Contents2 Letter to Stockholders 8 Glossary of Energy and Financial Terms 85 Chevron History4 Chevron Financial Highlights 9 Financial Review 86 Board of Directors5 Chevron Operating Highlights 68 Five-Year Financial Summary 87 Corporate Ofﬁcers6 Chevron at a Glance 69 Five-Year Operating Summary 88 Stockholder and Investor Information CHEVRON CORPORATION 2011 Annual Report 2011 Supplement to the Annual Report 2011 Corporate Responsibility Report 2011 ANNUAL REPORT 10% Recycled 100% Recyclable CVX_2011AR_BCxFC.indd 1 3/6/12 2:20 PM CHE027_CRR_cover_030512.indd 1 3/6/12 7:17 PM 222057-CVR-CS5-R1.indd 1 3/2/12 9:52 AM 201 1 Annual Report 201 1 Supplement to the Annual Report 201 1 Corporate Responsibility Report Publications and Other News SourcesOn the Cover: Chevron’s $37 billion Gorgon liqueﬁed natural gas (LNG) project offshore Western Australia is one of our largest single The Annual Report, distributed in The Corporate Responsibility Report Information about charitableinvestments to date. Shown here are the processing facilities under construction on Barrow Island. First deliveries of LNG are expectedin late 2014. Chevron is the largest holder of natural gas resources in Australia. April, summarizes the company’s is available in May on the company’s contributions is available in the ﬁnancial performance in the website, Chevron.com, or a copy may second half of the year on Chevron’sMarking a Milestone: (below) In 2011, Chevron’s El Segundo, California, reﬁnery celebrated 100 years of operation. Beginning in 1911, preceding year and provides an be requested by writing to: website, Chevron.com.when the main product was kerosene for lamps, El Segundo has grown to cover 1,000 acres (405 hectares) and has more than 1,100 miles overview of the company’s major Policy, Government and Public Affairs(1,770 kilometers) of pipelines. It reﬁnes about 270,000 barrels of crude oil per day, making El Segundo the largest reﬁnery on the WestCoast of the United States. activities. Chevron Corporation For additional information about 6101 Bollinger Canyon Road the company and the energy Chevron’s Annual Report on Form BR1X3170 industry, visit Chevron’s website, 10-K ﬁled with the U.S. Securities San Ramon, CA 94583-5177 Chevron.com. It includes articles, and Exchange Commission and the news releases, speeches, quarterly Supplement to the Annual Report, Details of the company’s political earnings information, the Proxy containing additional ﬁnancial and contributions for 20 1 1 are available Statement and the complete text of operating data, are available on the on the company’s website, this Annual Report. company’s website, Chevron.com, Chevron.com, or by writing to: or copies may be requested by Policy, Government and Public Affairs writing to: Chevron Corporation Comptroller’s Department 6101 Bollinger Canyon Road Chevron Corporation BR1X3400 6001 Bollinger Canyon Road, A3201 San Ramon, CA 94583-5177 San Ramon, CA 94583-2324 This Annual Report contains forward-looking statements — identified by words such as “expects,” “intends,” Hold this QR code “projects,” etc. — that reflect management’s current estimates and beliefs, but are not guarantees of future to your smartphone results. Please see “Cautionary Statement Relevant to Forward-Looking Information for the Purpose of ‘Safe Harbor’ and learn more Provisions of the Private Securities Litigation Reform Act of 1995” on Page 9 for a discussion of some of the factors about Chevron. that could cause actual results to differ materially. If you do not have PHOTOGRAPHY a QR code reader Cover: Jeremy Ashton; Inside Front Cover: Dan Grantham; Page 2: Eric Myer; Page 6: Marc Marriott. on your phone, PRODUCED BY Policy, Government and Public Affairs and Comptroller’s Departments, Chevron Corporation go to your app DESIGN Design One — San Francisco, California store and search PRINTING ColorGraphics — Los Angeles, California “QR Reader.” Chevron.com/AnnualReport2011
Access to affordable energy is a primary driver of economic growthand rising living standards. Looking ahead, we see enormous oppor-tunities to continue to deliver that energy. We have an outstandinglineup of major capital projects that are located in some of theworld’s most prolific resource basins. And we have an explorationprogram that is one of the most successful in the industry. We aremaking long-term investments to develop and deliver the energythe world needs now and in the future, while creating sustainedvalue for our stockholders, our employees and business partners,and the communities where we operate.The online version of this report contains additional informationabout our company, as well as videos of our various projects. Weinvite you to visit our website at: Chevron.com/AnnualReport2011.
To Our StockholdersChevron delivered outstanding financial and operating results in 2011. Even during turbulenteconomic times, we achieved record earnings, advanced our industry-leading queue of majorcapital projects to sustain long-term production growth and largely completed the globalrestructuring of our downstream business. And Chevron once again delivered superiorreturns for our stockholders.2011 was a record year for our and we delivered a strongly competi- peers. We began initial production offinancial performance. Net income tive 21.6 percent return on capital the Platong II natural gas project inwas $26.9 billion on sales and other employed. We raised our dividend Thailand. The Angola liquefied naturaloperating revenues of $244.4 billion, twice in 2011, marking the 24th gas (LNG) project and Usan deepwater consecutive year of increases. development offshore Nigeria are We generated a total stockholder expected to begin production in 2012. return of 20.3 percent, leading Big Foot and Jack/St. Malo in the U.S. our peer group in 2011 and over Gulf of Mexico are on schedule to come the past five- and 10-year periods. online in 2014. We also advanced our two world-class LNG projects in Our financial performance reﬂected Western Australia. Gorgon achieved outstanding operating results. In key construction milestones and is the upstream, we ranked No. 1 in on track for a 2014 startup, and we earnings per barrel relative to our broke ground on Wheatstone, with a planned startup in 2016. We expanded our strategic position in natural gas in North America and Europe. Notably in 2011, we closed our acquisition of Atlas Energy in the northeastern United States, drilled our first shale gas wells in Poland and Canada, and completed an agreement to assess shale opportunities in southern China.
We continued to build on our explo- Big Foot project in 2012. In the Also important to our future areration success in 2011. The success Partitioned Zone, between Kuwait and the investments we make in therate of our exploration wells was Saudi Arabia, we progressed a pilot communities where we operate. Ournearly 70 percent, exceeding our project to enhance production of heavy business generates immense value10-year average, which is among the oil through industry-leading steamﬂood by creating jobs and supporting localbest in our peer group. We added crude technology, building on our success in business development. We also makeoil and natural gas resources through Indonesia and the San Joaquin Valley strategic social investments focused ondiscoveries in six countries and added in California. We continue to pursue a building stronger communities through1.7 billion barrels of net oil-equivalent variety of next-generation technologies partnerships in the areas of health,proved reserves, replacing 171 percent with partners that include businesses, education and economic development.of production in 2011. universities and national laboratories. One of our larger social investments in 2011 was a $20 million commitment toIn our global downstream and chemicals Over the past decade, we’ve gone eliminate mother-to-child transmissionbusiness, we ranked No. 1 in earnings from trailing the industry in safety of HIV in Angola, Nigeria and Southper barrel in 2011, reﬂecting a strategic to becoming one of its leaders as a Africa. All told, we deployed nearlyfocus on reshaping our global portfolio result of our broader commitment to $1 billion in worldwide communityto improve efficiency, enhance market operational excellence — the safety investments over the past six years.focus and grow returns. We also ranked of our people, the reliability of our I encourage you to read more aboutNo. 1 in refinery utilization for the third operations and environmental these investments in our companionstraight biennial Solomon Associates stewardship. To achieve our goal of publication, the 2011 Corporaterefinery benchmark study. We advanced zero incidents, we have deployed Responsibility Report.work on our Pascagoula Base Oil Plant systems and processes that helpedthat, when completed in 2013, will drive down injury rates to industry- Affordable energy underpins economiesmake us the world’s leading supplier leading levels. We take pride in what and generates progress and prosperity.of premium base oil. We also made we’ve achieved, but we expect continual The people of Chevron remain focusedprogress on the expansion of our improvement in how we manage risk. on finding and producing affordableOronite additives plant in Singapore. Even with this emphasis, we are not energy safely, reliably and efficiently. incident-free. We rigorously investigate This is a responsibility that our companyUnderpinning our operations is a focus all incidents to strengthen our ability to takes seriously. We are committed toon developing new technologies that recognize and reduce risk and achieve growing our business, contributing tocreate business value and competitive what we strive for — doing things the global economic expansion, buildingadvantage. We advanced a breakthrough right way every time. I am committed stronger communities and creatingdual-gradient drilling technology to to meeting our world-class standards enduring value for our stockholders.improve access to deepwater assets in safety and operational excellence,and elevate deepwater drilling safety and I know that the men and women of Thank you for investing in Chevron.and environmental standards that is Chevron join me in that commitment.on track for initial deployment on the Meeting the world’s long-term demand for energy requires significant invest- ments. We move into 2012 with a $32.7 billion capital and exploratory budget. This reﬂects our confidence in an unparalleled project queue and John S. Watson is supported by our strong financial Chairman of the Board and position and operational performance. Chief Executive Officer February 23, 2012 Chevron Corporation 2011 Annual Report 3
Chevron Financial HighlightsMillions of dollars, except per-share amounts 2011 2010 % ChangeNet income attributable to Chevron Corporation $ 26,895 $ 19,024 41.4 %Sales and other operating revenues $ 244,371 $ 198,198 23.3 %Noncontrolling interests income $ 113 $ 112 0.9 %Interest expense (after tax) $ — $ 41 (100.0) %Capital and exploratory expenditures* $ 29,066 $ 21,755 33.6 %Total assets at year-end $ 209,474 $ 184,769 13.4 %Total debt at year-end $ 10,152 $ 11,476 (11.5)%Noncontrolling interests $ 799 $ 730 9.5 %Chevron Corporation stockholders’ equity at year-end $ 121,382 $ 105,081 15.5 %Cash provided by operating activities $ 41,098 $ 31,359 31.1 %Common shares outstanding at year-end (Thousands) ,966,999 1 ,993,313 1 (1.3)%Per-share data Net income – diluted $ 13.44 $ 9.48 41.8 % Cash dividends $ 3.09 $ 2.84 8.8 % Chevron Corporation stockholders’ equity $ 61.71 $ 52.72 17.1 % Common stock price at year-end $ 106.40 $ 91.25 16.6 %Total debt to total debt-plus-equity ratio 7.7% 9.8%Return on average stockholders’ equity 23.8% 19.3%Return on capital employed (ROCE) 21.6% 17.4%*Includes equity in affiliatesNet Income Attributable Chevron Year-Endto Chevron Corporation Annual Cash Dividends Common Stock Price Return on Capital EmployedBillions of dollars Dollars per share Dollars per share Percent30.0 3.25 125 30 $3.09 $26.9 $106.4025.0 2.60 100 24 21.620.0 1.95 75 1815.0 1.30 50 1210.0 0.65 25 6 5.0 0.0 0.00 0 0 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11The increase in 2011 was due to The company’s annual dividend The company’s stock price rose Higher earnings improvedhigher earnings for both upstream increased for the 24th consecutive 16.6 percent in 2011. Chevron’s return on capitaland downstream, as a result of year. employed to 21.6 percent.higher prices for crude oil andrefined products.4 Chevron Corporation 2011 Annual Report
