Chevron 2004 Annual Report Download - page 57
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Please find page 57 of the 2004 Chevron annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report. CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 55
oneormoreofthefollowing:(1)decisionsonadditionalmajor
capitalexpenditures,(2)theresultsofadditionalexploratory
wellsthatareunderwayorfirmlyplanned,and(3)securingfinal
regulatoryapprovalsfordevelopment.Otherwise,wellcostsare
expensedifadeterminationastowhetherprovedreserveswere
foundcannotbemadewithinoneyearfollowingcompletionof
drilling.Allotherexploratorywellsandcostsareexpensed.Refer
toNote21onpage69foradditionaldiscussionofaccountingfor
suspendedexploratorywellcosts.
Long-livedassetstobeheldandused,includingproved
crudeoilandnaturalgasproperties,areassessedforpossible
impairmentbycomparingtheircarryingvalueswiththeirasso-
ciatedundiscountedfuturenetbefore-taxcashflows.Events
thatcantriggerassessmentsforpossibleimpairmentsinclude
write-downsofprovedreservesbasedonfieldperformance,
significantdecreasesinthemarketvalueofanasset,significant
changeintheextentormannerofuseoforaphysicalchangein
anasset,andamore-likely-than-notexpectationthatalong-lived
assetorassetgroupwillbesoldorotherwisedisposedofsignifi-
cantlysoonerthantheendofitspreviouslyestimatedusefullife.
Impairedassetsarewrittendowntotheirestimatedfairvalues,
generallytheirdiscountedfuturenetbefore-taxcashflows.For
provedcrudeoilandnaturalgaspropertiesintheUnitedStates,
thecompanygenerallyperformstheimpairmentreviewonan
individualfieldbasis.OutsidetheUnitedStates,reviewsareper-
formedonacountry,concessionorfieldbasis,asappropriate.
Globallyintherefining,marketing,transportationandchemical
areas,impairmentreviewsaregenerallydoneonarefinery,plant,
marketingareaormarketingassetsbycountrybasis.Impairment
amountsarerecordedasincremental“Depreciation,depletion
andamortization”expense.
Long-livedassetsthatareheldforsaleareevaluatedforpos-
sibleimpairmentbycomparingthecarryingvalueoftheassetwith
itsfairvaluelessthecosttosell.Ifthenetbookvalueexceedsthe
fairvaluelesscosttosell,theassetisconsideredimpairedand
adjustedtothelowervalue.
EffectiveJanuary1,2003,thecompanyimplementedFinan-
cialAccountingStandardsBoardStatementNo.143,“Accounting
forAssetRetirementObligations(FAS143),”inwhichthefair
valueofaliabilityforanassetretirementobligationisrecorded
asanassetandaliabilitywhenthereisalegalobligationassoci-
atedwiththeretirementofalong-livedassetandtheamountcan
bereasonablyestimated.ReferalsotoNote25onpage77relating
toassetretirementobligations,whichincludesadditionalinfor-
mationonthecompany’sadoptionofFAS143.Previously,for
crudeoil,naturalgasandcoalproducingproperties,aprovision
wasmadethroughdepreciationexpenseforanticipatedabandon-
mentandrestorationcostsattheendoftheproperty’susefullife.
Depreciationanddepletionofallcapitalizedcostsofproved
crudeoilandnaturalgasproducingproperties,exceptmineral
interests,areexpensedusingtheunit-of-productionmethodby
individualfieldastheproveddevelopedreservesareproduced.
Depletionexpensesforcapitalizedcostsofprovedmineralinter-
estsarerecognizedusingtheunit-of-productionmethodby
individualfieldastherelatedprovedreservesareproduced.Peri-
odicvaluationprovisionsforimpairmentofcapitalizedcostsof
unprovedmineralinterestsareexpensed.
Depreciationanddepletionexpensesforcoalassetsare
determinedusingtheunit-of-productionmethodastheproved
reservesareproduced.Thecapitalizedcostsofallotherplant
andequipmentaredepreciatedoramortizedovertheirestimated
usefullives.Ingeneral,thedeclining-balancemethodisusedto
depreciateplantandequipmentintheUnitedStates;thestraight-
linemethodgenerallyisusedtodepreciateinternationalplant
andequipmentandtoamortizeallcapitalizedleasedassets.
Gainsorlossesarenotrecognizedfornormalretirementsof
properties,plantandequipmentsubjecttocompositegroupamor-
tizationordepreciation.Gainsorlossesfromabnormalretirements
arerecordedasexpenses,andfromsalesas“Otherincome.”
Expendituresformaintenance,repairsandminorrenewalsto
maintainfacilitiesinoperatingconditionaregenerallyexpensed
asincurred.Majorreplacementsandrenewalsarecapitalized.
EnvironmentalExpenditures Environmentalexpendituresthat
relatetoongoingoperationsortoconditionscausedbypast
operationsareexpensed.Expendituresthatcreatefuturebenefits
orcontributetofuturerevenuegenerationarecapitalized.
Liabilitiesrelatedtofutureremediationcostsarerecorded
whenenvironmentalassessmentsorcleanupsorbothareprobable
andthecostscanbereasonablyestimated.Forthecompany’s
U.S.andCanadianmarketingfacilities,theaccrualisbasedin
partontheprobabilitythatafutureremediationcommitment
willberequired.Foroil,gasandcoalproducingproperties,a
liabilityforanassetretirementobligationismade,following
FAS143.Referto“Properties,PlantandEquipment”inthis
noteforadiscussionofFAS143.
ForfederalSuperfundsitesandanalogoussitesunderstate
laws,thecompanyrecordsaliabilityforitsdesignatedshareof
theprobableandestimablecostsandprobableamountsforother
potentiallyresponsiblepartieswhenmandatedbytheregula-
toryagenciesbecausetheotherpartiesarenotabletopaytheir
respectiveshares.
Thegrossamountofenvironmentalliabilitiesisbased
onthecompany’sbestestimateoffuturecostsusingcurrently
availabletechnologyandapplyingcurrentregulationsandthe
company’sowninternalenvironmentalpolicies.Futureamounts
arenotdiscounted.Recoveriesorreimbursementsarerecorded
asassetswhenreceiptisreasonablyassured.
CurrencyTranslation TheU.S.dollaristhefunctionalcurrency
forsubstantiallyallofthecompany’sconsolidatedoperations
andthoseofitsequityaffiliates.Forthoseoperations,allgains
andlossesfromcurrencytranslationsarecurrentlyincludedin
income.Thecumulativetranslationeffectsforthosefewentities,
bothconsolidatedandaffiliated,usingfunctionalcurrencies
otherthantheU.S.dollarareincludedinthecurrencytranslation
adjustmentin“Stockholders’equity.”
RevenueRecognition Revenuesassociatedwithsalesofcrudeoil,
naturalgas,coal,petroleumandchemicalsproducts,andallother
sourcesarerecordedwhentitlepassestothecustomer,netofroyal-
ties,discountsandallowances,asapplicable.Revenuesfromnatural
gasproductionfrompropertiesinwhichChevronTexacohasan
interestwithotherproducersaregenerallyrecognizedonthebasis
ofthecompany’snetworkinginterest(entitlementmethod).
RefertoNote16onpage65foradiscussionoftheaccounting
forbuy/sellarrangements.
StockCompensation AtDecember31,2004,thecompanyhad
stock-basedemployeecompensationplans,whicharedescribed
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued