assumed certain
indemnities for contingent environmental liabilities associated
with Unocals 76 Products Company business that was sold in
1997. Under the indemnification agreement, the companys
liability is unlimited until April 2022, when the liability
expires. The acquirer shares in certain environmental
remediation costs up to a maximum obligation of
$200 million, which had not been incurred as of
September 30, 2006.
Minority Interests The company has commitments of
$227 million related to minority interests in subsidiary
companies.
Environmental The company is subject to loss
contingencies pursuant to environmental laws and regulations
that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior
release of chemical or petroleum substances, including MTBE, by
the company or other parties. Such contingencies may exist for
various sites, including, but not limited to, federal Superfund
sites and analogous sites under state laws, refineries, crude
oil fields, service stations, terminals, land development areas,
and mining operations, whether operating, closed or divested.
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 companys 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
obligations 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. The
company does not expect these costs will have a material effect
on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such
expenditures have had or will have any significant impact on the
companys competitive position relative to other
U.S. or international petroleum or chemical companies.
Global Operations Chevron and its affiliates conduct
business activities in approximately 180 countries. Areas in
which the company and its affiliates have significant operations
or ownership interests include the United States, Canada,
Australia, the United Kingdom, Norway, Denmark, France, the
Netherlands, the Partitioned Neutral Zone between Kuwait and
Saudi Arabia, Republic of the Congo, Angola, Nigeria, Chad,
South Africa, Democratic Republic of the Congo, Indonesia,
India, Bangladesh, the Philippines, Myanmar, Singapore, China,
Thailand, Vietnam, Cambodia, Azerbaijan, Kazakhstan, Venezuela,
Argentina, Brazil, Colombia, Trinidad and Tobago and South
Korea. The companys Caspian Pipeline Consortium
(CPC) affiliate operates in Russia and Kazakhstan. The
companys Tengizchevroil (TCO) affiliate operates in
Kazakhstan. Through an affiliate, the company participates in
the operation of the Baku-Tbilisi-Ceyhan (BTC) pipeline
through Azerbaijan, Georgia and Turkey. Also through an
affiliate, the company has an interest in the Chad/ Cameroon
pipeline. The companys Petrolera Ameriven affiliate
operates the Hamaca project in Venezuela. The companys
Chevron Phillips Chemical Company LLC (CPChem) affiliate
manufactures and markets a wide range of petrochemicals on a
worldwide basis, with manufacturing facilities in the United
States, Puerto Rico, Singapore, China, South Korea, Saudi
Arabia, Qatar and Belgium. The companys GS Caltex
affiliate manufactures and markets refined products and
petrochemicals in South Korea.
The companys operations, particularly exploration and
production, can be affected by changing economic, regulatory and
political environments in the various countries in which it
operates, including the United States. As has occurred in the
past, actions could be taken by governments to increase public
ownership of the companys partially or wholly owned
businesses or assets or to impose additional taxes or royalties
on the companys operations or both.
In certain locations, governments have imposed restrictions,
controls and taxes, and in others, political conditions have
existed that may threaten the safety of employees and the
companys continued presence in those countries. Internal
unrest, acts of violence or strained relations between a
government and the company or other governments may affect the
companys operations. Those developments have at times
significantly affected the companys related operations and
results and are carefully considered by management when
evaluating the level of current and future activity in such
countries.
Equity Redetermination For oil and gas producing
operations, ownership agreements may provide for periodic
reassessments of equity interests in estimated crude oil and
natural gas reserves. These activities,
36
individually or together, may result in gains or losses that
could be material to earnings in any given period. One such
equity redetermination process has been under way since 1996 for
Chevrons interests in four producing zones at the Naval
Petroleum Reserve at Elk Hills in 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 settlement amount for the four zones. For this
range of settlement, Chevron estimates its maximum possible net
before-tax liability at approximately $200 million, and the
possible maximum net amount that could be owed to Chevron is
estimated at about $150 million. The timing of the
settlement and the exact amount within this range of estimates
are uncertain.
Other Contingencies Chevron receives claims from and
submits claims to customers, trading partners,
U.S. federal, state and local regulatory bodies,
governments, contractors, insurers, 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
profitability. These activities, individually or together, may
result in gains or losses in future periods.
New Accounting Standards
EITF Issue No. 04-13, Accounting for Purchases and
Sales of Inventory with the Same Counterparty
(Issue 04-13).
The company adopted the accounting prescribed by
Issue 04-13 on a
prospective basis from April 1, 2006.
Issue 04-13
requires that two or more legally separate exchange transactions
with the same counterparty, including buy/sell transactions, be
combined and considered as a single arrangement for purposes of
applying the provisions of Accounting Principles Board Opinion
No. 29, Accounting for Nonmonetary
Transactions, when the transactions are entered into
in contemplation of one another. In prior periods,
the company accounted for buy/sell transactions in the
Consolidated Statement of Income the same as a monetary
transaction purchases were reported as
Purchased crude oil and products; sales were
reported as Sales and other operating revenues.
With the companys adoption of
Issue 04-13,
buy/sell transactions from April 1, 2006, are netted
against each other on the Consolidated Statement of Income, with
no effect on net income. Amounts associated with buy/sell
transactions in periods prior to the second quarter 2006 are
shown as a footnote to the Consolidated Statement of Income on
page 3.
EITF Issue No. 06-3, How Sales Taxes Collected
from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
(Issue 06-3).
In September 2006, the FASB ratified the earlier EITF consensus
on Issue 06-3,
which will become effective for the company on January 1,
2007. The new accounting standard requires that a company
disclose its policy for recording taxes assessed by a
governmental authority on a revenue-producing transaction
between a seller and a customer. In addition, for any such taxes
that are reported on a gross basis, a company is required to
disclose the amounts of those taxes. The companys policy
in relation to
Issue 06-3 has
been to present the relevant taxes on a gross basis. The
associated amounts are shown as a footnote to the Consolidated
Statement of Income on page 3.
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48). In July
2006, the FASB issued FIN 48, which will become effective
for the company on January 1, 2007. This standard clarifies
the accounting for income tax benefits that are uncertain in
nature. Under FIN 48, a company will recognize a tax
benefit in the financial statements for an uncertain tax
position only if managements assessment is that its
position is more likely than not (i.e., a greater
than 50 percent likelihood) to be upheld on audit based
only on the technical merits of the tax position. This
accounting standard also provides guidance on thresholds,
measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition that is intended to provide better
financial-statement comparability among different companies.
Under the transition guidance for implementing FIN 48, any
required cumulative-effect adjustment will be recorded to
retained earnings as of January 1, 2007. The company does
not expect implementation of the standard will have a material
effect on its results of operations or financial position.
37
FASB Statement No. 157, Fair Value
Measurements (FAS 157). In September 2006, the
FASB issued FAS 157, which will become effective for the
company on January 1, 2008. This standard defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The Statement
does not require any new fair value measurements but would apply
to assets and liabilities that are required to be recorded at
fair value under other accounting standards. The impact, if any,
to the company from the adoption of FAS 157 in 2008 will
depend on the companys assets and liabilities at that time
that are required to be measured at fair value.
FASB Statement No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement
Plans an Amendment of FASB Statements No. 87,
88, 106 and 132(R) (FAS 158). In September 2006,
the FASB issued FAS 158, which will become effective for
the company on December 31, 2006. This standard requires
the company to recognize the overfunded or underfunded status of
each of its defined benefit pension and other postretirement
benefit (OPEB) plans as an asset or liability and to
reflect changes in the funded status through Accumulated
other comprehensive income, as a separate component of
stockholders equity, in the year in which they occur.
Based on estimates as of September 30, 2006, the company
anticipates total assets and stockholders equity upon
adoption of FAS 158 will be reduced by $2.5 billion.
This estimate will differ from the actual impacts at
December 31, 2006, which will be based on year-end pension
plan asset valuations and calculations of the companys
obligations as of year-end for pensions and other postretirement
benefit plans.
FASB Staff Position No. AUG AIR-1, Accounting for
Planned Major Maintenance Activities. In September
2006, the FASB issued Staff Position No. AUG AIR-1, which will
become effective for the company on January 1, 2007. The
Staff Position prohibits companies from recognizing planned
major maintenance cost by accruing a liability over several
reporting periods before the maintenance is performed or over
interim-reporting periods within the annual period in which the
cost is expected to be incurred. The company does not expect the
standard will have any effect on its results of operations or
financial position, as expenditures for routine and major
maintenance projects, repairs and minor renewals to maintain
facilities in operating condition are generally expensed as
incurred. Major replacements and renewals are capitalized.
In September 2006, the SEC staff also issued Staff
Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). While not an official rule or interpretation of the
SEC, SAB 108 was issued to address the diversity in practice in
quantifying misstatements from prior years and assessing their
effect on current year financial statements. The company does
not anticipate any impact to the preparation of its year-end
2006 financial statements from adopting the guidance of SAB 108.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
Information about market risks for the three months ended
September 30, 2006, does not differ materially from that
discussed under Item 7A of Chevrons Annual Report on
Form 10-K for 2005.
|
|
Item 4. |
Controls and Procedures |
(a) Evaluation of disclosure controls and procedures
Chevron Corporations Chief Executive Officer and Chief
Financial Officer, after evaluating the effectiveness of the
companys disclosure controls and procedures
(as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)),
as of September 30, 2006, have concluded that as of
September 30, 2006, the companys disclosure controls
and procedures were effective and designed to provide reasonable
assurance that material information relating to the company and
its consolidated subsidiaries required to be included in the
companys periodic filings under the Exchange Act would be
made known to them by others within those entities.
(b) Changes in internal control over financial reporting
During the quarter ended September 30, 2006, there were no
changes in the companys internal control over financial
reporting that have materially affected, or were reasonably
likely to materially affect, the companys internal control
over financial reporting.
