Chevron Corporation 10-K 2011
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-00368
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code (925) 842-1000
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter $136,438,881,628 (As of June 30, 2010)
Number of Shares of Common Stock outstanding as of February 18, 2011 2,007,449,583
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Notice of the 2011 Annual Meeting and 2011 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, in connection with the companys 2011 Annual Meeting of Stockholders (in Part III)
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K 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, budgets 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 the companys 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: changing crude oil and natural gas prices; changing refining, marketing and chemical margins; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; technological developments; the results of operations and financial condition of equity affiliates; the inability or failure of the companys joint-venture partners to fund their share of operations and development activities; the 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; the potential disruption or interruption of the companys net production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather or crude oil production quotas that might be imposed by the Organization of Petroleum Exporting Countries; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant investment or product changes under existing or future environmental statutes, regulations and litigation; the potential liability resulting from other pending or future litigation; the companys future acquisition or disposition of assets and gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S. dollar; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; and the factors set forth under the heading Risk Factors on pages 32 through 34 in this report. In addition, such statements could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed in this report could also have material adverse effects on forward-looking statements.
Chevron Corporation,* a Delaware corporation, manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to U.S. and international subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations, power generation and energy services. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by major international oil export pipelines; transporting, storage and marketing of natural gas; and a gas-to-liquids project. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.
A list of the companys major subsidiaries is presented on pages E-4 and E-5. As of December 31, 2010, Chevron had approximately 62,000 employees (including about 3,900 service station employees). Approximately 30,000 employees (including about 3,600 service station employees), or 48 percent, were employed in U.S. operations.
Petroleum industry operations and profitability are influenced by many factors, and individual petroleum companies have little control over some of them. Governmental policies, particularly in the areas of taxation, energy and the environment have a significant impact on petroleum activities, regulating how companies are structured and where and how companies conduct their operations and formulate their products and, in some cases, limiting their profits directly. Prices for crude oil, natural gas, petroleum products and petrochemicals are generally determined by supply and demand for these commodities. However, some governments impose price controls on refined products such as gasoline or diesel fuel. The members of the Organization of Petroleum Exporting Countries (OPEC) are typically the worlds swing producers of crude oil and their production levels are a major factor in determining worldwide supply. Demand for crude oil and its products and for natural gas is largely driven by the conditions of local, national and global economies, although weather patterns and taxation relative to other energy sources also play a significant part. Seasonality is not a primary driver of changes in the companys quarterly earnings during the year.
Strong competition exists in all sectors of the petroleum and petrochemical industries in supplying the energy, fuel and chemical needs of industry and individual consumers. Chevron competes with fully integrated, major global petroleum companies, as well as independent and national petroleum companies, for the acquisition of crude oil and natural gas leases and other properties and for the equipment and labor required to develop and operate those properties. In its downstream business, Chevron also competes with fully integrated, major petroleum companies and other independent refining, marketing, transportation and chemicals entities and national petroleum companies in the sale or acquisition of various goods or services in many national and international markets.
Refer to pages FS-2 through FS-10 of this Form 10-K in Managements Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the companys current business environment and outlook.
* Incorporated in Delaware in 1926 as Standard Oil Company of California, the company adopted the name Chevron Corporation in 1984 and ChevronTexaco Corporation in 2001. In 2005, ChevronTexaco Corporation changed its name to Chevron Corporation. As used in this report, the term Chevron and such terms as the company, the corporation, our, we and us may refer to Chevron Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole, but unless stated otherwise it does not include affiliates of Chevron i.e., those companies accounted for by the equity method (generally owned 50 percent or less) or investments accounted for by the cost method. All of these terms are used for convenience only and are not intended as a precise description of any of the separate companies, each of which manages its own affairs.
Chevrons primary objective is to create shareholder value and achieve sustained financial returns from its operations that will enable it to outperform its competitors. In the upstream, the companys strategies are to grow profitably in core areas, build new legacy positions and commercialize the companys equity natural gas resource base while growing a high-impact global gas business. In the downstream, the strategies are to improve returns and grow earnings across the value chain. The company also continues to utilize technology across all its businesses to differentiate performance, and to invest in profitable renewable energy and energy efficiency solutions.
The upstream and downstream activities of the company and its equity affiliates are widely dispersed geographically, with operations in North America, South America, Europe, Africa, Asia and Australia. Tabulations of segment sales and other operating revenues, earnings and income taxes for the three years ending December 31, 2010, and assets as of the end of 2010 and 2009 for the United States and the companys international geographic areas are in Note 11 to the Consolidated Financial Statements beginning on page FS-41. Similar comparative data for the companys investments in and income from equity affiliates and property, plant and equipment are in Notes 12 and 13 on pages FS-43 through FS-45.
Total expenditures for 2010 were $21.8 billion, including $1.4 billion for the companys share of equity-affiliate expenditures. In 2009 and 2008, expenditures were $22.2 billion and $22.8 billion, respectively, including the companys share of affiliates expenditures of $1.6 billion in 2009 and $2.3 billion in 2008.
Of the $21.8 billion in expenditures for 2010, 87 percent, or $18.9 billion, was related to upstream activities. Approximately 80 percent was expended for upstream operations in 2009 and 2008. International upstream accounted for about 82 percent of the worldwide upstream investment in 2010, more than 80 percent in 2009 and about 70 percent in 2008, reflecting the companys continuing focus on opportunities available outside the United States.
In 2011, the company estimates capital and exploratory expenditures will be $26.0 billion, including $2.0 billion of spending by affiliates. Approximately 85 percent of the total, or $22.6 billion, is budgeted for exploration and production activities, with $17.2 billion of that amount for projects outside the United States. Acquisition costs associated with the announced purchase of Atlas Energy, Inc., are not included.
Refer also to a discussion of the companys capital and exploratory expenditures on page FS-13.
The table on the following page summarizes the net production of liquids and natural gas for 2010 and 2009 by the company and its affiliates. Worldwide oil-equivalent production, including volumes from synthetic oil in 2010 and oil sands in 2009, was 2.763 million barrels per day, up about 2 percent from 2009. The increase was mainly associated with the start-up and ramp-up of several major capital projects the expansion at Tengiz in Kazakhstan, the Tahiti Field in the U.S. Gulf of Mexico, Frade in Brazil, Agbami in Nigeria, and Tombua-Landana and Mafumeira Norte in Angola. Normal field declines and the impact of higher prices on cost-recovery volumes and other contractual provisions decreased net production from last years comparative period. Refer to the Results of Operations section beginning on page FS-7 for a detailed discussion of the factors explaining the 2008 2010 changes in production for crude oil and natural gas liquids, and natural gas.
The company estimates its average worldwide oil-equivalent production in 2011 will be approximately 2.790 million barrels per day based on the average West Texas Intermediate crude oil price of $79 per barrel in 2010. This estimate is subject to many factors and uncertainties, including additional quotas that may be imposed by OPEC, price effects on production volumes calculated under production-sharing and variable-royalty provisions of certain agreements, changes in fiscal terms or restrictions on the scope of company operations, delays in project startups, fluctuations in demand for natural gas in various markets, weather conditions that may shut in production, civil unrest, changing geopolitics, delays in completion of maintenance turnarounds, greater-than-expected declines in production from mature fields, or other disruptions to operations. The outlook for future production levels is also 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. Refer to the Review of Ongoing Exploration and Production Activities in Key Areas, beginning on page 9, for a discussion of the companys major crude oil and natural gas development projects.
Net Production of Crude Oil and Natural Gas Liquids and Natural Gas1,2,3
Refer to Table IV on page FS-71 for the companys average sales price per barrel of crude oil, condensate and natural gas liquids and per thousand cubic feet of natural gas produced and the average production cost per oil-equivalent barrel for 2010, 2009 and 2008.
The following table summarizes gross and net productive wells at year-end 2010 for the company and its affiliates:
Productive Oil and Gas Wells1 at December 31, 2010
Refer to Table V beginning on page FS-71 for a tabulation of the companys proved net crude oil and natural gas reserves by geographic area, at the beginning of 2008 and each year-end from 2008 through 2010. A discussion of reserves governance and major changes to proved reserves by geographic area for the three-year period ending December 31, 2010 is summarized in the discussion for Table V. Discussion is also provided beginning on page FS-71 regarding the nature of, status of and planned future activities associated with the development of proved undeveloped reserves. The company recognizes reserves for projects with various development periods, sometimes exceeding five years. The external factors that impact the duration of a project include scope and complexity, remoteness or adverse operating conditions, infrastructure constraints, and contractual limitations. During 2010, the company provided crude oil and natural gas reserves estimates for 2009 to the Department of Energy, Energy Information Administration (EIA) that agree with the 2009 reserve volumes in Table V. This reporting fulfilled the requirement that such estimates be consistent with, and not differ more than 5 percent from, the information furnished to the Securities and Exchange Commission (SEC) in the companys 2009 Annual Report on Form 10-K. During 2011, the company will file estimates of crude oil and natural gas reserves with the Department of Energy, EIA, consistent with the 2010 reserve data reported in Table V.
The net proved reserve balances at the end of each of the three years 2008 through 2010 are shown in the following table.
At December 31, 2010, the company owned or had under lease or similar agreements undeveloped and developed crude oil and natural gas properties located throughout the world. The geographical distribution of the companys acreage is shown in the following table.
Acreage1,2 at December 31, 2010
(Thousands of Acres)
The company sells crude oil and natural gas from its producing operations under a variety of contractual obligations. Most contracts generally commit the company to sell quantities based on production from specified properties, but some natural gas sales contracts specify delivery of fixed and determinable quantities, as discussed below.
In the United States, the company is contractually committed to deliver to third parties 253 billion cubic feet of natural gas through 2013. The company believes it can satisfy these contracts through a combination of equity production from the companys proved developed U.S. reserves and third party purchases. These contracts include a variety of pricing terms, including both index and fixed-price contracts.
Outside the United States, the company is contractually committed to deliver a total of 953 billion cubic feet of natural gas from 2011 through 2013 from Australia, Colombia, Denmark and the Philippines to third parties. The sales contracts contain variable pricing formulas that are generally referenced to the prevailing market price for crude oil, natural gas or other petroleum products at the time of delivery. The company believes it can satisfy these contracts from quantities available from production of the companys proved developed reserves in these countries.
Refer to Table I on page FS-66 for details associated with the companys development expenditures and costs of proved property acquisitions for 2010, 2009 and 2008.
The table below summarizes the companys net interest in productive and dry development wells completed in each of the past three years and the status of the companys development wells drilling at December 31, 2010. A development well is a well drilled within the proved area of a crude oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.
Development Well Activity
The following table summarizes the companys net interests in productive and dry exploratory wells completed in each of the last three years and the number of exploratory wells drilling at December 31, 2010. Exploratory wells are wells drilled to find and produce crude oil or natural gas in unproved areas and include delineation wells, which are wells drilled to find a new reservoir in a field previously found to be productive of crude oil or natural gas in another reservoir or to extend a known reservoir beyond the proved area.
Exploratory Well Activity
Refer to Table I on page FS-66 for detail of the companys exploration expenditures and costs of unproved property acquisitions for 2010, 2009 and 2008.
Chevrons 2010 key upstream activities, some of which are also discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations beginning on page FS-2, are presented below. The comments include references to total production and net production, which are defined under Production in Exhibit 99.1 on page E-25.
The discussion that follows references the status of proved reserves recognition for significant long-lead-time projects not on production and for projects recently placed on production. Reserves are not discussed for recent discoveries that have not advanced to a project stage or for mature areas of production that do not have individual projects requiring significant levels of capital or exploratory investment. Amounts indicated for project costs represent total project costs, not the companys share of costs for projects that are less than wholly owned.
Upstream activities in the United States are concentrated in California, the Gulf of Mexico, Louisiana, Texas, New Mexico, the Rocky Mountains and Alaska. Average net oil-equivalent production in the United States during 2010 was 708,000 barrels per day.
In California, the company has significant production in the San Joaquin Valley. In 2010, average net oil-equivalent production was 199,000 barrels per day, composed of 178,000 barrels of crude oil, 96 million cubic feet of natural gas and 5,000 barrels of natural gas liquids. Approximately 84 percent of the crude oil production is considered heavy oil (typically with API gravity lower than 22 degrees).
regions. During the moratorium, Chevron participated in a number of industry efforts to identify opportunities to improve industry standards in prevention, intervention and spill response. In July 2010, Chevron and several other major energy companies announced plans to build and deploy a rapid response system that will be available to capture and contain oil in the unlikely event of a potential future well blowout in the deepwater Gulf of Mexico. In October 2010, the Secretary of the Interior lifted the moratorium on deepwater drilling activity, provided that operators certify compliance with new rules and requirements. The drilling moratorium and the ensuing slowdown in issuing drilling permits have resulted in delays in shallow water drilling activity, delayed drilling of exploratory deepwater wells and impacted development drilling on both operated and nonoperated projects in the Gulf of Mexico. In addition, the companys net oil-equivalent production in the Gulf of Mexico was reduced by about 10,000 barrels per day for the full year.
Chevron was engaged in various exploration and development activities in the deepwater Gulf of Mexico during 2010. First oil at the Perdido Regional Development was achieved in first quarter 2010. The development includes a 37.5 percent nonoperated working interest in a producing host facility in Alaminos Canyon designed to service multiple nonoperated fields, including Chevrons 33.3 percent-owned Great White, 60 percent-owned Silvertip and 57.5 percent-owned Tobago. The development has an expected production life of approximately 25 years.
The final investment decision was made for the Tahiti 2 waterflood project in third quarter 2010. Tahiti 2 is the second development phase for the 58 percent-owned and operated Tahiti Field and is designed to increase recovery and maintain
production near the facility capacity of 125,000 barrels of oil per day. The project includes three water injection wells, two additional production wells and the facilities required to deliver water to the injection wells. Drilling began on the first water injection well in September 2010. The field has an estimated production life of 30 years. As of the end of 2010, proved reserves had not been recognized for this second development phase of the Tahiti Field.
During 2010, work continued at the 60 percent-owned and operated Big Foot discovery. The project completed front-end engineering and design (FEED) in June 2010 and a final investment decision was made in December 2010. Total maximum production is expected to reach 79,000 barrels of oil-equivalent per day. First production is expected in 2014, and at the end of 2010 proved reserves had not been recognized. The field has an estimated production life of 20 years.
The topsides modifications to the host facility of the Caesar/Tonga Project were completed in 2010. The company has a 20.3 percent nonoperated working interest in the Caesar and Tonga partnerships unitized area. Development plans include a total of four wells and a subsea tieback to a nearby third-party production facility. Work on the subsea system, commissioning of the topsides and the initial well completion program carried over into 2011. A recent mechanical issue involving the production riser system has delayed first production. Proved reserves have been recognized for the project.
The Jack and St. Malo fields are located within 25 miles of each other and are being jointly developed. Chevron has a 50 percent working interest in Jack and a 51 percent working interest in St. Malo, following the acquisition of an additional 9.8 percent equity interest in St. Malo in March 2010. Both fields are company operated. The FEED activities initiated in 2009 continued into 2010, and a final investment decision was achieved in October 2010. The facility is planned to have an initial design capacity of 177,000 barrels of oil-equivalent per day. Total project costs for the initial phase of development are estimated at $7.5 billion and start-up is expected in 2014. The project has an estimated production life of 30 years. At the end of 2010, proved reserves had not been recognized.
Assessment of development concepts continued in 2010 for the appraised resource potential on the Mad Dog II Development Project, in which the company has a 15.6 percent nonoperated working interest. These areas are outside the drilling radius of the existing floating production facility. A decision on the development concept, followed by the project moving into the FEED stage, is expected to occur in the second-half 2011. At the end of 2010, proved reserves had not been recognized.
Studies to screen and evaluate future development alternatives in the Tubular Bells unitized area, in which the company has a 30 percent nonoperated working interest, continued into 2010, and a subsea tieback to a planned third-party host facility was selected as the development concept. FEED commenced in fourth quarter 2010 with a final investment decision expected in second quarter 2011. At the end of 2010, proved reserves had not been recognized.
Deepwater exploration activities in 2010 included participation in five exploratory wells two wildcat, two appraisal and one delineation. Drilling operations on two exploratory wells were interrupted and stopped in second quarter 2010 as a result of the deepwater drilling moratorium in the Gulf of Mexico, including drilling of the first appraisal well at the 55 percent-owned and operated Buckskin discovery. The first appraisal well at Knotty Head was completed in March 2010 and interpretation of well results continued into 2011. Chevron has a 25 percent nonoperated working interest in the Knotty Head discovery. At the end of 2010, the company had not recognized proved reserves for any of these exploration projects.
During 2010, the company added 15 new leases to its deepwater portfolio as a result of bid awards stemming from a Gulf of Mexico lease sale early in the year.
Besides the activities connected with the development and exploration projects in the Gulf of Mexico, the company also has contracted capacity of 1 billion cubic feet per day at the third-party Sabine Pass liquefied natural gas (LNG) regasification terminal in Louisiana to enable the import of natural gas for the North America market. Chevron has also contracted 1.6 billion cubic feet per day of capacity in a third-party pipeline system connecting the Sabine Pass LNG terminal to the natural gas pipeline grid. The pipeline provides access to two major salt dome storage fields and 10 major interstate pipeline systems, including an interconnect with Chevrons Sabine Pipeline, which connects to the Henry Hub. The Henry Hub interconnects to nine interstate and four intrastate pipelines and is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange.
