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EX-31.1 - EXHIBIT 31.1 - CHEVRON CORPcvx03312015ex311ceo-sox302.htm



 
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, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-00368
Chevron Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
94-0890210
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
6001 Bollinger Canyon Road,
San Ramon, California
  
94583-2324
(Zip Code)
(Address of principal executive offices)
  
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
  
Accelerated filer o
  
Non-accelerated filer o
  
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
 
Outstanding as of March 31, 2015
Common stock, $.75 par value
 
1,880,477,711
 



INDEX
 
 
 
Page No.
 
2
PART I
FINANCIAL INFORMATION
Item 1.
 
 
Consolidated Statement of Income for the Three Months Ended March, 2015, and 2014
3
 
Consolidated Statement of Comprehensive Income for the Three Months Ended March 31, 2015, and 2014
4
 
Consolidated Balance Sheet at March 31, 2015, and December 31, 2014
5
 
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2015, and 2014
6
 
7-23
Item 2.
24-35
Item 3.
35
Item 4.
35
PART II
OTHER INFORMATION
Item 1.
36
Item 1A.
36
Item 2.
37
Item 4.
37
Item 6.
37
38
Exhibits:
Computation of Ratio of Earnings to Fixed Charges
40
Rule 13a-14(a)/15d-14(a) Certifications
41-42
Rule 13a-14(b)/15d-14(b) Certifications
43-44

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,” “may,” “could,” “budgets,” “outlook,” “on schedule,” “on track” 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.
Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: changing crude oil and natural gas prices; changing refining, marketing and chemicals margins; 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 equity affiliates; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from 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 production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather, other natural or human factors, or crude oil production quotas that might be imposed by the Organization of Petroleum Exporting Countries; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant investment or product changes required by existing or future environmental statutes, regulations and litigation; the potential liability resulting from other pending or future litigation; the company’s future acquisition or disposition of assets and gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S. dollar; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; and the factors set forth under the heading “Risk Factors” on pages 22 through 24 of the company’s 2014 Annual Report on Form 10-K. In addition, such results could be affected by general domestic and international economic and political conditions. 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
 
2015
 
2014
 
(Millions of dollars, except per-share amounts)
Revenues and Other Income
 
Sales and other operating revenues*
$
32,315

 
$
50,978

Income from equity affiliates
1,401

 
1,922

Other income
842

 
365

Total Revenues and Other Income
34,558

 
53,265

Costs and Other Deductions
 
 
 
Purchased crude oil and products
17,193

 
30,823

Operating expenses
5,395

 
6,023

Selling, general and administrative expenses
944

 
927

Exploration expenses
592

 
415

Depreciation, depletion and amortization
4,411

 
4,130

Taxes other than on income*
3,118

 
3,019

Total Costs and Other Deductions
31,653

 
45,337

Income Before Income Tax Expense
2,905

 
7,928

Income Tax Expense
305

 
3,407

Net Income
2,600

 
4,521

Less: Net income attributable to noncontrolling interests
33

 
9

Net Income Attributable to Chevron Corporation
$
2,567

 
$
4,512

Per Share of Common Stock:
 
 
 
Net Income Attributable to Chevron Corporation
 
 
 
— Basic
$
1.38

 
$
2.38

— Diluted
$
1.37

 
$
2.36

Dividends
$
1.07

 
$
1.00

Weighted Average Number of Shares Outstanding (000s)
 
 
 
— Basic
1,866,655

 
1,895,032

— Diluted
1,876,498

 
1,909,424

* Includes excise, value-added and similar taxes:
$
1,877

 
$
1,946







See accompanying notes to consolidated financial statements.

3


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

 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Net Income
$
2,600

 
$
4,521

Currency translation adjustment
(25
)
 
(38
)
Unrealized holding gain on securities:
 
 
 
Net gain arising during period
2

 
4

Derivatives:
 
 
 
Net derivatives loss on hedge transactions

 
(3
)
Reclassification to net income of net realized gain

 
(1
)
Income tax benefit on derivatives transactions

 
1

Total

 
(3
)
Defined benefit plans:
 
 
 
Actuarial loss:
 
 
 
Amortization to net income of net actuarial and settlement losses
170

 
111

Actuarial loss arising during period
(8
)
 

Prior service cost:
 
 
 
Amortization to net income of net prior service costs
6

 
6

Defined benefit plans sponsored by equity affiliates
13

 
6

Income tax expense on defined benefit plans
(79
)
 
(41
)
Total
102

 
82

Other Comprehensive Gain, Net of Tax
79

 
45

Comprehensive Income
2,679

 
4,566

Comprehensive income attributable to noncontrolling interests
(33
)
 
(9
)
Comprehensive Income Attributable to Chevron Corporation
$
2,646

 
$
4,557


See accompanying notes to consolidated financial statements.

4


CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
At March 31
2015
 
At December 31
2014
 
(Millions of dollars, except per-share amounts)
ASSETS
 
 
Cash and cash equivalents
$
12,675

 
$
12,785

Time deposits

 
8

Marketable securities
432

 
422

Accounts and notes receivable, net
15,239

 
16,736

Inventories
 
 
 
Crude oil and petroleum products
4,157

 
3,854

Chemicals
459

 
467

Materials, supplies and other
2,221

 
2,184

Total inventories
6,837

 
6,505

Prepaid expenses and other current assets
6,087

 
5,776

Total Current Assets
41,270

 
42,232

Long-term receivables, net
2,820

 
2,817

Investments and advances
28,238

 
26,912

Properties, plant and equipment, at cost
333,824

 
327,289

Less: Accumulated depreciation, depletion and amortization
147,701

 
144,116

Properties, plant and equipment, net
186,123

 
183,173

Deferred charges and other assets
6,565

 
6,299

Goodwill
4,588

 
4,593

Total Assets
$
269,604

 
$
266,026

LIABILITIES AND EQUITY
 
 
Short-term debt
$
3,908

 
$
3,790

Accounts payable
16,640

 
19,000

Accrued liabilities
4,607

 
5,328

Federal and other taxes on income
3,115

 
2,575

Other taxes payable
1,175

 
1,233

Total Current Liabilities
29,445

 
31,926

Long-term debt
29,960

 
23,960

Capital lease obligations
65

 
68

Deferred credits and other noncurrent obligations
23,100

 
23,549

Noncurrent deferred income taxes
21,583

 
21,920

Noncurrent employee benefit plans
8,450

 
8,412

Total Liabilities
112,603

 
109,835

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, 2015, and December 31, 2014)
1,832

 
1,832

Capital in excess of par value
16,105

 
16,041

Retained earnings
185,557

 
184,987

Accumulated other comprehensive loss
(4,780
)
 
(4,859
)
Deferred compensation and benefit plan trust
(240
)
 
(240
)
Treasury stock, at cost (562,198,869 and 563,027,772 shares at March 31, 2015, and December 31, 2014, respectively)
(42,671
)
 
(42,733
)
Total Chevron Corporation Stockholders’ Equity
155,803

 
155,028

Noncontrolling interests
1,198

 
1,163

Total Equity
157,001

 
156,191

Total Liabilities and Equity
$
269,604

 
$
266,026


See accompanying notes to consolidated financial statements.

5


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

 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Operating Activities
 
 
 
Net Income
$
2,600

 
$
4,521

Adjustments
 
 
 
Depreciation, depletion and amortization
4,411

 
4,130

Dry hole expense
348

 
140

Distributions less than income from equity affiliates
(1,208
)
 
(457
)
Net before-tax gains on asset retirements and sales
(638
)
 
(269
)
Net foreign currency effects
(87
)
 
14

Deferred income tax provision
(921
)
 
287

Net (increase) decrease in operating working capital
(1,985
)
 
382

Increase in long-term receivables
(23
)
 
(32
)
Net decrease (increase) in other deferred charges
27

 
(13
)
Cash contributions to employee pension plans
(85
)
 
(89
)
Other
(120
)
 
(197
)
Net Cash Provided by Operating Activities
2,319

 
8,417

Investing Activities
 
 
 
Capital expenditures
(7,602
)
 
(8,544
)
Proceeds and deposits related to asset sales
948

 
316

Net sales (purchases) of time deposits
8

 
(300
)
Net borrowing of loans by equity affiliates
(40
)
 
(32
)
Net sales (purchases) of other short-term investments
80

 
(20
)
Net Cash Used for Investing Activities
(6,606
)
 
(8,580
)
Financing Activities
 
 
 
Net borrowings of short-term obligations
117

 
2,636

Proceeds from issuance of long-term debt
5,993

 

Repayments of long-term debt and other financing obligations
(8
)
 
(12
)
Cash dividends — common stock
(1,997
)
 
(1,895
)
Net sales (purchases) of treasury shares
55

 
(1,190
)
Net Cash Provided by (Used for) Financing Activities
4,160

 
(461
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
17

 
(9
)
Net Change in Cash and Cash Equivalents
(110
)
 
(633
)
Cash and Cash Equivalents at January 1
12,785

 
16,245

Cash and Cash Equivalents at March 31
$
12,675

 
$
15,612









See accompanying notes to consolidated financial statements.

6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Interim Financial Statements
The accompanying consolidated financial statements of Chevron Corporation and its subsidiaries (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, 2015, are not necessarily indicative of future financial results. The term “earnings” is defined as net income attributable to Chevron Corporation.
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 2014 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 ending March 31, 2015, are reflected in the table below.
Changes in Accumulated Other Comprehensive Income (Loss) by Component (1) 
(Millions of Dollars)
 
 
Three Months Ended March 31, 2015
 
 
Currency Translation Adjustment
 
Unrealized Holding Gains (Losses) on Securities
 
Derivatives
 
Defined Benefit Plans
 
Total
 
 

Balance at January 1
 
$
(96
)
 
$
(8
)
 
$
(2
)
 
$
(4,753
)
 
$
(4,859
)
Components of Other Comprehensive
    Income (Loss):
 
 
 
 
 
 
 
 
    Before Reclassifications
 
(25
)
 
2

 

 
(8
)
 
(31
)
    Reclassifications (2)
 

 

 

 
110

 
110

Net Other Comprehensive Income (Loss)
 
(25
)
 
2

 

 
102

 
79

Balance at March 31
 
$
(121
)
 
$
(6
)
 
$
(2
)
 
$
(4,651
)
 
$
(4,780
)
________________________________
(1) All amounts are net of tax.
(2) Refer to Note 10, Employee Benefits for reclassified components totaling $176 million that are included in employee benefit costs for the three months ending March 31, 2015. Related income taxes for the same period, totaling $66 million, are reflected in Income Tax Expense on the Consolidated Statement of Income. All other reclassified amounts were insignificant.
Note 3. Noncontrolling Interests
Ownership interests in the company’s subsidiaries held by parties other than the parent are presented separately from the parent’s equity on the Consolidated Balance Sheet. The amount of consolidated net income attributable to the parent and the noncontrolling interests are both presented on the face of the Consolidated Statement of Income. Activity for the equity attributable to noncontrolling interests for the first three months of 2015 and 2014 is as follows:
 
2015
 
2014
 
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
 
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
 
(Millions of dollars)
Balance at January 1
$
155,028

 
$
1,163

 
$
156,191

 
$
149,113

 
$
1,314

 
$
150,427

Net income
2,567

 
33

 
2,600

 
4,512

 
9

 
4,521

Dividends
(1,997
)
 

 
(1,997
)
 
(1,896
)
 

 
(1,896
)
Treasury shares, net
62

 

 
62

 
(1,191
)
 

 
(1,191
)
Other changes, net*
143

 
2

 
145

 
123

 
(174
)
 
(51
)
Balance at March 31
$
155,803

 
$
1,198

 
$
157,001

 
$
150,661

 
$
1,149

 
$
151,810

 _________________________________
* Includes components of comprehensive income, which are disclosed separately in the Consolidated Statement of Comprehensive Income.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 4. Information Relating to the Consolidated Statement of Cash Flows
The “Net (increase) decrease in operating working capital” was composed of the following operating changes:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Decrease in accounts and notes receivable
$
1,207

 
$
1,373

Increase in inventories
(332
)
 
(1,098
)
Increase in prepaid expenses and other current assets
(368
)
 
(136
)
(Decrease) increase in accounts payable and accrued liabilities
(3,010
)
 
140

Increase in income and other taxes payable
518

 
103

Net (increase) decrease in operating working capital
$
(1,985
)
 
$
382

The “Net (increase) decrease in operating working capital” includes reductions of $4 million and $6 million for excess income tax benefits associated with stock options exercised during the three months ended March 31, 2015, and 2014, respectively. These amounts are offset by an equal amount in “Net sales (purchases) of treasury shares.”
“Net Cash Provided by Operating Activities” included the following cash payments for income taxes:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Income taxes
$
953

 
$
2,416

"Other" includes changes in postretirement benefits obligations and other long-term liabilities.
Information related to "Restricted Cash" is included on page 21 in Note 13 under the heading "Restricted Cash."
The “Net sales (purchases) of time deposits” consisted of the following gross amounts:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Time deposits purchased
$

 
$
(308
)
Time deposits matured
8

 
8

Net sales (purchases) of time deposits
$
8

 
$
(300
)
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 $1 million for the first three months of 2015 and $1.3 billion for the first three months in 2014. No purchases were made under the company's share repurchase program in the first three months of 2015. During the first three months of 2014, the company purchased 10.8 million common shares under the program for $1.25 billion.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The major components of “Capital expenditures” and the reconciliation of this amount to the capital and exploratory expenditures, including equity affiliates, are as follows:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Additions to properties, plant and equipment
$
7,343

 
$
8,397

Additions to investments
112

 
87

Current year dry hole expenditures
147

 
75

Payments for other liabilities and assets, net

 
(15
)
Capital expenditures
7,602

 
8,544

Expensed exploration expenditures
244

 
275

Assets acquired through capital lease obligations
7

 

Capital and exploratory expenditures, excluding equity affiliates
7,853

 
8,819

Company’s share of expenditures by equity affiliates
730

 
612

Capital and exploratory expenditures, including equity affiliates
$
8,583

 
$
9,431


Note 5. Long-Term Debt
On March 3, 2015, the Company issued $900,000,000 in aggregate principal amount of floating rate notes due 2017, $550,000,000 in aggregate principal amount of floating rate notes due 2018, $1,750,000,000 in aggregate principal amount of 1.365% notes due 2018, $1,750,000,000 in aggregate principal amount of 1.961% notes due 2020, $350,000,000 in aggregate principal amount of floating rate notes due 2022, and $700,000,000 in aggregate principal amount of 2.411% notes due 2022.

Note 6. Income Taxes
Taxes on income for the first quarter of 2015 were $0.3 billion, compared with $3.4 billion for the corresponding period in 2014. The associated effective tax rates (calculated as the amount of Income Tax Expense divided by Income Before Income Tax Expense) for the first quarters of 2015 and 2014 were 10 percent and 43 percent, respectively.
The decrease in the effective tax rate between periods resulted from one-time tax benefits primarily related to a reduction in statutory tax rates in the United Kingdom, the impact of changes in jurisdictional mix driven by significantly lower income in high tax rate international upstream jurisdictions, and foreign currency remeasurement effects, partially offset by the effects of equity earnings.
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, 2015. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States — 2008, Nigeria — 2000, Angola — 2001, Saudi Arabia — 2012 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.


9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 7. 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 segments are separately managed for investment purposes under a structure that includes “segment managers” who report to the company’s “chief operating decision maker” (CODM). The CODM is the company’s Executive Committee (EXCOM), a committee of senior officers that includes the Chief Executive Officer. EXCOM reports to the Board of Directors of Chevron Corporation.
The operating 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.
Segment managers for the reportable segments are directly accountable to, and maintain regular contact with, the company’s CODM to discuss the segment’s operating activities and financial performance. The CODM approves annual capital and exploratory budgets at the reportable segment level, as well as reviews capital and exploratory funding for major projects and approves major changes to the annual capital and exploratory budgets. However, business-unit managers within the operating segments are directly responsible for decisions relating to project implementation and all other matters connected with daily operations. Company officers who are members of the EXCOM also have individual management responsibilities and participate in other committees for purposes other than acting as the CODM.
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).


10

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, 2015, and 2014, are presented in the following table:
 
Three months ended
March 31
Segment Earnings
2015
 
2014
 
(Millions of dollars)
Upstream
 
 
 
United States
$
(460
)
 
$
912

International
2,020

 
3,395

Total Upstream
1,560

 
4,307

Downstream
 
 
 
United States
706

 
422

International
717

 
288

Total Downstream
1,423

 
710

Total Segment Earnings
2,983

 
5,017

All Other
 
 
 
Interest Income
17

 
17

Other
(433
)
 
(522
)
Net Income Attributable to Chevron Corporation
$
2,567

 
$
4,512


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, 2015, and December 31, 2014, are as follows:
 
Segment Assets
At March 31
2015
 
At December 31
2014
 
(Millions of dollars)
Upstream
 
 
 
United States
$
49,748

 
$
49,205

International
157,021

 
152,736

Goodwill
4,588

 
4,593

Total Upstream
211,357

 
206,534

Downstream
 
 
 
United States
22,241

 
23,068

International
17,906

 
17,723

Total Downstream
40,147

 
40,791

Total Segment Assets
251,504

 
247,325

All Other
 
 
 
United States
6,389

 
6,741

International
11,711

 
11,960

Total All Other
18,100

 
18,701

Total Assets — United States
78,378

 
79,014

Total Assets — International
186,638

 
182,419

Goodwill
4,588

 
4,593

Total Assets
$
269,604

 
$
266,026


11

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, 2015, and 2014, 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
2015
 
2014
 
(Millions of dollars)
Upstream
 
 
 
United States
$
3,349

 
$
6,745

International
7,215

 
11,881

Subtotal
10,564

 
18,626

Intersegment Elimination — United States
(2,111
)
 
(3,932
)
Intersegment Elimination — International
(2,992
)
 
(5,762
)
Total Upstream
5,461

 
8,932

Downstream
 
 
 
United States
12,434

 
20,218

International
14,864

 
23,804

Subtotal
27,298

 
44,022

Intersegment Elimination — United States
(6
)
 
(5
)
Intersegment Elimination — International
(474
)
 
(2,045
)
Total Downstream
26,818

 
41,972

All Other
 
 
 
United States
325

 
389

International
7

 
5

Subtotal
332

 
394

Intersegment Elimination — United States
(290
)
 
(315
)
Intersegment Elimination — International
(6
)
 
(5
)
Total All Other
36

 
74

Sales and Other Operating Revenues
 
 
 
United States
16,108

 
27,352

International
22,086

 
35,690

Subtotal
38,194

 
63,042

Intersegment Elimination — United States
(2,407
)
 
(4,252
)
Intersegment Elimination — International
(3,472
)
 
(7,812
)
Total Sales and Other Operating Revenues
$
32,315

 
$
50,978




12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 8. 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
 
2015
 
2014
 
(Millions of dollars)
Sales and other operating revenues
$
24,283

 
$
41,329

Costs and other deductions
24,455

 
40,124

Net income attributable to CUSA
162

 
1,017

 
At March 31
2015
 
At December 31
2014
 
(Millions of dollars)
Current assets
$
13,324

 
$
13,724

Other assets
62,430

 
62,195

Current liabilities
16,013

 
16,191

Other liabilities
30,049

 
30,175

Total CUSA net equity
$
29,692

 
$
29,553

Memo: Total debt
$
14,472

 
$
14,473


Note 9. 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
 
2015
 
2014
 
(Millions of dollars)
Sales and other operating revenues
$
3,484

 
$
6,433

Costs and other deductions
2,026

 
2,833

Net income attributable to TCO
1,023

 
2,514


Note 10. 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. Medical coverage for Medicare-eligible retirees in the company’s
main U.S. medical plan is secondary to Medicare (including Part D) and the increase to the 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.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The components of net periodic benefit costs for 2015 and 2014 are as follows:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Pension Benefits
 
 
 
United States
 
 
 
Service cost
$
135

 
$
113

Interest cost
126

 
124

Expected return on plan assets
(196
)
 
(197
)
Amortization of prior service (credits)
(2
)
 
(2
)
Amortization of actuarial losses
89

 
52

Settlement losses
54

 
33

Total United States
206

 
123

International
 
 
 
Service cost
45

 
47

Interest cost
69

 
84

Expected return on plan assets
(65
)
 
(76
)
Amortization of prior service costs
5

 
5

Amortization of actuarial losses
18

 
24

Total International
72

 
84

Net Periodic Pension Benefit Costs
$
278

 
$
207

Other Benefits*
 
 
 
Service cost
$
18

 
$
13

Interest cost
38

 
37

Amortization of prior service costs
3

 
3

Amortization of actuarial losses
9

 
2

Net Periodic Other Benefit Costs
$
68

 
$
55

_________________________________
* 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.

At the end of 2014 and as of March 31, 2015, the company estimated it would contribute $600 million to employee pension plans during 2015 (composed of $350 million for the U.S. plans and $250 million for the international plans). Through March 31, 2015, a total of $85 million was contributed (including $51 million to the U.S. 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 2015, the company contributed $50 million to its OPEB plans. The company anticipates contributing approximately $148 million during the remainder of 2015.

Note 11. 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 seven 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.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Ecuador Chevron is a defendant in a civil lawsuit initiated in the Superior Court of Nueva Loja in Lago Agrio, Ecuador, 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 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.
In 2008, a mining engineer appointed by the court to identify and determine the cause of environmental damage, and to specify steps needed to remediate it, issued a report recommending that the court assess $18.9 billion, which would, according to the engineer, provide financial compensation for purported damages, including wrongful death claims, and pay for, among other items, environmental remediation, health care systems and additional infrastructure for Petroecuador. The engineer’s report also asserted that an additional $8.4 billion could be assessed against Chevron for unjust enrichment. In 2009, following the disclosure by Chevron of evidence that the judge participated in meetings in which businesspeople and individuals holding themselves out as government officials discussed the case and its likely outcome, the judge presiding over the case was recused. In 2010, Chevron moved to strike the mining engineer’s report and to dismiss the case based on evidence obtained through discovery in the United States indicating that the report was prepared by consultants for the plaintiffs before being presented as the mining engineer’s independent and impartial work and showing further evidence of misconduct. In August 2010, the judge issued an order stating that he was not bound by the mining engineer’s report and requiring the parties to provide their positions on damages within 45 days. Chevron subsequently petitioned for recusal of the judge, claiming that he had disregarded evidence of fraud and misconduct and that he had failed to rule on a number of motions within the statutory time requirement.
In September 2010, Chevron submitted its position on damages, asserting that no amount should be assessed against it. The plaintiffs’ submission, which relied in part on the mining engineer’s report, took the position that damages are between approximately $16 billion and $76 billion and that unjust enrichment should be assessed in an amount between approximately $5 billion and $38 billion. The next day, the judge issued an order closing the evidentiary phase of the case and notifying the parties that he had requested the case file so that he could prepare a judgment. Chevron petitioned to have that order declared a nullity in light of Chevron’s prior recusal petition, and because procedural and evidentiary matters remained unresolved. In October 2010, Chevron’s motion to recuse the judge was granted. A new judge took charge of the case and revoked the prior judge’s order closing the evidentiary phase of the case. On December 17, 2010, the judge issued an order closing the evidentiary phase of the case and notifying the parties that he had requested the case file so that he could prepare a judgment.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


On February 14, 2011, the provincial court in Lago Agrio rendered an adverse judgment in the case. 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 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. As part of the appeal, Chevron requested the suspension of any requirement that Chevron post a bond to prevent enforcement under Ecuadorian law of the judgment during the cassation appeal. 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 of Justice to hear the appeal. The provincial court appellate panel denied Chevron’s request for suspension of the requirement that Chevron post a bond and stated that it would not comply with the First and Second Interim Awards of the international arbitration tribunal discussed below. On March 29, 2012, the matter was transferred from the provincial court to the National Court of Justice, and on November 22, 2012, the National Court agreed to hear Chevron's cassation appeal. On August 3, 2012, the provincial court in Lago Agrio 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, which agreed to consider the appeal on March 20, 2014.
On July 2, 2013, the provincial court in Lago Agrio issued an embargo order in Ecuador ordering that any funds to be paid by the Government of Ecuador to Chevron to satisfy a $96 million award issued in an unrelated action by 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 must be paid to the Lago Agrio plaintiffs. The award was issued by the tribunal under the United States-Ecuador Bilateral Investment Treaty in an action filed in 2006 in connection with seven breach of contract cases that Texpet filed against the Government of Ecuador between 1991 and 1993. The Government of Ecuador has moved to set aside the tribunal's award. On September 26, 2014, the Supreme Court of the Netherlands issued an opinion denying Ecuador’s set aside request. A Federal District Court for the District of Columbia confirmed the tribunal's award, and the Government of Ecuador has appealed the District Court's decision.
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. On December 17, 2013, the Court of Appeals 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 concerning jurisdiction to the Supreme Court of Canada and, on January 16, 2014, the Court of Appeals for Ontario granted Chevron’s motion to stay the recognition and enforcement proceeding pending a decision on the

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


admissibility of the Supreme Court appeal. On April 3, 2014, the Supreme Court of Canada granted Chevron’s and Chevron Canada Limited’s petitions to appeal the Ontario Court of Appeal’s decision. The Supreme Court of Canada heard oral arguments on the appeal on December 11, 2014.
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. Chevron has answered the complaint. In accordance with Brazilian procedure, the matter has been referred to the public prosecutor for a nonbinding opinion of the issues raised in the complaint. On October 15, 2012, the provincial court in Lago Agrio 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, Ingeniero Norberto Priu, requiring shares of both companies to be "embargoed," requiring third parties to withhold 40 percent of any payments due to Chevron Argentina S.R.L. and ordering banks to withhold 40 percent of the funds in Chevron Argentina S.R.L. bank accounts. On December 14, 2012, the Argentinean court rejected a motion to revoke the Freeze Order but modified it by ordering that third parties are not required to withhold funds but must report their payments. The court also clarified that the Freeze Order relating to bank accounts excludes taxes. 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. Chevron intends to vigorously defend against the proceeding. Chevron continues to believe the provincial court’s 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 the appeals process in Ecuador or any enforcement action. Chevron expects to continue a vigorous defense of any imposition of liability in the Ecuadorian courts and to contest and defend any and all enforcement actions.
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 February 9, 2011, the Tribunal issued an Order for Interim Measures 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 without Ecuador of any judgment against Chevron in the Lago Agrio case pending further order of the Tribunal. On January 25, 2012, the Tribunal converted the Order for Interim Measures into an Interim Award. Chevron filed a renewed application for further interim measures on January 4, 2012, and the Republic of Ecuador opposed Chevron’s application and requested that the existing Order for Interim Measures be vacated on January 9, 2012. 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 without Ecuador of the judgment against Chevron and, in particular, to preclude any certification by the Republic of Ecuador that would cause the judgment to be enforceable 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 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 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). Chevron filed its answer to the set aside request on December 31, 2014.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 will be addressed at a hearing that began on April 21, 2015. The Tribunal has not set a date for Phase Three, the damages phase of the arbitration.
Through a series of U.S. court proceedings initiated by Chevron to obtain discovery relating to the Lago Agrio litigation and the BIT arbitration, Chevron obtained evidence that it believes shows a pattern of fraud, collusion, corruption, and other misconduct on the part of several lawyers, consultants and others acting for the Lago Agrio plaintiffs. 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 is seeking relief that includes 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. On March 7, 2011, the Federal District Court issued a preliminary injunction prohibiting the Lago Agrio plaintiffs and persons acting in concert with them from taking any action in furtherance of recognition or enforcement of any judgment against Chevron in the Lago Agrio case pending resolution of Chevron’s civil lawsuit by the Federal District Court. On May 31, 2011, the Federal District Court severed claims one through eight of Chevron’s complaint from the ninth claim for declaratory relief and imposed a discovery stay on claims one through eight pending a trial on the ninth claim for declaratory relief. On September 19, 2011, the U.S. Court of Appeals for the Second Circuit vacated the preliminary injunction, stayed the trial on Chevron’s ninth claim, a claim for declaratory relief, that had been set for November 14, 2011, and denied the defendants’ mandamus petition to recuse the judge hearing the lawsuit. The Second Circuit issued its opinion on January 26, 2012 ordering the dismissal of Chevron’s ninth claim for declaratory relief. On February 16, 2012, the Federal District Court lifted the stay on claims one through eight, and on October 18, 2012, the Federal District Court set a trial date of October 15, 2013. On March 22, 2013, Chevron settled its claims against Stratus Consulting, and on April 12, 2013 sworn declarations by representatives of Stratus Consulting were filed with the Court admitting their role and that of the plaintiffs' attorneys in drafting the environmental report of the mining engineer appointed by the provincial court in Lago Agrio. On September 26, 2013, the Second Circuit denied the defendants' Petition for Writ of Mandamus to recuse the judge hearing the case and to collaterally estop Chevron from seeking a declaration that the Lago Agrio judgment was obtained through fraud and other unlawful conduct. 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. The defendants filed their notices of appeal on March 18, 2014. A panel of the U.S. Court of Appeals for the Second Circuit heard oral arguments on the appeal on April 20, 2015.
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, the 2008 engineer’s report on alleged damages and the September 2010 plaintiffs’ submission on alleged damages, management does not believe these documents have 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).


18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 12. 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 6 on page 9 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 and franchise 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, drilling rigs, utilities, and petroleum products, to be used or sold in the ordinary course of the company’s business.
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 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 such factors as the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions that may be required, the determination of the company’s liability in proportion to other responsible parties, and the extent to which such costs are recoverable from third parties.
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 On April 26, 2010, a California appeals court issued a ruling related to the adequacy of an Environmental Impact Report (EIR) supporting the issuance of certain permits by the city of Richmond,

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


California, to replace and upgrade certain facilities at Chevron's refinery in Richmond. Settlement discussions with plaintiffs in the case ended late fourth quarter 2010, and on March 3, 2011, the trial court entered a final judgment and peremptory writ ordering the City to set aside the project EIR and conditional use permits and enjoining Chevron from any further work. On May 23, 2011, the company filed an application with the City Planning Department for a conditional use permit for a revised project to complete construction of the hydrogen plant, certain sulfur removal facilities and related infrastructure. On June 10, 2011, the City published its Notice of Preparation of the revised EIR for the project, and on March 18, 2014, the revised draft EIR was published for public comment. The public comment period closed in May 2014, the final EIR was released on June 9, 2014, and on July 29, 2014, the Richmond City Council certified the EIR and approved a conditional use permit. On February 11, 2015, the Bay Area Air Quality Management District reissued an authority-to-construct permit for the project, and on April 8, 2015, the Court discharged the writ which had stopped construction of the project. Management is evaluating next steps in the project.
On November 7, 2011, while drilling a development well in the deepwater Frade Field about 75 miles offshore Brazil, an unanticipated pressure spike caused oil to migrate from the well bore through a series of fissures to the sea floor, emitting approximately 2,400 barrels of oil. The source of the seep was substantially contained within four days and the well was plugged and abandoned. On March 14, 2012, the company identified a small, second seep in a different part of the field. No evidence of any coastal or wildlife impacts related to either of these seeps have emerged. As reported in the company’s previously filed periodic reports, it has resolved civil claims relating to these incidents brought by a Brazilian federal district prosecutor. As also reported previously, the federal district prosecutor also filed criminal charges against Chevron and eleven Chevron employees. On February 19, 2013, the trial court dismissed the criminal matter, and on appeal, on October 9, 2013, the appellate court reinstated two of the ten allegations, specifically those charges alleging environmental damage and failure to provide timely notification to authorities. On February 27, 2014, Chevron filed a motion for reconsideration. While reconsideration of the motion to dismiss is pending, there will be further proceedings on the reinstated allegations. The company’s ultimate exposure related to the incident is not currently determinable.
Chevron receives claims from and submits claims to customers; trading 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 13. 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.

20

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, 2015, and December 31, 2014, is as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
(Millions of dollars)
 
At March 31, 2015
 
At December 31, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Marketable Securities
$
432

 
$
432

 
$

 
$

 
$
422

 
$
422

 
$

 
$

Derivatives
107

 
75

 
30

 
2

 
413

 
394

 
19

 

Total Assets at Fair Value
$
539

 
$
507

 
$
30

 
$
2

 
$
835

 
$
816

 
$
19

 
$

Derivatives
104

 
72

 
32

 

 
84

 
83

 
1

 

Total Liabilities at Fair Value
$
104

 
$
72

 
$
32

 
$

 
$
84

 
$
83

 
$
1

 
$

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, 2015.
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, 2015, and December 31, 2014, are as follows:
Cash and Cash Equivalents and Time Deposits The company holds cash equivalents and bank time deposits 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 $12.7 billion and $12.8 billion at March 31, 2015, and December 31, 2014, respectively. The instruments held in “Time deposits” are bank time deposits with maturities greater than 90 days and had carrying/fair values of zero and $8 million at March 31, 2015 and December 31, 2014, respectively. The fair values of cash, cash equivalents and bank time deposits are classified as Level 1 and reflect the cash that would have been received if the instruments were settled at March 31, 2015.
Restricted Cash had a carrying/fair value of $1.1 billion and $1.5 billion at March 31, 2015, and December 31, 2014, respectively. At March 31, 2015, restricted cash is classified as Level 1 and includes restricted funds related to certain upstream abandonment activities, tax payments, and funds held in escrow pending tax deferred exchanges, which are reported in “Deferred charges and other assets” on the Consolidated Balance Sheet.
Long-Term Debt had a net carrying value, excluding amounts reclassified from short-term, of $22.0 billion and $16.0 billion at March 31, 2015, and December 31, 2014, respectively. The fair value of long-term debt at March 31, 2015, and December 31, 2014 was $22.7 billion and $16.5 billion, respectively. Long-term debt primarily includes corporate issued bonds. The fair value of corporate bonds is $22.0 billion and classified as Level 1. The fair value of the other bonds is $0.7 billion and classified as Level 2.
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, 2015, and December 31, 2014, were not material.

21

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, 2015, is as follows:
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
(Millions of dollars)
 
At March 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Before-Tax Loss
 Properties, plant and equipment, net (held and used)
$
195

 
$

 
$
190

 
$
5

 
$
259

 Investments and advances

 

 

 

 
1

 Total Assets at Fair Value
$
195

 
$

 
$
190

 
$
5

 
$
260

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 2015.
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 2015.

Note 14. 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, 2015, and December 31, 2014, 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
2015
 
At December 31
2014
Commodity
 
Accounts and notes receivable, net
 
$
106

 
$
401

Commodity
 
Long-term receivables, net
 
1

 
12

Total Assets at Fair Value
 
$
107

 
$
413

Commodity
 
Accounts payable
 
$
89

 
$
57

Commodity
 
Deferred credits and other noncurrent obligations
 
15

 
27

Total Liabilities at Fair Value
 
$
104

 
$
84



22

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
 
2015
 
2014
Commodity
 
Sales and other operating revenues
 
$
(121
)
 
$
97

Commodity
 
Purchased crude oil and products
 
14

 
(8
)
Commodity
 
Other income
 
(7
)
 
(23
)
 
 
 
 
$
(114
)
 
$
66


The table below represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at March 31, 2015, and December 31, 2014.
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, 2015
 
 
 
 
 
Derivative Assets
 
$
2,983

 
$
2,876

 
$
107

 
$
2

 
$
105

Derivative Liabilities
 
$
2,980

 
$
2,876

 
$
104

 
$

 
$
104

 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
Derivative Assets
 
$
4,004

 
$
3,591

 
$
413

 
$
7

 
$
406

Derivative Liabilities
 
$
3,675

 
$
3,591

 
$
84

 
$

 
$
84

 
 
 
 
 
 
 
 
 
 
 
Derivative assets and liabilities are classified on the Consolidated Balance Sheet as accounts and notes receivable, long-term receivables, accounts payable, and deferred credits and other noncurrent obligations. Amounts not offset on the Consolidated Balance Sheet represent positions that do not meet all the conditions for "a right of offset."

Note 15. Accounting for Suspended Exploratory Wells
The capitalized cost of suspended wells at March 31, 2015, was $4.3 billion, a net increase of $127 million from year-end 2014, primarily due to drilling activities. During the three months ended March 31, 2015, $95 million of exploratory well costs previously capitalized for greater than one year at December 31, 2014, were charged to expense.

Note 16. New Accounting Standards
Revenue Recognition (Topic 606), Revenue from Contracts with Customers (ASU 2014-09) In May 2014, the FASB issued ASU 2014-09, which becomes effective for the company January 1, 2017. Early adoption is not permitted. The standard provides that an entity should recognize revenue to align with the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services. The ASU, which replaces most existing revenue recognition guidance in U.S. GAAP, provides a five-step model for recognition of revenue, guidance on the accounting for certain costs of obtaining or fulfilling contracts with customers and specific disclosure requirements. Transition guidance permits either retrospective application or presentation of the cumulative effect at the adoption date. The company is reviewing the requirements of the ASU to determine the transition method it will apply and to update its assessments developed throughout the FASB’s deliberation period. The company is evaluating the effect of the standard on the company’s consolidated financial statements.


23


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

First Quarter 2015 Compared with First Quarter 2014

Key Financial Results
Earnings by Business Segment
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Upstream
 
 
 
United States
$
(460
)
 
$
912

International
2,020

 
3,395

Total Upstream
1,560

 
4,307

Downstream
 
 
 
United States
706

 
422

International
717

 
288

Total Downstream
1,423

 
710

Total Segment Earnings
2,983

 
5,017

All Other
(416
)
 
(505
)
Net Income Attributable to Chevron Corporation (1) (2)
$
2,567

 
$
4,512

____________________
 
 
 
(1) Includes foreign currency effects
$
580

 
$
(79
)
(2) Income net of tax; also referred to as “earnings” in the discussions that follow.
 
 
 
Net income attributable to Chevron Corporation for the first three months of 2015 was $2.6 billion ($1.37 per share — diluted), versus $4.5 billion ($2.36 per share — diluted) in the first three months of 2014.
Upstream earnings in first quarter 2015 were $1.6 billion compared with $4.3 billion a year earlier. The decrease between comparative periods was mainly due to lower crude oil realizations and higher depreciation expenses, partially offset by higher crude oil production, lower tax and operating expenses, higher gains on asset sales and favorable foreign currency effects.
Downstream earnings in first quarter 2015 were $1.4 billion compared with $710 million in the corresponding 2014 period. Higher margins on refined product sales, both internationally and in the U.S., drove the increase. Partially offsetting the increase was the absence of a 2014 asset sale gain and lower affiliate earnings in the U.S., and an unfavorable change in effects on derivative instruments internationally.
Refer to pages 28 through 30 for additional discussion of results by business segment and “All Other” activities for first quarter of 2015 versus the same period in 2014.


Business Environment and Outlook
Chevron is a global energy company with substantial business activities in the following countries: Angola, Argentina, Australia, Azerbaijan, Bangladesh, Brazil, Canada, China, Colombia, Democratic Republic of the Congo, Denmark, Indonesia, Kazakhstan, Myanmar, Nigeria, the Partitioned Zone between Saudi Arabia and Kuwait, the Philippines, Republic of the Congo, Singapore, South Africa, South Korea, Thailand, Trinidad and Tobago, the United Kingdom, the United States, Venezuela, and Vietnam.
Earnings of the company depend mostly on the profitability of its upstream business segment. The biggest factor affecting the results of operations for the upstream segment is the price of crude oil. The price of crude oil has fallen significantly since mid-year 2014, reflecting robust non-OPEC supply growth led by expanding unconventional production in the United States, weakening growth in emerging markets, and the decision by OPEC in fourth quarter 2014 to maintain its current production ceiling. The downturn in the price of crude oil

24


has impacted, and, depending upon its duration, will continue to significantly impact the company's results of operations, cash flows, leverage, capital and exploratory investment program and production outlook. If lower prices persist for an extended period of time, the company's response could include further reductions in operating expenses and capital and exploratory expenditures and additional asset sales. The company anticipates that crude oil prices will increase in the future, as continued growth in demand and a slowing in supply growth should bring global markets into balance; however, the timing of any such increases is unknown. In the company's downstream business, crude oil is the largest cost component of refined products.
Refer to the "Cautionary Statement Relevant to Forward-Looking Information" on page 2 and to "Risk Factors" in Part I, Item 1A, on pages 22 through 24 of the company’s 2014 Annual Report on Form 10-K for a discussion of some of the inherent risks that could materially impact the company's results of operations or financial condition.
The company continually evaluates opportunities to dispose of assets that are not expected to provide sufficient long-term value or to acquire assets or operations complementary to its asset base to help augment the company’s financial performance and growth. Refer to the "Results of Operations" section, beginning on page 28 for discussions of net gains on asset sales during 2015. Asset dispositions and restructurings may also occur in future periods and could result in significant gains or losses.
The company closely monitors developments in the financial and credit markets, the level of worldwide economic activity, and the implications for the company of movements in prices for crude oil and natural gas. Management takes these developments into account in the conduct of daily operations and for business planning.
Comments related to earnings trends for the company’s major business areas are as follows:
Upstream Earnings for the upstream segment are closely aligned with industry prices for crude oil and natural gas. Crude oil and natural gas prices are subject to external factors over which the company has no control, including product demand connected with global economic conditions, industry inventory levels, production quotas or other actions imposed by the Organization of Petroleum Exporting Countries (OPEC), actions of regulators, weather-related damage and disruptions, competing fuel prices, and regional supply interruptions or fears thereof that may be caused by military conflicts, civil unrest or political uncertainty. Any of these factors could also inhibit the company’s production capacity in an affected region. The company closely monitors developments in the countries in which it operates and holds investments, and seeks to manage risks in operating its facilities and businesses. The longer-term trend in earnings for the upstream segment is also a function of other factors, including the company’s ability to find or acquire and efficiently produce crude oil and natural gas, changes in fiscal terms of contracts, and changes in tax laws and regulations.
The company continues to actively manage its schedule of work, contracting, procurement and supply-chain activities to effectively manage costs. However, price levels for capital and exploratory costs and operating expenses associated with the production of crude oil and natural gas can be subject to external factors beyond the company’s control including, among other things, the general level of inflation, commodity prices and prices charged by the industry’s material and service providers, which can be affected by the volatility of the industry’s own supply-and-demand conditions for such materials and services. In recent years, Chevron and the oil and gas industry generally experienced an increase in certain costs that exceeded the general trend of inflation in many areas of the world. As a result of the decline in prices of crude oil and other commodities since mid-2014, these cost pressures are beginning to soften. Capital and exploratory expenditures and operating expenses can also be affected by damage to production facilities caused by severe weather or civil unrest, delays in construction, or other factors.


25


The chart above shows the trend in benchmark prices for Brent crude oil, West Texas Intermediate (WTI) crude oil, and U.S. Henry Hub natural gas. The Brent price averaged $99 per barrel for the full-year 2014. During 2015, Brent averaged $54 per barrel in the first quarter, and ended April at $64. The majority of the company’s equity crude production is priced based on the Brent benchmark. After falling sharply over the second-half of 2014 due to growing market over supply, prices stabilized over the first quarter of 2015 as oil and gas capital budgets were cut and drilling rig counts fell globally. However, the anticipated improvement in global supply/demand balances continues to be offset by concerns over growing crude inventories globally, and in the U.S. in particular. First quarter 2015 Brent-related crude prices in the Atlantic Basin also reflect high refinery maintenance in North America, higher production from Iraq, and easing geopolitical tensions in key regions.
The WTI price averaged $93 per barrel for the full-year 2014. During 2015, WTI averaged $49 per barrel in the first quarter, and ended April at $60. WTI traded at a discount to Brent throughout 2014 and the first three months of 2015 due to high inventories and excess crude supply in the U.S. market.
A differential in crude oil prices exists between high quality (high-gravity, low-sulfur) crudes and those of lower quality (low-gravity, high-sulfur). The amount of the differential in any period is associated with the relative supply/demand balances for each crude type, which are functions of the capacity of refineries that are able to process each as feedstock into high-value light products (motor gasoline, jet fuel, aviation gasoline and diesel fuel). In first quarter 2015, the differential eased in North America as light sweet crude oil production in the U.S. midcontinent region remained robust, while refinery maintenance dampened demand. Outside of North America, supply disruptions in Libya and high refinery runs in Europe supported light sweet crude markets relative to heavier, more sour crudes.
Chevron produces or shares in the production of heavy crude oil in California, Indonesia, the Partitioned Zone between Saudi Arabia and Kuwait, Venezuela and in certain fields in Angola, China and the United Kingdom sector of the North Sea. (See page 32 for the company’s average U.S. and international crude oil realizations.)
In contrast to price movements in the global market for crude oil, price changes for natural gas in many regional markets are more closely aligned with supply-and-demand conditions in those markets. In the U.S., prices at Henry Hub averaged $2.87 per thousand cubic feet (MCF) for the first three months of 2015, compared with $5.11 during the first three months of 2014. At the end of April 2015, the Henry Hub spot price was $2.57 per MCF. Fluctuations in the price for natural gas in the United States are closely associated with customer demand relative to the volumes produced in North America.
Outside the United States, price changes for natural gas depend on a wide range of supply, demand and regulatory circumstances. Chevron sells natural gas into the domestic pipeline market in most locations. In some locations, Chevron is investing in long-term projects to install infrastructure to produce and liquefy natural gas for transport by tanker to other markets. The company's contract prices for liquefied natural gas (LNG) are typically linked to crude oil prices. International natural gas realizations averaged $5.01 per MCF during the first three months of 2015, compared with $6.02 per MCF in the same period last year. (See page 32 for the company’s average natural gas realizations for the U.S. and international regions.)
The company’s worldwide net oil-equivalent production in the first three months of 2015 averaged 2.681 million barrels per day. About one-fifth of the company’s net oil-equivalent production in the first three months of 2015

26


occurred in the OPEC-member countries of Angola, Nigeria, Venezuela and the Partitioned Zone between Saudi Arabia and Kuwait. OPEC quotas had no effect on the company’s net crude oil production for first quarter 2015 or 2014. At their November 2014 meeting, members of OPEC supported maintaining the current production quota of 30 million barrels per day, which has been in effect since December 2008.
The company estimates that net oil-equivalent production for the full-year 2015 will be flat to 3 percent growth compared to 2014. This estimate is subject to many factors and uncertainties, including quotas that may be imposed by OPEC; price and other production entitlement effects; changes in fiscal terms or restrictions on the scope of company operations; delays in construction, start-up or ramp-up of projects; fluctuations in demand for natural gas in various markets; weather conditions that may shut in production; civil unrest; changing geopolitics; delays in completion of maintenance turnarounds; greater-than-expected declines in production from mature fields; or other disruptions to operations. The outlook for future production levels is also affected by the size and number of economic investment opportunities and, for new, large-scale projects, the time lag between initial exploration and the beginning of production. Investments in upstream projects generally begin well in advance of the start of the associated crude oil and natural gas production. A significant majority of Chevron’s upstream investment is made outside the United States.
In the Partitioned Zone between Saudi Arabia and Kuwait, the risk that the company’s future production could be negatively impacted by continued difficulties in securing work and equipment permits has increased. Net oil-equivalent production in the Partitioned Zone in first quarter 2015 was 76,000 barrels per day. The potential for a complete loss of production in the Partitioned Zone was not anticipated in the company’s 2015 full-year production guidance. The potential for a complete loss of production is uncertain, and if it does occur, the company cannot estimate its duration. If a complete loss of production occurs, the financial effects in 2015 are expected to be minimal.
Refer to the “Results of Operations” section on page 28 for additional discussion of the company’s upstream business.
Downstream Earnings for the downstream segment are closely tied to margins on the refining, manufacturing and marketing of products that include gasoline, diesel, jet fuel, lubricants, fuel oil, fuel and lubricant additives, and petrochemicals. Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals, and by changes in the price of crude oil, other refinery and petrochemical feedstocks, and natural gas. Industry margins can also be influenced by inventory levels, geopolitical events, costs of materials and services, refinery or chemical plant capacity utilization, maintenance programs, and disruptions at refineries or chemical plants resulting from unplanned outages due to severe weather, fires or other operational events.
Other factors affecting profitability for downstream operations include the reliability and efficiency of the company’s refining, marketing and petrochemical assets, the effectiveness of its crude oil and product supply functions, and the volatility of tanker-charter rates for the company’s shipping operations, which are driven by the industry’s demand for crude oil and product tankers. Other factors beyond the company’s control include the general level of inflation and energy costs to operate the company’s refining, marketing and petrochemical assets.
The company’s most significant marketing areas are the West Coast of North America, the U.S. Gulf Coast, Asia and southern Africa. Chevron operates or has significant ownership interests in refineries in each of these areas.
The company completed the sale of its interest in Caltex Australia Limited as part of its previously-announced asset sales commitment. Cash proceeds of $3.6 billion were received upon settlement on April 2 and a gain on sale of $1.6 billion will be reflected in second quarter results.
Refer to the “Results of Operations” section on page 29 for additional discussion of the company’s downstream operations.
All Other consists of worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, and technology companies.


27


Operating Developments
Noteworthy operating developments for the upstream business in recent months included the following:
Australia — Achieved introduction of fuel gas and start-up of the first gas turbine generator at the Gorgon LNG plant.
Australia — Completed installation of Wheatstone platform topsides.
Australia — Announced a natural gas discovery, Isosceles-1, in the Carnarvon Basin in 50 percent-owned Block WA-392-P.
Bangladesh — Achieved first liquids from the Bibiyana Expansion Liquid Recovery Unit.
United States — Announced a joint venture to explore and appraise 24 jointly held offshore leases in the northwest portion of Keathley Canyon in the deepwater Gulf of Mexico.
United States — Ramped up oil-equivalent production at Jack/St. Malo in the deepwater Gulf of Mexico to more than 70,000 barrels per day.

Results of Operations
Business Segments The following section presents the results of operations and variances on an after-tax basis for the company’s business segments — Upstream and Downstream — as well as for “All Other.” (Refer to Note 7, on page 10, for a discussion of the company’s “reportable segments,” as defined under the accounting standards for segment reporting.)
Upstream
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
     U.S. Upstream Earnings
$
(460
)
 
$
912

U.S. upstream operations incurred a loss of $460 million in first quarter 2015 compared to earnings of $912 million from a year earlier, largely due to sharply lower crude oil realizations of $1.4 billion. Higher depreciation expenses of $250 million, in part due to impairments, and lower natural gas realizations of $180 million, were largely offset by higher crude oil production and lower operating expenses of $270 million and $120 million, respectively.
The company’s average realization per barrel for U.S. crude oil and natural gas liquids in first quarter 2015 was $43, compared to $91 a year earlier. The average natural gas realization in first quarter 2015 was $2.27 per thousand cubic feet and $4.77 in last year's first quarter.
Net oil-equivalent production of 699,000 barrels per day in first quarter 2015 was up 59,000 barrels per day, or 9 percent, from the first quarter a year earlier. Production increased due to project ramp-ups in the Gulf of Mexico, the Permian Basin in Texas and New Mexico, and the Marcellus Shale in western Pennsylvania.
The net liquids component of oil-equivalent production of 489,000 barrels per day in the first quarter increased 12 percent from the corresponding 2014 period. Net natural gas production was 1.26 billion cubic feet per day in first quarter 2015, an increase of 4 percent from the comparative 2014 period.

28


 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
     International Upstream Earnings*
$
2,020

 
$
3,395

     ____________________
 
 
 
      *  Includes foreign currency effects
$
522

 
$
(53
)
International upstream earnings of $2.0 billion decreased $1.4 billion from first quarter 2014. Sharply lower crude oil realizations of $2.8 billion were partially offset by lower tax items, including a reduction in statutory tax rates in the United Kingdom, higher gains on asset sales and lower operating expenses of $390 million, $310 million and $120 million, respectively. Foreign currency effects increased earnings by $522 million in the 2015 quarter, compared with a decrease of $53 million a year earlier.
The average realization per barrel of crude oil and natural gas liquids in first quarter 2015 was $46 compared with $99 a year earlier. The average natural gas realization per thousand cubic feet in first quarter 2015 was $5.01 compared with $6.02 in the corresponding 2014 period.
Net oil-equivalent production of 1.98 million barrels per day in first quarter 2015 was up 34,000 barrels per day, or 2 percent, from first quarter a year ago. Production increases from entitlement effects in several locations, project ramp-ups in Bangladesh and Argentina, and improved weather conditions were partially offset by normal field declines and the effect of asset sales.
The net liquids component of oil-equivalent production of 1.31 million barrels per day in first quarter 2015 increased 3 percent from first quarter 2014. Net natural gas production totaled 4.03 billion cubic feet per day in first quarter 2015, essentially unchanged from the 2014 period.
Downstream
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
     U.S. Downstream Earnings
$
706

 
$
422

U.S. downstream operations earned $706 million in first quarter 2015 compared with earnings of $422 million a year earlier. The increase was due to higher margins on refined product sales of $440 million, partially offset by the absence of a $100 million gain on a 2014 sale of an interest in a pipeline affiliate and lower earnings from the 50 percent-owned Chevron Phillips Chemical Company LLC of $90 million.
Refinery crude oil input of 918,000 barrels per day in first quarter 2015 increased 46,000 barrels per day from the year-ago period. The increase was primarily due to lower 2015 downtime at refineries in Richmond and El Segundo, California.
Refined product sales of 1.21 million barrels per day were up 1 percent from first quarter 2014. Branded gasoline sales of 504,000 barrels per day were essentially flat with the 2014 period.

 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
     International Downstream Earnings*
$
717

 
$
288

     ___________________
 
 
 
      *  Includes foreign currency effects
$
54

 
$
(28
)
International downstream operations earned $717 million in first quarter 2015 compared with $288 million a year earlier. The increase was due to higher margins on refined product sales of $430 million, partially offset by an unfavorable change in effects on derivative instruments of $80 million. Foreign currency effects increased earnings by $54 million in the 2015 quarter, compared with a decrease of $28 million a year earlier.

29


Refinery crude oil input of 782,000 barrels per day in first quarter 2015 increased 8,000 barrels per day from the year-ago period. Increased crude runs due to the absence of 2014 planned downtime at the Star Petroleum Refining Company in Thailand were largely offset by the decrease due to the October 2014 conversion of an affiliate refinery into an import terminal in Kurnell, Australia.
Total refined product sales of 1.58 million barrels per day in the 2015 first quarter were up 177,000 barrels per day from the year-ago period, mainly due to higher gasoline and jet fuel sales.
All Other
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
     Net Charges*
$
(416
)
 
$
(505
)
     ____________
 
 
 
      *  Includes foreign currency effects
$
4

 
$
2

All Other consists of worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, and technology companies.
Net charges in first quarter 2015 were $416 million, compared with $505 million in the year-ago period. The change between periods was mainly due to the absence of a 2014 impairment of a mining asset and lower environmental expenses, partially offset by higher corporate charges and higher corporate tax items. Foreign currency effects decreased net charges by $4 million for the first three months of 2015, compared to $2 million in the 2014 period.


Consolidated Statement of Income
Explanations of variations between periods for selected income statement categories are provided below:
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Sales and other operating revenues
$
32,315

 
$
50,978

Sales and other operating revenues decreased $18.7 billion in the first quarter, primarily due to lower refined product and crude oil prices, partially offset by an increase in crude oil and refined product volumes.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Income from equity affiliates
$
1,401

 
$
1,922

Income from equity affiliates in the quarterly period decreased mainly due to lower earnings from Tengizchevroil in Kazakhstan and Chevron Phillips Chemical Company. Partially offsetting these effects were higher earnings from GS Caltex in South Korea and Petropiar in Venezuela.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Other income
$
842

 
$
365

Other income for the quarterly period increased primarily due to higher gains on asset sales and a favorable swing in foreign currency effects.

30


 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Purchased crude oil and products
$
17,193

 
$
30,823

Purchases in the first quarter decreased $13.6 billion, primarily due to lower crude oil and refined product prices, partially offset by an increase in crude oil volumes.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Operating, selling, general and
   administrative expenses
$
6,339

 
$
6,950

Operating, selling, general and administrative expenses decreased $611 million between periods, largely due to lower fuel expenses, environmental reserves, and construction and maintenance expenses.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Exploration expenses
$
592

 
$
415

The increase in exploration expenses for the quarterly period was mostly due to higher charges for well write-offs.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Depreciation, depletion and
       amortization
$
4,411

 
$
4,130

 
Depreciation, depletion and amortization expenses in first quarter 2015 increased mainly due to higher production levels and depreciation rates related to certain upstream properties, partially offset by the absence of a 2014 impairment of a mining asset.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Taxes other than on income
$
3,118

 
$
3,019

Taxes other than on income increased due to higher excise taxes in Thailand.
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
Income tax expense
$
305

 
$
3,407

Effective income tax rates for the 2015 and 2014 quarters were 10 percent and 43 percent, respectively. The decrease in the effective tax rate between periods resulted from one-time tax benefits primarily related to a reduction in statutory tax rates in the United Kingdom, the impact of changes in jurisdictional mix driven by significantly lower income in high tax rate international upstream jurisdictions, and foreign currency remeasurement effects, partially offset by the effects of equity earnings.

31


Selected Operating Data
The following table presents a comparison of selected operating data:
Selected Operating Data (1)(2) 

Three months ended
March 31

2015
 
2014
U.S. Upstream



Net crude oil and natural gas liquids production (MBPD)
489

 
438

Net natural gas production (MMCFPD)(3)
1,257

 
1,212

Net oil-equivalent production (MBOEPD)
699

 
640

Sales of natural gas (MMCFPD)
4,139

 
4,936

Sales of natural gas liquids (MBPD)
22

 
15

Revenue from net production
 
 
 
Liquids ($/Bbl)
$
43.11

 
$
91.49

Natural gas ($/MCF)
$
2.27

 
$
4.77

International Upstream
 
 
 
Net crude oil and natural gas liquids production (MBPD)(4)
1,312

 
1,275

Net natural gas production (MMCFPD)(3)
4,026

 
4,041

Net oil-equivalent production (MBOEPD)(4)
1,982

 
1,948

Sales of natural gas (MMCFPD)
4,445

 
4,566

Sales of natural gas liquids (MBPD)
27

 
35

Revenue from liftings
 
 
 
Liquids ($/Bbl)
$
46.49

 
$
98.60

Natural gas ($/MCF)
$
5.01

 
$
6.02

U.S. and International Upstream
 
 
 
Total net oil-equivalent production (MBOEPD)(4)
2,681

 
2,588

U.S. Downstream
 
 
 
Gasoline sales (MBPD)(5)
602

 
593

Other refined product sales (MBPD)
604

 
605

Total refined product sales (MBPD)
1,206

 
1,198

Sales of natural gas liquids (MBPD)
106

 
114

Refinery input (MBPD)
918

 
872

International Downstream
 
 
 
Gasoline sales (MBPD)(5)
360

 
296

Other refined product sales (MBPD)
735

 
648

Share of affiliate sales (MBPD)
485

 
459

Total refined product sales (MBPD)
1,580

 
1,403

Sales of natural gas liquids (MBPD)
80

 
54

Refinery input (MBPD)
782

 
774

_________________________



(1)  Includes company share of equity affiliates.



(2)  MBPD — thousands of barrels per day; MMCFPD — millions of cubic feet per day; Bbl — Barrel; MCF — thousands of cubic feet; oil-equivalent gas conversion ratio is 6,000 cubic feet of natural gas = 1 barrel of crude oil; MBOEPD — thousands of barrels of oil-equivalent per day.
(3)  Includes natural gas consumed in operations (MMCFPD):



United States
69

 
74

International (6)
451

 
479

(4)  Includes: Canada — synthetic oil
51

 
38

Venezuela affiliate — synthetic oil
30

 
32

(5)  Includes branded and unbranded gasoline.
 
 
 
(6)  2014 conforms to 2015 presentation.
 
 
 

32


Liquidity and Capital Resources
Cash, cash equivalents, time deposits and marketable securities totaled $13.1 billion at March 31, 2015, down $0.1 billion from year-end 2014. Cash provided by operating activities in the first three months of 2015 was $2.3 billion, compared with $8.4 billion in the year-ago period. Cash capital and exploratory expenditures decreased $966 million between periods, reflecting the pacing of certain of the company's larger capital projects.
Dividends The company paid dividends of $2.0 billion to common shareholders during the first three months of 2015. In April 2015, the company declared a quarterly dividend of $1.07 per common share, payable in June 2015.
Debt and Capital Lease Obligations Chevron’s total debt and capital lease obligations were $33.9 billion at March 31, 2015, up from $27.8 billion at December 31, 2014.
The company’s primary financing source for working capital needs is its commercial paper program. The authorized borrowing limit under this program is $20.0 billion and the outstanding balance at March 31, 2015, was $8.6 billion. The company’s debt and capital lease obligations due within one year, consisting primarily of commercial paper, redeemable long-term obligations and the current portion of long-term debt, totaled $11.9 billion at March 31, 2015, and $11.8 billion at December 31, 2014. Of these amounts, $8.0 billion was reclassified to long-term at both March 31, 2015, and December 31, 2014. At March 31, 2015, settlement of these obligations was not expected to require the use of working capital within one year, as the company had the intent and the ability, as evidenced by committed credit facilities, to refinance them on a long-term basis.
At March 31, 2015, the company had $8.0 billion in committed credit facilities with various major banks, expiring in December 2016, which enable the refinancing of short-term obligations on a long-term basis. These facilities support commercial paper borrowing and can also be used for general corporate purposes. The company’s practice has been to continually replace expiring commitments with new commitments on substantially the same terms, maintaining levels management believes appropriate. Any borrowings under the facilities would be unsecured indebtedness at interest rates based on the London Interbank Offered Rate or an average of base lending rates published by specified banks and on terms reflecting the company’s strong credit rating. No borrowings were outstanding under these facilities at March 31, 2015. In addition, the company has an automatic shelf registration statement that expires in November 2015 for an unspecified amount of nonconvertible debt securities issued or guaranteed by the company.
The major debt rating agencies routinely evaluate the company’s debt, and the company’s cost of borrowing can increase or decrease depending on these debt ratings. The company has outstanding public bonds issued by Chevron Corporation and Texaco Capital Inc. All of these securities are the obligations of, or guaranteed by, Chevron Corporation and are rated AA by Standard and Poor’s Corporation and Aa1 by Moody’s Investors Service. The company’s U.S. commercial paper is rated A-1+ by Standard and Poor’s and P-1 by Moody’s. All of these ratings denote high-quality, investment-grade securities.
The company’s future debt level is dependent primarily on results of operations, the capital program and cash that may be generated from asset dispositions. Based on its high-quality debt ratings, the company believes that it has substantial borrowing capacity to meet unanticipated cash requirements. The company also can modify capital spending plans during extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals to provide flexibility to continue paying the common stock dividend and maintain the company’s high-quality debt ratings.
Common Share Repurchase Program In July 2010, the Board of Directors approved an ongoing share repurchase program with no set term or monetary limits. From the inception of the program through 2014, the company purchased 180.9 million shares for $20.0 billion. The company does not plan to acquire any shares under the program in 2015.
Noncontrolling Interests The company had noncontrolling interests of $1.2 billion and $1.2 billion at March 31, 2015, and December 31, 2014, respectively. There were no distributions to noncontrolling interests during the first three months of 2015 or for the same period in 2014.
Current Ratio — current assets divided by current liabilities, which indicates the company’s ability to repay its short-term liabilities with short-term assets. The current ratio was 1.4 at March 31, 2015, and 1.3 at

33


December 31, 2014, respectively. The current ratio is adversely affected by the fact that Chevron’s inventories are valued on a last-in, first-out basis. At March 31, 2015, the book value of inventory was lower than replacement cost.
Debt Ratio — total debt as a percentage of total debt plus Chevron Corporation Stockholders’ Equity, which indicates the company’s leverage. This ratio was 17.9 percent at March 31, 2015, and 15.2 percent at year-end 2014.
Pension Obligations Information related to pension plan contributions is included on pages 13 and 14 in Note 10 to the Consolidated Financial Statements.
Capital and Exploratory Expenditures Total expenditures, including the company’s share of spending by affiliates, were $8.6 billion in the first three months of 2015, compared with $9.4 billion in the corresponding 2014 period. The amounts included the company’s share of affiliates’ expenditures of $730 million and $612 million in the 2015 and 2014 periods, respectively, which did not require cash outlays by the company. Expenditures for upstream projects in the first three months of 2015 were $8.2 billion, representing 95 percent of the company wide total.
Capital and Exploratory Expenditures by Major Operating Area
 
 
Three months ended
March 31
 
2015
 
2014
 
(Millions of dollars)
United States
 
 
 
Upstream
$
2,318

 
$
1,958

Downstream
285

 
357

All Other
63

 
99

Total United States
2,666

 
2,414

International
 
 
 
Upstream
5,842

 
6,828

Downstream
75

 
185

All Other

 
4

Total International
5,917

 
7,017

Worldwide
$
8,583

 
$
9,431



Contingencies and Significant Litigation
MTBE Information related to methyl tertiary butyl ether (MTBE) matters is included on page 14 in Note 11 to the Consolidated Financial Statements under the heading “MTBE.”
Ecuador Information related to Ecuador matters is included beginning on page 15 in Note 11 to the Consolidated Financial Statements under the heading “Ecuador.”
Income Taxes Information related to income tax contingencies is included on page 9 in Note 6 and page 19 in Note 12 to the Consolidated Financial Statements under the heading “Income Taxes.”
Guarantees Information related to the company’s guarantees is included on page 19 in Note 12 to the Consolidated Financial Statements under the heading “Guarantees.”
Indemnifications Information related to indemnifications is included on page 19 in Note 12 to the Consolidated Financial Statements under the heading “Indemnifications.”

34


Off-Balance-Sheet Obligations Information related to the company’s off-balance-sheet obligations is included on page 19 in Note 12 to the Consolidated Financial Statements under the heading “Off-Balance-Sheet Obligations.”
Environmental Information related to environmental matters is included on page 19 in Note 12 to the Consolidated Financial Statements under the heading “Environmental.”
Other Contingencies Information related to the company’s other contingencies is included on page 19 in Note 12 to the Consolidated Financial Statements under the heading “Other Contingencies.”
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended March 31, 2015, does not differ materially from that discussed under Item 7A of Chevron’s 2014 Annual Report on Form 10-K.
 
Item 4.
Controls and Procedures
(a) Evaluation of disclosure controls and procedures
The company’s management has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures were effective as of March 31, 2015.
(b) Changes in internal control over financial reporting
During the quarter ended March 31, 2015, there were no changes in the company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.



35


PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
Government Proceedings In March 2015, Chevron’s Richmond Refinery received a proposal from the Bay Area Air Quality Management District seeking to collectively resolve certain notices of violation issued to the refinery between October 2012 and April 2014. Collective resolution of the alleged violations may result in the payment of a civil penalty of $100,000 or more.
Other Proceedings Information related to other legal proceedings, including Ecuador, is included beginning on page 14 in Note 11 to the Consolidated Financial Statements.

Item 1A.
Risk Factors
Chevron is a global energy company with a diversified business portfolio, a strong balance sheet, and a history of generating sufficient cash to fund capital and exploratory expenditures and to pay dividends. Nevertheless, some inherent risks could materially impact the company’s financial results of operations or financial condition.
Information about risk factors for the three months ended March 31, 2015, does not differ materially from that set forth in Part I, Item 1A, of Chevron’s 2014 Annual Report on Form 10-K.
 

36


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
CHEVRON CORPORATION
ISSUER PURCHASES OF EQUITY SECURITIES 
Period
Total Number
Of Shares
Purchased (1)(2)
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
 
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Program (2)
Jan. 1 – Jan. 31, 2015
8,437

 
$
112.56

 

 
 
Feb. 1 – Feb. 28, 2015

 

 

 
 
Mar. 1 – Mar. 31, 2015

 

 

 
 
Total
8,437

 
$
112.56

 

 
 
__________________________________
(1) 
Includes common shares repurchased from company employees for required personal income tax withholdings on the exercise of the stock options and shares delivered or attested to in satisfaction of the exercise price by holders of employee stock options. The options were issued to and exercised by management under Chevron long-term incentive plans and Unocal stock option plans.
(2) 
In July 2010, the Board of Directors approved an ongoing share repurchase program with no set term or monetary limits, under which common shares would be acquired by the company through open market purchases or in negotiated transactions at prevailing prices, as permitted by securities laws and other legal requirements and subject to market conditions and other factors. As of December 31, 2014, 180,866,291 shares had been acquired under this program (some pursuant to Rule 10b5-1 plans and some pursuant to accelerated share repurchase plans) for $20.0 billion at an average price of approximately $111 per share. The company does not plan to acquire any shares under the program in 2015.

Item 4.
Mine Safety Disclosures
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 C.F.R. §229.104) is included in Exhibit 95 of this Quarterly Report on Form 10-Q.
 
Item 6.
Exhibits
Exhibit
Number
Description
(4)
Pursuant to the Instructions to Exhibits, certain instruments defining the rights of holders of long-term debt securities of the company and its consolidated subsidiaries are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. A copy of such instrument will be furnished to the Commission upon request.
(12)
Computation of Ratio of Earnings to Fixed Charges
(31.1)
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Executive Officer
(31.2)
Rule 13a-14(a)/15d-14(a) Certification by the company’s Chief Financial Officer
(32.1)
Rule 13a-14(b)/15d-14(b) Certification by the company’s Chief Executive Officer
(32.2)
Rule 13a-14(b)/15d-14(b) Certification by the company’s Chief Financial Officer
(95)
Mine Safety Disclosure
(101.INS)