Quarterly Report (10-q)

Date : 05/02/2019 @ 4:34PM
Source : Edgar (US Regulatory)
Stock : Chevron Corp. (CVX)
Quote : 124.28  1.39 (1.13%) @ 11:24PM

Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-00368
Chevron Corp oration
(Exact name of registrant as specified in its charter)
Delaware
 
94-0890210
 
6001 Bollinger Canyon Road,
San Ramon, California 94583-2324
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (925) 842-1000
NONE
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ         No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   þ         No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   þ
 
Accelerated filer  o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   o        No   þ

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock, par value $.75 per share
 
CVX
 
New York Stock Exchange, Inc.

There were 1,904,726,061 shares of the Company's common stock outstanding on March 31, 2019.
 



TABLE OF CONTENTS
 
 
 
Page No.
 
FINANCIAL INFORMATION
 
 
 
 
 
 
Consolidated Statement of Equity for the Three Months Ended March 31, 2019, and 2018
 
8-25
26-37
OTHER INFORMATION
Item 5.
Other Information

1


CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This quarterly report on Form 10-Q of Chevron Corporation contains forward-looking statements relating to Chevron’s operations that are based on management’s current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words or phrases such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “forecasts,” “projects,” “believes,” “seeks,” “schedules,” “estimates,” “positions,” “pursues,” “may,” “could,” “should,” “will,” “budgets,” “outlook,” “trends,” “guidance,” “focus,” “on schedule,” “on track,” “is slated,” “goals,” “objectives,” “strategies,” “opportunities,” “poised” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond the company’s control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Key factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others: changing crude oil and natural gas prices; changing refining, marketing and chemicals margins; the company's ability to realize anticipated cost savings and expenditure reductions; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; technological developments; the results of operations and financial condition of the company's suppliers, vendors, partners and equity affiliates, particularly during extended periods of low prices for crude oil and natural gas; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company’s operations due to war, accidents, political events, civil unrest, severe weather, cyber threats and terrorist acts, crude oil production quotas or other actions that might be imposed by the Organization of Petroleum Exporting Countries, or other natural or human causes beyond the company's control; changing economic, regulatory and political environments in the various countries in which the company operates; general domestic and international economic and political conditions; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant operational, investment or product changes required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions; the potential liability resulting from pending or future litigation; the ability to successfully receive the requisite approvals and consummate the proposed acquisition of Anadarko Petroleum Corporation; the ability to successfully integrate the operations of Chevron and Anadarko and achieve the anticipated benefits from the transaction; the company’s other future acquisitions or dispositions of assets or shares or the delay or failure of such transactions to close based on required closing conditions; the potential for gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, tariffs, sanctions, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S. dollar; material reductions in corporate liquidity and access to debt markets; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; the company's ability to identify and mitigate the risks and hazards inherent in operating in the global energy industry; and the factors set forth under the heading “Risk Factors” on pages 18 through 21 of the company’s 2018 Annual Report on Form 10-K and in other filings with the U.S. Securities and Exchange Commission. Other unpredictable or unknown factors not discussed in this report could also have material adverse effects on forward-looking statements.

2


PART I.
FINANCIAL INFORMATION
 
Item 1.
Consolidated Financial Statements
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
 
 
Three Months Ended
March 31
 
2019
 
2018
 
(Millions of dollars, except per-share amounts)
Revenues and Other Income
 
Sales and other operating revenues
$
34,189

 
$
35,968

Income from equity affiliates
1,062

 
1,637

Other income (loss)
(51
)
 
159

Total Revenues and Other Income
35,200

 
37,764

Costs and Other Deductions
 
 
 
Purchased crude oil and products
19,703

 
21,233

Operating expenses
4,886

 
4,701

Selling, general and administrative expenses
984

 
723

Exploration expenses
189

 
158

Depreciation, depletion and amortization
4,094

 
4,289

Taxes other than on income
1,061

 
1,344

Interest and debt expense
225

 
159

Other components of net periodic benefit costs
101

 
84

Total Costs and Other Deductions
31,243

 
32,691

Income Before Income Tax Expense
3,957

 
5,073

Income Tax Expense
1,315

 
1,414

Net Income
2,642

 
3,659

Less: Net income (loss) attributable to noncontrolling interests
(7
)
 
21

Net Income Attributable to Chevron Corporation
$
2,649

 
$
3,638

Per Share of Common Stock:
 
 
 
Net Income Attributable to Chevron Corporation
 
 
 
— Basic
$
1.40

 
$
1.92

— Diluted
$
1.39

 
$
1.90

Weighted Average Number of Shares Outstanding (000s)
 
 
 
— Basic
1,888,002

 
1,895,990

— Diluted
1,900,748

 
1,913,218

 
 
 
 
 
 
 
 


See accompanying notes to consolidated financial statements.

3



CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
March 31
 
2019
 
2018
 
(Millions of dollars)
Net Income
$
2,642

 
$
3,659

Currency translation adjustment
(4
)
 
10

Unrealized holding gain (loss) on securities:
 
 
 
Net gain (loss) arising during period
(1
)
 
(1
)
Defined benefit plans:
 
 
 
Actuarial gain (loss):
 
 
 
Amortization to net income of net actuarial and settlement losses
125

 
157

Actuarial gain (loss) arising during period
(3
)
 
(1
)
Prior service cost:
 
 
 
Amortization to net income of net prior service costs (credits)
(4
)
 
(4
)
Defined benefit plans sponsored by equity affiliates
2

 
8

Income tax expense on defined benefit plans
(30
)
 
(39
)
Total
90

 
121

Other Comprehensive Gain, Net of Tax
85

 
130

Comprehensive Income
2,727

 
3,789

Comprehensive loss (income) attributable to noncontrolling interests
7

 
(21
)
Comprehensive Income Attributable to Chevron Corporation
$
2,734

 
$
3,768


See accompanying notes to consolidated financial statements.

4



CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
At March 31
2019
 
At December 31
2018
 
 
(Millions of dollars)
ASSETS
Cash and cash equivalents
 
$
8,699

 
$
9,342

Time deposits
 

 
950

Marketable securities
 
56

 
53

Accounts and notes receivable, net
 
14,928

 
15,050

Inventories
 
 
 
 
Crude oil and petroleum products
 
4,481

 
3,383

Chemicals
 
488

 
487

Materials, supplies and other
 
1,754

 
1,834

Total inventories
 
6,723

 
5,704

Prepaid expenses and other current assets  
 
3,265

 
2,922

Total Current Assets
 
33,671

 
34,021

Long-term receivables, net
 
2,019

 
1,942

Investments and advances
 
36,360

 
35,546

Properties, plant and equipment, at cost
 
336,701

 
340,244

Less: Accumulated depreciation, depletion and amortization
 
169,969

 
171,037

Properties, plant and equipment, net
 
166,732

 
169,207

Deferred charges and other assets  
 
10,866

 
6,766

Goodwill
 
4,507

 
4,518

Assets held for sale
 
2,654

 
1,863

Total Assets
 
$
256,809

 
$
253,863

LIABILITIES AND EQUITY
Short-term debt  
 
$
7,023

 
$
5,726

Accounts payable
 
14,230

 
13,953

Accrued liabilities
 
5,880

 
4,927

Federal and other taxes on income  
 
1,971

 
1,628

Other taxes payable
 
847

 
937

Total Current Liabilities
 
29,951

 
27,171

Long-term debt  
 
26,064

 
28,733

Deferred credits and other noncurrent obligations
 
22,197

 
19,742

Noncurrent deferred income taxes  
 
16,099

 
15,921

Noncurrent employee benefit plans
 
6,380

 
6,654

Total Liabilities*
 
100,691

 
98,221

Preferred stock (authorized 100,000,000 shares, $1.00 par value, none issued)
 

 

Common stock (authorized 6,000,000,000 shares; $0.75 par value; 2,442,676,580 shares issued at March 31, 2019, and December 31, 2018)
 
1,832

 
1,832

Capital in excess of par value
 
17,146

 
17,112

Retained earnings
 
181,387

 
180,987

Accumulated other comprehensive loss
 
(3,459
)
 
(3,544
)
Deferred compensation and benefit plan trust
 
(240
)
 
(240
)
Treasury stock, at cost (537,950,519 and 539,838,890 shares at March 31, 2019, and December 31, 2018, respectively)
 
(41,621
)
 
(41,593
)
Total Chevron Corporation Stockholders’ Equity
 
155,045

 
154,554

Noncontrolling interests
 
1,073

 
1,088

Total Equity
 
156,118

 
155,642

Total Liabilities and Equity
 
$
256,809

 
$
253,863

___________________________
 
 
 
 
* Refer to Note 13, "Other Contingencies and Commitments" beginning on page 21.

See accompanying notes to consolidated financial statements.

5



CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 
Three Months Ended
March 31
 
2019
 
2018
 
(Millions of dollars)
Operating Activities
 
 
 
Net Income (Loss)
$
2,642

 
$
3,659

Adjustments
 
 
 
Depreciation, depletion and amortization
4,094

 
4,289

Dry hole expense
86

 
45

Distributions less than income from equity affiliates
(513
)
 
(998
)
Net before-tax loss (gain) on asset retirements and sales
80

 
(12
)
Net foreign currency effects
141

 
63

Deferred income tax provision
73

 
383

Net decrease (increase) in operating working capital
(1,210
)
 
(2,104
)
Decrease (increase) in long-term receivables
66

 
128

Net decrease (increase) in other deferred charges
(62
)
 
(12
)
Cash contributions to employee pension plans
(326
)
 
(149
)
Other
(14
)
 
(249
)
Net Cash Provided by Operating Activities
5,057

 
5,043

Investing Activities
 
 
 
Capital expenditures
(2,953
)
 
(2,997
)
Proceeds and deposits related to asset sales and returns of investment
294

 
111

Net maturities of (investments in) time deposits
950

 

Net sales (purchases) of marketable securities
2

 
(29
)
Net repayment (borrowing) of loans by equity affiliates
(321
)
 
26

Net Cash Used for Investing Activities
(2,028
)
 
(2,889
)
Financing Activities
 
 
 
Net borrowings (repayments) of short-term obligations
936

 
3,214

Proceeds from issuance of long-term debt

 
73

Repayments of long-term debt and other financing obligations
(2,506
)
 
(2,331
)
Cash dividends — common stock
(2,244
)
 
(2,124
)
Distributions to noncontrolling interests
(6
)
 
(11
)
Net sales (purchases) of treasury shares
(15
)
 
566

Net Cash Used for Financing Activities
(3,835
)
 
(613
)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
20

 
33

Net Change in Cash, Cash Equivalents and Restricted Cash
(786
)
 
1,574

Cash, Cash Equivalents and Restricted Cash at January 1
10,481

 
5,943

Cash, Cash Equivalents and Restricted Cash at March 31
$
9,695

 
$
7,517

 
 
 
 


See accompanying notes to consolidated financial statements.

6



CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
 
 
 
Accumulated
Treasury
Chevron Corp.
Non-
 
 
Common
Retained
Other Comp.
Stock
Stockholders'
Controlling
Total
(Millions of dollars)
Stock (1)
Earnings
Income (Loss)
(at cost)
Equity
Interests
Equity
Balance at December 31, 2017
$
18,440

$
174,106

$
(3,589
)
$
(40,833
)
$
148,124

$
1,195

$
149,319

Treasury stock transactions
115




115


115

Net income (loss)

3,638



3,638

21

3,659

Cash dividends

(2,124
)


(2,124
)
(11
)
(2,135
)
Stock dividends

(1
)


(1
)

(1
)
Other comprehensive income


130


130


130

Purchases of treasury shares



(1
)
(1
)

(1
)
Issuances of treasury shares



475

475


475

Other changes, net





5

5

Balance at March 31, 2018
$
18,555

$
175,619

$
(3,459
)
$
(40,359
)
$
150,356

$
1,210

$
151,566

 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
18,704

$
180,987

$
(3,544
)
$
(41,593
)
$
154,554

$
1,088

$
155,642

Treasury stock transactions
34




34


34

Net income (loss)

2,649



2,649

(7
)
2,642

Cash dividends

(2,244
)


(2,244
)
(6
)
(2,250
)
Stock dividends

(1
)


(1
)

(1
)
Other comprehensive income


85


85


85

Purchases of treasury shares



(538
)
(538
)

(538
)
Issuances of treasury shares



510

510


510

Other changes, net

(4
)


(4
)
(2
)
(6
)
Balance at March 31, 2019
$
18,738

$
181,387

$
(3,459
)
$
(41,621
)
$
155,045

$
1,073

$
156,118

 
 
 
 
 
 
 
 

Common Stock - 2019
 
Common Stock - 2018
(Thousands of shares)
Issued (2)

Treasury

Outstanding

 
Issued (2)

Treasury

Outstanding

Balance at December 31
2,442,677

(539,839
)
1,902,838

 
2,442,677

(537,975
)
1,904,702

Purchases

(4,711
)
(4,711
)
 

(7
)
(7
)
Issuances

6,599

6,599

 

6,262

6,262

Balance at March 31
2,442,677

(537,951
)
1,904,726

 
2,442,677

(531,720
)
1,910,957

_________________________________________________
(1)  
Beginning and ending balances for all periods include capital in excess of par, common stock issued at par for $1,832, and $(240) associated with Chevron's Benefit Plan Trust. Changes reflect capital in excess of par.
(2)  
Beginning and ending total issued share balances include 14,168 shares associated with Chevron's Benefit Plan Trust.


See accompanying notes to consolidated financial statements.

7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1. Interim Financial Statements
The accompanying consolidated financial statements of Chevron Corporation and its subsidiaries (together, Chevron or the company) have not been audited by an independent registered public accounting firm. In the opinion of the company’s management, the interim data includes all adjustments necessary for a fair statement of the results for the interim periods. These adjustments were of a normal recurring nature. The results for the three-month period ended March 31, 2019 , are not necessarily indicative of future financial results. The term “earnings” is defined as net income attributable to Chevron.
Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the company’s 2018 Annual Report on Form 10-K.
Note 2. Changes in Accumulated Other Comprehensive Losses
The change in Accumulated Other Comprehensive Losses (AOCL) presented on the Consolidated Balance Sheet and the impact of significant amounts reclassified from AOCL on information presented in the Consolidated Statement of Income for the three months ended March 31, 2019 and 2018 are reflected in the table below.
Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)  
 
 
 
(Millions of dollars)
 
Currency Translation Adjustment
 
Unrealized Holding Gains (Losses) on Securities
 
Derivatives
 
Defined Benefit Plans
 
Total
Balance at December 31, 2017
 
$
(105
)
 
$
(5
)
 
$
(2
)
 
$
(3,477
)
 
$
(3,589
)
Components of Other Comprehensive Income (Loss):
 
 
 
 
 
 
Before Reclassifications
 
10

 
(1
)
 

 
5

 
14

Reclassifications
 

 

 

 
116

 
116

Net Other Comprehensive Income (Loss)
 
10

 
(1
)
 

 
121

 
130

Balance at March 31, 2018
 
$
(95
)
 
$
(6
)
 
$
(2
)
 
$
(3,356
)
 
$
(3,459
)
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
$
(124
)
 
$
(10
)
 
$
(2
)
 
$
(3,408
)
 
$
(3,544
)
Components of Other Comprehensive Income (Loss):
 
 
 
 
 
 
Before Reclassifications
 
(4
)
 
(1
)
 

 
(4
)
 
(9
)
Reclassifications (2)
 

 

 

 
94

 
94

Net Other Comprehensive Income (Loss)
 
(4
)
 
(1
)
 

 
90

 
85

Balance at March 31, 2019
 
$
(128
)
 
$
(11
)
 
$
(2
)
 
$
(3,318
)
 
$
(3,459
)
_______________________________
(1)  
All amounts are net of tax.
(2)  
Refer to Note 9 , Employee Benefits for reclassified components totaling $121 million that are included in employee benefit costs for the three months ended March 31, 2019 . Related income taxes for the same period, totaling $27 million , are reflected in "Income Tax Expense" on the Consolidated Statement of Income. All other reclassified amounts were insignificant.
Note 3. New Accounting Standards
Leases (Topic 842) Effective January 1, 2019, Chevron adopted Accounting Standards Update (ASU) 2016-02 and its related amendments. For additional information on the company's leases, refer to Note 10 beginning on page 14 .
Financial Instruments - Credit Losses (Topic 326) In June 2016, the FASB issued ASU 2016-13, which becomes effective for the company beginning January 1, 2020. The standard requires companies to use forward-looking information to calculate credit loss estimates. The company is evaluating the effect of the standard on its consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 4. Information Relating to the Consolidated Statement of Cash Flows
 
Three Months Ended
March 31
(Millions of dollars)
2019

 
2018

Net decrease (increase) in operating working capital was composed of the following:
Decrease (increase) in accounts and notes receivable
$
473

 
$
(335
)
Decrease (increase) in inventories
(1,098
)
 
(543
)
Decrease (increase) in prepaid expenses and other current assets
(667
)
 
(608
)
Increase (decrease) in accounts payable and accrued liabilities
(160
)
 
(807
)
Increase (decrease) in income and other taxes payable
242

 
189

Net decrease (increase) in operating working capital
$
(1,210
)
 
$
(2,104
)
Net cash provided by operating activities includes the following cash payments:
Interest on debt (net of capitalized interest)
$
186

 
$
105

Income taxes
757

 
843

Proceeds and deposits related to asset sales and returns of investment consisted of the following gross amounts:
Proceeds and deposits related to asset sales
$
276

 
$
31

Returns of investment from equity affiliates
18

 
80

Proceeds and deposits related to asset sales and returns of investment
$
294

 
$
111

Net maturities of (investments in) time deposits consisted of the following gross amounts:
Investments in time deposits
$

 
$

Maturities of time deposits
950

 

Net maturities of (investments in) time deposits
$
950

 
$

Net sales (purchases) of marketable securities consisted of the following gross amounts:
Marketable securities purchased
$
(1
)
 
$
(29
)
Marketable securities sold
3

 

Net sales (purchases) of marketable securities
$
2

 
$
(29
)
Net repayment (borrowing) of loans by equity affiliates consisted of the following gross amounts:
Borrowing of loans by equity affiliates
$
(350
)
 
$

Repayment of loans by equity affiliates
29

 
26

Net repayment (borrowing) of loans by equity affiliates
$
(321
)
 
$
26

Net borrowings (repayments) of short-term obligations consisted of the following gross and net amounts:
Proceeds from issuances of short-term obligations
$
359

 
$
658

Repayments of short-term obligations
(134
)
 
(1,377
)
Net borrowings (repayments) of short-term obligations with three months or less maturity
711

 
3,933

Net borrowings (repayments) of short-term obligations
$
936

 
$
3,214

 
 
 
 

The Consolidated Statement of Cash Flows excludes changes to the Consolidated Balance Sheet that did not affect cash.
"Other" includes changes in postretirement benefits obligations and other long-term liabilities.
The “Net sales (purchases) of treasury shares” represents the cost of common shares acquired less the cost of shares issued for share-based compensation plans. Purchases totaled $538 million for the first three months in 2019 and $1 million for the first three months in 2018 . During the first three months in 2019 , the company purchased 4.7 million shares under its share repurchase program for $ 537 million . No purchases were made under the company's share repurchase program in the first three months of 2018 .
The company paid dividends of $1.19 per share of common stock in first quarter 2019 . This compares to dividends of $1.12 per share paid in the corresponding year-ago period.


9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The major components of “Capital expenditures” and the reconciliation of this amount to the reported capital and exploratory expenditures, including equity affiliates, are presented in the following table:
 
Three Months Ended
March 31
(Millions of dollars)
2019

 
2018

Additions to properties, plant and equipment
$
2,865

 
$
2,937

Additions to investments
14

 
15

Current-year dry hole expenditures
74

 
45

Payments for other liabilities and assets, net

 

Capital expenditures
2,953

 
2,997

Expensed exploration expenditures
103

 
113

Assets acquired through finance lease obligations and other financing obligations
146

 

Capital and exploratory expenditures, excluding equity affiliates
3,202

 
3,110

Company's share of expenditures by equity affiliates
1,532

 
1,295

Capital and exploratory expenditures, including equity affiliates
$
4,734

 
$
4,405


The table below quantifies the beginning and ending balances of restricted cash and restricted cash equivalents in the Consolidated Balance Sheet:
 
At March 31
 
At December 31
 
2019
 
2018
 
2018
 
2017
 
(Millions of dollars)
 
(Millions of dollars)
Cash and Cash Equivalents
$
8,699

 
$
6,466

 
$
9,342

 
$
4,813

Restricted cash included in "Prepaid expenses and other current assets"
195

 
316

 
341

 
405

Restricted cash included in "Deferred charges and other assets"
801

 
735

 
798

 
725

Total Cash, Cash Equivalents and Restricted Cash
$
9,695

 
$
7,517

 
$
10,481

 
$
5,943


Additional information related to "Restricted Cash" is included on page 23 in Note 14 under the heading "Restricted Cash."
Note 5. Assets Held For Sale
At March 31, 2019 , the company classified $2.65 billion of net properties, plant and equipment as “Assets held for sale” on the Consolidated Balance Sheet. These assets are primarily associated with upstream operations that are anticipated to be sold in the next 12 months. The revenues and earnings contributions of these assets in 2018 and the first three months of 2019 were not material.
Note 6. Summarized Financial Data — Tengizchevroil LLP
Chevron has a 50 percent equity ownership interest in Tengizchevroil LLP (TCO). Summarized financial information for 100 percent of TCO is presented in the following table:
 
Three Months Ended
March 31
 
2019
 
2018
 
(Millions of dollars)
Sales and other operating revenues
$
4,107

 
$
4,325

Costs and other deductions
2,002

 
1,942

Net income attributable to TCO
1,481

 
1,679



10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 7. Summarized Financial Data — Chevron U.S.A. Inc.
Chevron U.S.A. Inc. (CUSA) is a major subsidiary of Chevron Corporation. CUSA and its subsidiaries manage and operate most of Chevron’s U.S. businesses. Assets include those related to the exploration and production of crude oil, natural gas and natural gas liquids and those associated with refining, marketing, and supply and distribution of products derived from petroleum, excluding most of the regulated pipeline operations of Chevron. CUSA also holds the company’s investment in the Chevron Phillips Chemical Company LLC joint venture, which is accounted for using the equity method.
The summarized financial information for CUSA and its consolidated subsidiaries is as follows:

Three Months Ended
March 31

2019
 
2018
 
(Millions of dollars)
Sales and other operating revenues
$
25,942

 
$
28,058

Costs and other deductions
25,757

 
27,596

Net income attributable to CUSA
181

 
697

 
 
 
 

 
At March 31
2019
 
At December 31
2018
 
(Millions of dollars)
Current assets
$
14,910

 
$
12,819

Other assets
58,896

 
55,814

Current liabilities
19,980

 
16,376

Other liabilities
14,763

 
12,906

Total CUSA net equity
$
39,063

 
$
39,351

Memo: Total debt
$
3,192

 
$
3,049


Note 8. Operating Segments and Geographic Data
Although each subsidiary of Chevron is responsible for its own affairs, Chevron Corporation manages its investments in these subsidiaries and their affiliates. The investments are grouped into two business segments, Upstream and Downstream, representing the company’s “reportable segments” and “operating segments.” Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by major international oil export pipelines; processing, transporting, storage and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. All Other activities of the company include worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.
The company’s segments are managed by “segment managers” who report to the “chief operating decision maker” (CODM). The segments represent components of the company that engage in activities (a) from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the CODM, which makes decisions about resources to be allocated to the segments and assesses their performance; and (c) for which discrete financial information is available.
The company’s primary country of operation is the United States of America, its country of domicile. Other components of the company’s operations are reported as “International” (outside the United States).

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Segment Earnings The company evaluates the performance of its operating segments on an after-tax basis, without considering the effects of debt financing interest expense or investment interest income, both of which are managed by the company on a worldwide basis. Corporate administrative costs and assets are not allocated to the operating segments. However, operating segments are billed for the direct use of corporate services. Nonbillable costs remain at the corporate level in “All Other.” Earnings by major operating area for the three-month periods ended March 31, 2019 and 2018 , are presented in the following table:
 
Three Months Ended
March 31
Segment Earnings
2019
 
2018
 
(Millions of dollars)
Upstream
 
 
 
United States
$
748

 
$
648

International
2,375

 
2,704

Total Upstream
3,123

 
3,352

Downstream
 
 
 
United States
217

 
442

International
35

 
286

Total Downstream
252

 
728

Total Segment Earnings
3,375

 
4,080

All Other
 
 
 
Interest expense
(214
)
 
(149
)
Interest income
50

 
19

Other
(562
)
 
(312
)
Net Income Attributable to Chevron Corporation
$
2,649

 
$
3,638


Segment Assets Segment assets do not include intercompany investments or intercompany receivables. “All Other” assets consist primarily of worldwide cash, cash equivalents, time deposits and marketable securities; real estate; information systems; technology companies; and assets of the corporate administrative functions. Segment assets at March 31, 2019 , and December 31, 2018 , are as follows:  
Segment Assets
At March 31
2019
 
At December 31
2018
 
(Millions of dollars)
Upstream
 
 
 
United States
$
44,772

 
$
42,594

International
152,615

 
153,861

Goodwill
4,507

 
4,518

Total Upstream
201,894

 
200,973

Downstream
 
 
 
United States
25,358

 
23,866

International
17,401

 
15,622

Total Downstream
42,759

 
39,488

Total Segment Assets
244,653

 
240,461

All Other
 
 
 
United States
5,108

 
5,100

International
7,048

 
8,302

Total All Other
12,156

 
13,402

Total Assets — United States
75,238

 
71,560

Total Assets — International
177,064

 
177,785

Goodwill
4,507

 
4,518

Total Assets
$
256,809

 
$
253,863



12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Segment Sales and Other Operating Revenues Segment sales and other operating revenues, including internal transfers, for the three-month periods ended March 31, 2019 and 2018 , are presented in the following table. Products are transferred between operating segments at internal product values that approximate market prices. Revenues for the upstream segment are derived primarily from the production and sale of crude oil and natural gas, as well as the sale of third-party production of natural gas. Revenues for the downstream segment are derived from the refining and marketing of petroleum products such as gasoline, jet fuel, gas oils, lubricants, residual fuel oils and other products derived from crude oil. This segment also generates revenues from the manufacture and sale of fuel and lubricant additives and the transportation and trading of refined products and crude oil. “All Other” activities include revenues from insurance operations, real estate activities and technology companies.
 
Three Months Ended
March 31
 Sales and Other Operating Revenues
2019
 
2018
 
(Millions of dollars)
Upstream
 
 
 
United States
$
5,882

 
$
4,577

International
9,369

 
8,656

Subtotal
15,251

 
13,233

Intersegment Elimination — United States
(3,519
)
 
(2,757
)
Intersegment Elimination — International
(3,292
)
 
(3,215
)
Total Upstream
8,440

 
7,261

Downstream
 
 
 
United States
12,388

 
13,042

International
14,507

 
15,935

Subtotal
26,895

 
28,977

Intersegment Elimination — United States
(947
)
 
(3
)
Intersegment Elimination — International
(265
)
 
(328
)
Total Downstream
25,683

 
28,646

All Other
 
 
 
United States
222

 
227

International
2

 
3

Subtotal
224

 
230

Intersegment Elimination — United States
(156
)
 
(166
)
Intersegment Elimination — International
(2
)
 
(3
)
Total All Other
66

 
61

Sales and Other Operating Revenues
 
 
 
United States
18,492

 
17,846

International
23,878

 
24,594

Subtotal
42,370

 
42,440

Intersegment Elimination — United States
(4,622
)
 
(2,926
)
Intersegment Elimination — International
(3,559
)
 
(3,546
)
Total Sales and Other Operating Revenues
$
34,189

 
$
35,968


Note 9. Employee Benefits
Chevron has defined benefit pension plans for many employees. The company typically prefunds defined benefit plans as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act minimum funding standard. The company does not typically fund U.S. nonqualified pension plans that are not subject to funding requirements under laws and regulations because contributions to these pension plans may be less economic and investment returns may be less attractive than the company’s other investment alternatives.
The company also sponsors other postretirement employee benefit (OPEB) plans that provide medical and dental benefits, as well as life insurance for some active and qualifying retired employees. The plans are unfunded, and the company and the retirees share the costs. For the company’s main U.S. medical plan, the increase to the pre-

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Medicare company contribution for retiree medical coverage is limited to no more than 4 percent each year. Certain life insurance benefits are paid by the company.
The components of net periodic benefit costs for 2019 and 2018 are as follows:
 
Three Months Ended
March 31
 
2019
 
2018
 
(Millions of dollars)
Pension Benefits
 
 
 
United States
 
 
 
Service cost
$
101

 
$
120

Interest cost
99

 
92

Expected return on plan assets
(141
)
 
(159
)
Amortization of prior service costs (credits)

 
1

Amortization of actuarial losses (gains)
60

 
76

Settlement losses
60

 
66

Total United States
179

 
196

International
 
 
 
Service cost
35

 
40

Interest cost
51

 
46

Expected return on plan assets
(58
)
 
(66
)
Amortization of prior service costs (credits)
3

 
2

Amortization of actuarial losses (gains)
5

 
11

Settlement losses
1

 

Total International
37

 
33

Net Periodic Pension Benefit Costs
$
216

 
$
229

Other Benefits*
 
 
 
Service cost
$
9

 
$
13

Interest cost
24

 
21

Amortization of prior service costs (credits)
(7
)
 
(7
)
Amortization of actuarial losses (gains)
(1
)
 
4

Net Periodic Other Benefit Costs
$
25

 
$
31

_ ___________________________________
* Includes costs for U.S. and international OPEB plans. Obligations for plans outside the United States are not significant relative to the company’s total OPEB obligation.
Through March 31, 2019 , a total of $326 million was contributed to employee pension plans (including $288 million to the U.S. plans). Total contributions for the full year are currently estimated to be $1.3 billion ( $1.1 billion for the U.S. plans and $200 million for the international plans). Actual contribution amounts are dependent upon plan investment returns, changes in pension obligations, regulatory requirements and other economic factors. Additional funding may ultimately be required if investment returns are insufficient to offset increases in plan obligations.
During the first three months of 2019 , the company contributed $47 million to its OPEB plans. The company anticipates contributing approximately $128 million during the remainder of 2019 .
Note 10. Lease Commitments
Chevron implemented the new lease standard at the effective date of January 1, 2019. The cumulative-effect adjustment to the opening balance of 2019 retained earnings is de minimis. The company elected the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. By making this election, the company has not applied retrospective reporting for the years 2017 and 2018. The company elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The company elected the package of practical expedients to not re-evaluate existing contracts as containing a lease or the lease classification unless it was not previously assessed against the lease criteria. In addition, the company did not reassess initial direct costs for any existing leases. The company applied the land easement practical expedient.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The company has elected the practical expedient to not separate non-lease components from lease components for most asset classes except for certain asset classes that have significant non-lease (i.e., service) components. The company assessed some contracts, including those for drill ships, drilling rigs, and storage tanks, not previously assessed against the lease criteria, as operating leases under the new standard, increasing the lease commitments by approximately $2 billion .
The company enters into leasing arrangements as a lessee; any lessor arrangements are not significant. Leases are classified as operating or finance leases. Both operating and finance leases recognize lease liabilities and associated right-of-use assets. Operating lease arrangements mainly involve drill ships, drilling rigs, time chartered vessels, bareboat charters, terminals, exploration and production equipment, office buildings and warehouses, and land. Finance leases primarily include facilities and vessels.
Chevron uses various assumptions and judgments in preparing the quantitative data and qualitative information that is material to the company’s overall lease population. Where leases are used in joint ventures, the company recognizes 100% of the right-of-use assets and lease liabilities when the company is the sole signatory for the lease (in most cases, where the company is the operator of a joint venture). Lease costs reflect only the costs associated with the operator's working interest share. The lease term includes the committed lease term identified in the contract, taking into account renewal and termination options that management is reasonably certain to exercise. The company uses its incremental borrowing rate as a proxy for the discount rate based on the term of the lease unless the implicit rate is available.
Details of the right-of-use assets and lease liabilities for operating and finance leases, including the balance sheet presentation, are as follows:
 
At March 31, 2019
 
Operating
Leases
 
Finance
Leases
 
(Millions of dollars)
Deferred charges and other assets
$
4,318

 
$

Properties, plant and equipment, net

 
331

Right-of-use assets (1)(2)
$
4,318

 
$
331

Accrued Liabilities
1,387

 

Short Term Debt

 
27

Current lease liabilities
1,387

 
27

Deferred credits and other noncurrent obligations
2,742

 

Long-term Debt

 
259

Noncurrent lease liabilities
2,742

 
259

 Total lease liabilities
$
4,129

 
$
286

 
 
 
 
Weighted-average remaining lease term (in years)
5.2

 
15.8

Weighted-average discount rate
3.1
%
 
5.0
%
_______________________________________________
(1) Capitalized leased assets of $ 818 million are primarily from the Upstream segment, with accumulated amortization of $ 617 million at December 31, 2018.
(2) Includes non-cash additions of $ 455 million and $146 million right-of-use assets obtained in exchange for new and modified lease liabilities in 2019 for operating and finance leases, respectively.
Total lease costs consist of both amounts recognized in the Consolidated Statement of Income during the period and amounts capitalized as part of the cost of another asset. Total lease costs incurred for operating and finance leases during first quarter 2019 were as follows:
 
Three Months Ended March 31, 2019
 
(Millions of dollars)
Operating lease costs *
$
587

Finance lease costs
9

   Total lease costs
$
596

_______________________________________________
* Includes variable and short-term lease costs.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Cash paid for amounts included in the measurement of lease liabilities was as follows:
 
Three Months Ended March 31, 2019
 
(Millions of dollars)
Operating cash flows from operating leases
$
351

Investing cash flows from operating leases
236

Operating cash flows from finance leases
3

Financing cash flows from finance leases
6


At March 31, 2019, the estimated future undiscounted cash flows for operating and finance leases were as follows:
 
 
At March 31, 2019
 
 
Operating Leases
 
Finance Leases
 
 
(Millions of dollars)
Year
2019 (remaining months)
$
1,170
 
 
$
33
 
 
2020
1,076
 
 
31
 
 
2021
859
 
 
30
 
 
2022
411
 
 
28
 
 
2023
257
 
 
27
 
 
2024
153
 
 
27
 
 
Thereafter
585
 
 
227
 
 
   Total
$
4,511
 
 
$
403
 
Less: Amounts representing interest
382
 
 
117
 
Total lease liabilities
$
4,129
 
 
$
286
 

Additionally, the company has $ 1.0 billion in future undiscounted cash flows for operating leases not yet commenced. These leases are primarily for a drill ship, bareboat charters, and a drilling rig. For those leasing arrangements where the underlying asset is not yet constructed, the lessor is primarily involved in the design and construction of the asset.
At December 31, 2018, the estimated future minimum lease payments (net of noncancelable sublease rentals) under operating and capital leases, which at inception had a noncancelable term of more than one year, were as follows:
 
 
At December 31, 2018
 
 
Operating Leases
 
Capital
   Leases *
 
 
(Millions of dollars)
Year
2019
$
540
 
 
$
30
 
 
2020
492
 
 
22
 
 
2021
378
 
 
17
 
 
2022
242
 
 
16
 
 
2023
166
 
 
16
 
 
Thereafter
341
 
 
132
 
 
Total
$
2,159
 
 
$
233
 
Less: Amounts representing interest and executory costs
 
 
(88
)
Net present values
 
 
145
 
Less: Capital lease obligations included in short-term debt
 
 
(18
)
    Long-term capital lease obligations
 
 
$
127
 
_______________________________________________
* Excluded from the table is an executed but not-yet-commenced capital lease with payments of $14 , $15 , $22 , $21 , $21 and $219 for 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.


16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 11. Income Taxes
The decrease in income tax expense between quarterly periods of $ 99 million , from $1.41 billion in 2018 to $1.31 billion in 2019, is a result of the year-over-year decrease in total income before income tax expense, which is primarily due to the effect of lower crude oil prices. The company’s effective tax rate changed between periods from 28 percent in 2018 to 33 percent in 2019. The change in effective tax rate is primarily a consequence of the mix effect resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions.
Tax positions for Chevron and its subsidiaries and affiliates are subject to income tax audits by many tax jurisdictions throughout the world. For the company’s major tax jurisdictions, examinations of tax returns for certain prior tax years had not been completed as of March 31, 2019 . For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States — 2013 , Nigeria — 2000 , Australia — 2006 and Kazakhstan — 2007 .
The company engages in ongoing discussions with tax authorities regarding the resolution of tax matters in the various jurisdictions. Both the outcomes for these tax matters and the timing of resolution and/or closure of the tax audits are highly uncertain. However, it is reasonably possible that developments regarding tax matters in certain tax jurisdictions may result in significant increases or decreases in the company’s total unrecognized tax benefits within the next 12 months . Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.
Note 12. Litigation
MTBE
Chevron and many other companies in the petroleum industry have used methyl tertiary butyl ether (MTBE) as a gasoline additive. Chevron is a party to six pending lawsuits and claims, the majority of which involve numerous other petroleum marketers and refiners. Resolution of these lawsuits and claims may ultimately require the company to correct or ameliorate the alleged effects on the environment of prior release of MTBE by the company or other parties. Additional lawsuits and claims related to the use of MTBE, including personal-injury claims, may be filed in the future. The company’s ultimate exposure related to pending lawsuits and claims is not determinable. The company no longer uses MTBE in the manufacture of gasoline in the United States.
Ecuador
Background Chevron is a defendant in a civil lawsuit initiated in the Superior Court of Nueva Loja in Lago Agrio, Ecuador (the provincial court), in May 2003 by plaintiffs who claim to be representatives of certain residents of an area where an oil production consortium formerly had operations. The lawsuit alleges damage to the environment from the oil exploration and production operations and seeks unspecified damages to fund environmental remediation and restoration of the alleged environmental harm, plus a health monitoring program. Until 1992, Texaco Petroleum Company (Texpet), a subsidiary of Texaco Inc., was a minority member of this consortium with Petroecuador, the Ecuadorian state-owned oil company, as the majority partner; since 1990, the operations have been conducted solely by Petroecuador. At the conclusion of the consortium and following an independent third-party environmental audit of the concession area, Texpet entered into a formal agreement with the Republic of Ecuador and Petroecuador for Texpet to remediate specific sites assigned by the government in proportion to Texpet’s ownership share of the consortium. Pursuant to that agreement, Texpet conducted a three -year remediation program at a cost of $40 million . After certifying that the sites were properly remediated, the government granted Texpet and all related corporate entities a full release from any and all environmental liability arising from the consortium operations.
Based on the history described above, Chevron believes that this lawsuit lacks legal or factual merit. As to matters of law, the company believes first, that the court lacks jurisdiction over Chevron; second, that the law under which plaintiffs bring the action, enacted in 1999, cannot be applied retroactively; third, that the claims are barred by the statute of limitations in Ecuador; and, fourth, that the lawsuit is also barred by the releases from liability previously given to Texpet by the Republic of Ecuador and Petroecuador and by the pertinent provincial and municipal governments. With regard to the facts, the company believes that the evidence confirms that Texpet’s

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


remediation was properly conducted and that the remaining environmental damage reflects Petroecuador’s failure to timely fulfill its legal obligations and Petroecuador’s further conduct since assuming full control over the operations.
Lago Agrio Judgment On February 14, 2011, the provincial court rendered a judgment against Chevron. The court rejected Chevron’s defenses to the extent the court addressed them in its opinion. The judgment assessed approximately $8.6 billion in damages and approximately $900 million as an award for the plaintiffs’ representatives. It also assessed an additional amount of approximately $8.6 billion in punitive damages unless the company issued a public apology within 15 days of the judgment, which Chevron did not do. On February 17, 2011, the plaintiffs appealed the judgment, seeking increased damages, and on March 11, 2011, Chevron appealed the judgment seeking to have the judgment nullified. On January 3, 2012, an appellate panel in the provincial court affirmed the February 14, 2011 decision and ordered that Chevron pay additional attorneys’ fees in the amount of “ 0.10% of the values that are derived from the decisional act of this judgment.” The plaintiffs filed a petition to clarify and amplify the appellate decision on January 6, 2012, and the provincial court issued a ruling in response on January 13, 2012, purporting to clarify and amplify its January 3, 2012 ruling, which included clarification that the deadline for the company to issue a public apology to avoid the additional amount of approximately $8.6 billion in punitive damages was within 15 days of the clarification ruling, or February 3, 2012. Chevron did not issue an apology because doing so might be mischaracterized as an admission of liability and would be contrary to facts and evidence submitted at trial. On January 20, 2012, Chevron appealed (called a petition for cassation) the appellate panel’s decision to Ecuador’s National Court of Justice (the National Court). On February 17, 2012, the appellate panel of the provincial court admitted Chevron’s cassation appeal in a procedural step necessary for the National Court to hear the appeal. On March 29, 2012, the matter was transferred from the provincial court to the National Court, and on November 22, 2012, the National Court agreed to hear Chevron's cassation appeal. On August 3, 2012, the provincial court approved a court-appointed liquidator’s report on damages that calculated the total judgment in the case to be $19.1 billion . On November 13, 2013, the National Court ratified the judgment but nullified the $8.6 billion punitive damage assessment, resulting in a judgment of $9.5 billion . On December 23, 2013, Chevron appealed the decision to the Ecuador Constitutional Court, Ecuador's highest court. The reporting justice of the Constitutional Court heard oral arguments on the appeal on July 16, 2015. On July 10, 2018, Ecuador's Constitutional Court released a decision rejecting Chevron's appeal, which sought to nullify the National Court's judgment against Chevron. No further appeals are available in Ecuador.
Lago Agrio Plaintiffs' Enforcement Actions Chevron has no assets in Ecuador and the Lago Agrio plaintiffs’ lawyers have stated in press releases and through other media that they will seek to enforce the Ecuadorian judgment in various countries and otherwise disrupt Chevron’s operations. On May 30, 2012, the Lago Agrio plaintiffs filed an action against Chevron Corporation, Chevron Canada Limited, and Chevron Canada Finance Limited in the Ontario Superior Court of Justice in Ontario, Canada, seeking to recognize and enforce the Ecuadorian judgment. On May 1, 2013, the Ontario Superior Court of Justice held that the Court has jurisdiction over Chevron and Chevron Canada Limited for purposes of the action, but stayed the action due to the absence of evidence that Chevron Corporation has assets in Ontario. The Lago Agrio plaintiffs appealed that decision and on December 17, 2013, the Court of Appeal for Ontario affirmed the lower court’s decision on jurisdiction and set aside the stay, allowing the recognition and enforcement action to be heard in the Ontario Superior Court of Justice. Chevron appealed the decision to the Supreme Court of Canada and, on September 4, 2015, the Supreme Court dismissed the appeal and affirmed that the Ontario Superior Court of Justice has jurisdiction over Chevron and Chevron Canada Limited for purposes of the action. On January 20, 2017, the Ontario Superior Court of Justice granted Chevron Canada Limited’s and Chevron Corporation’s motions for summary judgment, concluding that the two companies are separate legal entities with separate rights and obligations. As a result, the Superior Court dismissed the recognition and enforcement claim against Chevron Canada Limited.  Chevron Corporation still remains as a defendant in the action. On February 3, 2017, the Lago Agrio plaintiffs appealed the Superior Court's January 20, 2017 decision. On May 24, 2018, the Court of Appeal for Ontario upheld the Superior Court’s dismissal of Chevron Canada Limited from the case. On June 22, 2018, the Lago Agrio plaintiffs filed leave to appeal the decision of the Court of Appeal for Ontario to the Supreme Court of Canada.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


On April 4, 2019, the Canadian Supreme Court denied the Lago Agrio plaintiffs' petition for leave to appeal. As a result, the ruling from the Court of Appeal for Ontario is now final, and all claims against Chevron Canada Limited are dismissed. The action against Chevron Corporation remains active.
On June 27, 2012, the Lago Agrio plaintiffs filed a complaint against Chevron Corporation in the Superior Court of Justice in Brasilia, Brazil, seeking to recognize and enforce the Ecuadorian judgment. On May 13, 2015, the public prosecutor issued its nonbinding opinion and recommended that the Superior Court of Justice reject the plaintiffs’ recognition and enforcement request, finding, among other things, that the Lago Agrio judgment was procured through fraud and corruption and cannot be recognized in Brazil because it violates Brazilian and international public order. On November 29, 2017, the Superior Court of Justice issued a decision dismissing the Lago Agrio plaintiffs’ recognition and enforcement proceeding based on jurisdictional grounds. On June 15, 2018, this decision became a final judgment in Brazil.
On October 15, 2012, the provincial court issued an ex parte embargo order that purports to order the seizure of assets belonging to separate Chevron subsidiaries in Ecuador, Argentina and Colombia. On November 6, 2012, at the request of the Lago Agrio plaintiffs, a court in Argentina issued a Freeze Order against Chevron Argentina S.R.L. and another Chevron subsidiary. On January 30, 2013, an appellate court upheld the Freeze Order, but on June 4, 2013, the Supreme Court of Argentina revoked the Freeze Order in its entirety. On December 12, 2013, the Lago Agrio plaintiffs served Chevron with notice of their filing of an enforcement proceeding in the National Court, First Instance, of Argentina. Chevron filed its answer on February 27, 2014 to which the Lago Agrio plaintiffs responded on December 29, 2015. On April 19, 2016, the public prosecutor in Argentina issued a non-binding opinion recommending to the National Court, First Instance, of Argentina that it reject the Lago Agrio plaintiffs' request to recognize the Ecuadorian judgment in Argentina. On February 24, 2017, the public prosecutor in Argentina issued a supplemental opinion reaffirming its previous recommendations. On November 1, 2017, the National Court, First Instance, of Argentina issued a decision dismissing the Lago Agrio plaintiffs' recognition and enforcement proceeding based on jurisdictional grounds. On November 2, 2017, the Lago Agrio plaintiffs appealed this decision to the Federal Civil Court of Appeals. On July 3, 2018, the Federal Civil Court of Appeals affirmed the National Court, First Instance’s, dismissal of the Lago Agrio plaintiffs’ recognition and enforcement action based on jurisdictional grounds. On October 5, 2018, the Federal Civil Court of Appeals granted, in part, the admissibility of the Lago Agrio plaintiffs’ appeal to the Supreme Court of Argentina.
Chevron continues to believe the Ecuadorian judgment is illegitimate and unenforceable in Ecuador, the United States and other countries. The company also believes the judgment is the product of fraud and contrary to the legitimate scientific evidence. Chevron cannot predict the timing or ultimate outcome of any enforcement action. Chevron expects to continue a vigorous defense of any imposition of liability and to contest and defend any and all enforcement actions.
Company's Bilateral Investment Treaty Arbitration Claims Chevron and Texpet filed an arbitration claim in September 2009 against the Republic of Ecuador before an arbitral tribunal presiding in the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law. The claim alleges violations of the Republic of Ecuador’s obligations under the United States–Ecuador Bilateral Investment Treaty (BIT) and breaches of the settlement and release agreements between the Republic of Ecuador and Texpet (described above), which are investment agreements protected by the BIT. Through the arbitration, Chevron and Texpet are seeking relief against the Republic of Ecuador, including a declaration that any judgment against Chevron in the Lago Agrio litigation constitutes a violation of Ecuador’s obligations under the BIT. On January 25, 2012, the Tribunal issued its First Interim Measures Award requiring the Republic of Ecuador to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and outside of Ecuador of any judgment against Chevron in the Lago Agrio case pending further order of the Tribunal. On February 16, 2012, the Tribunal issued a Second Interim Award mandating that the Republic of Ecuador take all measures necessary (whether by its judicial, legislative or executive branches) to suspend or cause to be suspended the enforcement and recognition within and outside of Ecuador of the judgment against Chevron. On February 27, 2012, the Tribunal issued a Third Interim Award confirming its jurisdiction to hear Chevron's arbitration claims. On February 7, 2013, the Tribunal issued its Fourth Interim Award in which it declared that the Republic of Ecuador “has violated the

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


First and Second Interim Awards under the [BIT], the UNCITRAL Rules and international law in regard to the finalization and enforcement subject to execution of the Lago Agrio Judgment within and outside Ecuador, including (but not limited to) Canada, Brazil and Argentina.” The Republic of Ecuador subsequently filed in the District Court of the Hague a request to set aside the Tribunal’s Interim Awards and the First Partial Award (described below), and on January 20, 2016, the District Court denied the Republic's request. On April 13, 2016, the Republic of Ecuador appealed the decision. On July 18, 2017, the Appeals Court of the Hague denied the Republic's appeal. On October 18, 2017, the Republic appealed the decision of the Appeals Court of the Hague to the Supreme Court of the Netherlands. On April 12, 2019, the Supreme Court of the Netherlands upheld the decision of the Appeals Court of the Hague and rejected Ecuador's challenges to the Tribunal's Interim Awards and the First Partial Award.
The Tribunal has divided the merits phase of the proceeding into three phases. On September 17, 2013, the Tribunal issued its First Partial Award from Phase One, finding that the settlement agreements between the Republic of Ecuador and Texpet applied to Texpet and Chevron, released Texpet and Chevron from claims based on "collective" or "diffuse" rights arising from Texpet's operations in the former concession area and precluded third parties from asserting collective/diffuse rights environmental claims relating to Texpet's operations in the former concession area but did not preclude individual claims for personal harm. The Tribunal held a hearing on April 29-30, 2014, to address remaining issues relating to Phase One, and on March 12, 2015, it issued a nonbinding decision that the Lago Agrio plaintiffs' complaint, on its face, includes claims not barred by the settlement agreement between the Republic of Ecuador and Texpet. In the same decision, the Tribunal deferred to Phase Two remaining issues from Phase One, including whether the Republic of Ecuador breached the 1995 settlement agreement and the remedies that are available to Chevron and Texpet as a result of that breach. Phase Two issues were addressed at a hearing held in April and May 2015.
On August 30, 2018, the Tribunal issued its Phase Two award in favor of Chevron and Texpet. The Tribunal unanimously held that the Ecuadorian judgment was procured through fraud, bribery and corruption and was based on claims that the Republic of Ecuador had settled and released in the mid-1990s, concluding that the Ecuadorian judgment “violates international public policy” and “should not be recognized or enforced by the courts of other States.” Specifically, the Tribunal found that (i) the Republic of Ecuador breached its obligations under the 1995 and 1998 settlement agreements releasing Texpet and its affiliates from public environmental claims (the same claims on which the Ecuadorian judgment was exclusively based) and (ii) the Republic of Ecuador committed a denial of justice under customary international law and under the fair and equitable treatment provision of the BIT due to the fraud and corruption in the Lago Agrio litigation. The Tribunal also found that Texpet satisfied its environmental remediation obligations with a $40 million remediation program and that Ecuador certified that Texpet had performed all of its obligations under its settlement agreement. Among other things, the Tribunal ordered the Republic of Ecuador to: (a) take immediate steps to remove the status of enforceability from the Ecuadorian judgment; (b) promptly advise in writing any State where the Lago Agrio plaintiffs may be seeking the enforcement or recognition of the Ecuadorian judgment of the Tribunal’s declarations, orders and awards; (c) take measures to “wipe out all the consequences” of Ecuador's "internationally wrongful acts in regard to the Ecuadorian judgment;" and (d) compensate Chevron for any injuries resulting from the Ecuadorian judgment. On December 10, 2018, the Republic of Ecuador filed in the District Court of The Hague a request to set aside the Tribunal's Phase Two Award. Phase Three, the third and final phase of the arbitration, at which damages for Chevron's injuries will be determined, is set for March 2021.
Company's RICO Action In February 2011, Chevron filed a civil lawsuit in the Federal District Court for the Southern District of New York against the Lago Agrio plaintiffs and several of their lawyers, consultants and supporters, alleging violations of the Racketeer Influenced and Corrupt Organizations Act and other state laws. Through the civil lawsuit, Chevron sought relief that included a declaration that any judgment against Chevron in the Lago Agrio litigation is the result of fraud and other unlawful conduct and is therefore unenforceable. The trial commenced on October 15, 2013 and concluded on November 22, 2013. On March 4, 2014, the Federal District Court entered a judgment in favor of Chevron, prohibiting the defendants from seeking to enforce the Lago Agrio judgment in the United States and further prohibiting them from profiting from their illegal acts.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The defendants appealed the Federal District Court's decision, and, on April 20, 2015, the U.S. Court of Appeals for the Second Circuit heard oral arguments. On August 8, 2016, the Second Circuit issued a unanimous opinion affirming in full the judgment of the Federal District Court. On October 27, 2016, the Second Circuit denied the defendants' petitions for en banc rehearing of the opinion on their appeal. On March 27, 2017 , two of the defendants filed a petition for a Writ of Certiorari to the United States Supreme Court. On June 19, 2017, the United States Supreme Court denied the defendants' petition for a Writ of Certiorari.
Management's Assessment The ultimate outcome of the foregoing matters, including any financial effect on Chevron, remains uncertain. Management does not believe an estimate of a reasonably possible loss (or a range of loss) can be made in this case. Due to the defects associated with the Ecuadorian judgment, management does not believe the judgment has any utility in calculating a reasonably possible loss (or a range of loss). Moreover, the highly uncertain legal environment surrounding the case provides no basis for management to estimate a reasonably possible loss (or a range of loss).
Note 13. Other Contingencies and Commitments
Income Taxes The company calculates its income tax expense and liabilities quarterly. These liabilities generally are subject to audit and are not finalized with the individual taxing authorities until several years after the end of the annual period for which income taxes have been calculated. Refer to Note 11 on page 17 for a discussion of the periods for which tax returns have been audited for the company’s major tax jurisdictions.
Settlement of open tax years, as well as other tax issues in countries where the company conducts its businesses, are not expected to have a material effect on the consolidated financial position or liquidity of the company and, in the opinion of management, adequate provision has been made for income taxes for all years under examination or subject to future examination.
Guarantees The company and its subsidiaries have certain contingent liabilities with respect to guarantees, direct or indirect, of debt of affiliated companies or third parties. Under the terms of the guarantee arrangements, the company would generally be required to perform should the affiliated company or third party fail to fulfill its obligations under the arrangements. In some cases, the guarantee arrangements may have recourse provisions that would enable the company to recover any payments made under the terms of the guarantees from assets provided as collateral.
Indemnifications  In the acquisition of Unocal, the company assumed certain indemnities relating to contingent environmental liabilities associated with assets that were sold in 1997. The acquirer of those assets shared in certain environmental remediation costs up to a maximum obligation of $200 million , which had been reached at December 31, 2009. Under the indemnification agreement, after reaching the $200 million obligation, Chevron is solely responsible until April 2022, when the indemnification expires. The environmental conditions or events that are subject to these indemnities must have arisen prior to the sale of the assets in 1997.
Although the company has provided for known obligations under this indemnity that are probable and reasonably estimable, the amount of additional future costs may be material to results of operations in the period in which they are recognized. The company does not expect these costs will have a material effect on its consolidated financial position or liquidity.
Off-Balance-Sheet Obligations The company and its subsidiaries have certain contingent liabilities with respect to long-term unconditional purchase obligations and commitments, including throughput and take-or-pay agreements, some of which relate to suppliers’ financing arrangements. The agreements typically provide goods and services, such as pipeline and storage capacity, utilities, and petroleum products, to be used or sold in the ordinary course of the company’s business. As part of the implementation of ASU 2016-02 (Topic 842), the company assessed some contracts, previously incorporated into the unconditional purchase obligations disclosure, as operating leases in first quarter 2019 results.
Environmental The company is subject to loss contingencies pursuant to laws, regulations, private claims and legal proceedings related to environmental matters that are subject to legal settlements or that in the future may require the company to take action to correct or ameliorate the effects on the environment of prior release of chemicals or petroleum substances, including MTBE, by the company or other parties. Such contingencies may

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


exist for various sites, including, but not limited to, federal Superfund sites and analogous sites under state laws, refineries, crude oil fields, service stations, terminals, land development areas, and mining activities, whether operating, closed or divested. These future costs are not fully determinable due to factors such 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.
Although the company has provided for known environmental obligations that are probable and reasonably estimable, the amount of additional future costs may be material to results of operations in the period in which they are recognized. The company does not expect these costs will have a material effect on its consolidated financial position or liquidity. 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 U.S. or international petroleum or chemical companies.
Other Contingencies Governmental and other entities in California and other jurisdictions have filed legal proceedings against fossil fuel producing companies, including Chevron, purporting to seek legal and equitable relief to address alleged impacts of climate change. Further such proceedings are likely to be filed by other parties. The unprecedented legal theories set forth in these proceedings entail the possibility of damages liability and injunctions against the production of all fossil fuels that, while we believe remote, could have a material adverse effect on the Company’s results of operations and financial condition. Management believes that these proceedings are legally and factually meritless and detract from constructive efforts to address the important policy issues presented by climate change, and will vigorously defend against such proceedings.
Chevron receives claims from and submits claims to customers; trading partners; joint venture partners; U.S. federal, state and local regulatory bodies; governments; contractors; insurers; suppliers; and individuals. The amounts of these claims, individually and in the aggregate, may be significant and take lengthy periods to resolve, and may result in gains or losses in future periods.
The company and its affiliates also continue to review and analyze their operations and may close, abandon, sell, exchange, acquire or restructure assets to achieve operational or strategic benefits and to improve competitiveness and profitability. These activities, individually or together, may result in significant gains or losses in future periods.
Note 14. Fair Value Measurements
The three levels of the fair value hierarchy of inputs the company uses to measure the fair value of an asset or liability are described as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the company, Level 1 inputs include exchange-traded futures contracts for which the parties are willing to transact at the exchange-quoted price and marketable securities that are actively traded.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly. For the company, Level 2 inputs include quoted prices for similar assets or liabilities, prices obtained through third-party broker quotes and prices that can be corroborated with other observable inputs for substantially the complete term of a contract.
Level 3: Unobservable inputs. The company does not use Level 3 inputs for any of its recurring fair value measurements. Level 3 inputs may be required for the determination of fair value associated with certain nonrecurring measurements of nonfinancial assets and liabilities.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at March 31, 2019 , and December 31, 2018 , is as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
(Millions of dollars)
 
At March 31, 2019
 
At December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Marketable Securities
$
56

 
$
56

 
$

 
$

 
$
53

 
$
53

 
$

 
$

Derivatives
22

 
2

 
20

 

 
283

 
185

 
98

 

Total Assets at Fair Value
$
78

 
$
58

 
$
20

 
$

 
$
336

 
$
238

 
$
98

 
$

Derivatives
63

 
58

 
5

 

 
12

 

 
12

 

Total Liabilities at Fair Value
$
63

 
$
58

 
$
5

 
$

 
$
12

 
$

 
$
12

 
$


Marketable Securities The company calculates fair value for its marketable securities based on quoted market prices for identical assets. The fair values reflect the cash that would have been received if the instruments were sold at March 31, 2019 .
Derivatives The company records its derivative instruments — other than any commodity derivative contracts that are designated as normal purchase and normal sale — on the Consolidated Balance Sheet at fair value, with the offsetting amount to the Consolidated Statement of Income. Derivatives classified as Level 1 include futures, swaps and options contracts traded in active markets such as the New York Mercantile Exchange. Derivatives classified as Level 2 include swaps, options and forward contracts principally with financial institutions and other oil and gas companies, the fair values of which are obtained from third-party broker quotes, industry pricing services and exchanges. The company obtains multiple sources of pricing information for the Level 2 instruments. Since this pricing information is generated from observable market data, it has historically been very consistent. The company does not materially adjust this information.
Assets carried at fair value at March 31, 2019 , and December 31, 2018 , are as follows:
Cash and Cash Equivalents The company holds cash equivalents in U.S. and non-U.S. portfolios. The instruments classified as cash equivalents are primarily bank time deposits with maturities of 90 days or less, and money market funds. “Cash and cash equivalents” had carrying/fair values of $8.7 billion and $9.3 billion at March 31, 2019 , and December 31, 2018 , respectively. The instruments held in "Time deposits" are bank time deposits with maturities greater than 90 days and had carry/fair values of zero and $1.0 billion at March 31, 2019, and December 31, 2018, respectively. The fair values of cash and cash equivalents are classified as Level 1 and reflect the cash that would have been received if the instruments were settled at March 31, 2019 .
Restricted Cash had a carrying/fair value of $1.0 billion and $1.1 billion at March 31, 2019 , and December 31, 2018 , respectively. At March 31, 2019 , restricted cash is classified as Level 1 and includes restricted funds related to certain upstream abandonment activities and a financing program, which are reported in "Prepaid expenses and other current assets" and “Deferred charges and other assets” on the Consolidated Balance Sheet.
Long-Term Debt had a net carrying value, excluding amounts reclassified from short-term debt and finance lease obligations, of $15.9 billion and $18.7 billion at March 31, 2019 , and December 31, 2018 , respectively. The fair value of long-term debt at March 31, 2019 , and December 31, 2018 was $16.3 billion and $18.7 billion , respectively. Long-term debt primarily includes corporate issued bonds. The fair value of corporate bonds classified as Level 1 is $15.5 billion . The fair value of other long-term debt classified as Level 2 is $0.8 billion .
The carrying values of other short-term financial assets and liabilities on the Consolidated Balance Sheet approximate their fair values. Fair value remeasurements of other financial instruments at March 31, 2019 , and December 31, 2018 , were not material.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The fair value hierarchy for assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2019 , is as follows:
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
(Millions of dollars)
 
At March 31, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Before-Tax Loss
 
 
 
 
 
 Properties, plant and equipment, net (held and used)
$
48

 
$

 
$

 
$
48

 
$
7

 Properties, plant and equipment, net (held for sale)
414

 

 
414

 

 
13

 Investments and advances

 

 

 

 
3

 Total Assets at Fair Value
$
462

 
$

 
$
414

 
$
48

 
$
23


Properties, plant and equipment The company did not have any individually material impairments of long-lived assets measured at fair value on a nonrecurring basis to report in first quarter 2019 .
Investments and advances The company did not have any material impairments of investments and advances measured at fair value on a nonrecurring basis to report in first quarter 2019 .
Note 15. Financial and Derivative Instruments
The company’s derivative instruments principally include crude oil, natural gas and refined product futures, swaps, options, and forward contracts. None of the company’s derivative instruments are designated as hedging instruments, although certain of the company’s affiliates make such a designation. The company’s derivatives are not material to the company’s consolidated financial position, results of operations or liquidity. The company believes it has no material market or credit risks to its operations, financial position or liquidity as a result of its commodities and other derivatives activities.
The company uses derivative commodity instruments traded on the New York Mercantile Exchange and on electronic platforms of the Inter-Continental Exchange and Chicago Mercantile Exchange. In addition, the company enters into swap contracts and option contracts principally with major financial institutions and other oil and gas companies in the “over-the-counter” markets, which are governed by International Swaps and Derivatives Association agreements and other master netting arrangements.
Derivative instruments measured at fair value at March 31, 2019 , and December 31, 2018 , and their classification on the Consolidated Balance Sheet and Consolidated Statement of Income are as follows:
Consolidated Balance Sheet: Fair Value of Derivatives Not Designated as Hedging Instruments
(Millions of dollars)
Type of
Contract
 
Balance Sheet Classification
 
At March 31
2019
 
At December 31
2018
Commodity
 
Accounts and notes receivable, net
 
$
22

 
$
279

Commodity
 
Long-term receivables, net
 

 
4

Total Assets at Fair Value
 
$
22

 
$
283

Commodity
 
Accounts payable
 
$
63

 
$
12

Commodity
 
Deferred credits and other noncurrent obligations
 

 

Total Liabilities at Fair Value
 
$
63

 
$
12



24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Consolidated Statement of Income: The Effect of Derivatives Not Designated as Hedging Instruments
(Millions of dollars)
 
 
 
 
Gain / (Loss)
Three Months Ended
March 31
Type of
Contract
 
Statement of Income Classification
 
2019
 
2018
Commodity
 
Sales and other operating revenues
 
$
(238
)
 
$
(12
)
Commodity
 
Purchased crude oil and products
 
(7
)
 
(9
)
Commodity
 
Other income
 

 

 
 
 
 
$
(245
)
 
$
(21
)

The table below represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at March 31, 2019 , and December 31, 2018 .
Consolidated Balance Sheet: The Effect of Netting Derivative Assets and Liabilities
(Millions of dollars)
 
 
Gross Amount Recognized
 
Gross Amounts Offset
 
Net Amounts Presented
 
 Gross Amounts Not Offset
 
Net Amount
At March 31, 2019
 
 
 
 
 
Derivative Assets