Outside California and the Gulf of Mexico, the company manages operations across the mid-continental United States and Alaska. During 2010, the companys U.S. production outside California and the Gulf of Mexico averaged 249,000 net oil-equivalent barrels per day, composed of 91,000 barrels of crude oil, 773 million cubic feet of natural gas and 29,000 barrels of natural gas liquids.
The company continues to pursue its interest in tight carbonate oil resources in West Texas in the Wolfcamp and associated formations where advances in drilling and completion technologies have opened up widespread targets such as the 100 percent-owned and operated Lupin Project, where first oil was realized in mid-2010. Additional production growth is expected from both operated and nonoperated interests in these formations in future years through continued use of these advances in drilling and completion technologies. The company also continued the appraisal of the Haynesville shale gas play in East Texas.
In the Piceance Basin in northwestern Colorado, the company continued development of its 100 percent-owned and operated natural gas field. Development drilling and completion activities continued in 2010, with 115 completed wells available to supply natural gas to the central processing facility. The 2010 work plan focused on optimization of the existing wells and facilities, completion of previously drilled wells, and designing a pilot to test liquefied petroleum gas (LPG) as an alternative fracture fluid beginning in fourth quarter 2011. Future work is expected to be completed in multiple stages. The full development plan includes drilling more than 2,000 wells from multi-well pads over the next 30 to 40 years. Proved reserves for subsequent stages of the project had not been recognized at year-end 2010.
In February 2011, Chevron acquired Atlas Energy, Inc. The acquisition provides an attractive natural gas resource position in the Appalachian basin, primarily located in southwestern Pennsylvania, and consists of approximately 850,000 total acres of Marcellus Shale and Utica Shale. The acquisition provides a 49 percent interest in Laurel Mountain Midstream, LLC, an affiliate that owns more than 1,000 miles of natural gas gathering lines servicing the Marcellus. The acquisition also provides assets in Michigan, which include Antrim Shale producing assets and approximately 380,000 total acres in the Antrim and Collingwood/Utica Shale.
Other Americas is composed of Canada, Greenland, Argentina, Brazil, Colombia, Trinidad and Tobago, and Venezuela. Net oil-equivalent production from these countries averaged 247,000 barrels per day during 2010, including the companys share of synthetic oil production.
production from the HSE unitized area is expected in late 2011. At the end of 2010, proved reserves had not been recognized for the unitized blocks.
FEED commenced in third quarter 2010 for the development of the heavy-oil Hebron Field. The project has an expected economic life of 30 years. At the end of 2010, proved reserves had not been recognized for this project.
At AOSP, the companys production of synthetic oil averaged 24,000 barrels per day during 2010, including first production from the Jackpine Mine in third quarter 2010 as a result of AOSP Expansion 1 Project activities. The project is expected to increase total daily maximum design capacity by 100,000 barrels, to more than 255,000 barrels per day in early 2011. Oil sands are mined from both the Muskeg River and Jackpine mines and bitumen is extracted from the oil sands and upgraded into synthetic oil. Expansion of the Scotford Upgrader, also part of the AOSP Expansion 1 Project, is expected to be completed in first-half 2011.
The company acquired a new exploration lease in the Beaufort Sea in 2010 and also holds other exploration licenses and leases in the Orphan Basin offshore Atlantic Canada, the Mackenzie Delta region of the Northwest Territories and the Beaufort Sea region of Canadas Arctic, including a 34 percent nonoperated working interest in the offshore Amauligak discovery. In addition, through 2010 the company acquired approximately 200,000 acres in Albertas Duvernay formation to explore for shale gas and plans to commence an appraisal drilling program in the second-half 2011. At the end of 2010, proved reserves had not been recognized for any of these exploration areas.
Greenland: Evaluation of the 2-D seismic survey acquired over License 2007/26 in Block 4 offshore West Greenland commenced in 2010 and is planned to continue into 2011. Chevron has a 29.2 percent nonoperated working interest in this exploration license.
begin in the second-half 2011. The facility is expected to produce up to 140,000 barrels of crude oil per day. First production is expected in 2013. Evaluation of the field development concept for Maromba continued into 2011. At the end of 2010, proved reserves had not been recognized for these projects.
In the Santos Basin, evaluation of investment options continued into 2011 for the 20 percent-owned and partner-operated Atlanta and Oliva fields. At the end of 2010, proved reserves had not been recognized for these deepwater fields.
Colombia: The company operates the offshore Chuchupa and the onshore Ballena and Riohacha natural gas fields as part of the Guajira Association contract. In exchange, Chevron receives 43 percent of the production for the remaining life of each field and a variable production volume from a fixed-fee, Build-Operate-Maintain-Transfer agreement based on prior Chuchupa capital contributions. During 2010, the company conducted a seismic survey of the offshore, near-shore and onshore development areas. Daily net production averaged 249 million cubic feet of natural gas in 2010.
Trinidad and Tobago: Company interests include 50 percent ownership in three partner-operated blocks in the East Coast Marine Area offshore Trinidad, which includes the Dolphin and Dolphin Deep producing natural gas fields and the Starfish discovery. Chevron also holds a 50 percent operated interest in the Manatee Area of Block 6(d). Net production in 2010 averaged 223 million cubic feet of natural gas per day. In 2010, a Loran/Manatee field-specific treaty was signed by the governments of Trinidad and Tobago and Venezuela related to the companys 2005 successful exploratory well in the Manatee Area of Block 6(d). At the end of 2010, proved reserves had not been recognized for this field.
Venezuela: Chevron holds interests in two producing affiliates located in western Venezuela and one producing affiliate in the Orinoco Belt. Chevron has a 30 percent interest in the Petropiar affiliate that operates the Hamaca heavy-oil production and upgrading project located in Venezuelas Orinoco Belt, a 39.2 percent interest in the Petroboscan affiliate that operates the Boscan Field in the western part of the country, and a 25.2 percent interest in the Petroindependiente affiliate that operates the LL-652 Field in Lake Maracaibo. The companys share of average net oil-equivalent production during 2010 from these operations, including synthetic oil from Hamaca, was 58,000 barrels per day, composed of 54,000 barrels of crude oil, synthetic oil and natural gas liquids and 25 million cubic feet of natural gas.
In February 2010, a Chevron-led consortium was selected to participate in a heavy-oil project in three blocks within the Carabobo Area of eastern Venezuelas Orinoco Belt. A joint operating company, Petroindependencia, was formed in May 2010, and work toward commercialization of the Carabobo 3 Project was initiated. The consortium holds a combined 40 percent interest in the project, with Petróleos de Venezuela, S.A. (PDVSA), Venezuelas national crude oil and natural gas company, holding the remaining interest. Chevrons interest in the project is 34 percent.
The company operates in two exploratory blocks in the Plataforma Deltana area offshore eastern Venezuela, with working interests of 60 percent in Block 2 and 100 percent in Block 3. Chevron also holds a 100 percent operated interest in the Cardon III exploratory block, located north of Lake Maracaibo in the Gulf of Venezuela. PDVSA has the option to increase its ownership in each of the three company-operated blocks up to 35 percent upon declaration of commerciality. In Block 2, which includes the Loran Field, a Declaration of Commerciality was accepted by the Venezuelan government in March 2010. The Loran Field in Block 2 is projected to provide the initial natural gas supply for a planned Delta Caribe liquefied natural gas plant, Venezuelas first LNG project. Chevron has a 10 percent nonoperated working interest in the LNG facility. At the end of 2010, proved reserves had not been recognized in these exploratory blocks.
In Africa, the company is engaged in exploration and production activities in Angola, Chad, Democratic Republic of the Congo, Liberia, Nigeria and Republic of the Congo. Net oil-equivalent production in Africa averaged 469,000 barrels per day during 2010.
In the Greater Vanza/Longui Area of Block 0, development concept selection studies continued in 2010 with the start of FEED planned for second quarter 2011. FEED activities continued on the south extension of the NDola field development
with a final investment decision expected in fourth quarter 2011. At year-end 2010, no proved reserves had been recognized for these projects.
In Block 0, the Area A gas management projects are designed to eliminate routine flaring of natural gas by injecting excess natural gas into various reservoirs. Three of the four projects are in service and have reduced flaring by approximately 65 million cubic feet per day, as of year-end 2010. The Malongo Flare and Relief Modification Project is scheduled for start-up in fourth quarter 2011. In Area B, work continued during the year on the Nemba Enhanced Secondary Recovery and Flare Reduction Project. The first stage of the project was planned to be completed with the start of gas injection in second quarter 2011 on the existing South Nemba platform. The next stage, which includes completion of a new platform and additional compression facilities, is scheduled to begin gas injection in 2014.
Also in Block 0, a two-well exploration and appraisal program was completed in 2010. The first well, completed in February 2010, was successful and development opportunities are being evaluated. The second well, completed in June 2010, was not successful. Two additional exploratory wells are planned for 2011.
In the 31 percent-owned Block 14, net production in 2010 averaged 34,000 barrels of liquids per day from the Benguela Belize Lobito Tomboco development and the Kuito, Tombua and Landana fields. Development and production rights for the various fields in Block 14 expire between 2027 and 2029.
Development drilling continued at the Tombua and Landana fields during 2010. Drilling is planned to continue in 2011 with maximum total daily production of 75,000 barrels of crude oil anticipated in second quarter 2011.
In the Lucapa Field, development alternatives continued to be evaluated during 2010, and a successful exploration
well was completed in the fourth quarter. The project is expected to enter FEED in third quarter 2011. A new development area in the Malange Field was awarded in 2010, following a successful 2009 appraisal well. As of the end of 2010, development of the Negage Field remained suspended until cooperative arrangements between Angola and Democratic Republic of the Congo could be finalized. At the end of 2010, proved reserves had not been recognized for these projects.
In the 20 percent-owned Block 2 and the 16.3 percent-owned FST areas, combined production during 2010 averaged 2,000 barrels of net liquids per day.
In addition to the exploration and production activities in Angola, Chevron has a 36.4 percent ownership interest in the Angola LNG affiliate that began construction in 2008 of an onshore natural gas liquefaction plant in Soyo, Angola. The plant is designed to process more than 1 billion cubic feet of natural gas per day with expected average total daily sales of 670 million cubic feet of regasified LNG and up to 63,000 barrels of natural gas liquids. Construction continued during 2010 with plant start-up scheduled for 2012. The estimated total cost of the LNG plant is $9.0 billion, with an estimated life in excess of 20 years. The company also holds a 38.1 percent interest in a pipeline project that is expected to transport up to 250 million cubic feet of natural gas per day from Block 0 and Block 14 to the Angola LNG plant. This project is expected to enter construction in the second-half 2011 and be completed by 2013. Proved reserves have been recognized for the producing operations associated with these projects.
Angola Republic of the Congo Joint Development Area: Chevron operates and holds a 31.3 percent interest in the Lianzi Development Area located between Angola and Republic of the Congo. The Lianzi development project continued FEED through 2010. A final investment decision is expected in fourth quarter 2011. No proved reserves have been recognized for the project.
Republic of the Congo: Chevron has a 31.5 percent nonoperated working interest in the Nkossa, Nsoko and Moho-Bilondo permit areas and a 29.3 percent nonoperated working interest in the Kitina permit area, all of which are offshore. Maximum total production of 93,000 barrels of crude oil per day was reached in fourth quarter 2010 at Moho-Bilondo. Chevrons development and production rights for Moho-Bilondo expire in 2030. The development and production rights for Nsoko, Kitina and Nkossa expire in 2018, 2019 and 2027, respectively. Net production from the Republic of the Congo fields averaged 25,000 barrels of oil-equivalent per day in 2010.
During 2010, two successful exploration wells were drilled in the Moho-Bilondo permit area. Development alternatives are under evaluation.
Democratic Republic of the Congo: Chevron has a 17.7 percent nonoperated working interest in an offshore concession. Daily net production in 2010 averaged 2,000 barrels of oil-equivalent.
deepwater offshore blocks. In 2010, the companys net oil-equivalent production in Nigeria averaged 253,000 barrels per day, composed of 239,000 barrels of liquids and 86 million cubic feet of natural gas.
During July 2010, an equity redetermination at the Agbami Field, located in deepwater Oil Mining Lease (OML) 127 and OML 128, reduced the companys ownership by about 1 percent, to 67.3 percent. In May 2010, drilling started on a 10-well Phase 2 development program that is designed to offset field decline. The program is expected to continue through 2014 with the first wells expected to be completed and placed on production in second-half 2011. The leases that contain the Agbami Field expire in 2023 and 2024.
Also in the deepwater area, the Aparo Field in OML 132 and OML 140 and the third-party-owned Bonga SW Field in offshore OML 118 share a common geologic structure and are planned to be jointly developed under a unitization agreement. The agreement will be finalized in advance of a final investment decision. Subsurface and surface facility studies are expected to be completed in second quarter 2011. A decision on project scope is expected by third quarter 2011, prior to entering FEED. At the end of 2010, no proved reserves were recognized for this project.
Chevron operates and holds a 95 percent interest in the deepwater Nsiko discovery in OML 140. Development activities continued in 2010, with FEED expected to start after commercial terms are resolved and further exploration drilling is completed. At the end of 2010, the company had not recognized proved reserves for this project.
The company holds a 30 percent nonoperated working interest in the deepwater Usan project in OML 138. The development plans involve subsea wells producing to a floating production, storage and offloading (FPSO) vessel. During 2010, development drilling and construction of the FPSO vessel continued. The FPSO vessel is expected to depart the fabrication facility in second quarter 2011. Production start-up is scheduled for 2012, with maximum total production of 180,000 barrels of crude oil per day expected within one year of start-up. Total costs for the project are estimated at $8.4 billion. Usan has an estimated production life of 20 years. Proved reserves have been recognized for this project.
Additional exploration drilling is planned for third quarter 2011 in Oil Prospecting License (OPL) 214 and OPL 223. The company has 20 percent and 27 percent nonoperated working interests in the licenses, respectively. At the end of 2010, proved reserves had not been recognized for these exploration activities.
In the Niger Delta, construction on the Phase 3A expansion of the Escravos Gas Plant (EGP) was completed in 2009, and first gas was delivered to the new facilities in June 2010. As a result of the expansion, the plants total daily processing capacity increased from 285 million to 680 million cubic feet of natural gas, and daily LPG and condensate export capacity increased from 15,000 to 58,000 barrels. By year-end 2010, plant input had ramped up to 230 million cubic feet of natural gas per day, resulting in daily natural gas sales into the domestic market of 180 million cubic feet and daily export sales of 8,000 barrels of LPG and condensate. The anticipated life of EGP Phase 3A is 25 years. Phase 3B of the EGP project is designed to gather 120 million cubic feet of natural gas per day from eight offshore fields and to compress and transport the natural gas to onshore facilities. The engineering, procurement, construction and installation contract for the gas gathering and compression platform is expected to be signed in second quarter 2011. The Phase 3B project is expected to be completed in 2013. Proved reserves associated with this project have been recognized.
The 40 percent-owned and operated Gas Supply Expansion project includes facilities to develop the Sonam natural gas field in the Escravos area and to add a third gas processing train at EGP. The project is designed to deliver 215 million cubic feet of natural gas per day to the domestic market and produce 43,000 barrels of liquids per day. A final investment decision is expected in third quarter 2011. At the end of 2010, proved reserves associated with the project had not been recognized.
The company has a 40 percent-owned and operated interest in the Onshore Asset Gas Management project that is designed to restore approximately 125 million cubic feet per day of natural gas production from certain onshore fields that have been shut in since 2003 due to civil unrest. Two on-site construction contracts were awarded in third quarter 2010 and start-up is scheduled for 2012.
Chevron has a 75 percent-owned and operated interest in a gas-to-liquids facility at Escravos that is being developed with the Nigerian National Petroleum Corporation. The 33,000 barrel-per-day facility is designed to process 325 million cubic feet per day of natural gas supplied from the Phase 3A expansion of EGP. At the end of 2010, work on the project was approximately 70 percent complete and start-up is planned for 2013. The estimated cost of the plant is $8.4 billion.
Chevron holds a 19.5 percent interest in the OKLNG Free Zone Enterprise (OKLNG) affiliate, which will operate the Olokola LNG project. OKLNG plans to build a multi-train natural gas liquefaction facility and marine terminal located northwest of Escravos. As of early 2011, timing of the final investment decision remains uncertain. At the end of 2010, proved reserves associated with this project had not been recognized.
Chevron is the largest shareholder, with a 37 percent interest, in the West African Gas Pipeline Company Limited affiliate, which constructed, owns and operates the 421-mile West African Gas Pipeline. The pipeline supplies Nigerian natural gas to customers in Benin, Ghana and Togo for industrial applications and power generation. Compression facilities designed to increase capacity to 170 million cubic feet per day were commissioned in February 2011.
Liberia: In 2010, Chevron acquired a 70 percent interest and operatorship in three deepwater blocks off the coast of Liberia. Three-D seismic data was purchased in September, and an exploration well is planned for fourth quarter 2011.
In Asia, the company is engaged in upstream activities in Azerbaijan, Bangladesh, Cambodia, China, Indonesia, Kazakhstan, Myanmar, the Partitioned Zone located between Saudi Arabia and Kuwait, the Philippines, Russia, Thailand, Turkey, and Vietnam. During 2010, net oil-equivalent production averaged 1,069,000 barrels per day.
per day and transports the majority of ACG production. Another production export route for crude oil is the Western Route Export Pipeline, wholly owned by AIOC, with capacity to transport 100,000 barrels per day from Baku, Azerbaijan, to the marine terminal at Supsa, Georgia.
Kazakhstan: Chevron participates in two major upstream developments in western Kazakhstan. The company holds a 50 percent interest in the Tengizchevroil (TCO) affiliate, which is operating and developing the Tengiz and Korolev crude oil fields under a concession that expires in 2033. Chevrons net oil-equivalent production in 2010 from these fields averaged 308,000 barrels per day, composed of 252,000 barrels of crude oil and natural gas liquids and 338 million cubic feet of natural gas. During 2010, the majority of TCOs crude oil production was exported through the Caspian Pipeline Consortium (CPC) pipeline that runs from Tengiz in Kazakhstan to tanker-loading facilities at Novorossiysk on the Russian coast of the Black Sea. The balance was shipped via other export routes, which included shipment by tanker to Baku for transport by the BTC pipeline to Ceyhan or by rail to Black Sea ports.
Also during 2010, TCO continued to evaluate alternatives for another expansion project to increase total daily crude oil production between 250,000 and 300,000 barrels. The expansion project will rely on technology developed for the Sour Gas Injection/Second Generation Plant project completed in 2008. Approval of FEED is anticipated in the second-half 2011. As of year-end 2010, no proved reserves have been recognized for this expansion project.
Chevron holds a 20 percent nonoperated working interest in the Karachaganak project, which is being developed in phases. During 2010, Karachaganak net oil-equivalent production averaged 64,000 barrels per day, composed of 39,000 barrels of liquids and 149 million cubic feet of natural gas. In 2010, access to the CPC and Atyrau-Samara (Russia) pipelines enabled approximately 175,000 barrels per day (31,000 net barrels) of Karachaganak liquids to be sold at world-market prices. The remaining liquids were sold into Russian markets. During 2010, work continued on a fourth train that is designed to increase total liquids stabilization capacity by 56,000 barrels per day. The fourth train is expected to start up in second quarter 2011.
During 2010, Chevron and its partners continued to evaluate alternatives for a Phase III development of Karachaganak. Timing for the Phase III project remains uncertain and depends on finalizing a project design. Proved reserves have not been recognized for a Phase III project. Karachaganak operations are conducted under a PSC that expires in 2038.
Kazakhstan/Russia: Chevron has a 15 percent interest in the CPC affiliate. During 2010, CPC transported an average of approximately 743,000 barrels of crude oil per day, including 607,000 barrels per day from Kazakhstan and 136,000 barrels per day from Russia. In December 2010, partners made a final investment decision to increase the pipeline capacity by 670,000 barrels per day. The total estimated cost of the project is $5.4 billion. The project is expected to be implemented in three phases, with capacity increasing progressively until reaching full capacity in 2016.
Russia: In June 2010, Chevron signed a Heads of Agreement with Rosneft covering the exploration, development and production of hydrocarbons from the Shatsky Ridge Block in the Black Sea. Technical and commercial evaluation of the opportunity is ongoing in 2011. No proved reserves have been recognized for these activities.
Turkey: In September 2010, Chevron signed a Joint Operating Agreement for a 50 percent interest in a 5.6 million acre exploration block located in the Black Sea. The initial exploration well was completed in November 2010 and was unsuccessful. Future plans are under evaluation.
Chevron relinquished its 25 percent nonoperated working interest in the Silopi licenses in southeast Turkey, following the evaluation of an unsuccessful exploration well, which was completed in the Lale prospect during first quarter 2010.
Bangladesh: Chevron holds interests in three operated PSCs covering Blocks 7, 12, 13 and 14. The company has a 43 percent interest in Block 7 and a 98 percent interest in Blocks 12, 13 and 14. Net oil-equivalent production from these operations in 2010 averaged 69,000 barrels per day, composed of 404 million cubic feet of natural gas and 2,000 barrels of liquids. In 2010, preliminary construction and development activities were completed at the Muchai compression project, which is expected to support additional production starting in 2012 from the Bibiyana, Jalalabad and Moulavi Bazar natural gas fields. Proved reserves have been recognized for this project. Also in 2010, the company completed seismic data evaluation and prepared to drill an exploration well in Block 7 that is expected to be completed by mid-2011.
Cambodia: Chevron owns a 30 percent interest and operates the 1.2 million-acre Block A, located offshore in the Gulf of Thailand. The company completed three successful exploration wells during 2010. A 30-year production permit under the PSC is expected to be approved by the government in the first-half 2011. A final investment decision for construction of a wellhead platform and a floating storage and offloading vessel is expected in 2011. At year-end 2010, proved reserves had not been recognized for the project.
Myanmar: Chevron has a 28.3 percent nonoperated working interest in a PSC for the production of natural gas from the Yadana and Sein fields offshore in the Andaman Sea. The company also has a 28.3 percent interest in a pipeline company that transports the natural gas from Yadana to the Myanmar-Thailand border for delivery to power plants in Thailand. Most of the natural gas is purchased by Thailands PTT Public Company Limited. The companys average net natural gas production in 2010 was 81 million cubic feet per day. In July 2010, a compression project entered service to support additional natural gas demand.
Basin. Concessions for the producing areas within this basin expire between 2036 and 2040.
During 2010, construction at the 69.9 percent-owned and operated Platong Gas II project continued. The project is designed to add 440 million cubic feet per day of production capacity and start-up is expected in fourth quarter 2011. Proved reserves have been recognized for this project.
During 2010, the company drilled seven exploration wells in the Pattani Basin. Four of the wells were successful and were under evaluation to validate the development strategy. Three unsuccessful explorations wells were drilled in Block G4/50. In fourth quarter, the company withdrew from this block. At the end of 2010, proved reserves had not been recognized for these activities. For 2011, eleven operated exploratory wells are planned. The company also holds exploration interests in a number of blocks that are inactive, pending resolution of border issues between Thailand and Cambodia.
Vietnam: Chevron is the operator of two PSCs in the Malay Basin off the southwest coast of Vietnam. The company has a 42.4 percent interest in a PSC that includes Blocks B and 48/95, and a 43.4 percent interest in a PSC for Block 52/97. The company also has a 20 percent ownership interest in an operated PSC in Block 122 offshore eastern Vietnam.
In the blocks off the southwest coast, the Block B Gas Development is designed to produce natural gas from the Malay Basin for delivery to state-owned Petrovietnam. The project includes installation of wellhead and hub platforms, a floating storage and offloading vessel, field pipelines and a central processing platform. The project entered FEED in 2010, and a final investment decision is expected in fourth quarter 2011. Maximum total production is planned to be about 500 million cubic feet of natural gas per day. At the end of 2010, proved reserves had not been recognized for this project.
In conjunction with the Block B Gas Development, a partner-operated pipeline will be required to support the offshore development. Chevron has a 28.7 percent interest in the pipeline, which is planned to transport natural gas to customers in southern Vietnam. The project entered FEED in 2009, and the engineering and design work is being performed by the pipeline operator.
During the year, seismic processing and prospect mapping were completed for Block 122. Proved reserves had not been recognized as of the end of 2010. Future activity in Block 122 may be affected by an ongoing territorial dispute between Vietnam and China.
three separate PSCs for the exploration period. The three deepwater blocks cover approximately 5.2 million acres. One exploration well is planned for 2011 following the completion of an environmental impact study and a 3-D seismic acquisition program.
Also in the Pearl River Mouth Basin, the company has nonoperated working interests of 32.7 percent in Blocks 16/08 and 16/19. Following storm damage in 2009, production was partially restored from Block 16/08 and Block 16/19 in March 2010 and is expected to be fully restored in 2011. Also in Block 16/19, first production from the joint development of the HZ25-3 and HZ25-1 crude oil fields was achieved in March 2010.
In the Bohai Bay, the company holds nonoperated interests of 24.5 percent in the QHD-32-6 Field and 16.2 percent in Block 11/19, both of which are in production. In 2010, production was partially restored from Block 11/19 after a shut-in caused by a storm in 2009. Production is expected to be fully restored in 2013.
Basin in fourth quarter 2010 following an unsuccessful obligation well in 2009. Chevron also relinquished its interest in the 100 percent-owned and operated East Ambalat PSC in December 2010. The relinquishments of NE Madura III and East Ambalat are both pending approval by the government of Indonesia.
The companys net oil-equivalent production in 2010 from all of its interests in Indonesia averaged 226,000 barrels
per day. The daily oil-equivalent rate comprised 187,000 barrels of liquids and 236 million cubic feet of natural gas.
The largest producing field is Duri, located in the Rokan PSC. Duri has been under steamflood operation since 1985
and is one of the worlds largest steamflood developments. The North Duri Development is divided into multiple expansion areas.
The expansion in Area 12 was completed in 2010 with the additional drilling of 72 production, 24 steam injection, and 10 observation wells. During the year, ramp-up of steam injection continued with the project reaching a maximum total daily production of 45,000 barrels in September 2010. A final investment decision regarding North Duri Area 13 was reached May 2010, and is awaiting final development plan and bid award approvals from the government of Indonesia. The Rokan PSC expires in 2021.
In 2010, Chevron advanced its development plans for the Gendalo-Gehem deepwater natural gas project located in the Kutei Basin, awarding major FEED contracts for the floating production units, subsea and pipeline components, and onshore receiving facility. Maximum daily total production from the project is expected to be 1.1 billion cubic feet of natural gas and 31,000 barrels of condensate. Completion of FEED is dependent upon government approvals and achieving project milestones. The Bangka deepwater natural gas project progressed during the year, and entered FEED in fourth quarter 2010. During 2010, the company reached an agreement to farm-out a portion of its working interest in the PSCs of the two projects. Government approval of the farm-out is expected in the second-half 2011. In addition, in 2011 the company expects to farm-in an Indonesian company to the PSCs for the two projects. Following government approval of the agreements, the companys production interest in the Gendalo-Gehem and Bangka projects will be 55.1 percent and 54 percent, respectively. Proved reserves have not been recognized for these projects.
Also in the Kutei Basin, the company reached a final investment decision in August 2010 for an oil development project in the West Seno Field and recognized proved reserves related to the project.
A drilling campaign continued through 2010 in South Natuna Sea Block B to provide additional supply for long-term natural gas sales contracts, with additional development drilling planned for 2011. The North Belut development project achieved maximum total daily production of 240 million cubic feet of natural gas and 33,000 barrels of liquids in February 2010. Development of the South Belut project continued during the year. The Bawal project reached final investment decision in October 2010 and is expected to begin production in 2012.
Exploration activities continued in the Central Sumatra Basin during 2010. Two wells drilled in the Rokan Block were successful and placed on production. Additional appraisal drilling near the Duri Field identified further expansion opportunities that will be further assessed with 3-D seismic in 2011. Chevrons operated working interests in two exploration blocks in western Papua, West Papua I and West Papua III, were reduced to 51 percent in second quarter 2010. Geological studies of the two blocks continued in 2010, and 2-D seismic acquisition is expected to start in the first-half 2011.
In West Java, Chevron operates the wholly owned Salak geothermal field with a total power-generation capacity of 377 megawatts. Also in West Java, Chevron holds a 95 percent interest in a power generation company that operates the Darajat geothermal contract area with a total capacity of 259 megawatts. Chevron also operates a 95 percent-owned 300-megawatt cogeneration facility in support of the companys operation in North Duri, Sumatra. In December 2010, the company was awarded a license and operatorship to explore and develop a geothermal prospect in the Suoh-Sekincau prospect area at Lampung in southern Sumatra.
carbonate reservoir and, if successful, could significantly increase heavy oil recovery. No proved reserves have been recognized for this project.
Also in 2010, assessment of alternatives continued on the Central Gas Utilization Project to increase natural gas utilization and eliminate routine flaring. A final investment decision is expected in 2012. No proved reserves have been recognized for this project.
Philippines: The company holds a 45 percent nonoperated working interest in the Malampaya natural gas field located 50 miles offshore Palawan Island. Net oil-equivalent production in 2010 averaged 25,000 barrels per day, composed of 124 million cubic feet of natural gas and 4,000 barrels of condensate. Chevron also develops and produces geothermal resources under an agreement with the Philippine government. Chevron expects to sign a new 25-year contract with the government by the end of 2011 to operate the steam fields, which supply geothermal resources to 637 megawatt power generation facilities.
In November 2010, Chevron signed a farm-in agreement and a Joint Operating Agreement with two Philippine corporations to explore, develop and operate the Kalinga geothermal prospect in northern Luzon, Philippines. The company has a 90 percent-owned and operated interest in the project.
In Australia, the companys exploration and production efforts are concentrated off the northwest coast. During 2010, the average net oil-equivalent production from Australia was 111,000 barrels per day.
production in 2013. Proved reserves have been recognized for the project.
Work also progressed on the NWS Oil Redevelopment Project, which is designed to replace the existing FPSO vessel and a portion of existing subsea infrastructure that services production from the Cossack, Hermes, Lambert and Wanaea offshore fields. Work commenced in January 2011 on the subsea infrastructure refurbishment, and construction of the new FPSO vessel is expected to be completed in second quarter 2011. The project is expected to start up in third quarter 2011 and extend production past 2020.
The NWS Venture continues to progress additional gas supply opportunities through development of several small fields on the western flank of the Goodwyn reservoirs. The project is expected to enter FEED in the first-half 2011. The concession for the NWS Venture expires in 2034.
On Barrow and Thevenard islands off the northwest coast of Australia, Chevron operates crude oil producing facilities that had combined net production of 4,000 barrels per day in 2010. Chevrons interests in these operations are 57.1 percent for Barrow and 51.4 percent for Thevenard.
Also off the northwest coast of Australia, Chevron holds significant equity interests in the large natural gas resource of the Greater Gorgon Area. The company holds a 47.3 percent ownership interest across most of the area and is the operator of the Gorgon Project, which combines the development of the offshore Gorgon and nearby Io/Jansz natural gas fields as one large-scale project. Total estimated project costs for the first phase of development are $37 billion. The projects scope also includes a three-train, 15 million-metric-ton-per-year LNG facility, a carbon sequestration project and a domestic natural gas plant.
Chevron has signed five binding LNG Sales and Purchase Agreements (SPAs) with Asian customers for delivery of about 4.7 million metric tons of LNG per year. Negotiations continue to finalize the two remaining nonbinding Heads of Agreement (HOAs) to binding SPAs, which would bring LNG delivery commitments to a combined total of about 90 percent of Chevrons share of LNG from the project. Construction on Barrow Island and other activities for the project progressed during 2010 with the awarding of approximately $25 billion of contracts for materials and services, clearing of the plant site, completion of the first stage of the construction village, commencement of module fabrication, and progression of studies on the possible expansion of the project. Proved reserves have been recognized for the Greater Gorgon Area fields included in the project, and first production of natural gas from the fields is expected in 2014. The projects estimated economic life exceeds 40 years from the time of start-up.
FEED activities for the companys majority-owned and operated Wheatstone Project continued in 2010. Chevron holds an 80 percent interest in the foundation natural gas processing facilities, which include a two-train 8.9 million-metric-ton-per-year LNG facility and a separate domestic gas plant located at Ashburton North, along the northwest coast of Australia. The company plans to supply natural gas to the facilities from two Chevron-operated licenses comprising the majority of the Wheatstone Field and the nearby Iago Field.
Through the end of 2010, Chevron has signed nonbinding HOAs with three Asian customers for the delivery of about 80 percent of Chevrons net LNG offtake from the Wheatstone Project. Under these HOAs, the customers also agreed to acquire a combined 21.8 percent nonoperated working interest in the Wheatstone field licenses and a 17.5 percent interest in the foundation natural gas processing facilities at the time of the final investment decision. Negotiations continue to move the three nonbinding HOAs to binding SPAs with these customers. Agreements were also signed in 2009 and amended in 2010 with two companies to participate in the Wheatstone Project as combined 20 percent LNG facility owners and suppliers of natural gas for the projects first two LNG trains. During 2010, a Native Title Heads of Agreement was reached with the local indigenous people for the land required at Ashburton North and submissions were made for various additional environmental approvals. The final investment decision for the project is expected in second-half 2011. At the end of 2010, the company had not recognized proved reserves for this project.
In the Browse Basin, the Browse LNG development participants commenced design evaluation for the Brecknock, Calliance and Torosa fields in early 2010. At the end of 2010, proved reserves had not been recognized.
During 2010, Chevron announced natural gas discoveries at the 50 percent-owned Brederode prospect in Block WA-364-P, the 50 percent-owned Yellowglen prospect in Block WA-268-P, the 50 percent-owned Sappho prospect in Block WA-392-P, and the 67 percent-owned Clio and Acme prospects in Block WA-205-P. In February 2011, the company announced a natural gas discovery in the 50 percent-owned Orthrus prospect in Block WA-24-R. All prospects are Chevron operated. The Clio and Acme prospects are expected to help support potential expansion opportunities at the Wheatstone LNG facilities while the Yellowglen, Sappho and Orthrus prospects are expected to help underpin further expansion opportunities on the Gorgon Project. Proved reserves had not been recognized for any of these exploration discoveries.