38
PART II
OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
None.
Item 1A. Risk Factors
Chevron is a major fully integrated petroleum company with a
diversified business portfolio, strong balance sheet, and
history of generating sufficient cash to fund capital and
exploratory expenditures and to pay dividends. Nevertheless,
some inherent risks could materially impact the companys
financial results of operations or financial condition.
Information about risk factors for the nine months ended
September 30, 2006, does not differ materially from that
set forth in Part I, Item 1A, of Chevrons Annual
Report on
Form 10-K for 2005.
|
|
|
|
Item 2. |
Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities |
CHEVRON CORPORATION
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum | |
|
|
Total | |
|
|
|
Total Number of | |
|
Number of Shares | |
|
|
Number of | |
|
Average | |
|
Shares Purchased as | |
|
that May Yet Be | |
|
|
Shares | |
|
Price Paid | |
|
Part of Publicly | |
|
Purchased Under | |
Period |
|
Purchased(1) | |
|
per Share | |
|
Announced Program | |
|
the Program | |
|
|
| |
|
| |
|
| |
|
| |
July 1-31, 2006
|
|
|
4,269,336 |
|
|
|
64.94 |
|
|
|
3,200,000 |
|
|
|
|
|
August 1-31, 2006
|
|
|
10,012,194 |
|
|
|
66.38 |
|
|
|
9,825,000 |
|
|
|
|
|
September 1-30, 2006
|
|
|
8,638,930 |
|
|
|
63.29 |
|
|
|
8,547,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,920,460 |
|
|
|
64.94 |
|
|
|
21,572,700 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes 85,577 common shares repurchased during the three-month
period ended September 30, 2006, from company employees for
required personal income tax withholdings on the exercise of the
stock options issued to management and employees under the
companys long-term incentive plans. Also includes
1,262,183 shares delivered or attested to in satisfaction
of the exercise price by holders of certain former Texaco Inc.
employee stock options exercised during the three-month period
ended September 30, 2006. |
|
(2) |
In December 2005, the company authorized common stock
repurchases of up to $5 billion that may be made from time
to time at prevailing prices as permitted by securities laws and
other requirements, and subject to market conditions and other
factors. The program will occur over a period of up to three
years and may be discontinued at any time. Through
September 30, 2006, $3.8 billion had been expended to
repurchase 62,498,300 shares since the common stock
repurchase program began. |
|
|
Item 5. |
Other Information |
|
|
|
Disclosure Regarding Nominating Committee Functions and
Communications Between Security Holders and Board of
Directors |
No change.
|
|
|
Rule 10b5-1
Plan Elections |
No rule 10b5-1
plans were adopted by executive officers or directors for the
period that ended on September 30, 2006.
39
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
(4) |
|
|
Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of
the company and its consolidated subsidiaries are not filed
because the total amount of securities authorized under any such
instrument does not exceed 10 percent of the total assets
of the company and its subsidiaries on a consolidated basis. A
copy of any such instrument will be furnished to the Commission
upon request |
|
(12 |
.1) |
|
Computation of Ratio of Earnings to Fixed Charges |
|
(31 |
.1) |
|
Rule 13a-14(a)/15d-14(a) Certification by the
companys Chief Executive Officer |
|
(31 |
.2) |
|
Rule 13a-14(a)/15d-14(a) Certification by the
companys Chief Financial Officer |
|
(32 |
.1) |
|
Section 1350 Certification by the companys Chief
Executive Officer |
|
(32 |
.2) |
|
Section 1350 Certification by the companys Chief
Financial Officer |
40
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
Chevron Corporation
|
|
(Registrant) |
|
|
/s/ M.A. Humphrey
|
|
|
|
M.A. Humphrey, Vice President and Comptroller |
|
(Principal Accounting Officer and |
|
Duly Authorized Officer) |
Date: November 3, 2006
41
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
(4)
|
|
Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of
the company and its consolidated subsidiaries are not filed
because the total amount of securities authorized under any such
instrument does not exceed 10 percent of the total assets
of the company and its subsidiaries on a consolidated basis. A
copy of any such instrument will be furnished to the Commission
upon request |
(12.1)*
|
|
Computation of Ratio of Earnings to Fixed Charges |
(31.1)*
|
|
Rule 13a-14(a)/15d-14(a) Certification by the
companys Chief Executive Officer |
(31.2)*
|
|
Rule 13a-14(a)/15d-14(a) Certification by the
companys Chief Financial Officer |
(32.1)*
|
|
Section 1350 Certification by the companys Chief
Executive Officer |
(32.2)*
|
|
Section 1350 Certification by the companys Chief
Financial Officer |
Copies of above exhibits not contained herein are available to
any security holder upon written request to the Corporate
Governance Department, Chevron Corporation, 6001 Bollinger
Canyon Road, San Ramon, California 94583-2324.
42