8 Glossary of Energy and Financial Terms 9 Financial Review 69 Five-Year Financial Summary 70 Five-Year Operating Summary Contents 2 Letter to Stockholders 4 Chevron Financial Highlights 5 Chevron Operating Highlights 6 Chevron at a Glance 85 Chevron History 86 Board of Directors 87 Corporate Officers 88 Stockholder and Investor Information
Chevron Corporation 2012 Annual Report 12012 was a year of many milestones. We advanced our majorcapital projects and remained on track to meet our productiongoal of 3.3 million barrels per day by 2017. We also continued toadd opportunities to our portfolio that we anticipate will positionus for growth well into the next decade. The world needs reliableand affordable energy. The long-term investments we are makingwill help contribute to energy supplies, while creating sustainedvalue for our stockholders, employees, business partners andthe 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/AnnualReport2012.On the cover: The Second Generation Plant at the Tengiz Field in Kazakhstan is the largest single-train sour crude processing facility inthe world. The Tengiz Field, which is operated by our 50 percent-owned affiliate Tengizchevroil, is one of the world’s deepest developedsupergiant oil fields.This page: We see growth opportunities in natural gas from shale and have built an extensive portfolio in some of the world’s mostpromising areas. Here a well is drilled on our acreage in Pennsylvania’s Marcellus Shale.
Our major businesses generated strongoperating results. In the upstream,we ranked No. 1 in earnings per barrelrelative to our peers for the thirdstraight year. In 2012, we advancedfour deepwater major capital projectsthrough startup: Usan, Caesar/Tonga,Agbami 2 and Tahiti 2 — with Tahitisetting several industry records forwater injection in deepwater production.Over the next five years, we anticipate16 project startups with a Chevronshare of investment greater than$1 billion each. Among them are twoof our three new liquefied natural gasprojects: Angola and Gorgon, offshoreWestern Australia; our deepwaterprojects Jack/St. Malo, Big Foot andTubular Bells in the U.S. Gulf of Mexico;and the Escravos Gas-to-LiquidsProject in Nigeria.Exploration successes continued in2012 with discoveries in sevencountries. That includes Australia’sCarnarvon Basin, bringing totaldiscoveries there to 19 since mid-2009 and positioning our Gorgonand Wheatstone projects for potentialfuture expansions. Exploration successwas nearly 74 percent, exceeding our10-year average of 54 percent. Weadded 1.1 billion barrels of net oil-equivalent proved reserves, replacing112 percent of production in 2012.The global restructuring of ourdownstream and chemicals businesshas delivered greater value from a morefocused footprint. In 2012, we rankedNo. 2 in earnings per barrel relativeaverage dividend increase of 11 percentcompounded since 2004 — comparedwith the average 3 percent of SP100 companies over that same period.Our total stockholder returns of 6.5percent and 16.3 percent over the pastfive- and 10-year periods, respectively,continue to lead our peer group.Our strong financial performancewas reflected in net income of $26.2billion on sales and other operatingrevenues of $231 billion. We achieveda competitive 18.7 percent return oncapital employed. We increased ourdividend payout to stockholders forthe 25th consecutive year, marking anFor Chevron, 2012 was another year of delivering strong results. Even as global economicchallenges persisted, we continued building the foundation for sustained growth in ourupstream and downstream businesses. And we produced excellent returns for our stockholders.To Our Stockholders
Chevron Corporation 2012 Annual Report 3to our peer group. Construction of alubricants facility at our Pascagoula,Mississippi, refinery is progressingtoward completion by year-end 2013and is expected to make Chevron theworld’s largest producer of premiumbase oil. We are on track to capture$1 billion in annual refinery profitimprovements, compared with 2008,through measures including improvedproduct yields and energy efficiency.Our 2013 capital and exploratorybudget of $36.7 billion, combinedwith our strong financial position,supports our long-term growthstrategy. This record level of capitalspending reflects our unmatchedproject queue, as well as confidencein our competitive advantages andorganizational capability. It keeps us ontarget to reach our production goal of3.3 million barrels of oil-equivalent perday by 2017, an increase of more than20 percent from 2010 levels.To continually improve our operations,we develop technologies that advanceour business and create new value.These include technologies in areassuch as seismic imaging, deepwateroperations and hydrocarbons fromshale that enable us to access newresources while also ensuring safeand responsible production. At theMarcellus Shale operations in westernPennsylvania, water recyclingtechnology has reduced our freshwater consumption. To further reduceour operating footprint, temporarymodular tanks are being tested foronsite water storage. At our St. Malowell, a series of field trials points tothe promise of a new system designedto boost well completion efficiency,thus reducing rig time, costs andoperational risk.Fundamental to everything we dois a constant focus on achievingincreasingly higher levels of safety,operational and environmentalperformance. Our efforts are guidedby our Operational ExcellenceManagement System, which alignswith international standards for safetyand environmental performance. In2012, we continued to be an industryleader in personal safety, as measuredby injuries requiring time away fromwork. We also delivered our lowestspill volumes in a decade. But we arenot incident-free. Our strong safetyculture and our focused efforts inimproving process safety will helpus continually progress toward ourgoal of incident-free operations.We apply the same type of commit-ment to our social performance,contributing to the creation of strongercommunities wherever we operate.We work toward building sustainableeconomies by employing peoplefrom our host communities, trainingworkers to world-class standards,building capacity and supporting smallbusiness. In 2012, we bought $60 billionin goods and services around the globe,providing a meaningful stimulus forlocal economies. And in the past sevenyears, we invested more than $1 billionworldwide in programs focused oneconomic development, health andeducation. You can find more detailabout our social investments in ourcompanion publication, the 2012Corporate Responsibility Report.Our commitment above all is to safelydevelop the affordable energy vitalto economic growth. In fulfilling thatcommitment, we are mindful of ourunique responsibility as an ambassadorfor a system of values — The ChevronWay — that promotes responsible andethical behavior in all we do. We havethe right people with the right skills, anunparalleled project portfolio, provenstrategies and a culture committed tobeing the global energy company mostadmired for its people, partnershipand performance. We are stronglypositioned to create enduring value forthe communities where we operate andfor those who place their trust in us —our stockholders.Thank you for investing in Chevron.John S. WatsonChairman of the Board andChief Executive OfficerFebruary 22, 2013Our 2013 capital and exploratory budget of $36.7 billion,combined with our strong financial position, supports ourlong-term growth strategy [and] reflects our unmatchedproject queue [and] confidence in our competitive advantages.
4 Chevron Corporation 2012 Annual ReportMillions of dollars, except per-share amounts 2012 2011 % ChangeNet income attributable to Chevron Corporation $ 26,179 $ 26,895 (2.7) %Sales and other operating revenues $ 230,590 $ 244,371 (5.6) %Noncontrolling interests income $ 157 $ 113 38.9 %Interest expense (after tax) $ — $ — 0.0 %Capital and exploratory expenditures* $ 34,229 $ 29,066 17.8 %Total assets at year-end $ 232,982 $ 209,474 11.2 %Total debt and capital lease obligations at year-end $ 12,192 $ 10,152 20.1 %Noncontrolling interests $ 1,308 $ 799 63.7 %Chevron Corporation stockholders’ equity at year-end $ 136,524 $ 121,382 12.5 %Cash provided by operating activities $ 38,812 $ 41,098 (5.6) %Common shares outstanding at year-end (Thousands) 1,932,530 1,966,999 (1.8) %Per-share data Net income attributable to Chevron Corporation — diluted $ 13.32 $ 13.44 (0.9) % Cash dividends $ 3.51 $ 3.09 13.6 % Chevron Corporation stockholders’ equity $ 70.65 $ 61.71 14.5 % Common stock price at year-end $ 108.14 $ 106.40 1.6 %Total debt to total debt-plus-equity ratio 8.2% 7.7%Return on average Chevron Corporation stockholders’ equity 20.3% 23.8%Return on capital employed (ROCE) 18.7% 21.6%Chevron Financial Highlights*Includes equity in affiliates0.030.020.015.05.010.025.0Net Income Attributableto Chevron CorporationBillions of dollarsThe decrease in 2012 was due tolower earnings in upstream as aresult of lower crude oil productionvolume.08 10 11 12$26.2090.003.753.002.250.751.50Annual Cash DividendsDollars per shareThe company’s annual dividendincreased for the 25th consecutiveyear.0908 10 11 12$3.510125100755025Chevron Year-EndCommon Stock PriceDollars per shareThe company’s stock price rose1.6 percent in 2012.0908 10 11 12$108.140302418126Return on Capital EmployedPercentChevron’s return on capitalemployed declined to 18.7 percenton lower earnings and highercapital employed.0908 10 11 1218.7
Chevron Corporation 2012 Annual Report 5Chevron Operating Highlights12012 2011 % ChangeNet production of crude oil, condensate and natural gas liquids (Thousands of barrels per day) 1,764 1,849 (4.6) %Net production of natural gas (Millions of cubic feet per day) 5,074 4,941 2.7 %Total net oil-equivalent production (Thousands of oil-equivalent barrels per day) 2,610 2,673 (2.4) %Refinery input (Thousands of barrels per day) 1,702 1,787 (4.8) %Sales of refined products (Thousands of barrels per day) 2,765 2,949 (6.2) %Net proved reserves of crude oil, condensate and natural gas liquids2(Millions of barrels)—Consolidated companies 4,353 4,295 1.4 %—Affiliated companies 2,128 2,160 (1.5) %Net proved reserves of natural gas2(Billions of cubic feet)—Consolidated companies 25,654 25,229 1.7 %—Affiliated companies 3,541 3,454 2.5 %Net proved oil-equivalent reserves2(Millions of barrels)—Consolidated companies 8,629 8,500 1.5 %—Affiliated companies 2,718 2,736 (0.7) %Number of employees at year-end358,286 57,376 1.6 %1Includes equity in affiliates, except number of employees2At the end of the year3Excludes service station personnelPerformance GraphThe stock performance graph at right shows howan initial investment of $100 in Chevron stockwould have compared with an equal investment inthe SP 500 Index or the Competitor Peer Group.The comparison covers a five-year period beginningDecember 31, 2007, and ending December 31, 2012,and for the peer group is weighted by market capital-ization as of the beginning of each year. It includesthe reinvestment of all dividends that an investorwould be entitled to receive and is adjusted for stocksplits. The interim measurement points show thevalue of $100 invested on December 31, 2007, asof the end of each year between 2008 and 2012.*Peer Group: BP p.l.c.-ADS, ExxonMobil, Royal Dutch Shell p.l.c.-ADS, Total S.A.-ADSChevronSP 500Peer Group*2007100100100200881.6463.0075.86200988.2579.6680.582010108.4591.6581.462012136.95108.5696.792011130.4393.5993.07Five-Year Cumulative Total Returns(Calendar years ended December 31)2007 2008 2009 2010 2011 2012DollarsChevron SP 500 Peer Group*Five-Year Cum. Total Returns – v21401201008060
Photo: Operations AdviserKassi Harrington reviews a planof the system that provides steamat the correct pressure, volume andquality to injection wells at the KernRiver Field steamflood operationsin Bakersfield, California.6 Chevron Corporation 2012 Annual ReportChevron at a GlanceChevron is one of the world’s leading integrated energy companies. Oursuccess is driven by our people and their commitment to get results theright way — by operating responsibly, executing with excellence, applyinginnovative technologies and capturing new opportunities for profitablegrowth. We are involved in virtually every facet of the energy industry.We explore for, produce and transport crude oil and natural gas; refine,market and distribute transportation fuels and lubricants; manufactureand sell petrochemical products; generate power and produce geothermalenergy; provide renewable energy and energy efficiency solutions; anddevelop the energy resources of the future, including conductingadvanced biofuels research.
Chevron Corporation 2012 Annual Report 7Upstream explores for and produces crude oil and natural gas. At the end of 2012,worldwide net oil-equivalent proved reserves for consolidated and affiliated companieswere 11.35 billion barrels. In 2012, net oil-equivalent production averaged 2.61 millionbarrels per day. Major producing areas include Angola, Australia, Azerbaijan, Bangladesh,Brazil, Canada, China, Denmark, Indonesia, Kazakhstan, Nigeria, the Partitioned Zonebetween Kuwait and Saudi Arabia, the Philippines, Thailand, the United Kingdom, theUnited States, and Venezuela. Major exploration areas include the U.S. Gulf of Mexico andthe offshore areas of Western Australia and western Africa. Additional areas include theGulf of Thailand, the Kurdistan Region of Iraq, the South China Sea, and the offshore areasof Canada, Liberia, Norway, Sierra Leone, Suriname and the United Kingdom. Shale gasexploration areas include Argentina, Canada, China, Lithuania, Poland, Romania and theUnited States.We are engaged in every aspect of the natural gas business — liquefaction, pipeline andmarine transport, marketing and trading, and power generation. Overall, we have approxi-mately 160 trillion cubic feet of natural gas unrisked resources. In North America, Chevronranks among the top natural gas marketers with sales in 2012 averaging approximately6 billion cubic feet per day. We own, operate or have an interest in an extensive networkof crude oil, refined product, chemical, natural gas liquid and natural gas pipelines. ChevronShipping Company manages a fleet of four U.S. and 24 international vessels.Downstream and Chemicals includes refining, fuels and lubricants marketing, petro-chemicals manufacturing and marketing, supply and trading, and transportation. In 2012,we processed 1.7 million barrels of crude oil per day and averaged 2.8 million barrels perday of refined product sales worldwide. Our most significant areas of operations are thewest coast of North America, the U.S. Gulf Coast, Singapore, Thailand, South Korea,Australia and South Africa. We hold interests in 14 fuel refineries and market transportationfuels and lubricants under the Chevron, Texaco and Caltex brands. Products are soldthrough a network of 16,769 retail stations, including those of affiliated companies. Ourchemicals business includes Chevron Phillips Chemical Company LLC, a 50 percent-ownedaffiliate that is one of the world’s leading manufacturers of commodity petrochemicals,and Chevron Oronite Company LLC, which develops, manufactures and markets qualityadditives that improve the performance of fuels and lubricants.Our three technology companies — Energy Technology, Technology Ventures andInformation Technology — are focused on driving business value in every aspect of ouroperations. We operate technology centers in Australia, the United Kingdom and theUnited States. Together they provide strategic research, technology development, andtechnical and computing infrastructure services to our global businesses.We are one of the world’s leading producers of geothermal energy, with operations inIndonesia and the Philippines. We are involved in developing promising renewable sourcesof energy, including advanced biofuels from nonfood sources. Our subsidiary ChevronEnergy Solutions works with internal and external clients to develop and build sustainableenergy projects that increase energy efficiency and reduce costs.The foundation of our business success and world-class performance is operationalexcellence, which we define as the systematic management of process safety, personalsafety and health, environment, reliability, and efficiency. Safety is our highest priority.We are committed to attaining world-class standards in operational excellence. We willnot be satisfied until we have zero incidents.Upstreamand GasExploration andProductionStrategy:Grow profitably incore areas and buildnew legacy positions.Gas and MidstreamStrategy:Commercialize our equitygas resource base whilegrowing a high-impactglobal gas business.Strategy:Improve returns andgrow earnings acrossthe value chain.Strategy:Differentiate performancethrough technology.Strategy:Invest in profitablerenewable energyand energy efficiencysolutions.Downstreamand ChemicalsTechnologyRenewableEnergy andEnergyEfficiencyOperationalExcellence
Glossary of Energy and Financial TermsAdditives Specialty chemicals incorporated into fuelsand lubricants that enhance the performance of thefinished products.Barrels of oil-equivalent (BOE) A unit of measure toquantify crude oil, natural gas liquids and natural gasamounts using the same basis. Natural gas volumesare converted to barrels on the basis of energycontent. See oil-equivalent gas and production.Biofuel Any fuel that is derived from biomass —recently living organisms or their metabolic byprod-ucts — from sources such as farming, forestry, andbiodegradable industrial and municipal waste.See renewables.Condensate Hydrocarbons that are in a gaseousstate at reservoir conditions but condense into liquidas they travel up the wellbore and reach surfaceconditions.Development Drilling, construction and relatedactivities following discovery that are necessary tobegin production and transportation of crude oiland natural gas.Enhanced recovery Techniques used to increaseor prolong production from crude oil and naturalgas fields.Exploration Searching for crude oil and/or naturalgas by utilizing geologic and topographical studies,geophysical and seismic surveys, and drilling of wells.Gas-to-liquids (GTL) A process that converts naturalgas into high-quality transportation fuels and otherproducts.Greenhouse gases Gases that trap heat in Earth’satmosphere (e.g., water vapor, ozone, carbon dioxide,methane, nitrous oxide, hydrofluorocarbons, perfluor-ocarbons and sulfur hexafluoride).Integrated energy company A company engaged inall aspects of the energy industry, including exploringfor and producing crude oil and natural gas; refining,marketing and transporting crude oil, natural gas andrefined products; manufacturing and distributingpetrochemicals; and generating power.Liquefied natural gas (LNG) Natural gas thatis liquefied under extremely cold temperaturesto facilitate storage or transportation in speciallydesigned vessels.Natural gas liquids (NGLs) Separated from naturalgas, these include ethane, propane, butane andnatural gasoline.Oil-equivalent gas (OEG) The volume of natural gasneeded to generate the equivalent amount of heat asa barrel of crude oil. Approximately 6,000 cubic feetof natural gas is equivalent to one barrel of crude oil.Oil sands Naturally occurring mixture of bitumen(a heavy, viscous form of crude oil), water, sand andclay. Using hydroprocessing technology, bitumen canbe refined to yield synthetic oil.Petrochemicals Compounds derived from petro-leum. These include aromatics, which are used tomake plastics, adhesives, synthetic fibers andhousehold detergents; and olefins, which are usedto make packaging, plastic pipes, tires, batteries,household detergents and synthetic motor oils.Price effects on entitlement volumes The impacton Chevron’s share of net production and net provedreserves due to changes in crude oil and natural gasprices between periods. Under production-sharingand variable-royalty provisions of certain agree-ments, price variability can increase or decreaseroyalty burdens and/or volumes attributable tothe company. For example, at higher prices, fewervolumes are required for Chevron to recover itscosts under certain production-sharing contracts.Production Total production refers to all the crudeoil (including synthetic oil), natural gas liquids andnatural gas produced from a property. Net produc-tion is the company’s share of total productionafter deducting both royalties paid to landownersand a government’s agreed-upon share of produc-tion under a production-sharing contract. Liquidsproduction refers to crude oil, condensate, naturalgas liquids and synthetic oil volumes. Oil-equivalentproduction is the sum of the barrels of liquids and theoil-equivalent barrels of natural gas produced. Seebarrels of oil-equivalent and oil-equivalent gas.Production-sharing contract (PSC) An agreementbetween a government and a contractor (generallyan oil and gas company) whereby production isshared between the parties in a prearranged manner.The contractor typically incurs all exploration, devel-opment and production costs, which are subsequentlyrecoverable out of an agreed-upon share of anyfuture PSC production, referred to as cost recoveryoil and/or gas. Any remaining production, referredto as profit oil and/or gas, is shared between theparties on an agreed-upon basis as stipulated in thePSC. The government also may retain a share of PSCproduction as a royalty payment, and the contractortypically owes income tax on its portion of the profitoil and/or gas. The contractor’s share of PSC oil and/or gas production and reserves varies over time as itis dependent on prices, costs and specific PSC terms.Renewables Energy resources that are not depletedwhen consumed or converted into other forms ofenergy (e.g., solar, geothermal, ocean and tide,wind, hydroelectric power, biofuels and hydrogen).Reserves Crude oil and natural gas contained inunderground rock formations called reservoirsand saleable hydrocarbons extracted from oil sands,shale, coalbeds and other nonrenewable naturalresources that are intended to be upgraded intosynthetic oil or gas. Net proved reserves are theestimated quantities that geoscience and engineer-ing data demonstrate with reasonable certainty tobe economically producible in the future from knownreservoirs under existing economic conditions,operating methods and government regulations, andexclude royalties and interests owned by others.Estimates change as additional information becomesavailable. Oil-equivalent reserves are the sum of theliquids reserves and the oil-equivalent gas reserves.See barrels of oil-equivalent and oil-equivalent gas.The company discloses only net proved reservesin its filings with the U.S. Securities and ExchangeCommission. Investors should refer to provedreserves disclosures in Chevron’s Annual Report onForm 10-K for the year ended December 31, 2012.Resources Estimated quantities of oil and gasresources are recorded under Chevron’s 6P system,which is modeled after the Society of PetroleumEngineers’ Petroleum Resource Management System,and includes quantities classified as proved, probableand possible reserves, plus those that remaincontingent on commerciality. Unrisked resources,unrisked resource base and similar terms representthe arithmetic sum of the amounts recorded undereach of these classifications. Recoverable resources,potentially recoverable volumes and other similarterms represent estimated remaining quantities thatare expected to be ultimately recoverable and pro-duced in the future, adjusted to reflect the relativeuncertainty represented by the various classifica-tions. These estimates may change significantly asdevelopment work provides additional information.At times, original oil in place and similar terms areused to describe total hydrocarbons contained in areservoir without regard to the likelihood of theirbeing produced. All of these measures are consideredby management in making capital investment andoperating decisions and may provide some indicationto stockholders of the resource potential of oil and gasproperties in which the company has an interest.Shale gas Natural gas produced from shale (veryfine-grained rock) formations where the gas wassourced from within the shale itself and is trappedin rocks with low porosity and extremely low per-meability. Production of shale gas requires the useof hydraulic fracturing (pumping a fluid-sand mixtureinto the formation under high pressure) to helpproduce the gas.Synthetic oil A marketable and transportable hydro-carbon liquid, resembling crude oil, that is producedby upgrading highly viscous or solid hydrocarbons,such as extra-heavy crude oil or oil sands.Cash flow from operating activities Cash generatedfrom the company’s businesses; an indicator of acompany’s ability to pay dividends and fund capitaland common stock repurchase programs. Excludescash flows related to the company’s financing andinvesting activities.Earnings Net income attributable to ChevronCorporation as presented on the ConsolidatedStatement of Income.Margin The difference between the cost of purchas-ing, producing and/or marketing a product and itssales price.Return on capital employed (ROCE) Ratio calculatedby dividing earnings (adjusted for after-tax interestexpense and noncontrolling interests) by the averageof total debt, noncontrolling interests and ChevronCorporation stockholders’ equity for the year.Return on stockholders’ equity Ratio calculatedby dividing earnings by average Chevron Corporationstockholders’ equity. Average Chevron Corporationstockholders’ equity is computed by averagingthe sum of the beginning-of-year and end-of-yearbalances.Total stockholder return (TSR) The return to stock-holders as measured by stock price appreciation andreinvested dividends for a period of time.Financial TermsEnergy Terms8 Chevron Corporation 2012 Annual Report
Financial Table of ContentsManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsKey Financial Results 10Earnings by Major Operating Area 10Business Environment and Outlook 10Operating Developments 13Results of Operations 14Consolidated Statement of Income 17Selected Operating Data 18Liquidity and Capital Resources 19Financial Ratios 21Guarantees, Off-Balance-Sheet Arrangements and ContractualObligations, and Other Contingencies 21Financial and Derivative Instruments 22Transactions With Related Parties 23Litigation and Other Contingencies 23Environmental Matters 23Critical Accounting Estimates and Assumptions 24New Accounting Standards 27Quarterly Results and Stock Market Data 28Notes to the Consolidated Financial StatementsNote 1 Summary of Significant Accounting Policies 36Note 2 Noncontrolling Interests 38Note 3 Information Relating to the Consolidated Statement of Cash Flows 39Note 4 Summarized Financial Data – Chevron U.S.A. Inc. 40Note 5 Summarized Financial Data – Chevron Transport Corporation Ltd. 40Note 6 Summarized Financial Data – Tengizchevroil LLP 41Note 7 Lease Commitments 41Note 8 Fair Value Measurements 41Note 9 Financial and Derivative Instruments 43Note 10 Operating Segments and Geographic Data 44Note 11 Investments and Advances 46Note 12 Properties, Plant and Equipment 48Note 13 Litigation 48Note 14 Taxes 51Note 15 Short-Term Debt 54Note 16 Long-Term Debt 54Note 17 New Accounting Standards 55Note 18 Accounting for Suspended Exploratory Wells 55Note 19 Stock Options and Other Share-Based Compensation 56Note 20 Employee Benefit Plans 57Note 21 Equity 63Note 22 Other Contingencies and Commitments 63Note 23 Asset Retirement Obligations 66Note 24 Other Financial Information 66Note 25 Earnings Per Share 67Note 26 Acquisition of Atlas Energy, Inc. 68Five-Year Financial Summary 69Five-Year Operating Summary 70Supplemental Information on Oil and Gas Producing Activities 71Consolidated Financial StatementsReport of Management 29Report of Independent Registered Public Accounting Firm 30Consolidated Statement of Income 31Consolidated Statement of Comprehensive Income 32Consolidated Balance Sheet 33Consolidated Statement of Cash Flows 34Consolidated Statement of Equity 3510 3629Chevron Corporation 2012 Annual Report 9This Annual Report of Chevron Corporation contains forward-looking state-ments relating to Chevron’s operations that are based on management’scurrent expectations, estimates and projections about the petroleum,chemicals and other energy-related industries. Words such as “anticipates,”“expects,” “intends,” “plans,” “targets,” “forecasts,” “projects,” “believes,”“seeks,” “schedules,” “estimates,” “budgets,” “outlook” and similar expressionsare intended to identify such forward-looking statements. These statements arenot guarantees of future performance and are subject to certain risks, uncer-tainties and other factors, many of which are beyond the company’s controland are difficult to predict. Therefore, actual outcomes and results maydiffer materially from what is expressed or forecasted in such forward-lookingstatements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unlesslegally required, Chevron undertakes no obligation to update publicly anyforward-looking statements, whether as a result of new information, futureevents or otherwise.Among the important factors that could cause actual results to differmaterially from those in the forward-looking statements are: changing crudeoil and natural gas prices; changing refining, marketing and chemical margins;actions of competitors or regulators; timing of exploration expenses; timing ofcrude oil liftings; the competitiveness of alternate-energy sources or productsubstitutes; technological developments; the results of operations and financialcondition of equity affiliates; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities;the potential failure to achieve expected net production from existingand future crude oil and natural gas development projects; potential delaysin the development, construction or start-up of planned projects; the potentialdisruption or interruption of the company’s production or manufacturing facil-ities or delivery/transportation networks due to war, accidents, political events,civil unrest, severe weather or crude oil production quotas that might beimposed by the Organization of Petroleum Exporting Countries; the potentialliability for remedial actions or assessments under existing or future environ-mental regulations and litigation; significant investment or product changesrequired by existing or future environmental statutes, regulations andlitigation; the potential liability resulting from other pending or futurelitigation; the company’s future acquisition or disposition of assets and gainsand losses from asset dispositions or impairments; government-mandatedsales, divestitures, recapitalizations, industry-specific taxes, changes in fiscalterms or restrictions on scope of company operations; foreign currencymovements compared with the U.S. dollar; the effects of changed accountingrules under generally accepted accounting principles promulgated by rule-setting bodies. In addition, such results could be affected by general domesticand international economic and political conditions. Other unpredictable orunknown factors not discussed in this report could also have material adverseeffects on forward-looking statements.Cautionary Statement Relevant to Forward-Looking Informationfor the Purpose of “Safe Harbor” Provisions of the Private SecuritiesLitigation Reform Act of 1995
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations10 Chevron Corporation 2012 Annual ReportKey Financial ResultsMillions of dollars, except per-share amounts 2012 2011 2010Net Income Attributable to Chevron Corporation $ 26,179 $ 26,895 $ 19,024Per Share Amounts:Net Income Attributable toChevron Corporation– Basic $ 13.42 $ 13.54 $ 9.53– Diluted $ 13.32 $ 13.44 $ 9.48Dividends $ 3.51 $ 3.09 $ 2.84Sales and OtherOperating Revenues $ 230,590 $244,371 $ 198,198Return on:Capital Employed 18.7% 21.6% 17.4%Stockholders’ Equity 20.3% 23.8% 19.3%Earnings by Major Operating AreaMillions of dollars 2012 2011 2010UpstreamUnited States $ 5,332 $ 6,512 $ 4,122International 18,456 18,274 13,555Total Upstream 23,788 24,786 17,677DownstreamUnited States 2,048 1,506 1,339International 2,251 2,085 1,139Total Downstream 4,299 3,591 2,478All Other (1,908) (1,482) (1,131)Net Income Attributable toChevron Corporation1,2$ 26,179 $ 26,895 $ 19,0241Includes foreign currency effects: $ (454) $ 121 $ (423)2Also referred to as “earnings” in the discussions that follow.Refer to the “Results of Operations” section beginningon page 14 for a discussion of financial results by majoroperating area for the three years ended December 31, 2012.Business Environment and OutlookChevron is a global energy company with substantial busi-ness activities in the following countries: Angola, Argentina,Australia, Azerbaijan, Bangladesh, Brazil, Cambodia,Canada, Chad, China, Colombia, Democratic Republic ofthe Congo, Denmark, Indonesia, Kazakhstan, Myanmar, theNetherlands, Nigeria, Norway, the Partitioned Zone betweenSaudi Arabia and Kuwait, the Philippines, Republic of theCongo, Singapore, South Africa, South Korea, Thailand,Trinidad and Tobago, the United Kingdom, the UnitedStates, Venezuela, and Vietnam.Earnings of the company depend mostly on the profit-ability of its upstream and downstream business segments.The biggest factor affecting the results of operations for thecompany is the level of the price of crude oil. In the down-stream business, crude oil is the largest cost componentof refined products. Seasonality is not a primary driver ofchanges in the company’s quarterly earnings during the year.To sustain its long-term competitive position in theupstream business, the company must develop and replenishan inventory of projects that offer attractive financial returnsfor the investment required. Identifying promising areas forexploration, acquiring the necessary rights to explore for andto produce crude oil and natural gas, drilling successfully,and handling the many technical and operational details ina safe and cost-effective manner are all important factors inthis effort. Projects often require long lead times and largecapital commitments.The company’s operations, especially upstream, can alsobe affected by changing economic, regulatory and politicalenvironments in the various countries in which it operates,including the United States. From time to time, certaingovernments have sought to renegotiate contracts or imposeadditional costs on the company. Governments may attemptto do so in the future. Civil unrest, acts of violence orstrained relations between a government and the company orother governments may impact the company’s operations orinvestments. Those developments have at times significantlyaffected the company’s operations and results and are care-fully considered by management when evaluating the level ofcurrent and future activity in such countries.The company continually evaluates opportunities todispose of assets that are not expected to provide sufficientlong-term value or to acquire assets or operations comple-mentary to its asset base to help augment the company’sfinancial performance and growth. Refer to the “Results ofOperations” section beginning on page 14 for discussions ofnet gains on asset sales during 2012. Asset dispositions andrestructurings may also occur in future periods and couldresult in significant gains or losses.The company closely monitors developments in thefinancial and credit markets, the level of worldwide economicactivity, and the implications for the company of movementsin prices for crude oil and natural gas. Management takesthese developments into account in the conduct of dailyoperations and for business planning.Comments related to earnings trends for the company’smajor business areas are as follows:Upstream Earnings for the upstream segment areclosely aligned with industry price levels for crude oil andnatural gas. Crude oil and natural gas prices are subject toexternal factors over which the company has no control,including product demand connected with global economicconditions, industry inventory levels, production quotasimposed by the Organization of Petroleum Exporting Coun-tries (OPEC), weather-related damage and disruptions,competing fuel prices, and regional supply interruptions orfears thereof that may be caused by military conflicts, civilunrest or political uncertainty. Any of these factors couldManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations
Chevron Corporation 2012 Annual Report 11also inhibit the company’s production capacity in an affectedregion. The company closely monitors developments in thecountries in which it operates and holds investments, andseeks to manage risks in operating its facilities and busi-nesses. The longer-term trend in earnings for the upstreamsegment is also a function of other factors, including thecompany’s ability to find or acquire and efficiently producecrude oil and natural gas, changes in fiscal terms of contracts,and changes in tax laws and regulations.The company continues to actively manage its scheduleof work, contracting, procurement and supply-chain activitiesto effectively manage costs. However, price levels for capitaland exploratory costs and operating expenses associated withthe production of crude oil and natural gas can be subjectto external factors beyond the company’s control. Externalfactors include not only the general level of inflation, butalso commodity prices and prices charged by the industry’smaterial and service providers, which can be affected by thevolatility of the industry’s own supply-and-demand condi-tions for such materials and services. Capital and exploratoryexpenditures and operating expenses can also be affected bydamage to production facilities caused by severe weather orcivil unrest.The chart above shows the trend in benchmark pricesfor Brent crude oil, West Texas Intermediate (WTI) crudeoil and U.S. Henry Hub natural gas. The Brent price aver-aged $112 per barrel for the full-year 2012, compared to$111 in 2011. As of mid-February 2013, the Brent price wasabout $118 per barrel. The majority of the company’s equitycrude production is priced based on the Brent benchmark.The WTI price averaged $94 per barrel for the full-year2012, compared to $95 in 2011. As of mid-February 2013,the WTI price was about $97 per barrel. WTI traded at adiscount to Brent throughout 2012 due to high inventoriesin the U.S. midcontinent market driven by strong growth indomestic production.A differential in crude oil prices exists between high-quality (high-gravity, low-sulfur) crudes and those of lowerquality (low-gravity, high-sulfur). The amount of the dif-ferential in any period is associated with the supply of heavycrude available versus the demand, which is a function ofthe capacity of refineries that are able to process this lowerquality feedstock into light products (motor gasoline, jetfuel, aviation gasoline and diesel fuel). During 2012, the dif-ferential between U.S. light and heavy crude oil remainedbelow historical norms as light sweet crude oil production inthe midcontinent region increased and outbound capacity atCushing remained constrained. Outside of the U.S., the dif-ferential narrowed modestly during 2012 as additional heavycrude oil conversion capacity came on line.Chevron produces or shares in the production of heavycrude oil in California, Chad, Indonesia, the PartitionedZone between Saudi Arabia and Kuwait, Venezuela and incertain fields in Angola, China and the United Kingdomsector of the North Sea. (See page 18 for the company’saverage U.S. and international crude oil realizations.)In contrast to price movements in the global marketfor crude oil, price changes for natural gas in many regionalmarkets are more closely aligned with supply-and-demandconditions in those markets. In the United States, prices atHenry Hub averaged $2.71 per thousand cubic feet (MCF)during 2012, compared with about $4.00 during 2011. Asof mid-February 2013, the Henry Hub spot price was about$3.30 per MCF. Fluctuations in the price of natural gasin the United States are closely associated with customerdemand relative to the volumes produced in North America.Outside the United States, price changes for natural gasdepend on a wide range of supply, demand and regulatorycircumstances. In some locations, Chevron is investing inlong-term projects to install infrastructure to produce andliquefy natural gas for transport by tanker to other markets.International natural gas realizations averaged about $6.00per MCF during 2012, compared with about $5.40 per MCFduring 2011. (See page 18 for the company’s average naturalgas realizations for the U.S. and international regions.)WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Spot Prices —Quarterly Average06015012090300102520155#009 – Crude Oil Prices 2009 through 2011 – v21Q 2Q 3Q 4Q 1Q 1Q2Q 2Q3Q 3Q4Q 4QWTI/Brent$/bblHH$/mcf2010 2011 2012BrentWTIHH#011B – Net Natural Gas Production – v055004400110022003300Net natural gas production increased3 percent in 2012 mainly due toincreases in Thailand, Bangladeshand the Marcellus Shale. Partiallyoffsetting the increases were fielddeclines in the United States,Australia and the United Kingdom.*Includes equity in afﬁliates.Net Natural Gas Production*Millions of cubic feet per dayUnited StatesInternational0908 10 11 125,0740200016001200800400Net Liquids Production*Thousands of barrels per dayUnited StatesInternationalNet liquids production decreased5 percent in 2012 mainly due tofield declines in the United Statesand international locations, theshut-in of the Frade Field in Brazil,and a major planned turnaround atTengizchevroil.*Includes equity in afﬁliates.0908 10 11 121,764
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations12 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsThe company’s worldwide net oil-equivalent productionin 2012 averaged 2.610 million barrels per day. About one-fifth of the company’s net oil-equivalent production in 2012occurred in the OPEC-member countries of Angola, Nigeria,Venezuela and the Partitioned Zone between Saudi Arabiaand Kuwait. OPEC quotas had no effect on the company’snet crude oil production in 2012 or 2011. At their December2012 meeting, members of OPEC supported maintaining thecurrent production quota of 30 million barrels per day, whichhas been in effect since December 2008.The company estimates that oil-equivalent productionin 2013 will average approximately 2.650 million barrels perday based on an average Brent price of $112 per barrel forthe full-year 2012. This estimate is subject to many factorsand uncertainties, including quotas that may be imposed byOPEC, price effects on entitlement volumes, changes in fis-cal terms or restrictions on the scope of company operations,delays in project startups or ramp-ups, fluctuations in demandfor natural gas in various markets, weather conditions thatmay 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 futureproduction levels is also affected by the size and number ofeconomic investment opportunities and, for new, large-scaleprojects, the time lag between initial exploration and thebeginning of production. Investments in upstream projectsgenerally begin well in advance of the start of the associatedcrude oil and natural gas production. A significant majorityof Chevron’s upstream investment is made outside the UnitedStates.Refer to the “Results of Operations” section on pages14 through 15 for additional discussion of the company’supstream business.Refer to Table V beginning on page 76 for a tabulation ofthe company’s proved net oil and gas reserves by geographicarea, at the beginning of 2010 and each year-end from 2010through 2012, and an accompanying discussion of majorchanges to proved reserves by geographic area for the three-year period ending December 31, 2012.On November 7, 2011, while drilling a developmentwell in the deepwater Frade Field about 75 miles offshoreBrazil, an unanticipated pressure spike caused oil to migratefrom the well bore through a series of fissures to the sea floor,emitting approximately 2,400 barrels of oil. The source ofthe seep was substantially contained within four days andthe well was plugged and abandoned. No evidence of anycoastal or wildlife impacts related to this seep has emerged.On March 14, 2012, the company identified a small, secondseep in a different part of the field. As a precautionary mea-sure, the company and its partners decided to temporarilysuspend field production and received approval from Brazil’sNational Petroleum Agency (ANP) to do so. Chevron and itspartners are cooperating with the Brazilian authorities. OnJuly 19, 2012, ANP issued its final investigative report on theNovember 2011 incident. A Brazilian federal district prosecu-tor filed two civil lawsuits seeking $10.7 billion in damagesfor each of the two seeps. The company is not aware of anybasis for damages to be awarded in any civil lawsuit. On July31, 2012, a court presiding over the civil litigation entered apreliminary injunction barring Chevron from conducting oilproduction and transportation activities in Brazil pendingcompletion of the legal proceedings commenced by the fed-eral district prosecutor and the ongoing proceedings of ANPand the Brazilian environment and natural resources regula-tory agency. On September 28, 2012, the injunction wasmodified to clarify that Chevron may continue its contain-ment and mitigation activities under supervision of ANP. Onappeal, on November 27, 2012, the injunction was revokedin its entirety. The federal district prosecutor also filed crimi-nal charges against 11 Chevron employees. Jurisdiction forall three matters was moved from Campos to a court in Riode Janeiro. On February 19, 2013, the court dismissed thecriminal matter, which is subject to appeal by the prosecutor.Chevron has submitted to ANP a plan for restarting limited0.012.57.55.010.02.5Net proved reserves forconsolidated companies andaffiliated companies increased1 percent in 2012.*2012, 2011, 2010 and 2009 includebarrels of oil-equivalent (BOE)reserves for Canadian synthetic oil.Net Proved ReservesBillions of BOE*United StatesOther AmericasAfricaAsiaAustraliaEuropeAffiliates#14A – Net Proved Reserves (front) – v211.308 09 10 11 12Net Proved ReservesLiquids vs. Natural GasBillions of BOE0908 10 11 1211.3Natural GasLiquids12.57.50.010.05.02.5Reserve replacement rate in 2012was 112 percent.#014B – Net Proved Reserves Liquids vs. Nat Gas –
Chevron Corporation 2012 Annual Report 13production in the Frade Field. The company’s ultimate expo-sure related to the incident is not currently determinable, butcould be significant to net income in any one period.The company entered into a nonbinding financing termsheet with Petroboscan, a joint stock company owned 39.2percent by Chevron, which operates the Boscan Field in Ven-ezuela. When finalized, the financing is expected to occurin stages over a limited drawdown period and is intended tosupport a specific work program to maintain and increaseproduction to an agreed-upon level. The terms are designed tosupport cash needs for ongoing operations and new develop-ment, as well as distributions to shareholders — includingcurrent outstanding obligations. The loan will be repaid fromfuture Petroboscan crude sales. Definitive documents areunder negotiation.Downstream Earnings for the downstream segment areclosely tied to margins on the refining, manufacturing andmarketing of products that include gasoline, diesel, jet fuel,lubricants, fuel oil, fuel and lubricant additives, and petro-chemicals. Industry margins are sometimes volatile and canbe affected by the global and regional supply-and-demand bal-ance for refined products and petrochemicals and by changesin the price of crude oil, other refinery and petrochemicalfeedstocks, and natural gas. Industry margins can also beinfluenced by inventory levels, geopolitical events, costs ofmaterials and services, refinery or chemical plant capacity uti-lization, maintenance programs, and disruptions at refineriesor chemical plants resulting from unplanned outages due tosevere weather, fires or other operational events.Other factors affecting profitability for downstream opera-tions include the reliability and efficiency of the company’srefining, marketing and petrochemical assets, the effectivenessof its crude oil and product supply functions, and the volatilityof tanker-charter rates for the company’s shipping operations,which are driven by the industry’s demand for crude oil andproduct tankers. Other factors beyond the company’s controlinclude the general level of inflation and energy costs to oper-ate the company’s refining, marketing and petrochemicalassets.The company’s most significant marketing areas are theWest Coast of North America, the U.S. Gulf Coast, Asia andsouthern Africa. Chevron operates or has significant ownershipinterests in refineries in each of these areas. The company com-pleted a multiyear plan in 2012 to streamline the downstreamasset portfolio to concentrate resources and capital on strategicassets. In third quarter 2012, the company completed the sale ofits Perth Amboy, New Jersey, refinery, which had been operatedas a products terminal in recent years. In 2012, the companycompleted the sale of its fuels marketing and aviation businessesin eight countries in the Caribbean.Refer to the “Results of Operations” section on pages 15through 16 for additional discussion of the company’s down-stream operations.All Other consists of mining operations, power generationbusinesses, worldwide cash management and debt financingactivities, corporate administrative functions, insurance opera-tions, real estate activities, energy services, alternative fuels, andtechnology companies.Operating DevelopmentsKey operating developments and other events during 2012and early 2013 included the following:UpstreamAustralia In October 2012, the company acquired addi-tional interests in the Clio and Acme fields in the CarnarvonBasin in exchange for Chevron’s interests in the Browsedevelopment. Consolidating interests in the Carnarvon Basinfits strategically with long-term plans to grow the Wheatstonearea resource base and creates expansion opportunities for theWheatstone Project.In September 2012, the company completed the sale ofan equity interest in the Wheatstone Project to Tokyo Elec-tric.During 2012 and early 2013, the company announcednatural gas discoveries at the 47.3 percent-owned and oper-ated Pontus prospect in Block WA-37-L, the 50 percent-ownedand operated Satyr prospect in Block WA-374-P, the 50 per-cent-owned and operated Pinhoe prospect in BlockWA-383-P, the 50 percent-owned and operated Arnhem pros-pect in Block WA-364-P, and the 50 percent-owned andoperated Kentish Knock South prospect in Block WA-365-P.These discoveries are expected to contribute to potentialexpansion opportunities at company-operated LNG facilities.During 2012, Chevron signed nonbinding Heads ofAgreement with Tohoku Electric and Chubu Electric andadditional binding agreements with Tokyo Electric for LNGofftake from the Wheatstone Project. To date, more than 80percent of Chevron’s equity LNG from Wheatstone is cov-ered under long-term agreements with customers in Asia.Angola In early 2013, the company announced it plansto proceed with the development of the Mafumeira Sul Projectlocated in Block 0.Angola-Republic of the Congo Joint DevelopmentArea In third quarter 2012, the company reached a finalinvestment decision on the cross-border development of thedeepwater Lianzi Field.Bangladesh In July 2012, the company reached a finalinvestment decision on the Bibiyana Expansion Project.Canada In February 2013, Chevron acquired a 50percent-owned and operated interest in the Kitimat LNGproject and proposed Pacific Trail Pipeline, and a 50 percentnonoperated interest in approximately 644,000 acres in theHorn River and Liard Basins.China In 2012, Chevron entered into an agreement toacquire two exploration blocks in the South China Sea’s PearlRiver Mouth Basin. Government approval is expected in2013.
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations14 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsKurdistan Region of Iraq In third quarter 2012,Chevron acquired an 80 percent interest and operatorship inthe Rovi and Sarta blocks.Lithuania In October 2012, Chevron acquired a 50percent interest in a company with exploration interests in ashale gas block.Morocco In January 2013, the company announced thatit had signed agreements to explore three offshore areas.Nigeria In February 2012, production commenced atthe deepwater Usan project.Sierra Leone In September 2012, the company wasawarded a 55 percent interest and operatorship in two deep-water exploration blocks.Suriname In November 2012, the company acquired a50 percent interest in two offshore exploration blocks.Ukraine In second quarter 2012, the company bid suc-cessfully for the right to exclusively negotiate a 50 percentinterest and operatorship in a shale gas block.United Kingdom In July 2012, the company initiatedfront-end engineering and design (FEED) for the deepwaterRosebank project west of the Shetland Islands.United States In October 2012, the company acquiredadditional acreage in New Mexico. A major portion of theacreage is located in the Delaware Basin, where the companyis already one of the largest leaseholders.In second quarter 2012, the company successfully bidfor additional shelf and deepwater exploration acreage in thecentral Gulf of Mexico. In fourth quarter 2012, the companysubmitted high bids for additional deepwater acreage in thewestern Gulf of Mexico.In first quarter 2012, production commenced at theCaesar/Tonga project in the deepwater Gulf of Mexico.DownstreamCaribbean During 2012, the company completed the sale ofits fuels marketing and aviation businesses in eight countriesin the Caribbean.Europe During first quarter 2012, the company com-pleted the sale of its fuels marketing, finished lubricants andaviation businesses in Spain.Saudi Arabia In October 2012, the company’s 50percent-owned Chevron Phillips Chemical Company LLCannounced that its 35 percent-owned Saudi Polymers Com-pany began commercial production at its new petrochemicalfacility in Al-Jubail.South Korea During 2012, the company’s 50 percent-owned GS Caltex affiliate completed the sale of certain powerand other assets.United States In third quarter 2012, the company com-pleted the sale of its idled Perth Amboy, New Jersey, refinery,which had been operating as a terminal.In April 2012, the company’s 50 percent-owned ChevronPhillips Chemical Company LLC announced the executionof FEED contracts for an ethane cracker at its Cedar Bayoufacility in Baytown, Texas, and two polyethylene facilitiesnear its Sweeny facility in Old Ocean, Texas.OtherCommon Stock Dividends The quarterly common stockdividend was increased by 11.1 percent in April 2012 to $0.90per common share, making 2012 the 25th consecutive yearthat the company increased its annual dividend payment.Common Stock Repurchase Program The companypurchased $5.0 billion of its common stock in 2012 under itsshare repurchase program. The program began in 2010 andhas no set term or monetary limits.Results of OperationsMajor Operating Areas The following section presents theresults of operations for the company’s business segments –Upstream and Downstream – as well as for “All Other.”Earnings are also presented for the U.S. and internationalgeographic areas of the Upstream and Downstream businesssegments. Refer to Note 10, beginning on page 44, for adiscussion of the company’s “reportable segments,” as definedin accounting standards for segment reporting (AccountingStandards Codification (ASC) 280). This section should alsobe read in conjunction with the discussion in “BusinessEnvironment and Outlook” on pages 10 through 13.U.S. UpstreamMillions of dollars 2012 2011 2010Earnings $ 5,332 $ 6,512 $ 4,122U.S. upstream earnings of $5.3 billion in 2012 decreased$1.2 billion from 2011, primarily due to lower natural gasand crude oil realizations of $340 million and $200 million,respectively, lower crude oil production of $240 million, andlower gains on asset sales of $180 million.U.S. upstream earnings of $6.5 billion in 2011 increased$2.4 billion from 2010. The benefit of higher crude oil realiza-tions increased earnings by $2.8 billion between periods.Partly offsetting this effect were lower net oil-equivalent pro-duction, which decreased earnings by about $400 million,and higher operating expenses of $200 million.The company’s average realization for U.S. crude oil andnatural gas liquids in 2012 was $95.21 per barrel, comparedwith $97.51 in 2011 and $71.59 in 2010. The average naturalgas realization was $2.64 per thousand cubic feet in 2012,compared with $4.04 and $4.26 in 2011 and 2010,respectively.
Chevron Corporation 2012 Annual Report 15Net oil-equivalent production in 2012 averaged 655,000barrels per day, down 3 percent from 2011 and 7 percentfrom 2010. Between 2012 and 2011, the decrease in produc-tion was associated with normal field declines and an absenceof volumes associated with Cook Inlet, Alaska, assets sold in2011. Partially offsetting this decrease was a ramp-up of proj-ects in the Gulf of Mexico and Marcellus Shale andimproved operational performance in the Gulf of Mexico.The net liquids component of oil-equivalent production for2012 averaged 455,000 barrels per day, down 2 percent from2011 and 7 percent from 2010. Net natural gas productionaveraged about 1.2 billion cubic feet per day in 2012, downapproximately 6 percent from 2011 and about 8 percentfrom 2010. Refer to the “Selected Operating Data” table onpage 18 for a three-year comparative of production volumesin the United States.International UpstreamMillions of dollars 2012 2011 2010Earnings* $ 18,456 $18,274 $ 13,555*Includes foreign currency effects: $ (275) $ 211 $ (293)International upstream earnings were $18.5 billion in2012 compared with $18.3 billion in 2011. The increase wasmainly due to a gain of approximately $1.4 billion on anasset exchange in Australia, higher natural gas realizationsof about $610 million and a nearly $600 million gain onsale of an equity interest in the Wheatstone Project. Mostlyoffsetting these effects were lower crude oil volumes of about$1.3 billion and higher exploration expenses of about $430million. Foreign currency effects decreased earnings by $275million in 2012, compared with an increase of $211 million ayear earlier.International upstream earnings of $18.3 billion in 2011increased $4.7 billion from 2010. Higher prices for crude oilincreased earnings by $7.1 billion. This benefit was partly off-set by higher tax items of about $1.7 billion and higheroperating expenses, including fuel, of about $1.0 billion. For-eign currency effects increased earnings by $211 million in2011, compared with a decrease of $293 million in 2012.The company’s average realization for international crudeoil and natural gas liquids in 2012 was $101.88 per barrel,compared with $101.53 in 2011 and $72.68 in 2010. Theaverage natural gas realization was $5.99 per thousand cubicfeet in 2012, compared with $5.39 and $4.64 in 2011 and2010, respectively.International net oil-equivalent production of 1.96 mil-lion barrels per day in 2012 decreased 2 percent from 2011and decreased about 5 percent from 2010. New production inThailand and Nigeria in 2012 was more than offset by nor-mal field declines, the shut-in of the Frade field in Brazil anda major planned turnaround at Tengizchevroil. The declinebetween 2011 and 2010 was primarily due to price effects onentitlement volumes.The net liquids component of international oil-equivalentproduction was about 1.3 million barrels per day in 2012,a decrease of approximately 5 percent from 2011 and adecrease of approximately 9 percent from 2010. Internationalnet natural gas production of 3.9 billion cubic feet per day in2012 was up 6 percent from 2011 and up 4 percent from2010.Refer to the “Selected Operating Data” table, on page 18,for a three-year comparative of international production vol-umes.U.S. DownstreamMillions of dollars 2012 2011 2010Earnings $ 2,048 $ 1,506 $ 1,339U.S. downstream operations earned $2.0 billion in 2012,compared with $1.5 billion in 2011. The increase was mainlydue to higher margins on refined product sales of $520 mil-lion and higher earnings of $140 million from the50 percent-owned Chevron Phillips Chemical Company LLC(CPChem). These benefits were partly offset by higher operat-ing expenses of $130 million.Earnings of $1.5 billion in 2011 increased $167 mil-lion from 2010. Earnings benefited by $300 million fromimproved margins on refined products, $200 million fromhigher earnings from CPChem and $50 million from theabsence of 2010 charges related to employee reductions. Thesebenefits were partly offset by the absence of a $400 milliongain on the sale of the company’s ownership interest in theColonial Pipeline Company recognized in 2010.Refined product sales of 1.21 million barrels per day in2012 declined 4 percent, mainly reflecting lower gasolineand fuel oil sales. Sales volumes of refined products were1.26 million barrels per day in 2011, a decrease of 7 percentfrom 2010. The decline was mainly in gasoline, gas oil andkerosene sales. U.S. branded gasoline sales of 516,000 barrelsper day in 2012 were essentially flat from 2011 and declinedapproximately 10 percent from 2010. The decline in 2012 and0200016001200800400Exploration ExpensesMillions of dollarsUnited StatesInternationalExploration expenses increased42 percent from 2011 mainly dueto higher dry hole expense andgeologic and geophysical expensein the international segment.#016 – Exploration Expenses – v30908 10 11 12$1,7280.028.014.021.07.0#017 – Worldwide UpstreamEarnings – v2Worldwide Upstream EarningsBillions of dollarsEarnings decreased in 2012 onlower crude oil volumes.United StatesInternational0908 10 11 12$23.8
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations16 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations2011 from 2010 was primarily due to weaker demand andpreviously completed exits from selected eastern U.S. retailmarkets.Refer to the “Selected Operating Data” table on page 18for a three-year comparison of sales volumes of gasoline andother refined products and refinery input volumes.International DownstreamMillions of dollars 2012 2011 2010Earnings* $ 2,251 $2,085 $ 1,139*Includes foreign currency effects: $ (173) $ (65) $ (135)International downstream earned $2.3 billion in 2012,compared with $2.1 billion in 2011. Earnings increased dueto a favorable change in effects on derivative instruments of$190 million and higher margins on refined product sales of$100 million. Foreign currency effects decreased earnings by$173 million in 2012, compared with a decrease of $65 mil-lion a year earlier.Earnings of $2.1 billion in 2011 increased $946 millionfrom 2010. Gains on asset sales benefited earnings by$700 million, primarily from the sale of the Pembroke Refin-ery and related marketing assets in the United Kingdomand Ireland. Also contributing to earnings were improvedmargins of $200 million and the absence of 2010 charges of$90 million related to employee reductions. These benefitswere partly offset by an unfavorable change in effects onderivative instruments ofabout $180 million. Foreigncurrency effects decreasedearnings by $65 millionin 2011, compared with adecrease of $135 million in2010.Total refined productsales of 1.55 million barrelsper day in 2012 declined 8percent, primarily related tothe third quarter 2011 sale ofthe company’s refining andmarketing assets in theUnited Kingdom and Ire-land. Excluding the impactof 2011 asset sales, sales vol-umes were flat between thecomparative periods. Interna-tional refined product salesvolumes of 1.69 million bar-rels per day in 2011 were 4percent lower than in 2010,primarily due to the sale ofthe company’s refining andmarketing assets in theUnited Kingdom and Ireland. Excluding the impact of 2011asset sales, sales volumes were up 3 percent between the com-parative periods.Refer to the “Selected Operating Data” table, on page 18,for a three-year comparison of sales volumes of gasoline andother refined products and refinery input volumes.All OtherMillions of dollars 2012 2011 2010Net charges* $ (1,908) $ (1,482) $ (1,131)*Includes foreign currency effects: $ (6) $ (25) $ 5All Other includes mining operations, power generationbusinesses, worldwide cash management and debt financingactivities, corporate administrative functions, insuranceoperations, real estate activities, energy services, alternativefuels, and technology companies.Net charges in 2012 increased $426 million from 2011,mainly due to higher environmental reserve additions, corpo-rate tax items and other corporate charges, partially offset bylower employee compensation and benefits expenses.Net charges in 2011 increased $351 million from 2010,mainly due to higher expenses for employee compensationand benefits and higher net corporate tax expenses.0225018001350900450#020 – Int’l. Gasoline OtherRefined – v3International Gasoline Other Refined ProductSales*Thousands of barrels per daySales volumes of refined productswere down 8 percent from 2011mainly due to the full year impact ofasset sales in the United Kingdomand Ireland in August 2011.*Includes equity in afﬁliates.GasolineJet FuelGas Oils KeroseneResidual Fuel OilOther0908 10 11 121,554Downstream earnings increased20 percent from 2011 due to highermargins on the sale of refinedproducts and higher earnings fromCPChem.*Includes equity in afﬁliates.United StatesInternational(1.0)5.03.50.51.5Worldwide DownstreamEarnings*Billions of dollars$4.30908 10 11 12#019 – WW DownstreamEarnings – v3016001200800400#018 – U.S. Gas Other RefinedProd Sales – v3U.S. Gasoline OtherRefined Product SalesThousands of barrels per dayGasolineJet FuelGas Oils KeroseneResidual Fuel OilOtherReﬁned product sales volumesdecreased 4 percent from 2011 onlower sales of gasoline and lowersales of residual fuel oil.1,2110908 10 11 12
Chevron Corporation 2012 Annual Report 17Consolidated Statement of IncomeComparative amounts for certain income statement catego-ries are shown below:Millions of dollars 2012 2011 2010Sales and other operating revenues $ 230,590 $244,371 $198,198Sales and other operating revenues decreased in 2012mainly due to the 2011 sale of the company’s refining andmarketing assets in the United Kingdom and Ireland, andlower crude oil volumes. Higher 2011 prices for crude oil andrefined products resulted in increased sales and other operat-ing revenues compared with 2010.Millions of dollars 2012 2011 2010Income from equity affiliates $ 6,889 $ 7,363 $ 5,637Income from equity affiliates decreased in 2012 from2011 mainly due to lower upstream-related earnings fromTengizchevroil in Kazakhstan as a result of lower crude oilproduction, and higher operating expenses at Angola LNGLimited and Petropiar in Venezuela. Downstream-relatedearnings were higher between comparative periods, primarilydue to higher margins at CPChem.Income from equity affiliates increased in 2011 from2010 mainly due to higher upstream-related earnings fromTengizchevroil as a result of higher prices for crude oil.Downstream-related earnings were also higher between thecomparative periods, primarily due to higher earnings fromCPChem as a result of higher margins on sales of commoditychemicals.Refer to Note 11, beginning on page 46, for a discussionof Chevron’s investments in affiliated companies.Millions of dollars 2012 2011 2010Other income $ 4,430 $ 1,972 $ 1,093Other income of $4.4 billion in 2012 included net gainsfrom asset sales of approximately $4.2 billion. Other incomein 2011 and 2010 included net gains from asset sales of $1.5billion and $1.1 billion, respectively. Interest income wasapproximately $166 million in 2012, $145 million in 2011and $120 million in 2010. Foreign currency effects decreasedother income by $207 million in 2012, while increasing otherincome by $103 million in 2011 and decreasing other incomeby $251 million in 2010.Millions of dollars 2012 2011 2010Purchased crude oil and products $ 140,766 $149,923 $116,467Crude oil and product purchases of $140.8 billion weredown in 2012 mainly due to the 2011 sale of the company’srefining and marketing assets in the United Kingdom andIreland and lower natural gas prices. Crude oil and prod-uct purchases in 2011 increased by $33.5 billion from theprior year due to higher prices for crude oil, natural gas andrefined products.Millions of dollars 2012 2011 2010Operating, selling, general andadministrative expenses $ 27,294 $ 26,394 $ 23,955Operating, selling, general and administrative expensesincreased $900 million between 2012 and 2011 mainly dueto higher contract labor and professional services of $590million, and higher employee compensation and benefits of$280 million.Operating, selling, general and administrative expensesincreased $2.4 billion between 2011 and 2010. This increasewas primarily related to higher fuel expenses of $1.5 billionand higher employee compensation and benefits of $700million. In part, increased fuel purchases in 2011 reflected anew commercial arrangement that replaced a prior productexchange agreement for upstream operations in Indonesia.Millions of dollars 2012 2011 2010Exploration expense $ 1,728 $ 1,216 $ 1,147Exploration expenses in 2012 increased from 2011mainly due to higher geological and geophysical costs andwell write-offs.Exploration expenses in 2011 increased from 2010mainly due to higher geological and geophysical costs, partlyoffset by lower well write-offs.Millions of dollars 2012 2011 2010Depreciation, depletion andamortization $ 13,413 $12,911 $ 13,063The increase in 2012 from 2011 was mainly due to higherdepreciation rates for certain oil and gas producing fields, par-tially offset by lower production levels. The decrease in 2011from 2010 mainly reflected lower production levels and the2011 sale of the Pembroke Refinery, partially offset by higherdepreciation rates for certain oil and gas producing fields.Millions of dollars 2012 2011 2010Taxes other than on income $ 12,376 $ 15,628 $ 18,191Taxes other than on income decreased in 2012 from 2011primarily due to lower import duties in the United Kingdomreflecting the sale of the company’s refining and marketingassets in the United Kingdom and Ireland in 2011. Partiallyoffsetting the decrease were excise taxes associated with con-solidation of Star Petroleum Refining Company beginningJune 2012. Taxes other than on income decreased in 2011from 2010 primarily due to lower import duties in the UnitedKingdom reflecting the 2011 sale of the Pembroke Refineryand other downstream assets, partly offset by higher excisetaxes in the company’s South Africa downstream operations.Millions of dollars 2012 2011 2010Interest and debt expense $ — $ — $ 50Total interest and debt expenses were fully capitalized in2012 and 2011.
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations18 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsMillions of dollars 2012 2011 2010Income tax expense $ 19,996 $20,626 $12,919Effective income tax rates were 43 percent in 2012,43 percent in 2011 and 40 percent in 2010. The rate wasunchanged between 2012 and 2011. The impact of lowereffective tax rates in international upstream operations wereoffset by foreign currency remeasurement impacts betweenperiods. For international upstream, the lower effective taxrates in the current period were driven primarily by theeffects of asset sales, one-time tax benefits and reduced with-holding taxes, which were partially offset by a lowerutilization of tax credits during the year. The rate was higherin 2011 than in 2010 primarily due to higher effective taxrates in certain international upstream jurisdictions. Thehigher international upstream effective tax rates were drivenprimarily by lower utilization of non-U.S. tax credits in 2011and the effect of changes in income tax rates between peri-ods, which were partially offset by foreign currencyremeasurement impacts.Selected Operating Data1,22012 2011 2010U.S. Upstream Net Crude Oil and Natural GasLiquids Production (MBPD) 455 465 489Net Natural Gas Production (MMCFPD)31,203 1,279 1,314Net Oil-Equivalent Production (MBOEPD) 655 678 708Sales of Natural Gas (MMCFPD) 5,470 5,836 5,932Sales of Natural Gas Liquids (MBPD) 16 15 22Revenues From Net ProductionLiquids ($/Bbl) $ 95.21 $ 97.51 $ 71.59Natural Gas ($/MCF) $ 2.64 $ 4.04 $ 4.26International UpstreamNet Crude Oil and Natural GasLiquids Production (MBPD)41,309 1,384 1,434Net Natural Gas Production (MMCFPD)33,871 3,662 3,726Net Oil-Equivalent Production(MBOEPD)41,955 1,995 2,055Sales of Natural Gas (MMCFPD) 4,315 4,361 4,493Sales of Natural Gas Liquids (MBPD) 24 24 27Revenues From LiftingsLiquids ($/Bbl) $101.88 $101.53 $ 72.68Natural Gas ($/MCF) $ 5.99 $ 5.39 $ 4.64Worldwide UpstreamNet Oil-Equivalent Production(MBOEPD)4United States 655 678 708International 1,955 1,995 2,055Total 2,610 2,673 2,763U.S. DownstreamGasoline Sales (MBPD)5624 649 700Other Reﬁned Product Sales (MBPD) 587 608 649Total Refined Product Sales (MBPD) 1,211 1,257 1,349Sales of Natural Gas Liquids (MBPD) 141 146 139Reﬁnery Input (MBPD) 833 854 890International DownstreamGasoline Sales (MBPD)5412 447 521Other Reﬁned Product Sales (MBPD) 1,142 1,245 1,243Total Refined Product Sales (MBPD)61,554 1,692 1,764Sales of Natural Gas Liquids (MBPD) 64 63 78Refinery Input (MBPD)7869 933 1,0041Includes company share of equity affiliates.2MBPD – thousands of barrels per day; MMCFPD – millions of cubic feet per day;MBOEPD – thousands of barrels of oil-equivalents per day; Bbl – Barrel; MCF =Thousands of cubic feet. Oil-equivalent gas (OEG) conversion ratio is 6,000 cubicfeet of natural gas = 1 barrel of oil.3Includes natural gas consumed in operations (MMCFPD):United States 63 69 62International 523 513 4754Includes: Canada – synthetic oil 43 40 24 Venezuela affiliate – synthetic oil 17 32 285Includes branded and unbranded gasoline.6Includes sales of affiliates (MBPD): 522 556 5627As of June 2012, Star Petroleum Refining Company crude-input volumes arereported on a 100 percent consolidated basis. Prior to June 2012, crude-input vol-umes reflect a 64 percent equity interest.
Chevron Corporation 2012 Annual Report 19Liquidity and Capital ResourcesCash, cash equivalents, time deposits and marketablesecurities Total balances were $21.9 billion and $20.1 bil-lion at December 31, 2012 and 2011, respectively. Cashprovided by operating activities in 2012 was $38.8 billion,compared with $41.1 billion in 2011 and $31.4 billion in2010. Cash provided by operating activities was net of contri-butions to employee pension plans of approximately$1.2 billion, $1.5 billion and $1.4 billion in 2012, 2011 and2010, respectively. Cash provided by investing activitiesincluded proceeds and deposits related to asset sales of$2.7 billion in 2012, $3.5 billion in 2011, and $2.0 billion in2010.Restricted cash of $1.5 billion and $1.2 billion associatedwith tax payments, upstream abandonment activities, fundsheld in escrow for an asset acquisition and capital investmentprojects at December 31, 2012 and 2011, respectively, wasinvested in short-term marketable securities and recorded as“Deferred charges and other assets” on the Consolidated BalanceSheet.Dividends Dividends paid to common stockholderswere $6.8 billion in 2012, $6.1 billion in 2011 and $5.7billion in 2010. In April 2012, the company increased itsquarterly dividend by 11.1 percent to 90 cents per commonshare.Debt and capital lease obligations Total debt and capi-tal lease obligations were $12.2 billion at December 31, 2012,up from $10.2 billion at year-end 2011.The $2.0 billion increase in total debt and capital leaseobligations during 2012 included the net effect of a $4 bil-lion bond issuance and the early redemption of a $2 billionbond due in March 2014. The company’s debt and capitallease obligations due within one year, consisting primarilyof commercial paper, redeemable long-term obligations andthe current portion of long-term debt, totaled $6.0 billion atDecember 31, 2012, compared with $5.9 billion at year-end2011. Of these amounts, $5.9 billion and $5.6 billion werereclassified to long-term at the end of each period, respec-tively. At year-end 2012, settlement of these obligations wasnot expected to require the use of working capital in 2013, asthe company had the intent and the ability, as evidenced bycommitted credit facilities, to refinance them on a long-termbasis.At December 31, 2012, the company had $6.0 billion incommitted credit facilities with various major banks, expiringin December 2016, which enable the refinancing of short-term obligations on a long-term basis. These facilities supportcommercial paper borrowing and can also be used for gen-eral corporate purposes. The company’s practice has been tocontinually replace expiring commitments with new com-mitments on substantially the same terms, maintaining levelsmanagement believes appropriate. Any borrowings under thefacilities would be unsecured indebtedness at interest ratesbased on the London Interbank Offered Rate or an average ofbase lending rates published by specified banks and on termsreflecting the company’s strong credit rating. No borrowingswere outstanding under these facilities at December 31, 2012.In addition, in November 2012, the company filed with theSecurities and Exchange Commission a new registrationstatement that expires in November 2015. This registrationstatement is for an unspecified amount of nonconvertibledebt securities issued or guaranteed by the company.The major debt rating agencies routinely evaluate thecompany’s debt, and the company’s cost of borrowing canincrease or decrease depending on these debt ratings. Thecompany has outstanding public bonds issued by ChevronCorporation, Chevron Corporation Profit Sharing/Sav-ings Plan Trust Fund and Texaco Capital Inc. All of thesesecurities are the obligations of, or guaranteed by, ChevronCorporation and are rated AA by Standard Poor’s Corpo-ration and Aa1 by Moody’s Investors Service. The company’sU.S. commercial paper is rated A-1+ by Standard Poor’sand P-l by Moody’s. All of these ratings denote high-quality,investment-grade securities.The company’s future debt level is dependent primar-ily on results of operations, the capital program and cashthat may be generated from asset dispositions. Based on itshigh-quality debt ratings, the company believes that it hassubstantial borrowing capacity to meet unanticipated cashrequirements. The company also can modify capital spendingplans during any extended periods of low prices for crude oiland natural gas and narrow margins for refined products andcommodity chemicals to provide flexibility to continue pay-ing the common stock dividend and maintain the company’shigh-quality debt ratings.Common stock repurchase program In July 2010, theBoard of Directors approved an ongoing share repurchaseprogram with no set term or monetary limits. The companyexpects to repurchase between $500 million and $2 billionof its common shares per quarter, at prevailing prices, aspermitted by securities laws and other legal requirementsand subject to market conditions and other factors. During2012, the company purchased 46.6 million common sharesfor $5.0 billion. From the inception of the program through0.045.018.027.09.036.0#022B – Cash Provided by OperatingCash Provided byOperating ActivitiesBillions of dollarsOperating cash flows were $2.2billion lower than 2011, primarilydue to lower benefits from workingcapital and lower equity affiliatedistributions.0908 10 11 12$38.80.015.012.03.06.09.00.01.51.20.90.60.3Total Interest Expense Total Debt at Year-EndBillions of dollarsTotal Interest Expense(right scale)Total Debt (left scale)Total debt increased $2.0 billionduring 2012 to $12.2 billion. Allinterest expense was capitalizedas part of the cost of majorprojects in 2012 and 2011.$12.20908 10 11 12
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations20 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations2012, the company had purchased 97.7 million shares for$10.0 billion.Capital and exploratory expenditures Total expendi-tures for 2012 were $34.2 billion, including $2.1 billion for thecompany’s share of equity-affiliate expenditures. In 2011 and2010, expenditures were $29.1 billion and $21.8 billion,respectively, including the company’s share of affiliates’ expen-ditures of $1.7 billion and $1.4 billion, respectively.Of the $34.2 billion of expenditures in 2012, 89 percent,or $30.4 billion, was related to upstream activities. Approxi-mately 89 percent and 87 percent were expended forupstream operations in 2011 and 2010. Internationalupstream accounted for about 72 percent of the worldwideupstream investment in 2012, about 68 percent in 2011 andabout 82 percent in 2010. These amounts exclude the acquisi-tion of Atlas Energy, Inc., in 2011.The company estimates that 2013 capital and exploratoryexpenditures will be $36.7 billion, including $3.3 billion ofspending by affiliates. Approximately 90 percent of the total,or $33 billion, is budgeted for exploration and productionactivities. Approximately $25.5 billion, or 77 percent, ofthis amount is for projects outside the United States. Spendingin 2013 is primarily focused on major development projectsin Angola, Australia, Brazil, Canada, China, Kazakhstan,Nigeria, Republic of Congo, Russia, the United Kingdomand the U.S. Gulf of Mexico. Also included is funding forenhancing recovery and mitigating natural field declines forcurrently-producing assets, and for focused exploration andappraisal activities.Worldwide downstream spending in 2013 is estimated at$2.7 billion, with about $1.4 billion for projects in the UnitedStates. Major capital outlays include projects under construc-tion at refineries in the United States, expansion of additivesproduction capacity in Singapore and chemicals projects inthe United States.Investments in technology companies, power genera-tion and other corporate businesses in 2013 are budgeted at$1 billion.Noncontrolling interests The company had noncon-trolling interests of $1,308 million and $799 million atDecember 31, 2012 and 2011, respectively. Distributions tononcontrolling interests totaled $41 million and $71 millionin 2012 and 2011, respectively.Pension Obligations Information related to pensionplan contributions is included on page 62 in Note 20 tothe Consolidated Financial Statements under the heading“Cash Contributions and Benefit Payments.” Refer also tothe discussion of pension accounting in “Critical AccountingEstimates and Assumptions,” beginning on page 24.0.012.09.03.06.0PercentThe ratio increased to 8.2 percentat the end of 2012 due to higherdebt, partially offset by an increasein Stockholders’ Equity.Ratio of Total Debt to TotalDebt-Plus-Chevron CorporationStockholders’ Equity0908 10 11 128.2%0.032.016.024.08.0Upstream —Capital ExploratoryExpenditures*Billions of dollarsUnited StatesInternationalExploration and productionexpenditures were 18 percenthigher than 2011.*Includes equity in afﬁliates.Excludes the acquisition of AtlasEnergy, Inc., in 2011.0908 10 11 12$30.4Capital and Exploratory Expenditures 2012 2011 2010Millions of dollars U.S. Int’l. Total U.S. Int’l. Total U.S. Int’l. TotalUpstream1 $ 8,531 $ 21,913 $ 30,444 $ 8,318 $ 17,554 $ 25,872 $ 3,450 $ 15,454 $ 18,904Downstream 1,913 1,259 3,172 1,461 1,150 2,611 1,456 1,096 2,552All Other 602 11 613 575 8 583 286 13 299Total $ 11,046 $ 23,183 $ 34,229 $ 10,354 $ 18,712 $ 29,066 $ 5,192 $ 16,563 $ 21,755Total, Excluding Equity in Affiliates $ 10,738 $ 21,374 $ 32,112 $ 10,077 $ 17,294 $ 27,371 $ 4,934 $ 15,433 $ 20,3671Excludes the acquisition of Atlas Energy, Inc., in 2011.
Chevron Corporation 2012 Annual Report 21Indemnifications Information related to indemnifica-tions is included on page 64 in Note 22 to the ConsolidatedFinancial Statements under the heading “Indemnifications.”Long-Term Unconditional Purchase Obligations andCommitments, Including Throughput and Take-or-PayAgreements The company and its subsidiaries have certainother contingent liabilities with respect to long-term uncon-ditional purchase obligations and commitments, includingthroughput and take-or-pay agreements, some of which relateto suppliers’ financing arrangements. The agreements typi-cally provide goods and services, such as pipeline and storagecapacity, drilling rigs, utilities, and petroleum products, to beused or sold in the ordinary course of the company’s business.The aggregate approximate amounts of required paymentsunder these various commitments are: 2013 – $3.7 billion;2014 – $3.9 billion; 2015 – $4.1 billion; 2016 – $2.4 billion;2017 – $1.8 billion; 2018 and after – $6.5 billion. A por-tion of these commitments may ultimately be shared withproject partners. Total payments under the agreements wereapproximately $3.6 billion in 2012, $6.6 billion in 2011 and$6.5 billion in 2010.The following table summarizes the company’s signifi-cant contractual obligations:Contractual Obligations1Millions of dollars Payments Due by Period 2014– 2016– After Total 2013 2015 2017 2017On Balance Sheet:2Short-Term Debt3 $ 127 $ 127 $ — $ — $ —Long-Term Debt3 11,966 — 5,923 2,000 4,043Noncancelable CapitalLease Obligations 189 45 60 25 59Interest 1,983 210 408 402 963Off Balance Sheet:Noncancelable OperatingLease Obligations 3,548 727 1,276 929 616Throughput andTake-or-Pay Agreements4 17,164 2,705 5,480 2,904 6,075Other UnconditionalPurchase Obligations4 5,285 1,003 2,470 1,342 4701Excludes contributions for pensions and other postretirement benefit plans.Information on employee benefit plans is contained in Note 20 beginning on page57.2Does not include amounts related to the company’s income tax liabilities associated withuncertain tax positions. The company is unable to make reasonable estimates of the peri-ods in which these liabilities may become payable. The company does not expectsettlement of such liabilities will have a material effect on its consolidated financial posi-tion or liquidity in any single period.3$5.9 billion of short-term debt that the company expects to refinance is included inlong-term debt. The repayment schedule above reflects the projected repayment of theentire amounts in the 2014–2015 period.4Does not include commodity purchase obligations that are not fixed or determinable.These obligations are generally monetized in a relatively short period of time throughsales transactions or similar agreements with third parties. Examples include obligationsto purchase LNG, regasified natural gas and refinery products at indexed prices.Financial RatiosFinancial RatiosAt December 312012 2011 2010Current Ratio 1.6 1.6 1.7Interest Coverage Ratio 191.3 165.4 101.7Debt Ratio 8.2% 7.7% 9.8%Current Ratio – current assets divided by currentliabilities, which indicates the company’s ability to repayits short-term liabilities with short-term assets. The currentratio in all periods was adversely affected by the fact thatChevron’s inventories are valued on a last-in, first-out basis.At year-end 2012, the book value of inventory was lower thanreplacement costs, based on average acquisition costs duringthe year, by approximately $9.3 billion.Interest Coverage Ratio – income before income taxexpense, plus interest and debt expense and amortizationof capitalized interest, less net income attributable to non-controlling interests, divided by before-tax interest costs.This ratio indicates the company’s ability to pay interest onoutstanding debt. The company’s interest coverage ratio in2012 was higher than 2011 and 2010 due to lower before-taxinterest costs.Debt Ratio – total debt as a percentage of total debtplus Chevron Corporation Stockholders’ Equity, whichindicates the company’s leverage. The increase between2012 and 2011 was due to higher debt, partially offset by ahigher Chevron Corporation stockholders’ equity balance.The decrease between 2011 and 2010 was due to a higherChevron Corporation stockholders’ equity balance.Guarantees, Off-Balance-Sheet Arrangements andContractual Obligations, and Other ContingenciesDirect GuaranteesMillions of dollars Commitment Expiration by Period 2014– 2016– AfterTotal 2013 2015 2017 2017Guarantee of non-consolidated affiliate orjoint-venture obligations $ 562 $ 38 $ 76 $ 76 $ 372The company’s guarantee of $562 million is associatedwith certain payments under a terminal use agreemententered into by an equity affiliate. Over the approximate15-year remaining term of the guarantee, the maximumguarantee amount will be reduced as certain fees are paid bythe affiliate. There are numerous cross-indemnity agreementswith the affiliate and the other partners to permit recoveryof amounts paid under the guarantee. Chevron has recordedno liability for its obligation under this guarantee.
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations22 Chevron Corporation 2012 Annual ReportManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsFinancial and Derivative InstrumentsThe market risk associated with the company’s portfolio offinancial and derivative instruments is discussed below. Theestimates of financial exposure to market risk do not rep-resent the company’s projection of future market changes.The actual impact of future market changes could differmaterially due to factors discussed elsewhere in this report,including those set forth under the heading “Risk Factors”in Part I, Item 1A, of the company’s 2012 Annual Report onForm 10-K.Derivative Commodity Instruments Chevron isexposed to market risks related to the price volatility of crudeoil, refined products, natural gas, natural gas liquids, lique-fied natural gas and refinery feedstocks.The company uses derivative commodity instruments tomanage these exposures on a portion of its activity, includingfirm commitments and anticipated transactions for the pur-chase, sale and storage of crude oil, refined products, naturalgas, natural gas liquids and feedstock for company refineries.The company also uses derivative commodity instruments forlimited trading purposes. The results of these activities werenot material to the company’s financial position, results ofoperations or cash flows in 2012.The company’s market exposure positions are monitoredand managed on a daily basis by an internal Risk Controlgroup in accordance with the company’s risk managementpolicies, which have been approved by the Audit Committeeof the company’s Board of Directors.The derivative commodity instruments used in thecompany’s risk management and trading activities consistmainly of futures, options and swap contracts traded on theNew York Mercantile Exchange and on electronic platformsof the Inter-Continental Exchange and Chicago MercantileExchange. In addition, crude oil, natural gas and refinedproduct swap contracts and option contracts are entered intoprincipally with major financial institutions and other oil andgas companies in the “over-the-counter” markets.Derivatives beyond those designated as normal purchaseand normal sale contracts are recorded at fair value on theConsolidated Balance Sheet in accordance with accountingstandards for derivatives (ASC 815), with resulting gains andlosses reflected in income. Fair values are derived principallyfrom published market quotes and other independent third-party quotes. The change in fair value of Chevron’s derivativecommodity instruments in 2012 was a quarterly averagedecrease of $31 million in total assets and a quarterly averageincrease of $12 million in total liabilities.The company uses a Value-at-Risk (VaR) model to esti-mate the potential loss in fair value on a single day from theeffect of adverse changes in market conditions on derivativecommodity instruments held or issued. VaR is the maximumprojected loss not to be exceeded within a given probabilityor confidence level over a given period of time. The compa-ny’s VaR model uses the Monte Carlo simulation methodthat involves generating hypothetical scenarios from thespecified probability distributions and constructing a fulldistribution of a portfolio’s potential values.The VaR model utilizes an exponentially weightedmoving average for computing historical volatilities andcorrelations, a 95 percent confidence level, and a one-dayholding period. That is, the company’s 95 percent, one-dayVaR corresponds to the unrealized loss in portfolio value thatwould not be exceeded on average more than one in every 20trading days, if the portfolio were held constant for one day.The one-day holding period is based on the assumptionthat market-risk positions can be liquidated or hedged withinone day. For hedging and risk management, the companyuses conventional exchange-traded instruments such asfutures and options as well as non-exchange-traded swaps,most of which can be liquidated or hedged effectively withinone day. The following table presents the 95 percent/one-dayVaR for each of the company’s primary risk exposures in thearea of derivative commodity instruments at December 31,2012 and 2011.Millions of dollars 2012 2011Crude Oil $ 3 $ 22Natural Gas 3 4Refined Products 12 11Foreign Currency The company may enter into foreigncurrency derivative contracts to manage some of its foreigncurrency exposures. These exposures include revenue andanticipated purchase transactions, including foreign currencycapital expenditures and lease commitments. The foreign cur-rency derivative contracts, if any, are recorded at fair value onthe balance sheet with resulting gains and losses reflected inincome. There were no open foreign currency derivative con-tracts at December 31, 2012.Interest Rates The company may enter into interest rateswaps from time to time as part of its overall strategy tomanage the interest rate risk on its debt. Interest rate swaps,if any, are recorded at fair value on the balance sheet withresulting gains and losses reflected in income. At year-end2012, the company had no interest rate swaps.