In Europe, the company is engaged in exploration and production activities in Denmark, the Netherlands, Norway, Poland, Romania and the United Kingdom. Net oil-equivalent production in Europe averaged 159,000 barrels per day during 2010.
Denmark: Chevron has a 15 percent working interest in the partner-operated Danish Underground Consortium (DUC), which produces crude oil and natural gas from 13 of 15 fields in the Danish North Sea. Net oil-equivalent production in 2010 from DUC averaged 51,000 barrels per day, composed of 32,000 barrels of crude oil and 116 million cubic feet of natural gas. During 2010, four development wells were drilled and completed in the Halfdan, Tyra and Valdemar fields. The installation of new facilities for the Halfdan Phase IV project was completed in 2010, with hook-up and tie-in planned for second quarter 2011.
Netherlands: Chevron operates and holds interests ranging from 34.1 percent to 80 percent in 10 blocks in the Dutch sector of the North Sea. In 2010, the companys net oil-equivalent production from the producing blocks was 8,000 barrels per day, composed of 2,000 barrels of crude oil and 35 million cubic feet of natural gas. Five blocks comprise the A/B Gas Project, where development continued in 2010 and into 2011. In September 2010, the company acquired a 60 percent interest in the P/1 and P/2 blocks, which contain several natural gas discoveries.
covers 1.5 million acres. A 2-D seismic program is planned to begin in fourth quarter 2011 on the EV-2 Barlad concession.
United Kingdom: The companys average net oil-equivalent production in 2010 from 10 offshore fields was 97,000 barrels per day, composed of 64,000 barrels of crude oil and natural gas liquids and 194 million cubic feet of natural gas. Most of the production was from the 85 percent-owned and operated Captain Field, the 23.4 percent-owned and operated Alba Field, and the 32.4 percent-owned and jointly operated Britannia Field.
The 70 percent-owned and operated Alder discovery entered FEED in 2010, following selection of the development concept. The final investment decision is planned for late 2011. Evaluation of development alternatives continued during 2010 for the Clair Ridge Project, located west of the Shetland Islands, in which the company has a 19.4 percent nonoperated working interest. Evaluation resulted in the selection of a preferred alternative consisting of a bridge-linked, twin-jacket structure. The final investment decision is expected mid-2011. In the 40 percent-owned and operated Rosebank area northwest of the Shetland Islands, seismic, geophysical, geotechnical and environmental surveys were conducted during 2010, and feasibility engineering activities are scheduled to continue through 2011. At the end of 2010, proved reserves had not been recognized for any of these development projects.
Also west of the Shetland Islands, a three-well exploration and appraisal drilling program began in September 2010 and is expected to be completed in fourth quarter 2011. This program comprises exploration wells on the Lagavulin prospect in the 60 percent-owned and operated license block P1196 and on the Aberlour prospect in the 40 percent-owned and operated license block P1194, followed by appraisal drilling and well testing of the Cambo discovery in the 32.5 percent nonoperated license blocks P1028 and P1189. As of the end of 2010, proved reserves had not been recognized for any of these prospects.
The company sells natural gas and natural gas liquids from its producing operations under a variety of contractual arrangements. In addition, the company also makes third-party purchases and sales of natural gas and natural gas liquids in connection with its trading activities.
During 2010, U.S. and international sales of natural gas were 5.9 billion and 4.5 billion cubic feet per day, respectively, which includes the companys share of equity affiliates sales. Outside the United States, substantially all of the natural gas sales from the companys producing interests are from operations in Australia, Bangladesh, Europe, Kazakhstan, Indonesia,
Latin America, the Philippines and Thailand.
U.S. and international sales of natural gas liquids were 161 thousand and 105 thousand barrels per day, respectively, in 2010. Substantially all of the international sales of natural gas liquids are from company operations in Africa, Australia, Indonesia and the United Kingdom.
Refer to Selected Operating Data, on page FS-11 in Managements Discussion and Analysis of Financial Condition and Results of Operations, for further information on the companys sales volumes of natural gas and natural gas liquids. Refer also to Delivery Commitments on page 8 for information related to the companys delivery commitments for the sale of crude oil and natural gas.
At the end of 2010, the company had a refining network capable of processing more than 2 million barrels of crude oil per day. Operable capacity at December 31, 2010, and daily refinery inputs for 2008 through 2010 for the company and affiliate refineries were as follows:
Petroleum Refineries: Locations, Capacities and Inputs
(Crude-unit capacities and crude oil inputs in thousands of barrels per day; includes equity share in affiliates)
Average crude oil distillation capacity utilization during 2010 was 92 percent, compared with 91 percent in 2009. At the U.S. fuel refineries, crude oil distillation capacity utilization averaged 95 percent in 2010, compared with 96 percent in 2009, and cracking and coking capacity utilization averaged 90 percent and 85 percent in 2010 and 2009, respectively. Cracking and coking units are the primary facilities used in fuel refineries to convert feedstocks into gasoline and other light products. Chevron processes both imported and domestic crude oil in its U.S. refining operations. Imported crude oil accounted for about 84 percent and 85 percent of Chevrons U.S. refinery inputs in 2010 and 2009, respectively.
At the Pascagoula Refinery, the company commissioned a continuous catalytic reformer that is expected to improve equipment reliability and utilization and to allow the refinery to optimize production of high-value products. Also in Pascagoula, a final investment decision was reached in first quarter 2011 to construct a facility to produce approximately 25,000 barrels per day of premium base oil for use in manufacturing high-performance finished lubricants, such as motor oils for consumer and commercial applications. Project completion is expected by year-end 2013.
At the refinery in El Segundo, construction began in late 2010 on a new processing unit designed to further improve the facilitys overall reliability, enhance high-value product yield and provide additional flexibility to process a broad range of crude slates. Project completion is expected in 2012. At the Richmond Refinery, the company continued to evaluate its options with respect to permitting of the Renewal Project. The project is designed to improve the refinerys ability to process higher sulfur crudes, without changing the refinerys capacity to process crude blends in the intermediate-light gravity range. Improved ability to process higher sulfur crudes is expected to provide increased flexibility to process lower API-gravity crudes within the refinerys existing capacity range. Refer also to a discussion of contingencies related to this project in Note 24 to the Consolidated Financial Statements on page FS-59.
Outside the United States, GS Caltex, the companys 50 percent-owned affiliate, commissioned and reached full capacity on a new 60,000-barrel-per-day heavy-oil hydrocracker at the Yeosu Refinery in South Korea during 2010. Also at the Yeosu Refinery, GS Caltex announced plans to construct a 53,000-barrel-per-day gas oil fluid catalytic cracking unit. The unit is scheduled for start-up in 2013. Both units are designed to increase high-value product yield and lower feedstock costs. Construction began in 2010 on modifications to the 64 percent-owned Star Petroleum Refinery in Thailand to meet regional specifications for cleaner motor gasoline and diesel fuels. Project completion is scheduled for 2012. Also in 2010, the company solicited bids for the sale of certain operations in the United Kingdom and Ireland, including the Pembroke Refinery.
The company markets petroleum products under the principal brands of Chevron, Texaco and Caltex throughout many parts of the world. The table below identifies the companys and affiliates refined products sales volumes, excluding intercompany sales, for the three years ended December 31, 2010.
Refined Products Sales Volumes
(Thousands of Barrels per Day)
In the United States, the company markets under the Chevron and Texaco brands. At year-end 2010, the company supplied directly or through retailers and marketers approximately 8,250 Chevron- and Texaco-branded motor vehicle service stations, primarily in the southern and western states. Approximately 500 of these outlets are company-owned or -leased stations. In 2010, the company discontinued sales of Chevron- and Texaco-branded motor fuels in the District of Columbia, Delaware, Indiana, Kentucky, North Carolina, New Jersey, Maryland, Ohio, Pennsylvania, South Carolina, Virginia, West Virginia and parts of Tennessee, where the company sold to retail customers through approximately 1,100 stations and to commercial and industrial customers through supply arrangements. Sales in these markets represented approximately 8 percent of the companys total U.S. retail fuels sales volumes in 2009. In addition, the company has completed six of 13 planned U.S. terminal divestitures.
Outside the United States, Chevron supplied directly or through retailers and marketers approximately 11,300 branded service stations, including affiliates. In British Columbia, Canada, the company markets under the Chevron brand. The
company markets in the United Kingdom, Ireland, Latin America and the Caribbean using the Texaco brand. In the Asia-Pacific region, southern Africa, Egypt and Pakistan, the company uses the Caltex brand. The company also operates through affiliates under various brand names. In South Korea, the company operates through its 50 percent-owned affiliate, GS Caltex, and in Australia through its 50 percent-owned affiliate, Caltex Australia Limited.
The company progressed its ongoing effort to concentrate downstream resources and capital on strategic assets. In December 2010 and February 2011, the company completed the sale of fuels-marketing businesses in Malawi, Mauritius, Réunion, Tanzania and Zambia. The company expects to complete the sale of its fuels-marketing businesses in Mozambique and Zimbabwe later in 2011, following receipt of required local regulatory and government approvals. In November 2010, the company signed an agreement for the sale of its fuels-marketing and aviation fuels businesses in Antigua, Barbados, Belize, Costa Rica, Dominica, French Guiana, Grenada, Guadeloupe, Guyana, Martinique, Nicaragua, St. Kitts, St. Lucia, St. Vincent, and Trinidad and Tobago and expects to complete all transactions by third quarter 2011, following receipt of required local regulatory and government approvals. In February 2011, the company announced an agreement to sell its fuels, finished lubricants and aviation fuels businesses in Spain. In 2010, the company also solicited bids for its fuels-marketing and aviation fuels businesses in the United Kingdom and Ireland. In addition, the company converted more than 150 company-operated service stations into retailer-owned sites in various countries outside the United States.
Chevron markets commercial aviation fuel at approximately 200 airports, worldwide. The company also markets an extensive line of lubricant and coolant products under brand names including Havoline, Delo, Ursa, Meropa and Taro.
Chevron owns a 50 percent interest in its Chevron Phillips Chemical Company LLC (CPChem) affiliate. At the end of 2010, CPChem owned or had joint-venture interests in 36 manufacturing facilities and four research and technical centers around the world.
During 2010, CPChem commenced operations at its 49 percent-owned Q-Chem II project in both Mesaieed and Ras Laffan, Qatar. The project includes a 350,000-metric-ton-per-year high-density polyethylene plant and a 345,000-metric-ton-per-year normal alpha olefins plant in Mesaieed, each utilizing CPChems proprietary technology. Also included in the project is a separate joint venture for a 1.3 million-metric-ton-per-year ethylene cracker in Ras Laffan, in which Q-Chem II owns 54 percent of the capacity rights, which will provide ethylene feedstock to the high-density polyethylene and normal alpha olefins plants.
CPChems 35 percent-owned Saudi Polymers Company continued construction on a petrochemical project in Al Jubail, Saudi Arabia. The joint-venture project includes olefins, polyethylene, polypropylene, 1-hexene and polystyrene units. Project start-up is expected in late 2011.
In the United States, CPChem announced in fourth quarter 2010 the development of a 200,000-ton-per-year 1-hexene plant at the companys Cedar Bayou complex in Baytown, Texas, with start-up expected in 2014. The plant is expected to be the largest 1-hexene unit in the world and will utilize CPChems proprietary 1-hexene technology.
Chevrons Oronite brand lubricant and fuel additives business is a leading developer, manufacturer and marketer of performance additives for lubricating oils and fuels. The company owns and operates facilities in Brazil, France, Japan, the Netherlands, Singapore and the United States and has equity interests in facilities in India and Mexico. Oronite lubricant additives are blended into refined base oil to produce finished lubricant packages used primarily in engine applications, such as passenger car, heavy-duty diesel, marine, locomotive and motorcycle engines, and additives for fuels that are blended to improve engine performance and extend engine life. During 2010, the company achieved full capacity at the detergent expansion facility in Singapore. This additional capacity enhances the companys ability to produce detergent components for applications in marine and automotive engines.
Pipelines: Chevron owns and operates an extensive network of crude oil, refined product, chemical, natural gas liquid and natural gas pipelines and other infrastructure assets in the United States. The company also has direct and indirect interests in other U.S. and international pipelines. The companys ownership interests in pipelines are summarized in the following table.
Pipeline Mileage at December 31, 2010
During 2010, the company completed a project to expand capacity by approximately 2 billion cubic feet at the Keystone natural gas storage facility near Midland, Texas, bringing total capacity to nearly 7 billion cubic feet.
Work continued in 2010 to bring the Cal-Ky Pipeline, which was decommissioned in 2002, back into crude oil service as a supply line for the Pascagoula Refinery. This crude oil pipeline is also expected to provide additional outlets for the companys equity production. The pipeline is expected to return to service in 2012. The company is leading the construction of a 136 mile, 24-inch pipeline from the Jack/St. Malo facility to Green Canyon 19 in the U.S. Gulf of Mexico, where there is an interconnect to pipelines delivering crude oil into Louisiana.
In 2010, the company sold its 23.4 percent ownership interest in the Colonial Pipeline Company, which transports products from supply centers on the U.S. Gulf Coast to customers located along the Eastern seaboard.
Refer to pages 16, 17 and 18 in the Upstream section for information on the Chad/Cameroon pipeline, the West Africa Gas Pipeline, the Baku-Tbilisi-Ceyhan Pipeline, the Western Route Export Pipeline and the Caspian Pipeline Consortium.
Tankers: All tankers in Chevrons controlled seagoing fleet were utilized during 2010. At any given time during 2010, the company had 41 deep-sea vessels chartered on a voyage basis, or for a period of less than one year. Additionally, the table on the following page summarizes the capacity of the companys controlled fleet.
Controlled Tankers at December 31, 20101
Federal law requires that cargo transported between U.S. ports be carried in ships built and registered in the United States, owned and operated by U.S. entities, and manned by U.S. crews. The companys U.S.-flagged fleet is engaged primarily in transporting refined products between the Gulf Coast and the East Coast and from California refineries to terminals on the West Coast and in Alaska and Hawaii. As part of its fleet modernization program, the company replaced two U.S.-flagged product tankers in 2010. The company plans to retire one additional U.S.-flagged product tanker in 2011. The new tankers are expected to bring improved efficiencies to Chevrons U.S.-flagged fleet.
The foreign-flagged vessels are engaged primarily in transporting crude oil from the Middle East, Southeast Asia, the Black Sea, Mexico and West Africa to ports in the United States, Europe, Australia and Asia. The companys foreign-flagged vessels also transport refined products to and from various locations worldwide.
In addition to the vessels described above, the company owns a one-sixth interest in each of seven liquefied natural gas tankers transporting cargoes for the North West Shelf Venture in Australia.
Chevrons fleet of owned and chartered tankers is completely double-hulled. The company is a member of many oil-spill-response cooperatives in areas in which it operates around the world.
Chevrons U.S.-based mining company produces and markets coal and molybdenum. Sales occur in both U.S. and international markets.
The company owns and is the operator of an underground coal mine, North River, in Alabama, and surface coal mines in Kemmerer, Wyoming, and McKinley, New Mexico. The company also owns a 50 percent interest in Youngs Creek Mining Company, LLC, which was formed to develop a coal mine in northern Wyoming.
As of early 2011, the sale of the North River Mine and other coal-related assets in Alabama was under negotiation. Additionally, in January 2011, the company announced the intent to divest its remaining coal mining operations. Activities related to full reclamation continued in 2010 at the companys McKinley, New Mexico, mine, which ceased coal production at the end of 2009.
At year-end 2010, Chevron controlled approximately 189 million tons of proven and probable coal reserves in the United States, including reserves of low-sulfur coal. The company is contractually committed to deliver between 7 million and 8 million tons of coal per year through the end of 2013 and believes it will satisfy these contracts from existing coal reserves. Coal sales from wholly owned mines in 2010 were 8 million tons, down about 2 million tons from 2009.
In addition to the coal operations, Chevron owns and operates the Questa molybdenum mine in New Mexico. At year-end 2010, Chevron controlled approximately 53 million pounds of proven molybdenum reserves at Questa. Production and underground development at Questa continued at reduced levels in 2010 in response to weak prices for molybdenum.
Chevrons Global Power Company manages interests in 13 power assets with a total operating capacity of more than 3,100 megawatts, primarily through joint ventures in the United States and Asia. Twelve of these are efficient combined-cycle and gas-fired cogeneration facilities that utilize waste heat recovery to produce electricity and support industrial thermal hosts. The thirteenth facility is a wind farm, located in Casper, Wyoming, that is designed to optimize the use of a decommissioned refinery site for delivery of clean, renewable energy to the local utility.
The company has major geothermal operations in Indonesia and the Philippines and is investigating several advanced solar technologies for use in oil field operations as part of its renewable-energy strategy. For additional information on the companys geothermal operations and renewable energy projects, refer to pages 21 and 22 and Research and Technology below.
Chevron Energy Solutions (CES)
CES is a wholly owned subsidiary that develops and builds sustainable energy projects to increase energy efficiency and renewable power, reduce energy costs, and ensure reliable, high-quality energy for government, education and business facilities. Since 2000, CES has developed hundreds of projects that help customers reduce their energy costs and environmental impact. Projects announced in 2010 include the City of Brea Energy Efficiency and Solar Project in California, the Marine Corps Logistics Base Albany Landfill Gas Project in Georgia, and the University of Utah Thermal Storage and New Central Plant Project.