Chevron Operating Highlights 1 2011 2010 % Change Net production of crude oil, condensate and natural gas liquids (Thousands of barrels per day) 1,849 1,923 (3.8) % Net production of natural gas (Millions of cubic feet per day) 4,941 5,040 (2.0) % Total net oil-equivalent production (Thousands of oil-equivalent barrels per day) 2,673 2,763 (3.3) % Refinery input (Thousands of barrels per day) 1,787 1,894 (5.6) % Sales of refined products (Thousands of barrels per day) 2,949 3,113 (5.3) % Net proved reserves of crude oil, condensate and natural gas liquids2 (Millions of barrels) — Consolidated companies 4,295 4,270 0.6 % — Affiliated companies 2,160 2,233 (3.3) % Net proved reserves of natural gas2 (Billions of cubic feet) — Consolidated companies 25,229 20,755 21.6 % — Affiliated companies 3,454 3,496 (1.2) % Net proved oil-equivalent reserves2 (Millions of barrels) — Consolidated companies 8,500 7,729 10.0 % — Affiliated companies 2,736 2,816 (2.8) % Number of employees at year-end3 57,376 58,267 (1.5) %1 Includes equity in affiliates, except number of employees2 At the end of the year3 Excludes service station personnel Five-Year Cumulative Total Returns Performance Graph (Calendar years ended December 31) The stock performance graph at right shows how 200 an initial investment of $100 in Chevron stock 180 would have compared with an equal investment in 160 the S&P 500 Index or the Competitor Peer Group. The comparison covers a five-year period begin- 140 Dollars ning December 31, 2006, and ending December 31, 120 2011, and for the peer group is weighted by market capitalization as of the beginning of each year. It 100 includes the reinvestment of all dividends that an 80 investor would be entitled to receive and is adjusted 60 for stock splits. The interim measurement points 2006 2007 2008 2009 2010 2011 show the value of $100 invested on December 31, 2006, as of the end of each year between 2007 and 2011. Chevron S&P 500 Peer Group* 2006 2007 2008 2009 2010 2011 Chevron 100 130.48 106.52 115.15 141.50 170.18 S&P 500 100 105.43 66.42 83.99 96.63 98.68 Peer Group* 100 121.81 91.49 94.94 101.18 117.79 *Peer Group: BP p.l.c.-ADS, ExxonMobil, Royal Dutch Shell-ADR and ConocoPhillips Five-Year Cum. Total Returns – v1 Chevron Corporation 2011 Annual Report 5
Chevron at a GlanceChevron is one of the world’s leading integratedenergy companies and conducts business worldwide.Our success is driven by our people and their com-mitment to get results the right way — by operatingresponsibly, executing with excellence, applying inno-vative technologies and capturing new opportunitiesfor profitable growth. We are involved in virtuallyevery facet of the energy industry. We explore for,produce and transport crude oil and natural gas;refine, market and distribute transportation fuelsand lubricants; manufacture and sell petrochemicalproducts; generate power and produce geothermalenergy; provide energy efficiency solutions; anddevelop the energy resources of the future,including research for advanced biofuels.Photo: Margarida Peliganga,Health, Environment and Safety(HES) environment supervisor, andGourgel Neto, HES field specialist,survey the facilities at Chevron’sMalongo Terminal in Cabinda, Angola.6 Chevron Corporation 2011 Annual Report
Upstream Exploration and Upstream explores for and produces crude oil and natural gas. At the end of 201 1,and Gas Production worldwide net oil-equivalent proved reserves for consolidated and affiliated companies Strategy: were 1 1.24 billion barrels. In 201 1, net oil-equivalent production averaged 2.67 million Grow profitably in barrels per day. Major producing areas include Angola, Australia, Azerbaijan, Bangladesh, core areas and build Brazil, Canada, China, Denmark, Indonesia, Kazakhstan, Nigeria, the Partitioned Zone new legacy positions. between Kuwait and Saudi Arabia, the Philippines, South America, Thailand, the United Kingdom, the United States, Venezuela, and Vietnam. Major exploration areas include the U.S. Gulf of Mexico and the offshore areas of Western Australia and western Africa. Additional areas include the Gulf of Thailand, South China Sea, and the offshore areas of Brazil, Canada, Liberia, Norway and the United Kingdom. Shale gas exploration areas include Canada, China, Poland, Romania and the United States. Gas and Midstream We are engaged in every aspect of the natural gas business — liquefaction, pipeline and Strategy: marine transport, marketing and trading, and power generation. Overall, we have more Commercialize our equity than 160 trillion cubic feet of natural gas unrisked resources, an amount equivalent to gas resource base while approximately 27 billion barrels of crude oil. In North America, Chevron ranks among growing a high-impact the top natural gas marketers with sales in 201 1 averaging approximately 6 billion cubic global gas business. feet per day. We own, operate or have an interest in an extensive network of crude oil, refined product, chemical, natural gas liquid and natural gas pipelines. Chevron Shipping Company manages a ﬂeet of 25 vessels, including three new liquefied natural gas carriers that were completed in 201 1.Downstream Strategy: Downstream and Chemicals includes refining, fuels and lubricants marketing, petro-and Chemicals Improve returns and chemicals manufacturing and marketing, supply and trading, and transportation. In 201 1, grow earnings across we processed 1.8 million barrels of crude oil per day and averaged 2.9 million barrels per the value chain. day of refined product sales worldwide. Our most significant areas of operations are the west coast of North America, the U.S. Gulf Coast, Southeast Asia, South Korea, Australia and South Africa. We hold interests in 15 fuel refineries and market transportation fuels and lubricants under the Chevron, Texaco and Caltex brands. Products are sold through a network of 17,830 retail stations, including those of affiliated companies. Our chemicals business includes Chevron Phillips Chemical Company LLC, a 50 percent-owned affiliate that is one of the world’s leading manufacturers of commodity petrochemicals, and Chevron Oronite Company LLC, which develops, manufactures and markets quality additives that improve the performance of fuels and lubricants.Technology Strategy: Our three technology companies — Energy Technology, Technology Ventures and Differentiate performance Information Technology — are focused on driving business value in every aspect of through technology. our operations. We operate technology centers in Australia, Scotland and in California and Texas in the United States. Together they provide strategic research, technology development, and technical and computing infrastructure services to our global businesses.Renewable Strategy: We are the largest producer of geothermal energy in the world, with leading positionsEnergy and Invest in profitable in Indonesia and the Philippines. We are involved in developing promising renewableEnergy renewable energy sources of energy, including advanced biofuels from nonfood sources. Our subsidiaryEfficiency and energy efficiency Chevron Energy Solutions works with internal and external clients to develop and build solutions. sustainable energy projects that increase energy efficiency and reduce costs.Operational The foundation of business success and world-class performance at Chevron isExcellence operational excellence, which is defined as the systematic management of process safety, personal safety and health, environment, reliability, and efficiency. Safety is our highest priority. We are committed to attaining world-class standards in operational excellence. We will not be satisfied until we have zero incidents — no one injured. Chevron Corporation 2011 Annual Report 7
Glossary of Energy and Financial TermsEnergy TermsAdditives Specialty chemicals incorporated into fuels Price effects on entitlement volumes The impact contingent on commerciality. Unrisked resources,and lubricants that enhance the performance of the on Chevron’s share of net production and net proved unrisked resource base and similar terms representfinished products. reserves due to changes in crude oil and natural gas the arithmetic sum of the amounts recorded under prices between periods. Under production-sharing each of these classifications. Recoverable resources,Barrels of oil-equivalent (BOE) A unit of measure to and variable-royalty provisions of certain agree- potentially recoverable volumes and other similarquantify crude oil, natural gas liquids and natural gas ments, price variability can increase or decrease terms represent estimated remaining quantities thatamounts using the same basis. Natural gas volumes royalty burdens and/or volumes attributable to are expected to be ultimately recoverable and pro-are converted to barrels on the basis of energy the company. For example, at higher prices, fewer duced in the future, adjusted to reflect the relativecontent. See oil-equivalent gas and production. volumes are required for Chevron to recover its uncertainty represented by the various classifica-Biofuel Any fuel that is derived from biomass — costs under certain production-sharing contracts. tions. These estimates may change significantly asrecently living organisms or their metabolic byprod- development work provides additional information. Production Total production refers to all the crudeucts — from sources such as farming, forestry, and At times, original oil in place and similar terms are oil (including synthetic oil), natural gas liquids andbiodegradable industrial and municipal waste. used to describe total hydrocarbons contained in a natural gas produced from a property. Net produc-See renewables. reservoir without regard to the likelihood of their tion is the company’s share of total production after being produced. All of these measures are consideredCondensate Hydrocarbons that are in a gaseous deducting both royalties paid to landowners and by management in making capital investment andstate at reservoir conditions but condense into liquid a government’s agreed-upon share of production operating decisions and may provide some indicationas they travel up the wellbore and reach surface under a production-sharing contract. Oil-equivalent to stockholders of the resource potential of oil and gasconditions. production is the sum of the barrels of liquids and the properties in which the company has an interest. oil-equivalent barrels of natural gas produced. SeeDevelopment Drilling, construction and related barrels of oil-equivalent and oil-equivalent gas. Shale gas Natural gas produced from shale (clay-activities following discovery that are necessary to rich, very fine-grained rock) formations where the gasbegin production and transportation of crude oil Production-sharing contract (PSC) An agreement was sourced from within the shale itself and isand natural gas. between a government and a contractor (generally trapped in rocks with low porosity and extremely an oil and gas company) whereby production isEnhanced recovery Techniques used to increase low permeability. Production of shale gas requires shared between the parties in a prearranged manner.or prolong production from crude oil and natural the use of hydraulic fracturing (pumping a fluid-sand The contractor typically incurs all exploration, devel-gas fields. mixture into the formation under high pressure) to opment and production costs, which are subsequently help produce the gas.Exploration Searching for crude oil and/or natural recoverable out of an agreed-upon share of anygas by utilizing geologic and topographical studies, future PSC production, referred to as cost recovery Synthetic oil A marketable and transportable hydro-geophysical and seismic surveys, and drilling of wells. oil and/or gas. Any remaining production, referred carbon liquid, resembling crude oil, that is produced to as profit oil and/or gas, is shared between the by upgrading highly viscous or solid hydrocarbons,Gas-to-liquids (GTL) A process that converts natural parties on an agreed-upon basis as stipulated in the such as extra-heavy crude oil or oil sands.gas into high-quality transportation fuels and other PSC. The government also may retain a share of PSCproducts. production as a royalty payment, and the contractorGreenhouse gases Gases that trap heat in Earth’satmosphere (e.g., water vapor, ozone, carbon dioxide, may owe income taxes on its portion of the profit oil and/or gas. The contractor’s share of PSC oil and/or Financial Termsmethane, nitrous oxide, hydrofluorocarbons, perfluo- gas production and reserves varies over time as it is Cash flow from operating activities Cash generatedrocarbons and sulfur hexafluoride). dependent on prices, costs and specific PSC terms. from the company’s businesses; an indicator of aIntegrated energy company A company engaged in Renewables Energy resources that are not depleted company’s ability to pay dividends and fund capitalall aspects of the energy industry, including exploring when consumed or converted into other forms of and common stock repurchase programs. Excludesfor and producing crude oil and natural gas; refining, energy (e.g., solar, geothermal, ocean and tide, cash flows related to the company’s financing andmarketing and transporting crude oil, natural gas and wind, hydroelectric power, biofuels and hydrogen). investing activities.refined products; manufacturing and distributing Reserves Crude oil and natural gas contained in Earnings Net income attributable to Chevronpetrochemicals; and generating power. underground rock formations called reservoirs Corporation as presented on the ConsolidatedLiquefied natural gas (LNG) Natural gas that and saleable hydrocarbons extracted from oil sands, Statement of Income.is liquefied under extremely cold temperatures shale, coalbeds and other nonrenewable natural Goodwill An asset representing the future economicto facilitate storage or transportation in specially resources that are intended to be upgraded into benefits arising from the other assets acquired in adesigned vessels. synthetic oil or gas. Net proved reserves are the business combination that are not individually identi- estimated quantities that geoscience and engineer-Natural gas liquids (NGLs) Separated from natural fied and separately recognized. ing data demonstrate with reasonable certainty togas, these include ethane, propane, butane and be economically producible in the future from known Margin The difference between the cost of purchas-natural gasoline. reservoirs under existing economic conditions, ing, producing and/or marketing a product and itsOil-equivalent gas (OEG) The volume of natural gas operating methods and government regulations, and sales price.needed to generate the equivalent amount of heat as exclude royalties and interests owned by others. Return on capital employed (ROCE) Ratio calculateda barrel of crude oil. Approximately 6,000 cubic feet Estimates change as additional information becomes by dividing earnings (adjusted for after-tax interestof natural gas is equivalent to one barrel of crude oil. available. Oil-equivalent reserves are the sum of the expense and noncontrolling interests) by the average liquids reserves and the oil-equivalent gas reserves.Oil sands Naturally occurring mixture of bitumen of total debt, noncontrolling interests and Chevron See barrels of oil-equivalent and oil-equivalent gas.(a heavy, viscous form of crude oil), water, sand and Corporation stockholders’ equity for the year. The company discloses only net proved reservesclay. Using hydroprocessing technology, bitumen can in its filings with the U.S. Securities and Exchange Return on stockholders’ equity Ratio calculatedbe refined to yield synthetic oil. Commission. Investors should refer to proved by dividing earnings by average Chevron CorporationPetrochemicals Compounds derived from petro- reserves disclosures in Chevron’s Annual Report on stockholders’ equity. Average Chevron Corporationleum. These include aromatics, which are used to Form 10-K for the year ended December 31, 2011. stockholders’ equity is computed by averagingmake plastics, adhesives, synthetic fibers and the sum of the beginning-of-year and end-of-year Resources Estimated quantities of oil and gashousehold detergents; and olefins, which are used balances. resources are recorded under Chevron’s 6P system,to make packaging, plastic pipes, tires, batteries, which is modeled after the Society of Petroleum Total stockholder return (TSR) The return to stock-household detergents and synthetic motor oils. Engineers’ Petroleum Resource Management System, holders as measured by stock price appreciation and and includes quantities classified as proved, probable reinvested dividends for a period of time. and possible reserves, plus those that remain8 Chevron Corporation 2011 Annual Report
Financial Table of Contents10 36Management’s Discussion and Analysis of Notes to the Consolidated Financial StatementsFinancial Condition and Results of Operations Note 1 Summary of Significant Accounting Policies 36Key Financial Results 10 Note 2 Acquisition of Atlas Energy, Inc. 38Earnings by Major Operating Area 10 Note 3 Noncontrolling Interests 39Business Environment and Outlook 10 Note 4 Information Relating to the ConsolidatedOperating Developments 13 Statement of Cash Flows 39Results of Operations 14 Note 5 Summarized Financial Data – Chevron U.S.A. Inc. 40Consolidated Statement of Income 16 Note 6 Summarized Financial Data –Selected Operating Data 18 Chevron Transport Corporation Ltd. 41Liquidity and Capital Resources 18 Note 7 Summarized Financial Data – Tengizchevroil LLP 41Financial Ratios 20 Note 8 Lease Commitments 41Guarantees, Off-Balance-Sheet Arrangements and Contractual Note 9 Fair Value Measurements 42 Obligations, and Other Contingencies 20 Note 10 Financial and Derivative Instruments 44Financial and Derivative Instruments 21 Note 11 Operating Segments and Geographic Data 45Transactions With Related Parties 22 Note 12 Investments and Advances 47Litigation and Other Contingencies 22 Note 13 Properties, Plant and Equipment 49Environmental Matters 23 Note 14 Litigation 49Critical Accounting Estimates and Assumptions 24 Note 15 Taxes 51New Accounting Standards 27 Note 16 Short-Term Debt 54Quarterly Results and Stock Market Data 28 Note 17 Long-Term Debt 54 Note 18 New Accounting Standards 55 Note 19 Accounting for Suspended Exploratory Wells 55 Note 20 Stock Options and Other Share-Based Compensation 56 Note 21 Employee Benefit Plans 5729 Note 22 Equity 63 Note 23 Restructuring and Reorganization 63Consolidated Financial Statements Note 24 Other Contingencies and Commitments 64Report of Management 29 Note 25 Asset Retirement Obligations 66Report of Independent Registered Public Accounting Firm 30 Note 26 Other Financial Information 66Consolidated Statement of Income 31 Note 27 Earnings Per Share 67Consolidated Statement of Comprehensive Income 32Consolidated Balance Sheet 33Consolidated Statement of Cash Flows 34 Five-Year Financial Summary 68Consolidated Statement of Equity 35 Five-Year Operating Summary 69 Supplemental Information on Oil and Gas Producing Activities 70Cautionary Statement Relevant to Forward-Looking Informationfor the Purpose of “Safe Harbor” Provisions of the Private SecuritiesLitigation Reform Act of 1995This Annual Report of Chevron Corporation contains forward-looking state- venture partners to fund their share of operations and development activities;ments relating to Chevron’s operations that are based on management’s the potential failure to achieve expected net production from existingcurrent expectations, estimates and projections about the petroleum, and future crude oil and natural gas development projects; potential delayschemicals and other energy-related industries. Words such as “anticipates,” in the development, construction or start-up of planned projects; the potential“expects,” “intends,” “plans,” “targets,” “projects,” “believes,” “seeks,” disruption or interruption of the company’s net production or manufacturing“schedules,” “estimates,” “budgets” and similar expressions are intended to facilities or delivery/transportation networks due to war, accidents, politicalidentify such forward-looking statements. These statements are not guarantees events, civil unrest, severe weather or crude oil production quotas that mightof future performance and are subject to certain risks, uncertainties and other be imposed by the Organization of Petroleum Exporting Countries; thefactors, some of which are beyond the company’s control and are difficult to potential liability for remedial actions or assessments under existing or futurepredict. Therefore, actual outcomes and results may differ materially from environmental regulations and litigation; significant investment or productwhat is expressed or forecasted in such forward-looking statements. The reader changes under existing or future environmental statutes, regulations andshould not place undue reliance on these forward-looking statements, which litigation; the potential liability resulting from other pending or futurespeak only as of the date of this report. Unless legally required, Chevron under- litigation; the company’s future acquisition or disposition of assets and gainstakes no obligation to update publicly any forward-looking statements, whether and losses from asset dispositions or impairments; government-mandatedas a result of new information, future events or otherwise. sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal Among the important factors that could cause actual results to differ terms or restrictions on scope of company operations; foreign currencymaterially from those in the forward-looking statements are: changing crude movements compared with the U.S. dollar; the effects of changed accountingoil and natural gas prices; changing refining, marketing and chemical margins; rules under generally accepted accounting principles promulgated by rule-actions of competitors or regulators; timing of exploration expenses; timing of setting bodies. In addition, such results could be affected by general domesticcrude oil liftings; the competitiveness of alternate-energy sources or product and international economic and political conditions. Other unpredictable orsubstitutes; technological developments; the results of operations and financial unknown factors not discussed in this report could also have material adversecondition of equity affiliates; the inability or failure of the company’s joint- effects on forward-looking statements. Chevron Corporation 2011 Annual Report 9
Management’s Discussion and Analysis of of Management’s Discussion and Analysis Financial Condition and Results of Operations Financial Condition and Results of OperationsKey Financial Results of refined products. Seasonality is not a primary driver ofMillions of dollars, except per-share amounts 2011 2010 2009 changes in the company’s quarterly earnings during the year.Net Income Attributable to To sustain its long-term competitive position in the Chevron Corporation $ 26,895 $ 19,024 $ 10,483 upstream business, the company must develop and replenishPer Share Amounts: an inventory of projects that offer attractive financial returns Net Income Attributable to for the investment required. Identifying promising areas for Chevron Corporation exploration, acquiring the necessary rights to explore for and – Basic $ 13.54 $ 9.53 $ 5.26 – Diluted $ 13.44 $ 9.48 $ 5.24 to produce crude oil and natural gas, drilling successfully, Dividends $ 3.09 $ 2.84 $ 2.66 and handling the many technical and operational details inSales and Other a safe and cost-effective manner are all important factors in Operating Revenues $ 244,371 $ 198,198 $ 167,402 this effort. Projects often require long lead times and largeReturn on: capital commitments. Capital Employed 21.6% 17.4% 10.6% Stockholders’ Equity 23.8% 19.3% 11.7% The company’s operations, especially upstream, can also be affected by changing economic, regulatory and politicalEarnings by Major Operating Area environments in the various countries in which it operates, including the United States. From time to time, certainMillions of dollars 2011 2010 2009 governments have sought to renegotiate contracts or imposeUpstream1 additional costs on the company. Governments may attempt United States $ 6,512 $ 4,122 $ 2,262 to do so in the future. Civil unrest, acts of violence or International 18,274 13,555 8,670 strained relations between a government and the company orTotal Upstream 24,786 17,677 10,932 other governments may impact the company’s operations orDownstream1 United States 1,506 1,339 (121) investments. Those developments have at times significantly International 2,085 1,139 594 affected the company’s operations and results and are care-Total Downstream 3,591 2,478 473 fully considered by management when evaluating the level ofAll Other (1,482) (1,131) (922) current and future activity in such countries.Net Income Attributable to The company also continually evaluates opportunities to Chevron Corporation 2,3 $ 26,895 $ 19,024 $ 10,483 dispose of assets that are not expected to provide sufficient1 2 009 information has been revised to conform with the 2011 and 2010 segment long-term value or to acquire assets or operations comple- presentation.2 I ncludes foreign currency effects: $ 121 $ (423) $ (744) mentary to its asset base to help augment the company’s3 A lso referred to as “earnings” in the discussions that follow. financial performance and growth. Refer to the “Results of Operations” section beginning on page 14 for discussions of Refer to the “Results of Operations” section beginning net gains on asset sales during 2011. Asset dispositions andon page 14 for a discussion of financial results by major restructurings may also occur in future periods and couldo perating area for the three years ended December 31, 2011. result in significant gains or losses. The company closely monitors developments in theBusiness Environment and Outlook financial and credit markets, the level of worldwide economicChevron is a global energy company with substantial busi- activity, and the implications for the company of movementsness activities in the following countries: Angola, Argentina, in prices for crude oil and natural gas. Management takesAustralia, Azerbaijan, Bangladesh, Brazil, Cambodia, these developments into account in the conduct of dailyCanada, Chad, China, Colombia, Democratic Republic of operations and for business planning.the Congo, Denmark, Indonesia, Kazakhstan, Myanmar, the Comments related to earnings trends for the company’sNetherlands, Nigeria, Norway, the Partitioned Zone between major business areas are as follows:Saudi Arabia and Kuwait, the Philippines, Republic of theCongo, Singapore, South Africa, South Korea, Thailand, Upstream Earnings for the upstream segment are closelyTrinidad and Tobago, the United Kingdom, the United aligned with industry price levels for crude oil and naturalStates, Venezuela and Vietnam. gas. Crude oil and natural gas prices are subject to external Earnings of the company depend mostly on the profit- factors over which the company has no control, includingability of its upstream and downstream business segments. product demand connected with global economic conditions,The single biggest factor that affects the results of operations industry inventory levels, production quotas imposed by thefor the company is movement in the price of crude oil. In the Organization of Petroleum Exporting Countries (OPEC),downstream business, crude oil is the largest cost component weather-related damage and disruptions, competing fuel prices, and regional supply interruptions or fears thereof that10 Chevron Corporation 2011 Annual Report
may be caused by military conflicts, civil unrest or politi- quality (low-gravity, high-sulfur). The amount of the dif-cal uncertainty. Any of these factors could also inhibit the ferential in any period is associated with the supply of heavycompany’s production capacity in an affected region. The crude available versus the demand, which is a function ofcompany monitors developments closely in the countries in the capacity of refineries that are able to process this lowerwhich it operates and holds investments, and seeks to manage quality feedstock into light products (motor gasoline, jet fuel,risks in operating its facilities and businesses. The longer-term aviation gasoline and diesel fuel). The differential widenedtrend in earnings for the upstream segment is also a func- during 2011 primarily due to rising diesel prices and lowertion of other factors, including the company’s ability to find availability of light, sweet crude oil due to supply disruptionsor acquire and efficiently produce crude oil and natural gas, in Libya.changes in fiscal terms of contracts, and changes in tax laws Chevron produces or shares in the production of heavyand regulations. crude oil in California, Chad, Indonesia, the Partitioned The company continues to actively manage its schedule Zone between Saudi Arabia and Kuwait, Venezuela and inof work, contracting, procurement and supply-chain activities certain fields in Angola, China and the United Kingdomto effectively manage costs. However, price levels for capital sector of the North Sea. (See page 18 for the company’sand exploratory costs and operating expenses associated with average U.S. and international crude oil realizations.)the production of crude oil and natural gas can be subject In contrast to price movements in the global marketto external factors beyond the company’s control. External for crude oil, price changes for natural gas in many regionalfactors include not only the general level of inflation, but markets are more closely aligned with supply-and-demandalso commodity prices and prices charged by the industry’s conditions in those markets. In the United States, pricesmaterial and service providers, which can be affected by the at Henry Hub averaged about $4.00 per thousand cubicvolatility of the industry’s own supply-and-demand condi- feet (MCF) during 2011, compared with about $4.50 dur-tions for such materials and services. Capital and exploratory ing 2010. As of mid-February 2012, the Henry Hub spotexpenditures and operating expenses can also be affected by price was about $2.50 per MCF. Fluctuations in the pricedamage to production facilities caused by severe weather or for natural gas in the United States are closely associatedcivil unrest. with customer demand relative to the volumes produced in North America. WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Spot Prices — Outside the United States, price changes for natural gas Quarterly Average depend on a wide range of supply, demand and regulatory WTI/Brent $/bbl HH $/mcf circumstances. In some locations, Chevron is investing in 150 Brent 25 long-term projects to install infrastructure to produce and WTI liquefy natural gas for transport by tanker to other markets. 120 HH 20 International natural gas realizations averaged about $5.40 per MCF during 2011, compared with about $4.60 per MCF dur- 90 15 ing 2010. (See page 18 for the company’s average natural gas realizations for the U.S. and international regions.) 60 10 30 5 Net Liquids Production* Net Natural Gas Production* Thousands of barrels per day Millions of cubic feet per day 0 0 2000 6000 1,849 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4,941 5000 2009 2010 2011 1500 4000 The chart above shows the trend in benchmark prices 1000 3000for West Texas Intermediate (WTI) crude oil, Brent crude 2000oil and U.S. Henry Hub natural gas. The WTI price aver- 500aged $95 per barrel for the full-year 2011, compared to $79 1000in 2010. As of mid-February 2012, the WTI price was about 0$99 per – Crude Oil Prices 2009 through per barrel for #009 barrel. The Brent price averaged $111 2011 – v2 0 07 08 09 10 11 07 08 09 10 11the full-year 2011, compared to $80 in 2010. As of mid- United StatesFebruary 2012, the Brent price was about $118 per barrel. United States International InternationalThe majority of the company’s equity crude production is Net natural gas production Net liquids production decreasedpriced based on the Brent benchmark. WTI traded at a dis- 4 percent in 2011 mainly due to field decreased 2 percent in 2011 mainly due to field declines in the declines and maintenance-relatedcount to Brent throughout 2011 due to excess crude supply downtime in the United States and United States, Denmark and the United Kingdom. Partially offsettingin the U.S. Midcontinent market. The discount narrowed in lower entitlement volumes in the declines were increases in Indonesia and Kazakhstan. Bangladesh, Nigeria and newfourth quarter 2011 as crude inventories declined. Marcellus Shale production. * Includes equity in afﬁliates. A differential in crude oil prices exists between high * Includes equity in afﬁliates.quality (high-gravity, low-sulfur) crudes and those of lower Chevron Corporation 2011 Annual Report 11 #011B – Net Natural Gas Production
Management’s Discussion and Analysis of Financial Condition and Results of Operations The company’s worldwide net oil-equivalent production contained within four days. As of December 31, 2011, thein 2011 averaged 2.673 million barrels per day. About one- financial impact of the incident was not material to the com-fifth of the company’s net oil-equivalent production in 2011 pany’s annual net income. However, the company’s ultimateoccurred in the OPEC-member countries of Angola, Nigeria, exposure related to fines and penalties is not currently deter-Venezuela and the Partitioned Zone between Saudi Arabia minable, and could be significant to net income in any oneand Kuwait. OPEC quotas had no effect on the company’s period.net crude oil production in 2011 or 2010. At their December2011 meeting, members of OPEC supported maintaining Downstream Earnings for the downstream segment arethe current production level of 30 million barrels per day closely tied to margins on the refining, manufacturing andand made no change to the production quotas in effect since marketing of products that include gasoline, diesel, jet fuel,December 2008. lubricants, fuel oil, fuel and lubricant additives, and petro- The company estimates that oil-equivalent production chemicals. Industry margins are sometimes volatile and canin 2012 will average approximately 2.680 million barrels per be affected by the global and regional supply-and-demandday based on the average Brent price of $111 per barrel for balance for refined products and petrochemicals and bythe full-year 2011. This estimate is subject to many factors changes in the price of crude oil, other refinery and petro-and uncertainties, including quotas that may be imposed chemical feedstocks, and natural gas. Industry margins canby OPEC, price effects on entitlement volumes, changes in also be influenced by inventory levels, geopolitical events,fiscal terms or restrictions on the scope of company opera- costs of materials and services, refinery or chemical planttions, delays in project startups, fluctuations in demand for capacity utilization, maintenance programs, and disruptionsnatural gas in various markets, weather conditions that may at refineries or chemical plants resulting from unplanned out-shut in production, civil unrest, changing geopolitics, delays ages due to severe weather, fires or other operational events.in completion of maintenance turnarounds, greater-than- Other factors affecting profitability for downstreamexpected declines in production from mature fields, or other operations include the reliability and efficiency of the com-disruptions to operations. The outlook for future production pany’s refining, marketing and petrochemical assets, thelevels is also affected by the size and number of economic effectiveness of its crude oil and product supply functions,investment opportunities and, for new large-scale projects, the and the volatility of tanker-charter rates for the company’stime lag between initial exploration and the beginning of pro- shipping operations, which are driven by the industry’sduction. Investments in upstream projects generally begin well demand for crude oil and product tankers. Other factorsin advance of the start of the associated crude oil and natural beyond the company’s control include the general level ofgas production. A significant majority of Chevron’s upstream inflation and energy costs to operate the company’s refining,investment is made outside the United States. marketing and petrochemical assets. Refer to the “Results of Operations” section on pages The company’s most significant marketing areas are the14 through 15 for additional discussion of the company’s West Coast of North America, the U.S. Gulf Coast, Asia andupstream business. southern Africa. Chevron operates or has significant ownership Refer to Table V beginning on page 75 for a tabulation of interests in refineries in each of these areas. In 2011, the com-the company’s proved net oil and gas reserves by geographic pany’s margins improved over 2010, supported by higher globalarea at the beginning of 2009 and each year-end from 2009 product demand and tighter global refined product supplies.through 2011, and an accompanying discussion of major The company made further progress during 2011 implement-changes to proved reserves by geographic area for the three- ing the previously announced restructuring of its downstreamyear period ending December 31, 2011. businesses, including the employee-reduction programs for In early November 2011, while drilling a development the United States and international operations. Approximatelywell in the deepwater Frade Field in Brazil, an unantici- 2,300 employees in the downstream operations are currentlypated pressure spike caused oil to migrate from the well expected to be released under these programs. About 2,100bore through a series of fissures to the sea floor, emitting employees have been released through December 31, 2011,approximately 2,400 barrels of oil. The resulting surface with the programs being substantially completed. Substan-sheen has since dissipated, and there have been no coastal or tially all of the remaining employees designated for releasewildlife impacts. Upon detection, the company immediately under the programs are expected to leave in 2012. About 900took steps to stop the release. Chevron’s emergency plan, of the affected employees were located in the United States.approved by the Brazilian environment and natural resources Refer to Note 23 of the Consolidated Financial Statements, onregulatory agency IBAMA, was implemented according to pages 63 through 64, for further discussion.the law and industry standards. The source of the seep was12 Chevron Corporation 2011 Annual Report