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Stephen J. Crowe Vice President and Chief Financial Officer |
Chevron
Corporation Comptroller’s Department 6001 Bollinger Canyon Road San Ramon, CA 94583-2324 |
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May 15, 2006
BY ELECTRONIC TRANSMISSION
Mr. Karl Hiller
Branch Chief
Mail Stop 7010
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010
Branch Chief
Mail Stop 7010
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010
Re:
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Chevron Corporation Form 10-K for the Fiscal Year Ended December 31, 2005 (“2005 Form 10-K”) Filed March 1, 2006 File No. 001-00368 |
Dear Mr. Hiller:
In your letter dated May 2, 2006, you provided staff comments (the “Staff”) on the Chevron
Corporation (the “company”) 2005 Form 10-K. These comments and the company responses are discussed
below.
Please direct any questions related to the information herein to Mr. Bill Allman, Assistant
Comptroller, at (925) 842-3544 or by e-mail at bill.allman@chevron.com.
Form 10-K for the Fiscal Year Ended December 31, 2005
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page FS-1
Litigation and Other Contingencies, page FS-18
Litigation and Other Contingencies, page FS-18
Comment 1
We note from the Current Issues section of your website, and recent news articles, that you have been named in a lawsuit alleging damages to the rainforest in Ecuador. Given the potentially significant nature of the lawsuit, please explain to us why you believe it is not necessary to include disclosure of the lawsuit in your reports filed with the SEC. In your response, please address the disclosure and reporting requirements of Item 103 and 303 of Regulation S-K, SFAS No. 5, FIN No. 14, SAB 5:Y and SOP 96-1.
We note from the Current Issues section of your website, and recent news articles, that you have been named in a lawsuit alleging damages to the rainforest in Ecuador. Given the potentially significant nature of the lawsuit, please explain to us why you believe it is not necessary to include disclosure of the lawsuit in your reports filed with the SEC. In your response, please address the disclosure and reporting requirements of Item 103 and 303 of Regulation S-K, SFAS No. 5, FIN No. 14, SAB 5:Y and SOP 96-1.
Response: Item 103 of Regulation S-K requires disclosure of material pending legal proceedings.
The company makes a diligent effort to gather and weigh all the facts, including any uncertainty as
to the law or the facts, in reaching a conclusion whether, under the present circumstances, a
particular proceeding is material for reporting purposes. In determining what is material, the
company
Mr. Karl Hiller
Securities and Exchange Commission
May 15, 2006
Page: 2
Securities and Exchange Commission
May 15, 2006
Page: 2
considers the potential effect of the proceedings on: (a) the conduct of its business; (b) its
financial condition, including its liquidity; and (c) its earnings in any period. With respect
to loss contingencies, consistent with the requirements of FASB Statement of Financial Accounting
Standards No. 5, Accounting for Contingencies (SFAS 5), and Staff Accounting Bulletin 5:Y, the
company considers whether there is at least a reasonable possibility that (a) a loss exceeding
amounts already recognized may occur and (b) the amount of that additional loss would be material
to a decision to buy or sell the registrant’s securities. If so, disclosure of the contingency is
made.
Consistent with SFAS 5 and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a
Loss, the company accrues a liability when a loss is probable and reasonably estimable; if the
minimum amount in a range of loss has been accrued, and the range of potential loss in excess of
booked amounts is material, disclosure of that contingency is made. AICPA Statement of Position
96-1, Environmental Remediation Liabilities, is helpful in applying these standards in the context
of potential environmental remediation liabilities.
Disclosure of contingencies may also be required under Item 303 of Regulation S-K if they
constitute material uncertainties that, for example, could cause reported results not to be
indicative of future results of operations.
Your letter refers to “publicity” surrounding this
litigation. The case at issue has been pursued by plaintiffs in one
form or another here and in Ecuador for more than a decade, with
notable lack of success. The company believes that plaintiffs and
their sympathizers are therefore seeking to obtain, through
misinformation and pressure tactics, what they cannot hope to obtain
through legitimate court processes. All their non-court related
actions, including press releases, staged demonstrations and
proposals at the company’s annual meetings, and pleas for
government investigation and possible action against the company,
serve this purpose and should be viewed in that light.
The company has considered both the merits of the underlying litigation and the potential effects
of the plaintiff’s public relations campaign in assessing the materiality of this matter. The
nature of allegations made by plaintiffs does not determine the significance of a risk; otherwise,
any sufficiently grave allegation, however unwarranted, would give rise to a disclosure
requirement. As discussed above, the company regularly reviews the legal and factual status of
this case to determine if an accrual should be made or disclosure of a material contingency is
required. The company also regularly assesses the adequacy of its disclosure controls. Based on
its ongoing reviews and assessments, the company believes it has no further liability in this
matter. The company intends to continue to resist attempts to induce it to remediate sites and
operations that by release and agreement are properly the responsibility of the current operator
and the company’s former consortium partner, PetroEcuador, and its sponsoring government. After
considering all the factors, including those mentioned on the
company’s Web site, the company
believes that the possibility of a material loss contingency in this case is remote.
The
company has included information about the case on its Web site, to
ensure that interested persons have access to real facts and data
about the case and not just what the plaintiffs publish as part of
their attack campaign. The provision of such information by the company
on its Web site does not
give rise to an independent SEC disclosure obligation, and is not an admission by the company of
the materiality of the underlying legal proceeding. The company notes that the stockholder
proposals seeking more detailed discussion of the Ecuador litigation have been overwhelmingly
defeated. In the company’s assessment, further disclosure is not required under securities or
accounting rules, and is not otherwise in its stockholders’ interests.
Mr. Karl Hiller
Securities and Exchange Commission
May 15, 2006
Page: 3
Securities and Exchange Commission
May 15, 2006
Page: 3
Financial Statements
Note 9 — Litigation, page FS-42
Note 9 — Litigation, page FS-42
Comment 2
In your disclosure related to the MTBE litigation, you explain that your ultimate exposure is not currently determinable, but could be material to net income in any one period. As you have determined that the matter could be material to net income, it seems that you would be able to determine a range of exposure. As such, revise your disclosure to include any amounts recorded in the financial statements related to the matter; and specify damages claimed by the parties and the range of reasonably possible loss. See FIN No. 14 for additional guidance.
In your disclosure related to the MTBE litigation, you explain that your ultimate exposure is not currently determinable, but could be material to net income in any one period. As you have determined that the matter could be material to net income, it seems that you would be able to determine a range of exposure. As such, revise your disclosure to include any amounts recorded in the financial statements related to the matter; and specify damages claimed by the parties and the range of reasonably possible loss. See FIN No. 14 for additional guidance.
Response: As disclosed in the company’s periodic reports, there are currently over 70 lawsuits in
various jurisdictions regarding the possible responsibility of the company for damages or
remediation due to the release into the environment of methyl tertiary butyl ether (MTBE), an
oxygenate widely used in the 1990s to satisfy federal reformulated gasoline specifications. While
most of these lawsuits currently are consolidated for pre-trial proceedings in the United States
District Court for the Southern District of New York, each case remains separate with its own facts
and circumstances. These proceedings are in an early stage with only limited discovery having been
conducted to date and numerous issues, including jurisdictional issues, yet to be resolved.
It is uncertain how many claims will ultimately be brought against the company or other parties in
the industry, or the nature and extent of the remedies that will be sought or imposed. Any lawsuit
or regulatory proceeding involving claims related to MTBE will involve questions regarding the
determination of what party or parties is or are responsible for the contamination and in what
proportion, the magnitude and effect of possible contamination, the timing and extent of the
corrective actions that may be required, and the extent to which such costs are recoverable from
third parties. Owing to the varied facts and circumstances of the cases, and the inability to
predict the incidence of future claims, MTBE exposures cannot yet be aggregated for the purpose of
determining a probable liability or even a range of possible exposure. As a result, the company
assesses each MTBE-related case separately for both accrual and disclosure obligations.
Given the number of MTBE cases, the unpredictable nature and timing of litigation and regulatory
proceedings, and the influence of variable commodity prices on the company’s earnings from period
to period, the company cannot be confident that liabilities incurred in any one quarter would not
be material to the company’s results with respect to that quarter. For this reason, the company
has deemed it advisable to include the disclosure referred to by the Staff.
Supplemental Information on Oil and Gas Producing Activities, page FS-65
Comment 3
We note that you identify asset retirement costs as a separate line item in your table of capitalized costs and table of costs incurred, which is contrary to the guidance in paragraphs 11 and B42 of SFAS 143, requiring adjustment to the asset to which the corresponding asset retirement liability relates. As there is no provision for this line item in paragraphs 18 and 21 and Illustrations 1 and 2 of SFAS 69, we believe you should revise your presentation accordingly. Alternatively, you may disclose the amount of asset retirement costs in a footnote to the schedules. For further clarification you may refer to our February 2004 industry letter, located on our website at the following address:
We note that you identify asset retirement costs as a separate line item in your table of capitalized costs and table of costs incurred, which is contrary to the guidance in paragraphs 11 and B42 of SFAS 143, requiring adjustment to the asset to which the corresponding asset retirement liability relates. As there is no provision for this line item in paragraphs 18 and 21 and Illustrations 1 and 2 of SFAS 69, we believe you should revise your presentation accordingly. Alternatively, you may disclose the amount of asset retirement costs in a footnote to the schedules. For further clarification you may refer to our February 2004 industry letter, located on our website at the following address:
http://www.sec.gov/divisions/corpfin/guidance/oilgasletter.htm
Mr. Karl Hiller
Securities and Exchange Commission
May 15, 2006
Page: 4
Securities and Exchange Commission
May 15, 2006
Page: 4
Response: In accordance with the Staff’s recommendation, the company in its 2006 Form 10-K will
eliminate the separate line item for the referenced asset retirement costs (labeled by the company
as “ARO asset”) in the tables for capitalized costs and costs incurred. The company did not
believe the literature referenced in this Staff comment necessarily precluded the presentation of
the ARO asset on a separate line in these tables.
As a matter of information, the company does include the ARO asset balance with the “carrying
amount of the related long-lived asset,” as prescribed by paragraph 11 of SFAS 143. The ARO asset
is included in the balance of “properties, plant and equipment” on the consolidated balance sheet.
* * *
In accordance with the request in your letter, the company hereby acknowledges that:
| • | the company is responsible for the adequacy and accuracy of the disclosure in its filings with the Commission; | ||
| • | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and | ||
| • | the company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
Very truly yours,
/s/ Stephen J. Crowe
cc: |
Mr. T. M. Kee (Pillsbury Winthrop Shaw Pittman) |