The companys energy technology organization supports Chevrons upstream and downstream businesses by providing technology, services and competency development in earth sciences; reservoir and production engineering; drilling and completions; facilities engineering; manufacturing; process technology; catalysis; technical computing; and health, environment and safety disciplines. The information technology organization integrates computing, telecommunications, data management, security and network technology to provide a standardized digital infrastructure and enable Chevrons global operations and business processes.
Chevron Technology Ventures (CTV) manages investments and projects in emerging energy technologies and their integration into Chevrons core businesses. As of the end of 2010, CTV continued to explore technologies such as next-generation biofuels and advanced solar. In 2010, the company constructed and commissioned a one megawatt concentrating photovoltaic (CPV) solar facility on the tailing site of Chevrons molybdenum mine in Questa, New Mexico. This beneficial reuse project is one of the largest CPV installations in the world. Also in 2010, the company constructed and commissioned a 0.74 megawatt next generation solar photovoltaic installation on a former refinery site in Bakersfield, California. Seven solar panel technologies are being tested to establish the viability of these solar technologies at other Chevron sites.
Chevrons research and development expenses were $526 million, $603 million and $702 million for the years 2010, 2009 and 2008, respectively.
Some of the investments the company makes in the areas described above are in new or unproven technologies and business processes, and ultimate technical or commercial successes are not certain.
Virtually all aspects of the companys businesses are subject to various U.S. federal, state and local environmental, health and safety laws and regulations and to similar laws and regulations in other countries. These regulatory requirements continue to change and increase in both number and complexity and to govern not only the manner in which the company conducts its operations, but also the products it sells. Most of the costs of complying with the many laws and regulations pertaining to its operations are, or are expected to become, embedded in the normal costs of conducting business.
In 2010, the companys U.S. capitalized environmental expenditures were $639 million, representing about 12 percent of the companys total consolidated U.S. capital and exploratory expenditures. These environmental expenditures include capital outlays to retrofit existing facilities as well as those associated with new facilities. The expenditures relate mostly to air- and water-quality projects and activities at the companys refineries, oil and gas producing facilities, and marketing facilities. For 2011, the company estimates U.S. capital expenditures for environmental control facilities will be
approximately $800 million. The future annual capital costs are uncertain and will be governed by several factors, including future changes to regulatory requirements.
Environmental-related regulations, including those intended to address concerns about greenhouse gas emissions and global climate change, continue to evolve. For instance, in December 2009, the U.S. Environmental Protection Agency (EPA) issued a final endangerment finding for greenhouse gases, which found that emissions of six greenhouse gases threaten the public health and welfare. Greenhouse gases from new motor vehicles and engines also contribute to such pollution. Subsequently, in 2010, the EPA finalized two regulations under the Clean Air Act that establish greenhouse gas emission standards for new light-duty vehicles and clarify preconstruction permitting requirements for new or modified stationary source facilities with greenhouse gas emissions that exceed 75,000 tons per year of carbon dioxide equivalent. In November 2010, the agency issued updated guidance on determining the best available control technologies (BACT) that would be required to be implemented by certain new and modified stationary source facilities beginning in January 2011, but there remains significant uncertainty regarding the impact of applying BACT requirements on a case by case basis. Finally, in two recent settlement agreements, the EPA agreed to schedules for undertaking additional greenhouse gas rulemakings applicable to utilities and refineries. The agency is beginning to develop these new regulations, which are scheduled to be effective in May 2012 (utilities) and November 2012 (refineries), so it is not possible to predict their impact at this time. The EPAs endangerment finding, motor vehicle greenhouse gas standards, and greenhouse gas permit rule have all been challenged in federal courts and decisions are pending.
The EPA also finalized its revised Renewable Fuel Standard (RFS2) regulations as required by the Energy Independence and Security Act of 2007. The regulations require fuel providers to blend increased volumes of renewable fuels into gasoline and diesel each year and establish specific greenhouse gas reduction and feedstock criteria for subcategories of renewable fuel, including cellulosic fuel, advanced biofuel and biomass-based diesel. The specific impacts of this regulation are determined by many factors, including fluctuating markets for renewable fuels and EPA regulatory decisions on potential waivers of volume requirements.
Additionally, under Californias Global Warming Solutions Act, enacted in 2006, the California Air Resources Board (CARB), charged with implementing the law, has adopted a new low-carbon fuel standard intended to reduce the carbon intensity of transportation fuels. The state is behind schedule in completing certain elements of the standard. Consequently, initial carbon intensity reduction requirements are effective as of January 2011, but CARB has delayed other aspects of compliance until it completes further updates to the regulation later in the year. In December 2010, CARB adopted regulations implementing the cap and trade program requirements of the Global Warming Solutions Act. The first compliance period of the cap and trade program begins in 2012 and ends in December 2014. CARB has yet to develop detailed regulations to implement this portion of the Act, including the determination of how emissions allowances will be allocated and traded during this period. The effect of any such regulation on the companys business is uncertain.
Refer to Managements Discussion and Analysis of Financial Condition and Results of Operations on pages FS-17 through FS-20 for additional information on environmental matters and their impact on Chevron and on the companys 2010 environmental expenditures, remediation provisions and year-end environmental reserves. Refer also to Item 1A. Risk Factors on pages 32 through 34 for a discussion of greenhouse gas regulation and climate change.
The companys Internet Web site is www.chevron.com. Information contained on the companys Internet Web site is not part of this Annual Report on Form 10-K. The companys Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on the companys Web site soon after such reports are filed with or furnished to the Securities and Exchange Commission (SEC). The reports are also available on the SECs Web site at www.sec.gov.
Chevron is a global energy company with a diversified business portfolio, a strong balance sheet, and a 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.
Chevron is primarily in a commodities business with a history of price volatility. The single largest variable that affects the companys results of operations is the price of crude oil, which can be influenced by general economic conditions and geopolitical risk. Chevron accepts the risk of changing commodity prices as part of its business planning process. As such, an investment in the company carries significant exposure to fluctuations in crude oil prices.
During extended periods of historically low prices for crude oil, the companys upstream earnings and capital and exploratory expenditure programs will be negatively affected. Upstream assets may also become impaired. The impact on downstream earnings is dependent upon the supply and demand for refined products and the associated margins on refined product sales.
The scope of Chevrons business will decline if the company does not successfully develop resources.
The company is in an extractive business; therefore, if Chevron is not successful in replacing the crude oil and natural gas it produces with good prospects for future production or through acquisitions, the companys business will decline. Creating and maintaining an inventory of projects depends on many factors, including obtaining and renewing rights to explore, develop and produce hydrocarbons; drilling success; ability to bring long-lead-time, capital-intensive projects to completion on budget and schedule; and efficient and profitable operation of mature properties.
Chevron operates in both urban areas and remote and sometimes inhospitable regions. The companys operations and facilities are therefore subject to disruption from either natural or human causes beyond its control, including hurricanes, floods and other forms of severe weather, war, civil unrest and other political events, fires, earthquakes, explosions and system failures, any of which could result in suspension of operations or harm to people or the natural environment.
The companys operations have inherent risks and hazards that require significant and continuous oversight.
Chevrons results depend on its ability to identify and mitigate the risks and hazards inherent to operating in the crude oil and natural gas industry. The company seeks to minimize these operational risks by carefully designing and building its facilities and conducting its operations in a safe and reliable manner. However, failure to manage these risks effectively could result in unexpected incidents, including releases, explosions or mechanical failures resulting in personal injury, loss of life, environmental damage, loss of revenues, legal liability and/or disruption to operations. Chevron has implemented and maintains a system of policies, behaviors and compliance mechanisms to manage safety, health, environmental, reliability and efficiency risks; to verify compliance with applicable laws and policies; and to respond to and learn from unexpected incidents. Nonetheless, in certain situations where Chevron is not the operator, the company may have limited influence and control over third parties, which may limit its ability to manage and control such risks.
The company produces, transports, refines and markets materials with potential toxicity, and it purchases, handles and disposes of other potentially toxic materials in the course of the companys business. Chevron operations also produce byproducts, which may be considered pollutants. Often these operations are conducted through joint ventures over which the company may have limited influence and control. Any of these activities could result in liability arising from private litigation or government action, either as a result of an accidental, unlawful discharge or as a result of new conclusions on the effects of the companys operations on human health or the environment. In addition, to the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to the companys causation of or contribution to the asserted damage, or to other mitigating factors.
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. 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 to impose additional taxes or royalties.
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. At December 31, 2010, 25 percent of the companys net proved reserves were located in Kazakhstan. The company also has significant interests in Organization of Petroleum Exporting Countries (OPEC)-member countries including Angola, Nigeria and Venezuela and in the Partitioned Zone between Saudi Arabia and Kuwait. Twenty-three percent of the companys net proved reserves, including affiliates, were located in OPEC countries at December 31, 2010.
Regulation of greenhouse gas emissions could increase Chevrons operational costs and reduce demand for Chevrons products.
Continued political attention to issues concerning climate change, the role of human activity in it, and potential mitigation through regulation could have a material impact on the companys operations and financial results.
International agreements and national or regional legislation and regulatory measures to limit greenhouse emissions are currently in various stages of discussion or implementation. For instance, the Kyoto Protocol and Californias Global Warming Solutions Act, along with other actual or pending federal, state and provincial regulations, envision a reduction of greenhouse gas emissions through market-based regulatory programs, technology-based or performance-based standards or a combination of them. The company is subject to existing greenhouse gas emissions limits in jurisdictions where such regulation is currently effective, including the European Union and New Zealand.
In 2010, the U.S. Environmental Protection Agency (EPA) finalized two regulations under the Clean Air Act that establish greenhouse gas emission standards for new light-duty vehicles and clarify preconstruction permitting requirements for new or modified stationary source facilities with greenhouse gas emissions that exceed 75,000 tons per year of carbon dioxide equivalent. In addition, the EPA recently agreed to develop additional regulations on greenhouse gas emissions from utilities and refineries. The agency is beginning to develop these new regulations, which are scheduled to be effective in May 2012 (utilities) and November 2012 (refineries), so it is not possible to predict their impact at this time.
The U.S. Congress has previously considered and may in the future consider legislation aimed at reducing greenhouse gas emissions. At this time it is not possible to predict any specific Congressional actions in 2011 or beyond, and it is unclear how any such legislation would reconcile with the Clean Air Act or current EPA regulations.
In December 2010, California adopted regulations implementing the cap and trade program requirements of the states Global Warming Solutions Act, also known as AB32. The first compliance period of the cap and trade program begins in 2012 and ends in December 2014. Chevron may incur costs associated with emissions reduction activities, and the purchase of allowances or credits for its facilities in California. In addition, Chevrons purchased energy costs from utilities may increase starting in January 2012, when electricity generators are required to purchase allowances or credits for electricity sold in California.
These and other greenhouse gas emissions-related laws, policies and regulations may result in substantial capital, compliance, operating and maintenance costs. The level of expenditure required to comply with these laws and regulations is uncertain and is expected to vary by jurisdiction depending on the laws enacted in each jurisdiction, the companys activities in it and market conditions. The companys exploration and production of crude oil, natural gas and various minerals such as coal; the upgrading of production from oil sands into synthetic oil; power generation; the conversion of crude oil and natural gas into refined products; the processing, liquefaction and regasification of natural gas; the transportation of crude oil, natural gas and related products and consumers or customers use of the companys products result in greenhouse gas emissions that could well be regulated. Some of these activities, such as consumers and customers use of the companys products, as well as actions taken by the companys competitors in response to such laws and regulations, are beyond the companys control.
The effect of regulation on the companys financial performance will depend on a number of factors including, among others, the sectors covered, the greenhouse gas emissions reductions required by law, the extent to which Chevron would
be entitled to receive emission allowance allocations or would need to purchase compliance instruments on the open market or through auctions, the price and availability of emission allowances and credits, and the impact of legislation or other regulation on the companys ability to recover the costs incurred through the pricing of the companys products. Material price increases or incentives to conserve or use alternative energy sources could reduce demand for products the company currently sells and adversely affect the companys sales volumes, revenues and margins.
Changes in managements estimates and assumptions may have a material impact on the companys consolidated financial statements and financial or operations performance in any given period.
In preparing the companys periodic reports under the Securities Exchange Act of 1934, including its financial statements, Chevrons management is required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on managements best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include measurement of benefit obligations for pension and other postretirement benefit plans; estimates of crude oil and natural gas recoverable reserves; accruals for estimated liabilities, including litigation reserves; and impairments to property, plant and equipment. Changes in estimates or assumptions or the information underlying the assumptions, such as changes in the companys business plans, general market conditions or changes in commodity prices, could affect reported amounts of assets, liabilities or expenses.
The location and character of the companys crude oil, natural gas and mining properties and its refining, marketing, transportation and chemicals facilities are described on page 3 under Item 1. Business. Information required by Subpart 1200 of Regulation S-K (Disclosure by Registrants Engaged in Oil and Gas Producing Activities) is also contained in Item 1 and in Tables I through VII on pages FS-66 through FS-80. Note 13, Properties, Plant and Equipment, to the companys financial statements is on page FS-45.
Chevron is a defendant in a civil lawsuit before the Superior Court of Nueva Loja in Lago Agrio, Ecuador, brought in May 2003 by plaintiffs who claim to be representatives of certain residents of an area where an oil production consortium formerly had operations. The lawsuit alleges damage to the environment from the oil exploration and production operations and seeks unspecified damages to fund environmental remediation and restoration of the alleged environmental harm, plus a health monitoring program. Until 1992, Texaco Petroleum Company (Texpet), a subsidiary of Texaco Inc., was a minority member of this consortium with Petroecuador, the Ecuadorian state-owned oil company, as the majority partner; since 1990, the operations have been conducted solely by Petroecuador. At the conclusion of the consortium and following an independent third-party environmental audit of the concession area, Texpet entered into a formal agreement with the Republic of Ecuador and Petroecuador for Texpet to remediate specific sites assigned by the government in proportion to Texpets ownership share of the consortium. Pursuant to that agreement, Texpet conducted a three-year remediation program at a cost of $40 million. After certifying that the sites were properly remediated, the government granted Texpet and all related corporate entities a full release from any and all environmental liability arising from the consortium operations.
Based on the history described above, Chevron believes that this lawsuit lacks legal or factual merit. As to matters of law, the company believes first, that the court lacks jurisdiction over Chevron; second, that the law under which plaintiffs bring the action, enacted in 1999, cannot be applied retroactively; third, that the claims are barred by the statute of limitations in Ecuador; and, fourth, that the lawsuit is also barred by the releases from liability previously given to Texpet by the Republic of Ecuador and Petroecuador and by the pertinent provincial and municipal governments. With regard to the facts, the company believes that the evidence confirms that Texpets remediation was properly conducted and that the remaining environmental damage reflects Petroecuadors failure to timely fulfill its legal obligations and Petroecuadors further conduct since assuming full control over the operations.
In 2008, a mining engineer appointed by the court to identify and determine the cause of environmental damage, and to specify steps needed to remediate it, issued a report recommending that the court assess $18.9 billion, which would, according to the engineer, provide financial compensation for purported damages, including wrongful death claims, and
pay for, among other items, environmental remediation, health care systems and additional infrastructure for Petroecuador. The engineers report also asserted that an additional $8.4 billion could be assessed against Chevron for unjust enrichment. In 2009, following the disclosure by Chevron of evidence that the judge participated in meetings in which businesspeople and individuals holding themselves out as government officials discussed the case and its likely outcome, the judge presiding over the case was recused. In 2010, Chevron moved to strike the mining engineers report and to dismiss the case based on evidence obtained through discovery in the United States indicating that the report was prepared by consultants for the plaintiffs before being presented as the mining engineers independent and impartial work and showing further evidence of misconduct. In August 2010, the judge issued an order stating that he was not bound by the mining engineers report and requiring the parties to provide their positions on damages within 45 days. Chevron subsequently petitioned for recusal of the judge, claiming that he had disregarded evidence of fraud and misconduct and that he had failed to rule on a number of motions within the statutory time requirement.
In September 2010, Chevron submitted its position on damages, asserting that no amount should be assessed against it. The plaintiffs submission, which relied in part on the mining engineers report, took the position that damages are between approximately $16 billion and $76 billion and that unjust enrichment should be assessed in an amount between approximately $5 billion and $38 billion. The next day, the judge issued an order closing the evidentiary phase of the case and notifying the parties that he had requested the case file so that he could prepare a judgment. Chevron petitioned to have that order declared a nullity in light of Chevrons prior recusal petition, and because procedural and evidentiary matters remain unresolved. In October 2010, Chevrons motion to recuse the judge was granted. A new judge took charge of the case and revoked the prior judges order closing the evidentiary phase of the case. On December 17, 2010, the judge issued an order closing the evidentiary phase of the case and notifying the parties that he had requested the case file so that he could prepare a judgment.
Chevron and Texpet filed an arbitration claim in September 2009 against the Republic of Ecuador before the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law. The claim alleges violations of the Republic of Ecuadors obligations under the United States-Ecuador Bilateral Investment Treaty (BIT) and breaches of the settlement and release agreements between the Republic of Ecuador and Texpet (described above), which are investment agreements protected by the BIT. Through the arbitration, Chevron and Texpet are seeking relief against the Republic of Ecuador, including a declaration that any judgment against Chevron in the Lago Agrio litigation constitutes a violation of Ecuadors obligations under the BIT. On February 9, 2011, the Permanent Court of Arbitration issued an Order for Interim Measures requiring the Republic of Ecuador to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against Chevron in the Lago Agrio case pending further order of the Tribunal. Chevron expects to continue seeking permanent injunctive relief and monetary relief before the Tribunal.
Through a series of recent U.S. court proceedings initiated by Chevron to obtain discovery relating to the Lago Agrio litigation and the BIT arbitration, Chevron has obtained evidence that it believes shows a pattern of fraud, collusion, corruption, and other misconduct on the part of several lawyers, consultants and others acting for the Lago Agrio plaintiffs. In February 2011, Chevron filed a civil lawsuit in the Federal District Court for the Southern District of New York against the Lago Agrio plaintiffs and several of their lawyers, consultants and supporters alleging violations of the Racketeer Influenced and Corrupt Organizations Act and other state laws. Through the civil lawsuit, Chevron is seeking relief that includes an award of damages and a declaration that any judgment against Chevron in the Lago Agrio litigation is the result of fraud and other unlawful conduct and is therefore unenforceable. On February 8, 2011, the Court issued a temporary restraining order prohibiting the Lago Agrio plaintiffs and persons acting in concert with them from taking any action in furtherance of recognition or enforcement of any judgment against Chevron in the Lago Agrio case until March 8, 2011. Chevrons motion for a preliminary injunction is presently before the Court.
On February 14, 2011, the Provincial Court in Lago Agrio rendered an adverse judgment in the case. The Provincial Court rejected Chevrons defenses to the extent the Court addressed them in its opinion. The judgment assesses approximately $8.6 billion in damages and about $0.9 billion for the plaintiffs representatives. It also assesses an additional amount of approximately $8.6 billion in punitive damages unless the company provides a public apology. Chevron continues to believe the Courts judgment is illegitimate and unenforceable in Ecuador, the United States and other countries. The company also believes the judgment is the product of fraud, and contrary to the legitimate scientific evidence. Chevron will appeal this decision in Ecuador. Chevron cannot predict the timing or ultimate outcome of the appeals process in Ecuador. Chevron will continue a vigorous defense of any imposition of liability. Because Chevron has no substantial assets in Ecuador, Chevron would expect enforcement actions as a result of this judgment to be brought in other jurisdictions. Chevron expects to contest any such actions.
The ultimate outcome of the foregoing matters, including any financial effect on Chevron, remains uncertain. Management does not believe an estimate of a reasonably possible loss (or a range of loss) can be made in this case. Due to the defects
associated with the judgment, the 2008 engineers report and the September 2010 plaintiffs submission, management does not believe these documents have any utility in calculating a reasonably possible loss (or a range of loss). Moreover, the highly uncertain legal environment surrounding the case provides no basis for management to estimate a reasonably possible loss (or a range of loss).
California Air Resources Board
As reported in the companys annual report on Form 10-K for the year ended December 31, 2009, in November 2008, the California Air Resources Board (CARB) proposed a civil penalty against the companys Sacramento, California, terminal for alleged violations between August and December 2007 of CARBs regulations governing the minimum concentration of additives in gasoline. Due to a computer programming error, the Sacramento terminals automatic dispensers had failed to inject additive detergent into a gasoline line.
As reported in the companys annual report on Form 10-K for the year ended December 31, 2009, in November 2008, CARB proposed a civil penalty against the companys Richmond, California, refinery for a notice of violation relating to gasoline that was not properly certified as to composition. The company corrected the composition certificates for the gasoline without requiring any change to the composition of the gasoline. In July 2009, CARB issued the refinery a notice of violation relating to an error in gasoline blending that caused the product composition certifications to be in error. The composition certifications were corrected without requiring any change to the gasoline. Discussions with CARB officials relating to all of these matters continue.
As reported in the companys quarterly report on Form 10-Q for the quarter ended September 30, 2010, on July 14, 2009, CARB issued a notice of violation against Chevron Products Company for alleged violations of CARBs regulations governing the certification of gasoline that occurred during storage at a third-party facility and which had been self-reported by the company on discovery. The company has determined that resolution of this matter may result in the payment of a civil penalty exceeding $100,000.
Other Government Proceedings
As reported in the companys annual report on Form 10-K for the year ended December 31, 2009, in July 2009, the Hawaii Department of Health (DOH) alleged that Chevron is obligated to pay stipulated civil penalties exceeding $100,000 in conjunction with commitments the company undertook to install and operate certain air pollution abatement equipment at its Hawaii Refinery pursuant to Clean Air Act settlement with the United States Environmental Protection Agency and DOH. The company has disputed many of the allegations.
As reported in the companys quarterly report on Form 10-Q for the quarter ended March 31, 2010, in March 2010, the United States Department of Justice (DOJ) indicated that it intends to seek a civil penalty against the companys service station operations in Puerto Rico for alleged violations of the Commonwealth of Puerto Ricos underground storage tank regulations. The alleged violations include failure to test leak detectors, perform release monitoring and maintain compliance records. The DOJs action may result in payment of a civil penalty exceeding $100,000.
As reported in the companys quarterly report on Form 10-Q for the quarter ended June 30, 2010, Chevron has entered into negotiations with the United States Environmental Protection Agency (EPA) with respect to alleged air pollution violations at the companys Perth Amboy, New Jersey refinery identified in a September 16, 2008 Compliance Order issued by the EPA. The alleged violations relate to certain management and reporting requirements set forth in the EPAs Leak Detection and Repair regulations (these regulations pertain to the control and monitoring of fugitive emissions from refinery process equipment). Based on discussions with the EPA, it appears that the resolution of this matter will result in the payment of a civil penalty exceeding $100,000.
In the fourth quarter 2010, Chevron paid the United States Department of Transportation a $423,000 civil penalty as the result of an 800 barrel crude oil spill that occurred on June 12, 2010. The spill originated from a pipeline that runs from the companys Rangely Colorado Field to its Salt Lake Refinery.
The California Attorney General has alleged violations of the States underground storage tank regulations at the companys service stations in the State of California. The allegations are part of a state-wide enforcement action which the company determined in the fourth quarter 2010 may result in the payment of a civil penalty exceeding $100,000.
The information on Chevrons common stock market prices, dividends, principal exchanges on which the stock is traded and number of stockholders of record is contained in the Quarterly Results and Stock Market Data tabulations, on page FS-24.
ISSUER PURCHASES OF EQUITY SECURITIES
The selected financial data for years 2006 through 2010 are presented on page FS-65.
The index to Managements Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements and Supplementary Data is presented on page FS-1.
The companys discussion of interest rate, foreign currency and commodity price market risk is contained in Managements Discussion and Analysis of Financial Condition and Results of Operations Financial and Derivative Instruments, beginning on page FS-15 and in Note 10 to the Consolidated Financial Statements, Financial and Derivative Instruments, beginning on page FS-39.
The index to Managements Discussion and Analysis, Consolidated Financial Statements and Supplementary Data is presented on page FS-1.
The companys management has evaluated, with the participation of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the companys disclosure controls and procedures were effective as of December 31, 2010.
The companys management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The companys management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the companys internal control over financial reporting based on the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, the companys management concluded that internal control over financial reporting was effective as of December 31, 2010.
The effectiveness of the companys internal control over financial reporting as of December 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report included on page FS-26.
During the quarter ended December 31, 2010, there were no changes in the companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the companys internal control over financial reporting.
The companys coal and other mine safety information is presented in Exhibit 99.2 on page E-28.
Executive Officers of the Registrant at February 24, 2011
The Executive Officers of the Corporation consist of the Chairman of the Board, the Vice Chairman of the Board and such other officers of the Corporation who are members of the Executive Committee.
The information about directors required by Item 401(a) and (e) of Regulation S-K and contained under the heading Election of Directors in the Notice of the 2011 Annual Meeting and 2011 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934 (the Exchange Act), in connection with the companys 2011 Annual Meeting of Stockholders (the 2011 Proxy Statement), is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 405 of Regulation S-K and contained under the heading Stock Ownership Information Section 16(a) Beneficial Ownership Reporting Compliance in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 406 of Regulation S-K and contained under the heading Board Operations Business Conduct and Ethics Code in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 407(d)(4) and (5) of Regulation S-K and contained under the heading Board Operations Board Committee Membership and Functions in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
There were no changes to the process by which stockholders may recommend nominees to the Board of Directors during the last fiscal year.
The information required by Item 402 of Regulation S-K and contained under the headings Executive Compensation and Director Compensation in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 407(e)(4) of Regulation S-K and contained under the heading Board Operations Board Committee Membership and Functions in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 407(e)(5) of Regulation S-K and contained under the heading Board Operations Management Compensation Committee Report in the 2011 Proxy Statement is incorporated herein by reference into this Annual Report on Form 10-K. Pursuant to the rules and regulations of the SEC under the Exchange Act, the information under such caption incorporated by reference from the 2011 Proxy Statement shall not be deemed filed for purposes of Section 18 of the Exchange Act nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
The information required by Item 403 of Regulation S-K and contained under the heading Stock Ownership Information Security Ownership of Certain Beneficial Owners and Management in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 201(d) of Regulation S-K and contained under the heading Equity Compensation Plan Information in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 404 of Regulation S-K and contained under the heading Board Operations Transactions with Related Persons in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 407(a) of Regulation S-K and contained under the heading Election of Directors Independence of Directors in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
The information required by Item 9(e) of Schedule 14A and contained under the heading Proposal to Ratify the Appointment of the Independent Registered Public Accounting Firm in the 2011 Proxy Statement is incorporated by reference into this Annual Report on Form 10-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
(2) Financial Statement Schedules:
Pursuant to the requirements of Section 13 or 15(d) 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, on the 24th day of February, 2011.
John S. Watson, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2011.
Financial Table of Contents
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Key Financial Results
Earnings by Major Operating Area
The activities reported in Chevrons upstream and downstream operating segments have changed effective January 1, 2010. Results for the chemicals businesses are now reported as part of the downstream segment. In addition, the companys significant upstream-enabling operations, primarily a gas-to-liquids project and major international export pipelines, have been reclassified from the downstream segment to the upstream segment. Prior period information in this report has been revised to conform to the 2010 presentation.
Refer to the Results of Operations section beginning on page FS-7 for a discussion of financial results by major operating area for the three years ended December 31, 2010.
Business Environment and Outlook
Chevron is a global energy company with substantial business activities in the following countries: Angola, Argentina, Australia, Azerbaijan, Bangladesh, Brazil, Cambodia, Canada, Chad, China, Colombia, Democratic Republic of the Congo, Denmark, Indonesia, Kazakhstan, Myanmar, the Netherlands, Nigeria, Norway, the Partitioned Zone between
Saudi Arabia and Kuwait, the Philippines, Republic of the Congo, Singapore, South Africa, South Korea, Thailand, Trinidad and Tobago, the United Kingdom, the United States, Venezuela and Vietnam.
Earnings of the company depend mostly on the profitability of its upstream and downstream 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 other activities and investments. Earnings for the company in any period may also be influenced by events or transactions that are infrequent or unusual in nature.
The companys operations, especially upstream, can also be affected by changing economic, regulatory and political environments in the various countries in which it operates, including the United States. Civil unrest, acts of violence or strained relations between a government and the company or other governments may impact the companys operations or investments. Those developments have at times significantly affected the companys operations and results and are carefully considered by management when evaluating the level of current and future activity in such countries.
To sustain its long-term competitive position in the upstream business, the company must develop and replenish an inventory of projects that offer attractive 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. From time to time, certain governments have sought to renegotiate contracts or impose additional costs on the company. 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 continually evaluates opportunities to dispose of assets that are not expected to provide sufficient long-term value or to acquire assets or operations complementary to its asset base to help augment the companys financial performance and growth. Refer to the Results of Operations section beginning on page FS-7 for discussions of net gains on asset sales during 2010. Asset dispositions and restructurings may also occur in future periods and could result in significant gains or losses.
In recent years, Chevron and the oil and gas industry generally experienced an increase in certain costs that exceeded the general trend of inflation in many areas of the world. This increase in costs affected the companys operating expenses and capital programs for all business segments, but particularly for Upstream. Softening of these cost pressures started in late 2008 and continued through most of 2009. Industry costs began to level out in fourth quarter 2009 and rose slightly in 2010. The company continues to actively manage its schedule of work, contracting, procurement and supply-chain activities to effectively manage costs.
The company closely monitors developments in the financial and credit markets, the level of worldwide economic activity and the implications for the company of movements in prices for crude oil and natural gas. Management takes these developments into account in the conduct of daily operations and for business planning. The company remains confident of its underlying financial strength to address potential challenges presented in the current environment. (Refer also to the Liquidity and Capital Resources section beginning on page FS-12.)
Comments related to earnings trends 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 damage and disruptions, competing fuel prices, and regional supply interruptions or fears thereof 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 seeks to manage risks in operating its facilities and businesses. Besides the impact of the fluctuation in prices for crude oil and natural gas, the longer-term trend in earnings for the upstream segment is also a function of other factors, including the companys ability to find or acquire and efficiently produce crude oil and natural gas, changes in fiscal terms of contracts and changes in tax laws and regulations.
Price levels for capital and exploratory costs and operating expenses associated with the production of crude oil and natural gas can also be subject to external factors beyond the companys control. External factors include not only the general level of inflation, but also commodity prices and prices charged by the industrys material and service providers, which can be affected by the volatility of the industrys own supply-and-demand conditions for such materials and services. Capital and exploratory expenditures and operating expenses can also be affected by damage to production facilities caused by severe weather or civil unrest.
The chart at the left shows the trend in benchmark prices for West Texas Intermediate (WTI) crude oil and U.S. Henry Hub natural gas. The WTI price averaged $79 per barrel for the full-year 2010, compared to $62 in 2009. As of mid-February 2011, the WTI price was about $85.
A differential in crude oil prices exists between high quality (high-gravity, low-sulfur) crudes and those of lower quality (low-gravity, high-sulfur). The amount of the differential in any period is associated with the supply of heavy crude available versus the demand, which is a function of the number of refineries that are able to process this lower quality feedstock into light products (motor gasoline, jet fuel, aviation gasoline and diesel fuel). The differential widened during 2010 primarily due to both strong diesel prices and relatively weaker fuel oil prices.
Chevron produces or shares in the production of heavy crude oil in California, Chad, Indonesia, the Partitioned Zone between Saudi Arabia and Kuwait, Venezuela and in certain fields in Angola, China and the United Kingdom sector of the North Sea. (See page FS-11 for the companys average U.S. and international crude oil realizations.)
In contrast to price movements in the global market for crude oil, price changes for natural gas in many regional markets are more closely aligned with supply-and-demand conditions in those markets. In the United States, prices at Henry Hub averaged about $4.50 per thousand cubic feet (MCF) during 2010, compared with about $3.80 during 2009. As of mid-February 2011, the Henry Hub spot price was about $4.20 per MCF. Fluctuations in the price for natural gas in the United States are closely associated with customer demand relative to the volumes produced in North America and the level of inventory in underground storage.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Certain international natural gas markets in which the company operates have different supply, demand and regulatory circumstances, which historically have resulted in lower average sales prices for the companys production of natural gas in these locations. In some of these locations Chevron is investing in long-term projects to install infrastructure to produce and liquefy natural gas for transport by tanker to other markets where greater demand results in higher prices. International natural gas realizations averaged about $4.60 per MCF during 2010, compared with about $4.00 per MCF during 2009. These realizations reflect a strong demand for energy in certain Asian markets. (See page FS-11 for the companys average natural gas realizations for the U.S. and international regions.)
The companys worldwide net oil-equivalent production in 2010 averaged 2.763 million barrels per day. About one-fifth of the companys net oil-equivalent production in 2010 occurred in the OPEC-member countries of Angola, Nigeria, Venezuela and the Partitioned Zone between Saudi Arabia and Kuwait. OPEC quotas had no effect on the companys net crude oil production in 2010, while production in 2009 was reduced by an average of 20,000 barrels per day due to quotas imposed by OPEC. All of the imposed curtailments took place during the first half of 2009. At the December 2010 meeting, members of OPEC supported maintaining production quotas in effect since December 2008.
The company estimates that oil-equivalent production in 2011 will average approximately 2.790 million barrels per day. This estimate is subject to many factors and uncer-
tainties, including additional quotas that may be imposed by OPEC, price effects on production volumes calculated under production sharing and variable-royalty provisions of certain agreements, changes in fiscal terms or restrictions on the scope of company operations, delays in project startups, fluctuations in demand for natural gas in various markets, weather conditions that may shut in production, civil unrest, changing geopolitics, delays in completion of maintenance turnarounds, greater-than-expected declines in production from mature fields, or other disruptions to operations. The outlook for future production levels is also 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. Investments in upstream projects generally begin well in advance of the start of the associated crude oil and natural gas production. A significant majority of Chevrons upstream investment is made outside the United States.
Refer to the Results of Operations section on pages FS-7 through FS-8 for additional discussion of the companys upstream business.
Refer to Table V beginning on page FS-71 for a tabulation of the companys proved net oil and gas reserves by geographic area, at the beginning of 2008 and each year-end from 2008 through 2010, and an accompanying discussion of major changes to proved reserves by geographic area for the three-year period ending December 31, 2010.
Gulf of Mexico Update In April 2010, an accident occurred on the Transocean Deepwater Horizon, a deepwater drilling rig in the Gulf of Mexico, resulting in a loss of life, the sinking of the rig and a significant oil spill. The rig was drilling an exploratory well at the BP-operated Macondo prospect. Chevron was not a participant in the well. Subsequent to the event, the U.S. Department of the Interior put in place a moratorium on the drilling of wells using subsea blowout preventers (BOPs) or surface BOPs on a floating facility in the Gulf of Mexico and the Pacific regions. In October 2010, the Secretary of the Interior lifted the drilling moratorium, provided that operators certify compliance with all the newly expanded rules and requirements, and demonstrate the availability of adequate blowout containment resources.
The moratorium and the ensuing slowdown in issuing drilling permits since the moratorium was lifted have resulted in delays in shallow water drilling activity, delayed the drilling of exploratory deepwater wells and impacted development drilling on both operated and nonoperated projects in the Gulf of Mexico. The companys daily net oil-equivalent production in the Gulf of Mexico was reduced by about 10,000 barrels per day for the full year. The company has submitted several deepwater drilling permit applications and plans to submit additional applications in 2011. Two deepwater drillships are on stand-by, pending issuance of permits from
the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), to drill wells in the Gulf of Mexico. A third deepwater drillship is drilling a water injection well at the Tahiti Field. Additionally, the completion of previously drilled wells has recommenced at the nonoperated Perdido and Caesar/Tonga projects. The future effects of this incident, including any new or additional regulations that may be adopted and the timing of BOEMRE issuing drilling permits, are not fully known at this time. Chevron remains committed to deepwater exploration and development in the Gulf of Mexico and other deepwater basins around the world.
During the moratorium, Chevron participated in a number of industry efforts to identify opportunities to improve industry standards in prevention, intervention and spill response. In July 2010, Chevron and several other companies announced plans to build and deploy a rapid response system that will be available to capture and contain crude oil in the unlikely event of a future well blowout in the deepwater Gulf of Mexico. The new system will be engineered to be used in water depths up to 10,000 feet and designed to have capacity to contain 100,000 barrels per day, with potential for expansion. The companies committed to equally fund the initial $1 billion investment in the system. There will be additional ongoing costs for operations and maintenance of the system components. An initial agreement to secure containment equipment has been announced, and other equipment is expected to be secured and available in the coming months, with the new system targeted for completion in early 2012. The companies have formed an organization, the Marine Well Containment Company, to operate and maintain this system. Other companies have been invited and encouraged to participate in this organization.
Downstream Earnings for the downstream segment are closely tied to margins on the refining, manufacturing and marketing of products that include gasoline, diesel, jet fuel, lubricants, fuel oil, fuel and lubricant additives, and petrochemicals. Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals and by changes in the price of crude oil, other refinery and petrochemical feedstocks, and natural gas. Industry margins can also be influenced by inventory levels, geopolitical events, cost of materials and services, refinery or chemical plant capacity utilization, maintenance programs and disruptions at refineries or chemical plants resulting from unplanned outages due to severe weather, fires or other operational events.
Other factors affecting profitability for downstream operations include the reliability and efficiency of the companys refining, marketing and petrochemical assets, the effectiveness of the crude oil and product supply functions and the volatility of tanker-charter rates for the companys shipping operations, which are driven by the industrys demand for crude oil and product tankers. Other factors beyond the companys control include the general level of inflation and energy costs to operate the companys refining, marketing and petrochemical assets.
The companys most significant marketing areas are the West Coast of North America, the U.S. Gulf Coast, Latin
America, Asia, southern Africa and the United Kingdom. Chevron operates or has significant ownership interests in refineries in each of these areas except Latin America. In third quarter 2010, the company completed its exit from the District of Columbia, Delaware, Indiana, Kentucky, North Carolina, New Jersey, Maryland, Ohio, Pennsylvania, South Carolina, Virginia, West Virginia and parts of Tennessee, where the company sold Chevron- and Texaco-branded motor fuels to retail customers through approximately 1,100 stations, and to commercial and industrial customers through supply arrangements. Sales in these markets represented approximately 8 percent of the companys total 2009 U.S. retail fuel sales volumes.
The companys refining and marketing margins in 2010 improved over 2009, but remain relatively weak due to the economic slowdown, excess refined product supplies and surplus refining capacity. Expecting these conditions to continue for several years, in first quarter 2010 the company announced that its downstream businesses would be restructured to improve operating efficiency and achieve sustained improvement in financial performance. As part of this restructuring, employee-reduction programs were announced for the United States and international downstream operations. The initial estimate included approximately 3,200 employees. Due to redeployment efforts within the company, it is currently expected that approximately 2,800 employees in the downstream operations will be terminated under these programs before the end of 2011. About 1,100 of the affected employees are located in the United States. During 2010, 1,400 employees were terminated worldwide. Refer to Note 23 of the Consolidated Financial Statements, beginning on page FS-59, for further discussion. In 2010, the company solicited bids for 13 U.S. terminals and certain operations in Europe (including the companys Pembroke Refinery), the Caribbean, and select Central America and Africa markets. These sales are part of the companys ongoing effort to concentrate downstream resources and capital on strategic global assets. These potential market exits, dispositions of assets, and other actions may result in gains or losses in future periods. Through fourth quarter 2010, the company completed the sale of six U.S. terminals and certain marketing businesses in Africa, which resulted in gains that were not material to the company. Also, in late 2010 the company completed the sale of its 23.4 percent ownership interest in the Colonial Pipeline Company, which resulted in a gain on sale of nearly $400 million.
Refer to the Results of Operations section on page FS-9 for additional discussion of the companys downstream operations.
All Other consists of mining operations, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, alternative fuels, and technology companies. In first quarter 2010, employee-reduction programs were announced for the corporate staffs. As of year-end, it was expected that approximately 400 employees from the corporate staffs will be terminated under the programs by the end of 2011, including approximately 100 who were terminated in 2010. Refer to Note 23 of the Consolidated Financial Statements, beginning on page FS-59, for further discussion.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Key operating developments and other events during 2010 and early 2011 included the following:
Australia Construction activities on Barrow Island and other activities for the Gorgon Project progressed on schedule during 2010 with the award of approximately $25 billion of contracts for materials and services, clearing of the plant site,
completion of the first stage of the construction village, commencement of module fabrication, and progression of studies on the possible expansion of the project. In early 2011, the company signed an additional binding liquefied natural gas (LNG) Sales and Purchase Agreement (SPA) with an Asian customer. The company has signed five binding LNG SPAs with Asian customers for delivery of about 4.7 million metric tons of LNG per year. Negotiations continue to finalize the two remaining nonbinding Heads of Agreement (HOAs) as binding SPAs, which would bring LNG delivery commitments to a combined total of about 90 percent of Chevrons share of LNG from the project. Through the end of 2010, the company has signed nonbinding HOAs with three Asian customers for the delivery of about 80 percent of Chevrons net LNG offtake from the Chevron-operated Wheatstone Project. Negotiations continue to move the three HOAs to binding SPAs with these customers. These three customers have also agreed to acquire a combined 21.8 percent nonoperated working interest in the Wheatstone field licenses and a 17.5 percent interest in the foundation natural gas processing facilities at the time of the final investment decision. The project, currently undergoing front-end engineering and design (FEED), has a planned capacity of 8.9 million metric tons per year.
During 2010, the company announced additional deepwater natural gas discoveries, including the Clio and Acme prospects in 67 percent-owned Block WA-205-P, Yellowglen prospect in 50 percent-owned Block WA-268-P, Brederode prospect in 50 percent-owned Block WA-364-P,
and Sappho prospect in 50 percent-owned Block WA-392-P. In February 2011, the company announced a natural gas discovery in the Orthrus prospect in 50 percent-owned Block WA-24-R. These discoveries are expected to contribute to further growth at company-operated LNG projects in Australia.
Cambodia The company completed three successful exploration wells during 2010. In the first-half 2011, a 30-year production permit for the production sharing contract is expected to be approved by the government. A final investment decision for construction of a wellhead platform and a floating storage and offloading vessel is expected in 2011.
Canada First production was achieved from the Jackpine Mine in third quarter 2010 as a result of Athabasca Oil Sands Project Expansion 1 activities. In addition, through 2010 the company acquired approximately 200,000 acres of shale gas leasehold in western Canada. The appraisal of this acreage is expected to begin by the second-half 2011.
China The company acquired a 100 percent interest in Blocks 53-30 and 64-18, and a 59 percent interest in Block 42-05, covering a combined total exploratory acreage of approximately 5.2 million acres in the South China Seas Pearl River Mouth Basin.
Indonesia A final investment decision was reached for Development Area 13 of the Duri Field, where Chevron holds a 100 percent working interest.
The company awarded FEED contracts in December 2010 for the Gendalo-Gehem natural gas development in the Makassar Strait offshore East Kalimantan, Indonesia. Contracts for floating production units, subsea and flowline systems, export pipelines, and an onshore receiving facility were awarded for the project.
Kazakhstan/Russia Approval was obtained from the shareholders and governing bodies of the Caspian Pipeline Consortium for a $5.4 billion expansion of the Caspian Pipeline. The capacity of the 935-mile pipeline, which carries crude oil from western Kazakhstan to a dedicated terminal on the Black Sea, will increase to 1.4 million barrels per day.
Liberia The company acquired a 70 percent interest and operatorship in three deepwater blocks covering 2.4 million acres off the coast of Liberia in western Africa. A three-year exploratory program began in fourth quarter 2010.
Poland Acquisition work commenced in October 2010 on a 2-D seismic survey across the companys four shale gas licenses in southeast Poland. Chevron has a 100 percent-owned and operated interest in these four concessions, totalling 1.1 million acres.
Republic of the Congo Discoveries were confirmed at the Bilondo Marine 2 and 3 wells within the Moho-Bilondo license. Chevron has a 31.5 percent interest in the permit area.
Romania The company successfully bid on three shale gas exploration blocks, comprising approximately 670,000 acres, in the southeast region of the country. In February
2011, the company acquired a 100 percent interest in the EV-2 Barlad shale gas concession, covering 1.5 million acres in the northeast region of the country.
Russia The company signed a nonbinding HOA for a deepwater development partnership on the Shatsky Ridge in the eastern Black Sea.
Turkey The company signed a Joint Operation Agreement for an exploration license in the Black Sea. Chevron acquired a 50 percent interest in a western portion of License 3921, a 5.6 million-acre block located 220 miles northwest of the capital city of Ankara.
United States In March 2010, first oil was achieved at the nonoperated Perdido Regional Development in the Gulf of Mexico. Located in nearly 8,000 feet of water, Perdido is also the worlds deepest offshore oil and gas drilling and production spar. Chevron has a 37.5 percent working interest in the Perdido regional host facility.
The company sanctioned development of the Jack/St. Malo project in October 2010, the companys first operated project located in the Lower Tertiary trend in the deepwater Gulf of Mexico. Seven exploration and appraisal wells have been successfully and safely drilled at these fields since 2003. Chevron has a working interest of 50 percent in the Jack Field and 51 percent in the St. Malo Field.
In December 2010, the company sanctioned development of the 60 percent-owned and operated Big Foot project in the deepwater Gulf of Mexico.
In April 2010, the company successfully bid for new exploration acreage in a central Gulf of Mexico lease sale.
In February 2011, the company completed the acquisition of Atlas Energy, Inc., for $4.47 billion including assumed debt. Atlas holds one of the premier acreage positions in the Marcellus Shale, concentrated in southwestern Pennsylvania.
Venezuela In February 2010, a Chevron-led consortium was named the operator of the Carabobo 3 heavy-oil project, composed of three blocks in the Orinoco Oil Belt of eastern Venezuela. A joint operating company, Petroindependencia, was formed in May 2010, and work toward commercialization of the Carabobo 3 project was initiated. The consortium holds a combined 40 percent interest in the project.
Africa In December 2010 and February 2011, the company completed the sale of its marketing businesses in Malawi, Mauritius, Réunion, Tanzania and Zambia.
Caribbean and Central America In November 2010, the company announced an agreement to sell its fuels marketing and aviation fuels businesses in Antigua, Barbados, Belize, Costa Rica, Dominica, French Guiana, Grenada, Guadeloupe, Guyana, Martinique, Nicaragua, St. Kitts, St. Lucia, St. Vincent, and Trinidad and Tobago. The transactions are expected to close by third quarter 2011, following receipt of required local regulatory and government approvals. This sale is part of the companys ongoing effort to concentrate downstream resources and capital on strategic global assets.
Europe In February 2011, the company announced an agreement to sell its fuels, finished lubricants and aviation fuels businesses in Spain.
South Korea A new, 60,000-barrel-per-day heavy-oil hydrocracker was commissioned and reached full capacity in third quarter 2010 at the 50 percent-owned GS Caltex Yeosu Refinery in South Korea. Also at the Yeosu Refinery, GS Caltex announced plans to construct a 53,000-barrel-per-day gas oil fluid catalytic cracking unit. The unit is scheduled for start-up in 2013. Both units are designed to increase high-value product yield and lower feedstock costs.
United States In October 2010, the company sold its 23.4 percent ownership interest in the Colonial Pipeline Company.
In January 2011, the company announced the final investment decision on a $1.4 billion project to construct a lubricants manufacturing facility at the Pascagoula refinery. The facility will manufacture 25,000 barrels per day of premium base oil.
Common Stock Dividends The quarterly common stock dividend increased by 5.9 percent in April 2010, to $0.72 per common share, making 2010 the 23rd consecutive year that the company increased its annual dividend payment.
Common Stock Repurchase Program In July 2010, the company terminated the three-year $15 billion share repurchase program that had been initiated in September 2007. In its place, the Board of Directors approved a new, ongoing share repurchase program with no set term or monetary limits. The company began purchases of its common stock in the fourth quarter, and as of December 31, 2010, 8.8 million common shares had been acquired under the program for $750 million.
Results of Operations
Major Operating Areas The following section presents the results of operations for the companys business segments Upstream and Downstream as well as for All Other. Earnings are also presented for the U.S. and international geographic areas of the Upstream and Downstream business segments. (Refer to Note 11, beginning on page FS-41, for a discussion of the companys reportable segments, as defined in accounting standards for segment reporting (Accounting Standards Codification (ASC) 280)). This section should also be read in conjunction with the discussion in Business Environment and Outlook on pages FS-2 through FS-5.
U.S. upstream earnings of $4.1 billion in 2010 increased $1.9 billion from 2009. Higher prices for crude oil and natural gas increased earnings by $2.1 billion between periods. Partly offsetting these effects were higher operating expenses of $200 million, in part due to the Gulf of Mexico drilling moratorium. Lower exploration expenses were essentially offset by higher tax items and higher depreciation expenses.
U.S. upstream earnings of $2.3 billion in 2009 decreased $4.9 billion from 2008. Lower prices for crude oil and natural gas reduced earnings by about $5.2 billion between periods,
Managements Discussion and Analysis of
Financial Condition and Results of Operations
and gains on asset sales declined by approximately $900 million. Partially offsetting these effects was a benefit of about $1.3 billion resulting from an increase in net oil equivalent production. An approximate $600 million benefit to income from lower operating expenses was more than offset by higher depreciation expense. The benefit from lower operating expenses was largely associated with an absence of charges for damages related to the 2008 hurricanes in the Gulf of Mexico.
The companys average realization for U.S. crude oil and natural gas liquids in 2010 was $71.59 per barrel, compared with $54.36 in 2009 and $88.43 in 2008. The average natural gas realization was $4.26 per thousand cubic feet in 2010, compared with $3.73 and $7.90 in 2009 and 2008, respectively.
Net oil-equivalent production in 2010 averaged 708,000 barrels per day, down 1 percent from 2009 and up 6 percent from 2008. Natural field declines between 2010 and 2009 were mostly offset by increased production from the Tahiti Field. The increase between 2009 and 2008 was mainly due to the start-up of the Blind Faith Field in late 2008 and the Tahiti Field in second quarter 2009. The net liquids component of oil-equivalent production for 2010 averaged 489,000 barrels per day, up 1 percent from 2009 and up 16 percent compared with 2008. Net natural gas production averaged 1.3 billion cubic feet per day in 2010, down approximately 6 percent from 2009 and down about 12 percent from 2008. Refer to the Selected Operating Data table on page FS-11 for the three-year comparative production volumes in the United States.
Earnings of $13.6 billion in 2010 increased $4.9 billion from 2009. Higher prices for crude oil and natural gas increased earnings by $4.3 billion, and an increase in net oil-equivalent production in the 2010 period benefited income by about $1.2 billion. This net benefit was partly offset by higher operating expenses of $500 million. A favorable change in tax items of about $450 million was mostly offset by higher depreciation expenses. The 2009 period included gains of about $500 million on asset sales and tax items related to the Gorgon Project in Australia. Foreign currency effects decreased earnings by $293 million in the 2010 period, compared with a reduction of $578 million a year earlier, primarily reflecting noncash losses on balance sheet remeasurement.
International upstream earnings of $8.7 billion in 2009 decreased $6.4 billion from 2008. Lower prices for crude oil and natural gas reduced earnings by $7.0 billion, while foreign currency effects and higher operating and depreciation expenses decreased income by a total of $2.2 billion. Partially offsetting these items were benefits of $2.3 billion resulting from an increase in sales volumes of crude oil and about $500 million associated with asset sales and tax items related to the Gorgon Project.
The companys average realization for international crude oil and natural gas liquids in 2010 was $72.68 per barrel, compared with $55.97 in 2009 and $86.51 in 2008. The average natural gas realization was $4.64 per thousand cubic feet in 2010, compared with $4.01 and $5.19 in 2009 and 2008, respectively.
International net oil-equivalent production of 2.06 million barrels per day in 2010 increased about 3 percent and 11 percent from 2009 and 2008, respectively. The volumes in 2010 include synthetic oil that was reported in 2009 and 2008 as production from oil sands in Canada. Absent the impact of prices on certain production-sharing and variable-royalty agreements, net oil-equivalent production increased 5 percent in 2010 and 4 percent in 2009, when compared with the prior years production.
The net liquids component of international oil-equivalent production was 1.4 million barrels per day in 2010, an increase of approximately 3 percent from 2009 and 14 percent from 2008. International net natural gas production of 3.7 billion cubic feet per day in 2010 was up 4 percent and 3 percent from 2009 and 2008, respectively.
Refer to the Selected Operating Data table, on page FS-11, for the three-year comparative of international production volumes.
U.S. downstream earned $1,339 million in 2010, compared with a loss of $121 million in 2009. Improved margins on refined products increased earnings by about $550 million. Also contributing to the increase was a nearly $400 million gain on the sale of a 23.4 percent ownership interest in the Colonial Pipeline Company. Higher earnings from chemicals operations increased earnings by about $300 million, largely from improved margins at the 50 percent-owned Chevron Phillips Chemical Company LLC (CPChem).
Earnings decreased approximately $1.5 billion in 2009 from 2008. Lower refined product margins resulted in an earnings decline of $1.7 billion. Partially offsetting the effects of lower refined product margins was a decrease in operating expenses, which benefited earnings by $300 million, and an increase of about $100 million in earnings from CPChem. The improvement for CPChem reflected lower utility and manufacturing costs, as well as the absence of an impairment recorded in 2008. These benefits more than offset lower margins on the sale of commodity chemicals.
Sales volumes of refined products were 1.35 million barrels per day in 2010, a decrease of 4 percent from 2009. The decline was mainly in gasoline and jet fuel sales. Sales volumes of refined products were 1.40 million barrels per day in 2009, a decrease of 1 percent from 2008. U.S. branded gasoline sales decreased to 573,000 barrels per day in 2010, representing approximately 7 percent and 5 percent declines from 2009 and 2008, respectively. The decline in 2010, relative to 2009 and 2008, was primarily due to the previously announced exits from selected eastern U.S. retail markets.
Refer to the Selected Operating Data table on page FS-11 for a three-year comparison of sales volumes of gasoline and other refined products and refinery input volumes.
International downstream earned $1,139 million in 2010, compared with $594 million in 2009. Higher margins on the manufacture and sale of gasoline and other refined products increased earnings by about $1.0 billion, and a favorable swing in mark-to-market effects on derivative instruments benefited earnings by about $300 million. Partially offsetting these items was the absence of 2009 gains on asset sales of about $550 million and higher expenses of about $200 million, primarily related to employee reduction and
transportation costs. Foreign currency effects reduced earnings by $135 million in 2010, compared with a reduction of $191 million in 2009.
Earnings of $594 million in 2009 decreased about $1.2 billion from 2008. A decline of approximately $2.6 billion between periods was associated with weaker margins on the manufacture and sale of gasoline and other refined products and the absence of gains recorded in 2008 on derivative instruments. Foreign currency effects produced an unfavorable variance of about $300 million. Partially offsetting these items were a $1.0 billion benefit from lower operating expenses associated mainly with contract labor, professional services and transportation costs, and about a $550 million increase in gains on asset sales related to refined products marketing operations, primarily in certain countries in Latin America and Africa.
International refined product sales volumes of 1.76 million barrels per day in 2010 were 5 percent lower than in 2009, mainly due to asset sales in certain countries in Africa and Latin America. Refined product sales volumes of 1.85 million barrels per day in 2009 were 8 percent lower than in 2008, mainly due to the effects of asset sales and lower demand.
Refer to the Selected Operating Data table, on page FS-11, for a three-year comparison of sales volumes of gasoline and other refined products and refinery input volumes.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
All Other includes mining operations, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, alternative fuels and technology companies.
Net charges in 2010 increased $209 million from 2009, mainly due to higher expenses for employee compensation and benefits and higher corporate tax items, partly offset by lower provisions for environmental remediation at sites that previously had been closed or sold. Net charges in 2009 decreased $468 million from 2008 due to lower provisions for environmental remediation at sites that previously had been closed or sold, favorable foreign currency effects and lower expenses for employee compensation and benefits.
Consolidated Statement of Income
Comparative amounts for certain income statement categories are shown below:
Sales and other operating revenues increased in 2010, mainly due to higher prices for crude oil, natural gas and refined products. Lower 2009 prices resulted in decreased revenues compared with 2008.
Income from equity affiliates increased in 2010 from 2009 largely due to higher upstream-related earnings from Tengizchevroil (TCO) in Kazakhstan and Petropiar in Venezuela, principally related to higher prices for crude oil and increased crude oil production. Downstream-related affiliate earnings were also higher between the comparative periods, primarily due to higher earnings from CPChem, as a result of higher margins on sales of commodity chemicals. Improved margins on refined products and a favorable swing in foreign currency effects at GS Caltex in South Korea also contributed to the increase in downstream affiliate earnings in the 2010 period. Income from equity affiliates decreased in 2009 from 2008. Upstream-related affiliate income declined about $1.3 billion mainly due to lower earnings for TCO as a result of lower prices for crude oil. Downstream-related affiliate earnings were lower by approximately $1.0 billion primarily due to weaker margins and an unfavorable swing in foreign
currency effects. Refer to Note 12, beginning on page FS-43, for a discussion of Chevrons investments in affiliated companies.
Other income of $1.1 billion in 2010 included net gains of approximately $1.1 billion on asset sales. Other income in both 2009 and 2008 included net gains from asset sales of $1.3 billion. Interest income was approximately $120 million in 2010, $95 million in 2009 and $340 million in 2008. Foreign currency effects decreased other income by $251 million in 2010 and $466 million in 2009, while increasing other income by $355 million in 2008. In addition, other income in 2008 included approximately $700 million in favorable settlements and other items.
Crude oil and product purchases in 2010 increased $16.8 billion from 2009 due to higher prices for crude oil, natural gas and refined products. Crude oil and product purchases in 2009 decreased $71.7 billion from 2008 due to lower prices for crude oil, natural gas and refined products.
increased from 2008 mainly due to higher amounts for well write-offs in the United States and international operations.
Effective income tax rates were 40 percent in 2010, 43 percent in 2009 and 44 percent in 2008. The rate was lower in 2010 than in 2009 primarily due to international upstream impacts. A lower effective tax rate in international upstream in 2010 was primarily driven by an increased utilization of tax credits, which had a greater impact on the rate than one-time deferred tax benefits and relatively low tax rates on asset sales in 2009. Also, a smaller portion of company income was earned in higher tax rate international upstream jurisdictions in 2010 than in 2009. Finally, foreign currency remeasurement impacts caused a reduction in the effective tax rate between periods. The rate was lower in 2009 than in 2008 mainly due to the effect in 2009 of deferred tax benefits and relatively low tax rates on asset sales, both related to an international upstream project. In addition, a greater proportion of before-tax income was earned in 2009 by equity affiliates than in 2008. (Equity affiliate income is reported as a single amount on an after-tax basis on the Consolidated Statement of Income.) Partially offsetting these items was the effect of a greater proportion of income earned in 2009 in tax jurisdictions with higher tax rates. Refer also to the discussion of income taxes in Note 15 beginning on page FS-47.
Selected Operating Data1,2
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Cash, cash equivalents, time deposits and marketable securities Total balances were $17.1 billion and $8.8 billion at December 31, 2010 and 2009, respectively. Cash provided by operating activities in 2010 was $31.4 billion, compared with $19.4 billion in 2009 and $29.6 billion in 2008. Cash provided by operating activities was net of contributions to employee pension plans of approximately $1.4 billion, $1.7 billion and $800 million in 2010, 2009 and 2008, respectively. Cash provided by investing activities included proceeds and deposits related to asset sales of $2.0 billion in 2010, $2.6 billion in 2009 and $1.5 billion in 2008. Cash provided by operating activities during 2010 was more than sufficient to fund the companys $21.8 billion capital and exploratory program, pay $5.7 billion of dividends to shareholders and repurchase $750 million of common stock.
Restricted cash of $855 million and $123 million associated with various capital-investment projects at December 31, 2010 and 2009, respectively, was invested in short-term marketable securities and recorded as Deferred charges and other assets on the Consolidated Balance Sheet.
Dividends Dividends paid to common stockholders were approximately $5.7 billion in 2010, $5.3 billion in 2009 and $5.2 billion in 2008. In April 2010, the company increased its quarterly common stock dividend by 5.9 percent, to $0.72 per share.
Debt and capital lease obligations Total debt and capital lease obligations were $11.5 billion at December 31, 2010, up from $10.5 billion at year-end 2009.
The $1.0 billion increase in total debt and capital lease obligations during 2010 included issuance of $1.25 billion of tax-exempt bonds, partially offset by a decrease in short-term obligations. The companys debt and capital lease obligations due within one year, consisting primarily of commercial paper, redeemable long-term obligations and the current portion of long-term debt, totaled $5.6 billion at December 31, 2010, up from $4.6 billion at year-end 2009. Of this amount, $5.4 billion and $4.2 billion were reclassified to long-term at the end of each period, respectively. At year-end 2010, settlement of these obligations was not expected to require the use of working capital in 2011, as the company had the intent and the ability, as evidenced by committed credit facilities, to refinance them on a long-term basis.
At December 31, 2010, the company had $6.0 billion in committed credit facilities with various major banks, expiring in May 2013, which enable the refinancing of short-term obligations on a long-term basis. These facilities support commercial paper borrowing and can also 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 the 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 December 31, 2010. In addition, the company has an automatic shelf registration statement that expires in March 2013 for an unspecified amount of nonconvertible debt securities issued or guaranteed by the company.
The major debt rating agencies routinely evaluate the companys debt, and the companys cost of borrowing can increase or decrease depending on these debt ratings. The company has outstanding public bonds issued by Chevron Corporation, Chevron Corporation Profit Sharing/Savings Plan Trust Fund, Texaco Capital Inc. and Union Oil Company of California. All of these securities are the obligations of, or guaranteed by, Chevron Corporation and are rated AA by Standard and Poors Corporation and Aa1 by Moodys Investors Service. The companys U.S. commercial paper is rated A-1+ by Standard and Poors and P-1 by Moodys. All of these ratings denote high-quality, investment-grade securities.
The companys future debt level is dependent primarily on results of operations, the capital program and cash that may be generated from asset dispositions. Based on its high-quality debt ratings, the company believes that it has substantial borrowing capacity to meet unanticipated cash requirements. The company also can modify capital spending plans during periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity
Capital and Exploratory Expenditures
chemicals to provide flexibility to continue paying the common stock dividend and maintain the companys high-quality debt ratings.
Common stock repurchase program In July 2010, the company terminated the $15 billion share repurchase program initiated in September 2007. No share repurchases occurred in 2010 under the program prior to its termination. From the inception of the program, the company acquired 119 million shares at a cost of $10.1 billion. In its place, the Board of Directors approved a new, ongoing share repurchase program with no set term or monetary limits. The company expects to repurchase between $500 million and $1 billion of its common shares per quarter, at prevailing prices, as permitted by securities laws and other legal requirements and subject to market conditions and other factors. The company began purchases of its common stock in the fourth quarter, and through December 31, 2010, 8.8 million shares were purchased under the new program for $750 million.
Capital and exploratory expenditures Total expenditures for 2010 were $21.8 billion, including $1.4 billion for the companys share of equity-affiliate expenditures. In 2009 and 2008, expenditures were $22.2 billion and $22.8 billion, respectively, including the companys share of
affiliates expenditures of $1.6 billion and $2.3 billion, respectively, and $2 billion for the extension of an upstream concession in 2009.
Of the $21.8 billion of expenditures in 2010, 87 percent, or $18.9 billion, was related to upstream activities. Approximately 80 percent was expended for upstream operations in 2009 and 2008. International upstream accounted for about 82 percent of the worldwide upstream investment in 2010, about 80 percent in 2009 and about 70 percent in 2008, reflecting the companys continuing focus on opportunities available outside the United States.
The company estimates that in 2011, capital and exploratory expenditures will be $26.0 billion, including $2.0 billion of spending by affiliates. Approximately 85 percent of the total, or $22.6 billion, is budgeted for exploration and produc-
tion activities, with $17.2 billion of this amount for projects outside the United States. Spending in 2011 is primarily focused on major development projects in Angola, Australia, Brazil, Canada, China, Nigeria, Thailand, the United Kingdom and the U.S. Gulf of Mexico. Also included is funding for base business improvements and focused exploration and appraisal programs in core hydrocarbon basins.
Worldwide downstream spending in 2011 is estimated at $2.9 billion, with about $1.7 billion for projects in the United States. Major capital outlays include projects under construction at refineries in the United States and South Korea.
Investments in technology, power generation and other corporate businesses in 2011 are budgeted at $500 million.
Noncontrolling interests The company had noncontrolling interests of $730 million and $647 million at December 31, 2010 and 2009, respectively. Distributions to noncontrolling interests totaled $72 million and $71 million in 2010 and 2009, respectively.
Pension Obligations In 2010, the companys pension plan contributions were $1.4 billion (including $1.19 billion to the U.S. plans and $258 million to the international plans). The company estimates contributions in 2011 will be approximately $950 million ($650 million for the U.S. plans and $300 million for the international plans). 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. Refer also to the discussion of pension accounting in Critical Accounting Estimates and Assumptions, beginning on page FS-20.
Current Ratio current assets divided by current liabilities, which indicates the companys ability to repay its short-term liabilities with short-term assets. The current ratio in all periods was adversely affected by the fact that Chevrons inventories are valued on a last-in, first-out basis. At year-end 2010, the book value of inventory was lower than replacement costs, based on average acquisition costs during the year, by approximately $7.0 billion.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Interest Coverage Ratio income before income tax expense, plus interest and debt expense and amortization of capitalized interest, less net income attributable to noncontrolling interests, divided by before-tax interest costs. This ratio indicates the companys ability to pay interest on outstanding debt. The companys interest coverage ratio in 2010 was higher than 2009 due to higher before-tax income. The companys interest coverage ratio in 2009 was lower than 2008 due to lower before-tax income.
Debt Ratio total debt as a percentage of total debt plus Chevron Corporation Stockholders Equity, which indicates the companys leverage. The decrease between 2010 and 2009 was due to a higher Chevron Corporation stockholders equity balance. The increase in 2009 over 2008 was primarily due to the increase in debt.
Guarantees, Off-Balance-Sheet Arrangements and Contractual Obligations, and Other Contingencies
The companys guarantee of approximately $600 million is associated with certain payments under a terminal use agreement entered into by a company affiliate. The terminal is expected to be operational by 2012. Over the approximate 16-year term of the guarantee, the maximum guarantee amount will be reduced over time as certain fees are paid by the affiliate. There are numerous cross-indemnity agreements with the affiliate and the other partners to permit recovery of any amounts paid under the guarantee. Chevron has recorded no liability for its obligation under this guarantee.
Indemnifications The company provided certain indemnities of contingent liabilities of Equilon and Motiva to 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 future payments up to $300 million. Through the end of 2010, the company had 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 interest 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 had to be asserted by February 2009 for Equilon indemnities and must be asserted no later than February 2012 for Motiva indemnities. Under the terms of these indemnities, there is no maximum limit on the amount of potential future payments. The company posts no assets as collateral and has made no payments under the indemnities.
The amounts payable for the indemnities described in the preceding paragraph 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 relating to contingent environmental liabilities associated with assets that were sold in 1997. The acquirer of those assets shared in certain environmental remediation costs up to a maximum obligation of $200 million, which had been reached at December 31, 2009. Under the indemnification agreement, after reaching the $200 million obligation, Chevron is solely responsible until April 2022, when the indemnification expires. The environmental conditions or events that are subject to these indemnities must have arisen prior to the sale of the assets in 1997.
Although the company has provided for known obligations under this indemnity 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.
Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements The company and its subsidiaries have certain other contingent liabilities with respect to long-term unconditional purchase obligations and commitments, including throughput 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,
drilling rigs, utilities, and petroleum products, to be used or sold in the ordinary course of the companys business. The aggregate approximate amounts of required payments under these various commitments are: 2011 $17.2 billion; 2012 $4.1 billion; 2013 $3.5 billion; 2014 $3.1 billion; 2015 $3.0 billion; 2016 and after $7.7 billion. A portion of these commitments may ultimately be shared with project partners. Total payments under the agreements were approximately $6.5 billion in 2010, $8.1 billion in 2009 and $5.1 billion in 2008.
The following table summarizes the companys significant contractual obligations: