1996
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0890210 575 Market Street, San Francisco,
California 94105
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(State or other (I.R.S. Employer (Address of principal
jurisdiction of dentification Number) executive offices) (Zip Code)
incorporation or
organization)
Registrant's telephone number, including area code (415) 894-7700
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(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common stock par value $1.50 per share New York Stock Exchange, Inc.
Preferred stock purchase rights Chicago Stock Exchange
Pacific Exchange
Securities guaranteed by Chevron Corporation:
Chevron Capital U.S.A. Inc.
Sinking fund debentures: 9-3/4%, due 2017 New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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Aggregate market value of the voting stock held by nonaffiliates of the
Registrant As of February 28, 1997 - $42,015,000,000
Number of Shares of Common Stock outstanding
as of February 28, 1997 - 653,357,949
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Notice of Annual Meeting and Proxy Statement Dated March 21, 1997 (in Part III)
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<PAGE>
TABLE OF CONTENTS
Page(s)
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Year 1996 March 21, 1997
Item Form 10-K Proxy Stmt.
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PART I
1. Business 1 -
(a) General Development of Business 1 -
(b) Industry Segment and Geographic
Area Information 5 -
(c) Description of Business and Properties 5 -
Capital and Exploratory Expenditures 6 -
Petroleum - Exploration 7 -
Petroleum - Oil and Natural Gas Production 11 -
Production Levels 12 -
Development Activities 13 -
Petroleum - Natural Gas Liquids
and NGC Corporation 16 -
Petroleum - Reserves and Contract
Obligations 17 -
Petroleum - Refining 18 -
Petroleum - Refined Products Marketing 19 -
Petroleum - Transportation 20 -
Chemicals 22 -
Coal and Other Minerals 23 -
Research and Environmental Protection 24 -
2. Properties 26 -
3. Legal Proceedings 26 -
4. Submission of Matters to a
Vote of Security Holders 28 -
Executive Officers of the Registrant 28 -
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters 30 -
6. Selected Financial Data 30 -
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 30 -
8. Financial Statements 30 -
8. Supplementary Data - Quarterly Results 30 -
- Oil and Gas Producing
Activities 30 -
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 30 -
PART III
10. Directors and Executive Officers
of the Registrant 30 5
11. Executive Compensation 30 8-15
12. Security Ownership of Certain Beneficial
Owners and Management 30 5-6
13. Certain Relationships and Related Transactions 30 -
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 31 -
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
Summary Description of Chevron
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Chevron Corporation (1), a Delaware corporation, provides administrative,
financial and management support for, and manages its investments in, U.S. and
foreign subsidiaries and affiliates, which engage in fully integrated petroleum
operations, chemical operations and coal mining. The company operates in the
United States and approximately 90 other countries. Petroleum operations
consist of exploring for, developing and producing crude oil and natural gas;
transporting crude oil, natural gas and petroleum products by pipelines, marine
vessels and motor equipment; refining crude oil into finished petroleum
products; and marketing crude oil, natural gas and the many products derived
from petroleum. Chemical operations include the manufacture and marketing of a
wide range of chemicals for industrial uses.
Incorporated in Delaware in 1926 as Standard Oil Company of California, the
company adopted the name Chevron Corporation in 1984. U.S. integrated petroleum
operations are conducted primarily through two divisions of the company's
wholly owned Chevron U.S.A. Inc. subsidiary. Exploration and production
("upstream") operations in the United States are carried out through Chevron
U.S.A. Production Company. U.S. refining and marketing ("downstream")
activities are performed by Chevron Products Company. Prior to September 1,
1996, a third division of Chevron U.S. A. Inc., Warren Petroleum Company,
engaged in all phases of the company's U.S. natural gas liquids business
("midstream"). On August 31, 1996, the company merged most of Warren Petroleum
Company and the natural gas marketing operations of Chevron U.S.A. Production
Company with NGC Corporation. Additional details of the merger are disclosed on
pages 4 and 16 of this Annual Report on Form 10-K.
A list of the company's major subsidiaries is presented on page E-2 of this
Annual Report on Form 10-K. As of December 31, 1996, Chevron had 40,820
employees, 70 percent of whom were employed in U.S. operations.
Overview of Petroleum Industry
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Petroleum industry operations and profitability are influenced by a large
number of factors, over some of which individual oil and gas companies have
little control. Governmental attitudes and policies, particularly in the areas
of taxation, energy and the environment, have a significant impact on petroleum
activities, regulating where and how companies conduct their operations and
formulate their products and, in some cases, limiting their profits directly.
Prices for crude oil and natural gas, petroleum products and petrochemicals are
determined by supply and demand for these commodities. OPEC member countries
are the world's swing producers of crude oil and their production levels are
the primary driver in determining worldwide supply. Demand for crude oil and
its products and natural gas is largely driven by the health of local, national
and worldwide economies, although weather patterns and taxation relative to
other energy sources also play a significant part. Natural gas is generally
produced and consumed on a country or regional basis. Its largest use is for
electrical generation, where it competes with other energy fuels.
Current Operating Environment
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Crude oil prices maintained a steady upward trend throughout 1996 due to tight
crude oil inventories and rising demand. Increased demand caused by unusually
cold weather reduced crude oil inventories during the early part of
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(1) As used in this report, the term "Chevron" and such terms as "the company,"
"the corporation," "our," "we," and "us" may refer to Chevron Corporation, one
or more of its consolidated subsidiaries, or to all of them taken as a whole,
but unless the context clearly indicates otherwise, should not be read to
include "affiliates" of Chevron (those companies owned approximately 50 percent
or less).
As used in this report, the term "Caltex" may refer to the Caltex Group of
companies, any one company of the group, any of their consolidated
subsidiaries, or to all of them taken as a whole and also includes the
"affiliates" of Caltex.
All of these terms are used for convenience only, and are not intended as a
precise description of any of the separate companies, each of which manages its
own affairs.
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<PAGE>
1996. Theindustry delayed rebuilding inventories due to uncertainties about
future crude oil prices once the United Nations allowed Iraq to resume crude
oil exports.This permission was delayed until December 1996. With the return of
unusually cold weather in the United States and Western Europe in late 1996,
demand once again increased and prices rose to the year's highest levels. With
the forecast that crude oil supplies will increase during 1997 with Iraq's
re-entry into world markets and expected production increases in non-OPEC
countries, prices fell about 20 percent in the first two months of 1997.
The cold winter weather in the early part of 1996 also served to drive U.S.
prices for natural gas to their highest levels in 13 years as higher demand
depleted inventories. Natural gas inventories remained lower than normal
throughout the year as production was not sufficient to meet demand and rebuild
inventories to traditional levels. Severe winter weather returned in late 1996
to drive demand and prices for natural gas to even higher levels. Demand and
prices for natural gas declined during early 1997 as the winter weather turned
mild in late January.
The company's average realization from U.S. crude oil production increased to
$18.80 per barrel in 1996 from $15.34 in 1995 while average liquids
realizations from international liftings, including equity affiliates,
increased $3.38 per barrel to $19.48. Average U.S. natural gas realizations
from production increased by $.77 per thousand cubic feet (MCF) in 1996 to
$2.28 per MCF.
The following table compares the high, low and average Chevron posted prices
for West Texas Intermediate (WTI), an industry benchmark light crude oil, for
each of the quarters during 1996 and for the full years of 1996, 1995, and
1994:
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West Texas Intermediate Crude Oil
Chevron Posted Prices
(Dollars per Barrel)
1996
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1st Q 2nd Q 3rd Q 4th Q Year 1995 1994
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High 22.75 24.25 24.00 25.50 25.50 19.50 19.75
Low 16.50 18.75 19.00 21.75 16.50 16.00 13.00
Average 18.54 20.58 21.33 23.53 21.00 17.40 16.18
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For the first two months of 1997, average natural gas realizations for the
company's U.S. operations were $3.34 per MCF. During this period, the company's
posted price for WTI ranged from $25.75 per barrel to $19.25, with an average
of $22.97. On March 20, 1997 the company's posted price for WTI was $22.50 per
barrel.
In 1996, Chevron's refining and marketing operations in the United States
experienced a highly competitive market place for refined products sales, as
availability remained ample. Chevron successfully introduced the California-
mandated cleaner burning gasolines in early 1996, as required, with no supply
disruptions. The company's average sales price per barrel of refined product in
the United States was $29.94 per barrel in 1996, an increase of $3.75 per
barrel over 1995. However, margins were squeezed as prices did not fully
recover higher crude oil feedstock and fuel costs and the added cost of
producing federal and state mandated cleaning burning gasolines.
The chemicals industry entered a cyclical downturn in the latter half of 1995,
which continued throughout 1996. As a result, the company's chemical operations
reported a decrease in earnings from the record levels achieved in 1995. Sales
volumes remained strong for most of the year. However lower sales prices and
higher feedstock and fuel costs resulted in lower margins for most of the
company's major chemical products. Sales and other operating revenues from the
company's chemical operations, including sales to other Chevron companies,
totaled $3.541 billion, a decrease of $412 million from the $3.953 billion in
1995.
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<PAGE>
Chevron Strategic Direction
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The company has developed and implemented certain strategies to improve its
financial performance and to support Chevron's mission to create superior value
for its stockholders, customers and employees. The company periodically reviews
and modifies these "strategic intents" to reflect Chevron's current operating
environment. The eight "strategic intents" for 1997 are:
Build a committed team to accomplish the corporate mission. The company
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believes that the success of the other seven strategic intents is strongly
linked to the level of commitment and dedication that Chevron employees
bring to their jobs. Employees are guided by "The Chevron Way," a document
that contains the company's Mission and Vision and other key statements -
Committed Team Values, Total Quality Management, Protecting People and the
Environment and Vision Metrics - that establish a vision and standard of
excellence for each employee. The company has also made efforts to measure
employees' attitudes about the company and diagnose areas of employee
concerns over the past four years by the use of the Worldwide Employee
Survey. As a result, many processes, including leadership training,
diversity training, upward feedback and job selection, have been developed
or revamped to address those concerns. In addition, the company has put an
increased emphasis on "people skills" in supervisor positions.
The company is also fostering employee commitment by sharing its success. In
January 1995 the company announced a new program called "Chevron Success
Sharing" that provides eligible employees with a percentage of their annual
salary as a cash bonus if the company achieves certain financial goals. The
total payout opportunity under the program is 8 percent of the employee's
salary. For 1996, payouts ranged from 3.9 to 6.0 percent. As an extra
enticement to achieve 1994 through 1998 financial targets, the company
awarded 150 special performance stock options to each eligible employee on
the payroll as of January 31, 1996. The grant price was set at $51-7/8 and
the options are exercisable, after a six-month holding period, on the
business day after the stock price hits $75 or higher for three consecutive
days or Chevron ranks number one in total shareholder return versus its five
major U.S. competitors for the period 1994 through 1998. If neither
criterion is met, the options expire and have no value. The criteria were
not met during 1996.
Continue exploration and production growth in international areas. The
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company continues to believe that its most promising area of financial and
operational growth is in its international upstream activities. As a result,
the company has focused its exploration and production (E&P) efforts outside
the United States. Between 1990 and 1996, total capital and exploratory
(C&E) expenditures for E&P activities grew by 33 percent, however during
this same time period, international expenditures grew by 70 percent while
U.S. expenditures were essentially flat. In 1990, international expenditures
were less than half (48 percent) of the total C&E expenditures related to
E&P activities. By 1996 that number had climbed to 61 percent and is
estimated at 64 percent in 1997. As a measure of its success in growing its
international upstream business, the company's year end 1996 international
net proved reserves of crude oil, natural gas liquids and natural gas have
more than doubled since 1990, while international production has increased
approximately 46 percent during this same time period.
Generate cash from North American exploration and production operations
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while maintaining value through sustained production levels. Net cash flow,
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after C&E expenditures, for U.S. E&P operations of approximately $1 billion
in 1996, increased about $300 million from 1995, as a result of higher crude
oil and natural gas prices. The company has several projects under way,
including major development projects in the Gulf of Mexico, Texas and
California that are expected to stabilize the company's U.S. oil and gas
production. Recognizing that opportunities to discover and develop major new
reserves in the United States are limited due to regulatory barriers and
drilling prohibitions in many of the most promising areas of development,
the company nonetheless believes that it should be able to maintain its U.S.
production. Attractive growth opportunities exist within the company's
current portfolio of assets, such as the acceleration and expansion of
deepwater projects in the Gulf of Mexico, and, if attractive opportunities
arise, acquisitions and trades may be considered. Higher C&E expenditures
were incurred during 1996 as a result of lease acquisitions and accelerated
drilling activity in the Gulf of Mexico and continued drilling activity in
the mid-continent area of the United States.
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<PAGE>
On August 31, 1996, as part of the company's efforts to enhance the value of
its North American upstream assets, the company merged its natural gas
liquids gathering, processing, and marketing operations of Warren Petroleum
Company and the natural gas marketing activities of Chevron U.S.A.
Production Company with NGC Corporation. The company received $295 million
in cash and notes and a 28 percent ownership interest in NGC. Effective
November 1, 1996, Chevron U.S.A. Production Company and NGC completed a
partnership agreement to own, operate and expand Chevron's Venice, Louisiana
natural gas gathering and processing complex.
Achieve top financial performance in U.S. refining and marketing. Over the
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past few years, the company has focused its attention on reshaping its
refining portfolio by selling refineries in Port Arthur, Texas and
Philadelphia, Pennsylvania and spending over $1 billion on its two
California refineries in order to produce state-mandated cleaner-burning
fuels and to increase their efficiency and reliability. In 1995, refinery
downtime due to these upgrades, as well as unscheduled refinery downtime and
weak industry margins, resulted in poor operating earnings. With the
reshaping of its refinery portfolio largely completed in 1995, the company
improved its U.S. refining and marketing operations in 1996, as refinery
utilization improved. While still generally weak due to industry conditions,
operating earnings quadrupled in 1996 when compared with 1995. In 1996 the
company successfully introduced the California-mandated cleaner-burning
gasolines by the June 1 deadline with no supply disruptions. The company
shifted the majority of its 1996 investment spending to marketing projects
aimed at meeting customers' needs and improving the company's competitive
market position, including a major alliance with McDonald's to develop a
network of retail sites that combine Chevron service stations with
McDonald's restaurants in 12 western and southwestern states.
Caltex should achieve superior competitive financial performance, while
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growing in attractive markets. The company believes that the Asia-Pacific
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region will continue to be an area of strong demand growth for petroleum
products. Chevron's 50 percent owned Caltex affiliate, a leading competitor
in these areas, has made significant capital investments to expand and
upgrade its refining capacity and has underway a program to improve its
retail brand image. A large refinery upgrade and expansion project was
completed in Korea, and a new refinery in Thailand was completed in 1996.
In April 1996, Caltex sold its 50 percent interest in Nippon Petroleum
Refining Company, Limited in Japan to its partner, Nippon Oil Company,
Limited for $2 billion as part of the company's efforts to restructure in
mature markets and to provide capital for investments in higher growth areas
in the Asia-Pacific region.
Continue to improve competitive financial performance in chemicals while
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developing and implementing attractive opportunities for growth. Financial
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results in 1996 for the company's chemical operations declined after record
earnings in 1995 as prices for the company's primary chemicals products
declined, while costs for feedstocks and fuel were increasing. Chevron's
chemical business reported operational earnings of $228 million in 1996,
less than half of 1995 earnings. In 1996 the company restructured its
aromatics and olefins businesses along geographic lines to better manage
growth of its U.S. and international operations. The company has expansion
plans for its ethylene, polyethylene, paraxylene and polystyrene facilities
in the U.S. and has international projects planned for Saudi Arabia,
Singapore and China .
Be selective in our other businesses. Chevron operates three units that are
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outside the corporation's core focus. These three units are Chevron Canada
Limited (CCL) and Gulf Oil Great Britain (GOGB) whose primary operations are
the refining and marketing of petroleum products in Canada and the United
Kingdom, respectively; and The Pittsburg & Midway Coal Mining Co. (P&M),
operator of the company's coal interests. These businesses are managed for
cash flow and profitability, and for growth when attractive opportunities
exist.
In November 1996 the company announced its intent to merge its refining and
marketing operations in the United Kingdom with those of Elf Oil U.K.
Limited (Elf) and Murco Petroleum Limited (Murco). In March 1997 Murco
withdrew from the proposed merger. Chevron and Elf intend to proceed with
the merger of their U.K. refining and marketing operations.
Chevron completed its exit from the real estate development business in
1996.
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<PAGE>
Focus on reducing costs across all activities. Operating expenses, adjusted
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for special items, increased about $100 million in 1996 from 1995. Higher
fuel and transportation costs, together with accrued costs for performance-
based employee compensation, more than offset continued reductions in other
expenses. Compared with 1991, the base measurement year established when
Chevron undertook an extensive cost-cutting and work force reduction program
in early 1992, operating expenses in 1996 have declined about $1.4 billion.
Although a portion of the cost reduction is related to divested operations,
the company believes it has achieved a significant permanent reduction in
the company's ongoing cost structure.
The company is currently implementing reorganizations of its research,
shipping, information technology, corporate human resources and finance
activities that are expected to further reduce operating expenses. A
corporatewide "breakthrough" initiative aimed at reducing corporate energy
costs has saved approximately $650 million since 1991. Additional savings
have been realized since 1994 from a breakthrough initiative focusing on
reducing goods and services costs by working more efficiently with fewer
suppliers. Two other breakthrough initiatives have resulted in significant
savings by creating a uniform project management process that is used to
evaluate and administer large capital projects and by improving inventory
management in order to enhance cash flow.
(b) Industry Segment and Geographic Area Information
The company's largest business is its integrated petroleum operations. Other
operations include chemicals and coal mining. The petroleum activities of the
company are widely distributed geographically, with major operations in the
United States, Canada, Australia, United Kingdom, Congo, Angola, Nigeria, Papua
New Guinea, Indonesia, China and Zaire. The company's Caltex affiliate, through
its subsidiaries and affiliates, conducts exploration and production and
geothermal operations in Indonesia and refining and marketing activities in
Asia, Africa, the Middle East, Australia and New Zealand, with major operations
in Korea, Japan, Australia, Thailand, the Philippines, Singapore and South
Africa. The company's Tengizchevroil affiliate conducts production activities
in Kazakstan.
The company's chemicals operations are concentrated in the United States, but
include manufacturing facilities in France, Japan and Brazil. Chemical
manufacturing facilities are under construction or are planned to be
constructed in Singapore, Saudi Arabia and China. The company's coal operations
are located in the United States.
Tabulations setting forth three years' identifiable assets, operating income,
sales and other operating revenues for the company's three industry segments,
by United States and International geographic areas, may be found in Note 10 to
the Consolidated Financial Statements beginning on page FS-25 of this Annual
Report on Form 10-K.
(c) Description of Business and Properties
The petroleum industry is highly competitive in the United States and
throughout most of the world. This industry also competes with other industries
in supplying the energy needs of various types of consumers.
In the United States, environmental regulations and federal, state and local
actions and policies concerning economic development, energy and taxation may
have a significant effect on the company's operations.
The company's operations can be affected significantly by changing economic,
regulatory and political environments in the various countries, including the
United States, in which it operates. The company evaluates the economic and
political risk of initiating, maintaining or expanding operations in any
geographical area. Internationally, the company closely monitors political
events and the possible threat these may pose to the company's oil and gas
exploration and production operations and the safety of the company's
employees.
The company attempts to avoid unnecessary involvement in partisan politics in
the communities in which it operates but participates in the political process
to safeguard its assets and to ensure that the community benefits from its
operations and remains receptive to its continued presence.
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<PAGE>
The company utilizes various derivative instruments to manage its exposure to
price risk stemming from its integrated petroleum activities. Some of the
instruments may be settled by delivery of the underlying commodity, whereas
others can only be settled in cash. All these instruments are commonly used in
the global trade of petroleum products and, except for certain long-term
natural gas swaps, are of a short-term duration. The 1996 merger of certain
natural gas operations of the company with NGC Corporation caused the company's
natural gas hedging activity to decline substantially.
The company enters into forward exchange contracts as a hedge against some of
its foreign currency exposures. Interest rate swaps are entered into as part of
the company's overall strategy to manage the interest rate risk on its debt.
All commodity and financial derivative instruments used by the company are
relatively straightforward and involve little complexity. Their impact on the
company's results of operations has not been material.
Capital and Exploratory Expenditures
Chevron's capital and exploratory expenditures during 1996 and 1995 are
summarized in the following table:
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Capital and Exploratory Expenditures
(Millions of Dollars)
1996 1995
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Exploration and Production $2,778 $2,579
Refining, Marketing and Transportation 486 969
Chemicals 495 198
Coal and Other Minerals 28 33
All Other 70 109
Total Consolidated Companies 3,857 3,888
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Equity in Affiliates 983 912
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Total Including Affiliates $4,840 $4,800
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Total consolidated companies' expenditures of $3.857 billion in 1996 decreased
slightly from 1995. This reduction primarily resulted from a drop in Refining,
Marketing and Transportation expenditures of $483 million due largely to the
1995 completion of the company's program to modify and upgrade its two
California refineries to manufacture the state-mandated gasolines required to
be sold in 1996. This decrease was mostly offset by higher expenditures in
Chemicals and U.S. E&P. Chemicals incurred higher expenditures for the
expansion of certain U.S. chemical facilities and the construction of new
chemical manufacturing facilities in Singapore. Higher U.S. E&P expenditures
were incurred as a result of lease acquisitions and accelerated drilling
activity in the Gulf of Mexico and continued drilling activity in the mid-
continent area of the U.S.
Consolidated companies' E&P expenditures were 72 percent and 66 percent of the
company's total consolidated companies' expenditures in 1996 and 1995,
respectively. Major international E&P expenditures in 1996 included the
acquisition of additional exploration interests in China and Qatar, and
development activities associated with the Britannia Field in the U.K. North
Sea, the North West Shelf Project in Australia, the Hibernia Project offshore
Newfoundland, Areas B and C in Angola, the Nkossa and Kitina fields in the
Congo and the Escravos Gas Project in Nigeria. Major U.S. E&P expenditures
included lease acquisitions and deep-water exploration in the Gulf of Mexico
and development activities, such as the Norphlet trend and deep water Genesis
projects in the Gulf of Mexico, and projects in Texas, California, Oklahoma and
Wyoming. Consolidated companies' Refining, Marketing and Transportation outlays
focused on marketing projects, including implementation of the company's
alliance with McDonald's at selected service stations in the western and
southwestern United States.
The company's share of C&E expenditures by its affiliates was $983 million in
1996, an increase of 8 percent from $912 million in 1995. The company's Caltex
affiliate accounted for the vast majority of affiliates' expenditures, which
were primarily comprised of the refinery expansion/upgrade project in Korea,
the completion of the
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<PAGE>
construction of the new Star Petroleum refinery in Thailand, and the start of
Caltex's program to upgrade its retail marketing image. Other major
expenditures included continued development activities at the Tengiz field in
Kazakstan and improved recovery projects in Indonesia.
The company's 1997 C&E expenditures, including its share of equity affiliates'
expenditures, are expected to increase 22 percent to $5.9 billion. Consolidated
companies' expenditures are planned to increase by 22 percent and the company's
share of equity affiliates' expenditures is expected to increase 25 percent
over 1996 levels to $4.7 billion and $1.2 billion, respectively.
Worldwide E&P expenditures in 1997, including the company's share of equity
affiliates' expenditures, are expected to total $3.6 billion, of which
approximately 64 percent will be for international projects. Major
international projects include the continued development of the Hibernia Field,
the Britannia Field and the Tengiz Field, construction of the Caspian Pipeline,
expansion of the North West Shelf Project, enhanced recovery projects in
Indonesia, and exploration and development projects in West Africa. In the
U.S., major E&P expenditures include various development projects in the Gulf
of Mexico, including the deep-water Genesis Project and the Norphlet trend and
exploration and evaluation of other Gulf of Mexico prospects.
Worldwide refining, marketing and transportation expenditures in 1997,
including the company's share of equity affiliates' expenditures, are estimated
at $1.4 billion, an 18 percent increase over 1996 expenditures. The company
will concentrate the majority of its U.S. expenditures on marketing projects
aimed at meeting consumers' needs and improving the company's market position.
The company plans to continue its alliance with McDonald's to operate retail
sites together in selected locations in the western and southwestern United
States, continue the company's programs to upgrade convenience stores, install
fast-pay card readers and install multi-product dispensers at service stations.
International refining and marketing expenditures in 1997 include the
continuation of a major program by Caltex to improve its retail marketing image
and operations.
Worldwide chemical expenditures are expected to increase by 40 percent to
approximately $700 million in 1997. Forecasted expenditures include the upgrade
of the paraxylene production facilities at the company's Pascagoula,
Mississippi, refinery and the expansion of ethylene production capacity at the
company's Port Arthur, Texas facilities. Internationally, the company is
building a fuel and lube oil additives plant in Singapore and will begin
construction of a polystyrene manufacturing facility in China.
The actual expenditures for 1997 will depend on various conditions affecting
the company's operations, including crude oil and natural gas prices, and may
differ significantly from the company's forecast.
Petroleum - Exploration
The following table summarizes the company's net interests in productive and
dry exploratory wells completed in each of the last three years and the number
of exploratory wells drilling at December 31, 1996. "Exploratory wells" include
delineation wells, which are wells drilled to find a new reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir beyond the proved area. "Wells drilling" include wells
temporarily suspended.
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<PAGE>
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Exploratory Well Activity
Net Wells Completed (1)
Wells Drilling -------------------------------
At 12/31/96 1996 1995 1994
---------------- -------------------------------
Gross(2) Net(2) Prod. Dry Prod. Dry Prod. Dry
United States 79 72 120 25 101 24 53 17
---- ---- ---- ---- ---- ---- ---- ----
Africa 12 4 3 2 3 4 5 2
Other International 18 4 32 22 22 27 55 42
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Total International 30 8 35 24 25 31 60 44
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Total Consolidated Companies 109 80 155 49 126 55 113 61
Equity in Affiliates 9 4 - 1 1 - - 1
---- ---- ---- ---- ---- ---- ---- ----
Total Including Affiliates 118 84 155 50 127 55 113 62
---- ---- ---- ---- ---- ---- ---- ----
(1)Indicates the number of wells completed during the year regardless of when
drilling was initiated. Completion refers to the installation of permanent
equipment for the production of oil or gas or, in the case of a dry well,
the reporting of abandonment to the appropriate agency.
(2)Gross wells include the total number of wells in which the company has an
interest. Net wells are the sum of the company's fractional interests in gross
wells.
- -------------------------------------------------------------------------------
At December 31, 1996, the company owned or had under lease or similar
agreements undeveloped and developed oil and gas properties located throughout
the world. Undeveloped acreage includes undeveloped proved acreage. The
geographical distribution of the company's acreage is shown in the next table.
- -------------------------------------------------------------------------------
Acreage* At December 31, 1996
(Thousands of Acres)
Developed
Undeveloped Developed and Undeveloped
---------------- --------------- ----------------
Gross Net Gross Net Gross Net
------ ------ ----- ----- ------- ------
United States 4,166 2,613 5,807 2,518 9,973 5,131
------ ------ ----- ----- ------- ------
Canada 18,420 7,519 1,420 668 19,840 8,187
Africa 22,707 16,862 147 56 22,854 16,918
Asia 31,153 17,004 53 20 31,206 17,024
Europe 2,355 1,184 81 21 2,436 1,205
Other International 13,627 5,189 60 15 13,687 5,204
------ ------ ----- ----- ------- ------
Total International 88,262 47,758 1,761 780 90,023 48,538
------ ------ ----- ----- ------- ------
Total Consolidated
Companies 92,428 50,371 7,568 3,298 99,996 53,669
Equity in Affiliates 3,181 1,590 249 125 3,430 1,715
------ ------ ----- ----- ------- ------
Total Including
Affiliates 95,609 51,961 7,817 3,423 103,426 55,384
------ ------ ----- ----- ------- ------
*Gross acreage includes the total number of acres in all tracts in which the
company has an interest. Net acreage is the sum of the company's fractional
interests in gross acreage.
- -------------------------------------------------------------------------------
-8-
<PAGE>
The company had $294 million of suspended exploratory wells included in
properties, plant and equipment at year-end 1996. The wells are suspended
pending a final determination of the commercial potential of the related oil
and gas fields. The ultimate disposition of these well costs is dependent on
the results of future drilling activity and development decisions.
During 1996, the company incurred expenditures for oil and gas exploration in
the United States and about 30 other countries. The company's 1996 exploratory
expenditures, including affiliated companies' expenditures but excluding
unproved property acquisitions, were $806 million compared with $667 million in
1995. U.S. expenditures represented approximately 53 percent of the
consolidated companies' worldwide exploration expenditures, compared with 47
percent in 1995. Significant activities in Chevron's exploration program during
1996 include the following (numbers of wells are on a "gross" basis):
United States: Exploratory expenditures, excluding unproved property
- -------------
acquisitions, were $425 million in 1996, compared with $312 million spent in
1995. In addition, the company incurred costs of $62 million for unproved
property acquisitions in 1996. Exploration efforts were concentrated in the
Gulf of Mexico and several onshore basins in Texas and Alaska. Chevron
participated in 19 exploratory wells, which resulted in three discoveries in
the Gulf of Mexico along with three onshore discoveries. In the April and
October 1996 Gulf of Mexico Lease Sales, Chevron shared in a combined 165
successful bids, 136 of which were in deep water.
In late 1996 the company received approximately $24 million from the Department
of Interior as a reduction in bonus payments for leases in the Manteo area
offshore North Carolina, where there has been a moratorium on exploratory
drilling for several years. Chevron retains the drilling rights to these
leases. In 1995, Chevron received $65 million from the Department of Interior
as settlement for costs incurred by the company for federal offshore leases in
Florida and Alaska that remain undrilled due to state, federal, and private
objections to drilling. Chevron surrendered future drilling rights to these
leases.
Africa: In Africa, the company spent $122 million during 1996 on exploratory
- ------
efforts, excluding the acquisition of unproved properties, compared with $103
million in 1995. The company also acquired $2 million of unproved properties in
1996.
In Nigeria, the company's operations are managed by three subsidiaries. Chevron
Nigeria Limited (CNL) operates and holds a 40 percent interest in concessions
totaling approximately 2.2 million acres in the onshore and offshore regions of
the Niger Delta. Chevron Oil Company Nigeria Limited (COCNL) holds a 20 percent
interest in six concessions covering about 600 thousand acres with six offshore
oil fields operated by a partner. Chevron Petroleum Nigeria Limited (CPNL) has
a 30 percent interest in two deepwater Niger Delta blocks and three inland
Benue Basin blocks and an additional sole interest in six other Benue Basin
blocks. CNL drilled five exploratory and appraisal wells in 1996, resulting in
one new oil field discovery. COCNL drilled one exploratory well that resulted
in a discovery. Other exploration activities in 1996 included the acquisition
and interpretation of seismic data in the areas of operations of the three
subsidiaries.
In Angola, the company is the operator of a 2,100 square mile concession off
the coast of Angola's Cabinda exclave. The concession is divided into three
areas: Area A, which commenced production in late 1960, includes 19 major
fields in two major areas, Malongo and Takula; Area B, which started production
in late 1994, includes the Kokongo, Nemba and Lomba Fields; and Area C, which
is expected to start production in 1997, includes the Ndola and Sanha Fields.
Chevron has a 39.2 percent interest in the concession. In Block 14, located in
deep water due west of Areas B and C, a 3-D seismic survey was processed in
February 1996 and led to the commencement of drilling of the first of four
obligation exploratory wells. Two additional exploratory wells are planned for
1997 in Block 14.
Offshore Congo, the company has a 29.25 percent interest in the Agip operated
Marine VII license, which includes the Kitina Field and a 30 percent interest
in the Haute Mer license, which is operated by Elf Congo and includes the
Nkossa Field. In late 1995, the Moho Marine-1 well, located 9 miles west of
Nkossa, tested oil at a rate of over 5,700 barrels per day. In 1996 successful
delineation well, Moho-2, confirmed a separate oil pool to the north of the
Moho-1 oil accumulation and tested at a rate of 4,700 barrels per day. Chevron
received an exploration permit in
-9-
<PAGE>
January 1996 in the Marine IV license,located offshore northern Congo, as
operator with an 85 percent interest. A 3-Dsurvey was acquired in the second
quarter 1996 and will be processed andinterpreted during 1997.
In Zaire, the company has a 50 percent interest in, and is the operator of, a
390 square mile offshore concession. Two exploratory wells were drilled in
1996. One well did not encounter the primary exploratory objective and was
completed as a development well producer within a shallower reservoir. The
second well, drilled farther offshore from the company's existing oilfields,
was plugged and abandoned.
Other International including affiliated companies: Exploration expenditures,
- -------------------
excluding unproved property acquisitions, were $259 million in 1996, an
increase of $7 million from the 1995 amount of $252 million. In addition,
unproved properties of $43 million were acquired in 1996.
In Europe, Chevron has interests in over 50 blocks in the United Kingdom and
Ireland totaling about 2 million acres. Blocks are located in the U.K. North
Sea, west of Shetlands, offshore Wales, and in Liverpool Bay. In Ireland the
company has acreage in the Porcupine Basin and Celtic Sea. Chevron participated
in five exploration wells in 1996 in the United Kingdom and Ireland and
acquired on behalf of itself and other operators in the area, a 630-square mile
3-D seismic survey west of Shetlands.
In Canada, exploration efforts in 1996 continued to be concentrated in the
western part of the country in the Simonette, Chinchaga and Kaybob core areas
where Chevron has a significant presence. The company was the successful bidder
on four exploratory tracts off the east coast of Canada, two in proximity to
Hibernia and two others in wildcat tracts. These tracts were acquired with the
aim of utilizing the Hibernia infrastructure for future development.
In Indonesia, Chevron's interests in 10 contract areas are managed by its 50
percent owned P.T. Caltex Pacific Indonesia (CPI) and Amoseas Indonesia (AI)
affiliates. CPI continues its exploration efforts off the west coast of Sumatra
in search of natural gas for use in its enhanced oil recovery efforts and power
generation projects. Within the central Sumatra contract areas, an aggressive
multi-year 3-D seismic acquisition effort is under way to evaluate oil and gas
potential in the under-explored areas between current producing fields. CPI is
negotiating for a 20 year extension of the Coastal Plains block in Central
Sumatra, currently set to expire in 2001.
In Australia, Chevron's primary interests are in two non-operated joint
ventures, with a 16.7 percent interest in the North West Shelf (NWS) Project
and 25.7 to 50 percent interests in permits within the West Australian
Petroleum Pty. Ltd. (WAPET) joint venture. In addition, Chevron holds a 25
percent interest in two Browse Basin permits and a 17.3 percent interest in one
Carnarvon Basin permit. A 2,700 mile 2-D seismic program was conducted over
Browse Basin acreage. NWS exploration activities in 1996 included the drilling
of the Lambert-2 well to appraise the Lambert oil discovery made in the 1970's.
A separate reservoir was encountered and development plans have been approved
by the partners to tie this field into the Wanaea/Cossack facilities by late
1997. In 1996, the Dionysis 1 well discovered a new gas field on trend with
Gorgon/Chrysaor gas fields. The well, in which Chevron has a 50 percent
interest, tested at 127 million cubic feet of gas per day. The Perseus Field
was further appraised in 1996 with the drilling of two wells.
In Papua New Guinea, Chevron and its partners discovered high quality oil at
Moran with the first prospect in the multi-well program for the PDL-2 area.
Multiple sidetracks in the original well identified at least three oil-bearing
sands. Early development strategies are driving rapid delineation and appraisal
activity in anticipation of first oil production in late 1997 and full
production in 1999.
In China, exploration well HZ/32-5-1 in the Block 16/08 contract area tested
oil at a cumulative rate of 6,900 barrels per day. Additional appraisal will
take place during 1997. An exploratory well in Block 62/23 was a dry hole. A 3-
D seismic survey recorded in early 1996 will provide the basis for future
exploration in Block 16/08 and adjacent Block 16/19. Acquisition of 3-D seismic
data began in late 1996 in Block 02/31 with two wells planned for 1998.
-10-
<PAGE>
In Colombia one exploratory well was drilled in the Rio Blanco Block in 1996
and abandoned as a dry hole. Seismic evaluation of another area within the same
block is under way. The company signed a contract with Ecopetrol, the state oil
company, for the Galeron Exploration Block to explore more than 166,000 acres
in the Llanos foothills, on trend with discoveries at Florena, Pauto Sur, and
Volcanera Fields. Also the company obtained an option for the Rio Guape area,
on trend with the Chichimene Field.
Other areas where exploration activities occurred in 1996 include Azerbaijan
where the company has begun negotiations with the State Oil Company for
exploration blocks after it had completed an evaluation of acreage within the
Caspian Sea; Qatar where the company obtained in April 1996 a 60 percent
interest in and was appointed operator for Block 1NW and completed a 3-D
seismic survey of 360 square miles in the Block; and Peru where the company
obtained 320 miles of seismic data in Exploration Block 52, where it has a 100
percent interest, and which is adjacent to the Camisea gas-condensate field.
Petroleum - Oil and Natural Gas Production
The following table summarizes the company's and its affiliates' 1996 net
production of crude oil, natural gas liquids and natural gas.
- -------------------------------------------------------------------------------
1996 Net Production* Of Crude Oil And Natural Gas Liquids And Natural Gas
Crude Oil & Natural Gas
Natural Gas Liquids (thousands of
(barrels per day) cubic feet per day)
------------------- -------------------
United States
-California 116,290 121,750
-Gulf of Mexico 111,580 916,990
-Texas 62,250 394,120
-Colorado 12,540 -
-Wyoming 9,940 162,230
-New Mexico 8,690 89,540
-Louisiana 4,570 66,360
-Other States 15,440 123,710
--------- ---------
Total United States 341,300 1,874,700
--------- ---------
Africa 288,700 -
United Kingdom (North Sea) 62,200 28,400
Canada 45,500 221,600
Australia 35,500 213,800
Indonesia 21,800 400
Papua New Guinea 19,700 -
China 13,300 -
Colombia 11,500 -
Netherlands - 2,600
--------- ---------
Total International 498,200 466,800
--------- ---------
Total Consolidated Companies 839,500 2,341,500
Equity in Affiliates 204,000 117,500
--------- ---------
Total Including Affiliates 1,043,500 2,459,000
========= =========
* Net production excludes royalty interests owned by others.
- -------------------------------------------------------------------------
-11-
<PAGE>
Production Levels:
In 1996, net crude oil and natural gas liquids production, including
affiliates, increased for the fourth year in a row. Production rose in 1996 by
about four percent to 1,043,500 barrels per day compared with 1,000,710 barrels
per day in 1995. The increase was due to higher production in Africa, where
producing wells were added in Zaire and where new fields began producing in
Nigeria, Angola and Congo; in Australia, where production from the
Wanaea/Cossack development continued to increase; in Kazakstan, where
production at the Tengiz Field increased as new markets were added; and in
China, where annual production increased after the completion of the
development of two fields in 1995. These production increases were partially
offset by production declines in the United States, Canada, United Kingdom,
Papua New Guinea and Indonesia due primarily to normal field declines and sales
of producing properties. In October 1996, four mature producing oil fields in
the United Kingdom sector of the North Sea and one in Indonesia were sold.
Combined production from the sold properties was about 31,000 barrels of oil
per day.
Net production of natural gas, including affiliates, increased one percent to
2,459,000 thousand cubic feet per day in 1996 from 2,432,800 thousand cubic
feet per day in 1995. The increase was due to higher production in the
company's affiliates' operations in Kazakstan and Indonesia; higher U.S.
production, primarily in Wyoming; and higher production in Australia. These
were partially offset by production declines in Canada. The company expects
development of the Norphlet trend in the U.S. Gulf of Mexico, the completion of
the Escravos Gas Project in Nigeria and the continued expansion and development
of its Australian projects to offset further natural gas production declines in
mature properties.
Data on the company's average sales price per unit of oil and gas produced, as
well as the average production cost per unit for 1996, 1995 and 1994 are
reported in Table III on pages FS-35 to FS-37 of this Annual Report on Form 10-
K. The following table summarizes the company's and its affiliates' gross and
net productive wells at year-end 1996.
- -------------------------------------------------------------------------------
Productive Oil And Gas Wells At December 31, 1996
Productive(1) Productive(1)
Oil Wells Gas Wells
------------------- --------------------
Gross(2) Net(2) Gross(2) Net(2)
--------- ------- -------- -------
United States 26,457 14,030 4,322 1,833
------ ------ ------ ------
Canada 1,274 907 325 183
Africa 1,000 380 9 3
United Kingdom (North Sea) 95 8 - -
Other International 1,151 402 59 15
------ ------ ------ ------
Total International 3,520 1,697 393 201
------ ------ ------ ------
Total Consolidated Companies 29,977 15,727 4,715 2,034
Equity in Affiliates 4,971 2,485 46 23
------ ------ ------ ------
Total Including Affiliates 34,948 18,212 4,761 2,057
====== ====== ===== =====
Multiple completion wells
Included above: 484 236 23 11
(1) Includes wells producing or capable of producing and injection wells
temporarily functioning as producing wells. Wells that produce both oil and gas
are classified as oilwells.
(2) Gross wells include the total number of wells in which the companyhas an
interest. Net wells are the sum of the company's fractional interests in gross
wells.
- -------------------------------------------------------------------------------
-12-
<PAGE>
Development Activities:
The company's development expenditures, including affiliated companies but
excluding proved property acquisitions, were $1,835 million in 1996 and $1,765
million in 1995.
The table below summarizes the company's net interest in productive and dry
development wells completed in each of the past three years and the status of
the company's development wells drilling at December 31, 1996. (A "development
well" is a well drilled within the proved area of an oil or gas reservoir to
the depth of a stratigraphic horizon known to be productive. "Wells drilling"
include wells temporarily suspended.)
- -------------------------------------------------------------------------------
Development Well Activity
Net Wells Completed(1)
Wells Drilling -------------------------------
At 12/31/96 1996 1995 1994
---------------- --------- --------- ---------
Gross(2) Net(2) Prod. Dry Prod. Dry Prod. Dry
------ ----- ---- --- ---- --- ---- ---
United States 324 241 485 8 281 6 194 5
------ ----- ---- --- ---- --- ---- ---
Africa 24 8 21 1 20 1 9 -
Other International 27 9 49 4 28 2 48 4
------ ----- ---- --- ---- --- ---- ---
Total International 51 17 70 5 48 3 57 4
------ ----- ---- --- ---- --- ---- ---
Total Consolidated Companies 375 258 555 13 329 9 251 9
Equity in Affiliates 39 20 262 - 135 - 98 -
------ ----- ---- --- ---- --- ---- ---
Total Including Affiliates 414 278 817 13 464 9 349 9
====== ===== ==== === ==== === ==== ===
(1)Indicates the number of wells completed during the year regardless of when
drilling was initiated. Completion refers to the installation of permanent
equipment for the production of oil or gas or, in the case of a dry well, the
reporting of abandonment to the appropriate agency.
(2)Gross wells include the total number of wells in which the company has an
interest. Net wells are the sum of the company's fractional interests in gross
wells.
- ------------------------------------------------------------------------------
Significant 1996 development activities include the following:
United States: Chevron's U.S. development expenditures were $603 million in
- -------------
1996, an increase of $150 million from the 1995 amount of $453 million.
Expenditures for proved reserve acquisitions amounted to $5 million in 1996
compared with $21 million in 1995. Additions to proved reserves during 1996
from extensions, discoveries and improved recovery, before revisions, were 101
million barrels of crude oil and natural gas liquids and 696 billion cubic feet
of natural gas.
In the Gulf of Mexico, significant development activities in 1996 included the
commencement of the hull fabrication and the construction of the topsides and
decks for the Genesis project (formerly Green Canyon 205), located in 2,600
feet of water. Chevron is the unit operator with a 57 percent working interest.
The project execution plan calls for initial production in December 1998, with
total peak production expected to reach 55,000 barrels of oil per day and 72
million cubic feet of gas per day by 2000.
Phase I of the development of the Norphlet trend, which stretches some 80 miles
from the Destin Dome area (offshore Florida) to the Mobile Block 861 area
(offshore Mississippi), was completed in 1996. Chevron's net production from
seven wells reached 110 million cubic feet of gas per day at year-end. An
additional 12 wells are planned during Phase II with the first well completed
in December 1996. Additionally, production from Mobile 863
-13-
<PAGE>
commenced in February 1997, where Chevron's net production is expected to
reach 30 millioncubic feet of gas per day by mid-1997. In late 1996, the
company commenced the filing process to develop the Destin Dome Field.
In the Vermilion 214 Field, where Chevron has a 100 percent interest, four
successful wells drilled in late 1995 and during 1996 led to plans for ten new
wells and three recompletions during the 1997-1999 period. Production is
expected to exceed 10,000 barrels of oil and gas equivalent per day during the
first year and reach peak production of 14,000 barrels per day in 1998.
The use of 3-D seismic technology has led to successful development programs at
certain fields in the Gulf of Mexico. At Eugene Island 238, 15 of 18 prospects
drilled to date have been successful. Ten wells found gas and five wells found
oil. At South Marsh Island 66, eight wells have been successfully drilled since
1995 adding 68 million cubic feet of gas per day to production. An additional
ten wells are planned in 1997 and 1998.
Offshore California, Chevron owns approximately 26 percent of the Point
Arguello project and operates three offshore platforms, the onshore Gaviota oil
and gas plant and the interconnecting pipelines. The Field was unitized in
October 1996 with Chevron assuming operatorship for the third platform. A rapid
production decline has occurred at the Field since 1994.
Other development projects in the U.S. included the employment of enhanced
recovery methods using steam and water to increase both the production rate and
the amount of oil ultimately recoverable from fields in California's San
Joaquin Valley, the drilling of 34 new wells in the Laredo area of Texas, which
increased proved gas reserves by a combined 88 billion cubic feet, the drilling
of the first five wells of a 14 well evaluation program on tribal lands in
Osage County, Oklahoma, and the drilling of eight new wells in the Waltman,
Wyoming area, which has added new proved gas reserves and increased gas
production.
Africa: Development expenditures in Africa were $465 million in 1996, compared
- ------
with $640 million in 1995. The decrease was primarily due to lower expenditures
in Congo, partially offset by higher development expenditures in Angola.
Expenditures for proved reserve acquisitions amounted to $1 million in 1996.
Additions to proved reserves from extensions, discoveries and improved
recovery, before revisions, were 96 million barrels of crude oil and natural
gas liquids.
In Nigeria, total production from 29 CNL-operated fields averaged 401,000
barrels of oil per day, an increase of about 17,000 barrels per day from 1995.
This increase was primarily due to the addition of the Benin River Field which
began production in 1996 and reached production levels of 50,000 barrels of oil
a day. Production from non-operated fields averaged approximately 70,000
barrels of oil per day in 1996. On-site construction for the Escravos Gas
Project began in May 1995. Fabrication of all equipment and facilities,
including the floating storage and offloading vessel, was completed by the end
of 1996. The project is expected to start up in mid-1997 and will utilize gas
currently being flared from the Okan and Mefa fields. Chevron has signed a
letter of intent to supply gas to Ghana via Benin and Togo, which would allow
additional development of natural gas reserves in Nigeria.
In Angola, several waterflood projects in the Area A fields are in the early
stages of development in anticipation of reversing the production declines in
the fields and increasing production to a new peak in 2002. Areas B and C
continue to be the primary focus of major development activities. In Area B, 11
Kokongo wells were drilled and placed on production in 1996. Construction of
facilities for the development of the Nemba and Lomba Fields is underway to
move toward a 1998 and 1999, respectively, start-up of production from these
fields.
In Congo, all 14 planned wells had been drilled in the Kitina Field by
September 1996. Construction of the Kitina platform and onshore facilities
continue with the start of production expected by October 1997. The Nkossa
Field came on stream in June 1996 and was producing 80,000 barrels of oil per
day by the end of 1996. Liquefied petroleum gas production commenced in
November. An additional 12 wells are planned for 1997.
-14-
<PAGE>
In Zaire, three development wells and one water injection well were drilled at
Tshiala Field, along with one workover at Motoba Field. Five production wells
were brought on line at the Tshiala Field, increasing total production from the
concession to 27,000 barrels of oil per day by year-end 1996.
Other International including affiliated companies: Development expenditures in
- -------------------
1996 were $767 million compared with $672 million in 1995. The increase was
largely due to the company's higher expenditures in the United Kingdom and by
its affiliates Tengizchevroil in Kazakstan and P.T. Caltex Pacific Indonesia in
Indonesia. Additions to proved reserves from extensions, discoveries and
improved recoveries were 90 million barrels of crude oil and natural gas
liquids and 39 billion cubic feet of natural gas.
In Europe, production from the North Sea's Alba Field, located 130 miles
northeast of Aberdeen and in which Chevron has a 33.17 percent interest,
averaged 70,000 barrels of oil per day in 1996. During the year Chevron
received U.K. government approval to complete development of the southern
portion of the reservoir for Alba Phase II and commissioned the first Alba
Southern well. Phase II began with the de-bottlenecking of Alba Northern
Platform which increased production capacity from 75,000 to 100,000 barrels per
day. The development of the North Sea Britannia gas field, which lies
underneath the Alba Field, proceeded with the completion of the initial phase
of the drilling program in September 1996 with 17 wells awaiting start-up.
Manufacture of the platform topsides and subsea system components, steel
jacket, foundation piles and gas export line pipe are under way. Installation
and the beginning of offshore hook-up and commissioning will take place in
1997. Peak production is expected to be approximately 740 million cubic feet of
gas and 70,000 barrels of liquids per day with initial production expected to
commence in late 1998. Seventy-five percent of the estimated deliverable gas is
currently under long-term contracts. A successful appraisal program, with the
objective of testing sustained productivity, was conducted during 1996 at the
Clair Field located 40 miles west of the Shetland Islands. Additional testing
is planned for this field in 1997.
In Canada, the company continues to concentrate its development efforts in
western Canada where operating efficiencies and lower operating costs can be
realized using existing infrastructure. The core area of western Canada
development covers approximately 85 fields. The company completed construction
of a pipeline between the recently discovered Simonette Field in western
Alberta and Kaybob South enabling processing and sales of Simonette gas. In
northwestern Alberta, expansion of the Chinchaga gas plant is underway to
double processing capacity to 120 million cubic feet per day. The Hibernia
Development project, in which Chevron has a 26.9 percent interest, proceeded on
schedule in 1996. Construction work on the platform and facilities essentially
was completed in 1996. In February 1997, the topsides were fitted to the
Gravity Base Structure on which they will sit and plans for the mid-1997 towout
from the fabrication site at Bull Arm, Newfoundland to the Hibernia Field, 200
miles offshore Newfoundland, are under way. Oil production is expected to begin
in late 1997. The company's capitalized investment in this project was $941
million at year-end 1996.
In Indonesia, the Duri Steamflood Project, begun in 1985 to assist the
difficult production process for the relatively heavy, waxy Duri crude, is
being completed in 13 stages (Areas 1-13) with eight areas currently on
production. Total Duri production averaged over 285,000 barrels per day in
1996. A waterflood project involving 21 fields in Central Sumatra continued in
1996 with the commencement of the final phase of a four phase Minas pattern
waterflood project that started in December 1993. A memorandum of understanding
was signed in late 1996 to install a light oil steamflood project at Minas
during 1997 and 1998. A modified pattern waterflood project was approved for
implementation in 1997 for the Pedada Field and a similar project was designed
for the Kotabatak Field and submitted for government approvals. Steam from the
Darajat geothermal field, located 115 miles southeast of Jakarta, continued to
be produced and sold to the national power company, PLN, for the second full
year. Government approval for continued development of Darajat to 330 megawatts
and to build, own and operate its own power plants, and to sell electricity to
PLN was received in January 1996. The first expansion of 70 megawatts is
expected to be operational in late 1998.
In Kazakstan, Tengizchevroil increased its production to 160,000 barrels per
day by the end of 1996 and production averaged 112,000 barrels per day for the
year. In late 1996 Chevron signed an agreement with a number of partners
restructuring the Caspian Pipeline Consortium (CPC). The agreement allows the
company to acquire a 15 percent
-15-
<PAGE>
equity interest in the crude oil pipeline to be completed from the Tengiz oil
field to the Russian Black Sea coast. The 900-mile pipeline is expected to cost
about $2 billion and be commissioned in 1999.Production from the Tengiz Field
has been limited by lack of export capacity; however, in 1996 the joint venture
was successful in developing regional markets and alternative transportation
means, such as railcars. In January 1997, Chevron reached an agreement in
principle to sell 10 percent of its 50 percent interest to an affiliate of
LUKoil, a Russian oil company, and Arco, thereby reducing Chevron's ownership
to 45 percent. The sale is expected to be completed by the end of May 1997.
In Australia, de-bottlenecking plans are in place to increase average
processing capacity of North West Shelf (NWS) condensate to 96,000 barrels per
day, Wanaea/Cossack oil production to 135,000 barrels per day and liquefied
petroleum gas to 7.8 million barrels per year. Formal presentation of an
outline of a proposal for expansion was submitted to Japanese buyers during
1996. The expansion is expected to cost approximately $5 billion (total
project) and start up by 2003. WAPET development activities included the
completion of a 20 well in-fill drilling program on Barrow Island, which
increased production by about 2,000 barrels per day and added oil reserves. At
the Saladin Field two horizontal wells were drilled and resulted in initial
production rates in excess of 3,000 barrels per day. Evaluations by the
partners continued regarding options for the commercial development of the
Gorgon Field as a liquefied natural gas and domestic gas project.
In Papua New Guinea (PNG), Chevron (with a 16 percent share of production) and
its partners were granted a petroleum development license by the government to
move forward with the construction of surface facilities for the Gobe fields in
the southeastern portion of PPL-161. An active development drilling program
designed to accelerate production and develop new oil reserves for the Kutubu
Area fields continued in 1996.
During 1996 Chevron investigated various alternatives for commercialization of
natural gas reserves in PNG, including the construction of a joint-venture
export pipeline to Queensland, Australia. A decision on this project is
expected in 1997.
In China, the first stage of an enhanced oil recovery pilot project using
Chevron's Microbial Profile Modification technology was completed in 1995 at
Daqing, China's largest oil field, with the completion of the pilot area wells.
The next stage, involving microbe injection in these wells, began in 1996.
Additional field testing will continue in 1997.
In Venezuela, Chevron and Maraven S.A. formed an alliance in late 1995 to
further develop the Boscan oil field. In July 1996, Chevron became responsible
for the operations, production and development of this field under an operating
services agreement, whereby Chevron receives operating expense reimbursement
and capital recovery, plus interest and an incentive fee. Boscan production was
about 80,000 barrels per day in 1996 with plans to increase production to
115,000 barrels per day by 1999. In addition, the alliance calls for the supply
of Venezuelan crude oil to Chevron refineries in the United States. Because
Chevron does not have an equity ownership in the Boscan Field oil reserves,
production and reserves are not included in the company's reported production
and reserve quantities.
Petroleum - Natural Gas Liquids and NGC Corporation
Until August 31, 1996 Chevron's Warren Petroleum Company (Warren) was engaged
in all phases of the U.S. natural gas liquids (NGL's) business and was the
largest U.S. wholesale marketer of NGL's. On August 31, 1996 Chevron merged its
natural gas liquids gathering, processing and marketing operations conducted by
Warren and its U.S. natural gas marketing activities, conducted by Chevron
U.S.A. Production Company, with NGC Corporation (NGC), receiving $295 million
in cash and notes and a 28 percent ownership in NGC. Two other companies,
British Gas of the United Kingdom and Nova Corporation of Canada, each have a
voting share equal to Chevron.
After this combination, NGC is one of the largest processors and marketers of
natural gas liquids in North America with production of 140,000 barrels per day
and sales of 470,000 barrels per day. Through its "Energy Store" concept, NGC
offers a multi-commodity energy products and services resource that provides
natural gas, NGL's, electricity and crude oil. NGC maintains an asset base that
includes interests in approximately 15,000 miles of natural gas gathering and
transmission pipelines, 56 gas processing plants, three NGL fractionation
facilities, 60 million barrels of NGL storage capacity, three NGL import/export
marine terminals, ten other NGL terminals and approximately 2,100 miles of NGL
pipelines.
-16-
<PAGE>
Chevron's total third-party natural gas liquids sales volumes over the last
three years are reported in the following table:
- -------------------------------------------------------------------------------
Natural Gas Liquids Sales Volumes
(Thousands of barrels per day)
1996 1995 1994
---- ---- ----
United States - Warren 139 203 209
United States - Other 25 10 6
---- ---- ----
Total United States 164 213 215
Canada 27 40 27
Other International 9 7 7
---- ---- ----
Total Consolidated Companies 200 260 249
---- ---- ----
Equity in NGC Affiliate 23 - -
---- ---- ----
Total including Affiliate 223 260 249
==== ==== ====
- -------------------------------------------------------------------------------
Effective November 1, 1996, Chevron U.S.A. Production Co. and Warren Petroleum
Co., owned by NGC Corp., completed a partnership agreement to own, operate and
expand Chevron's Venice Complex. Located approximately 75 miles southeast of
New Orleans, the Venice facilities include an offshore gas-gathering system, a
gas-processing plant, a gas-liquids fractionation facility, an underground gas-
liquids storage facility and a multi-barge, gas-liquids terminal.
Under terms of the agreement, Chevron will own approximately two-thirds of the
partnership, operate the offshore facilities and continue to be one of the
major producer-suppliers to the Venice complex. Warren will own approximately
one-third of the partnership, will operate the onshore facilities and assume
commercial responsibility for the partnership.
The partnership has committed to developing an expansion project to increase
the total capacity of the Venice Gathering System to 810 million cubic feet per
day (MMCFPD) from its present throughput of 425 MMCFPD. Additionally, the
current Venice plant processing capacity of 1.0 billion cubic feet per day will
be expanded to 1.3 billion cubic feet per day by adding a 300 MMCFPD cryogenic
plant. These modifications are expected to be completed during the third and
fourth quarters of 1997.
Petroleum - Reserves and Contract Obligations
Table IV on pages FS-37 and FS-38 of this Annual Report on Form 10-K sets forth
the company's net proved oil and gas reserves, by geographic area, as of
December 31, 1996, 1995, and 1994. During 1996, the company filed estimates of
oil and gas reserves with the Department of Energy, Energy Information Agency.
Those estimates were consistent with the reserve data reported on page FS-38 of
this Annual Report on Form 10-K.
The company sells gas from its producing operations under a variety of
contractual arrangements. Most contracts generally commit the company to sell
quantities based on production from specified properties but certain gas sales
contracts specify delivery of fixed and determinable quantities. In the United
States, the company is obligated to sell substantially all of the natural gas
produced and owned or controlled by the company in the lower 48 states to NGC.
Chevron has retained a few long-term natural gas supply contracts but the
volumes associated with these agreements are not material. Outside the United
States, the company is committed to deliver approximately 350 billion cubic
feet of natural gas through 2013 in Australia and approximately 7 billion cubic
feet of natural gas through 1999 in Canada. The company believes it can satisfy
these contracts from quantities available from production of the company's
proved developed Australian and Canadian natural gas reserves
-17-
<PAGE>
Petroleum - Refining
The daily refinery inputs over the last three years for the company's and its
affiliate's refineries are shown in the following table:
- -------------------------------------------------------------------------------
Petroleum Refineries: Locations, Capacities And Inputs
(Inputs and Capacities are in Thousands of Barrels Per Day)
December 31, 1996
------------------ Refinery Inputs
Operable ------------------
Locations Number Capacity 1996 1995 1994
- ------------------------------------- ------- -------- ----- ----- -----
Pascagoula, Mississippi 1 295 313 282 324
El Segundo, California 1 258 223 221 227
Richmond, California 1 225 220 202 220
El Paso,1 Texas 1 65 60 58 59
Honolulu, Hawaii 1 54 54 55 56
Salt Lake City, Utah 1 45 40 41 4
Other(2) 3 102 41 66 284
------- -------- ----- ----- -----
Total United States 9 1,044 951 925 1,213
------- -------- ----- ----- -----
Burnaby, B.C., Canada 1 50 48 47 47
Milford Haven, Wales United Kingdom 1 115 117 100 116
------- -------- ----- ----- -----
Total International 2 165 165 147 163
------- -------- ----- ----- -----
Total Consolidated Companies 11 1,209 1,116 1,072 1,376
Equity in Affiliate Various Locations 13 452 372 451 460
------- -------- ----- ----- -----
Total Including Affiliate 24 1,661 1,488 1,523 1,836
======= ======== ===== ===== =====
(1)Capacity and input amounts for El Paso represent Chevron's share.
(2)Refineries in Perth Amboy, New Jersey; Portland, Oregon; and Richmond Beach,
Washington, which are primarily asphalt plants. Inputs include Port Arthur,
Texas (sold in 1995) and Philadelphia,
Pennsylvania (sold in 1994).
- -------------------------------------------------------------------------------
Based on refinery statistics published in the December 23, 1996, issue of The
Oil and Gas Journal, Chevron had the second largest U.S. refining capacity and
ranked among the top ten in worldwide refining capacity including its share of
affiliate's refining capacity. The company wholly owned and operated nine
refineries in the United States and one each in Canada and the United Kingdom.
At year-end 1996, the company's 50 percent owned Caltex Petroleum Corporation
affiliate owned or had interests in 13 operating refineries in Japan (2),
Australia (2), Thailand (2), Korea, the Philippines, New Zealand, Singapore,
Pakistan, Kenya and South Africa. In April 1996 Caltex sold its 50 percent
interest in Nippon Petroleum Refining Company, Limited, which included two
refineries in Japan, to its partner, Nippon Oil Company, Limited. Caltex's
share of refining capacity for these two refineries totaled 255 thousand
barrels per day at year end 1995. In April 1996, Caltex ceded its throughput
rights to 107 thousand barrels per day of capacity in a refinery in Bahrain and
will sell its interest in 1997.
Distillation operating capacity utilization in 1996 averaged 91 percent in the
United States and 88 percent worldwide (including affiliate), compared with 82
percent in the United States and 85 percent worldwide in 1995. Chevron's
capacity utilization of its U.S. cracking and coking facilities, which are the
primary facilities used to convert heavier products to gasoline and other light
products, averaged 82 percent in 1996, up from 79 percent in 1995. The company
imports crude oil for its U.S. refining operations. Imported crude oil
accounted for just over half of U.S. refinery inputs in 1996.
-18-
<PAGE>
In 1996 the company began producing cleaner-burning motor gasoline as required
by the California Air Resources Board. Significant expenditures were made at
the company's Richmond and El Segundo refineries over the past several years
for major modifications and upgrades required to manufacture these motor fuels.
New Alkylation plants and upgraded Fluid Catalytic Crackers at the Richmond and
El Segundo refineries improved efficiency and reduced operating costs.
The company's U.K. subsidiary, Gulf Oil (Great Britain) Ltd. (GOGB) has entered
into negotiations with Elf Oil UK Ltd. to merge with its refining and marketing
operations.
Caltex (64 percent interest) completed construction of a 130,000 barrels-per-
day grassroots refinery in Map Ta Phut, Thailand in March 1996. At the Yocheon
refinery in South Korea (Caltex's interest is 50 percent) the expansion of
capacity from 380,000 to 600,000 barrels per day, through the construction of a
new crude unit and hydrotreater, was completed in late 1996.
Petroleum - Refined Products Marketing
Product Sales: The company and its Caltex Petroleum Corporation affiliate
- -------------
market petroleum products throughout much of the world. The principal
trademarks for identifying these products are "Chevron," "Gulf" (principally in
the United Kingdom) and "Caltex." The company's U.S. sales volumes of refined
products during 1996 amounted to 1,122 thousand barrels per day, equivalent to
approximately six percent of total U.S. consumption. Worldwide sales volumes,
including the company's share of affiliate's sales, averaged 2,066 thousand
barrels per day in 1996, a decrease of about one percent from 1995. This
decrease primarily was due to lower Caltex sales volumes after Caltex's sale of
its 50 percent interest in Nippon Petroleum Refining Company, Limited. This
decline partially was offset by higher sales in the United Kingdom and by
higher international marine lubricants sales.
The following table shows the company's and its affiliate's refined product
sales volumes, excluding intercompany sales, over the past three years.
- -------------------------------------------------------------------------------
Refined Products Sales Volumes
(Thousands of Barrels Per Day)
1996 1995 1994
----- ----- -----
United States
Gasolines 556 552 615
Jet Fuel 255 241 260
Gas Oils and Kerosene 186 196 277
Residual Fuel Oil 39 38 65
Other Petroleum Products* 86 90 97
----- ----- -----
Total United States 1,122 1,117 1,314
----- ----- -----
International
United Kingdom 110 97 118
Canada 60 58 56
Other International 180 157 140
----- ----- -----
Total International 350 312 314
----- ----- -----
Total Consolidated Companies 1,472 1,429 1,628
Equity in Affiliate 594 657 620
----- ----- -----
Total Including Affiliate 2,066 2,086 2,248
===== ===== =====
* Principally naphtha, lubes, asphalt and coke.
- ------------------------------------------------------------------------------
-19-
<PAGE>
The company's Canadian sales volumes consist of refined product sales in
British Columbia and Alberta by the company's Chevron Canada Limited
subsidiary. In the United Kingdom, the reported sales volumes comprise a full
range of product sales by the company's Gulf Oil (Great Britain) Ltd.
subsidiary. The 1996 volumes reported for "Other International" relate to
international sales of aviation and marine fuels, lubricants, gas oils and
other refined products, primarily in Latin America, Asia and Europe. The equity
in affiliate's sales in 1996 consists of the company's interest in Caltex
Petroleum Corporation, which operates in approximately 60 countries including
the Philippines, Thailand, New Zealand, South Africa and, through Caltex
affiliates, in Australia, Japan and Korea.
Recognizing the global nature and interdependence of the company's crude oil
supply and petroleum products trading and marketing businesses, the company
realigned the operations of its principal international trading company,
Chevron International Oil Company, with those of its U.S. counterpart, Chevron
Products Company and its international upstream company, Chevron Overseas
Petroleum Inc. in January 1996. In connection with this realignment, Chevron
Products Company's U.S. lubricants division reorganized into a Global Business
Unit to better serve international markets. Other international sales, trading
and supply functions were assumed by Chevron Products Company.
Retail Outlets: In the United States, the company supplies, directly or through
- --------------
jobbers, more than 8,300 motor vehicle, aircraft and marine retail outlets,
including more than 1,800 company-owned or -leased motor vehicle service
stations. The company's gasoline market area is concentrated in the southern,
southwestern and western states. Chevron estimates it is the fifth largest
seller of gasoline in the United States and, according to the Lundberg Share of
Market Report, ranks among the top three marketers in 16 states.
Chevron began implementation of an alliance with McDonald's to develop a
network of retail sites that combine Chevron service stations and convenience
stores with McDonald's restaurants in 12 western and southwestern states. As of
year-end 1996, the two companies operated 48 sites together in these states.
Non-fuel revenues from convenience store and enhanced car wash facilities
continue to be an area of growth and opportunity for the company. Revenues from
direct mail marketing continued to grow in 1996 due to new service and discount
programs, and the introduction of insurance products.
The company expanded its "FastPay" system, increasing the total service
stations with the system to about 3,600 nationwide. This automated system
allows credit card customers to pay at the pump with credit approvals processed
in about five seconds using satellite data transmission.
During 1996 in the United States the company continued to expand and institute
programs that will build positive brand recognition and reputation for quality
products and service by expanding training programs to emphasize a customer
focus at company service stations, by continuing its programs to ensure highest
product quality standards and by rationalizing terminaling and trucking
operations to ensure a cost competitive and efficient refined product
distribution system. All grades of Chevron branded motor vehicle gasolines
contain Techron, an additive that reduces automobile emissions while protecting
and maintaining vehicle performance.
Internationally, the company's branded products are sold in 189 stations (all
owned or leased) in British Columbia, Canada and in 454 stations (194 owned or
leased) in the United Kingdom. As discussed in other sections of this annual
report, the company has announced its intent to merge its refining and
marketing operations in the United Kingdom with those of Elf Oil UK Ltd.
Petroleum - Transportation
Tankers: Chevron's controlled seagoing fleet at December 31, 1996 is summarized
- -------
in the following table. All controlled tankers were utilized in 1996. In
addition, at any given time, the company has 25 to 35 vessels under charter on
a term or voyage basis.
-20-
<PAGE>
- -------------------------------------------------------------------------------
Controlled Tankers At December 31, 1996
U.S. Flag Foreign Flag
--------------------------- ----------------------------
Cargo Capacity Cargo Capacity
Number (Millions of Barrels) Number (Millions of Barrels)
------ -------------------- ------ -------------------
Owned - - 20 20
Bareboat Charter 6 2 9 12
Time-Charter - - 8 3
--- --- --- ---
Total 6 2 37 35
=== === === ===
- -------------------------------------------------------------------------------
Federal law requires that cargo transported between U.S. ports be carried in
ships built and registered in the United States, owned and operated by U.S.
entities and manned by U.S. crews. At year-end 1996, the company's U.S. flag
fleet was engaged primarily in transporting crude oil from Alaska and
California terminals to refineries on the West Coast and Hawaii, refined
products between the Gulf Coast and East Coast, and refined products from
California refineries to terminals on the West Coast, Alaska and Hawaii.
At year-end 1996, two of the company's controlled international flag vessels
were being used for floating storage. The remaining international flag vessels
were engaged primarily in transporting crude oil from the Middle East,
Indonesia, Mexico, West Africa and the North Sea to ports in the United States,
Europe, the United Kingdom, and Asia. Refined products also were transported
worldwide.
In addition to the tanker fleet summarized in the table above, the company owns
a one-sixth undivided interest in each of six LNG ships that are bareboat
chartered to the Australian North West Shelf Project. These ships, along with
two time-chartered LNG vessels, transport LNG from Australia primarily to
various Japanese gas and electric utilities.
The company had net increases of one tanker in its time-chartered fleet and
217 thousand barrels of capacity during 1996. Also, the company acquired a
tanker with about two million barrels of capacity that was previously leased by
the company under a bareboat charter.
In December 1996 the company reached an agreement to operate under bareboat
charters two new 308,000 deadweight ton, double-hull tankers. The tankers will
be built in Korea with deliveries scheduled for late 1998 and early 1999. These
additions will bring to 14 the number of double-hull tankers controlled by
Chevron.
Page 25 of this Annual Report on Form 10-K contains a discussion of the effects
of the Federal Oil Pollution Act on the company's shipping operations.
Pipelines: Chevron owns and operates an extensive system of crude oil, refined
- ---------
products and natural gas pipelines in the United States. The company also has
direct or indirect interests in other U.S. and international pipelines. The
company's ownership interests in pipelines are summarized in the following
table:
-21-
<PAGE>
- -------------------------------------------------------------------------------
Pipeline Mileage At December 31, 1996
Wholly Partially
Owned Owned(1) Total
United States:
Crude oil(2) 3,901 432 4,333
Natural gas 430 164 594
Petroleum products 2,311 2,534 4,845
----- ----- -----
Total United States 6,642 3,130 9,772
----- ----- -----
International:
Crude oil - 801 801
Natural gas - 227 227
Petroleum products 12 86 98
----- ----- -----
Total International 12 1,114 1,126
----- ----- -----
Worldwide 6,654 4,244 10,898
===== ===== ======
(1)Reflects equity interest in lines.
(2)Includes gathering lines related to the transportation function. Excludes
gathering lines related to the U.S. production function.
- -------------------------------------------------------------------------------
The company sold its 15 percent interest in Platte Pipe Line Company, located
in the central United States, in February 1996. In connection with the 1996
merger of certain Chevron operations with NGC Corporation, the company and NGC
formed a pipeline joint venture to own the previously 100 percent Chevron-owned
West Texas LPG System. This system of approximately 2,100 miles transports
liquefied petroleum gas from plants in eastern New Mexico and throughout Texas
to the Mont Belvieu fractionation and storage facilities in southeastern Texas.
Chemicals
The company's chemicals operations manufacture and market commodity chemical
products for industrial use and chemical additives for fuels and lubricants. At
year-end 1996, Chevron Chemical Company owned and operated 16 U.S.
manufacturing facilities in nine states, owned manufacturing facilities in
Brazil and France, and owned a majority interest in a manufacturing facility in
Japan. The principal U.S. plants are located at Cedar Bayou, Orange and Port
Arthur, Texas; St. James and Belle Chasse, Louisiana; Marietta, Ohio;
Pascagoula, Mississippi; and Richmond, California.
-22-
<PAGE>
The following table shows, by chemical division, 1996 revenues and the number
of owned or majority owned chemical manufacturing facilities and combined
operating capacities as of December 31, 1996.
- -------------------------------------------------------------------------------
Chemical Operations
Manufacturing
Facilities 1996
--------------- Annual Revenue*
Division U.S. Intl. Capacity ($Millions)
- ---------------------------- ---- ------ ----------------- -----------
U.S. Chemicals 13 - 13,178 million lbs. $2,475
Oronite Additives 3 3 204 million gals. 890
Other (including excise tax) - - N/A 69
-- -- -------
Totals 16 3 $3,434
== == =======
*Excludes intercompany sales.
- -------------------------------------------------------------------------------
The company reorganized its Olefins and Aromatics divisions to take better
advantage of strengths in U.S. markets and to increase the company's focus on
developing international growth opportunities. The former Olefins and Aromatics
divisions were combined to form one U.S. Chemicals Division that is
headquartered in Houston, Texas. A new International Group, headquartered in
San Ramon, California, is responsible for coordination of non-U.S. supply
sources, marketing, and new manufacturing projects overseas. The Oronite
Additives Division, which already operates internationally, is unaffected by
the reorganization.
Chevron completed its withdrawal from the fertilizer business with the sale of
its remaining fertilizer plant in St. Helens, Oregon in January 1996.
During 1996 the company began major expansion and de-bottleneck projects to
increase ethylene, polyethylene, paraxylene, and polystyrene production
capacities at the Port Arthur and Orange, Texas; Pascagoula, Mississippi; and
Marietta, Ohio plants.
In 1996 Chevron developed and finalized plans to construct manufacturing
facilities outside the United States. In Saudi Arabia, the company and its
joint venture partner, the Saudi Venture Capital Group, will construct a
manufacturing facility expected to produce 480,000 tons of benzene and 220,000
tons of cyclohexane per year using the company's Aromax technology. Completion
of the construction of this facility is expected by 1999. An additives
manufacturing facility in Singapore is expected to be on line by late 1998.
Chevron has plans to complete the construction of a polystyrene plant in China
by 1999.
Coal and Other Minerals
Coal: The company's wholly-owned coal mining and marketing subsidiary, The
- ----
Pittsburg and Midway Coal Mining Co. (P&M), owned and operated three surface
and two underground mines as of year-end 1996. Two of the mines are located in
New Mexico and one each in Wyoming, Alabama and Kentucky. All of the mines
produce steam coal used primarily for electric power generation. P&M's strategy
is to focus on regional markets in the United States, capitalizing on major
utility growth markets in the southwest and southeast. P&M also has a 33
percent interest in the Black Beauty Coal Company, whose principal operations
are in Indiana and Illinois.
Sales of coal from P&M's wholly-owned mines and from its interest in the Black
Beauty Coal Company were 16.0 million tons in 1996, a decrease of 8 percent
from 1995 sales of 17.3 million tons. The decrease was primarily due to lower
sales at the McKinley mine in New Mexico as customers purchased lower cost
hydro-electric power in lieu of generating power from coal, and lower sales at
the York Canyon mine in New Mexico after closing the underground operation at
that site in late 1995. About 56 percent of 1996 sales came from two mines,
-23-
<PAGE>
the McKinley Mine and the Kemmerer Mine in Wyoming. The average selling price
for coal from mines owned and operated by P&M was $24.48 per ton in 1996
compared to $23.67 per ton in 1995, contributing $329 million and $350 million
to Chevron's consolidated sales and other operating revenues in 1996 and 1995,
respectively. At year-end 1996, P&M controlled approximately 470 million tons
of developed and undeveloped coal reserves, including significant reserves of
environmentally desirable low-sulfur coal.
Demand growth for coal in the United States remains largely dependent on the
demand for electric power, which in turn depends on regional and national
economic conditions and on competition from other fuel sources. In 1996, the
electric utility industry consumed over 80 percent of all coal produced in the
United States. Approximately 85 percent of P&M's coal sales are made to
electric utilities. Of those sales, about 50 percent are under long-term
contracts. Generally, these contracts contain index adjusted pricing provisions
and minimum-take requirements that have helped mitigate the effects on P&M's
results from short-term fluctuations in coal prices and consumption levels.
Research and Environmental Protection
Research: The company's principal research laboratories are at Richmond and La
- --------
Habra, California. The Richmond facility engages in research on new and
improved refinery processes, develops petroleum and chemical products, and
provides technical services for the company and its customers. The La Habra
facility conducts research and provides technical support in geology,
geophysics and other exploration science, as well as oil production methods
such as hydraulics, assisted recovery programs and drilling, including offshore
drilling. Employees in subsidiaries engaged primarily in research activities at
year-end 1996 numbered more than 1,900.
Chevron's research and development expenses were $182 million, $185 million and
$179 million for the years 1996, 1995 and 1994, respectively.
In 1996 Chevron integrated the management of its upstream, downstream and
chemicals research and information technology organizations under a corporate
Vice President of Technology. This change is intended to ensure that technology
is incorporated into the company's strategic thinking process, increase synergy
among the technology organizations and better manage the process of recruiting,
developing and utilizing the company's technical workforce.
Licenses under the company's patents are generally made available to others in
the petroleum and chemical industries. For example, in 1996 the company
licensed a record capacity of 180,000 barrels a day of its hydroprocessing
technology, which produces high-quality lubricant base oils and cleaner burning
fuels. However, the company's business is not dependent upon licensing patents.
Environmental Protection: One of Chevron's goals is to be recognized worldwide
- ------------------------
for environmental excellence. Chevron's revised corporate policy on Health,
Environment and Safety was approved by the stockholders in 1991. In 1992, a
comprehensive program of 102 management practices was approved by senior
management to strengthen the implementation of the policy. The program is
called "Protecting People and the Environment" and is modeled after the
Chemical Manufacturers Association's program called "Responsible Care." It is
also similar to the American Petroleum Institute's program called "Strategies
for Today's Environmental Partnership." In 1994, the company published an
environmental, health and safety performance report named "Measuring Progress -
A Report on Chevron's Environmental Performance." This report describes the
company's environmental performance since its previous environmental report
issued in 1990 and summarizes the company's policy and approach to
environmental protection.
The company's oil and gas exploration activities, along with those of many
other petroleum companies, have been hampered by drilling moratoria, imposed
because of environmental concerns, in areas where the company has leasehold
interests. Difficulties in obtaining necessary permits can delay or restrict
oil and gas development projects. While events such as these can impact current
and future earnings, either directly or through lost opportunities, the company
does not believe they will have a material effect on the company's consolidated
financial position, its
-24-
<PAGE>
liquidity, or its competitive position relative to other U.S. or international
petroleum concerns. The situation has, however, been a factor, among others, in
the shift of the company's exploration efforts to areas outside of the United
States.
As of January 1, 1995, the Clean Air Act Amendments of 1990 require that only
reformulated gasoline (RFG) may be sold in the nine worst ozone areas in the
United States and other areas have voluntarily opted into the RFG requirement.
In addition, the California Air Resources Board required a more stringent
reformulated gasoline be sold statewide in all service stations beginning on
June 1, 1996. Since 1991, the company has spent about $1.8 billion in capital
expenditures on air quality projects at its refining facilities, primarily in
order to comply with federal and state clean air regulations and to provide
consumers with fuels that reduce air pollution and air toxicity.
The Federal Oil Pollution Act of 1990 (OPA) created federal authority to direct
private responses to oil spills, to improve preparedness and response
capabilities, and to impose monetary damages on spillers for all damages,
including environmental restoration and loss of use of the resources during
restoration. Under OPA, owners or operators of vessels operating in U.S. waters
or transferring cargo in waters within the U.S. Exclusive Economic Zone are
required to possess a Certificate of Financial Responsibility for each of these
vessels. The Certificate is issued by the U.S. Coast Guard after the owner or
operator has demonstrated the ability to meet Coast Guard guidelines for
financial responsibility in the case of an oil spill. OPA also requires the
scheduled phase-out, by year-end 2014, of all single hull tankers for trading
to U.S. ports or transferring cargo in waters within the U.S. Exclusive
Economic Zone, which has and will continue to result in the utilization of more
costly double hull tankers. A separate single hull phase-out schedule under the
International Maritime Organization's Regulation 13 is leading to the
utilization of more costly double hull tankers in Europe and some other parts
of the world. Chevron has been actively involved in the Marine Preservation
Association, a non-profit organization that funds the Marine Spill Response
Corporation (MSRC). MSRC owns the largest inventory of oil spill response
equipment in the nation and operates five strategically located U.S. coastal
regional centers. In addition, the company is a member of many oil-spill
response cooperatives in areas in which it operates around the world.
The company expects the enactment of additional federal and state regulations
addressing the issue of waste management and disposal and effluent emission
limitations for offshore oil and gas operations. While the costs of operating
in an environmentally responsible manner and complying with existing and
anticipated environmental legislation and regulations, including loss
contingencies for prior operations, are expected to be significant, the company
anticipates that these costs will not have a material impact on its
consolidated financial position, its liquidity, or its competitive position in
the industry.
In 1996, the company's U.S. capitalized environmental expenditures were $206
million, representing approximately 10 percent of the company's total
consolidated U.S. capital and exploratory expenditures. The company's U.S.
capitalized environmental expenditures were $607 million and $645 million in
1995 and 1994, respectively. These environmental expenditures include capital
outlays to retrofit existing facilities, as well as those associated with new
facilities. The expenditures are predominantly in the petroleum segment and
relate mostly to air and water quality projects and activities at the company's
refineries, oil and gas producing facilities and marketing facilities. For
1997, the company estimates that capital expenditures for environmental control
facilities will be approximately $222 million. The actual expenditures for 1997
will depend on various conditions affecting the company's operations and may
differ significantly from the company's forecast. The company is committed to
protecting the environment wherever it operates, including strict compliance
with all governmental regulations. The future annual capital costs of
fulfilling this commitment are uncertain, but are expected to stabilize at the
1996 levels following the completion of major air quality projects in 1995 to
produce cleaner-burning fuels at the company's two California refineries.
Under provisions of the Superfund law, Chevron has been designated as a
potentially responsible party (PRP) for remediation of a portion of 266
hazardous waste sites. Since remediation costs will vary from site to site as
well as the company's share of responsibility for each site, the number of
sites in which the company has been identified as a PRP should not be used as a
relevant measure of total liability. At year-end 1996, the company's
environmental remediation reserve related to Superfund sites amounted to $45
million. Forecasted expenditures for the largest of these sites, located in
California, amounts to approximately 20 percent of the reserve.
-25-
<PAGE>
The company's 1996 environmental expenditures, remediation provisions and year-
end environmental reserves are discussed on pages FS-3 and FS-4 of this Annual
Report on Form 10-K. These pages also contain additional discussion of the
company's liabilities and exposure under the Superfund law and additional
discussion of the effects of the Clean Air Act Amendments of 1990.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This annual report on Form 10-K contains forward-looking statements relating to
Chevron's operations that are based on management's current expectations,
estimates and projections about the petroleum and chemicals industries. Words
such as "expects," "intends," "plans," "projects," "believes," "estimates" and
similar expressions are used to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecast
in such forward-looking statements.
Among the factors that could cause actual results to differ materially are
crudeoil and natural gas prices; refining margins and marketing margins;
chemicals prices and competitive conditions affecting supply and demand for the
company's aromatics, olefins and additives products; potential failure to
achieve expected production from existing and future oil and gas development
projects; potential disruption or interruption of the company's production or
manufacturing facilities due to accidents or political events; potential
liability for remedial actions under existing or future environmental
regulations; and potential liability resulting from pending or future
litigation. In addition, such statements could be affected by general domestic
and international economic and political conditions.
Item 2. Properties
The location and character of the company's oil, natural gas and coal
properties and its refining, marketing, transportation and chemical facilities
are described above under Item 1. Business and Properties. Information in
response to the Securities Exchange Act Industry Guide No. 2 ("Disclosure of
Oil and Gas Operations") is also contained in Item 1 and in Tables I through VI
on pages FS-34 to FS-39 of this Annual Report on Form 10-K. Note 13,
"Properties, Plant and Equipment," to the company's financial statements
contained on page FS-28 of this Annual Report on Form 10-K presents information
on the company's gross and net properties, plant and equipment, and related
additions and depreciation expense, by geographic area and industry segment for
1996, 1995 and 1994.
Item 3. Legal Proceedings
A. Cities Service Co. v. The Gulf Oil Corporation, Case No. CA2-1998,
Oklahoma State District Court for the District of Tulsa.
This is an action by Cities Service Company (now OXY USA Inc. as successor in
interest) against Gulf Oil Corporation (now Chevron U.S.A. Inc.) and GOC
Acquisition Corporation ("Gulf") alleging breach of contract, malicious breach
of contract, and fraud arising out of a terminated merger agreement. The
complaint was originally filed in August 1982 in Oklahoma State Court. Trial
commenced April 15, 1996.
On July 18, 1996, the jury returned a verdict for Gulf on Cities' fraud and
malicious breach of contract claims. On Cities' breach of contract claim, the
court directed verdicts that (1) Gulf had breached the contract, (2) Cities was
entitled to recover certain attorneys' fees related to the Gulf/Cities merger,
and (3) Cities was entitled to recover the cost of a settlement with and
repurchase the stock from Mesa Petroleum Corporation if the jury found that the
settlement and repurchase were done in reliance on the merger agreement with
Gulf. In its verdict, the jury found against Gulf on the reliance issue.
Accordingly, on July 19, 1996, the court entered a judgment of $742,206,906
against Gulf, which included $512,585,506 in prejudgment interest awarded by
the court, which interest continues to accrue. No motions for relief from the
judgment were filed in the trial court. On July 31, 1996, the court approved
Gulf's supersedeas bond, thus staying enforcement of the judgment during
pendency of Gulf's appeal.
-26-
<PAGE>
On August 14, 1996, Gulf appealed from the judgment. On December 31, 1996, the
Oklahoma Supreme Court granted the parties' motion to retain appeal for
decision, rather than having it transferred to the Oklahoma Court of Appeals.
B. Premanufacturing Notification for Detergent Additives.
On September 30, 1993, the United States Environmental Protection Agency
("EPA") instituted an administrative proceeding, assessing civil penalties of
about $17 million for alleged violations of the Toxic Substances Control Act
("TSCA"). EPA contended that the company was required to file premanufacture
notifications ("PMNs") with respect to six substances manufactured or imported
since 1990. The company challenged the assessment on the grounds that PMNs were
not required, because the chemicals were within the scope of the existing TSCA
inventory listings. The company has settled this regulatory dispute by paying
EPA a civil penalty of $375,000 as a complete resolution of the matter.
C. Toxic Substances Control Act, Section 8(e) Civil Penalty.
The company has participated in EPA's TSCA section 8(e) Compliance Audit
Program ("CAP"). This voluntary compliance audit program involved an EPA review
of, among other things, toxicity studies performed by the company. EPA's review
focused on whether such study results were reportable under TSCA section 8(e).
In October 1996, based on its review and as a result of its findings, EPA
assessed Chevron a civil penalty of $316,000, which the company has paid.
D. Richmond Refinery Multimedia Inspection.
In 1993, EPA conducted a multimedia inspection of the Chevron Products Company
Richmond, California Refinery, which focused on compliance related to various
areas, including the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response
Compensation and Liability Act. While certain aspects of the multimedia
investigation have been closed, EPA has referred potential Clean Water Act
violations of the refinery's NPDES permit to the Department of Justice for
civil litigation.
The violations alleged involve 11 excursions of the NPDES permit's toxicity
limit and numerous alleged violations of the by-pass prohibition contained in
the permit. The company has strenuously contested the allegations relating to
violations of the by-pass prohibitions, but does not contest the toxicity
excursion allegations, which occurred over a five-year period.
No litigation has been instituted thus far, and settlement discussions are
taking place.
E. U.S. v. Chevron U.S.A. Inc. - Outer Continental Shelf Lands Act Alleged
Violations.
On March 5, 1997, the Department of Interior initiated litigation against
Chevron in Federal District Court, Los Angeles, alleging that the company
violated five regulations promulgated pursuant to the Outer Continental Shelf
Lands Act at its Platform Grace facility located in federal waters off the
Southern California coast. The allegations involved a surface control
subsurface safety valve that failed tests conducted by an internal Chevron
safety inspection team in May 1994. The cited violations stem from allegations
that Chevron did not timely repair the valve. The alleged violations did not
result in any injury to individuals or damage to the environment because of the
redundant safety systems that were in place and operational at the time. Under
the terms of the final settlement filed on March 5, 1997, Chevron has resolved
the litigation by agreeing to pay a civil penalty of $1.165 million.
Other previously reported legal proceedings have been settled or the issues
resolved so as not to merit further reporting.
-27-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders through the solicitation of proxies or otherwise.
Executive Officers of the Registrant at March 1, 1997
Name and Age Executive Office Held Major Area of
Responsibility
K. T. Derr 60 Chairman of the Board Chief Executive Officer
since 1989
Director since 1981
Executive Committee
Member since 1986
J. N. Sullivan 59 Vice-Chairman of the
Board since 1989 Worldwide Refining,
Director since 1988 Marketing and
Executive Committee Member Transportation
since 1986, Activities, Chemicals,
Real Estate
Environmental, Human
Resources, Coal,
Administrative Services,
Aircraft Services
H. D. Hinman 56 Vice-President and
General Counsel since 1993 Law
Executive Committee Member
since 1993
M. R. Klitten 52 Vice-President and Chief
Financial Officer Finance
since 1989
Executive Committee Member
since 1989
R. H. Matzke 60 Vice-President since 1990 Overseas Exploration and
Director since 1997 Production
President of Chevron
Overseas Petroleum Inc.
since 1989
Executive Committee Member
since 1993
D. J. O'Reilly 50 Vice-President since 1991 U.S. Refining, Marketing
President of Chevron and Supply
Products Company since 1994
Executive Committee Member
since 1994
J. E. Peppercorn 59 Vice-President since 1990 Chemicals
President of Chevron Chemical
Company since 1989
Executive Committee Member
since 1993
P.J. Robertson 50 Vice-President since 1994 North American
President of Chevron U.S.A. Exploration and
Production Company Production, Natural Gas
since 1997 Liquids
Executive Committee Member
since 1997
-28-
<PAGE>
The Executive Officers of the Corporation consist of the Chairman of the Board,
the Vice-Chairman of the Board, and such other officers of the Corporation who
are either Directors or members of the Executive Committee, or are chief
executive officers of principal business units. Except as noted below, all of
the Corporation's Executive Officers have held one or more of such positions
for more than five years.
H. D. Hinman - Partner, Law Firm of Pillsbury Madison & Sutro - 1973
- Vice-President and General Counsel,
Chevron Corporation - 1993
D. J. O'Reilly - Vice-President for Strategic Planning and Quality,
Chevron Corporation - 1991
- Vice-President, Chevron Corporation and
President, Chevron U.S.A. Products Company - 1994
P.J. Robertson - President of Warren Petroleum Company - 1991
- Vice-President for Strategic Planning and Quality,
Chevron Corporation -1994
- Executive Vice-President of Chevron U.S.A.
Production Company - 1996
- Vice-President, Chevron Corporation and
President of Chevron U.S.A. Production Company - 1997
-29-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information on Chevron's common stock market prices, dividends, principal
exchanges on which the stock is traded and number of stockholders of record is
contained in the Quarterly Results and Stock Market Data tabulations, on page
FS-16 of this Annual Report on Form 10-K.
Item 6. Selected Financial Data
The selected financial data for years 1992 through 1996 are presented on page
FS-40 of this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The index to Financial Statements, Supplementary Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations is
presented on page 35 of this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The index to Financial Statements, Supplementary Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations is
presented on page 35 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information on Directors on pages 2 through 5 of the Notice of Annual
Meeting of Stockholders and Proxy Statement dated March 21, 1997, is
incorporated herein by reference in this Annual Report on Form 10-K. See
Executive Officers of the Registrant on pages 28 and 29 of this Annual Report
on Form 10-K for information about executive officers of the company.
Item 405 of Regulation S-K calls for disclosure of any known late filing or
failure by an insider to file a report required by Section 16 of the Exchange
Act. This disclosure is contained on page 25 of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 21, 1997 and is incorporated
herein by reference in this Annual report on Form 10-K. Chevron believes all
filing requirements were complied with during 1996.
Item 11. Executive Compensation
The information on pages 8 through 15 of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 21, 1997, is incorporated herein
by reference in this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information on pages 5 and 6 of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 21, 1997, is incorporated herein
by reference in this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions
There were no relationships or related transactions requiring disclosure under
Item 404 of Regulation S-K
-30-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: Page (s)
Report of Independent Accountants FS-17
Consolidated Statement of Income
for the three years ended December 31, 1996 FS-17
Consolidated Balance Sheet at December 31,
1996 and 1995 FS-18
Consolidated Statement of Cash Flows
for the three years ended December 31, 1996 FS-19
Consolidated Statement of Stockholders' Equity
for the three years ended December 31, 1996 FS-20
Notes to Consolidated Financial Statements FS-21 to FS-33
(2) Financial Statement Schedules:
Caltex Group of Companies Combined
Financial Statements C-1 to C-21
The Combined Financial Statements of the Caltex Group of Companies are
filed as part of this report. All schedules are omitted because they
are not applicable or the required information is included in the
combined financial statements or notes thereto.
(3) Exhibits:
The Exhibit Index on pages 33 and 34 of this Annual Report on Form 10-K
lists the exhibits that are filed as part of this report.
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated January 24, 1997, was filed by the
company on January 24, 1997. In this report Chevron announced its
preliminary, unaudited earnings for the year ended December 31, 1996.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 26th day of March
1997.
Chevron Corporation
By KENNETH T. DERR*
-----------------------
Kenneth T. Derr,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 26th day of March 1997.
Principal Executive Officers (And Directors) Directors
KENNETH T. DERR* SAMUEL H. ARMACOST*
- --------------------- -------------------
Kenneth T. Derr, Chairman of the Board Samuel H. Armacost
JAMES N. SULLIVAN* SAM GINN *
- --------------------- ----------
James N. Sullivan, Vice-Chairman of the Board Sam Ginn
CARLA A. HILLS *
----------------
Carla A. Hills
J. BENNETT JOHNSTON*
--------------------
J. Bennett Johnston
RICHARD H. MATZKE*
------------------
Principal Financial Officer Richard H. Matzke
MARTIN R. KLITTEN* CHARLES M. PIGOTT*
- --------------------- ------------------
Martin R. Klitten, Vice-President Charles M. Pigott
and Chief Financial Officer
CONDOLEEZZA RICE*
-----------------
Principal Accounting Officer Condoleezza Rice
STEPHEN J. CROWE* FRANK A. SHRONTZ*
- -------------------- -----------------
Stephen J. Crowe, Comptroller Frank A. Shrontz
CHANG-LIN TIEN *
----------------
Chang-Lin Tien
GEORGE H. WEYERHAEUSER*
-----------------------
George H. Weyerhaeuser
*By: /s/ LYDIA I. BEEBE JOHN A. YOUNG*
- --------------------------- --------------
Lydia I. Beebe, Attorney-in-Fact John A. Young
-32-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of Chevron Corporation, dated
August 2, 1994, filed as Exhibit 3.1 to Chevron Corporation's Quarterly
Report on Form 10-Q for the quarter and six month period ended June 30,
1994, and incorporated herein by reference.
3.2 By-Laws of Chevron Corporation, as amended July 27, 1994, including
provisions giving attorneys-in-fact authority to sign on behalf of
officers of the corporation, filed as Exhibit 3.2 to Chevron
Corporation's Quarterly Report on Form 10-Q for the quarter and six
month period ended June 30, 1994, and incorporated herein by reference.
4.1 Rights Agreement dated as of November 22, 1988 between Chevron
Corporation and Manufacturers Hanover Trust Company of California, as
Rights Agent, filed as Exhibit 4.0 to Chevron Corporation's Current
Report on Form 8-K dated November 22, 1988, and incorporated herein by
reference.
4.2 Amendment No. 1 dated as of December 7, 1989 to Rights Agreement dated
as of November 22, 1988 between Chevron Corporation and Manufacturers
Hanover Trust Company of California, as Rights Agent, filed as Exhibit
4.0 to Chevron Corporation's Current Report on Form 8-K dated December
7, 1989, and incorporated herein by reference.
Pursuant to the Instructions to Exhibits, certain instruments defining
the rights of holders of long-term debt securities of the corporation
and its consolidated subsidiaries are not filed because the total amount
of securities authorized under any such instrument does not exceed 10
percent of the total assets of the corporation and its subsidiaries on a
consolidated basis. A copy of such instrument will be furnished to the
Commission upon request.
10.1 Management Incentive Plan of Chevron Corporation, as amended and
restated effective January 1, 1990, filed as Exhibit 10.1 to Chevron
Corporation's Annual Report on Form 10-K for 1990, and incorporated
herein by reference.
10.2 Management Contingent Incentive Plan of Chevron Corporation, as
amended May 2, 1989, filed as Exhibit 10.2 to Chevron Corporation's
Annual Report on Form 10-K for 1989, and incorporated herein by
reference. All outstanding awards under this plan have been made and the
plan is no longer in effect.
10.3 Chevron Corporation Excess Benefit Plan, amended and restated as of
July 1, 1990, filed as Exhibit 10.3 to Chevron Corporation's Annual
Report on Form 10-K for 1990, and incorporated herein by reference.
10.4 Supplemental Pension Plan of Gulf Oil Corporation, amended as of June
30, 1986, filed as Exhibit 10.4 to Chevron Corporation's Annual Report
on Form 10-K for 1986 and incorporated herein by reference.
10.5 Chevron Restricted Stock Plan for Non-Employee Directors, as amended
and restated effective January 29, 1992, filed as Appendix A to Chevron
Corporation's Notice of Annual Meeting of Stockholders and Proxy
Statement dated March 16, 1992, and incorporated herein by reference.
10.6 Chevron Corporation Long-Term Incentive Plan, filed as Appendix A to
Chevron Corporation's Notice of Annual Meeting of Stockholders and Proxy
Statement dated March 19, 1990, and incorporated herein by reference.
12.1 Computation of Ratio of Earnings to Fixed Charges (page E-1).
21.1 Subsidiaries of Chevron Corporation (page E-2).
23.1 Consent of Price Waterhouse LLP (page E-3).
-33-
<PAGE>
EXHIBIT INDEX
(continued)
Exhibit
No. Description
23.2 Consent of KPMG Peat Marwick LLP (page E-4).
24.1 Powers of Attorney for directors and certain officers of Chevron
to Corporation, authorizing the signing to of the Annual Report on
24.15 Form 10-K on their behalf.
27.1 Financial Data Schedule
99.1 Definitions of Selected Financial Terms (page E-5).
Copies of above exhibits not contained herein are available, at a fee of $2 per
document, to any security holder upon written request to the Secretary's
Department, Chevron Corporation, 575 Market Street, San Francisco, California
94105.
-34-
<PAGE>
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s)
-------------
Management's Discussion and Analysis FS-1 to FS-15
Quarterly Results and Stock Market Data FS-16
Report of Management FS-16
Consolidated Income Statement FS-17
Report of Independent Accountants FS-17
Consolidated Balance Sheet FS-18
Consolidated Statement of Cash Flows FS-19
Consolidated Statement of Stockholders' Equity FS-20
Notes to Consolidated Financial Statements FS-21 to FS-33
Supplemental Information on Oil and Gas Producing Activities FS-34 to FS-39
Five-Year Financial Summary FS-40
-35-
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
1996 Highlights
- ---------------
- -Net income of $2.607 billion was the highest in Chevron's history
- -Chevron's average U.S. crude oil realization of $18.80 per barrel was the
highest in seven years; average U.S. natural gas realization of $2.28 per
thousand cubic feet was the highest in 13 years
- -Worldwide oil and gas reserves increased for the fourth consecutive year;
international crude oil production increased for the seventh consecutive
year
- -Cash provided by operating activities was $5.8 billion
- -Debt was reduced by $1.6 billion
- -Annual dividend to the stockholders increased for the ninth consecutive year
KEY FINANCIAL RESULTS
- ---------------------
Millions of dollars, except per-share amounts 1996 1995 1994
- ----------------------------------------------------------------------------
Sales and Other Operating Revenues $ 42,782 $ 36,310 $ 35,130
Net Income $ 2,607 $ 930 $ 1,693
Special (Charges) Credits Included
in Net Income $ (44) $ (1,032) $ 22
Per Share:
Net Income $ 3.99 $ 1.43 $ 2.60
Dividends $ 2.08 $ 1.925 $ 1.85
Return On:
Average Capital Employed (Percent) 12.7 5.3 8.7
Average Stockholders' Equity (Percent) 17.4 6.4 11.8
- ----------------------------------------------------------------------------
Chevron's net income for 1996 was a record $2.607 billion, up significantly
from net income of $930 million in 1995 and $1.693 billion in 1994. Special
items in all years and the 1995 adoption of a new accounting standard on asset
impairment affected the comparability of the company's reported results. Net
income was reduced by net special charges of $44 million in 1996 and $373
million in 1995. In addition, the adoption of a new accounting standard in 1995
reduced net income $659 million. Special items benefited net income $22 million
in 1994. After excluding these items, operating earnings for 1996 were $2.651
billion, up 35 percent from $1.962 billion earned in 1995 and up 59 percent
from $1.671 billion in 1994.
OPERATING ENVIRONMENT AND OUTLOOK. Industry conditions in 1996 in the crude oil
and natural gas production business were the best in several years. Higher than
expected demand and low industry inventory levels pushed Chevron's average
crude oil realizations to their highest level in seven years and U.S. natural
gas prices to their highest level in 13 years. With its worldwide oil and gas
production at an 11-year high, Chevron was well positioned to benefit from
these favorable conditions. Earnings in the company's upstream business
(exploration and production) were at record levels.
However, in the downstream side of the business (refining and marketing) these
higher prices dampened operating results because a highly competitive
marketplace prevented the increased feedstock and fuel costs from being fully
recovered in refined product prices, particularly gasoline, for much of the
year. Additionally, the increased manufacturing cost of the cleaner-burning
gasolines mandated by California in 1996 contributed to the depressed sales
margins. Nevertheless, Chevron's downstream earnings improved from 1995, when
poor refining margins and significant refinery downtime reduced earnings,
particularly in the United States. Much of the 1995 refinery downtime was to
upgrade and modify the company's two California refineries to manufacture the
California-mandated gasolines required at the pump in 1996. Chevron
successfully introduced the fuels with no supply disruptions.
The U.S. chemicals industry entered a cyclical downturn in the latter half of
1995, which persisted throughout 1996. Industry overcapacity depressed prices
for most of the company's major chemical products at the same time that rising
crude oil and natural gas prices increased feedstock and fuel costs. Although
sales volumes remained strong, earnings from Chevron's chemical operations
declined.
FS-1
<PAGE>
In early 1997, crude oil and natural gas prices declined. Chevron's posted
price for West Texas Intermediate (WTI), a benchmark crude oil, was $25.00 at
year-end 1996, and was $20.75 at February 21, 1997. The Henry Hub natural gas
spot price, an industry marker, was $3.72 per thousand cubic feet at year-end
1996, but had retreated to the $2.00 level by late February 1997.
Weak sales margins for the company's refined and chemical products have
continued into the first quarter of 1997; however, the decline in crude oil
prices should eventually allow refined product prices to better reflect their
raw material costs. The chemicals industry oversupply is expected to continue
through 1997.
Chevron continues to review its operations to improve its competitiveness and
profitability. In May 1996, the company completed its exit from the real estate
development business with the sale of its last major portfolio of California
properties. In October, four mature producing oil fields in the United Kingdom
sector of the North Sea and one in Indonesia were sold. Proceeds of nearly $500
million from these sales provided funds for more attractive growth projects.
In August 1996, the merger of Chevron's natural gas marketing business and its
natural gas liquids company, Warren Petroleum, with NGC Corporation was
completed. Chevron received a 28 percent equity ownership in NGC and about $295
million in cash and notes. NGC is a leading gatherer, processor, transporter
and marketer of energy products in North America and the United Kingdom.
In April 1996, Chevron's 50 percent-owned Caltex affiliate sold its interest in
two Japanese refineries for $2 billion. Caltex paid a dividend from part of the
proceeds to its shareholders and used the balance for investment in higher-
growth Asia-Pacific areas. Caltex's grass-roots 130,000-barrels-per-day
refinery in Thailand started up midyear, and the expansion of its 50 percent-
owned refinery in Korea was completed in late 1996, doubling its capacity to
600,000 barrels per day.
The company announced in November it was merging its United Kingdom refining
and marketing subsidiary, Gulf Oil (Great Britain) Ltd., with those of Elf and
Murphy Oil. After the merger, expected to be completed in the second quarter of
1997, Chevron will own about 41 percent of the new larger company, which
through its 1,500 service stations will have about 8 percent of the U.K. fuels
market. In connection with this anticipated transaction, a $200 million after-
tax estimated impairment provision was recognized in 1996 results.
Several major chemicals projects are under way or have been announced, which
should position Chevron to benefit from the next upturn in the chemicals
industry. These include expansion of high-density polyethylene capacity at the
Orange, Texas, plant; a paraxylene expansion at the Pascagoula, Mississippi,
refinery; expansion of ethylene and cumene production facilities at Port
Arthur, Texas; and an expansion of a polystyrene plant at Marietta, Ohio.
Internationally, the company is constructing a fuel and lube oil additives
plant in Singapore; has announced plans to build a polystyrene plant in China;
and through a 50-50 joint venture, is building a benzene plant and cyclohexane
unit in Saudi Arabia.
INTERNATIONAL EXPLORATION AND PRODUCTION DEVELOPMENTS. Significant progress was
made in 1996 in unlocking the vast oil and gas reserves of the Tengiz oil field
in Kazakstan, in which Chevron held a 50 percent interest through its
Tengizchevroil (TCO) affiliate.
Despite the lack of adequate export facilities, TCO, in 1996, was very
successful in developing alternate oil markets, with production averaging
112,000 barrels per day, nearly double the 58,000 barrels per day produced in
1995. At year-end 1996, the joint venture was producing about 160,000 barrels
per day. In addition, several significant steps were taken toward the ultimate
development of an export pipeline. In March 1996, the Caspian Pipeline
Consortium (CPC), formed in 1992 by the governments of Kazakstan, Russia and
Oman, was restructured. Private companies, including Chevron, were given the
opportunity to join. In early December 1996, an agreement was signed that will
allow CPC, in which Chevron will have a 15 percent interest, to begin
construction of a pipeline from the Tengiz oil field to the Russian Black Sea
coast. The 900-mile, $2 billion pipeline is expected to be completed in 1999.
FS-2
<PAGE>
In January 1997, Chevron reached an agreement in principle to sell 10 percent
of its 50 percent interest in TCO to an affiliate of LUKoil, a Russian oil
company, and Arco, thereby reducing Chevron's ownership to 45 percent. The
company will record a gain from the sale, expected to occur in the first
quarter of 1997.
In July 1996, the company began operating the 80,000-barrels-per-day Boscan oil
field in Venezuela, under an agreement with Maraven, a subsidiary of Petroleos
de Venezuela, the national oil company. Under this 20-year agreement (with a
10-year extension option), Chevron assumed financial, technical and operational
responsibilities for the production and development of the field and, in
return, will receive operating expense and capital recovery plus interest and
an incentive fee. Chevron plans to spend $250 million, on behalf of Maraven,
over the next three years with the expectation of increasing production to
115,000 barrels per day by 1999.
ENVIRONMENTAL MATTERS. Virtually all aspects of the businesses in which the
company engages are subject to various federal, state and local environmental,
health and safety laws and regulations. These regulatory requirements continue
to increase in both number and complexity, and govern not only the manner in
which the company conducts its operations, but also the products it sells. Most
of the costs of complying with myriad laws and regulations pertaining to its
operations and products are embedded in the normal costs of conducting its
business.
Using definitions and guidelines established by the American Petroleum
Institute, Chevron estimates its worldwide environmental spending in 1996 was
about $903 million for its consolidated companies. Included in these
expenditures were $206 million of environmental capital expenditures and $697
million of costs associated with the control and abatement of hazardous
substances and pollutants from ongoing operations. The total amount also
includes spending charged against reserves established in prior years for
environmental cleanup programs, but not non-cash provisions to increase these
reserves or establish new ones during the year.
In addition to the costs for environmental protection associated with its
ongoing operations and products, the company may incur expenses for corrective
actions at various currently and previously owned facilities and waste disposal
sites. An obligation to take remedial action may be incurred as a result of the
enactment of laws, such as the federal Superfund law, or the issuance of new
regulations or as the result of the company's own policies in this area.
Accidental leaks and spills requiring cleanup may occur in the ordinary course
of business. In addition, an obligation may arise when operations are closed or
sold, or at non-Chevron sites where company products have been handled or
disposed of. Most of the expenditures to fulfill these obligations relate to
facilities and sites where past operations followed practices and procedures
that were considered acceptable under standards existing at the time, but now
require investigatory and/or remedial work to meet current standards.
The company retained certain environmental cleanup obligations when it sold the
Port Arthur, Texas, refinery in 1995, and anticipated costs were accrued at the
time of sale. Under the terms of the sales contract, these obligations will be
re-evaluated in 1997.
During 1996, the company recorded $99 million of before-tax provisions ($64
million after tax) for environmental remediation efforts, including Superfund
sites. Actual expenditures charged against these provisions and other
previously established reserves amounted to $198 million in 1996. At year-end
1996, the company's environmental remediation reserves were $1.135 billion,
including $45 million related to Superfund sites.
Under provisions of the Superfund law, the Environmental Protection Agency
(EPA) has designated Chevron a potentially responsible party (PRP), or has
otherwise involved it, in the remediation of 266 hazardous waste sites. The
company has made provisions or payments in 1996 and prior years for
approximately 182 of these sites. No single site is expected to result in a
material liability for the company at this time. For the remaining sites,
investigations are not yet at a stage where the company is able to quantify a
probable liability or determine a range of reasonably possible exposure. The
Superfund law provides for joint and several liability. Any future actions by
the EPA and other regulatory agencies to require Chevron to assume other
responsible parties' costs at designated hazardous waste sites are not expected
to have a material effect on the company's consolidated financial position or
liquidity.
FS-3
<PAGE>
It is likely the company will continue to incur additional charges, beyond
those reserved, for environmental remediation relating to past operations.
These future costs are indeterminable due to such factors as the unknown
magnitude of possible contamination, the unknown timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties and the extent to which
such costs are recoverable from third parties. While the amounts of future
costs may be material to the company's results of operations in the period in
which they are recognized, the company does not expect these costs to have a
material effect on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such expenditures have had or
will have any significant impact on the company's competitive position relative
to other domestic or international petroleum or chemicals concerns. Although
environmental compliance costs are substantial, the company has no reason to
believe they vary significantly from similar costs incurred by other companies
engaged in similar businesses in similar areas. The company believes that such
costs ultimately are reflected in the petroleum and chemicals industries'
prices for products and services.
Over the past several years, the petroleum industry has incurred major capital
expenditures to meet clean-air regulations, such as the 1990 amendments to the
Clean Air Act in the United States. For companies operating in California,
where Chevron has a significant presence, the California Air Resources Board
(CARB) has imposed even stricter requirements. Over the five-year period 1991-
1995, Chevron spent about $1.8 billion on capital projects to comply with air
quality measures, the majority of which related to complying with CARB
requirements. The bulk of this spending was completed in 1995, which resulted
in a decrease in capitalized air-quality expenditures from approximately $500
million in each of the years 1994 and 1995 to $70 million in 1996. For 1997,
total worldwide environmental capital expenditures are estimated at $222
million. These capital costs are in addition to the ongoing costs of complying
with other environmental regulations and the costs to remediate previously
contaminated sites.
In addition to the reserves for environmental remediation discussed previously,
the company maintains reserves for dismantlement, abandonment and restoration
of its worldwide oil and gas and coal properties at the end of their productive
lives. Most such costs are environmentally related. Provisions are recognized
on a unit-of-production basis as the properties are produced. The amount of
these reserves at year-end 1996 was $1.5 billion and is included in accumulated
depreciation, depletion and amortization in the company's consolidated balance
sheet.
For the company's other ongoing operating assets, such as refineries, no
provisions are made for exit or cleanup costs that may be required when such
assets reach the end of their useful lives unless a decision to sell or
otherwise abandon the facility has been made.
OTHER CONTINGENCIES. The company is the subject of various lawsuits and claims
and other contingent liabilities including, along with other oil companies,
actions challenging oil and gas royalty and severance tax payments based on
posted prices. A breach of contract lawsuit brought by OXY U.S.A. against the
company resulted in a judgment against Chevron in July 1996 of $742 million,
including interest that continues to accrue. The company has filed an appeal.
While the outcome cannot presently be determined with certainty, the company
believes that errors were committed by the trial court that should result in
the judgment being reversed. These matters are discussed in the notes to the
accompanying consolidated financial statements. The company believes that the
resolution of these matters will not materially affect its financial position
or liquidity, although losses could be material with respect to earnings in any
given period.
The company's operations can be affected by changing economic, regulatory and
political environments in the various countries where it operates. Political
uncertainty and civil unrest may threaten the safety of employees and the
company's continued presence in a country. These factors are carefully
considered when evaluating the level of current and future activity in such
countries.
The company utilizes various derivative instruments to manage its exposure to
price risk stemming from its integrated petroleum activities. All these
instruments are commonly used in oil and gas trading activities and are
relatively straightforward, involve little complexity and, with the exception
of certain long-term natural gas swaps, are of a short-term duration. Most of
the activity in these instruments is intended to hedge a physical transaction;
hence gains and losses arising from these instruments offset, and are
recognized concurrently with, gains and losses from the underlying commodities.
The company believes it has no material market or credit risks to its
operations,
FS-4
<PAGE>
financial position or liquidity as a result of its commodities andother
derivatives activities, including forward exchange contracts and interest
rate swaps, and that its control systems are designed to monitor and manage its
financial exposures in accordance with company policies and procedures.
SPECIAL ITEMS. Net income is affected by transactions that are unrelated to, or
are not representative of, the company's ongoing operations for the periods
presented. These transactions, defined by management and designated "special
items," can obscure the underlying results of operations for a year, as well as
affect comparability between years. Following is a table that summarizes the
(losses) gains, on an after-tax basis, from special items included in the
company's reported net income.
Year ended December 31
----------------------------
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard $ - $ (659) $ -
Other (337) (304) -
Asset Dispositions 391 7 48
Environmental Remediation Provisions (54) (90) (304)
Prior-Year Tax Adjustments 52 (22) 344
Restructurings and Reorganizations (14) (50) (45)
LIFO Inventory (Losses) Gains (4) 2 (10)
Other (78) 84 (11)
- ----------------------------------------------------------------------------
Total Special Items $ (44) $ (1,032) $ 22
- ----------------------------------------------------------------------------
Asset write-offs and revaluations in 1996 were related primarily to a $200
million estimated impairment provision in connection with the company's
decision to merge its United Kingdom refining and marketing operations with
those of two other oil companies in 1997. Also, 1996 included $68 million of
impairment writedowns of oil and gas properties and related pipeline
facilities, a $29 million adjustment to the 1995 provision for the loss
anticipated from exiting the real estate development business, including
additional amounts for environmental remediation, and $40 million for other
asset write-offs. In 1995, an estimated loss of $168 million was recognized in
connection with the company's decision to exit its real estate development
business. Concurrent with implementing the new accounting standard for asset
impairment in 1995, and in preparation for installation of the company's new
financial information system, a comprehensive review of all the company's fixed
assets was conducted. As a result of this review, asset write-offs of $94
million were recorded. Also, the writedown of certain assets made obsolete by
the conversion of two West Coast refineries to produce the new California-
mandated reformulated gasolines amounted to $38 million. Other miscellaneous
asset write-offs in 1995 amounted to $4 million. Effective in 1995, the company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." The adoption of this standard
required non-cash charges amounting to $659 million after tax, mostly related
to impairment writedowns of U.S. oil and gas producing properties.
Asset dispositions in 1996 increased earnings $391 million and included a $279
million gain from the company's Caltex affiliate's sale of interests in two
Japanese refineries; a net $80 million gain from the sales of producing
properties in the North Sea, Indonesia and the Gulf of Mexico; and a $32
million gain from the merger of the company's natural gas marketing business
and natural gas liquids company with NGC Corporation. In 1995, asset
dispositions increased earnings a net $7 million and consisted of sales of a
fertilizer plant, a natural gas storage facility, and a U.S. oil and gas
property. The 1994 sale of the company's lead and zinc prospect in Ireland
generated an after-tax profit of $48 million.
Environmental remediation provisions pertain to estimated future costs for
environmental cleanup programs at certain of the company's service stations,
marketing terminals, refineries, chemical locations, and oil and gas
properties; divested operations in which Chevron has liability for future
cleanup costs; and sites, commonly referred to as Superfund sites, for which
the company has been designated a PRP by the EPA. Provisions for environmental
remediation amounted to $54 million in 1996, $90 million in 1995 and $304
million in 1994.
FS-5
<PAGE>
Prior-year tax adjustments are generally the result of the settlement of audit
issues with taxing authorities or the re-evaluation by the company of its tax
liabilities as a result of new developments. Also, adjustments are required for
the effect on deferred income taxes of changes in statutory tax rates. A
federal tax audit settlement in 1996 benefited earnings $52 million. In 1995,
charges for prior-year tax adjustments were $22 million, relating primarily to
a change in the Australian income tax rate. Tax adjustments in 1994 increased
earnings $344 million, including the net reversal of $301 million of tax and
related interest reserves resulting from the company's global settlement with
the Internal Revenue Service for issues relating to the years 1979 through
1987.
Restructurings and reorganizations in 1996 resulted in charges of $14 million
for various employee severance programs. Charges in 1995 were $50 million,
including $12 million related to restructurings at Chevron's Caltex affiliate,
and consisted principally of employee severance provisions in connection with
reorganizations of various business activities. In 1994, a $45 million
adjustment was made to a prior-year charge in connection with the terms of the
sale of the Philadelphia and Port Arthur, Texas, refineries, and to recognize
the effect of the Port Arthur Refinery sale on the company's chemicals
operations. The Philadelphia Refinery was sold in August 1994, and the Port
Arthur Refinery sale was completed in February 1995.
LIFO inventory liquidation (losses) gains result from the reduction of
inventories in certain inventory pools valued under the Last-In, First-Out
(LIFO) accounting method. LIFO losses decreased net income in 1996 and 1994 by
$4 million and $10 million, respectively, when inventories were liquidated at
historical costs that were higher than costs incurred in those years. LIFO
effects increased net income in 1995 by $2 million as inventories were
liquidated at historical costs that were lower than the current-year costs.
These amounts include the company's equity share of Caltex LIFO inventory
effects. Chevron's consolidated petroleum inventories were 83 million barrels
at year-end 1996, 93 million barrels at year-end 1995 and 99 million barrels at
year-end 1994.
Other special items reduced earnings a net $78 million in 1996, consisting
primarily of litigation matters that were offset partially by a $12 million
refund of federal lease costs. In 1995, other special items benefited earnings
a net $84 million, when a gain of $86 million related to a sale of land by a
Caltex affiliate in Japan and a refund of $27 million for federal lease costs
were offset partially by litigation and other costs of $29 million. Charges in
1994 for litigation and regulatory settlements of $31 million were offset
partially by a casualty insurance recovery of $20 million.
RESULTS OF OPERATIONS. 1996 was a very successful year for Chevron. Not only
were earnings at record levels, but the company performed well operationally.
Both U.S. and international upstream posted record earnings, and the refining
and marketing business increased operating earnings by 28 percent from
depressed 1995 levels despite market competition that prevented higher
feedstock and fuel costs from being fully recovered. A cyclical downturn in the
chemicals industry caused an earnings decline in 1996 from the record level of
1995. Although sales volumes remained strong for most of the year, lower prices
and higher feedstock and fuel costs resulted in lower margins for most of the
company's major chemical products. International oil and gas production and
reserves increased for the seventh consecutive year. In 1996, international oil
and gas production was up 7 percent, and the company replaced about 149 percent
of its international production through proved reserve additions, resulting in
a worldwide replacement rate of 112 percent.
Operating results for 1995, compared with 1994, were strong in all areas except
for U.S. downstream operations, where very poor results dampened total
earnings. Both chemicals and international upstream businesses turned in then-
record earnings. U.S. upstream earnings declined slightly from 1994 as higher
crude oil prices did not fully offset low natural gas prices. Poor industry
refining margins, coupled with scheduled and unscheduled maintenance at all the
company's core refineries, particularly an extended turnaround at the Richmond,
California, refinery to tie in new units required to produce the new state-
mandated reformulated fuels, resulted in severely depressed earnings for these
operations.
Sales and other operating revenues were $42.8 billion in 1996, compared with
$36.3 billion in 1995 and $35.1 billion in 1994. Revenues improved from 1995
and 1994 primarily because of higher prices and sales volumes for crude oil and
natural gas and higher prices for refined products, partially offset by lower
refined products sales volumes and chemicals prices. Sharply higher crude oil,
natural gas and refined products prices accounted for the increase in purchased
crude oil and products costs in 1996, compared with 1995 and 1994.
FS-6
<PAGE>
Other income in all years included net gains resulting from the disposition of
assets, which caused other income to fluctuate from year to year.
Operating, selling and administrative expenses, adjusted for special items,
increased slightly in 1996, largely because higher fuel and transportation
costs and accruals for performance-based employee compensation costs more than
offset continued reductions in other expenses. Operating expenses in 1995 were
negatively affected by scheduled refinery shutdowns and maintenance.
Unanticipated costs associated with unscheduled refinery shutdowns and other
refinery operating problems also affected operating costs in both 1995 and
1994.
Reported selling, general and administrative expenses in 1994 were unusually
low due to a reversal of $319 million of accrued interest reserves on federal
income taxes payable resulting from the company's settlement with the IRS of
most issues for nine open tax years.
Year ended December 31
----------------------------
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Reported Operating Expenses $ 6,007 $ 5,974 $ 6,383
Reported Selling, General and
Administrative Expenses 1,377 1,384 963
- ----------------------------------------------------------------------------
Total Operational Costs 7,384 7,358 7,346
Eliminate Special Charges
Before Tax (437) (514) (230)
- ----------------------------------------------------------------------------
Adjusted Ongoing
Operational Costs $ 6,947 $ 6,844 $ 7,116
- ----------------------------------------------------------------------------
Depreciation, depletion and amortization expense decreased in 1996 following
the 1995 adoption of SFAS No. 121, which resulted in the impairment of certain
of the company's fixed assets, mostly oil and gas producing properties, and
other 1995 adjustments to fixed asset carrying values; 1995 expense included
the special charge to implement the new standard.
Taxes on income were $2.133 billion in 1996, $859 million in 1995 and $1.110
billion in 1994, equating to effective income tax rates of 45 percent, 48
percent and 39.6 percent for each of the three years, respectively. The lower
tax rate in 1996, compared with 1995, reflects a shift in the international
earnings mix from higher tax-rate countries to lower tax-rate countries and a
favorable swing in prior-year tax adjustments. These effects were offset
partially by a decrease in equity earnings recorded on an after-tax basis. The
1995 tax rate reflected a shift in taxable earnings from lower tax-rate
countries to higher tax-rate countries. This increase in the tax rate was
offset partially by higher tax credits and an increase in equity earnings
recorded on an after-tax basis. The lower 1994 tax rate is attributable to the
effect of favorable prior-year tax adjustments resulting from a global
settlement with the IRS of most issues for the years 1979 through 1987, which
included the reversal of excess interest reserves with little associated tax
effect.
Currency transactions decreased net income $26 million, $15 million and $64
million in 1996, 1995 and 1994, respectively. These amounts include the
company's share of affiliates' currency transactions. The loss on currency
transactions in 1996 resulted from fluctuations in the value of the United
Kingdom and Australian currencies relative to the U.S. dollar. In 1995 the loss
was related to fluctuations in the value of the Canadian and Nigerian
currencies, and in 1994 it was due primarily to fluctuations in the value of
the Australian and Philippine currencies.
FS-7
<PAGE>
RESULTS BY MAJOR OPERATING AREAS
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Exploration and Production
United States $ 1,087 $ 72 $ 518
International 1,211 690 539
- ----------------------------------------------------------------------------
Total Exploration and Production 2,298 762 1,057
- ----------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 193 (104) 40
International 226 345 239
- ----------------------------------------------------------------------------
Total Refining, Marketing
and Transportation 419 241 279
- ----------------------------------------------------------------------------
Total Petroleum 2,717 1,003 1,336
- ----------------------------------------------------------------------------
Chemicals 200 484 206
Coal and Other Minerals 46 (18) 111
Corporate and Other (356) (539) 40
- ----------------------------------------------------------------------------
Net Income $ 2,607 $ 930 $ 1,693
- ----------------------------------------------------------------------------
SPECIAL ITEMS BY MAJOR OPERATING AREAS
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Exploration and Production
United States $ (22) $ (480) $ (66)
International 69 (121) 20
- ----------------------------------------------------------------------------
Total Exploration and Production 47 (601) (46)
- ----------------------------------------------------------------------------
Refining, Marketing and Transportation
United States (97) (179) (285)
International 59 62 (10)
- ----------------------------------------------------------------------------
Total Refining, Marketing
and Transportation (38) (117) (295)
- ----------------------------------------------------------------------------
Total Petroleum 9 (718) (341)
- ----------------------------------------------------------------------------
Chemicals (28) (40) (9)
Coal and Other Minerals (2) (65) 48
Corporate and Other (23) (209) 324
- ----------------------------------------------------------------------------
Total Special Items
Included in Net Income $ (44) $ (1,032) $ 22
- ----------------------------------------------------------------------------
U.S. exploration and production earnings in 1996, excluding special items, were
the highest in the company's history. Earnings more than doubled from 1995
levels and were up 90 percent from 1994. Operationally, the significant
improvement in U.S. upstream earnings for 1996 was due to higher crude oil and
natural gas prices compared with 1995 and 1994, more than offsetting lower
liquids production. In 1995, higher crude oil prices than in 1994 did not fully
offset the effects of lower production volumes and lower natural gas prices.
Natural gas accounts for about half the company's combined U.S. oil and gas
production.
Net liquids production for 1996 averaged 341,000 barrels per day, down 3
percent from 350,000 barrels per day in 1995 and down 8 percent from 369,000
barrels per day in 1994. Net natural gas production in 1996 and 1995 averaged
about 1.9 billion cubic feet per day, compared with 2.1 billion cubic feet per
day in 1994. The production declines resulted from producing property sales and
normal field declines, partially offset by new production. The company has
several major long-term projects under way, primarily in the Gulf of Mexico,
which by the 1996 fourth quarter had stabilized its U.S. oil and gas production
volumes.
The company's average crude oil realizations were $18.80 per barrel in 1996, an
increase of $3.46 from $15.34 per barrel in 1995 and nearly $5.00 more than the
$13.86 per barrel averaged in 1994. From a low point of $11.03 per barrel in
December 1993, realizations recovered to the $14.50 to $15.00 range by mid-1994
and remained relatively
FS-8
<PAGE>
steady at $15.00 to $16.00 during 1995. In 1996, Chevron's crude oil
realizations increased during the year, reaching $21.93 in December, but began
to decline in early 1997.
U.S. Exploration and Production
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 1,109 $ 552 $ 584
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - (490) -
Other (19) (7) -
Asset Dispositions 17 (2) -
Environmental Remediation Provisions (10) (8) (51)
Restructurings and Reorganizations 1 - -
LIFO Inventory Losses - - (4)
Other (11) 27 (11)
- ----------------------------------------------------------------------------
Total Special Items (22) (480) (66)
- ----------------------------------------------------------------------------
Reported Earnings $ 1,087 $ 72 $ 518
- ----------------------------------------------------------------------------
The company's average natural gas prices were $2.28 per thousand cubic feet in
1996, up 77 cents from $1.51 in 1995 and up 51 cents from the 1994 average of
$1.77. Low inventories and increased demand caused by extremely cold weather in
the eastern half of the United States caused the company's natural gas prices
to peak at an average of $3.75 in December 1996. Prices remained strong in
January 1997, but began falling rapidly in February as the winter weather
moderated.
Exploration expenses in 1996 increased from both 1995 and 1994 levels on
increased exploration activity in the Gulf of Mexico. Ongoing depreciation
expense declined each year as a result of lower production volumes
and, in 1996, from lower carrying values of assets impaired upon implementation
of SFAS No. 121.
International exploration and production's record earnings in 1996 reflected
higher crude oil and natural gas sales volumes and higher crude oil prices,
compared with 1995 and 1994. In 1995, the same factors contributed to the
increase in earnings from 1994. Also contributing to the improved results in
1995 were significantly lower effective tax rates in West Africa, primarily
resulting from tax benefits associated with crude oil reserve additions.
Operationally, the company's average international liquids prices, including
equity affiliates, increased to $19.48 per barrel from $16.10 in 1995 and
$14.86 in 1994. Average natural gas prices were $1.86 per thousand cubic feet
in 1996, compared with $1.73 and $1.84 in 1995 and 1994, respectively.
In 1996, net liquids production, including production from equity affiliates,
increased 8 percent over 1995 to 702,000 barrels per day, and was up 13 percent
from 1994 production levels. Production growth in Angola, Nigeria and Kazakstan
and new production in Congo accounted for most of the increase. Net natural gas
production volumes also increased in 1996, up 3 percent from 1995 to 584
million cubic feet per day and up 7 percent from 1994 levels. Production of
crude oil and natural gas has been increasing steadily since the late 1980s,
reflecting the company's successful strategy of growing its international
operations.
FS-9
<PAGE>
International Exploration and Production
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 1,142 $ 811 $ 519
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - (81) -
Other (17) - -
Asset Dispositions 91 - -
Prior-Year Tax Adjustments - (22) 20
Restructurings and Reorganizations (5) (10) -
LIFO Inventory Losses - (1) -
Other - (7) -
- ----------------------------------------------------------------------------
Total Special Items 69 (121) 20
- ----------------------------------------------------------------------------
Reported Earnings $ 1,211 $ 690 $ 539
- ----------------------------------------------------------------------------
SELECTED OPERATING DATA
1996 1995 1994
- ----------------------------------------------------------------------------
U.S. Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 341 350 369
Net Natural Gas
Production (MMCFPD) 1,875 1,868 2,085
Natural Gas Sales (MMCFPD)(1) 3,588 2,815 2,598
Natural Gas Liquids Sales (MBPD)(1) 187 213 215
Revenues from Net Production
Crude Oil ($/Bbl) $ 18.80 $ 15.34 $ 13.86
Natural Gas ($/MCF) $ 2.28 $ 1.51 $ 1.77
International Exploration and Production(1)
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 702 651 624
Net Natural Gas
Production (MMCFPD) 584 565 546
Natural Gas Sales (MMCFPD) 778 564 461
Natural Gas Liquids Sales (MBPD) 36 47 34
Revenues from Liftings
Liquids ($/Bbl) $ 19.48 $ 16.10 $ 14.86
Natural Gas ($/MCF) $ 1.86 $ 1.73 $ 1.84
U.S. Refining and Marketing
Gasoline Sales (MBPD) 556 552 615
Other Refined Products Sales (MBPD) 566 565 699
Refinery Input (MBPD) 951 925 1,213
Average Refined Products
Sales Price ($/Bbl) $ 29.94 $ 26.19 $ 24.37
International Refining and Marketing(1)
Refined Products Sales (MBPD) 944 969 934
Refinery Input (MBPD) 537 598 623
FS-10
<PAGE>
Chemicals Sales and Other Operating Revenues(2)
United States $ 2,936 $ 3,332 $ 2,801
International 605 621 561
- ----------------------------------------------------------------------------
Worldwide $ 3,541 $ 3,953 $ 3,362
- ----------------------------------------------------------------------------
MBPD = Thousands of barrels per day; MMCFPD = Millions of cubic feet per day;
Bbl = Barrel; MCF = Thousands of cubic feet.
(1) Includes equity in affiliates.
(2) Millions of dollars. Includes sales to other Chevron companies.
U.S. refining and marketing earnings, excluding special items, were nearly four
times greater than 1995 levels, but were still down 11 percent from 1994
results. Although much improved from 1995, U.S. downstream results were
depressed in 1996 by competitive conditions in many of the company's markets
that did not allow the full recovery of higher crude oil costs and, in
California, the increased manufacturing cost of the mandated cleaner-burning
gasolines. Market conditions were especially difficult late in the year when
crude oil prices rose to their highest level since the 1991 Persian Gulf War,
and price competition was especially strong in the major Los Angeles market.
Refinery performance was improved from 1995, and the introduction of the new
California reformulated gasolines went smoothly with no supply disruptions.
Extensive scheduled and unscheduled refinery maintenance in 1995, coupled with
weak industry refining margins, resulted in significantly reduced operating
earnings compared with 1994. In addition, the Richmond, California, refinery
was shut down for an extended period in the 1995 fourth quarter for upgrades
required to produce California-mandated cleaner-burning gasolines.
U.S. Refining and Marketing
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 290 $ 75 $ 325
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - - -
Other (48) (112) -
Asset Dispositions 4 - -
Environmental Remediation Provisions (29) (62) (249)
Restructurings and Reorganizations (1) (7) (39)
LIFO Inventory Gains 2 2 3
Other (25) - -
- ----------------------------------------------------------------------------
Total Special Items (97) (179) (285)
- ----------------------------------------------------------------------------
Reported Earnings (Loss) $ 193 $ (104) $ 40
- ----------------------------------------------------------------------------
Average refined products prices were higher in 1996 compared with 1995 and
1994, primarily reflecting the increase in crude oil feedstock and
manufacturing costs, but margins continued to be weak as industry refined
products availability remained ample. Margins were even worse in 1995 when poor
industry refining margins combined with higher maintenance expenses caused by
extensive refinery downtime. The downtime also required more expensive third-
party product purchases to supply the company's marketing system.
Refined product sales volumes in 1996 and 1995 averaged 1.12 million barrels
per day, down about 15 percent from 1994 levels, largely due to the sales of
the company's Philadelphia Refinery in August 1994 and its Port Arthur, Texas,
refinery in February 1995 in connection with a major restructuring of U.S.
refining and marketing operations. The volume declines in 1996 and 1995
occurred primarily in unbranded bulk sales, whereas volumes sold through the
company's marketing system increased 2 percent in 1996 from 1995 and 1994
levels.
International refining and marketing earnings include international marine
operations and equity earnings of the company's Caltex Petroleum Corporation
affiliate in addition to earnings from its consolidated refining and marketing
subsidiaries. Excluding special items, 1996 earnings of $167 million decreased
41 percent from 1995 levels and 33 percent from 1994. The 1996 earnings decline
from the two prior periods was due primarily to poor refining margins
throughout Caltex's major operating areas in the Asia-Pacific region. The
improved results
FS-11
<PAGE>
for 1995, compared with 1994, reflected higher ocean freightrates and lower
operating expenses in the company's shipping operations from 1994 levels.
Results in all three years reflected weak industry conditions thatheld down
product prices, resulting in shrinking sales margins in the company's
major areas of operations, particularly in the United Kingdom.
International Refining and Marketing
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 167 $ 283 $ 249
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - - -
Other (200) (1) -
Asset Dispositions 279 - -
Environmental Remediation Provisions (15) - -
Restructurings and Reorganizations 1 (17) -
LIFO Inventory Losses (6) - (10)
Other - 80 -
- ----------------------------------------------------------------------------
Total Special Items 59 62 (10)
- ----------------------------------------------------------------------------
Reported Earnings $ 226 $ 345 $ 239
- ----------------------------------------------------------------------------
International refined products sales volumes decreased 3 percent in 1996 after
increasing in each of the preceding six years. Caltex's sale of its interest in
two Japanese refineries in early 1996 was the primary reason for the decline in
sales volumes. Caltex refined products sales volumes, excluding transactions
with Chevron, decreased 10 percent to 1.20 million barrels per day in 1996,
compared with 1.33 million in 1995, and decreased 3 percent from 1.24 million
barrels per day in 1994.
Equity earnings of Caltex were $408 million, $294 million and $210 million for
1996, 1995 and 1994, respectively. In 1996, Chevron's share of Caltex earnings
included a $279 million benefit related to the sale of its interest in two
Japanese refineries. Caltex earnings in 1995 included $13 million of favorable
foreign tax benefits and an $86 million benefit from a gain related to a land
sale by a Caltex affiliate in Japan. These gains were offset partially by other
special items netting to $18 million related to Caltex restructurings and asset
write-offs. Chevron's share of Caltex earnings benefited $2 million, $13
million and $15 million in 1996, 1995 and 1994, respectively, from upward
adjustments to the carrying value of its petroleum inventories to reflect
market values. Caltex foreign currency transactions resulted in losses of $24
million and $27 million in 1996 and 1994, respectively, and gains of $26
million in 1995.
Overall, international refining and marketing foreign currency transactions
resulted in losses of $17 million and $19 million in 1996 and 1994,
respectively, and gains of $19 million in 1995.
Chemicals earnings, excluding special items, were $228 million, down 56 percent
from record 1995 results of $524 million, but up from $215 million earned in
1994. A cyclical downturn in the chemicals industry caused the 1996 earnings
decline. Although sales volumes remained strong for most of the year, lower
prices and higher feedstock and fuel costs resulted in lower margins for most
of the company's major chemical products.
FS-12
<PAGE>
Chemicals
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 228 $ 524 $ 215
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - (13) -
Other (12) (14) -
Asset Dispositions - 9 -
Environmental Remediation Provisions - (20) (4)
Restructurings and Reorganizations - (3) (6)
LIFO Inventory Gains - 1 1
Other (16) - -
- ----------------------------------------------------------------------------
Total Special Items (28) (40) (9)
- ----------------------------------------------------------------------------
Reported Earnings $ 200 $ 484 $ 206
- ----------------------------------------------------------------------------
Coal and other minerals earnings, excluding special items, were about flat at
$48 million, compared with $47 million in 1995, but down 24 percent from 1994
results. Coal earnings were depressed in 1996 and 1995 from an abundance of
low-cost hydroelectric power in the western United States, resulting in low
coal demand and low prices in both years compared with 1994. Sales, at about 16
million tons, were down 6 percent from 17 million tons in 1995 and down 20
percent from 20 million tons in 1994.
Coal and Other Minerals
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Earnings, Excluding Special Items $ 48 $ 47 $ 63
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - (63) -
Asset Dispositions - - 48
Restructurings and Reorganizations (2) (2) -
- ----------------------------------------------------------------------------
Total Special Items (2) (65) 48
- ----------------------------------------------------------------------------
Reported Earnings (Loss) $ 46 $ (18) $ 111
- ----------------------------------------------------------------------------
Corporate and other activities include interest expense, interest income on
cash and marketable securities, real estate and insurance operations, and
corporate center costs. Corporate and other net operating charges, excluding
special items, were about flat with 1995 as foreign currency gains and lower
interest expense offset higher insurance reserve adjustments and accruals for
performance-based employee compensation costs. Corporate and other costs
increased in 1995 from 1994 levels as higher interest rates and lower earnings
from real estate operations more than offset lower corporate overhead expenses.
Interest expense was lower in 1996 than 1995 and about level with 1994. The
primary reason for the interest expense decline between 1996 and 1995 was the
decrease in debt levels between the two years, while 1995 had higher debt
levels and higher interest rates than 1994.
Corporate and Other
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------
Charges, Excluding Special Items $ (333) $ (330) $ (284)
- ----------------------------------------------------------------------------
Asset Write-Offs and Revaluations
New Accounting Standard - (12) -
Other (41) (170) -
Prior-Year Tax Adjustments 52 - 324
Restructurings and Reorganizations (8) (11) -
Other (26) (16) -
- ----------------------------------------------------------------------------
Total Special Items (23) (209) 324
- ----------------------------------------------------------------------------
Reported (Loss) Earnings $ (356) $ (539) $ 40
- ----------------------------------------------------------------------------
FS-13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. Cash, cash equivalents and marketable
securities totaled $1.637 billion at year-end 1996, an increase of $243 million
from year-end 1995. Cash provided by operating activities in 1996 was $5.797
billion, compared with $4.075 billion in 1995 and $2.896 billion in 1994. The
1996 increase reflected higher operating earnings, higher cash dividends from
affiliated companies and lower working capital requirements. Cash from
operations was more than adequate to fund the company's capital expenditures
and dividend payments to stockholders and, together with proceeds from asset
sales, enabled the company to reduce its debt level.
The company's debt and capital lease obligations totaled $6.694 billion at
December 31, 1996, down $1.633 billion from $8.327 billion at year-end 1995.
Significant debt transactions included the repayment of approximately $1.179
billion of short-term obligations, mostly commercial paper, and the early
repayment in June 1996 of $280 million of 9.375 percent coupon debt due June 1,
2016. Other miscellaneous transactions reduced long-term debt and capital
leases about $150 million.
In 1996, Chevron formed a federally chartered credit card bank, which is
primarily responsible for issuing credit to the company's retail customers in
the form of branded credit cards. As part of its activities, the bank sells
substantially all of its receivables on a daily basis to a trust. In late 1996,
$524 million of credit card receivables were sold to the trust, and most of the
proceeds were used to reduce commercial paper borrowings.
The company's senior debt is rated AA by Standard & Poor's Corporation and Aa2
by Moody's Investors Service. Chevron's U.S. commercial paper is rated A-1+ by
Standard & Poor's and Prime-1 by Moody's, and Chevron's Canadian commercial
paper is rated R-1 (middle) by Dominion Bond Rating Service. Moody's
counterparty rating for Chevron is also Aa2. All these ratings denote high-
quality, investment-grade securities.
The company's future debt level is dependent primarily on its capital spending
program and its business outlook. The company currently expects its debt level
to increase during 1997 and believes it has substantial borrowing capacity to
meet unanticipated cash requirements.
On December 31, 1996, Chevron had $4.425 billion in committed credit facilities
with various major banks. These facilities support commercial paper borrowing
and also can be used for general credit requirements. No borrowings were
outstanding under these facilities during the year or at year-end 1996. In
addition, Chevron and one of its subsidiaries each have existing "shelf"
registrations on file with the Securities and Exchange Commission that together
would permit registered offerings of up to $1.3 billion of debt securities.
At year-end 1996, the company classified $1.8 billion of short-term obligations
as long-term debt. Settlement of these obligations, consisting of commercial
paper, is not expected to require the use of working capital in 1997 because
the company has the intent and the ability, as evidenced by committed credit
arrangements, to refinance them on a long-term basis. The company's practice
has been to continually refinance its commercial paper, maintaining levels it
believes to be appropriate.
FINANCIAL RATIOS. The current ratio is the ratio of current assets to current
liabilities at year-end. Two items negatively affect Chevron's current ratio,
which in the company's opinion do not affect its liquidity. Included in current
assets in all years are inventories valued on a LIFO basis, which at year-end
1996 were lower than current costs by $1.1 billion.
Financial Ratios
1996 1995 1994
- ----------------------------------------------------------------------------
Current Ratio 0.9 0.8 0.8
Interest Coverage Ratio 10.9 4.1 7.6
Total Debt/Total Debt Plus Equity (Percent) 30.0 36.7 35.8
Also, the company's practice of continually refinancing its commercial paper,
$3.6 billion classified as short-term at year-end 1996, results in a large
portion of its short-term debt being outstanding indefinitely. The interest
coverage ratio is defined as income before income tax expense, plus interest
and debt expense and amortization of capitalized interest,
FS-14
<PAGE>
divided by before-
tax interest costs. Chevron's interest coverage ratio improved significantly
in 1996 due to higher before-tax income and lower interest expense. The
company's debt ratio (total debt to total debt plus equity) decreased in 1996,
as total debt decreased and stockholders' equity increased year to year, due
to significantly higher netincome and cash flows.
CAPITAL AND EXPLORATORY EXPENDITURES. World-wide capital and exploratory
expenditures for 1996 totaled $4.840 billion, including the company's equity
share of affiliates' expenditures. Expenditures for exploration and production
accounted for 62 percent of total outlays in 1996, compared with 57 percent in
1995 and 1994. International exploration and production spending was 61 percent
of worldwide exploration and production expenditures in 1996, down from 68
percent in 1995 and 71 percent in 1994, reflecting the company's efforts to
stabilize U.S. production while continuing its focus on international
exploration and production activities.
The company projects 1997 capital and exploratory expenditures at a record $5.9
billion, including Chevron's share of spending by affiliates. This is up about
22 percent from 1996 spending levels. The 1997 program provides $3.6 billion
for exploration and production investments, of which about 64 percent is for
international projects. Several long-term development projects in the Gulf of
Mexico designed to stabilize U.S. oil and gas production account for a major
portion of the projected $1.3 billion to be spent in U.S. exploration and
production.
Refining, marketing and transportation expenditures are estimated at about $1.4
billion, with $800 million of that planned for international projects. With the
completion of the company's U.S. refinery upgrade projects to produce
California-mandated gasolines, a majority of the $600 million in the 1997 U.S.
downstream capital program will be spent for marketing projects. Most of the
international downstream capital program will be focused on high-growth Asia-
Pacific countries where the company's Caltex affiliate has a major program
under way to upgrade its retail marketing system. The company plans to invest
$700 million in the worldwide chemicals business, up about 40 percent from 1996
spending.
<TABLE>
<CAPTION>
Capital and Exploratory Expenditures
1996 1995 1994
------------------------ ---------------------- ------------------------
Inter- Inter- Inter-
Millions of dollars U.S. national Total U.S. national Total U.S. national Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploration and Production $1,168 $1,854 $3,022 $ 879 $1,835 $2,714 $ 807 $1,931 $2,738
Refining, Marketing
and Transportation 429 781 1,210 892 839 1,731 885 890 1,775
Chemicals 377 120 497 172 32 204 109 29 138
Coal and Other Minerals 31 10 41 40 1 41 39 15 54
All Other 70 - 70 110 - 110 114 - 114
- ----------------------------------------------------------------------------------------------------
Total $2,075 $2,765 $4,840 $2,093 $2,707 $4,800 $1,954 $2,865 $4,819
- ----------------------------------------------------------------------------------------------------
Total, Excluding Equity
in Affiliates $2,037 $1,820 $3,857 $2,080 $1,808 $3,888 $1,927 $2,046 $3,973
- ----------------------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements relating to Chevron's
operations that are based on management's current expectations, estimates and
projections about the petroleum and chemicals industries. Words such as
expects," "intends," "plans," "projects," "believes," "estimates" and similar
expressions are used to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecast
in such forward-looking statements.
Among the factors that could cause actual results to differ materially are
crude oil and natural gas prices; refining margins and marketing margins;
chemicals prices and competitive conditions affecting supply and demand for the
company's aromatics, olefins and additives products; potential failure to
achieve expected production from existing and future oil and gas development
projects; potential disruption or interruption of the company's production or
manufacturing facilities due to accidents or political events; potential
liability for remedial actions under existing or future environmental
regulations; and potential liability resulting from pending or future
litigation. In addition, such statements could be affected by general domestic
and international economic and political conditions.
FS-15
<PAGE>
QUARTERLY RESULTS AND STOCK MARKET DATA
Unaudited
<TABLE>
<CAPTION>
1996 1995
Millions of dollars ---------------------------------- ---------------------------------
except per-share amounts 4TH Q 3RD Q 2ND Q 1ST Q 4TH Q 3RD Q 2ND Q 1ST Q
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Sales and other
operating revenues $11,265 $10,846 $10,514 $10,157 $8,922 $9,171 $9,397 $8,820
Equity in net income of
affiliated companies and
other income 246 203 483 179 235 143 170 224
- ------------------------------------------------------------------------------------------------------
TOTAL REVENUES 11,511 11,049 10,997 10,336 9,157 9,314 9,567 9,044
- ------------------------------------------------------------------------------------------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products,
operating and other expenses 8,288 7,654 7,516 7,207 6,606 6,527 6,375 6,255
Depreciation, depletion and
amortization(1) 603 558 524 531 1,679 560 566 576
Taxes other than on income 1,550 1,493 1,452 1,413 1,483 1,475 1,417 1,373
Interest and debt expense 90 93 85 96 94 93 104 110
- ------------------------------------------------------------------------------------------------------
TOTAL COSTS AND OTHER
DEDUCTIONS 10,531 9,798 9,577 9,247 9,862 8,655 8,462 8,314
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE 980 1,251 1,420 1,089 (705) 659 1,105 730
INCOME TAX EXPENSE 516 596 548 473 (287) 377 498 271
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)(2) $ 464 $ 655 $ 872 $ 616 $(418) $ 282 $ 607 $ 459
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
PER SHARE $ 0.71 $ 1.00 $ 1.34 $ 0.94 $(0.64) $ 0.44 $ 0.93 $ 0.70
- ------------------------------------------------------------------------------------------------------
DIVIDENDS PAID PER SHARE $ 0.54 $ 0.54 $ 0.50 $ 0.50 $0.50 $ 0.50 $0.4625 $0.4625
- ------------------------------------------------------------------------------------------------------
COMMON STOCK RANGE- High $68 3/8 $63 3/8 $62 1/8 $58 7/8 $53 5/8 $50 3/8 $49 3/4 $48 1/2
- Low $60 1/4 $55 7/8 $54 1/2 $51 $46 1/8 $46 5/8 $44 1/4 $43 3/8
- ------------------------------------------------------------------------------------------------------
(1) Fourth quarter 1995 includes $985 from the adoption of SFAS No. 121.
(2) Special (charges) credits included in Net Income,
including a $659 charge for the adoption of a new
accounting standard, SFAS No. 121, in the
fourth quarter of 1995. $ (221) $ 5 $ 172 $ - $ (869) $ (222) $ (4) $ 63
- ------------------------------------------------------------------------------------------------------
The company's common stock is listed on the New York stock exchange (trading
symbol: CHV), as well as on the Chicago, Pacific, London and Swiss stock
exchanges. It also is traded on the Boston, Cincinnati, Detroit and
Philadelphia stock exchanges. As of February 21,1997, stockholders of record
numbered approximately 129,200.
There are no restrictions on the company's ability to pay dividends. Chevron
has made dividend payments to stockholders for 85 consecutive years.
- ------------------------------------------------------------------------------------------------------
</TABLE>
REPORT OF MANAGEMENT
TO THE STOCKHOLDERS OF CHEVRON CORPORATION
Management of Chevron is responsible for preparing the accompanying
financial statements and for assuring their integrity and objectivity. The
statements were prepared in accordance with generally accepted accounting
principles and fairly represent the transactions and financial position of the
company. The financial statements include amounts that are based on
management's best estimates and judgments.
The company's statements have been audited by Price Waterhouse LLP, independent
accountants, selected by the Audit Committee and approved by the stockholders.
Management has made available to Price Waterhouse LLP all the company's
financial records and related data, as well as the minutes of stockholders' and
directors' meetings.
Management of the company has established and maintains a system of internal
accounting controls that is designed to provide reasonable assurance that
assets are safeguarded, transactions are properly recorded and executed in
accordance with management's authorization, and the books and records
accurately reflect the disposition of assets. The system of internal controls
includes appropriate division of responsibility. The company maintains an
internal audit department that conducts an extensive program of internal audits
and independently assesses the effectiveness of the internal controls.
The Audit Committee is composed of directors who are not officers or employees
of the company. It meets regularly with members of management, the internal
auditors and the independent accountants to discuss the adequacy of the
company's internal controls, financial statements and the nature, extent and
results of the audit effort. Both the internal auditors and the independent
accountants have free and direct access to the Audit Committee without the
presence of management.
/s/Kenneth T. Derr /s/Martin R. Klitten /s/Stephen J. Crowe
Kenneth T. Derr Martin R. Klitten Stephen J. Crowe
Chairman of the Board Vice President Comptroller
and Chief Executive Officer and Chief Financial Officer
February 21, 1997
FS-16
<PAGE>
Consolidated Statement of Income
Year ended December 31
-----------------------------------
Millions of dollars,
except per-share amounts 1996 1995 1994
- -----------------------------------------------------------------------------
REVENUES
Sales and other operating revenues* $42,782 $36,310 $35,130
Equity in net income of
affiliated companies 767 553 440
Other income 344 219 284
- -----------------------------------------------------------------------------
TOTAL REVENUES 43,893 37,082 35,854
- -----------------------------------------------------------------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products 22,826 18,033 16,990
Operating expenses 6,007 5,974 6,383
Selling, general and
administrative expenses 1,377 1,384 963
Exploration expenses 455 372 379
Depreciation, depletion and amortization 2,216 3,381 2,431
Taxes other than on income* 5,908 5,748 5,559
Interest and debt expense 364 401 346
- -----------------------------------------------------------------------------
TOTAL COSTS AND OTHER DEDUCTIONS 39,153 35,293 33,051
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 4,740 1,789 2,803
INCOME TAX EXPENSE 2,133 859 1,110
- -----------------------------------------------------------------------------
NET INCOME $ 2,607 $ 930 $ 1,693
- -----------------------------------------------------------------------------
NET INCOME PER SHARE OF COMMON STOCK $3.99 $1.43 $2.60
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 652,769,250 652,083,804 651,672,238
- -----------------------------------------------------------------------------
*Includes consumer excise taxes. $5,202 $4,988 $4,790
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS
AND THE BOARD OF DIRECTORS OF CHEVRON CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income,stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Chevron Corporation
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, effective
October 1, 1995, the company changed its method of accounting for the
impairment of long-lived assets to comply with the provisions of Statement of
Financial Accounting Standards No. 121.
/s/PRICE WATERHOUSE LLP
San Francisco, California
February 21, 1997
FS-17
<PAGE>
Consolidated Balance Sheet
At December 31
-----------------
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 892 $ 621
Marketable securities 745 773
Accounts and notes receivable
(less allowance: 1996 - $71; 1995 - $69) 4,035 4,014
Inventories:
Crude oil and petroleum products 669 822
Chemicals 507 487
Materials, supplies and other 255 289
-----------------
1,431 1,598
Prepaid expenses and other current assets 839 861
- ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,942 7,867
Long-term receivables 261 149
Investments and advances 4,463 4,087
Properties, plant and equipment, at cost 46,936 48,031
Less: accumulated depreciation, depletion and amortization 25,440 26,335
-----------------
21,496 21,696
Deferred charges and other assets 692 531
- ------------------------------------------------------------------------------
TOTAL ASSETS $34,854 $34,330
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 2,706 $ 3,806
Accounts payable 3,502 3,294
Accrued liabilities 1,420 1,257
Federal and other taxes on income 745 558
Other taxes payable 534 530
- ------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,907 9,445
Long-term debt 3,650 4,133
Capital lease obligations 338 388
Deferred credits and other non-current obligations 1,858 1,992
Non-current deferred income taxes 2,851 2,433
Reserves for employee benefit plans 1,627 1,584
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 19,231 19,975
- ------------------------------------------------------------------------------
Preferred stock (authorized 100,000,000 shares,
$1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 1,874 1,863
Deferred compensation - Employee Stock Ownership Plan (ESOP) (800) (850)
Currency translation adjustment and other 96 174
Retained earnings 15,408 14,146
Treasury stock, at cost (1996 - 59,401,015 shares;
1995 - 60,160,057 shares) (2,024) (2,047)
- ------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 15,623 14,355
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,854 $34,330
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
FS-18
<PAGE>
Consolidated Statement of Cash Flows
Year ended December 31
-----------------------------------
Millions of dollars, 1996 1995 1994
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,607 $ 930 $ 1,693
Adjustments
Depreciation, depletion
and amortization 2,216 3,381 2,431
Dry hole expense related to
prior years' expenditures 55 19 53
Distributions greater than
(less than) equity in
affiliates' income 61 (132) (55)
Net before-tax losses (gains) on
asset retirements and sales 207 164 (83)
Net foreign exchange (gains) losses (10) 47 40
Deferred income tax provision 359 (258) 110
Net decrease (increase)in operating
working capital(1) 641 40 (1,773)
Other (339) (116) 480
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES(2) 5,797 4,075 2,896
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (3,424) (3,529) (3,405)
Proceeds from asset sales 778 581 731
Net sales (purchases) of
marketable securities(3) 44 144 (545)
- ------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (2,602) (2,804) (3,219)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (repayments) borrowings of
short-term obligations (1,179) (227) 466
Proceeds from issuance of long-term debt 95 536 436
Repayments of long-term debt and
other financing obligations (476) (103) (588)
Cash dividends paid (1,358) (1,255) (1,206)
Purchases of treasury shares (4) (4) (5)
- ------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (2,922) (1,053) (897)
- ------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (2) (10) (11)
- ------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 271 208 (1,231)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 621 413 1,644
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR-END $ 892 $ 621 $ 413
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- ------------------------------------------------------------------------------
(1) The "Net decrease (increase) in operating working capital" is composed of
the following:
Decrease (increase) in accounts
and notes receivable $ 30 $ (62) $ (44)
Decrease (increase) in inventories 60 (162) (57)
Decrease (increase) in prepaid
expenses and other current assets 15 (148) 4
Increase (decrease) in accounts
payable and accrued liabilities 369 428 (1,510)
Increase (decrease) in income and
other taxes payable 167 (16) (166)
- ------------------------------------------------------------------------------
Net decrease (increase) in
operating working capital $ 641 $ 40 $(1,773)
- ------------------------------------------------------------------------------
(2) "Net cash provided by operating activities" includes the following cash
payments for interest and income taxes:
Interest paid on debt (net of
capitalized interest) $ 361 $ 373 $ 339
Income taxes paid $ 1,595 $ 1,176 $ 1,147
- ------------------------------------------------------------------------------
(3) "Net sales (purchases) of marketable securities" consists of the following
gross amounts:
Marketable securities purchased $(3,443) $(2,759) $(1,943)
Marketable securities sold 3,487 2,903 1,398
- ------------------------------------------------------------------------------
Net sales (purchases) of
marketable securities $ 44 $ 144 $ (545)
- ------------------------------------------------------------------------------
FS-19
<PAGE>
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Number of shares Millions of dollars
------------------------ -------------------------------------------------------------------
CURRENCY
COMMON COMMON CAPITAL IN DEFERRED TRANSLATION
STOCK STOCK IN COMMON EXCESS OF COMPENSA- ADJUSTMENT RETAINED TREASURY
ISSUED TREASURY STOCK PAR VALUE TION-ESOP AND OTHER EARNINGS STOCK
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1994 712,487,068 (61,008,858) $1,069 $1,855 $(920) $108 $13,955 $(2,070)
Net income - - - - - - 1,693 -
Cash dividends -
$1.85 per share - - - - - - (1,206) -
Tax benefit from
dividends paid on
unallocated ESOP shares - - - - - - 15 -
Market value adjustments
on investments - - - - - 11 - -
Foreign currency
translation adjustment - - - - - 72 - -
Pension plan minimum
liability - - - - - (16) - -
ESOP expense accrual
adjustment - - - - (20) - - -
Reduction of ESOP debt - - - - 40 - - -
Purchase of treasury
shares - (108,964) - - - - - (5)
Reissuance of treasury
shares - 381,387 - 3 - - - 12
- ----------------------------------------------------- -------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994 712,487,068 (60,736,435) $1,069 $1,858 $(900) $175 $14,457 $(2,063)
Net income - - - - - - 930 -
Cash dividends -
$1.925 per share - - - - - - (1,255) -
Tax benefit from
dividends paid on
unallocated ESOP shares - - - - - - 14 -
Market value adjustments
on investments - - - - - 23 - -
Foreign currency
translation adjustment - - - - - (28) - -
Pension plan
minimum liability - - - - - 4 - -
Reduction of ESOP debt - - - - 50 - - -
Purchase of treasury
shares - (83,028) - - - - - (4)
Reissuance of treasury
shares - 659,406 - 5 - - - 20
- ----------------------------------------------------- -------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 712,487,068 (60,160,057) $1,069 $1,863 $(850) $174 $14,146 $(2,047)
Net income - - - - - - 2,607 -
Cash dividends -
$2.08 per share - - - - - - (1,358) -
Tax benefit from
dividends paid on
unallocated ESOP shares - - - - - - 13 -
Market value adjustments
on investments - - - - - (20) - -
Foreign currency
translation adjustment - - - - - (54) - -
Pension plan
minimum liability - - - - - (4) - -
Reduction of ESOP debt - - - - 50 - - -
Purchase of treasury
shares - (69,278) - - - - - (4)
Reissuance of treasury
shares - 828,320 - 11 - - - 27
- ----------------------------------------------------- -------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 712,487,068 (59,401,015) $1,069 $1,874 $(800) $ 96 $15,408 $(2,024)
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
FS-20
<PAGE>
Notes to Consolidated Financial Statements
Millions of dollars, except per-share amounts
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Chevron Corporation is an
international company that, through its subsidiaries and affiliates, engages
in fully integrated petroleum operations, chemical operations and coal mining
in the United States and approximately 90 other countries. Petroleum operations
consist of exploring for, developing and producing crude oil and natural gas;
transporting crude oil, natural gas and products by pipelines, marine vessels
and motor equipment; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and refined petroleum products. Chemicals
operations include the manufacture and marketing of a wide range of chemicals
for industrial uses.
In preparing its consolidated financial statements, the company follows
accounting policies that are in accordance with generally accepted accounting
principles in the United States. This requires the use of estimates and
assumptions that affect the assets and liabilities and the revenues and
expenses reported in the financial statements, as well as amounts included in
the notes thereto, including discussion and disclosure of contingent
liabilities. While the company uses its best estimates and judgments, actual
results could differ from these estimates as future confirming events occur.
The nature of the company's operations and the many countries in which it
operates subject it to changing economic, regulatory and political conditions.
Also, the company imports crude oil for its U.S. refining operations. The
company does not believe it is vulnerable to the risk of a near-term severe
impact as a result of any concentration of its activities.
Subsidiary and Affiliated Companies The consolidated financial statements
- -----------------------------------
include the accounts of subsidiary companies more than 50 percent-owned.
Investments in and advances to affiliates in which the company has a
substantial ownership interest of approximately 20 to 50 percent, or for which
the company exercises significant influence in policy decisions, are accounted
for by the equity method. Under this accounting, remaining unamortized cost is
increased or decreased by the company's share of earnings or losses after
dividends.
Oil and Gas Accounting The successful efforts method of accounting is used for
- ----------------------
oil and gas exploration and production activities.
Derivatives Gains and losses on hedges of existing assets or liabilities are
- -----------
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments or anticipated
transactions also are deferred and are recognized in income or as adjustments
of carrying amounts when the underlying hedged transaction occurs. If,
subsequent to being hedged, underlying transactions are no longer likely to
occur, the related derivatives gains and losses are recognized currently in
income. Gains and losses on derivatives contracts that do not qualify as hedges
are recognized currently in "Other income."
Short-term Investments All short-term investments are classified as available
- ----------------------
for sale and are in highly liquid debt securities. Those investments that are
part of the company's cash management portfolio with original maturities of
three months or less are reported as cash equivalents. The balance of the
short-term investments is reported as "Marketable securities."
Inventories Crude oil, petroleum products and chemicals are stated at cost,
- -----------
using a Last-In, First-Out (LIFO) method. In the aggregate, these costs are
below market. Materials, supplies and other inventories generally are stated
at average cost.
Properties, Plant and Equipment All costs for development wells, related plant
- -------------------------------
and equipment (including carbon dioxide and certain other injected materials
used in enhanced recovery projects), and mineral interests in oil and gas
properties are capitalized. Costs of exploratory wells are capitalized pending
determination of whether the wells found proved reserves. Costs of wells that
are assigned proved reserves remain capitalized. All other exploratory wells
and costs are expensed.
Beginning in 1995, long-lived assets, including proved oil and gas properties,
are assessed for possible impairment in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121. Under this
standard, the occurrence of certain events, such as a downward revision to
proved oil and gas reserves, may trigger a review of affected assets for
possible impairment. For proved oil and gas properties, the company would
typically perform the review on an individual field basis. Impairment amounts
are recorded as incremental depreciation expense in the period in which the
specific event occurred.
Prior to the adoption of SFAS No. 121, proved oil and gas properties were
regularly assessed for possible impairment on an aggregate worldwide portfolio
basis, applying the informal "ceiling test" of the Securities and Exchange
Commission.
Depreciation and depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas producing
properties, except mineral interests, are expensed using the unit-of-production
method by individual fields as the proved developed reserves are produced.
Depletion expenses for capitalized costs of proved mineral interests are
recognized using the unit-of-production method by individual fields as the
related proved reserves are produced. Periodic valuation provisions for
impairment of capitalized costs of unproved mineral interests are expensed.
Depreciation and depletion expenses for coal are determined using the unit-of-
production method as the proved reserves are produced. The capitalized costs of
all other plant and equipment are depreciated or amortized over estimated
useful lives. In general, the declining-balance method is used to depreciate
plant and equipment in the United States; the straight-line method generally is
used to depreciate international plant and equipment and to amortize all
capitalized leased assets.
FS-21
<PAGE>
Gains or losses are not recognized for normal retirements of properties, plant
and equipment subject to composite group amortization or depreciation. Gains or
losses from abnormal retirements or sales are included in income.
Expenditures for maintenance, repairs and minor renewals to maintain facilities
in operating condition are expensed. Major replacements and renewals are
capitalized.
Environmental Expenditures Environmental expenditures that relate to current
- --------------------------
ongoing operations or to conditions caused by past operations are expensed.
Expenditures that create future benefits or contribute to future revenue
generation are capitalized.
Liabilities related to future remediation costs are recorded when environmental
assessments and/or cleanups are probable, and the costs can be reasonably
estimated. Other than for assessments, the timing and magnitude of these
accruals are generally based on the company's commitment to a formal plan of
action, such as an approved remediation plan or the sale or disposal of an
asset. For the company's U.S. and Canadian marketing facilities, the accrual is
based on the probability that a future remediation commitment will be required.
For oil and gas and coal producing properties, a provision is made through
depreciation expense for anticipated abandonment and restoration costs at the
end of the property's useful life.
For Superfund sites, the company records a liability for its share of costs
when it has been named as a Potentially Responsible Party (PRP) and when an
assessment or cleanup plan has been developed. This liability includes the
company's own portion of the costs and also the company's portion of amounts
for other PRPs when it is probable that they will not be able to pay their
share of the cleanup obligation.
The company records the gross amount of its liability based on its best
estimate of future costs in current dollars and using currently available
technology and applying current regulations as well as the company's own
internal environmental policies. Future amounts are not discounted. Recoveries
or reimbursements are recorded as an asset when receipt is reasonably assured.
Currency Translation The U.S. dollar is the functional currency for the
- --------------------
company's consolidated operations as well as for substantially all operations
of its equity method companies. For those operations, all gains or losses from
currency transactions are currently included in income. The cumulative
translation effects for the few equity affiliates using functional currencies
other than the U.S. dollar are included in the currency translation adjustment
in stockholders' equity.
Taxes Income taxes are accrued for retained earnings of international
- -----
subsidiaries and corporate joint ventures intended to be remitted. Income taxes
are not accrued for unremitted earnings of international operations that have
been, or are intended to be, reinvested indefinitely.
Stock Compensation The company applies Accounting Principles Board (APB)
- ------------------
Opinion No. 25 and related interpretations in accounting for stock options and
presents in Note 18 pro forma net income and earnings per share data as if the
accounting prescribed by SFAS No. 123 had been applied.
NOTE 2. SPECIAL ITEMS AND OTHER FINANCIAL INFORMATION Net income is affected by
transactions that are unrelated to or are not representative of the company's
ongoing operations for the periods presented. These transactions, defined by
management and designated "special items," can obscure the underlying results
of operations for a year as well as affect comparability of results between
years.
Listed below are categories of special items and their net (decrease) increase
to net income, after related tax effects:
Year ended December 31
-----------------------------------
Millions of dollars, 1996 1995 1994
- -----------------------------------------------------------------------------
Asset write-offs and revaluations
U.K. refining and marketing $ (200) $ - $ -
Asset impairments (68) - -
Real estate development assets (29) (168) -
New accounting standard (SFAS No. 121) - (659) -
Adjustment of fixed assets records - (94) -
Refining assets - (38) -
Other (40) (4) -
-----------------------------------
(337) (963) -
- -----------------------------------------------------------------------------
Asset dispositions, net
Caltex sale of two refineries 279 - -
Oil and gas properties 80 6 -
NGC merger 32 - -
Lead and zinc property in Ireland - - 48
Other - 1 -
-----------------------------------
391 7 48
- -----------------------------------------------------------------------------
Environmental remediation provisions (54) (90) (304)
- -----------------------------------------------------------------------------
Prior-year tax adjustments 52 (22) 344
- -----------------------------------------------------------------------------
Restructurings and reorganizations
Work-force reductions (14) (38) -
Caltex - (12) -
U.S. refining, marketing and chemicals - - (45)
-----------------------------------
(14) (50) (45)
- -----------------------------------------------------------------------------
LIFO inventory (losses) gains (4) 2 (10)
- -----------------------------------------------------------------------------
Other, net
Litigation and regulatory issues (90) (23) (31)
Federal lease cost refund 12 27 -
Caltex gain related to land sale - 86 -
Miscellaneous, net - (6) 20
----------------------------------
(78) 84 (11)
- ----------------------------------------------------------------------------
Total special items, after tax $ (44) $(1,032) $ 22
- ----------------------------------------------------------------------------
In 1996, the company recorded a $200 million estimated impairment provision in
connection with its decision to merge its United Kingdom refining and marketing
operations with those of two other oil companies in 1997. This preliminary
estimate is subject to final valuation of the assets. These operations were not
material to Chevron's net income in 1996.
FS-22
<PAGE>
Other financial information is as follows:
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Total financing interest and debt costs $ 472 $ 543 $ 419
Less: capitalized interest 108 142 73
- -----------------------------------------------------------------------------
Interest and debt expense 364 401 346
Research and development expenses 182 185 179
Currency transaction losses* $ (26) $ (15) $ (64)
- -----------------------------------------------------------------------------
*Includes $(28), $25 and $(24) in 1996, 1995 and 1994, respectively, for the
company's share of affiliates' currency transaction effects.
- ----------------------------------------------------------------------------
The excess of current cost (based on average acquisition costs for the year)
over the carrying value of inventories for which the LIFO method is used was
$1,122, $917 and $684 at December 31, 1996, 1995 and 1994, respectively.
NOTE 3. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF" Effective October 1, 1995, the company and its affiliates
adopted SFAS No. 121 issued by the Financial Accounting Standards Board. The
adoption of this standard required non-cash charges to 1995 net income
amounting to $659, or $1.01 per share, after related income tax benefits of
$358, and was mostly related to impairment writedowns of U.S. oil and gas
producing properties.
NOTE 4. INFORMATION RELATING TO THE CONSOLIDATED STATEMENT OF CASH FLOWS The
Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
During 1996, the company merged substantially all of its natural gas liquids
and natural gas marketing businesses with NGC Corporation. The company received
cash, a note and shares of NGC Corporation common stock and participating
preferred stock in exchange for its contribution of net assets to NGC. Only the
cash received is included in the Consolidated Statement of Cash Flows as
"Proceeds from asset sales." An increase in "Investments and advances" from this
merger is considered a non-cash transaction and primarily resulted from the
contribution of properties, plant and equipment.
The company's Employee Stock Ownership Plan (ESOP) repaid $50, $50 and $40 of
matured debt guaranteed by Chevron Corporation in 1996, 1995 and 1994,
respectively. The company reflected this payment as reductions in "Short-term
debt" and in "Deferred compensation - ESOP."
Capital lease arrangements of $282 and $65 in 1995 and 1994, respectively, were
recorded as additions to "Properties, plant and equipment" and "Capital lease
obligations."
There have been other non-cash transactions that have occurred during the years
presented. These include the acquisition of long-term debt in exchange for the
termination of a capital lease obligation; the reissuance of treasury shares
for management compensation plans; and changes in assets, liabilities and
stockholders' equity resulting from the accounting for the company's ESOP,
minimum pension liability and market value adjustments on investments.
The amounts for these transactions are not material in the aggregate in
relation to the company's financial position.
The major components of "Capital expenditures,"
and the reconciliation of this amount to the capital and exploratory
expenditures, excluding equity in affiliates, presented in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
presented below:
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Additions to properties,
plant and equipment* $ 3,250 $ 3,611 $ 3,112
Additions to investments 195 44 284
Payments for other (liabilities)
and assets, net (21) (126) 9
- -----------------------------------------------------------------------------
Capital expenditures 3,424 3,529 3,405
Expensed exploration expenditures 400 354 326
Payments of long-term debt
and other financing obligations 33 5 242
- -----------------------------------------------------------------------------
Capital and exploratory expenditures,
excluding equity companies $ 3,857 $ 3,888 $ 3,973
- -----------------------------------------------------------------------------
*Excludes non-cash capital lease additions of $282 and $65 in 1995 and 1994,
respectively.
- -----------------------------------------------------------------------------
NOTE 5. STOCKHOLDERS' EQUITY Retained earnings at December 31, 1996 and 1995,
include $2,357 and $2,363, respectively, for the company's share of
undistributed earnings of equity affiliates.
In 1988, the company declared a dividend distribution of one Right for each
outstanding share of common stock. The Rights will be exercisable, unless
redeemed earlier by the company, if a person or group acquires, or obtains the
right to acquire, 10 percent or more of the outstanding shares of common stock
or commences a tender or exchange offer that would result in acquiring 10
percent or more of the outstanding shares of common stock, either event
occurring without the prior consent of the company. Each Right entitles its
holder to purchase stock having a value equal to two times the exercise price
of the Right. The person or group who had acquired 10 percent or more of the
outstanding shares of common stock without the prior consent of the company
would not be entitled to this purchase opportunity.
The Rights will expire in November 1998, or they may be redeemed by the company
at 5 cents per share prior to that date. The Rights do not have voting or
dividend rights and, until they become exercisable, have no dilutive effect on
the earnings of the company. Twenty million shares of the company's preferred
stock have been designated Series A participating preferred stock and reserved
for issuance upon exercise of the Rights.
No event during 1996 made the Rights exercisable.
NOTE 6. FINANCIAL AND DERIVATIVE INSTRUMENTS
Off-Balance-Sheet Risk The company utilizes a variety of derivative
- ----------------------
instruments, both financial and commodity based, as hedges to manage a small
portion of its exposure to price volatility stemming from its integrated
petroleum activities. Relatively straightforward and involving little
complexity, the
FS-23
<PAGE>
derivative instruments used consist mainly of crude oil and
natural gas futures contracts traded on the New York Mercantile Exchange and
the International Petroleum Exchange, and of natural gas swap contracts,
entered into principally with major financial institutions. The futures
contracts hedge anticipated crude oil and natural gas purchases and sales,
generally forecast to occur within a 60- to 90-day period. Natural gas swaps
are used primarily to hedge firmly committed sales, and the terms of the swap
contracts held at year-end 1996 have an average remaining maturity of 59
months. Gains and losses on these derivative instruments offset and are
recognized concurrently with gains and losses from the underlying commodities.
In 1996, activity relating to hedging natural gas declined substantially
following the merger of the company's U.S. natural gas liquids and natural gas
marketing businesses with NGC Corporation.
In addition, the company in 1996 entered into a managed program utilizing
natural gas options contracts to take advantage of perceived opportunities for
favorable price movements in this commodity. The results of this program are
reflected currently in income and were not material in 1996.
The company enters into forward exchange contracts, generally with terms of 90
days or less, as a hedge against some of its foreign currency exposures,
primarily anticipated purchase transactions forecast to occur within 90 days.
The company enters into interest rate swaps as part of its overall strategy to
manage the interest rate risk on its debt. Under the terms of the swaps, net
cash settlements, based on the difference between fixed-rate and floating-rate
interest amounts calculated by reference to agreed notional principal amounts,
are made either semiannually or annually, and are recorded monthly as "Interest
and debt expense." At December 31, 1996, seven such contracts have remaining
terms of between three months and nine years.
Concentrations of Credit Risk The company's financial instruments that are
- -----------------------------
exposed to concentrations of credit risk consist primarily of its cash
equivalents, marketable securities, derivative financial instruments and trade
receivables.
The company's short-term investments are placed with various foreign
governments and a wide array of financial institutions with high credit
ratings. This diversified investment policy limits the company's exposure both
to credit risk and to concentrations of credit risk. Similar standards of
diversity and creditworthiness are applied to the company's counterparties in
derivative instruments.
The trade receivable balances, reflecting the company's diversified sources of
revenue, are dispersed among the company's broad customer base worldwide. As a
consequence, concentrations of credit risk are limited. The company routinely
assesses the financial strength of its customers. Letters of credit are the
principal security obtained to support lines of credit or negotiated contracts
when the financial strength of a customer is not considered sufficient.
Fair Value Fair values are derived either from quoted market prices where
- ----------
available or, in their absence, the present value of the expected cash flows.
The fair values reflect the cash that would have been received or paid if the
instruments were settled at year-end. At December 31, 1996 and 1995, the fair
values of the financial and derivative instruments were as follows:
Long-term debt of $1,850 and $2,333 had estimated fair values of $1,915 and
$2,492.
The notional principal amounts of the interest rate swaps totaled $1,199 and
$1,223, with approximate fair values totaling $(1) and $(26). The notional
amounts of these and other derivative instruments do not represent assets or
liabilities of the company but, rather, are the basis for the settlements under
the contract terms.
The company holds cash equivalents and U.S. dollar marketable securities in
domestic and offshore portfolios. Eurodollar bonds, floating-rate notes, time
deposits and commercial paper are the primary instruments held. Cash
equivalents and marketable securities had fair values of $1,472 and $1,219. Of
these balances, $727 and $446 classified as cash equivalents had average
maturities under 90 days, while the remainder, classified as marketable
securities, had average maturities of one year.
For other derivatives the contract or notional values for 1996 and 1995 were as
follows: Crude oil and natural gas futures had contract values of $57 and $57,
with fair values of $49 and $57. Forward exchange contracts had contract values
of $231 and $102, approximating their fair values. Gas swap contracts, based on
notional gas volumes of approximately 78 and 180 billion cubic feet, had
negative fair values totaling $(8) and $(33). Deferred gains and losses that
have been accrued on the Consolidated Balance Sheet are not material.
NOTE 7. SUMMARIZED FINANCIAL DATA - CHEVRON U.S.A. INC. At December 31, 1996,
Chevron U.S.A. Inc. was Chevron Corporation's principal operating company,
consisting primarily of the company's U.S. integrated petroleum operations
(excluding most of the domestic pipeline operations). These operations were
conducted by three divisions: Chevron U.S.A. Production Company, Chevron
Products Company and, through August 31, 1996, Warren Petroleum Company.
Beginning September 1, 1996, substantially all of Chevron U.S.A. Inc.'s natural
gas liquids operations previously conducted by Warren Petroleum Company and
natural gas marketing operations previously conducted by Chevron U.S.A.
Production Company are carried out through its 28 percent equity ownership in
NGC Corporation. Summarized financial information for Chevron U.S.A. Inc. and
its consolidated subsidiaries is presented below:
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $29,726 $24,392 $25,833
Total costs and other deductions 28,331 25,177 25,367
Net income (loss) 1,042 (384) 501
- -----------------------------------------------------------------------------
*1995 Net income includes $(490) for the company's adoption of SFAS No. 121.
- -----------------------------------------------------------------------------
FS-24
<PAGE>
At December 31
------------------
1996 1995
- -----------------------------------------------------------------------------
Current assets $ 3,126 $ 3,426
Other assets 13,209 13,666
Current liabilities 4,035 5,800
Other liabilities 5,300 5,357
Net equity 7,000 5,935
- -----------------------------------------------------------------------------
NOTE 8. LITIGATION The company is a defendant in numerous lawsuits, including,
along with other oil companies, actions challenging oil and gas royalty and
severance tax payments based on posted prices. Plaintiffs may seek to recover
large and sometimes unspecified amounts, and some matters may remain unresolved
for several years. It is not practical to estimate a range of possible loss for
the company's litigation matters, and losses could be material with respect to
earnings in any given period. However, management is of the opinion that
resolution of the lawsuits will not result in any significant liability to the
company in relation to its consolidated financial position or liquidity.
OXY U.S.A. brought a lawsuit in its capacity as successor in interest to Cities
Service Company, which involved claims for damages resulting from the allegedly
improper termination of a tender offer to purchase Cities' stock in 1982 made
by Gulf Oil Corporation, acquired by Chevron in 1984. A trial with respect to
the claims ended in July 1996 with a judgment against the company of $742,
including interest, which continues to accrue. The company has filed an appeal.
While the ultimate outcome of this matter cannot be determined presently with
certainty, the company believes that errors were committed by the trial court
that should result in the judgment being reversed on appeal.
NOTE 9. SUMMARIZED FINANCIAL DATA - CHEVRON TRANSPORT CORPORATION Chevron
Transport Corporation (CTC), a Liberian corporation, is an indirect, wholly
owned subsidiary of Chevron Corporation. CTC is the principal operator of
Chevron's international tanker fleet and is engaged in the marine
transportation of oil and refined petroleum products. Most of CTC's shipping
revenue is derived by providing transportation services to other Chevron
companies. Chevron Corporation has guaranteed this subsidiary's obligations in
connection with certain debt securities where CTC is deemed to be an issuer. In
accordance with the Securities and Exchange Commission's disclosure
requirements, summarized financial information for CTC and its consolidated
subsidiaries is presented below. This information was derived from the
financial statements prepared on a stand-alone basis in conformity with
generally accepted accounting principles.
Separate financial statements and other disclosures with respect to CTC are
omitted as such separate financial statements and other disclosures are not
material to investors in the debt securities deemed issued by CTC. There were
no restrictions on CTC's ability to pay dividends or make loans or advances at
December 31, 1996.
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $ 512 $ 462 $ 440
Total costs and other deductions 564 477 504
Net income (loss) 11 (23) (58)
- -----------------------------------------------------------------------------
At December 31
------------------
1996 1995
- -----------------------------------------------------------------------------
Current assets $ 99 $ 37
Other assets 1,622 1,561
Current liabilities 617 459
Other liabilities 385 431
Net equity 719 708
- -----------------------------------------------------------------------------
NOTE 10. GEOGRAPHIC AND SEGMENT DATA The geographic and segment distributions
of the company's identifiable assets, operating income, and sales and other
operating revenues are summarized in the following tables:
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States
Petroleum $14,226 $14,521 $15,540
Chemicals 2,475 2,115 1,992
Coal and Other Minerals 477 503 592
-----------------------------------
Total United States 17,178 17,139 18,124
- -----------------------------------------------------------------------------
International
Petroleum 13,893 13,392 12,493
Chemicals 514 409 411
Coal and Other Minerals 34 28 45
-----------------------------------
Total International 14,441 13,829 12,949
- -----------------------------------------------------------------------------
TOTAL IDENTIFIABLE ASSETS 31,619 30,968 31,073
Corporate and Other 3,235 3,362 3,334
- -----------------------------------------------------------------------------
TOTAL ASSETS $34,854 $34,330 $34,407
- -----------------------------------------------------------------------------
Identifiable assets for the business segments include all assets associated
with operations in the indicated geographic areas, including investments in
affiliates. Corporate and Other identifiable assets consist primarily of cash
and marketable securities, corporate real estate and information systems.
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
OPERATING INCOME
United States
Petroleum $ 1,922 $ (64) $ 831
Chemicals 219 689 241
Coal and Other Minerals 58 (42) 60
-----------------------------------
Total United States 2,199 583 1,132
- -----------------------------------------------------------------------------
International
Petroleum 3,099 2,074 1,672
Chemicals 80 96 81
Coal and Other Minerals 6 3 79
-----------------------------------
Total International 3,185 2,173 1,832
- -----------------------------------------------------------------------------
TOTAL OPERATING INCOME 5,384 2,756 2,964
Corporate and Other (644) (967) (161)
Income Tax Expense (2,133) (859) (1,110)
- -----------------------------------------------------------------------------
NET INCOME $ 2,607 $ 930 $ 1,693
- -----------------------------------------------------------------------------
FS-25
<PAGE>
Operating income in 1995 included asset impairment writedowns of $998 in
connection with the adoption of SFAS No. 121, as follows: U.S. Petroleum -
$754; U.S. Chemicals - $20; U.S. Coal and Other Minerals - $97; International
Petroleum - $127. Corporate and Other included a writedown of $19.
Year ended December 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
SALES AND OTHER
OPERATING REVENUES
United States
Petroleum-Refined products $12,295 $10,677 $11,690
-Crude oil 4,836 3,850 3,466
-Natural gas 2,741 1,604 1,755
-Natural gas liquids 992 1,130 1,072
-Other 683 717 637
-Excise taxes 3,231 2,999 2,977
-Intersegment 587 676 977
-----------------------------------
Total Petroleum 25,365 21,653 22,574
-----------------------------------
Chemicals-Products 2,831 3,157 2,528
-Intersegment 105 175 273
-----------------------------------
Total Chemicals 2,936 3,332 2,801
-----------------------------------
Coal and Other Minerals 329 350 415
-----------------------------------
Total United States 28,630 25,335 25,790
- -----------------------------------------------------------------------------
International
Petroleum-Refined products 3,490 2,794 2,638
-Crude oil 7,561 5,526 4,783
-Natural gas 558 415 383
-Natural gas liquids 175 155 108
-Other 501 429 307
-Excise taxes 1,959 1,977 1,797
-Intersegment 3 - (2)
-----------------------------------
Total Petroleum 14,247 11,296 10,014
-----------------------------------
Chemicals-Products 591 600 537
-Excise taxes 12 12 16
-Intersegment 2 9 8
-----------------------------------
Total Chemicals 605 621 561
-----------------------------------
Coal and Other Minerals 11 7 1
-----------------------------------
Total International 14,863 11,924 10,576
- -----------------------------------------------------------------------------
Intersegment sales elimination (697) (860) (1,256)
- -----------------------------------------------------------------------------
Corporate and Other (14) (89) 20
- -----------------------------------------------------------------------------
TOTAL SALES AND OTHER
OPERATING REVENUES $42,782 $36,310 $35,130
- -----------------------------------------------------------------------------
Memo: Intergeographic Sales
United States $ 695 $ 565 $ 512
International 1,319 1,077 1,803
- -----------------------------------------------------------------------------
Sales and other operating revenues for the petroleum segments are derived from
the production and sale of crude oil, natural gas and natural gas liquids, and
from the refining and marketing of petroleum products. The company also obtains
revenues from the transportation and trading of crude oil and refined products.
Chemicals revenues result primarily from the sale of petrochemicals, plastic
resins, and lube oil and fuel additives. Coal and other minerals revenues
relate primarily to coal sales. The company's real estate and insurance
operations and worldwide cash management and financing activities are in
"Corporate and Other." In 1996, the company completed the sale of most of its
real estate development assets.
Sales and other operating revenues in the preceding table include both sales to
unaffiliated customers and sales from the transfer of products between
segments. Sales from the transfer of products between segments and geographic
areas are generally at estimated market prices. Transfers between geographic
areas are presented as memo items below the table.
Equity in earnings of affiliated companies has been associated with the
segments in which the affiliates operate. Sales to the Caltex Group and NGC
Corporation are included in the "International Petroleum" and "United States
Petroleum" segments, respectively. Information on the Caltex, Tengizchevroil
and NGC affiliates is presented in Note 12. Other affiliates are either not
material or not vertically integrated with a segment's operations.
NOTE 11. LEASE COMMITMENTS Certain non-cancelable leases are classified as
capital leases, and the leased assets are included as part of "Properties,
plant and equipment." Other leases are classified as operating leases and are
not capitalized. Details of the capitalized leased assets are as follows:
At December 31
-----------------
1996 1995
- -----------------------------------------------------------------------------
Petroleum
Exploration and Production $ 6 $ 46
Refining, Marketing and Transportation 806 833
- -----------------------------------------------------------------------------
812 879
Less: accumulated amortization 389 403
- -----------------------------------------------------------------------------
Net capitalized leased assets $ 423 $ 476
- -----------------------------------------------------------------------------
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
At December 31
-------------------
Operating Capital
Year Leases Leases
- -----------------------------------------------------------------------------
1997 $ 159 $ 81
1998 141 78
1999 143 73
2000 133 65
2001 131 59
Thereafter 234 813
- -----------------------------------------------------------------------------
Total $ 941 1,169
- -----------------------------------------------------------------------------
Less: amounts representing interest
and executory costs (521)
- -----------------------------------------------------------------------------
Net present values 648
Less: capital lease obligations
included in short-term debt (310)
- -----------------------------------------------------------------------------
Long-term capital lease obligations $ 338
- -----------------------------------------------------------------------------
Future sublease rental income $ 16 $ -
- -----------------------------------------------------------------------------
Rental expenses incurred for operating leases during 1996, 1995 and 1994 were
as follows:
Year ended December 31
-----------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Minimum rentals $ 438 $ 403 $ 410
Contingent rentals 6 9 7
- ------------------------------------------------------------------------------
Total 444 412 417
Less: sublease rental income 15 14 14
- ------------------------------------------------------------------------------
Net rental expense $ 429 $ 398 $ 403
- ------------------------------------------------------------------------------
FS-26
<PAGE>
Contingent rentals are based on factors other than the passage of time,
principally sales volumes at leased service stations. Certain leases include
escalation clauses for adjusting rentals to reflect changes in price indices,
renewal options ranging from one to 25 years and/or options to purchase the
leased property during or at the end of the initial lease period for the fair
market value at that time.
NOTE 12. INVESTMENTS AND ADVANCES Investments in and advances to companies
accounted for using the equity method, and other investments accounted for at
or below cost, are as follows:
At December 31
-----------------
1996 1995
- ------------------------------------------------------------------------------
Equity Method Affiliates
Caltex Group
Exploration and Production $ 449 $ 446
Refining, Marketing and Transportation 1,815 2,032
- ------------------------------------------------------------------------------
Total Caltex Group 2,264 2,478
Tengizchevroil 1,240 1,153
NGC Corporation 416 -
Other affiliates 364 293
- ------------------------------------------------------------------------------
4,284 3,924
Other, at or below cost 179 163
- ------------------------------------------------------------------------------
Total investments and advances $ 4,463 $ 4,087
- ------------------------------------------------------------------------------
Chevron owns 50 percent each of P.T. Caltex Pacific Indonesia (CPI), an
exploration and production company operating in Indonesia; Caltex Petroleum
Corporation (CPC), which, through its subsidiaries and affiliates, conducts
refining and marketing activities in Asia, Africa, the Middle East, Australia
and New Zealand; and American Overseas Petroleum Limited, which, through its
subsidiary, manages certain of the company's operations in Indonesia. These
companies and their subsidiaries and affiliates are collectively called the
Caltex Group.
Tengizchevroil (TCO) is a 50 percent-owned joint venture formed in 1993 with
the Republic of Kazakstan to develop the Tengiz and Korolev oil fields over a
40-year period.
In January 1997, Chevron reached an agreement in principle to sell a 5 percent
interest in TCO to an affiliate of LUKoil, a Russian oil company, and Arco.
The sale reduces Chevron's ownership to 45 percent.
The investment in TCO at December 31, 1996 and 1995, included a deferred
payment portion of $428 and $461, respectively, $420 of which is payable to the
Republic of Kazakstan upon the attainment of a dedicated export system with the
capability of the greater of 260,000 barrels of oil per day or TCO's production
capacity. This portion of the investment was recorded upon formation of the
venture as the company believed at the time, and continues to believe, that its
payment is beyond a reasonable doubt given the original intent and continuing
commitment of both parties to realizing the full potential of the venture over
its 40-year life.
Chevron owns 28 percent of NGC Corporation (NGC), a gatherer, processor,
transporter and marketer of energy products in North America and the United
Kingdom, including natural gas, natural gas liquids, crude oil and electricity.
The market value of Chevron's shares of NGC common stock at December 31, 1996,
was $902 based on quoted market prices.
Equity in earnings of companies accounted for by the equity method, together
with dividends and similar distributions received from equity method companies
for the years 1996, 1995 and 1994, are as follows:
Year ended December 31
---------------------------------------------
Equity in Earnings Dividends
--------------------- ---------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------
Caltex
Exploration
and Production $188 $156 $140
Refining, Marketing
and Transportation 408 294 210
- ------------------------------------------------------
Total Caltex Group 596 450 350 $735 $305 $239
Tengizchevroil 110 1 (10) - - -
NGC Corporation 19 - - 1 - -
Other affiliates 42 102 100 92 116 146
- ------------------------------------------------------------------------------
Total $767 $553 $440 $828 $421 $385
- ------------------------------------------------------------------------------
The company's transactions with affiliated companies are summarized in the
following table. These are primarily for the purchase of Indonesian crude oil
from CPI, the sale of crude oil and products to CPC's refining and marketing
companies, the sale of natural gas to NGC, and the purchase of natural gas and
natural gas liquids from NGC.
"Accounts and notes receivable" in the Consolidated Balance Sheet include $258
and $144 at December 31, 1996 and 1995, respectively, of amounts due from
affiliated companies. "Accounts payable" include $39 and $37 at December 31,
1996 and 1995, respectively, of amounts due to affiliated companies.
Year ended December 31
-----------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Sales to Caltex Group $ 1,708 $ 1,330 $ 1,166
Sales to NGC 676 - -
Sales to other affiliates 18 10 7
- ------------------------------------------------------------------------------
Total sales to affiliates $ 2,402 $ 1,340 $ 1,173
- ------------------------------------------------------------------------------
Purchases from Caltex Group $ 1,022 $ 934 $ 800
Purchases from NGC 269 - -
Purchases from other affiliates 41 40 52
- ------------------------------------------------------------------------------
Total purchases from affiliates $ 1,332 $ 974 $ 852
- ------------------------------------------------------------------------------
The following tables summarize the combined financial information for the
Caltex Group and all of the other equity method companies together with
Chevron's share. Amounts shown for the affiliates are 100 percent. The
increases in the combined financial information amounts for other affiliates in
1996 are due to the inclusion of NGC.
FS-27
<PAGE>
<TABLE>
<CAPTION
NOTE 12. INVESTMENTS AND ADVANCES - Continued
Caltex Group Other Affiliates Chevron's Share
--------------------------- ------------------------ -------------------------
Year ended December 31 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other operating revenues $16,895 $15,067 $14,751 $6,356 $2,594 $2,237 $10,218 $8,549 $8,176
Total costs and other deductions 15,991 14,256* 14,037* 5,829 2,194 1,815 9,573 7,804* 7,589*
Net income 1,193 899 689 404 315 357 767 553 440
- ------------------------------------------------------------------------------------------------------------------------
Caltex Group Other Affiliates Chevron's Share
--------------------------- ------------------------ -------------------------
At December 31 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Current assets $ 2,565 $ 2,323 $ 2,421 $3,286 $ 877 $ 913 $2,226 $1,527 $1,446
Other assets 6,830 7,794 7,389 6,088 3,888 4,216 5,582 5,414 5,396
Current liabilities 2,999 3,223 3,072 2,064 413 543 2,076 1,863 1,617
Other liabilities 2,140 1,935 2,005 5,034 3,341 3,225 1,448 1,154 1,364
Net equity 4,256 4,959 4,733 2,276 1,011 1,361 4,284 3,924 3,861
- ------------------------------------------------------------------------------------------------------------------------
*Reclassified to conform with the 1996 presentation.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 13. PROPERTIES, PLANT AND EQUIPMENT
At December 31 Year ended December 31
---------------------------------------------------- ----------------------------------------------
Gross Investment at Cost Net Investment Additions at Cost(1) Depreciation Expense
------------------------- ------------------------- ---------------------- -----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Petroleum
Exploration and
Production $17,742 $18,209 $17,980 $ 4,849 $ 5,010 $ 5,900 $ 974 $ 776 $ 675 $ 785 $1,577 $ 983
Refining and
Marketing(2) 11,186 11,136 11,442 6,295 6,520 6,524 415 887 899 472 564 460
Chemicals 2,587 2,075 1,915 1,552 1,233 1,150 376 168 89 138 162 131
Coal and Other
Minerals 819 857 869 345 359 461 17 33 30 36 135 54
- ------------------------------------------------------------------------------------------------------------------------
Total United States 32,334 32,277 32,206 13,041 13,122 14,035 1,782 1,864 1,693 1,431 2,438 1,628
- ------------------------------------------------------------------------------------------------------------------------
International
Petroleum
Exploration and
Production 10,484 10,951 9,661 5,998 5,463 4,800 1,221 1,421 1,051 581 712 578
Refining and
Marketing(2) 2,259 2,459 2,482 1,387 1,674 1,743 70 335 218 115 116 114
Chemicals 393 354 330 163 146 143 37 26 25 24 24 27
Coal and Other
Minerals 32 22 21 28 19 19 10 - 12 1 1 -
- ------------------------------------------------------------------------------------------------------------------------
Total International 13,168 13,786 12,494 7,576 7,302 6,705 1,338 1,782 1,306 721 853 719
- ------------------------------------------------------------------------------------------------------------------------
Corporate and
Other(3) 1,434 1,968 2,110 879 1,272 1,433 76 203 125 64 90 84
- ------------------------------------------------------------------------------------------------------------------------
Total $46,936 $48,031 $46,810 $21,496 $21,696 $22,173 $3,196 $3,849 $3,124 $2,216 $3,381 $2,431
- ------------------------------------------------------------------------------------------------------------------------
(1)Net of dry hole expense related to prior years' expenditures of $55, $19 and $53 in 1996, 1995 and 1994, respectively.
(2)Includes transportation.
(3)Includes primarily real estate and management information systems.
- ------------------------------------------------------------------------------------------------------------------------
Expenses for maintenance and repairs were $626, $833 and $928 in 1996, 1995 and 1994, respectively.
</TABLE>
NOTE 14. TAXES
Year ended December 31
-----------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Taxes other than on income
United States
Excise taxes on products
and merchandise $ 3,231 $ 2,999 $ 2,978
Property and other
miscellaneous taxes 274 341 395
Payroll taxes 123 127 112
Taxes on production 121 105 102
- ------------------------------------------------------------------------------
Total United States 3,749 3,572 3,587
- ------------------------------------------------------------------------------
International
Excise taxes on products
and merchandise 1,971 1,989 1,812
Property and other
miscellaneous taxes 157 146 127
Payroll taxes 26 30 19
Taxes on production 5 11 14
- ------------------------------------------------------------------------------
Total International 2,159 2,176 1,972
- ------------------------------------------------------------------------------
Total taxes other than on income $ 5,908 $ 5,748 $ 5,559
- ------------------------------------------------------------------------------
Year ended December 31
-----------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Taxes on income
U.S. federal
Current $ 360 $ 152 $ 175
Deferred 165 (289) 43
State and local 59 29 10
- ------------------------------------------------------------------------------
Total United States 584 (108) 228
- ------------------------------------------------------------------------------
International
Current 1,356 937 815
Deferred 193 14 67
Deferred - Adjustment for enacted
changes in tax laws/rates - 16 -
- ------------------------------------------------------------------------------
Total International 1,549 967 882
- ------------------------------------------------------------------------------
Total taxes on income $ 2,133 $ 859 $ 1,110
- ------------------------------------------------------------------------------
U.S. federal income tax expense was reduced by $77, $68 and $60 in 1996, 1995
and 1994, respectively, for low-income housing and other business tax credits.
FS-28
<PAGE>
In 1996, before-tax income (loss), including related corporate and other
charges, for U.S. operations was $1,631 compared with $(331) in 1995 and $1,194
in 1994, and for international operations was $3,109, $2,120 and $1,609 in
1996, 1995 and 1994, respectively.
The deferred income tax provisions included (costs) benefits of $(204), $75 and
$(475) related to properties, plant and equipment in 1996, 1995 and 1994,
respectively. Benefits were recorded in 1995 of $358 related to the impairment
of long-lived assets and $91 related to the provision for the expected loss
from exiting the real estate development business.
The company's effective income tax rate varied from the U.S. statutory federal
income tax rate because of the following:
Year ended December 31
-----------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
Effect of income taxes on
international operations in excess
of taxes at the U.S. statutory rate 16.8 26.2 18.5
State and local taxes on income, net
of U.S. federal income tax benefit 0.9 0.9 0.2
Prior-year tax adjustments (0.2) 0.3 (4.4)
Tax credits (1.6) (3.8) (2.1)
All other (3.6) (3.1) (3.2)
- ------------------------------------------------------------------------------
Consolidated companies 47.3 55.5 44.0
Effect of recording equity in income
of certain affiliated companies
on an after-tax basis (2.3) (7.5) (4.4)
- ------------------------------------------------------------------------------
Effective tax rate 45.0% 48.0% 39.6%
- ------------------------------------------------------------------------------
The company records its deferred taxes on a tax jurisdiction basis and
classifies those net amounts as current or non-current based on the balance
sheet classification of the related assets or liabilities.
At December 31, 1996 and 1995, deferred taxes were classified in the
Consolidated Balance Sheet as follows:
At December 31
------------------
1996 1995
- -------------------------------------------------------------------------------
Prepaid expenses and other current assets $ (136) $ (139)
Deferred charges and other assets (163) (138)
Federal and other taxes on income 3 11
Non-current deferred income taxes 2,851 2,433
- -------------------------------------------------------------------------------
Total deferred income taxes, net $ 2,555 $ 2,167
- -------------------------------------------------------------------------------
The reported deferred tax balances are composed of the following deferred tax
liabilities (assets):
At December 31
------------------
1996 1995
- -------------------------------------------------------------------------------
Properties, plant and equipment $ 4,534 $ 4,442
Inventory 193 182
Miscellaneous 195 277
- -------------------------------------------------------------------------------
Deferred tax liabilities 4,922 4,901
- -------------------------------------------------------------------------------
Abandonment/environmental reserves (1,052) (1,169)
Employee benefits (561) (567)
AMT/other tax credits (586) (816)
Other accrued liabilities (332) (240)
Miscellaneous (523) (649)
- -------------------------------------------------------------------------------
Deferred tax assets (3,054) (3,441)
- -------------------------------------------------------------------------------
Deferred tax assets valuation allowance 687 707
- -------------------------------------------------------------------------------
Total deferred taxes, net $ 2,555 $ 2,167
- -------------------------------------------------------------------------------
It is the company's policy for subsidiaries included in the U.S. consolidated
tax return to record income tax expense as though they filed separately, with
the parent recording the adjustment to income tax expense for the effects of
consolidation.
Undistributed earnings of international consolidated subsidiaries and
affiliates for which no deferred income tax provision has been made for
possible future remittances totaled approximately $4,420 at December 31, 1996.
Substantially all of this amount represents earnings reinvested as part of the
company's ongoing business. It is not practical to estimate the amount of taxes
that might be payable on the eventual remittance of such earnings. On
remittance, certain countries impose withholding taxes that, subject to certain
limitations, are then available for use as tax credits against a U.S. tax
liability, if any. The company estimates withholding taxes of approximately
$197 would be payable upon remittance of these earnings.
NOTE 15. SHORT-TERM DEBT
At December 31
------------------
1996 1995
- -------------------------------------------------------------------------------
Commercial paper(1) $ 3,583 $ 4,808
Current maturities of long-term debt 269 143
Current maturities of long-term capital leases 36 42
Redeemable long-term obligations
Long-term debt 315 315
Capital leases 274 273
Notes payable 29 25
- -------------------------------------------------------------------------------
Subtotal(2) 4,506 5,606
Reclassified to long-term debt (1,800) (1,800)
- -------------------------------------------------------------------------------
Total short-term debt $ 2,706 $ 3,806
- -------------------------------------------------------------------------------
(1)Weighted average interest rates at December 31, 1996 and 1995, were 5.9% and
6.0%, respectively, including the effect of interest rate swaps.
(2)Weighted average interest rates at December 31, 1996 and 1995, were 5.6% and
5.9%, respectively, including the effect of interest rate swaps.
- -------------------------------------------------------------------------------
Redeemable long-term obligations consist primarily of tax-exempt variable-rate
put bonds that are included as current liabilities because they become
redeemable at the option of the bondholders during the year following the
balance sheet date.
The company has entered into interest rate swaps on a portion of its short-term
debt. At December 31, 1996 and 1995, the company agreed to swap notional
amounts of $1,050 of floating rate debt to fixed rates. In addition, at
FS-29
<PAGE>
December 31, 1996, the company had swapped $149 of debt, classified as "Current
maturities of long-term debt," from a fixed rate to a floating rate. The effect
of these swaps on the company's interest expense was not material.
NOTE 16. LONG-TERM DEBT Chevron and one of its wholly owned subsidiaries each
have "shelf" registrations on file with the Securities and Exchange Commission
that together would permit the issuance of $1,300 of debt securities pursuant
to Rule 415 of the Securities Act of 1933.
At year-end 1996, the company had $4,425 of committed credit facilities with
banks worldwide, $1,800 of which had termination dates beyond one year. The
facilities support the company's commercial paper borrowings. Interest on any
borrowings under the agreements is based on either the London Interbank Offered
Rate or the Reserve Adjusted Domestic Certificate of Deposit Rate. No amounts
were outstanding under these credit agreements during the year nor at year-end.
At both December 31, 1996 and 1995, the company classified $1,800 of short-term
debt as long-term. Settlement of these obligations is not expected to require
the use of working capital in 1997, as the company has both the intent and
ability to refinance this debt on a long-term basis.
At December 31
------------------
1996 1995
- -------------------------------------------------------------------------------
8.11% amortizing notes due 2004(1) $ 750 $ 750
7.45% notes due 2004 349 348
9.375% sinking-fund debentures due 2016(2) - 278
7.61% amortizing bank loans due 2003 225 160
5.6% notes due 1998 190 190
9.75% sinking-fund debentures due 2017 180 180
4.625% 200 million Swiss franc issue due 1997(3) 149 173
6.92% notes due 2005 51 51
7.28% notes due 1997(1) 50 50
6.92% notes due 1996(1) - 50
Other foreign currency obligations (4.1%)(4) 88 80
Other long-term debt (7.3%)(4) 87 166
- -------------------------------------------------------------------------------
Total including debt due within one year 2,119 2,476
Debt due within one year (269) (143)
Reclassified from short-term debt 1,800 1,800
- -------------------------------------------------------------------------------
Total long-term debt $ 3,650 $ 4,133
- -------------------------------------------------------------------------------
(1)Guarantee of ESOP debt.
(2)Redeemed in 1996.
(3)An interest rate swap effectively changed the fixed interest rate to a
floating rate, which was 2.24% at year-end 1996 and 1995.
(4)Less than $50 individually; weighted average interest rates at December 31,
1996.
- -------------------------------------------------------------------------------
Consolidated long-term debt maturing in each of the five years after December
31, 1996, is as follows: 1997-$269, 1998-$303, 1999-$122, 2000-$123 and 2001-
$136.
Note 17. Employee Benefit Plans
Pension Plans The company has defined benefit pension plans for most employees.
- -------------
The principal plans provide for automatic membership on a non-contributory
basis. The retirement benefits provided by these plans are based primarily on
years of service and on average career earnings or the highest consecutive
three years' average earnings. The company's policy is to fund at least the
minimum necessary to satisfy requirements of the Employee Retirement Income
Security Act.
The net pension expense (credit) for all of the company's pension plans for the
years 1996, 1995 and 1994 consisted of:
1996 1995 1994
- ------------------------------------------------------------------------------
Cost of benefits earned during
the year $104 $ 99 $ 97
Interest cost on projected benefit
obligations 271 273 263
Actual return on plan assets (503) (728) (62)
Net amortization and deferral 129 342 (294)
- ------------------------------------------------------------------------------
Net pension expense (credit) $ 1 $(14) $ 4
- ------------------------------------------------------------------------------
Settlement gains in 1996, 1995 and 1994, related to lump-sum payments, totaled
$28, $7 and $17, respectively.
At December 31, 1996 and 1995, the weighted average discount rates, the long-
term rates for compensation increases used for estimating the benefit
obligations, and the expected rates of return on plan assets were as follows:
1996 1995
- -------------------------------------------------------------------------------
Assumed discount rates 7.7% 7.4%
Assumed rates for compensation increases 5.2% 5.1%
Expected return on plan assets 9.1% 9.1%
- -------------------------------------------------------------------------------
The pension plans' assets consist primarily of common stocks, bonds, cash
equivalents and interests in real estate investment funds. The funded status
for the company's combined plans at December 31, 1996 and 1995, was as follows:
Plans with
Plans with Assets Accumulated
in Excess of Benefits
Accumulated in Excess of
Benefits Plan Assets
----------------- ---------------
At December 31 1996 1995 1996 1995
- ------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligations $(2,932) $(2,961) $(231) $(218)
- ------------------------------------------------------------------------------
Accumulated benefit obligations $(3,072) $(3,085) $(237) $(230)
- ------------------------------------------------------------------------------
Projected benefit obligations $(3,515) $(3,557) $(270) $(259)
Plan assets at fair values 4,156 4,020 7 13
- ------------------------------------------------------------------------------
Plan assets greater (less) than
projected benefit obligations 641 463 (263) (246)
Unrecognized net transition
(assets) liabilities (169) (240) 13 15
Unrecognized net (gains) losses (176) (29) 68 65
Unrecognized prior-service costs 79 94 6 9
Minimum liability adjustment - - (67) (75)
- ------------------------------------------------------------------------------
Net pension cost prepaid
(accrued) $ 375 $ 288 $(243) $(232)
- ------------------------------------------------------------------------------
The net transition assets and liabilities generally are being amortized by the
straight-line method over 15 years.
Profit Sharing/Savings Plan Eligible employees of the company and certain of
- ---------------------------
its subsidiaries who have completed one year of service may participate in the
Profit Sharing/Savings Plan. Charges to expense for the profit sharing part of
the Profit Sharing/Savings Plan and the Savings Plus Plan, which was merged
with the Profit Sharing/Savings Plan at the end
FS-30
<PAGE>
of 1995, after shareholders'approval, were $92, $99 and $75 in 1996, 1995 and
1994, respectively.
Employee Stock Ownership Plan (ESOP) In December 1989, the company established
- -----------------------------------
a leveraged ESOP as part of the Profit Sharing/Savings Plan. The ESOP Trust
Fund borrowed $1,000 and purchased 28.2 million previously unissued shares of
the company's common stock. The ESOP provides a partial pre-funding of the
company's future commitments to the profit sharing part of the plan, which will
result in annual income tax savings for the company. The ESOP is expected to
satisfy most of the company's obligations to the profit sharing part of the
plan during the next eight years.
As allowed by AICPA Statement of Position (SOP) 93-6, the company has elected
to continue its practices, which are based on SOP 76-3 and subsequent consensus
of the Emerging Issues Task Force of the Financial Accounting Standards Board.
Accordingly, the debt of the ESOP is recorded as debt, and shares pledged as
collateral are reported as deferred compensation in the Consolidated Balance
Sheet and Statement of Stockholders' Equity. The company reports compensation
expense equal to the ESOP debt principal repayments less dividends received by
the ESOP. Interest incurred on the ESOP debt is recorded as interest expense.
Dividends paid on ESOP shares are reflected as a reduction of retained
earnings. All ESOP shares are considered outstanding for earnings-per-share
computations.
The company recorded expense for the ESOP of $61, $67 and $42 in 1996, 1995 and
1994, respectively, including $65, $68 and $71 of interest expense related to
the ESOP debt. All dividends paid on the shares held by the ESOP are used to
service the ESOP debt. The dividends used were $53, $50 and $50 in 1996, 1995
and 1994, respectively.
The company made contributions to the ESOP of $62, $69 and $63 in 1996, 1995
and 1994, respectively, to satisfy ESOP debt service in excess of dividends
received by the ESOP. The ESOP shares were pledged as collateral for its debt.
Shares are released from a suspense account and allocated to profit sharing
accounts of plan participants, based on the debt service deemed to be paid in
the year in proportion to the total of current year and remaining debt service.
Compensation expense was $(4), $(1) and $(10) in 1996, 1995 and 1994,
respectively. The ESOP shares as of December 31, 1996, were as follows:
Thousands 1996 1995
- ------------------------------------------------------------------------------
Allocated shares 7,805 7,223
Unallocated shares 17,682 19,490
- ------------------------------------------------------------------------------
Total ESOP shares 25,487 26,713
- ------------------------------------------------------------------------------
Management Incentive Plans The company has two incentive plans, the Management
- --------------------------
Incentive Plan (MIP) and the Long-Term Incentive Plan (LTIP) for officers and
other regular salaried employees of the company and its subsidiaries who hold
positions of significant responsibility. The MIP is an annual cash incentive
plan that links awards to performance results of the prior year. The cash
awards may be deferred by conversion to stock units or, beginning with awards
deferred in 1996, stock units or other investment fund alternatives. Awards
under the LTIP may take the form of, but are not limited to, stock options,
restricted stock, stock units and non-stock grants. Charges to expense for the
combined management incentive plans, excluding expense related to LTIP stock
options, which is discussed in Note 18, "Stock Options," were $36, $45 and $31
in 1996, 1995 and 1994, respectively.
Chevron Success Sharing In January 1995, the company established a program that
- ----------------------
provides eligible employees with an annual cash bonus if the company achieves
certain financial and safety goals. The total payout opportunity under the
program is 8 percent of the employee's salary. In 1996, the payout ranged from
3.9 to 6.0 percent of employees' salaries. There was no payout under the
program in 1995.
Other Benefit Plans In addition to providing pension benefits, the company
- -------------------
makes contributions toward certain health care and life insurance plans for
active and qualifying retired employees. Substantially all employees in the
United States and in certain international locations may become eligible for
coverage under these benefit plans. The company's annual contributions for
medical and dental benefits are limited to the lesser of actual medical and
dental claims or a defined fixed per-capita amount. Life insurance benefits are
paid by the company, and annual contributions are based on actual plan
experience.
Non-pension postretirement benefits are not pre-funded by the company, but are
paid when incurred. The accumulated postretirement benefit obligation (APBO)
and unrecognized gains and losses for these plans are recorded in the
Consolidated Balance Sheet as follows:
At December 31, 1996 At December 31, 1995
--------------------- ---------------------
Health Life Total Health Life Total
- ------------------------------------------------------------------------------
APBO
Retirees $ (456) $(327)$ (783) $ (467) $(328)$ (795)
Fully eligible
active
participants (142) (75) (217) (144) (81) (225)
Other active
participants (192) (44) (236) (211) (51) (262)
- ------------------------------------------------------------------------------
Total APBO (790) (446) (1,236) (822) (460) (1,282)
Fair value
of plan assets - - - - - -
- ------------------------------------------------------------------------------
APBO (greater)
than plan assets (790) (446) (1,236) (822) (460) (1,282)
Unrecognized
net (gain) loss (226) (4) (230) (179) 25 (154)
- ------------------------------------------------------------------------------
Accrued
postretirement
benefit costs $(1,016) $(450)$(1,466) $(1,001) $(435)$(1,436)
- ------------------------------------------------------------------------------
FS-31
<PAGE>
The company's net postretirement benefits expense was as follows:
1996 1995 1994
------------------- ------------------- -------------------
Health Life Total Health Life Total Health Life Total
- -------------------------------------------------------------------------------
Cost of benefits
earned during
the year $16 $ 3 $ 19 $15 $ 3 $ 18 $23 $ 4 $ 27
Interest cost
on benefit
obligation 58 33 91 67 30 97 71 31 102
Net amortization
of gain (8) - (8) (9) (2) (11) - - -
- -------------------------------------------------------------------------------
Net expense
for post-
retirement
benefits $66 $36 $102 $73 $31 $104 $94 $35 $129
- -------------------------------------------------------------------------------
For measurement purposes, separate health care cost-trend rates were utilized
for pre-age 65 and post-age 65 retirees. The 1997 annual rates of change were
assumed to be (1.0) percent and 3.7 percent, respectively, increasing to 6.2
percent and 5.2 percent in 1998 and gradually decreasing thereafter to the
average ultimate rates of 5.5 percent in 2007 for pre-age 65 and 4.5 percent in
2007 for post-age 65. An increase in the assumed health care cost-trend rates
of 1 percent in each year would increase the aggregate of service and interest
costs for the year 1996 by $19 and would increase the December 31, 1996, APBO
by $103.
At December 31, 1996, the weighted average discount rate was 7.5 percent, and
the assumed rate of compensation increase related to the measurement of the
life insurance benefit was 5.0 percent.
Note 18. Stock Options The company applies APB Opinion No. 25 and related
Interpretations in accounting for stock options awarded under its Broad-Based
Employee Stock Option Plan and its Long-Term Incentive Plan, which are
described below. Had compensation cost for the company's stock options been
determined based on the fair market value at the grant dates of the awards
consistent with the methodology prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation," the company's net income and earnings per share for
1996 and 1995 would have been the pro forma amounts indicated below:
1996 1995
- -------------------------------------------------------------------------------
Net Income As reported $2,607 $930
Pro forma $2,610 $925
Earnings per share As reported $3.99 $1.43
Pro forma $4.00 $1.42
- -------------------------------------------------------------------------------
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards granted
prior to 1995. In addition, certain options vest over several years, and awards
in future years, whose terms and conditions may vary, are anticipated.
Long-Term Incentive Plan Stock options granted under the LTIP are generally
- ------------------------
awarded at market price on the date of grant and are exercisable not earlier
than one year and not later than 10 years from the date of grant. However, a
portion of the LTIP options granted in 1996 had terms similar to the broad-
based employee stock options, which are described below. The maximum number of
shares of common stock that may be granted each year is 1 percent of the total
outstanding shares of common stock as of January 1 of such year.
A summary of the status of stock options awarded under the company's LTIP,
excluding awards granted with terms similar to the broad-based employee stock
options, for 1996, 1995 and 1994 is presented below:
Weighted-
Average
Options Exercise
(000s) Price
- -------------------------------------------------------------------------------
Outstanding at December 31, 1993 4,300 $37.67
- -------------------------------------------------------------------------------
Granted 1,770 42.38
Exercised (140) 35.02
Forfeited (88) 42.56
- -------------------------------------------------------------------------------
Outstanding at December 31,1994 5,842 $39.08
- -------------------------------------------------------------------------------
Granted 1,823 48.15
Exercised (498) 37.09
Forfeited (83) 47.77
- -------------------------------------------------------------------------------
Outstanding at December 31, 1995 7,084 $41.46
- -------------------------------------------------------------------------------
Granted 943 66.08
Exercised (698) 38.91
Forfeited (66) 49.38
- -------------------------------------------------------------------------------
Outstanding at December 31, 1996 7,263 $44.82
- -------------------------------------------------------------------------------
Exercisable at December 31
1994 4,149 $37.74
1995 5,336 $39.26
1996 6,326 $41.68
- -------------------------------------------------------------------------------
The weighted-average fair market value of options granted in 1996 and 1995 was
$14.18 and $9.06, respectively. The fair market value of each option granted
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions for 1996 and 1995, respectively: risk-free
interest rate of 6.4 and 6.0 percent; dividend yield of 3.3 and 3.9 percent;
volatility of 16.1 and 17.3 percent and expected life of 7 years in both years.
As of December 31, 1996, 7,262,857 shares were under option at exercise prices
ranging from $31.9375 to $66.25 per share. The following table summarizes
information about stock options outstanding under the LTIP, excluding awards
granted with terms similar to the broad-based employee stock options, at
December 31, 1996:
FS-32
<PAGE>
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (000s) Life (Years) Price (000s) Price
- ----------------------------------------------------------------------------
$31 to $36 2,003 4.70 $34.69 2,003 $34.69
36 to 41 25 4.94 37.22 25 37.22
41 to 46 2,688 7.07 43.03 2,688 43.03
46 to 51 1,610 8.55 48.18 1,610 48.18
51 to 56 1 9.08 51.88 - -
56 to 61 17 9.40 57.96 - -
61 to 67 919 9.83 66.25 - -
- ----------------------------------------------------------------------------
$31 to $67 7,263 7.09 $44.82 6,326 $41.68
- ----------------------------------------------------------------------------
Broad-Based Employee Stock Options In 1996, the company granted to all eligible
- ----------------------------------
employees an option for 150 shares of stock or equivalents that become vested
if, by December 31, 1998, the price of Chevron stock closes at $75.00 per share
for three consecutive business days or the company has the highest annual total
stockholder return of its competitor group for the years 1994 through 1998.
Employees receiving stock options may exercise their options by cash purchase
of stock or a broker-coordinated stock sale. Under this latter form of
exercise, employees may, at their discretion, exercise their options on the
first date after the options become vested. The options expire on March 31,
1999, whether exercised or not. In addition, a portion of the awards granted
under the LTIP had terms similar to the broad-based employee stock options.
Options for 7,211,600 shares, including similar-termed LTIP awards, were
granted during the year at an exercise price of $51.875 per share. Forfeitures
of options for 302,500 shares reduced the outstanding option shares to
6,909,100 by year-end, at which date none were exercisable. Under APB Opinion
No. 25, the company recorded expense of $29 for these options in 1996.
The fair market value of each option share on the date of grant under SFAS No.
123 was estimated at $5.66 using a binomial option-pricing model with the
following assumptions: risk-free interest rate of 5.1 percent, dividend yield
of 4.2 percent, expected life of 3 years and a volatility of 20.9 percent.
Note 19. Other Contingent Liabilities and Commitments The U.S. federal income
tax and California franchise tax liabilities of the company have been settled
through 1982 and 1991, respectively. For federal income tax purposes, all
issues other than the creditability of taxes paid to the government of
Indonesia have been resolved through 1987. While the amounts under dispute with
the Internal Revenue Service are significant, settlement of open tax matters is
not expected to have a material effect on the consolidated net assets or
liquidity of the company, and in the opinion of management, adequate provision
has been made for income and franchise taxes for all years either under
examination or subject to future examination.
At December 31, 1996, the company and its subsidiaries, as direct or indirect
guarantors, had contingent liabilities of $64 for notes of affiliated companies
and $68 for notes of others.
The company and its subsidiaries have certain contingent liabilities with
respect to long-term unconditional purchase obligations and commitments,
throughput agreements and take-or-pay agreements, some of which relate to
suppliers' financing arrangements. The aggregate amount of required payments
under these various commitments are: 1997-$174; 1998-$191; 1999-$203; 2000-
$153; 2001-$145; 2002 and after-$889. Total payments under the agreements were
$177 in 1996, $173 in 1995 and $154 in 1994.
The company is subject to loss contingencies pursuant to environmental laws and
regulations that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior disposal or
release of chemical or petroleum substances by the company or other parties.
Such contingencies may exist for various sites including, but not limited to:
Superfund sites and refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold. The amount of such
future cost is indeterminable due to such factors as the unknown magnitude of
possible contamination, the unknown timing and extent of the corrective actions
that may be required, the determination of the company's liability in
proportion to other responsible parties and the extent to which such costs are
recoverable from third parties. While the company has provided for known
environmental obligations that are probable and reasonably estimable, the
amount of future costs may be material to results of operations in the period
in which they are recognized. The company does not expect these costs to have
material effect on its consolidated financial position or liquidity. Also, the
company does not believe its obligations to make such expenditures has had or
will have any significant impact on the company's competitive position relative
to other domestic or international petroleum or chemical concerns.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the company
or other governments may affect the company's operations. Those developments
have, at times, significantly affected the company's related operations and
results, and are carefully considered by management when evaluating the level
of current and future activity in such countries.
Areas in which the company has significant operations include the United
States, Canada, Australia, United Kingdom, Congo, Angola, Nigeria, Zaire, Papua
New Guinea, China and Indonesia. The company's Caltex affiliates have
significant operations in Indonesia, Korea, Japan, Australia, Thailand, the
Philippines, Singapore, and South Africa. The company's Tengizchevroil
affiliate operates in Kazakstan.
FS-33
<PAGE>
Supplemental Information on Oil and Gas Producing Activities
Unaudited
In accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Producing Activities" (SFAS No. 69), this
section provides supplemental information on oil and gas exploration and
producing activities of the company in six separate tables. Tables I through
III provide historical cost information pertaining to costs incurred in
exploration, property acquisitions and development; capitalized costs; and
results of operations. Tables IV through VI present information on the
company's estimated net proved reserve quantities, standardized measure of
estimated discounted future net cash flows related to proved reserves, and
changes in estimated discounted future net cash flows. The Africa geographic
area includes activities principally in Nigeria, Angola, Congo and Zaire. The
"Other" geographic category includes activities in Australia, the United
Kingdom North Sea, Canada, Papua New Guinea, China and other countries. Amounts
shown for affiliated companies are Chevron's 50 percent equity share in each of
P.T. Caltex Pacific Indonesia (CPI), an exploration and production company
operating in Indonesia, and Tengizchevroil (TCO), an exploration and production
partnership operating in the Republic of Kazakstan.
TABLE I - COSTS INCURRED IN EXPLORATION,
PROPERTY ACQUISITIONS AND DEVELOPMENT(1)
Affiliated
Consolidated Companies Companies
----------------------------- ---------
Millions of dollars U.S. Africa Other Total CPI TCO Worldwide
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 1996
Exploration
Wells $ 357 $ 75 $126 $ 558 $ 1 $ - $ 559
Geological and
geophysical 16 37 70 123 8 - 131
Rentals and other 52 10 54 116 - - 116
- -------------------------------------------------------------------------------
Total exploration 425 122 250 797 9 - 806
- -------------------------------------------------------------------------------
Property acquisitions(2)
Proved(3) 5 1 9 15 - - 15
Unproved 62 2 43 107 - - 107
- -------------------------------------------------------------------------------
Total property
acquisitions 67 3 52 122 - - 122
- -------------------------------------------------------------------------------
Development 603 465 594 1,662 123 50 1,835
- -------------------------------------------------------------------------------
TOTAL COSTS INCURRED $1,095 $590 $896 $2,581 $132 $ 50 $2,763
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 1995
Exploration
Wells $ 256 $ 63 $141 $ 460 $ 1 $ - $ 461
Geological and
geophysical 9 29 37 75 9 - 84
Rentals and other 47 11 64 122 - - 122
- -------------------------------------------------------------------------------
Total exploration 312 103 242 657 10 - 667
- -------------------------------------------------------------------------------
Property acquisitions(2)
Proved(3) 21 56 - 77 - - 77
Unproved 31 8 12 51 - - 51
- -------------------------------------------------------------------------------
Total property
acquisitions 52 64 12 128 - - 128
- -------------------------------------------------------------------------------
Development 453 640 568 1,661 97 7 1,765
- -------------------------------------------------------------------------------
TOTAL COSTS INCURRED $ 817 $807 $822 $2,446 $107 $ 7 $2,560
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 1994
Exploration
Wells $ 163 $ 48 $118 $ 329 $ - $ - $ 329
Geological and
geophysical 5 29 38 72 9 - 81
Rentals and other 41 4 71 116 - - 116
- -------------------------------------------------------------------------------
Total exploration 209 81 227 517 9 - 526
- -------------------------------------------------------------------------------
Property acquisitions(2)
Proved(3) 95 145 4 244 - - 244
Unproved 28 19 21 68 - - 68
- -------------------------------------------------------------------------------
Total property
acquisitions 123 164 25 312 - - 312
- -------------------------------------------------------------------------------
Development 416 276 503 1,195 140 173 1,508
- -------------------------------------------------------------------------------
TOTAL COSTS INCURRED $ 748 $521 $755 $2,024 $149 $173 $2,346
- -------------------------------------------------------------------------------
(1) Includes costs incurred whether capitalized or charged to earnings.
Excludes support equipment expenditures.
(2) Proved amounts include wells, equipment and facilities associated with
proved reserves; unproved represent amounts for equipment and facilities not
associated with the production of proved reserves.
(3) Does not include properties acquired through property exchanges.
- -------------------------------------------------------------------------------
FS-34
<PAGE>
<TABLE>
<CAPTION>
TABLE II - CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
Consolidated Companies Affiliated Companies
--------------------------------------- --------------------
Millions of dollars U.S. Africa Other Total CPI TCO Worldwide
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996
Unproved properties $ 301 $ 59 $ 208 $ 568 $ - $ 420 $ 988
Proved properties and related
producing assets 16,284 2,753 4,267 23,304 1,018 524 24,846
Support equipment 525 158 254 937 548 200 1,685
Deferred exploratory wells 157 43 94 294 - - 294
Other uncompleted projects 446 678 1,520 2,644 293 97 3,034
- -------------------------------------------------------------------------------------------------------------
Gross capitalized costs 17,713 3,691 6,343 27,747 1,859 1,241 30,847
- -------------------------------------------------------------------------------------------------------------
Unproved properties valuation 150 37 86 273 - - 273
Proved producing properties -
Depreciation and depletion 11,422 1,240 2,259 14,921 557 34 15,512
Future abandonment and
restoration 996 272 160 1,428 37 4 1,469
Support equipment depreciation 310 75 137 522 309 46 877
- -------------------------------------------------------------------------------------------------------------
Accumulated provisions 12,878 1,624 2,642 17,144 903 84 18,131
- -------------------------------------------------------------------------------------------------------------
NET CAPITALIZED COSTS $ 4,835 $2,067 $3,701 $10,603 $ 956 $1,157 $12,716
- -------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1995
Unproved properties $ 329 $ 57 $ 190 $ 576 $ - $ 420 $ 996
Proved properties and related
producing assets 16,261 1,959 5,334 23,554 900 408 24,862
Support equipment 686 138 295 1,119 494 207 1,820
Deferred exploratory wells 148 40 62 250 - - 250
Other uncompleted projects 368 1,010 1,176 2,554 320 112 2,986
- -------------------------------------------------------------------------------------------------------------
Gross capitalized costs 17,792 3,204 7,057 28,053 1,714 1,147 30,914
- -------------------------------------------------------------------------------------------------------------
Unproved properties valuation 213 30 95 338 - - 338
Proved producing properties -
Depreciation and depletion 11,282 1,071 3,119 15,472 492 18 15,982
Future abandonment and
restoration 1,062 247 291 1,600 24 2 1,626
Support equipment depreciation 384 64 179 627 277 30 934
- -------------------------------------------------------------------------------------------------------------
Accumulated provisions 12,941 1,412 3,684 18,037 793 50 18,880
- -------------------------------------------------------------------------------------------------------------
NET CAPITALIZED COSTS $ 4,851 $ 1,792 $ 3,373 $10,016 $ 921 $ 1,097 $12,034
- -------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994
Unproved properties $ 354 $ 50 $ 213 $ 617 $ - $ 420 $ 1,037
Proved properties and related
producing assets 15,996 1,822 4,946 22,764 804 330 23,898
Support equipment 755 133 302 1,190 456 180 1,826
Deferred exploratory wells 145 44 68 257 - - 257
Other uncompleted projects 308 403 1,000 1,711 353 210 2,274
- -------------------------------------------------------------------------------------------------------------
Gross capitalized costs 17,558 2,452 6,529 26,539 1,613 1,140 29,292
- -------------------------------------------------------------------------------------------------------------
Unproved properties valuation 230 23 109 362 - - 362
Proved producing properties -
Depreciation and depletion 10,296 924 2,713 13,933 435 8 14,376
Future abandonment and
restoration 1,005 221 294 1,520 14 1 1,535
Support equipment depreciation 359 60 157 576 250 16 842
- -------------------------------------------------------------------------------------------------------------
Accumulated provisions 11,890 1,228 3,273 16,391 699 25 17,115
- -------------------------------------------------------------------------------------------------------------
NET CAPITALIZED COSTS $ 5,668 $ 1,224 $ 3,256 $10,148 $ 914 $ 1,115 $12,177
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE III - RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES(1)
The company's results of operations from oil and gas producing activities for
the years 1996, 1995 and 1994 are shown in the following table.
Net income from exploration and production activities as reported on Page FS-6
reflects income taxes computed on an effective rate basis. In accordance with
SFAS No. 69, income taxes in Table III are based on statutory tax rates,
reflecting allowable deductions and tax credits. Interest expense is excluded
from the results reported in Table III and from the net income amounts on Page
FS-6.
FS-35
<PAGE>
<TABLE>
<CAPTION>
TABLE III - RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES(1) - Continued
Consolidated Companies Affiliated Companies
--------------------------------------- --------------------
Millions of dollars U.S. Africa Other Total CPI TCO Worldwide
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Revenues from net production
Sales $1,695 $ 975 $ 984 $3,654 $ 45 $256 $3,955
Transfers 2,073 1,181 756 4,010 648 - 4,658
- -------------------------------------------------------------------------------------------------------------
Total 3,768 2,156 1,740 7,664 693 256 8,613
Production expenses (1,252) (242) (342) (1,836) (213) (97) (2,146)
Proved producing properties
depreciation, depletion
and abandonment provision (678) (194) (296) (1,168) (80) (34) (1,282)
Exploration expenses (172) (85) (198) (455) (8) - (463)
Unproved properties valuation (12) (6) (8) (26) - - (26)
Other income (expense)(2) 46 (74) 112 84 8 (13) 79
- -------------------------------------------------------------------------------------------------------------
Results before income taxes 1,700 1,555 1,008 4,263 400 112 4,775
Income tax expense (600) (1,059) (471) (2,130) (212) (34) (2,376)
- -------------------------------------------------------------------------------------------------------------
RESULTS OF PRODUCING OPERATIONS $1,100 $ 496 $ 537 $2,133 $188 $ 78 $2,399
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Revenues from net production
Sales $1,189 $ 748 $ 783 $2,720 $ 35 $125 $2,880
Transfers 1,689 824 662 3,175 583 - 3,758
- -------------------------------------------------------------------------------------------------------------
Total 2,878 1,572 1,445 5,895 618 125 6,638
Production expenses (1,196) (190) (400) (1,786) (195) (94) (2,075)
Proved producing properties
depreciation, depletion
and abandonment provision (752) (174) (316) (1,242) (69) (26) (1,337)
Exploration expenses (102) (57) (213) (372) (9) - (381)
Unproved properties valuation (18) (7) (11) (36) - - (36)
New accounting standard for
impaired assets (753) - (128) (881) - - (881)
Other income (expense)(2) 130 (52) 37 115 (13) - 102
- -------------------------------------------------------------------------------------------------------------
Results before income taxes 187 1,092 414 1,693 332 5 2,030
Income tax expense (61) (660) (246) (967) (176) (4) (1,147)
- -------------------------------------------------------------------------------------------------------------
Results of Producing Operations $ 126 $ 432 $ 168 $ 726 $156 $ 1 $ 883
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Revenues from net production
Sales $1,484 $ 353 $ 736 $2,573 $ 24 $ 86 $2,683
Transfers 1,598 960 642 3,200 531 - 3,731
- -------------------------------------------------------------------------------------------------------------
Total 3,082 1,313 1,378 5,773 555 86 6,414
Production expenses (1,219) (222) (399) (1,840) (184) (65) (2,089)
Proved producing properties
depreciation, depletion
and abandonment provision (885) (153) (326) (1,364) (53) (17) (1,434)
Exploration expenses (132) (52) (192) (376) (9) - (385)
Unproved properties valuation (21) (3) (15) (39) - - (39)
Other income (expense)(2) 22 (50) (21) (49) (26) (8) (83)
- -------------------------------------------------------------------------------------------------------------
Results before income taxes 847 833 425 2,105 283 (4) 2,384
Income tax expense (314) (569) (252) (1,135) (143) (6) (1,284)
- -------------------------------------------------------------------------------------------------------------
Results of Producing Operations $ 533 $ 264 $ 173 $ 970 $140 $(10) $1,100
- -------------------------------------------------------------------------------------------------------------
(1)The value of owned production consumed as fuel has been eliminated from
revenues and production expenses, and the related volumes have been deducted
from net production in calculating the unit average sales price and production
cost; this has no effect on the amount of results of producing operations.
(2)Includes gas processing fees, net sulfur income, natural gas contract
settlements, currency transaction gains and losses, miscellaneous expenses,
etc. In 1996, in the United States, a $48 before-tax gain from the merger of
the company's natural gas liquids company and natural gas marketing business
with NGC Corporation and a $19 refund of federal lease costs were more than
offset by litigation, environmental and impairment provisions totaling $78
and a loss of $17 on the sale of a producing property. Also, includes equity
earnings of NGC Corporation.
Other international in 1996 includes $103 of gains on sales of producing
properties, partially offset by $33 of asset impairments and employee
severance provisions. Also includes earnings from Boscan Field operating
services agreement.
In 1995, before-tax net asset write-offs, asset dispositions,
environmental provisions and regulatory issues increased income $15 in the
United States. However, in the international other segment, net special charges
for litigation and employee severance reduced earnings $29. In 1994, the United
States included before-tax net charges of $97 relating to environmental cleanup
provisions, litigation and regulatory settlements and an insurance recovery.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
FS-36
<PAGE>
<TABLE>
<CAPTION>
TABLE III - RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES(1),(2) - Continued
Consolidated Companies Affiliated Companies
--------------------------------------- --------------------
Millions of dollars U.S. Africa Other Total CPI TCO Worldwide
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Average sales prices
Liquids, per barrel $18.41 $20.41 $18.50 $19.12 $16.26 $12.27 $18.42
Natural gas, per
thousand cubic feet 2.29 - 2.08 2.25 - .57 2.21
Average production costs,
per barrel 5.40 2.29 3.31 4.16 4.99 4.15 4.23
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Average sales prices
Liquids, per barrel $14.98 $16.49 $15.32 $15.55 $14.35 $11.51 $15.29
Natural gas, per
thousand cubic feet 1.52 - 1.72 1.56 - .71 1.55
Average production costs,
per barrel 5.11 2.00 3.83 4.12 4.52 7.73 4.24
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Average sales prices
Liquids, per barrel $13.65 $15.16 $14.16 $14.18 $12.65 $10.54 $13.90
Natural gas, per
thousand cubic feet 1.76 - 1.83 1.78 - .56 1.76
Average production costs,
per barrel 4.81 2.57 3.79 4.13 4.19 7.13 4.19
- -------------------------------------------------------------------------------------------------------------
Average sales price
for liquids ($/Bbl)
DECEMBER 1996 $21.07 $23.54 $19.45 $21.54 $19.06 $13.64 $20.68
December 1995 15.47 17.45 16.03 16.25 15.39 11.37 16.01
December 1994 13.80 15.20 14.35 14.36 13.10 10.54 14.12
- -------------------------------------------------------------------------------------------------------------
Average sales price
for natural gas ($/MCF)
DECEMBER 1996 $ 3.73 $ - $ 2.24 $ 3.42 $ - $ .81 $ 3.36
December 1995 2.04 - 1.99 2.03 - .77 2.02
December 1994 1.62 - 1.73 1.64 - .57 1.63
- -------------------------------------------------------------------------------------------------------------
(1)The value of owned production consumed as fuel has been eliminated from
revenues and production expenses, and the related volumes have been deducted
from net production in calculating the unit average sales price and production
cost; this has no effect on the amount of results of producing operations.
(2)Natural gas converted to crude oil equivalent gas (OEG) barrels at a rate
of 6 MCF=1 OEG barrel.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE IV - RESERVE QUANTITIES INFORMATION
The company's estimated net proved underground oil and gas reserves and changes
thereto for the years 1996, 1995 and 1994 are shown in the following table.
Proved reserves are estimated by the company's asset teams composed of earth
scientists and reservoir engineers. These proved reserve estimates are reviewed
annually by the corporation's reserves advisory committee to ensure that
rigorous professional standards and the reserves definitions prescribed by the
Securities and Exchange Commission are consistently applied throughout the
company.
Proved reserves are the estimated quantities that geologic and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Due to the
inherent uncertainties and the limited nature of reservoir data, estimates of
underground reserves are subject to change over time as additional information
becomes available.
Proved reserves do not include additional quantities recoverable beyond the
term of the lease or contract unless renewal is reasonably certain, or that may
result from extensions of currently proved areas, or from application of
secondary or tertiary recovery processes not yet tested and determined to be
economic.
Proved developed reserves are the quantities expected to be recovered through
existing wells with existing equipment and operating methods.
"Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements and royalty obligations in effect at the time of the
estimate.
Proved reserves for Tengizchevroil (TCO), the company's 50 percent-owned
affiliate in Kazakstan, do not include reserves that will be produced when a
dedicated export system is in place. In January 1997, Chevron agreed to sell 10
percent of its interest in TCO, reducing its ownership to 45 percent.
In July 1996, the company entered into a 20-year operating service agreement
(with a 10-year extension option) with Maraven, a unit of Petroleos de
Venezuela, the national oil company, to operate and develop the Boscan oil
field in Lake Maracaibo, Venezuela, currently producing 80,000 barrels a
day, with plans to increase to 115,000 barrels a day. Chevron receives
operating expense reimbursement and capital recovery, plus interest and an
incentive fee.
Because Chevron does not have an equity ownership in the oil reserves, the
Boscan reserves have not been included in the company's reserve quantities.
FS-37
<PAGE>
<TABLE>
<CAPTION>
TABLE IV - RESERVE QUANTITIES INFORMATION - Continued
NET PROVED RESERVES OF CRUDE OIL, CONDENSATE NET PROVED RESERVES OF NATURAL GAS
AND NATURAL GAS LIQUIDS Millions of barrels Billions of cubic feet
--------------------------------------------------- -----------------------------------------------------
Consolidated Companies Affiliates World- Consolidated Companies Affiliates World-
----------------------------- ---------- ------------------------------ ----------
U.S. Africa Other Total CPI TCO wide U.S. Africa Other Total CPI TCO wide
- --------------------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESERVES AT
JANUARY 1, 1994 1,279 682 453 2,414 669 1,102 4,185 5,484 - 2,257 7,741 142 1,528 9,411
Changes
attributable to:
Revisions 1 30 10 41 (19) 1 23 283 - (11) 272 (6) 2 268
Improved recovery 22 18 36 76 9 - 85 5 - 7 12 - - 12
Extensions
and discoveries 35 85 46 166 - - 166 533 - 675 1,208 26 - 1,234
Purchases(1) 1 76 - 77 - - 77 55 - 1 56 - - 56
Sales(2) (4) - (3) (7) - - (7) (23) - (31) (54) - - (54)
Production (134) (87) (77) (298) (56) (8) (362) (761) - (176) (937) (11) (12) (960)
- ---------------------------------------------------------------------------- ----------------------------------------------------
RESERVES AT
DECEMBER 31, 1994 1,200 804 465 2,469 603 1,095 4,167 5,576 - 2,722 8,298 151 1,518 9,967
Changes
attributable to:
Revisions 25 62 74 161 (28) 2 135 3 62 71 136 13 2 151
Improved recovery 7 36 66 109 42 - 151 7 - 23 30 - - 30
Extensions
and discoveries 87 137 14 238 - - 238 609 22 175 806 6 - 812
Purchases(1) 3 25 - 28 - - 28 48 - 2 50 - - 50
Sales(2) (6) - (5) (11) - - (11) (29) - (23) (52) - - (52)
Production (129) (95) (76) (300) (55) (10) (365) (682) - (176) (858) (15) (15) (888)
- ---------------------------------------------------------------------------- ----------------------------------------------------
RESERVES AT
DECEMBER 31, 1995 1,187 969 538 2,694 562 1,087 4,343 5,532 84 2,794 8,410 155 1,505 10,070
Changes
attributable to:
Revisions (9) 73 24 88 (4) 69 153 (225) 209 489 473 (1) (18) 454
Improved recovery 38 22 22 82 60 - 142 20 - 16 36 1 - 37
Extensions
and discoveries 63 74 6 143 2 - 145 676 - 7 683 15 - 698
Purchases(1) 2 - - 2 - - 2 5 - 11 16 - - 16
Sales(2) (7) - (32) (39) - - (39) (47) - (11) (58) - - (58)
Production (125) (106) (76) (307) (54) (21) (382) (686) - (171) (857) (18) (25) (900)
- ---------------------------------------------------------------------------- ----------------------------------------------------
RESERVES AT
DECEMBER 31, 1996 1,149 1,032 482 2,663 566 1,135 4,364 5,275 293 3,135 8,703 152 1,462 10,317
- ---------------------------------------------------------------------------- ----------------------------------------------------
Developed reserves
- ---------------------------------------------------------------------------- ----------------------------------------------------
At January 1, 1994 1,151 503 310 1,964 511 421 2,896 4,863 - 1,647 6,510 130 584 7,224
At December 31, 1994 1,097 546 293 1,936 499 414 2,849 4,919 - 1,508 6,427 135 574 7,136
At December 31, 1995 1,061 596 371 2,028 457 406 2,891 4,929 84 1,726 6,739 140 562 7,441
AT DECEMBER 31, 1996 1,027 658 281 1,966 448 500 2,914 4,727 293 1,634 6,654 136 643 7,433
- ---------------------------------------------------------------------------- ----------------------------------------------------
(1)Includes reserves acquired through property exchanges.
(2)Includes reserves disposed of through property exchanges.
</TABLE>
TABLE V - STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO
PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows, related to the
above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS No. 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved
reserves based on year-end cost indices, assuming continuation of year-end
economic conditions. Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates. These rates reflect allowable
deductions and tax credits and are applied to estimated future pre-tax net cash
flows, less the tax basis of related assets. Discounted future net cash flows
are calculated using 10 percent midperiod discount factors. This discounting
requires a year-by-year estimate of when future expenditures will be incurred
and when the reserves will be produced.
The information provided does not represent management's estimate of the
company's expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as
new information becomes available. Moreover, probable and possible reserves,
which may become proved in the future, are excluded from the calculations.
The arbitrary valuation prescribed under SFAS No. 69 requires assumptions as
to the timing and amount of future development and production costs. The
calculations are made as of December 31 each year and should not be relied
upon as an indication of the company's future cash flows or value of its oil
and gas reserves.
FS-38
<PAGE>
<TABLE>
<CAPTION>
TABLE V - STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO
PROVED OIL AND GAS RESERVES - Continued
Consolidated Companies Affiliated Companies
---------------------------------------- ---------------------
Millions of dollars U.S . Africa Other Total CPI TCO Worldwide
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996
Future cash inflows from production $45,620 $24,220 $19,560 $89,400 $12,220 $16,040 $117,660
Future production and development costs (14,430) (3,840) (4,590) (22,860) (7,560) (5,330) (35,750)
Future income taxes (11,170) (12,560) (5,290) (29,020) (2,210) (4,220) (35,450)
- ---------------------------------------------------------------------------------------------------------------------
Undiscounted future net cash flows 20,020 7,820 9,680 37,520 2,450 6,490 46,460
10 percent midyear annual discount for
timing of estimated cash flows (8,250) (2,700) (4,300) (15,250) (1,020) (5,070) (21,340)
- ---------------------------------------------------------------------------------------------------------------------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS $11,770 $ 5,120 $ 5,380 $22,270 $ 1,430 $ 1,420 $ 25,120
- ---------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1995
Future cash inflows from production $30,200 $17,570 $15,340 $63,110 $ 9,530 $15,630 $ 88,270
Future production and development costs (14,140) (4,350) (4,600) (23,090) (5,700) (7,140) (35,930)
Future income taxes (5,390) (7,910) (3,660) (16,960) (1,950) (3,350) (22,260)
- ---------------------------------------------------------------------------------------------------------------------
Undiscounted future net cash flows 10,670 5,310 7,080 23,060 1,880 5,140 30,080
10 percent midyear annual discount for
timing of estimated cash flows (4,260) (1,830) (3,140) (9,230) (800) (3,700) (13,730)
- ---------------------------------------------------------------------------------------------------------------------
Standardized Measure of Discounted
Future Net Cash Flows $ 6,410 $ 3,480 $ 3,940 $13,830 $ 1,080 $ 1,440 $ 16,350
- ---------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994
Future cash inflows from production $26,030 $12,230 $12,450 $50,710 $ 9,160 $14,080 $ 73,950
Future production and development costs (13,540) (4,060) (5,450) (23,050) (6,050) (8,020) (37,120)
Future income taxes (3,950) (5,000) (2,410) (11,360) (1,570) (2,090) (15,020)
- ---------------------------------------------------------------------------------------------------------------------
Undiscounted future net cash flows 8,540 3,170 4,590 16,300 1,540 3,970 21,810
10 percent midyear annual discount for
timing of estimated cash flows (3,490) (1,220) (1,870) (6,580) (660) (2,950) (10,190)
- ---------------------------------------------------------------------------------------------------------------------
Standardized Measure of Discounted
Future Net Cash Flows $ 5,050 $ 1,950 $ 2,720 $ 9,720 $ 880 $ 1,020 $ 11,620
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE VI - CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED RESERVES
Consolidated Companies Affiliated Companies Worldwide
--------------------------- ------------------------- ---------------------------
Millions of dollars 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRESENT VALUE AT JANUARY (1) $13,830 $ 9,720 $8,600 $2,520 $1,900 $1,140 $16,350 $11,620 $9,740
Sales and transfers of oil and gas
produced, net of production costs (5,828) (4,109) (3,933) (639) (454) (392) (6,467) (4,563) (4,325)
Development costs incurred 1,662 1,661 1,195 173 104 313 1,835 1,765 1,508
Purchases of reserves 28 230 305 - - - 28 230 305
Sales of reserves (353) (116) (54) - - - (353) (116) (54)
Extensions, discoveries and improved
recovery, less related costs 3,745 2,927 1,775 316 165 (3) 4,061 3,092 1,772
Revisions of previous
quantity estimates 969 1,979 1,064 59 (723) (377) 1,028 1,256 687
Net changes in prices, development
and production costs 13,495 3,602 1,317 721 1,756 1,384 14,216 5,358 2,701
Accretion of discount 2,236 1,513 1,233 418 310 206 2,654 1,823 1,439
Net change in income tax (7,514) (3,577) (1,782) (718) (538) (371) (8,232) (4,115) (2,153)
Net change for the year 8,440 4,110 1,120 330 620 760 8,770 4,730 1,880
PRESENT VALUE AT DECEMBER 31 $22,270 $13,830 $9,720 $2,850 $2,520 $1,900 $25,120 $16,350 $11,620
The changes in present values between years, which can be significant, reflect
changes in estimated proved reserve quantities and prices and assumptions used
in forecasting production volumes and costs. Changes in the timing of
production are included with "Revisions of previous quantity estimates." The
1996 changes reflected higher year-end crude oil and natural gas prices and
quantity increases in crude oil and natural gas reserves.
</TABLE>
FS-39
<PAGE>
<TABLE>
<CAPTION>
Five-Year Financial Summary(1)
Millions of dollars, except per-share amounts 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME DATA
REVENUES
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues
Refined products $15,785 $13,471 $14,328 $16,089 $16,821
Crude oil 12,397 9,376 8,249 8,501 10,031
Natural gas 3,299 2,019 2,138 2,156 1,995
Natural gas liquids 1,167 1,285 1,180 1,235 1,190
Other petroleum 1,184 1,144 944 967 927
Chemicals 3,422 3,758 3,065 2,708 2,872
Coal and other minerals 340 358 416 447 397
Excise taxes 5,202 4,988 4,790 4,068 3,964
Corporate and other (14) (89) 20 20 15
- -------------------------------------------------------------------------------------------------------------------------------
Total sales and other operating revenues 42,782 36,310 35,130 36,191 38,212
Equity in net income of affiliated companies 767 553 440 440 406
Other income 344 219 284 451 1,059
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 43,893 37,082 35,854 37,082 39,677
COSTS, OTHER DEDUCTIONS AND INCOME TAXES 41,286 36,152 34,161 35,817 37,467
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES $ 2,607 $ 930 $ 1,693 $ 1,265 $ 2,210
CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES - - - - (641)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2,607 $ 930 $ 1,693 $ 1,265 $ 1,569
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES $3.99 $1.43 $2.60 $1.94 $3.26
CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES - - - - (0.95)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $3.99 $1.43 $2.60 $1.94 $2.31
- -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE $2.08 $1.925 $1.85 $1.75 $1.65
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA (YEAR-END)
Current assets $ 7,942 $ 7,867 $ 7,591 $ 8,682 $ 8,722
Properties, plant and equipment (net) 21,496 21,696 22,173 21,865 22,188
Total assets 34,854 34,330 34,407 34,736 33,970
Short-term debt 2,706 3,806 4,014 3,456 2,888
Other current liabilities 6,201 5,639 5,378 7,150 6,947
Long-term debt and capital lease obligations 3,988 4,521 4,128 4,082 4,953
Stockholders' equity 15,623 14,355 14,596 13,997 13,728
Per share $ 23.92 $ 22.01 $ 22.40 $ 21.49 $ 21.11
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
Return on average stockholders' equity 17.4% 6.4% 11.8% 9.1% 11.0%
Return on average capital employed 12.7% 5.3% 8.7% 6.8% 8.5%
Total debt/total debt plus equity 30.0% 36.7% 35.8% 35.0% 36.4%
Capital and exploratory expenditures(2) $ 4,840 $ 4,800 $ 4,819 $ 4,440 $ 4,423
Common stock price - High $68 3/8 $53 5/8 $49 3/16 $49 3/8 $37 11/16
- Low $51 $43 3/8 $39 7/8 $33 11/16 $30 1/16
- Year-end $65 $52 3/8 $44 5/8 $43 9/16 $34 3/4
Common shares outstanding at year-end (in thousands) 653,086 652,327 651,751 651,478 650,348
Weighted average shares outstanding
for the year (in thousands) 652,769 652,084 651,672 650,958 677,955
Number of employees at year-end(3) 40,820 43,019 45,758 47,576 49,245
- -------------------------------------------------------------------------------------------------------------------------------
(1)Comparability between years is affected by changes in accounting methods: 1995 and 1996 reflect adoption of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of"; 1992 and subsequent years reflect adoption of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." Share and per-share amounts reflect the two-
for-one stock split in May 1994.
(2)Includes equity in affiliates' expenditures. $983 $912 $846 $701 $621
(3)Includes service station personnel.
</TABLE>
FS-40
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED FINANCIAL STATEMENTS
December 31, 1996
C-1
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
INDEX
Page
General Information C-3 TO C-4
Report of Independent Auditors C-5
Combined Balance Sheet C-6 TO C-7
Combined Statement of Income C-8
Combined Statement of Stockholders' Equity C-9
Combined Statement of Cash Flows C-10
Notes to Combined Financial Statements C-11 TO C-21
Note: Financial statement schedules are omitted as permitted by Rule 4.03 and
Rule 5.04 of Regulation S-X.
<PAGE>
CALTEX GROUP OF COMPANIES
GENERAL INFORMATION
The Caltex Group of Companies (Group) is jointly owned 50% each by Chevron
Corporation and Texaco Inc. and was created in 1936 by its two owners to
produce, transport, refine and market crude oil and petroleum products. The
Group is comprised of the following companies:
Caltex Petroleum Corporation, a company incorporated in Delaware that,
through its many subsidiaries and affiliates, conducts refining,
transporting, and marketing activities in the Eastern Hemisphere;
P. T. Caltex Pacific Indonesia, an exploration and production company
incorporated and operating in Indonesia; and,
American Overseas Petroleum Limited, a company incorporated in the Bahamas,
that, through its subsidiary, provides services for and manages certain
exploration and production operations in Indonesia in which Chevron and
Texaco have interests, but not necessarily jointly or in the same properties.
A brief description of each company's operations and the Group's environmental
activities follows:
Caltex Petroleum Corporation (Caltex)
- -------------------------------------
Through its subsidiaries and affiliates, Caltex operates in approximately 60
countries with some of the highest economic and petroleum growth rates in the
world, principally in Africa, Asia, the Middle East, New Zealand and Australia.
At year end 1996, Caltex had over 7,000 employees, of which about 3% were
located in the United States.
The majority of refining and certain marketing operations are conducted
through joint ventures. Caltex has equity interests in 14 refineries in 11
countries and its share of refinery inputs approximated 743,000 barrels per day
in 1996. Caltex continues to improve its refineries with investments designed
to provide higher yields and meet environmental regulations. Construction of
the new 130,000 barrels per day refinery in Thailand was completed and
operations began in July, 1996. In Korea, a new crude unit with a capacity of
220,000 barrels per day and a 70,000 barrel per day diesel desulfurizer were
completed during the fourth quarter of 1996 bringing total refining capacity at
LG-Caltex to 600,000 barrels per day. Caltex companies sold approximately 1.4
million barrels per day of crude and petroleum products in 1996.
Caltex continues to place emphasis on high-growth markets and is moving
towards a better strategic balance in its refining capacity. During 1996,
Caltex sold its 50 percent interest in Nippon Petroleum Refining Company,
Limited for approximately $2 billion, and it continues to actively manage the
performance of its refining assets.
Caltex introduced a new corporate and retail identity in 1996 and accelerated
its downstream marketing activities. New and refurbished service stations are
being introduced across the Asia-Pacific region, Africa and the Middle East,
where there are more than 4,100 Caltex-branded service stations. Caltex
affiliates operate another 3,800 sites under other names. Underperforming
stations with poor prospects for improvement are being eliminated. New Caltex
Star Mart convenience stores anchor many high-volume station locations. Many
stations also include new ancillary revenue centers such as quick-service
restaurants, auto lube bays and brushless car washes. Caltex had an average
17.4% market share in its principal operating areas in 1996.
In addition to the retail initiatives, the company has created specialized
business units that are helping Caltex operating companies position for larger
shares of the high-growth markets for lubricating oils and greases, aviation
fuels, and liquefied petroleum gas. Caltex conducts international crude oil
and petroleum product logistics and trading operations from a subsidiary in
Singapore. The company has an interest in a fleet of vessels and owns or has
equity interests in numerous pipelines, terminals and depots. Caltex is also
active in the petrochemical business, particularly in Japan and South Korea.
C-3
<PAGE>
CALTEX GROUP OF COMPANIES
GENERAL INFORMATION
P. T. Caltex Pacific Indonesia (CPI)
- ------------------------------------
CPI holds a Production Sharing Contract in Central Sumatra for which the
Indonesian government has granted an extension to the year 2021. CPI also acts
as operator in Sumatra for four other petroleum contract areas, with 32 fields,
which are jointly held by Chevron and Texaco. Exploration is pursued through an
area comprising 2.4 million acres with production established in the giant
Minas and Duri fields. Gross production from fields operated by CPI for 1996
was over 753,000 barrels a day. CPI entitlements are sold to its stockholders,
who use them in their systems or sell them to third parties. At year end 1996,
CPI had approximately 6,100 employees, all located in Indonesia.
American Overseas Petroleum Limited (AOPL)
- ------------------------------------------
In addition to providing services to CPI, AOPL, through its subsidiary Amoseas
Indonesia Inc., manages selective contract areas for Texaco's and Chevron's
undivided interests in Indonesia, excluding Sumatra. At year end, AOPL had
approximated 245 employees, of which 7% were located in the United States.
Environmental Activities
- ------------------------
The Group's activities are subject to various environmental, health and safety
regulations in each of the countries in which it operates. Such regulations
vary significantly in degree of scope, standards and enforcement. The Group's
policy is to comply with all applicable environmental, health and safety laws
and regulations as well as its own internal policies. The Group has an active
program to ensure that its environmental standards are maintained, which
includes closely monitoring applicable statutory and regulatory requirements,
as well as enforcement policies in each of the countries in which it operates,
and conducting periodic environmental compliance audits.
The environmental guidelines and definitions promulgated by the American
Petroleum Institute provide the basis for reporting the Group's expenditures.
For the year ended December 31, 1996, the Group, including its equity share of
affiliates, incurred total costs of approximately $225 million, including
capital costs of $156 million and nonremediation related operating expenses of
$69 million. The major component of the Group's expenditures is for the
prevention of air pollution. As of December 31, 1996, the Group had accrued
$96 million for various known remediation activities, including $74 million
relating to the future cost of restoring and abandoning existing oil and gas
properties.
Based upon existing statutory and regulatory requirements, investment and
operating plans, and known exposures, the Group believes that future
environmental expenditures will not materially affect its liquidity, financial
position or results of operations.
C-4
<PAGE>
Report of Independent Auditors
To the Stockholders
The Caltex Group of Companies:
We have audited the accompanying combined balance sheets of the Caltex Group
of Companies as of December 31, 1996 and 1995, and the related combined
statements of income, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Caltex Group of
Companies as of December 31, 1996 and 1995 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 10, 1997
C-5
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED BALANCE SHEET
ASSETS
As of December 31
--------------------
(Millions of dollars)
1996 1995
------- -------
Current assets:
Cash and cash equivalents, including time deposits of
$21 in 1996 and $60 in 1995 $ 206 $ 166
Accounts and notes receivable, less allowance for doubtful
accounts of $18 in 1996 and $11 in 1995:
Trade 864 1,002
Affiliates 452 210
Other 318 238
------- -------
1,634 1,450
Inventories:
Crude oil 159 130
Petroleum products 503 516
Materials and supplies 53 61
------- -------
715 707
Deferred income taxes 10 -
------- -------
Total current assets 2,565 2,323
Investments and advances:
Equity in affiliates 1,842 3,163
Miscellaneous investments and long-term receivables,
less allowance of $8 in 1995 269 207
------- -------
Total investments and advances 2,111 3,370
Property, plant, and equipment, at cost:
Producing 3,721 3,485
Refining 1,550 1,468
Marketing 2,451 2,160
Other 8 9
------- -------
7,730 7,122
Accumulated depreciation, depletion and amortization (3,217) (2,868)
------- -------
Net property, plant and equipment 4,513 4,254
Prepaid and deferred charges 206 170
------- -------
Total assets $ 9,395 $10,117
------- -------
See accompanying notes to combined financial statements.
C-6
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
As of December 31
--------------------
(Millions of dollars)
1996 1995
------- -------
Current liabilities:
Short-term debt $ 1,246 $ 1,665
Accounts payable:
Trade and other 1,236 1,165
Stockholders 176 90
Affiliates 84 74
------- -------
1,496 1,329
Accrued liabilities 148 127
Estimated income taxes 109 102
------- -------
Total current liabilities 2,999 3,223
Long-term debt 713 628
Employee benefit plans 107 98
Deferred credits and other non-current liabilities 949 864
Deferred income taxes 249 209
Minority interest in subsidiary companies 122 136
------- -------
Total 5,139 5,158
Stockholders' equity:
Common stock 355 355
Capital in excess of par value 2 2
Retained earnings 3,910 4,187
Currency translation adjustment (36) 350
Unrealized holding gain on investments 25 65
------- --------
Total stockholders' equity 4,256 4,959
------- -------
Total liabilities and stockholders' equity $ 9,395 $10,117
See accompanying notes to combined financial statements.
C-7
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED STATEMENT OF INCOME
Year ended December 31
------------------------------
(Millions of dollars)
1996 1995 1994
-------- -------- --------
Revenues:
Sales and other operating revenues(1) $ 16,895 $ 15,067 $ 14,751
Gain on sale of investment in affiliate 1,132 - -
Equity in net income of affiliates 51 425 263
Dividends, interest and other income 88 130 134
-------- -------- --------
Total revenues 18,166 15,622 15,148
Costs and deductions:
Cost of sales and operating expenses(2) 14,774 13,045 12,801
Selling, general and administrative expenses 532 620 568
Depreciation, depletion and amortization 407 361 331
Maintenance and repairs 134 104 160
Foreign exchange, net 6 (37) 73
Interest expense 140 159 101
Minority interest (2) 4 3
-------- -------- --------
Total costs and deductions 15,991 14,256 14,037
-------- -------- --------
Income before income taxes 2,175 1,366 1,111
Provision for income taxes 982 467 422
-------- -------- --------
Net income $ 1,193 $ 899 $ 689
-------- -------- --------
(1) Includes sales to:
Stockholders $ 1,711 $ 1,376 $ 1,250
Affiliates 2,841 1,524 1,044
(2) Includes purchases from:
Stockholders $ 2,634 $ 1,834 $ 1,662
Affiliates 1,297 1,638 1,587
See accompanying notes to combined financial statements.
C-8
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31
------------------------------
(Millions of dollars)
1996 1995 1994
-------- -------- --------
Common stock and capital
in excess of par value $ 357 $ 357 $ 357
-------- -------- --------
Retained earnings:
Balance at beginning of year $ 4,187 $ 3,898 $ 3,688
Net income 1,193 899 689
Cash dividends (1,470) (610) (479)
------- ------- -------
Balance at end of year $ 3,910 $ 4,187 $ 3,898
------- ------- -------
Currency translation adjustment:
Balance at beginning of year $ 350 $ 399 $ 250
Sale of investment in affiliate (240) - -
Other changes during the year (146) (49) 149
------- ------- -------
Balance at end of year $ (36) $ 350 $ 399
------- ------- -------
Unrealized holding gain on investments:
Balance at beginning of year $ 65 $ 79 $ 70
Change during the year (40) (14) 9
------- ------- -------
Balance at end of year $ 25 $ 65 $ 79
------- ------- -------
Total stockholders' equity - end of year $ 4,256 $ 4,959 $ 4,733
------- ------- -------
See accompanying notes to combined financial statements.
C-9
<PAGE>
CALTEX GROUP OF COMPANIES
COMBINED STATEMENT OF CASH FLOWS
Year ended December 31
------------------------------
(Millions of dollars)
1996 1995 1994
-------- -------- --------
Operating activities:
Net income $ 1,193 $ 899 $ 689
Reconciliation to net cash
provided by operating activities:
Depreciation, depletion and amortization 407 361 331
Dividends more (less) than equity
in affiliate income 38 (349) (220)
Net losses (gains) on asset sales 10 11 (17)
Deferred income taxes 36 18 (45)
Prepaid charges and deferred credits 38 69 115
Changes in operating working capital (7) (27) 58
Gain on sale of investment in affiliate (1,132) - -
Other (12) 66 77
-------- -------- --------
Net cash provided by operating activities 571 1,048 988
Investing activities:
Capital expenditures (741) (663) (837)
Investments in and advances to affiliates (30) (150) (131)
Net (purchases) sales of investment instruments (55) (7) 14
Proceeds from sale of investment in affiliate 1,984 - -
Proceeds from asset sales 95 46 37
-------- -------- --------
Net cash provided by (used for)
investing activities 1,253 (774) (917)
Financing activities:
Debt with terms in excess of three months :
Borrowings 1,112 1,063 1,257
Repayments (1,351) (1,093) (880)
Net (decrease) increase in other debt (53) 275 135
Dividends paid, including minority interest (1,490) (617) (482)
-------- -------- --------
Net cash (used for) provided by
financing activities (1,782) (372) 30
Effect of exchange rate changes
on cash and cash equivalents (2) 13 (16)
-------- -------- --------
Cash and cash equivalents:
Net change during the year 40 (85) 85
Beginning of year balance 166 251 166
-------- -------- --------
End of year balance $ 206 $ 166 $ 251
-------- -------- --------
See accompanying notes to combined financial statements.
C-10
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
PRINCIPLES OF COMBINATION The combined financial statements of the Caltex
Group of Companies (Group) include the accounts of Caltex Petroleum
Corporation and subsidiaries, American Overseas Petroleum Limited and
subsidiary, and P.T. Caltex Pacific Indonesia. Intercompany transactions and
balances have been eliminated. Subsidiaries include companies owned directly
or indirectly more than 50 percent except cases in which control does not rest
with the Group.
Chevron Corporation and Texaco Inc. (stockholders), through subsidiary
companies, each own 50% of the outstanding common shares of the Group
companies. The Group is primarily engaged in exploring, producing, refining,
transporting and marketing crude oil and petroleum products in the Asia-
Pacific and East-of-Suez Regions. The Group's accounting policies are in
accordance with United States generally accepted accounting principles.
TRANSLATION OF FOREIGN CURRENCIES The U.S. dollar is the functional currency
for all principal subsidiary and most affiliate operations. Affiliates in
Japan and Korea use the local currency as the functional currency.
Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
INVENTORIES Crude oil and petroleum product inventories are stated at cost,
primarily determined using the last-in, first-out (LIFO) method. Costs
include applicable acquisition and refining costs, duties, import taxes,
freight, etc. Materials and supplies are stated at average cost. Inventories
are valued at the lower of cost or current market.
INVESTMENTS AND ADVANCES Investments in affiliates in which the Group has an
ownership of 20% to 50% are accounted for by the equity method (including
majority owned investments where control does not rest with the Group). The
Group's share of earnings or losses of these companies is included in current
results, and the recorded investments reflect the underlying equity in each
company. Investments in other affiliates are carried at cost and dividends
are reported as income.
PROPERTY, PLANT AND EQUIPMENT Exploration and production activities are
accounted for under the successful efforts method. Depreciation, depletion
and amortization expenses for capitalized costs relating to producing
properties, including intangible development costs, are determined using the
unit-of-production method.
All other assets are depreciated by class on a straight-line basis using
rates based upon the estimated useful life of each class of asset.
Maintenance and repairs necessary to maintain facilities in operating
condition are charged to income as incurred. Additions and improvements that
materially extend the life of assets are capitalized. Upon disposal of
assets, any net gain or loss is included in income.
DERIVATIVE FINANCIAL INSTRUMENTS Gains and losses on hedges of existing
assets or liabilities are included in the carrying value of those assets and
liabilities, and are ultimately recognized in income as part of the carrying
value. Gains and losses related to qualifying hedges of firm commitments or
anticipated transactions are also deferred and recognized in income or
included in the carrying value when the underlying hedged transaction occurs.
If the derivative instrument ceases to be a hedge, the related gains and
losses are recognized currently in income. Gains and losses on derivative
contracts that do not qualify as hedges are recognized currently in other
income.
C-11
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies - continued
ENVIRONMENTAL MATTERS The Group's environmental policies encompass the
existing laws in each country in which the Group operates and the Group's own
internal standards. Expenditures that create future benefits or contribute to
future revenue generation are capitalized. Future remediation costs are
accrued based on estimates of known environmental exposure even if
uncertainties exist about the ultimate cost of the remediation. Such accruals
are based on the best available undiscounted estimates using data primarily
developed by third party experts. Costs of environmental compliance for past
and ongoing operations, including maintenance and monitoring, are expensed as
incurred. Recoveries from third parties are recorded as assets when
realizable.
RECLASSIFICATIONS Certain amounts for preceding periods have been
reclassified to conform with the current year's presentation.
Note 2 - Change in accounting principles
During 1995, the Group adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" which establishes guidelines for recognizing
and measuring impairment of long-lived assets. Adoption of this standard did
not impact the combined financial statements of the Group.
Note 3 - Inventories
The excess of current cost over the reported value of inventory maintained
on the LIFO basis was approximately $125 million and $52 million at December
31, 1996 and 1995, respectively.
During the periods presented, inventory quantities valued on the LIFO basis
were reduced at certain locations. The inventory reductions, net of market
valuation adjustments, increased net income by approximately $4 million in
1996, and decreased net income by $1 million in 1995 and $8 million in 1994.
Certain inventories were previously recorded at market, which was lower
than the LIFO carrying value. Earnings of $29 million, $25 million and $30
million, net of inventory volume reductions, were recorded in 1996, 1995 and
1994, respectively, reflecting improved market values over previous years. As
of December 31, 1996 substantially all inventories were recorded at cost.
Note 4 - Equity in affiliates
Investments in affiliates at equity include the following:
As of December 31
--------------------
(Millions of dollars)
Equity % 1996 1995
-------- ------- -------
Nippon Petroleum Refining Company, Limited - $ - $ 1,132
Koa Oil Company, Limited 50% 364 427
LG-Caltex Oil Corporation (formerly
Honam Oil Refinery, Limited) 50% 739 762
Australian Petroleum Pty. Limited 50% 336 412
Star Petroleum Refining Company, Ltd. 64% 287 327
All other Various 116 103
------- -------
$ 1,842 $ 3,163
------- -------
C-12
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 4 - Equity in affiliates - continued
Effective April 1, 1996, the Group sold its 50% investment in Nippon Petroleum
Refining Company, Limited (NPRC) to its partner, Nippon Oil Company, Limited
(NOC) for Yen 200 billion (approximately $2 billion) in cash. The Group's net
income in 1996 includes a net after-tax gain of approximately $620 million
related to this sale. The combined statement of income includes Group product
sales to NOC of approximately $ .5 billion, $2.1 billion, and $2.0 billion in
1996 (first quarter only), 1995 and 1994, respectively.
Effective May 1995, Caltex Australia Limited (CAL), a subsidiary of the Group,
combined its petroleum refining and marketing operations with those of Ampol
Limited to form Australian Petroleum Pty. Limited (APPL) which owns and manages
the combined refining and marketing operations. CAL contributed net assets at
their carrying value of $419 million for its 50% equity interest in APPL and no
gain or loss was recognized. The carrying value of CAL's investment in APPL in
excess of its proportionate share of APPL's net equity is being amortized over
approximately 20 years.
The remaining interest in Star Petroleum Refining Company, Ltd. (SPRC) is
owned by a Thailand governmental entity. Provisions in the SPRC shareholders
agreement limit the Group's control and mandate reduction in ownership to a
minority position by the year 2000.
Shown below is summarized financial information for these affiliates (in
millions of dollars):
100% Equity Share
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
Current assets $ 6,128 $ 7,125 $ 3,075 $ 3,556
Other assets 7,303 10,415 3,836 5,368
Current liabilities 5,191 5,608 2,618 2,804
Other liabilities 4,768 5,865 2,533 3,039
Net worth 3,472 6,067 1,760 3,081
100% Equity Share
1996 1995 1994 1996 1995 1994
Operating revenues $15,436 $15,396 $10,886 $7,751 $7,674 $5,418
Operating income 749 955 770 364 472 381
Net income 133 859 526 51 425 263
Cash dividends received from these affiliates were $89 million, $76 million,
and $43 million in 1996, 1995 and 1994, respectively.
During 1995, an affiliate sold certain property required by the local
government. The Group's share (approximately $171 million) of the resulting
gain was included in the Group's 1995 net income.
Retained earnings as of December 31, 1996 and 1995, includes $1.0 billion and
$1.7 billion, respectively, representing the Group's share of undistributed
earnings of affiliates at equity.
C-13
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 5 - Short-term debt
Short-term debt consists primarily of demand and promissory notes, acceptance
credits, overdrafts and the current portion of long-term debt. The weighted
average interest rates on short-term financing as of December 31, 1996, and
1995 were 7.5% and 7.0%, respectively.
Unutilized lines of credit available for short-term financing totaled $727
million as of December 31, 1996.
Note 6 - Long-term debt
Long-term debt, with related interest rates for 1996 and 1995, are as follows:
As of December 31
--------------------
(Millions of dollars)
1996 1995
------- -------
U.S. dollar debt:
Variable interest rate term loans $ 294 $ 243
Fixed interest rate term loans
with 6.25% and 6.7% average rates 110 58
Australian dollar debt:
Variable interest rate term loan - 50
Promissory notes payable with
6.73% and 7.6% average rate 20 19
Fixed interest rate loans with
11.2% rate due 2001-2002 224 230
New Zealand dollar debt:
Variable interest rate term loans 46 13
Fixed interest rate loan with
8.09% rate due 2000 7 -
Other 12 15
------- -------
$ 713 $ 628
------- -------
As of December 31, 1996 and 1995, $20 million and $19 million, respectively,
of short-term debt was classified as long-term debt. Settlement of these
obligations is not expected to require the use of working capital in 1997 as
the Group has both the intent and ability to refinance this debt on a long-term
basis. These borrowings were fully covered by long-term committed credit
facilities with major banks.
Aggregate maturities of long-term debt for the next five years are as follows
(in millions of dollars): 1997 - $23 (included in short-term debt); 1998 - $52;
1999 - $110; 2000 - $105; 2001 - $151; 2002 and thereafter - $295.
Note 7 - Operating leases
The Group has operating leases involving various marketing assets for which
net rental expense was $92 million, $91 million, and $121 million in 1996,
1995 and 1994, respectively.
Future net minimum rental commitments under operating leases having non-
cancelable terms in excess of one year are as follows (in millions of dollars):
1997 - $35; 1998 - $35; 1999 - $35; 2000 - $37; 2001 - $38; 2002 and thereafter
- - $73.
C-14
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 8 - Employee benefit plans
The Group has various retirement plans. Generally, these plans provide
defined benefits based on final or final average pay. The benefit levels,
vesting terms and funding practices vary among plans.
The funded status of retirement plans, primarily foreign and inclusive of
affiliates at equity, is as follows:
As of December 31
-------------------------------------
(Millions of dollars)
Assets Exceed Accumulated
Accumulated Benefits
Funding Status Benefits Exceed Assets
- -------------- ----------------- ----------------
1996 1995 1996 1995
Actuarial present value :
Vested benefit obligation $ 203 $ 186 $ 88 $ 215
Accumulated benefit obligation 224 208 113 251
Projected benefit obligation 387 362 136 308
Amount of assets available
for benefits :
Funded assets at fair value $ 348 $ 341 $ 51 $ 123
Net pension (asset) liability
recorded (3) (23) 67 146
------- ------- ------ -------
Total assets $ 345 $ 318 $ 118 $ 269
------- ------- ------ -------
Assets less than projected
benefit obligation $ (42) $ (44) $ (18) $ (39)
Consisting of:
Unrecognized transition
net assets (liabilities) - 13 (9) (5)
Unrecognized net losses (26) (38) (6) (30)
Unrecognized prior service costs (16) (19) (3) (4)
Weighted average rate assumptions:
Discount rate 10.9% 10.5% 5.6% 5.1%
Rate of increase in compensation 8.6% 8.2% 3.3% 3.1%
Expected return on plan assets 11.0% 10.1% 4.5% 4.5%
Year ended December 31
------------------------------
(Millions of dollars)
Components of Pension Expense 1996 1995 1994
- ----------------------------- -------- -------- --------
Cost of benefits earned during the year $ 26 $ 32 $ 27
Interest cost on projected benefit obligation 46 55 55
Actual return on plan assets (40) (47) (23)
Net amortization and deferral 10 12 (16)
-------- -------- --------
Total $ 42 $ 52 $ 43
-------- -------- --------
C-15
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 9 - Commitments and contingencies
On January 25, 1990, Caltex Petroleum Corporation and certain of its
subsidiaries were named as defendants, along with privately held Philippine
ferry and shipping companies and the shipping company's insurer, in a lawsuit
filed in Houston, Texas State Court. After removal to Federal District Court
in Houston, the litigation's disposition turned on questions of federal court
jurisdiction and whether the case should be dismissed for forum non conveniens.
The plaintiffs' petition purported to be a class action on behalf of at least
3,350 parties, who were either survivors of, or next of kin of persons deceased
in a collision in Philippine waters on December 20, 1987. One vessel involved
in the collision was carrying Group products in connection with a freight
contract. Although the Group had no direct or indirect ownership in or
operational responsibility for either vessel, various theories of liability
were alleged against the Group. No specific monetary recovery was sought
although the petition contained a variety of demands for various categories
of compensatory as well as punitive damages. Consequently, no reasonable
estimate of damages involved or being sought can be made. The Federal
District Court in March 1992, dismissed the case for forum non conveniens.
Subsequent to that dismissal, but consistent with its terms, cases were filed
against the Group entities in the Philippine courts (over and above those
previously filed there subsequent to the collision, all of which are in various
stages of litigation and are being vigorously resisted). The plaintiffs also
filed another lawsuit, alleging the same causes of action as in the Texas
litigation, in Louisiana State Court in New Orleans. The Group removed that
case to Federal District Court in New Orleans from which it was remanded back
to Louisiana State Court. The Group then sought injunctive and other relief
from the Federal District Court in Houston in order to ensure that Court's
previous dismissal would be given proper effect. On having its request for
relief denied, the Group then filed an expedited appeal to the U. S. Fifth
Circuit Court of Appeals. The case was argued in the Fifth Circuit in
October of 1994. The court, in January of 1996, affirmed the Federal
District Court's refusal to enjoin the plaintiffs' proceeding with their
Louisiana lawsuit. The Group sought and obtained en banc reconsideration
of the case by the entire Fifth Circuit Court of Appeals. The en banc Court
issued an opinion in which they were evenly divided (8-8) on the merits of
the Group's position. That opinion served to uphold the District Court's
refusal to grant the Group the relief it sought. The Group is now filing a
petition for a writ of certiorari with the U.S. Supreme Court. The Group's
management intends to continue to contest the case (and companion litigation
in the Philippines) vigorously on various procedural and substantive grounds.
The Group may be subject to loss contingencies pursuant to environmental laws
and regulations in each of the countries in which it operates that, in the
future, may require the Group to take action to correct or remediate the
effects on the environment of prior disposal or release of petroleum substances
by the Group. The amount of such future cost is indeterminable due to such
factors as the nature of the new regulations, the unknown magnitude of any
possible contamination, the unknown timing and extent of the corrective actions
that may be required, and the extent to which such costs are recoverable from
third parties.
The Group is also involved in certain other litigation and U.S. Internal
Revenue Service tax audits in which claims can be made for substantial amounts,
and which may require cash deposits until such claims are resolved.
In the Group's opinion, while it is impossible to ascertain the ultimate legal
and financial liability, if any, with respect to the above mentioned and other
contingent liabilities, the aggregate amount that may arise from such
liabilities is not anticipated to be material in relation to the Group's
combined financial position or liquidity.
In April 1994, a Group subsidiary entered into a contractual commitment,
effective October 1996, for a period of eleven years, to purchase petroleum
products in conjunction with the financing of a refinery owned by an affiliate
which commenced operation in 1996. Total future estimated commitments (in
billions of dollars) for the Group under this and other similar contracts,
based on current pricing and projected growth rates, are: 1997 - $1.1,
1998 - $1.1, 1999 - $1.2, 2000 - $1.2, 2001 - $1.2, and 2002 to expiration
of contracts - $6.4. Purchases (in billions of dollars) under this and other
similar contracts were $0.8, $0.5, and $0.5 in 1996, 1995 and 1994,
respectively.
C-16
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 9 - Commitments and contingencies - continued
The Group is contingently liable for sponsor support funding for both
construction completion (maximum $192 million) and post-completion loan
repayments (maximum $304 million) in connection with an affiliate's project
finance obligations. While the project is operational, construction completion
as defined includes achieving extended continuous operation and satisfying
certain financial conditions, which will only be met by the middle of 1997 at
the earliest. The post-completion support declines progressively as the
related long-term loans are repaid (final payment due 2010). As of December 31,
1996, there have been no calls made by lenders on either type of sponsor
support. However, the Group has provided short-term extended trade credit on
commercial terms related to crude supply of approximately $61 million to the
affiliate as of December 31, 1996. The Group does not expect that any required
sponsor support will have a material impact on its combined financial position.
The Group had commitments of $5 million and $12 million as of December 31,
1996 and 1995, respectively, in the form of letters of credit which have been
issued on behalf of Group companies to facilitate either the Group's or other
parties' ability to trade in the normal course of business.
Note 10 - Financial Instruments
Certain Group companies are parties to financial instruments with off-balance
sheet credit and market risk, principally interest rate risk. The Group's
outstanding commitments for interest rate swaps and foreign currency
contractual amounts are:
As of December 31
--------------------
(Millions of dollars)
1996 1995
------- -------
Interest rate swaps - Pay Fixed, Receive Floating $ 460 $ 485
Interest rate swaps - Pay Floating, Receive Fixed 265 230
Commitments to purchase foreign currencies 417 439
Commitments to sell foreign currencies 11 2,001
The Group enters into interest rate swaps in managing its interest rate risk,
and their effects are recognized in the statement of income at the same time as
the interest expense on the debt to which they relate. The swap contracts have
remaining maturities of up to nine years. Unrealized gains and losses on
contracts outstanding at year-end 1996 and 1995 were not material.
The Group enters into forward exchange contracts to hedge against some of its
foreign currency exposure stemming from existing liabilities and firm
commitments. Contracts to purchase foreign currencies (principally Australian
and Singapore dollars) hedging existing liabilities have maturities of up to
six years. As of December 31, 1995, contracts to sell foreign currencies
primarily reflected a hedge of the agreed proceeds of Yen 200 billion
(approximately $2 billion) relating to the April 1, 1996 sale of the Group's
interest in NPRC. The estimated realized gain on this hedge, which was
included in the sales proceeds received on April 1, 1996, was approximately
$121 million. Unrealized gains and losses applicable to all other outstanding
forward exchange contracts at December 31, 1996 and 1995 were not material.
The Group's activities in commodity-based derivative contracts, that must be
settled in cash, are not material. Unrealized gains and losses on commodity-
based derivative contracts outstanding as of December 1996 and 1995 were not
material.
C-17
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 10 - Financial instruments - continued
The Group's long-term debt of $713 million and $628 million as of December 31,
1996 and 1995, respectively, had fair values of $756 million and $639 million
as of December 31, 1996 and 1995, respectively. The fair value estimates were
based on the present value of expected cash flows discounted at current market
rates for similar obligations. The reported amounts of financial instruments
such as cash and cash equivalents, notes and accounts receivable, and all
current liabilities approximate fair value because of their short maturities.
The Group had investments in debt securities available-for-sale at amortized
costs of $70 million and $65 million at December 31, 1996 and 1995,
respectively, and investments in debt securities held to maturity at amortized
costs of $7 million and $14 million as of December 31, 1996 and 1995,
respectively. The fair value of these securities at December 31, 1996 and 1995
approximates amortized costs. As of December 31, 1996 and 1995, investments in
debt securities available-for-sale had maturities less than ten years and
investments in debt securities held to maturity had maturities less than one
year. As of December 31, 1996 and 1995, the Group's carrying amount for
investments in affiliates accounted for at equity included $25 million and $65
million, respectively, for after tax unrealized net gains on investments held
by these companies.
The Group is exposed to credit risks in the event of non-performance by
counterparties to financial instruments. For financial instruments with
institutions, the Group does not expect any counterparty to fail to meet its
obligations given the high credit ratings. Other financial instruments exposed
to credit risk consist primarily of trade receivables. These receivables are
dispersed among the countries in which the Group operates, thus limiting
concentration of such risk.
The Group performs ongoing credit evaluations of its customers and generally
does not require collateral. Letters of credit are the principal security
obtained to support lines of credit when the financial strength of a customer
is not considered sufficient. Credit losses have historically been within
management's expectations.
Note 11 - Taxes
Taxes charged to income consist of the following:
Year ended December 31
------------------------------
(Millions of dollars)
1996 1995 1994
-------- -------- --------
Taxes other than income taxes (International):
Duties, import and excise taxes $ 1,349 $ 1,660 $ 2,384
Other 18 29 32
-------- -------- --------
Total taxes other than income taxes $ 1,367 $ 1,689 $ 2,416
-------- -------- --------
Income taxes:
U.S. taxes :
Current $ 455 $ 24 $ 23
Deferred 19 (23) (3)
-------- -------- --------
Total U.S. 474 1 20
-------- -------- --------
International taxes:
Current 491 425 444
Deferred 17 41 (42)
-------- -------- --------
Total International 508 466 402
-------- -------- --------
Total provision for income taxes $ 982 $ 467 $ 422
-------- -------- --------
C-18
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 11 - Taxes - continued
Income taxes have been computed on an individual company basis at rates in
effect in the various countries of operation. The effective tax rate differs
from the "expected" tax rate (U.S. Federal corporate tax rate) as follows:
Year ended December 31
------------------------------
1996 1995 1994
-------- -------- --------
Computed "expected" tax rate 35.0% 35.0% 35.0%
Effect of recording equity in net income
of affiliates on an after tax basis (0.7) (10.9) (8.3)
Effect of dividends received from
subsidiaries and affiliates (0.5) 2.9 4.4
Income subject to foreign taxes in excess
of U.S. statutory tax rate 8.1 8.3 6.9
Effect of sale of investment in affiliate 3.6 - -
Other (0.3) (1.1) -
-------- -------- --------
Effective tax rate 45.2% 34.2% 38.0%
-------- -------- --------
Deferred income taxes are provided in each tax jurisdiction for temporary
differences between the financial reporting and the tax basis of assets and
liabilities. Temporary differences and tax loss carryforwards which give rise
to deferred tax liabilities (assets) are as follows:
As of December 31
--------------------
(Millions of dollars)
1996 1995
------- -------
Depreciation $ 337 $ 306
Miscellaneous 28 56
Deferred tax liabilities 365 362
Investment allowances (73) (62)
Retirement benefits (28) (29)
Tax loss carryforwards (10) (24)
Miscellaneous (25) (47)
Deferred tax assets (136) (162)
Valuation allowance 10 17
------- -------
Net deferred taxes $ 239 $ 217
------- -------
C-19
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 11 - Taxes - continued
Deferred taxes are classified on the combined balance sheet as current assets
of $10 million and noncurrent liabilities of $249 million as of December 31,
1996, and as current liabilities of $8 million and noncurrent liabilities of
$209 million as of December 31, 1995.
A valuation allowance has been established to adjust recorded deferred tax
assets to amounts where recoverability is more likely than not. Net income
increased by $7 million in 1996, and decreased in 1995 and 1994 by $8 million
and $3 million, respectively, for changes in the deferred tax asset valuation
allowance.
Undistributed earnings of subsidiaries and affiliates, for which no U.S.
deferred income tax provision has been made, approximated $3.0 billion as of
December 31, 1996 and $3.7 billion as of December 31, 1995. Such earnings have
been or are intended to be indefinitely reinvested, and become taxable in the
U.S. only upon remittance as dividends. It is not practical to estimate the
amount of tax that may be payable on the eventual remittance of such earnings.
Upon remittance, certain foreign countries impose withholding taxes which,
subject to certain limitations, are available for use as tax credits against
the U.S. tax liability.
Note 12 - Combined statement of cash flows
For purposes of the combined statement of cash flows, all highly liquid debt
instruments with original maturities of three months or less are considered
cash equivalents.
Changes in operating working capital consist of the following:
Year ended December 31
------------------------------
1996 1995 1994
-------- -------- --------
Accounts and notes receivable $ (235) $ 42 $ (97)
Inventories (16) (89) (37)
Accounts payable 210 15 152
Accrued liabilities 18 31 16
Estimated income taxes 16 (26) 24
-------- -------- --------
Total $ (7) $ (27) $ 58
-------- -------- --------
Net cash provided by operating activities includes the following cash payments
for interest and income taxes:
Year ended December 31
------------------------------
1996 1995 1994
-------- -------- --------
Interest paid (net of capitalized interest) $ 137 $ 144 $ 94
Income taxes paid 865 466 444
During 1995, Caltex Australia Limited exchanged, in a non-cash investing
transaction, its petroleum refining and marketing net assets of $419 million
for an investment in Australian Petroleum Pty. Limited, an affiliate of the
Group. No significant non-cash investing or financing transactions occurred in
either 1996 or 1994 .
Net cash provided by operating activities in 1996 includes income tax payments
relating to the sale of an investment in an affiliate. Proceeds from this sale
are included in net cash provided by investing activities.
C-20
<PAGE>
CALTEX GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 13 - Other
During 1996, Caltex Trading and Transport Corporation, a subsidiary of the
Group, entered into an agreement with its partner, the Government of the State
of Bahrain, ceding the Group's throughput rights in its Bahrain refining joint
venture (Bapco) in exchange for recovery of costs. Subsequent to year end, a
Memorandum of Understanding was signed whereby the Group's 40% interest in
Bapco and related assets will be sold to the Government effective April 1,
1997 at approximately net book value. While negotiations are still in
progress, the Group believes that the sale will not have a material impact on
the Group's combined financial position or results of operations.
Note 14 - Oil and gas exploration, development and producing activities
The financial statements of Chevron Corporation and Texaco Inc. contain
required supplementary information on oil and gas producing activities,
including disclosures on affiliates at equity. Accordingly, such
disclosures are not presented herein.
C-21
<PAGE>
Exhibit 12.1
CHEVRON CORPORATION - TOTAL ENTERPRISE BASIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Year Ended December 31,
---------------------------------------
1996 1995(1) 1994 1993 1992
------ ------ ----- ------ ------
Net Income before Cumulative Effect
of Changes in Accounting Principle $2,607 $ 930 $1,693 $1,265 $2,210
Income Tax Expense 2,624 1,094 1,322 1,389 1,508
Distributions Greater Than (Less Than)
Equity in Earnings of Less Than
50 Percent Owned Affiliates 29 (5) (3) 6 (9)
Minority Interest 4 - 3 (2) 2
Previously Capitalized Interest
Charged to Earnings During Period 24 47 32 20 18
Interest and Debt Expense 471 557 453 390 490
Interest Portion of Rentals(2) 158 148 156 169 152
- -------------------------------------------------------------------------------
Earnings Before Provision for
Taxes And Fixed Charges $5,917 $2,771 $3,656 $3,237 $4,371
- -------------------------------------------------------------------------------
Interest and Debt Expense $ 471 $ 557 $ 453 $ 390 $ 490
Interest Portion of Rentals(2) 158 148 156 169 152
Capitalized Interest 108 141 80 60 46
- ------------------------------------------------------------------------------
Total Fixed Charges $ 737 $ 846 $ 689 $ 619 $ 688
- ------------------------------------------------------------------------------
Ratio Of Earnings To Fixed Charges 8.03 3.28 5.31 5.23 6.35
- ------------------------------------------------------------------------------
(1) The information for 1995 and 1996 reflects the company's adoption of the
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
effective October 1, 1995.
(2) Calculated as one-third of rentals.
E-1
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF CHEVRON CORPORATION*
At December 31, 1996
Name of Subsidiary State or Country
(Reported by Principal Area of Operation) in Which Organized
- ----------------------------------------- ------------------
United States
- -------------
Chevron U.S.A. Inc. Pennsylvania
Principal Divisions:
Chevron U.S.A. Production Company
Chevron Products Company
Chevron Capital U.S.A. Inc. Delaware
Chevron Chemical Company Delaware
Chevron Oil Finance Company Delaware
Chevron Pipe Line Company Delaware
Huntington Beach Company California
The Pittsburg & Midway Coal Mining Co. Missouri
International
- -------------
Bermaco Insurance Company Limited Bermuda
Cabinda Gulf Oil Company Limited Bermuda
Chevron Asiatic Limited Delaware
Chevron Canada Limited Canada
Chevron Canada Enterprises Limited Canada
Chevron Canada Resources Canada
Chevron International Limited Liberia
Chevron International Oil Company, Inc. Delaware
Chevron Niugini Pty. Limited Papua New Guinea
Chevron Overseas Petroleum Inc. Delaware
Chevron Standard Limited Delaware
Chevron U.K. Limited United Kingdom
Chevron Transport Corporation Liberia
Chevron Nigeria Limited Nigeria
Gulf Oil (Great Britain) Limited United Kingdom
Insco Limited Bermuda
* All of the subsidiaries in the above list are wholly owned, either directly
or indirectly, by Chevron Corporation. Certain subsidiaries are not listed
since, considered in the aggregate as a single subsidiary, they would not
constitute a significant subsidiary at December 31, 1996.
E-2
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 2-98466) and
Form S-8 (Nos. 333-02011,333-21805, 333-21807, 333-21809, 33-3899, 33-34039
and 33-35283) of Chevron Corporation, and to the incorporation by reference in
the Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-14307) of Chevron Capital U.S.A. Inc. and Chevron Corporation, and to
the incorporation by reference in the Registration Statement on Form S-3
(No. 33-58838) of Chevron Canada Finance Limited and Chevron Corporation, and
to the incorporation by reference in the Registration Statements on Form S-3
(Nos. 33-56373 and 33-56377) of Chevron Transport Corporation and Chevron
Corporation, and to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 2-90907)
of Caltex Petroleum Corporation of our report dated February 21, 1997
appearing on page FS-17 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Francisco, California
March 26, 1997
E-3
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 2-98466) and
Form S-8 (Nos. 333-02011,333-21805, 333-21807, 333-21809, 33-3899, 33-34039
and 33-35283) of Chevron Corporation, and to the incorporation by reference in
the Prospectus constituting part of the Registration Statement on Form S-3
(No.33-14307) of Chevron Capital U.S.A. Inc. and Chevron Corporation, and to
the incorporation by reference in the Registration Statement on Form S-3 (No.
33-58838) of Chevron Canada Finance Limited and Chevron Corporation, and to the
incorporation by reference in the Registration Statements on Form S-3 (Nos.
33-56373 and 33-56377) of Chevron Transport Corporation and Chevron
Corporation, and to the incorporation by reference in the Registration
Statement on Form S-8 (No. 2-90907) of Caltex Petroleum Corporation of our
report dated February 10, 1997, relating to the combined balance sheets of the
Caltex Group of Companies as of December 31, 1996 and 1995 and the related
combined statements of income, retained earnings and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the December 31, 1996 Annual Report on Form 10-K of Chevron Corporation.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Dallas, Texas
March 26, 1997
E-4
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/ Samuel H. Armacost
----------------------
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/ K. T. Derr
----------------------
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/Sam Ginn
----------------------
Exhibit 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/Carla A. Hills
----------------------
Exhibit 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/J. Bennett Johnston
----------------------
Exhibit 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/R. H. Matzke
----------------------
Exhibit 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/Charles M. Pigott
----------------------
Exhibit 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/Condoleezza Rice
----------------------
Exhibit 24.9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/F. A. Shrontz
----------------------
Exhibit 24.10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/James N. Sullivan
----------------------
Exhibit 24.11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/Chang-Lin Tien
----------------------
Exhibit 24.12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/George H. Weyerhaeuser
----------------------
Exhibit 24.13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/John A. Young
----------------------
Exhibit 24.14
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/M. R. Klitten
----------------------
Exhibit 24.15
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, an Annual Report on Form 10-K.
WHEREAS, the undersigned is an officer or director, or both, of the
Corporation.
N O W, T H E R E F O R E, the undersigned hereby constitutes and appoints
LYDIA I. BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE and BENJAMIN M.
VANDEGRIFT, or any of them, his or her attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in his or her
name, place and stead, in any and all capacities, to sign the aforementioned
Annual Report on Form 10-K (and any and all amendments thereto) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do and cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
26th day of March, 1997.
/s/S. J. Crowe
----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT DECEMBER 31, 1996 AND INCOME STATEMENT FOR THE
TWELVE MONTH PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THEIR RELATED FOOTNOTES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 892
<SECURITIES> 745
<RECEIVABLES> 4,106
<ALLOWANCES> 71
<INVENTORY> 1,431
<CURRENT-ASSETS> 7,942
<PP&E> 46,936
<DEPRECIATION> 25,440
<TOTAL-ASSETS> 34,854
<CURRENT-LIABILITIES> 8,907
<BONDS> 3,988
<COMMON> 1,069
0
0
<OTHER-SE> 14,554
<TOTAL-LIABILITY-AND-EQUITY> 34,854
<SALES> 42,782
<TOTAL-REVENUES> 43,893
<CGS> 0
<TOTAL-COSTS> 39,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> 4,740
<INCOME-TAX> 2,133
<INCOME-CONTINUING> 2,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,607
<EPS-PRIMARY> 3.99
<EPS-DILUTED> 3.99
</TABLE>
Exhibit 99.1
DEFINITIONS OF SELECTED FINANCIAL TERMS
Return On Average Stockholders' Equity
- --------------------------------------
Net income divided by average stockholders' equity. Average stockholders'
equity is computed by averaging the sum of the beginning of year and end of
year balances.
Return On Average Capital Employed
- ----------------------------------
Net income plus after-tax interest expense divided by average capital employed.
Capital employed is stockholders' equity plus short-term debt plus long-term
debt plus capital lease obligations plus minority interests. Average capital
employed is computed by averaging the sum of capital employed at the beginning
of the year and at the end of the year.
Total Debt-To-Total Debt Plus Equity Ratio
- ------------------------------------------
Total debt, including capital lease obligations, divided by total debt plus
stockholders' equity.
Current Ratio
- -------------
Current assets divided by current liabilities.
Interest Coverage Ratio
- -----------------------
Income before income tax expense and cumulative effect of change in accounting
principle, plus interest and debt expense and amortization of capitalized
interest, divided by before-tax interest costs.
E-5
<PAGE>
