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 September 30, 20152016
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 September 30, 20152016
Common stock, $.75 par value 1,882,036,7041,887,769,320
 


Table of Contents


INDEX
 
  Page No.
 
PART I
FINANCIAL INFORMATION
Item 1. 
 Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2015,2016, and 20142015
 Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 30, 2015,2016, and 20142015
 Consolidated Balance Sheet at September 30, 2015,2016, and December 31, 20142015
 Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2015,2016, and 20142015
 7-23
Item 2.24-3724-35
Item 3.37
Item 4.37
PART II
OTHER INFORMATION
Item 1.38
Item 1A.38
Item 2.39
Item 4.39
Item 5.Other Information39
Item 6.40
4138
Exhibits:Computation of Ratio of Earnings to Fixed Charges4340
Rule 13a-14(a)/15d-14(a) Certifications44-4541-42
Rule 13a-14(b)/15d-14(b) Certifications46-4743-44

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

This quarterly report on Form 10-Q of Chevron Corporation contains forward-looking statements relating to Chevron’s operations that are based on management’s current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words or phrases such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “forecasts,” “projects,” “believes,” “seeks,” “schedules,” “estimates,” “positions,” “may,” “could,” “should,” “budgets,” “outlook,” “on schedule,” “on track”track,” “goals,” “objectives” 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; the company's ability to realize anticipated cost savings and expenditure reductions; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; technological developments; the results of operations and financial condition of the company's suppliers, vendors, partners and equity affiliates;affiliates, particularly during extended periods of low prices for crude oil and natural gas; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company’s business, production or manufacturing facilities or delivery/transportation networksoperations due to war, accidents, political events, civil unrest, severe weather, cyber threats and terrorist acts, other natural or human factors, or crude oil production quotas or other actions that might be imposed by the Organization of Petroleum Exporting Countries;Countries, or other natural or human causes beyond its control; changing economic, regulatory and political environments in the various countries in which the company operates; general domestic and international economic and political conditions; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant operational, investment or product changes required by existing or future environmental statutes and regulations, including international agreements and litigation;national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions; 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; material reductions in corporate liquidity and access to debt markets; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; the company's ability to identify and mitigate the risks and hazards inherent in operating in the global energy industry; and the factors set forth under the heading “Risk Factors” on pages 2221 through 2423 of the company’s 20142015 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.


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PART I.
FINANCIAL INFORMATION
 
Item 1.Consolidated Financial Statements
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
 
Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars, except per-share amounts)(Millions of dollars, except per-share amounts)
Revenues and Other Income          
Sales and other operating revenues*$32,767
 $51,822
 $101,911
 $158,383
$29,159
 $32,767
 $80,073
 $101,911
Income from equity affiliates1,195
 1,912
 3,765
 5,543
555
 1,195
 1,883
 3,765
Other income353
 945
 3,554
 1,956
426
 353
 1,019
 3,554
Total Revenues and Other Income34,315
 54,679
 109,230
 165,882
30,140
 34,315
 82,975
 109,230
Costs and Other Deductions              
Purchased crude oil and products17,447
 30,741
 55,181
 95,408
15,842
 17,447
 42,345
 55,181
Operating expenses5,592
 6,403
 17,064
 18,713
4,666
 5,592
 15,124
 17,064
Selling, general and administrative expenses1,026
 1,122
 3,140
 3,126
1,109
 1,026
 3,140
 3,140
Exploration expenses315
 366
 1,982
 1,475
258
 315
 842
 1,982
Depreciation, depletion and amortization4,268
 3,948
 15,637
 11,920
4,130
 4,268
 15,254
 15,637
Taxes other than on income*2,883
 3,236
 9,174
 9,422
2,962
 2,883
 8,799
 9,174
Interest and debt expense64
 
 143
 
Total Costs and Other Deductions31,531
 45,816
 102,178
 140,064
29,031
 31,531
 85,647
 102,178
Income Before Income Tax Expense2,784
 8,863
 7,052
 25,818
Income Tax Expense727
 3,236
 1,787
 9,980
Net Income2,057
 5,627
 5,265
 15,838
Income (Loss) Before Income Tax Expense1,109
 2,784
 (2,672) 7,052
Income Tax Expense (Benefit)(192) 727
 (1,803) 1,787
Net Income (Loss)1,301
 2,057
 (869) 5,265
Less: Net income attributable to noncontrolling interests20
 34
 90
 68
18
 20
 43
 90
Net Income Attributable to Chevron Corporation$2,037
 $5,593
 $5,175
 $15,770
Net Income (Loss) Attributable to Chevron Corporation$1,283
 $2,037
 $(912) $5,175
Per Share of Common Stock:              
Net Income Attributable to Chevron Corporation       
Net Income (Loss) Attributable to Chevron Corporation       
— Basic$1.09
 $2.97
 $2.77
 $8.35
$0.68
 $1.09
 $(0.49) $2.77
— Diluted$1.09
 $2.95
 $2.76
 $8.29
$0.68
 $1.09
 $(0.49) $2.76
Dividends$1.07
 $1.07
 $3.21
 $3.14
$1.07
 $1.07
 $3.21
 $3.21
Weighted Average Number of Shares Outstanding (000s)              
— Basic1,868,444
 1,880,915
 1,867,560
 1,887,778
1,873,649
 1,868,444
 1,871,813
 1,867,560
— Diluted1,872,420
 1,896,492
 1,875,193
 1,902,698
1,883,342
 1,872,420
 1,871,813
 1,875,193
____________________       
* Includes excise, value-added and similar taxes:$1,772
 $1,800
 $5,208
 $5,642







See accompanying notes to consolidated financial statements.

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

* Includes excise, value-added and similar taxes:$1,800
 $2,116
 $5,642
 $6,182
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Net Income (Loss)$1,301
 $2,057
 $(869) $5,265
Currency translation adjustment7
 (16) 9
 (35)
Unrealized holding gain on securities:       
Net gain (loss) arising during period21
 (18) 31
 (24)
Defined benefit plans:       
Actuarial gain (loss):       
Amortization to net income of net actuarial and settlement losses265
 204
 644
 548
Actuarial loss arising during period(9) 
 (23) 
Prior service cost:       
Amortization to net income of net prior service costs2
 5
 15
 19
Defined benefit plans sponsored by equity affiliates5
 7
 19
 34
Income tax expense on defined benefit plans(102) (80) (247) (232)
Total161
 136
 408
 369
Other Comprehensive Gain, Net of Tax189
 102
 448
 310
Comprehensive Income (Loss)1,490
 2,159
 (421) 5,575
Comprehensive income attributable to noncontrolling interests(18) (20) (43) (90)
Comprehensive Income (Loss) Attributable to Chevron Corporation$1,472
 $2,139
 $(464) $5,485








See accompanying notes to consolidated financial statements.

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

 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Net Income$2,057
 $5,627
 $5,265
 $15,838
Currency translation adjustment(16) (19) (35) (49)
Unrealized holding (loss) gain on securities:       
Net (loss) gain arising during period(18) (4) (24) 4
Derivatives:       
Net derivatives loss on hedge transactions
 
 
 (66)
Reclassification to net income of net realized gain
 
 
 (17)
Income tax benefit on derivatives transactions
 
 
 29
Total
 
 
 (54)
Defined benefit plans:       
Actuarial loss:       
Amortization to net income of net actuarial and settlement losses204
 125
 548
 350
Prior service cost:       
Amortization to net income of net prior service costs5
 6
 19
 19
Defined benefit plans sponsored by equity affiliates7
 6
 34
 18
Income tax expense on defined benefit plans(80) (55) (232) (147)
Total136
 82
 369
 240
Other Comprehensive Gain, Net of Tax102
 59
 310
 141
Comprehensive Income2,159
 5,686
 5,575
 15,979
Comprehensive income attributable to noncontrolling interests(20) (34) (90) (68)
Comprehensive Income Attributable to Chevron Corporation$2,139
 $5,652
 $5,485
 $15,911



See accompanying notes to consolidated financial statements.

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CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
At September 30
2015
 At December 31
2014
At September 30
2016
 At December 31
2015
(Millions of dollars, except per-share amounts)(Millions of dollars, except per-share amounts)
ASSETSASSETS  ASSETS  
Cash and cash equivalents$12,933
 $12,785
$7,351
 $11,022
Time deposits
 8
Marketable securities306
 422
321
 310
Accounts and notes receivable, net14,240
 16,736
12,522
 12,860
Inventories      
Crude oil and petroleum products4,048
 3,854
3,231
 3,535
Chemicals439
 467
440
 490
Materials, supplies and other2,377
 2,184
2,305
 2,309
Total inventories6,864
 6,505
5,976
 6,334
Prepaid expenses and other current assets5,476
 5,776
Prepaid expenses and other current assets 1
2,703
 3,904
Total Current Assets39,819
 42,232
28,873
 34,430
Long-term receivables, net2,436
 2,817
2,444
 2,412
Investments and advances26,710
 26,912
30,002
 27,110
Properties, plant and equipment, at cost340,558
 327,289
341,066
 340,277
Less: Accumulated depreciation, depletion and amortization153,153
 144,116
157,627
 151,881
Properties, plant and equipment, net187,405
 183,173
183,439
 188,396
Deferred charges and other assets6,593
 6,299
Deferred charges and other assets 1, 2
6,631
 6,155
Goodwill4,588
 4,593
4,581
 4,588
Assets held for sale898
 
3,893
 1,449
Total Assets$268,449
 $266,026
$259,863
 $264,540
LIABILITIES AND EQUITYLIABILITIES AND EQUITY  LIABILITIES AND EQUITY  
Short-term debt$6,580
 $3,790
Short-term debt 2
$6,057
 $4,927
Accounts payable15,307
 19,000
12,205
 13,516
Accrued liabilities5,062
 5,328
4,441
 4,833
Federal and other taxes on income2,039
 2,575
Federal and other taxes on income 1
1,000
 1,073
Other taxes payable1,156
 1,233
1,041
 1,118
Total Current Liabilities30,144
 31,926
24,744
 25,467
Long-term debt29,210
 23,960
Long-term debt 2
39,462
 33,542
Capital lease obligations86
 68
66
 80
Deferred credits and other noncurrent obligations23,129
 23,549
22,288
 23,465
Noncurrent deferred income taxes21,869
 21,920
Noncurrent deferred income taxes 1
17,817
 20,165
Noncurrent employee benefit plans8,073
 8,412
7,534
 7,935
Total Liabilities112,511
 109,835
111,911
 110,654
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 September 30, 2015, and December 31, 2014)
1,832
 1,832
Common stock (authorized 6,000,000,000 shares; $0.75 par value;
2,442,676,580 shares issued at September 30, 2016, and December 31, 2015)
1,832
 1,832
Capital in excess of par value16,254
 16,041
16,512
 16,330
Retained earnings184,167
 184,987
174,657
 181,578
Accumulated other comprehensive loss(4,549) (4,859)(3,843) (4,291)
Deferred compensation and benefit plan trust(240) (240)(240) (240)
Treasury stock, at cost (560,639,876 and 563,027,772 shares at September 30, 2015, and December 31, 2014, respectively)(42,552) (42,733)
Treasury stock, at cost (554,907,260 and 559,862,580 shares at September 30, 2016, and December 31, 2015, respectively)(42,118) (42,493)
Total Chevron Corporation Stockholders’ Equity154,912
 155,028
146,800
 152,716
Noncontrolling interests1,026
 1,163
1,152
 1,170
Total Equity155,938
 156,191
147,952
 153,886
Total Liabilities and Equity$268,449
 $266,026
$259,863
 $264,540
____________________   
1 2015 adjusted to conform to ASU 2015-17. Refer to Note 10, "Income Taxes" beginning on page 14.
1 2015 adjusted to conform to ASU 2015-17. Refer to Note 10, "Income Taxes" beginning on page 14.
2 2015 adjusted to conform to ASU 2015-03. Refer to Note 5, "New Accounting Standards" on page 10.
2 2015 adjusted to conform to ASU 2015-03. Refer to Note 5, "New Accounting Standards" on page 10.
See accompanying notes to consolidated financial statements.

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

Nine Months Ended
September 30
Nine Months Ended
September 30
2015 20142016 2015
(Millions of dollars)(Millions of dollars)
Operating Activities      
Net Income$5,265
 $15,838
Net Income (Loss)$(869) $5,265
Adjustments      
Depreciation, depletion and amortization15,637
 11,920
15,254
 15,637
Dry hole expense1,265
 622
472
 1,265
Distributions less than income from equity affiliates(576) (1,505)(708) (576)
Net before-tax gains on asset retirements and sales(3,104) (1,516)(872) (3,104)
Net foreign currency effects(34) (61)321
 (34)
Deferred income tax provision(478) 474
(3,139) (478)
Net increase in operating working capital(2,321) (376)(1,266) (2,321)
Increase in long-term receivables(92) (75)(81) (92)
Net decrease (increase) in other deferred charges92
 (59)
Net decrease in other deferred charges30
 92
Cash contributions to employee pension plans(719) (227)(697) (719)
Other(36) (57)538
 (36)
Net Cash Provided by Operating Activities14,899
 24,978
8,983
 14,899
Investing Activities      
Capital expenditures(22,055) (25,739)(14,100) (22,055)
Proceeds and deposits related to asset sales5,408
 2,588
2,209
 5,408
Net sales of time deposits8
 
Net maturities of time deposits
 8
Net sales of marketable securities122
 1
2
 122
Net (borrowing) repayment of loans by equity affiliates(147) 66
Net sales (purchases) of other short-term investments64
 (67)
Net borrowing of loans by equity affiliates(2,195) (147)
Net sales of other short-term investments155
 64
Net Cash Used for Investing Activities(16,600) (23,151)(13,929) (16,600)
Financing Activities      
Net borrowings of short-term obligations2,049
 5,294
869
 2,049
Proceeds from issuance of long-term debt5,989
 
6,924
 5,989
Repayments of long-term debt and other financing obligations(22) (27)(812) (22)
Cash dividends — common stock(5,993) (5,926)(6,007) (5,993)
Distributions to noncontrolling interests(122) (18)(57) (122)
Net sales (purchases) of treasury shares158
 (3,174)
Net Cash Provided by (Used for) Financing Activities2,059
 (3,851)
Net sales of treasury shares359
 158
Net Cash Provided by Financing Activities1,276
 2,059
Effect of Exchange Rate Changes on Cash and Cash Equivalents(210) (6)(1) (210)
Net Change in Cash and Cash Equivalents148
 (2,030)(3,671) 148
Cash and Cash Equivalents at January 112,785
 16,245
11,022
 12,785
Cash and Cash Equivalents at September 30$12,933
 $14,215
$7,351
 $12,933






See accompanying notes to consolidated financial statements.

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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- and nine-month periods ended September 30, 20152016, are not necessarily indicative of future financial results. The term “earnings” is defined as net income (loss) 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 20142015 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 nine months ending September 30, 20152016, are reflected in the table below.
Changes in Accumulated Other Comprehensive Income (Loss) by Component (1) 
(Millions of Dollars)
 Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2016
 Currency Translation Adjustment Unrealized Holding Gains (Losses) on Securities Derivatives Defined Benefit Plans Total 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) $(140) $(29) $(2) $(4,120) $(4,291)
Components of Other Comprehensive Income (Loss):Components of Other Comprehensive Income (Loss):        Components of Other Comprehensive Income (Loss):        
Before Reclassifications (35) (24) 
 15
 (44) 9
 31
 
 
 40
Reclassifications (2)
 
 
 
 354
 354
 
 
 
 408
 408
Net Other Comprehensive Income (Loss) (35) (24) 
 369
 310
 9
 31
 
 408
 448
Balance at September 30 $(131) $(32) $(2) $(4,384) $(4,549) $(131) $2
 $(2) $(3,712) $(3,843)
______________________

(1) All amounts are net of tax.
(2) Refer to Note 10,9, Employee Benefits for reclassified components totaling $567$659 million that are included in employee benefit costs for the nine months ending September 30, 20152016. Related income taxes for the same period, totaling $213$251 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 nine months of 20152016 and 20142015 is as follows:
2015 20142016 2015
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
 
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
 
Chevron
Corporation
Stockholders’ Equity
 
Non-controlling
Interest
 
Total
Equity
(Millions of dollars)(Millions of dollars)
Balance at January 1$155,028
 $1,163
 $156,191
 $149,113
 $1,314
 $150,427
$152,716
 $1,170
 $153,886
 $155,028
 $1,163
 $156,191
Net income5,175
 90
 5,265
 15,770
 68
 15,838
Net income (loss)(912) 43
 (869) 5,175
 90
 5,265
Dividends(5,995) 
 (5,995) (5,929) 
 (5,929)(6,009) 
 (6,009) (5,995) 
 (5,995)
Distributions to noncontrolling interests
 (122) (122) 
 (18) (18)
 (57) (57) 
 (122) (122)
Treasury shares, net181
 
 181
 (3,210) 
 (3,210)375
 
 375
 181
 
 181
Other changes, net*523
 (105) 418
 396
 (197) 199
630
 (4) 626
 523
 (105) 418
Balance at September 30$154,912
 $1,026
 $155,938
 $156,140
 $1,167
 $157,307
$146,800
 $1,152
 $147,952
 $154,912
 $1,026
 $155,938
 _________________________________

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 4. Information Relating to the Consolidated Statement of Cash Flows

The “Net increase in operating working capital” was composed of the following operating changes:
Nine Months Ended
September 30
Nine Months Ended
September 30
2015 20142016 2015
(Millions of dollars)(Millions of dollars)
Decrease in accounts and notes receivable$2,337
 $1,388
Increase in inventories(445) (931)
(Increase) decrease in accounts and notes receivable$(455) $2,337
Decrease (increase) in inventories232
 (445)
Decrease in prepaid expenses and other current assets167
 237
844
 167
Decrease in accounts payable and accrued liabilities(3,769) (946)(1,783) (3,769)
Decrease in income and other taxes payable(611) (124)(104) (611)
Net increase in operating working capital$(2,321) $(376)$(1,266) $(2,321)
The “Net increase in operating working capital” includes reductions of $14 million and $55 millionin each period for excess income tax benefits associated with stock options exercised during the nine months ended September 30, 2015,2016, and 2014, respectively.2015. 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 interest on debt and for income taxes:
 Nine Months Ended
September 30
 2015 2014
 (Millions of dollars)
Income taxes$4,081
 $8,625
 Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
Interest on debt (net of capitalized interest)$28
 $
Income taxes1,492
 4,081
"Depreciation, depletion and amortization," "Dry hole expense,"amortization" and "Deferred income tax provision," "Net decrease (increase) in other deferred charges" and "Other"provision" collectively include $2.6$2.8 billion in non-cash reductions to properties, plant and equipment recorded in second quarter 2015 relating to impairments and project suspensionsother non-cash charges due to reservoir performance and associated adverse tax effects, all of which stem from a downward revision in the company's longer-termlower crude oil price outlook.prices.
"Other" includes changes in postretirement benefits obligations and other long-term liabilities.
Information related to "Restricted Cash" is included on page 21 in Note 1314 under the heading "Restricted Cash."
The “Net salesmaturities of time deposits” consisted of the following gross amounts:
 Nine Months Ended
September 30
 2015 2014
 (Millions of dollars)
Time deposits purchased$
 $(317)
Time deposits matured8
 317
Net sales of time deposits$8
 $
 Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
Maturities of time deposits
 8
Net maturities of time deposits$
 $8
The “Net sales of marketable securities” consisted of the following gross amounts:
Nine Months Ended
September 30
Nine Months Ended
September 30
2015 20142016 2015
(Millions of dollars)(Millions of dollars)
Marketable securities purchased$(6) $(11)$(9) $(6)
Marketable securities sold128
 12
11
 128
Net sales of marketable securities$122
 $1
$2
 $122

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The “Net borrowing of loans by equity affiliates” consisted of the following gross amounts:
 Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
Borrowing of loans by equity affiliates$(2,271) $(149)
Repayment of loans by equity affiliates76
 2
Net borrowing of loans by equity affiliates$(2,195) $(147)
A loan to Tengizchevroil LLP for the development of the Future Growth and Wellhead Pressure Management Project represents the majority of "Net borrowing of loans by equity affiliates."
The “Net sales (purchases)of other short-term investments” consisted of the following gross amounts:
 Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
Purchases of other short-term investments$
 $(55)
Sales of other short-term investments155
 119
Net sales of other short-term investments$155
 $64
The “Net borrowings of short-term obligations" consisted of the following gross and net amounts:
 Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
Repayments of short-term obligations$(8,415) $(10,443)
Proceeds from issuances of short-term obligations11,695
 11,042
Net borrowings of short-term obligations with three months or less maturity(2,411) 1,450
Net borrowings of short-term obligations$869
 $2,049
The “Net sales of treasury shares” represents the cost of common shares acquired less the cost of shares issued for share-based compensation plans. Purchases totaled $2 million for the first nine months in 2016 and $1 million for the first nine months in 2015 and $3.8 billion for the first nine months in 2014.2015. No purchases were made under the company's share repurchase program in the first nine months of 2016 or 2015. During the first nine months of 2014, the company purchased 30.6 million common shares under the program for $3.7 billion.

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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:
Nine Months Ended
September 30
Nine Months Ended
September 30
2015 20142016 2015
(Millions of dollars)(Millions of dollars)
Additions to properties, plant and equipment$21,273
 $25,094
$13,757
 $21,273
Additions to investments382
 341
38
 382
Current year dry hole expenditures400
 320
305
 400
Payments for other liabilities and assets, net
 (16)
Capital expenditures22,055
 25,739
14,100
 22,055
Expensed exploration expenditures717
 853
370
 717
Assets acquired through capital lease obligations44
 12
4
 44
Capital and exploratory expenditures, excluding equity affiliates22,816
 26,604
14,474
 22,816
Company’s share of expenditures by equity affiliates2,456
 2,422
2,693
 2,456
Capital and exploratory expenditures, including equity affiliates$25,272
 $29,026
$17,167
 $25,272

Note 5. 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).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 5. New Accounting Standards
Segment EarningsInterest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs. Effective January 1, 2016, Chevron adopted ASU 2015-03 on a retrospective basis. The company evaluatesstandard requires that debt issuance costs related to a recognized liability be presented on the performancebalance sheet as a direct deduction from the carrying amount of its operating segments on an after-tax basis, without considering thethat debt liability. The effects of debt financing interest expense or investment interest income, bothretrospective adoption on the December 31, 2015, Consolidated Balance Sheet were reductions of $43 million in "Deferred charges and other assets," $1 million in "Short-term debt" and $42 million in "Long-term debt".
Revenue Recognition (Topic 606): Revenue from Contracts with Customers.In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09, which are managed bybecomes effective for the company onJanuary 1, 2018. The standard provides a worldwide basis. Corporate administrative costssingle comprehensive revenue recognition model for contracts with customers, eliminates most industry-specific revenue recognition guidance, and assets are not allocated to the operating segments. However, operating segments are billed for the direct use of corporate services. Nonbillable costs remain at the corporate level in “All Other.” Earnings by major operating area for the three- and nine-month periods ended September 30, 2015, and 2014, are presented in the following table:
 Three Months Ended
September 30
 Nine Months Ended
September 30
Segment Earnings2015 2014 2015 2014
 (Millions of dollars)
Upstream       
United States$(603) $929
 $(2,101) $2,895
International662
 3,720
 1,501
 11,325
Total Upstream59
 4,649
 (600) 14,220
Downstream       
United States1,249
 809
 2,686
 1,748
International962
 578
 3,904
 1,070
Total Downstream2,211
 1,387
 6,590
 2,818
Total Segment Earnings2,270
 6,036
 5,990
 17,038
All Other       
Interest Income16
 16
 49
 54
Other(249) (459) (864) (1,322)
Net Income Attributable to Chevron Corporation$2,037
 $5,593
 $5,175
 $15,770
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 September 30, 2015, and December 31, 2014, are as follows:
Segment AssetsAt September 30
2015
 At December 31
2014
 (Millions of dollars)
Upstream   
United States$48,638
 $49,205
International159,833
 152,736
Goodwill4,588
 4,593
Total Upstream213,059
 206,534
Downstream   
United States21,579
 23,068
International16,229
 17,723
Total Downstream37,808
 40,791
Total Segment Assets250,867
 247,325
All Other   
United States5,304
 6,741
International12,278
 11,960
Total All Other17,582
 18,701
Total Assets — United States75,521
 79,014
Total Assets — International188,340
 182,419
Goodwill4,588
 4,593
Total Assets$268,449
 $266,026

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Segment Salesexpands disclosure requirements. "Sales and Other Operating Revenues SegmentRevenues” on the Consolidated Statement of Income includes excise, value-added and similar taxes on sales and other operating revenues, including internal transfers,transactions. Upon adoption of the standard, revenue will exclude sales-based taxes collected on behalf of third parties, which will have no impact to earnings. The company continues to evaluate the effect of the standard on its consolidated financial statements.
Leases (Topic 842)In February 2016, the FASB issued ASU 2016-02 which becomes effective for the three-company January 1, 2019. The standard requires that lessees present right-of-use assets and nine-month periods ended September 30, 2015, and 2014, are presented inlease liabilities on the following table. Products are transferred between operating segments at internal product values that approximate market prices. Revenues forbalance sheet. The company is evaluating the upstream segment are derived primarily fromeffect of the production and sale of crude oil and natural gas, as well asstandard on 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.company’s consolidated financial statements.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 Sales and Other Operating Revenues2015 2014 2015 2014
 (Millions of dollars)
Upstream       
United States$3,207
 $5,676
 $10,089
 $18,386
International6,540
 12,084
 21,163
 37,419
Subtotal9,747
 17,760
 31,252
 55,805
Intersegment Elimination — United States(2,165) (4,127) (6,829) (12,319)
Intersegment Elimination — International(2,774) (6,317) (9,047) (18,676)
Total Upstream4,808
 7,316
 15,376
 24,810
Downstream       
United States13,795
 20,623
 41,336
 62,043
International14,484
 26,071
 46,326
 78,474
Subtotal28,279
 46,694
 87,662
 140,517
Intersegment Elimination — United States(6) (6) (20) (18)
Intersegment Elimination — International(360) (2,252) (1,222) (7,146)
Total Downstream27,913
 44,436
 86,420
 133,353
All Other       
United States413
 474
 1,176
 1,349
International13
 11
 30
 24
Subtotal426
 485
 1,206
 1,373
Intersegment Elimination — United States(368) (404) (1,065) (1,130)
Intersegment Elimination — International(12) (11) (26) (23)
Total All Other46
 70
 115
 220
Sales and Other Operating Revenues       
United States17,415
 26,773
 52,601
 81,778
International21,037
 38,166
 67,519
 115,917
Subtotal38,452
 64,939
 120,120
 197,695
Intersegment Elimination — United States(2,539) (4,537) (7,914) (13,467)
Intersegment Elimination — International(3,146) (8,580) (10,295) (25,845)
Total Sales and Other Operating Revenues$32,767
 $51,822
 $101,911
 $158,383


Note 6. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The summarized financial information for CUSA and its consolidated subsidiaries is as follows:

Nine Months Ended
September 30
 2015 2014
 (Millions of dollars)
   Sales and other operating revenues$77,434
 $124,957
   Costs and other deductions78,116
 120,977
   Net income attributable to CUSA424
 3,697
 At September 30
2015
 At December 31
2014
 (Millions of dollars)
   Current assets$11,427
 $13,724
   Other assets60,978
 62,195
   Current liabilities11,963
 16,191
   Other liabilities30,512
 30,175
   Total CUSA net equity$29,930
 $29,553
   Memo: Total debt$14,466
 $14,473

Note 7. 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:
 Nine Months Ended
September 30
 2015 2014
 
(Millions of dollars)

   Sales and other operating revenues$10,215
 $18,628
   Costs and other deductions5,779
 8,112
   Net income attributable to TCO3,109
 7,360

Note 8. Income Taxes
Taxes on income for the third quarter and first nine months of 2015 were $0.7 billion and $1.8 billion, respectively, compared with $3.2 billion and $10.0 billion for the corresponding periods in 2014. The associated effective tax rates (calculated as the amount of Income Tax Expense divided by Income Before Income Tax Expense) for the third quarters of 2015 and 2014 were 26 percent and 37 percent, respectively. For the comparative nine-month periods, the effective tax rates were 25 percent and 39 percent, respectively.
The decrease in the effective tax rate between the quarterly periods primarily resulted from the effects of equity earnings, foreign currency remeasurement and one-time tax benefits, partially offset by the effects of valuation allowances recognized on deferred tax assets. The decrease in the effective tax rate for the nine-month comparative period was primarily due to the effects of equity earnings, foreign currency remeasurement, a reduction in statutory tax rates in the United Kingdom and jurisdictional mix, partially offset by the effects of valuation allowances recognized on deferred tax assets.
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 September 30, 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

12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


benefits within the next 12 months. Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

Note 9. Assets Held For Sale6. Operating Segments and Geographic Data
AtAlthough each subsidiary of Chevron is responsible for its own affairs, Chevron Corporation manages its investments in these subsidiaries and their affiliates. The investments are grouped into two business segments, Upstream and Downstream, representing the company’s “reportable segments” and “operating segments.” Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by major international oil export pipelines; processing, transporting, storage and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. All Other activities of the company include worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.
The company’s segments are managed by “segment managers” who report to the “chief operating decision maker” (CODM). The segments represent components of the company that engage in activities (a) from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the CODM, which makes decisions about resources to be allocated to the segments and assesses their performance; and (c) for which discrete financial information is available.
The company’s primary country of operation is the United States of America, its country of domicile. Other components of the company’s operations are reported as “International” (outside the United States).

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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- and nine-month periods ended September 30, 2016, and 2015, are presented in the company classified $898 millionfollowing table:
 Three Months Ended
September 30
 Nine Months Ended
September 30
Segment Earnings2016 2015 2016 2015
 (Millions of dollars)
Upstream       
United States$(212) $(603) $(2,175) $(2,101)
International666
 662
 (1,292) 1,501
Total Upstream454
 59
 (3,467) (600)
Downstream       
United States523
 1,249
 1,307
 2,686
International542
 962
 1,771
 3,904
Total Downstream1,065
 2,211
 3,078
 6,590
Total Segment Earnings1,519
 2,270
 (389) 5,990
All Other       
Interest expense(53) 
 (120) 
Interest income15
 16
 47
 49
Other(198) (249) (450) (864)
Net Income (Loss) Attributable to Chevron Corporation$1,283
 $2,037
 $(912) $5,175
Segment Assets Segment assets do not include intercompany investments or intercompany receivables. “All Other” assets consist primarily of net properties, plantworldwide cash, cash equivalents, time deposits and equipmentmarketable securities; real estate; information systems; technology companies; and assets of the corporate administrative functions. Segment assets at September 30, 2016, and December 31, 2015, are as “Assets heldfollows:
Segment Assets
At September 30
2016
 At December 31
2015
 (Millions of dollars)
Upstream   
United States 1
$42,914
 $46,383
International 1
163,681
 162,030
Goodwill4,581
 4,588
Total Upstream211,176
 213,001
Downstream   
United States 1
21,416
 21,404
International15,887
 14,982
Total Downstream37,303
 36,386
Total Segment Assets248,479
 249,387
All Other   
United States 1,2
5,125
 4,728
International6,259
 10,425
Total All Other11,384
 15,153
Total Assets — United States69,455
 72,515
Total Assets — International185,827
 187,437
Goodwill4,581
 4,588
Total Assets$259,863
 $264,540
____________________   
1 2015 adjusted to conform to ASU 2015-17. Refer to Note 10, "Income Taxes" beginning on page 14.
2 2015 adjusted to conform to ASU 2015-03. Refer to Note 5, "New Accounting Standards" on page 10.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Segment Sales and Other Operating Revenues Segment sales and other operating revenues, including internal transfers, for sale” on the Consolidated Balance Sheet. These assetsthree- and nine-month periods ended September 30, 2016, and 2015, 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
September 30
 Nine Months Ended
September 30
 Sales and Other Operating Revenues2016 2015 2016 2015
 (Millions of dollars)
Upstream       
United States$2,847
 $3,207
 $7,386
 $10,089
International5,927
 6,540
 16,325
 21,163
Subtotal8,774
 9,747
 23,711
 31,252
Intersegment Elimination — United States(1,979) (2,165) (5,120) (6,829)
Intersegment Elimination — International(2,742) (2,774) (6,949) (9,047)
Total Upstream4,053
 4,808
 11,642
 15,376
Downstream       
United States11,958
 13,795
 32,841
 41,336
International13,415
 14,484
 36,262
 46,326
Subtotal25,373
 28,279
 69,103
 87,662
Intersegment Elimination — United States(4) (6) (12) (20)
Intersegment Elimination — International(303) (360) (762) (1,222)
Total Downstream25,066
 27,913
 68,329
 86,420
All Other       
United States280
 413
 825
 1,176
International10
 13
 29
 30
Subtotal290
 426
 854
 1,206
Intersegment Elimination — United States(240) (368) (724) (1,065)
Intersegment Elimination — International(10) (12) (28) (26)
Total All Other40
 46
 102
 115
Sales and Other Operating Revenues       
United States15,085
 17,415
 41,052
 52,601
International19,352
 21,037
 52,616
 67,519
Subtotal34,437
 38,452
 93,668
 120,120
Intersegment Elimination — United States(2,223) (2,539) (5,856) (7,914)
Intersegment Elimination — International(3,055) (3,146) (7,739) (10,295)
Total Sales and Other Operating Revenues$29,159
 $32,767
 $80,073
 $101,911

Note 7. Summarized Financial Data — Chevron U.S.A. Inc.
Chevron U.S.A. Inc. (CUSA) is a major subsidiary of Chevron Corporation. CUSA and its subsidiaries manage and operate most of Chevron’s U.S. businesses. Assets include those related to the exploration and production of crude oil, natural gas and natural gas liquids and those associated with upstreamrefining, marketing, and downstreamsupply and distribution of products derived from petroleum, excluding most of the regulated pipeline operations that are anticipated to be soldof Chevron. CUSA also holds the company’s investment in the next 12 months. The revenues and earnings contributions of these assets in 2014 and nine months of 2015 were not material.Chevron Phillips Chemical Company LLC joint venture, which is accounted for using the equity method.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The summarized financial information for CUSA and its consolidated subsidiaries is as follows:

Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
   Sales and other operating revenues$60,882
 $77,434
   Costs and other deductions63,596
 78,116
   Net income (loss) attributable to CUSA(917) 424
 
At September 30
2016
 At December 31
2015*
 (Millions of dollars)
   Current assets$9,872
 $9,097
   Other assets56,004
 59,170
   Current liabilities13,268
 13,664
   Other liabilities21,992
 28,465
   Total CUSA net equity$30,616
 $26,138
   Memo: Total debt$9,457
 $14,462
____________________   
*2015 adjusted to conform to ASU 2015-17.   
Note 8. 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:


Nine Months Ended
September 30
 2016 2015
 (Millions of dollars)
   Sales and other operating revenues$7,355
 $10,215
   Costs and other deductions5,172
 5,779
   Net income attributable to TCO1,534
 3,109
Note 10.9. Employee Benefits
Chevron has defined benefit pension plans for many employees. The company typically prefunds defined benefit plans as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act minimum funding standard. The company does not typically fund U.S. nonqualified pension plans that are not subject to funding requirements under laws and regulations because contributions to these pension plans may be less economic and investment returns may be less attractive than the company’s other investment alternatives.
The company also sponsors other postretirement employee benefit (OPEB) plans that provide medical and dental benefits, as well as life insurance for some active and qualifying retired employees. The plans are unfunded, and the company and the retirees share the costs. 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.

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The components of net periodic benefit costs for 20152016 and 20142015 are as follows:
Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars)(Millions of dollars)
Pension Benefits              
United States              
Service cost$135
 $113
 $404
 $338
$123
 $135
 $370
 $404
Interest cost125
 124
 376
 371
95
 125
 283
 376
Expected return on plan assets(195) (197) (587) (591)(181) (195) (542) (587)
Amortization of prior service credits(3) (3) (7) (7)(2) (3) (6) (7)
Amortization of actuarial losses89
 52
 267
 157
84
 89
 251
 267
Settlement losses87
 48
 195
 114
162
 87
 324
 195
Total United States238
 137
 648
 382
281
 238
 680
 648
International              
Service cost46
 46
 140
 143
37
 46
 120
 140
Interest cost68
 84
 209
 257
68
 68
 198
 209
Expected return on plan assets(66) (75) (196) (227)(61) (66) (184) (196)
Amortization of prior service costs5
 6
 16
 16
1
 5
 11
 16
Amortization of actuarial losses19
 23
 60
 74
14
 19
 37
 60
Settlement losses1
 
 18
 
Total International72
 84
 229
 263
60
 72
 200
 229
Net Periodic Pension Benefit Costs$310
 $221
 $877
 $645
$341
 $310
 $880
 $877
Other Benefits*              
Service cost$18
 $13
 $54
 $38
$15
 $18
 $45
 $54
Interest cost37
 37
 112
 112
32
 37
 96
 112
Amortization of prior service costs3
 3
 10
 10
3
 3
 10
 10
Amortization of actuarial losses9
 2
 26
 5
5
 9
 15
 26
Net Periodic Other Benefit Costs$67
 $55
 $202
 $165
$55
 $67
 $166
 $202
__________________________

* 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.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



At the end of 2014, the company estimated it would contribute $600$697 million was contributed to employee pension plans during 2015 (composed of $350 million for the U.S. plans and $250 million for the international plans). Through September 30, 2015, a total of $719 million was contributed (including $600$388 million to the U.S. plans).plans.) Total contributions for the full year are currently estimated to be $850$800 million ($600400 million for the U.S. plans and $250$400 million for the international plans).plans.) The company anticipates it will not make contributions to the primary U.S. pension plan for the remainder of 2016. 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 nine months of 2015,2016, the company contributed $148$143 million to its OPEB plans. The company anticipates contributing approximately $50$48 million during the remainder of 20152016.
Note 10. Income Taxes
Taxes on income for the third quarter and first nine months of 2016 benefited earnings by $0.2 billion and $1.8 billion, respectively, compared with charges of $0.7 billion and $1.8 billion, respectively for the corresponding periods in 2015. The associated effective tax rates (calculated as the amount of Income Tax Expense (Benefit) divided by Income (Loss) Before Income Tax Expense) for the third quarters of 2016 and 2015 were (17) percent and 26 percent, respectively. For the comparative nine-month periods the effective tax rates were 67 percent and 25 percent, respectively.
Excluding the effects of equity earnings, the effective tax rates for the 2016 and 2015 quarterly periods were (45) percent and 41 percent, respectively, a decrease of 86 percent between periods, and the tax rates for the respective nine-month periods were 44 percent and 46 percent, a decrease of 2 percent between periods. The decrease in the effective tax rate between the quarterly periods primarily resulted from a reduction in statutory tax rates in the United Kingdom in the 2016 quarter and the effects of other one-time tax benefits between quarters. The decrease in the effective tax rate for the nine-month comparative period primarily resulted from the effects between periods of valuation allowances recognized on deferred tax assets and jurisdictional mix, substantially offset by the

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


absence of the 2015 asset sale of the company's interest in Caltex Australia Limited, in addition to the effects of one-time tax benefits and foreign currency remeasurement between periods.
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 September 30, 2016. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States — 2011, Nigeria — 2000, Angola — 2009 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.
Effective January 1, 2016, Chevron early-adopted Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17), on a retrospective basis. The standard provides that all deferred income taxes be classified as noncurrent on the Consolidated Balance Sheet. The prior requirement was to classify most deferred tax assets and liabilities based on the classification of the underlying asset or liability. The effects of retrospective adoption on the December 31, 2015, Consolidated Balance Sheet were reductions of $917 million in "Prepaid expenses and other current assets," $603 million in "Deferred charges and other assets," $996 million in "Federal and other taxes on income," and $524 million in "Noncurrent deferred income taxes."
Note 11. Assets Held For Sale
At September 30, 2016, the company classified $3.89 billion of net properties, plant and equipment as “Assets held for sale” on the Consolidated Balance Sheet. These assets are associated with upstream and downstream operations that are anticipated to be sold in the next 12 months. The revenues and earnings contributions of these assets in 2015 and the first nine months of 2016 were not material.
Note 11.12. Litigation
MTBE Chevron and many other companies in the petroleum industry have used methyl tertiary butyl ether (MTBE) as a gasoline additive. Chevron is a party to sevensix pending lawsuits and claims, the majority of which involve numerous other petroleum marketers and refiners. Resolution of these lawsuits and claims may ultimately require the company to correct or ameliorate the alleged effects on the environment of prior release of MTBE by the company or other parties. Additional lawsuits and claims related to the use of MTBE, including personal-injury claims, may be filed in the future. The company’s ultimate exposure related to pending lawsuits and claims is not determinable. The company no longer uses MTBE in the manufacture of gasoline in the United States.
Ecuador
Background. Chevron is a defendant in a civil lawsuit initiated in the Superior Court of Nueva Loja in Lago Agrio, Ecuador, 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

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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.
Lago Agrio Judgment. 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

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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.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$16 billion and $76$76 billion and that unjust enrichment should be assessed in an amount between approximately $5$5 billion and $38 billion.$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.
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$8.6 billion in damages and approximately $900$900 million as an award for the plaintiffs’ representatives. It also assessed an additional amount of approximately $8.6$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%“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$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

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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.$19.1 billion. On November 13, 2013, the National Court ratified the judgment but nullified the $8.6$8.6 billion punitive damage assessment, resulting in a judgment of $9.5 billion.$9.5 billion. On December 23, 2013, Chevron appealed the decision to the Ecuador Constitutional Court, Ecuador's highest court. The reporting justice of the Constitutional Court heard oral arguments on the appeal on July 16, 2015.
On July 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

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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, on August 4, 2015, a panel of the U.S. Court of Appeals for the District of Columbia Circuit affirmed the District Court's decision. On September 9,28, 2015, the Court of Appeals denied the Government of Ecuador’s request for full appellate court review of the Federal District Court’s decision. On June 6, 2016, the United States Supreme Court denied the Government of Ecuador's petition for Writ of Certiorari. On July 22, 2016, the Government of Ecuador paid the $96 million award, plus interest, resulting in a payment to Chevron of approximately $113 million.
Lago Agrio Plaintiffs' Enforcement Actions. Chevron has no assets in Ecuador and the Lago Agrio plaintiffs’ lawyers have stated in press releases and through other media that they will seek to enforce the Ecuadorian judgment in various countries and otherwise disrupt Chevron’s operations. On May 30, 2012, the Lago Agrio plaintiffs filed an action against Chevron Corporation, Chevron Canada Limited, and Chevron Canada Finance Limited in the Ontario Superior Court of Justice in Ontario, Canada, seeking to recognize and enforce the Ecuadorian judgment. On May 1, 2013, the Ontario Superior Court of Justice held that the Court has jurisdiction over Chevron and Chevron Canada Limited for purposes of the action, but stayed the action due to the absence of evidence that Chevron Corporation has assets in Ontario. The Lago Agrio plaintiffs appealed that decision and, on December 17, 2013, the Court of 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 to the Supreme Court of Canada and, on September 4, 2015, the Supreme Court dismissed the appeal and affirmed that the Ontario Superior Court of Justice has jurisdiction over Chevron and Chevron Canada Limited for purposes of the action. The recognition and enforcement proceeding will now proceedand related preliminary motions are proceeding in the Ontario Superior Court of Justice.
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 was referred to the public prosecutor for a nonbinding opinion of the issues raised in the complaint. On May 13, 2015, the public prosecutor issued its nonbinding opinion and recommended that the Superior Court of Justice reject the plaintiffs’ recognition and enforcement request, finding, among other things, that the Lago Agrio judgment was procured through fraud and corruption and cannot be recognized in Brazil because it violates Brazilian and international public order.
On 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

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


of an enforcement proceeding in the National Court, First Instance, of Argentina. Chevron filed its answer on February 27, 2014. Chevron intends2014 to vigorously defend againstwhich the proceeding.Lago Agrio plaintiffs responded on December 29, 2015. On April 19, 2016, the public prosecutor in Argentina issued a non-binding opinion recommending to the National Court, First Instance, of Argentina that it reject the Lago Agrio plaintiffs' request to recognize the Ecuadorian judgment in Argentina.
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.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Company's Bilateral Investment Treaty Arbitration Claims. Chevron and Texpet filed an arbitration claim in September 2009 against the Republic of Ecuador before an arbitral tribunal presiding in the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law. The claim alleges violations of the Republic of Ecuador’s obligations under the United States–Ecuador Bilateral Investment Treaty (BIT) and breaches of the settlement and release agreements between the Republic of Ecuador and Texpet (described above), which are investment agreements protected by the BIT. Through the arbitration, Chevron and Texpet are seeking relief against the Republic of Ecuador, including a declaration that any judgment against Chevron in the Lago Agrio litigation constitutes a violation of Ecuador’s obligations under the BIT. On 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 subsequently filed in the District Court of the Hague a request to set aside the Tribunal’s Interim Awards and the First Partial Award (described below). Chevron filed its answer to, and on January 20, 2016, the set aside request on December 31, 2014.District Court denied the Republic's request. On April 13, 2016, the Republic of Ecuador appealed the decision.
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’plaintiffs' complaint, on its face, includes claims not barred by the settlement agreement between the Republic of Ecuador and Texpet. In the same decision, the Tribunal deferred to Phase Two remaining issues from Phase One, including whether the Republic of Ecuador breached the 1995 settlement agreement and the remedies that are available to Chevron and Texpet as a result of that breach. Phase Two issues were addressed at a hearing held in April and May 2015. The Tribunal has not set a date for Phase Three, the damages phase of the arbitration.
Company's RICO Action. 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

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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

17

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 appealed the Federal District Court's decision, and, on April 20, 2015, a panel of the U.S. Court of Appeals for the Second Circuit heard oral arguments.On August 8, 2016, the Second Circuit issued a unanimous opinion affirming in full the judgment of the Federal District Court in favor of Chevron. On October 27, 2016, the Second Circuit denied the defendants' petitions for en banc rehearing of the opinion on their appeal.
Management's Assessment. The ultimate outcome of the foregoing matters, including any financial effect on Chevron, remains uncertain. Management does not believe an estimate of a reasonably possible loss (or a range of loss) can be made in this case. Due to the defects associated with the Ecuadorian judgment, 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).

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 8 on page 12 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.

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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 ContingenciesOn 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 has 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, and that motion was granted and the remaining criminal charges dismissed by the appellate court on August 27, 2015. The federal district prosecutor has appealed the appellate court’s decision.
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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 13. Other Contingencies and Commitments
Income Taxes The company calculates its income tax expense and liabilities quarterly. These liabilities generally are subject to audit and are not finalized with the individual taxing authorities until several years after the end of the annual period for which income taxes have been calculated. Refer to Note 10 on page 14 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 ContingenciesOn 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 has 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 11 Chevron employees. These charges were dismissed by the trial court on February 19, 2013, reinstated by an appellate court on October 9, 2013, and then, upon Chevron's motion for reconsideration, dismissed by the appellate court on August 27, 2015. The federal district prosecutor has appealed the appellate court’s decision.
Chevron receives claims from and submits claims to customers; trading partners; joint venture partners; U.S. federal, state and local regulatory bodies; governments; contractors; insurers; suppliers; and individuals. The amounts of these claims, individually and in the aggregate, may be significant and take lengthy periods to resolve, and may result in gains or losses in future periods.
The company and its affiliates also continue to review and analyze their operations and may close, abandon, sell, exchange, acquire or restructure assets to achieve operational or strategic benefits and to improve competitiveness and profitability. These activities, individually or together, may result in significant gains or losses in future periods.
Note 14. Fair Value Measurements
The three levels of the fair value hierarchy of inputs the company uses to measure the fair value of an asset or liability are described as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the company,

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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.
The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 20152016, and December 31, 20142015, is as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
(Millions of dollars)
At September 30, 2015 At December 31, 2014At September 30, 2016 At December 31, 2015
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Marketable Securities$306
 $306
 $
 $
 $422
 $422
 $
 $
$321
 $321
 $
 $
 $310
 $310
 $
 $
Derivatives125
 95
 30
 
 413
 394
 19
 
9
 5
 4
 
 205
 189
 16
 
Total Assets at Fair Value$431
 $401
 $30
 $
 $835
 $816
 $19
 $
$330
 $326
 $4
 $
 $515
 $499
 $16
 $
Derivatives75
 48
 27
 
 84
 83
 1
 
63
 29
 34
 
 53
 47
 6
 
Total Liabilities at Fair Value$75
 $48
 $27
 $
 $84
 $83
 $1
 $
$63
 $29
 $34
 $
 $53
 $47
 $6
 $
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 September 30, 20152016.
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 September 30, 20152016, and December 31, 20142015, are as follows:
Cash and Cash Equivalents and Time DepositsThe 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 $12.97.4 billion and $12.811.0 billion at September 30, 20152016, 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 September 30, 2015 and December 31, 2014, respectively. The fair values of cash and 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 September 30, 20152016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Restricted Cash had a carrying/fair value of $1.0$0.9 billion and $1.5$1.1 billion at September 30, 20152016, and December 31, 20142015, respectively. At September 30, 20152016, restricted cash is classified as Level 1 and includes restricted funds related to certain upstream abandonment activities and tax payments, and funds held in escrow, which are reported in "Prepaid expenses and other current assets" and “Deferred charges and other assets” on the Consolidated Balance Sheet.
Long-Term Debt had a net carrying value, excluding amounts reclassified from short-term, of $21.2$31.5 billion and $16.0$25.6 billion at September 30, 20152016, and December 31, 20142015, respectively. The fair value of long-term debt at September 30, 20152016, and December 31, 20142015 was $21.7$32.6 billion and $16.5$25.9 billion, respectively. Long-term debt

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


primarily includes corporate issued bonds. The fair value of corporate bonds is $21.0 billion and classified as Level 1.1 is $31.8 billion. The fair value of the other bondslong-term debt classified as Level 2 is $0.70.8 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 September 30, 20152016, and December 31, 2014,2015, were not material.
The fair value hierarchy for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 20152016, is as follows:
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
(Millions of dollars)
At September 30, 2016
At September 30, 2015        Before-Tax Loss
Total Level 1 Level 2 Level 3 Before-Tax LossTotal Level 1 Level 2 Level 3 Three Months Ended Nine
Months
Ended
 
Three
Months
Ended
 Nine
Months
Ended
  
Properties, plant and equipment, net (held and used)$66
 $
 $5
 $61
 $134
 $2,700
$178
 $
 $
 $178
 $92
 $2,427
Properties, plant and equipment, net (held for sale)445
 
 445
 
 121
 393
19
 
 19
 
 4
 545
Investments and advances
 
 
 
 1
 23
1
 
 
 1
 12
 230
Total Assets at Fair Value$511
 $
 $450
 $61
 $256
 $3,116
$198
 $
 $19
 $179
 $108
 $3,202
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 third quarter 20152016.
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 third quarter 20152016.

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.

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Derivative instruments measured at fair value at September 30, 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 September 30
2015
 At December 31
2014
Commodity Accounts and notes receivable, net $120
 $401
Commodity Long-term receivables, net 5
 12
Total Assets at Fair Value $125
 $413
Commodity Accounts payable $71
 $57
Commodity Deferred credits and other noncurrent obligations 4
 27
Total Liabilities at Fair Value $75
 $84

Consolidated Statement of Income: The Effect of Derivatives Not Designated as Hedging Instruments
(Millions of dollars)
    Gain / (Loss)
Three Months Ended
September 30
 Gain / (Loss)
Nine Months ended September 30
Type of
Contract
 Statement of Income Classification 2015 2014 2015 2014
Commodity Sales and other operating revenues $211
 $86
 $59
 $112
Commodity Purchased crude oil and products 18
 (16) 19
 (32)
Commodity Other income 5
 (3) (6) (26)
    $234
 $67
 $72
 $54

The table below represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at September 30, 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 September 30, 2015     
Derivative Assets $3,047
 $2,922
 $125
 $
 $125
Derivative Liabilities $2,997
 $2,922
 $75
 $
 $75
           
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 WellsFinancial and Derivative Instruments
The capitalized costcompany’s derivative instruments principally include crude oil, natural gas and refined product futures, swaps, options, and forward contracts. None of suspended wellsthe 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 September 30, 2015, was $4.1 billion, a net decrease of $130 million from year-end 2014. The decrease was primarily due to well write-offs2016, and asset sales, partially offset by drilling activities. During the nine months ended September 30, 2015, $522 million of exploratory well costs previously capitalized for greater than one year at December 31, 2014, were charged to expense.2015, 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 September 30
2016
 At December 31
2015
Commodity Accounts and notes receivable, net $5
 $200
Commodity Long-term receivables, net 4
 5
Total Assets at Fair Value $9
 $205
Commodity Accounts payable $57
 $51
Commodity Deferred credits and other noncurrent obligations 6
 2
Total Liabilities at Fair Value $63
 $53


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
September 30
 Gain / (Loss)
Nine Months Ended
September 30
Type of
Contract
 Statement of Income Classification 2016 2015 2016 2015
Commodity Sales and other operating revenues $(23) $211
 $(194) $59
Commodity Purchased crude oil and products 4
 18
 (17) 19
Commodity Other income (3) 5
 (1) (6)
    $(22) $234
 $(212) $72

The table below represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at September 30, 2016, and December 31, 2015.
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 September 30, 2016     
Derivative Assets $1,266
 $1,257
 $9
 $
 $9
Derivative Liabilities $1,320
 $1,257
 $63
 $
 $63
           
At December 31, 2015          
Derivative Assets $2,459
 $2,254
 $205
 $
 $205
Derivative Liabilities $2,307
 $2,254
 $53
 $
 $53
           
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 16. New Accounting StandardsRestructuring and Reorganization Costs
Revenue Recognition (Topic 606), Revenue from Contracts with Customers (ASU 2014-09)In July 2015,The following table summarizes the FASB approved a one-year deferral of the effective date of ASU 2014-09,accrued severance liability, which becomes effective for the company January 1, 2018. Early adoption is permitted at the original effective date of January 1, 2017. 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, guidanceclassified as current 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.Consolidated Balance Sheet.
 Amounts Before Tax
 (Millions of dollars)
Balance at January 1, 2016$293
Accruals/Adjustments85
Payments(299)
Balance at September 30, 2016$79
  

Note 17. Restructuring and Reorganization CostsAccounting for Suspended Exploratory Wells
In third quarterThe capitalized cost of suspended wells at September 30, 2016, was $3.5 billion, a net increase of $143 million from year-end 2015. The increase was primarily due to drilling activities, partially offset by well write-offs. During the nine months ended September 30, 2016, $46 million of exploratory well costs previously capitalized for greater than one year at December 31, 2015, the company recorded additional charges for employee reduction programs relatedwere charged to the restructuring and reorganization of certain upstream operations, which are expected to be substantially completed by the end of 2016. A before-tax charge of $38 million ($11 million after-tax) was recorded in the International Upstream segment as “Operating Expenses” on the Consolidated Statement of Income. The following table summarizes the accrued severance liability, which is classified as current on the Consolidated Balance Sheet.expense.

 Amounts Before Tax
 (Millions of dollars)
Balance at January 1, 2015$
Accruals/Adjustments295
Payments(2)
Balance at September 30, 2015$293
  



23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



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

Third Quarter 20152016 Compared with Third Quarter 2014
And Nine Months 2015 Compared with Nine Months 2014

Key Financial Results
Earnings by Business Segment
Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars)(Millions of dollars)
Upstream              
United States$(603) $929
 $(2,101) $2,895
$(212) $(603) $(2,175) $(2,101)
International662
 3,720
 1,501
 11,325
666
 662
 (1,292) 1,501
Total Upstream59
 4,649
 (600) 14,220
454
 59
 (3,467) (600)
Downstream              
United States1,249
 809
 2,686
 1,748
523
 1,249
 1,307
 2,686
International962
 578
 3,904
 1,070
542
 962
 1,771
 3,904
Total Downstream2,211
 1,387
 6,590
 2,818
1,065
 2,211
 3,078
 6,590
Total Segment Earnings2,270
 6,036
 5,990
 17,038
1,519
 2,270
 (389) 5,990
All Other(233) (443) (815) (1,268)(236) (233) (523) (815)
Net Income Attributable to Chevron Corporation (1) (2)
$2,037
 $5,593
 $5,175
 $15,770
____________________       
Net Income (Loss) Attributable to Chevron Corporation (1) (2)
$1,283
 $2,037
 $(912) $5,175
_____________________       
(1) Includes foreign currency effects
$394
 $366
 $723
 $55
$72
 $394
 $32
 $723
(2) Income net of tax; also referred to as “earnings” in the discussions that follow.
(2) Income net of tax; also referred to as “earnings” in the discussions that follow.
      
(2) Income net of tax; also referred to as “earnings” in the discussions that follow.
      
Net income attributable to Chevron Corporation for third quarter 20152016 was $2.0$1.28 billion ($1.090.68 per share — diluted), versus $5.6compared with earnings of $2.04 billion ($2.951.09 per share — diluted) in the corresponding 20142015 period. Net incomeThe net loss attributable to Chevron Corporation for the first nine months of 20152016 was $5.2 billion912 million ($2.760.49 per share — diluted), versuscompared with earnings of $15.85.18 billion ($8.292.76 per share — diluted) in the first nine months of 20142015.
Upstreamearnings in third quarter 20152016 were $59$454 million compared with $4.6 billion$59 million a year earlier. The decrease between comparative periodsimprovement was mainly due to lower crude oil and natural gas realizations, and higher tax items, operating expenses and depreciation expenses, partially offset by lower operating expenses.crude oil and natural gas realizations. The loss for the first nine months of 20152016 was $600 million$3.47 billion compared with earningsa loss of $14.2 billion$600 million a year earlier. The decrease was due to lower crude oil and natural gas realization, higher depreciation expenses, primarily reflecting impairments,realizations and higher tax items,lower gains on asset sales, partially offset by favorablelower operating, exploration and depreciation expenses. In addition, both comparative periods were impacted by an unfavorable change in foreign currency effects and higher crude oil production.effects.
Downstream earnings in third quarter 20152016 were $2.2$1.07 billion compared with $1.4$2.21 billion in the corresponding 20142015 period. The increasedecrease was due to higherlower margins on refined product sales, the absence of third quarter 2015 gains on derivative instruments and favorable foreign currency effects.lower earnings from the 50 percent-owned Chevron Phillips Chemical Company LLC. Partially offsetting the decrease were lower operating expenses. Earnings for the first nine months of 20152016 were $6.6$3.08 billion compared with $2.8$6.59 billion in the corresponding 20142015 period. The $1.6 billion gain fromdecrease in the sale of the company’s interest in Caltex Australia Limited and highernine-month period was due to lower margins on refined product sales, drovelower gains on asset sales, lower earnings from the increase.50 percent-owned Chevron Phillips Chemical Company LLC and an unfavorable change in effects on derivative instruments. Partially offsetting the decrease were lower operating expenses. In addition, both comparative periods were impacted by an unfavorable change in foreign currency effects.
Refer to pages 28 through 31 for additional discussion of results by business segment and “All Other” activities for third quarter and first nine months of 20152016 versus the same period in 20142015.



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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, and Venezuela.

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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,persistently high global crude oil inventories and the decision by OPEC to maintain its current production ceiling.production. The downturn in the price of crude oil 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. Since itA sustained lower price environment was a factor in certain impairments in second quarter 2016, and could result in the impairment or write-off of specific assets in future periods. The company is uncertain when prices might recover from current levels, the company plans to respondresponding with further reductions in operating expenses, including additional employee reductions, further reductions in capital and exploratory expenditures in 2016 and future periods, and additionalincreased 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 increasesincrease 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" on pages 2221 through 2423 of the company’s 20142015 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 value growth. Refer to the "Results of Operations" section beginning on page 28 for discussions of net gains on asset sales during 2015.2016. 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, technology advancements, 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 pressurescosts have softened.declined. 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.


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beo3q2016.jpg
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$52 per barrel for the full-year 2014.2015. During 20152016, Brent averaged $50$46 per barrel in the third quarter,, $55 $42 per barrel for the nine-month period, and ended October at about $48.$47. The majority of the company’s equity crude production is priced based on the Brent benchmark. Prices easedslipped early in the third quarter amid concerns about the global inventory overhang and growing surplus, but firmed through August and September 2016 as OPEC and non-OPEC producers considered production cuts and disruptions in Nigeria peaked. However, upside price movement remained constrained as a surge in drilling rig counts and production in the U.S., and an uptickresult of ongoing growth in OPEC output. However, downside price movement was limited by better than expected seasonal demand growthproduction from Iran, Saudi Arabia, and a reversal in U.S. supply trends from late-August onward. ContinuedIraq, increasing Russian supplies, and lingering concerns over persistently high global crude and product inventories expectations of a downturn in demand for crude oil due to fall refinery maintenance, continued growth in Iraqi production, and easing of geopolitical tensions in key regions kept subsequent price recovery to a minimum throughout September.globally.
The WTI price averaged $93$49 per barrel for the full-year 2014.2015. During 20152016, WTI averaged $47$45 per barrel in the third quarter, $51$41 per barrel for the nine-month period, and ended October at about $47. WTI continued to tradevalues traded at a discount to Brent throughout much of the third quarter due to high of 2016. Strong refinery runs, easing inventories, and excess crude supply inrising imports into the U.S. market.pressured WTI pricing, while Brent was supported by growing optimism that OPEC action was becoming more likely. However, with U.S. refinery runs at record highs and Brent seeing pressure fromupside was limited by intermittent inventory overhang of West Africa and North Sea crudes the discount again contractedand easing refinery runs in the third quarter.Europe.
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 the third quarter 2015,of 2016, the differential expandedcontracted in North America as Canadiangains in heavy crude production recoveredvalues resulted from earlier planned and unplanned outages,strong demand from high-conversion refineries, while support for light sweet crude prices in the U.S. were supported by declines in drillingoil pricing was less robust amid rising rig counts and expectations of slowing U.S. production levels.declines. Outside of North America, highdifferentials were steady to slightly contracted as subdued refinery runsmaintenance in Europe and Asia boosteddampened demand and supported pricing for light sweet crude fromin the Atlantic Basin, while increasedrising output from IraqIran and other Middle East producers undermined support forcontinued to pressure 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 3433 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 $2.80 per thousand cubic feet (MCF) for the first nine months of 2015, compared with $4.62 during the first nine months of 2014. At the end of October 2015, the Henry Hub spot price was $1.97 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. In the United States, prices at Henry Hub averaged $2.29 per thousand cubic feet (MCF) for the first nine months of 2016, compared with $2.80 during the first nine months of 2015. At the end of October 2016, the Henry Hub spot price was $2.80 per MCF.
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 long-term contract prices for liquefied natural gas (LNG) are typically linked to crude oil prices. Approximately 85 percent of the equity LNG offtake from the operated Australian LNG projects is targeted to be sold into binding long-term contracts, with the remainder to be sold in the Asian spot

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typicallyLNG market. The Asian spot market reflects the supply and demand for LNG in the Pacific Basin and is not directly linked to crude oil prices. International natural gas realizations averaged $4.734.01 per MCF during the first nine months of 20152016, compared with $5.91$4.73 per MCF in the same period last year. (See page 3433 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 nine months of 20152016 averaged 2.6052.569 million barrels per day. About one-fifthone-fourth of the company’s net oil-equivalent production in the first nine months of 20152016 occurred in the OPEC-member countries of Angola, Indonesia, Nigeria Venezuela and the Partitioned Zone between Saudi Arabia and Kuwait.Venezuela. OPEC quotas had no effect on the company’s net crude oil production for the third quarter or nine-month periods of 20152016 or 20142015. At their June 2015 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 20152016 will be flat to 3 percent growth compared to 2014approximately 2.6 million barrels per day. .Estimated full-year production has been unfavorably impacted by the continued shut-in of production in the Partitioned Zone, start-up issues at the Gorgon Project and the effect of other external events. This estimate is subject to many factors and uncertainties, including the duration of the low price environment that began in second-half 2014; quotas or other actions that may be imposed by OPEC; price and other productioneffects on entitlement effects;volumes; 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, a production was shut-in began at the end ofbeginning in May 2015 and continued through third quarter 2015 as a result of difficulties in securing work and equipment permits. Net oil-equivalent production in the Partitioned Zone in 2014 was 81,000 barrels per day. The potential forDuring 2015, net oil-equivalent production averaged 28,000 barrels per day. As of early November 2016, production remained shut-in, and the exact timing of 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 continued loss of productionrestart is uncertain and the company cannot estimate its duration.dependent on dispute resolution between Saudi Arabia and Kuwait. The financial effects from the loss of production in 2015 were not significant and are not expected to be significant in 2016.
Refer to the “Results of Operations” section on pages 28 and 29 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.
Refer to the “Results of Operations” section on pagepages 29 and 30 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.



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Operating DevelopmentsDevelopment
Noteworthy operating developments in recent months included the following:
Angola-Republic of the Congo Joint Development AreaAustralia — Achieved first production from the Lianzi Project.
Australia — Continued to progress commissioning activities in preparation for start-up of Train 1 of2 at the Gorgon Project. The Jansz-Io Field subsea infrastructure is fully complete. The first two wells have been opened to the Jansz pipeline, confirming the full operability of these subsea systems. All Train 2 modules are set on foundations and construction is progressing on critical path activities. Nine of 13 Train 3 modules have been delivered to site and set on foundations.
Australia — Continued progress on construction of the Wheatstone Project.All subsea equipment and flowlines are installed and offshore platform hook-up and commissioning is progressing on plan. Seventeen of 24 Train 1 process modules required for first LNG have been delivered to site.
United States — Announced a successful appraisal well at the Anchor prospect in the deepwater Gulf of Mexico.

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 5,6, beginning on page 9,10, for a discussion of the company’s “reportable segments,” as defined under the accounting standards for segment reporting.)
Upstream
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
U.S. Upstream Earnings$(603) $929
 $(2,101) $2,895
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
U.S. Upstream Earnings$(212) $(603) $(2,175) $(2,101)
U.S. upstream incurred a loss of $603$212 million in third quarter 20152016 compared to earningswith a loss of $929$603 million from a year earlier. Earnings decreasedago. The improvement was due to sharply lower crude oil realizations of $1.36 billion, higheroperating and depreciation expenses of $220$290 million and the absencelower tax items of gains on asset sales of $140$160 million. Partially offsetting these effects were higherlower crude oil productionrealizations of $220 million and lower operating expenses of $170$130 million.
U.S. upstream incurred a loss of $2.10$2.18 billion for the first nine months of 2015,2016, compared to earningswith a loss of $2.90$2.10 billion from a year earlier. Earnings decreasedThe decrease in earnings was primarily due to lower crude oil and natural gas realizations of $3.98$1.0 billion and $440$100 million, respectively. Higher depreciation expenses of $1.38 billion, primarily reflecting impairments, and lower gains on asset sales of $220 million, also contributed to the decrease. Partially offsetting these effectsthis decrease were higher crude oil productionlower depreciation expense of $770$450 million, lower operating expense of $360 million and lower operating expensestax items of $400$220 million.
The average realization per barrel for U.S. crude oil and natural gas liquids in third quarter 20152016 was $42,$37, down from $87$42 a year ago. The average nine-month realization per barrel for U.S. crude oil and natural gas liquids was $45$33 in 2015,2016, compared to $90$45 a year earlier. The average natural gas realization in third quarter 20152016 was $1.96$1.89 per thousand cubic feet, compared with $3.46$1.96 in 2014.2015. The average nine-month natural gas realization was $2.05$1.47 per thousand cubic feet in 20152016 and $4.09$2.05 in 2014.2015.
Net oil-equivalent production of 730,000698,000 barrels per day in third quarter 20152016 was up 53,000down 32,000 barrels per day, or 84 percent, from the third quarter a year earlier. Production increases from shale and tight properties in the Permian Basin in Texas and New Mexico, base business in the Gulf of Mexico and San Joaquin Valley, and the Jack/St. Malo major capital project were more than offset by the effect of asset sales, normal field declines and maintenance-related downtime. Net oil-equivalent production of 720,000694,000 barrels per day in the first nine months of 20152016 was up 9down 26,000 barrels per day, or 4 percent from a year earlier. Production increases due to project ramp-upsfrom shale and tight properties in the Gulf of Mexico, the Permian Basin in Texas and New Mexico, and the Marcellus Shalebase business in western Pennsylvaniathe Gulf of Mexico and San Joaquin Valley, were only partiallymore than offset by normal field declines and the effect of asset sales and normal field declines.
The net liquids component of oil-equivalent production of 519,000 barrels per day in boththird quarter 2016 was up 3 percent from the corresponding 2015 period. The net liquids component of oil-equivalent production of 503,000 barrels per day in the 2016 nine-month period was essentially unchanged from the 2015 period. Net natural gas production was 1.08 billion cubic feet per day in third quarter 2016, a decrease of 20 percent from the 2015 comparative periods.period, primarily as a result of asset sales. Net natural gas production was 1.14 billion cubic feet per day in the nine-month period, a decrease of 12 percent from the 2015 period, primarily as a result of asset sales.


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The net liquids component of oil-equivalent production of 505,000 barrels per day
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
International Upstream Earnings*$666
 $662
 $(1,292) $1,501
___________________       
*  Includes foreign currency effects$85
 $258
 $116
 $634
International upstream operations earned $666 million in third quarter 20152016 compared with earnings of $662 million a year ago. The increase in earnings was up 9 percent from the corresponding 2014 period. The net liquids componentdue to lower tax and operating expenses of oil-equivalent production$350 million and $180 million, respectively, and higher natural gas sales of 502,000 barrels per day$120 million, partially offset by lower crude oil and natural gas realizations of $240 million and $170 million, respectively. Foreign currency effects increased earnings by $85 million in the 2015 nine-month period was up 11 percent from the 2014 period. Net natural gas production was 1.35 billion cubic feet per day in third2016 quarter, 2015,compared with an increase of 6 percent from$258 million a year earlier.
The loss for the 2014 comparative period. Net natural gas productionfirst nine months of 2016 was 1.31$1.29 billion, cubic feet per day in the nine-month period, an increase of 5 percent from the 2014 period.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
International Upstream Earnings*$662
 $3,720
 $1,501
 $11,325
___________________       
*  Includes foreign currency effects$258
 $344
 $634
 $144
International upstream earned $662 million in third quarter 2015 compared towith earnings of $3.72$1.50 billion from a year earlier. The decrease in earnings was due to sharply lower crude oil realizations of $2.87 billion and higher tax items of $310 million, partially offset by lower operating expenses of $150 million. Foreign currency effects increased earnings by $258 million in the 2015 quarter, compared with an increase of $344 million a year earlier.
Earnings for the first nine months of 2015 were $1.50 billion, compared to earnings of $11.33 billion from a year earlier. The decrease was due to sharply lower crude oil realizations of $8.72$2.27 billion along with lower natural gas realizations of $570$530 million, higher depreciation expensesand lower gains on asset sales of $1.51 billion, primarily reflecting impairments, and higher tax items of $900$380 million. Partially offsetting the decrease were higher crude oil production of $410 million, lower exploration and operating expenses of $330$570 million and higher gains on asset sales of $220 million.$340 million, respectively. Foreign currency effects increased earnings by $634$116 million in the first nine months of 2015,2016, compared with an increase of $144$634 million a year earlier.
The average realization per barrel of crude oil and natural gas liquids in third quarter 20152016 was $45,$41, compared with $93$45 a year earlier. The average realization per barrel of crude oil and natural gas liquids in the first nine months of 20152016 was $49,$37, compared with $98$49 a year earlier. The average natural gas realization in third quarter 20152016 was $4.68$4.18 per thousand cubic feet, compared with $5.73$4.68 in the 20142015 period. The average natural gas realization in the first nine months of 20152016 was $4.73$4.01 per thousand cubic feet, compared with $5.91$4.73 in the 20142015 period.
International net oil-equivalent production of 1.811.82 million barrels per day in third quarter 20152016 was down 82,000up 6,000 barrels per day, or 4 percent,essentially unchanged from third quarter a year ago. Production increases from major capital projects, shale and tight properties, and base business in multiple areas were largely offset by normal field declines, a major planned turnaround at Tengizchevroil, the effects of civil unrest in Nigeria and production entitlement effects in several locations and a project ramp-up in Bangladesh were more than offset by the Partitioned Zone shut-in, normal field declines, and higher planned maintenance-related downtime at Tengizchevroil in Kazakhstan.locations.
International net oil-equivalent production of 1.891.88 million barrels per day in the first nine months of 20152016 was down 21,00010,000 barrels per day, or 1 percent, from the corresponding 20142015 period. Production increases from entitlement effects in several locationsmajor capital projects, base business, and a project ramp-up in Bangladeshshale and tight properties were more than offset by the Partitioned Zone shut-in, normal field declines and the effecteffects of asset sales.civil unrest in Nigeria.
The net liquids component of oil-equivalent production of 1.171.14 million barrels per day in third quarter 20152016 decreased 53 percent from the 20142015 period. The net liquids component of oil-equivalent production of 1.231.21 million barrels per day in the first nine months of 20152016 decreased 12 percent from the 2014corresponding 2015 period. Net natural gas production of 3.814.04 billion cubic feet per day in third quarter 2015 decreased 32016 increased 6 percent from the year ago2015 period. Net natural gas production of 3.924.01 billion cubic feet per day in the first nine months of 2015 was essentially unchanged2016 increased 2 percent from the corresponding 20142015 period.
Downstream
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
U.S. Downstream Earnings$523
 $1,249
 $1,307
 $2,686
U.S. downstream operations earned $523 million in third quarter 2016 compared with earnings of $1.25 billion a year earlier. The decrease in earnings was primarily due to lower margins on refined product sales of $530 million and lower earnings from the 50 percent-owned Chevron Phillips Chemicals Company LLC of $180 million.

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Downstream
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
U.S. Downstream Earnings$1,249
 $809
 $2,686
 $1,748
U.S. downstream operations earned $1.25 billion in third quarter 2015 compared with earnings of $809 million a year earlier. The increase was due to higher margins on refined product sales of $560 million and lower tax items of $70 million, partially offset by the absence of a 2014 asset sale gain of $250 million.
Earnings for the first nine months of 20152016 were $2.69$1.31 billion compared to $1.75$2.69 billion a year earlier. The increasedecrease was due to higherlower margins on refined product sales of $1.4$1.0 billion, partially offset bylower earnings from the absence50 percent-owned Chevron Phillips Chemicals Company LLC of 2014$340 million and an asset saleimpairment of $110 million. Partially offsetting this decrease are lower operating expenses of $90 million and higher gains on asset sales of $500$80 million.
Refinery crude oil input in third quarter 20152016 increased 23 percent to 942,000970,000 barrels per day from the year-ago period. For the first nine months of 2015,16, crude oil input was 925,000960,000 barrels per day, up 74,000 barrels per day4 percent from the corresponding 2014 period, primarily due to the absence of the 2014 major crude unit turnaround at the El Segundo, California refinery.2015 period.
Refined product sales of 1.251.24 million barrels per day were up 2 percentessentially unchanged from third quarter 2014,2015. Branded gasoline sales of 550,000 barrels per day were up 3 percent from the 2015 period. Sales of 1.24 million barrels per day in the nine month period were up 1 percent, primarily reflectingdue to higher jet fuel sales. Branded gasoline sales of 536,000 barrels per day were up 2 percent from the 2014 period. Sales of 1.23 million barrels per day in the nine-month period were up 2 percent, primarily reflecting higher gasoline and jet fuel sales. Branded gasoline sales of 525,000535,000 barrels per day for the first nine months were up 12 percent from the corresponding 20142015 period.

Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars) (Millions of dollars)(Millions of dollars)
International Downstream Earnings*$962
 $578
 $3,904
 $1,070
$542
 $962
 $1,771
 $3,904
___________________

              
* Includes foreign currency effects$141
 $21
 $92
 $(91)$(4) $141
 $(78) $92
International downstream operations earned $962$542 million in third quarter 20152016 compared with $578$962 million a year earlier. The increasedecrease in earnings was primarily due to higherthe absence of third quarter 2015 gains on derivative instruments of $210 million. Lower margins on refined product sales of $110 million and a favorable change in effects on derivative instrumentsalso contributed to the decline, partially offset by lower operating expenses of $90$50 million. Foreign currency effects increaseddecreased earnings by $141$4 million in the 20152016 quarter, compared with an increase of $21$141 million from a year earlier.
Earnings for the first nine months of 20152016 were $3.90$1.77 billion compared with $1.07$3.90 billion a year earlier. The increasedecrease in earnings was primarily due to the absence of a $1.6 billion gain from the sale of the company’s interest in Caltex Australia Limited in second quarter 2015. Higher2015, partially offset by 2016 asset sales gains of $420 million. Lower margins on refined product sales of $780$570 million and lower operating expensesalong with an unfavorable change in effects on derivative instruments of $150$270 million also contributed to the increase.decline. Partially offsetting these decreases were lower operating expenses of $210 million. Foreign currency effects increaseddecreased earnings $92by $78 million in the first nine months of 2015,2016, compared towith increases of $92 million from a decrease of $91 million in the year-ago period.year earlier.
Refinery crude oil input of 777,000790,000 barrels per day in third quarter 2015 decreased 61,000 barrels per day2016 increased 2 percent from the year-ago period, mainly as a result of the Caltex Australia Limited divestment.
period. For the first nine months of 2015,2016, crude input was 778,000784,000 barrels per day, down 41,000 barrels per dayessentially unchanged from the corresponding 2014year-ago period. Decreases from the Caltex Australia Limited divestment were somewhat offset by the absence of a major planned turnaround at the Star Petroleum Refining Company in Thailand in 2014.
Total refined product sales of 1.51.47 million barrels per day in third quarter 2016 were down 2 percent from the year-ago period due to lower fuel oil and jet fuel sales. Sales of 1.45 million barrels per day in the 2015 third quarterfirst nine months of 2016 were essentially unchangeddown 4 percent from the year-agocorresponding 2015 period. Excluding the effects of the Caltex Australia Limited divestment, refined product sales were up 133,000 barrels per day,down 2 percent, primarily reflecting higher sales of jetlower fuel and gas oil. Sales of 1.52 million barrels per day in the first nine months were up 33,000 barrels per day from the corresponding 2014 period. Excluding the effects of the Caltex Australia Limited divestment, refined product sales were up 129,000 barrels per day, primarily reflecting higher sales of jet fuel, gas oil and gasoline.sales.

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All Other
Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars)(Millions of dollars)
Net Charges*$(233) $(443) $(815) $(1,268)$(236) $(233) $(523) $(815)
___________________

              
* Includes foreign currency effects$(5) $1
 $(3) $2
$(9) $(5) $(6) $(3)
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 third quarter 20152016 were $233$236 million, compared with $443$233 million a year earlier. The change between periods was mainly due to higher corporate charges and interest expense, offset by lower environmental reserve additions and lower corporate charges.tax items. Foreign currency effects increased net charges by $5$9 million in third quarter 20152016, compared to a $1$5 million decrease in net charges

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increase in the 20142015 period. Net charges for the first nine months of 20152016 were $815523 million, compared with $1.27 billion815 million a year earlier. The change between periods was mainly due to lower tax items and the absence of a 2014 impairment of a mining asset, lower environmental reserve additions and lower corporate tax items, partially offset by higher corporate expenses and2015 charges related to reductions in corporate staffs.staffs, partially offset by higher corporate charges and interest expense. Foreign currency effects increased net charges by $36 million for the first nine months of 20152016, compared to a $23 million decreaseincrease in net charges in the 20142015 period.

Consolidated Statement of Income
Explanations of variations between periods for selected income statement categories are provided below:
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Sales and other operating revenues$32,767
 $51,822
 $101,911
 $158,383
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Sales and other operating revenues$29,159
 $32,767
 $80,073
 $101,911
Sales and other operating revenues decreased $19.1$3.6 billion for the quarterly period, and $21.8 billion for the nine-month period, due to lower refined product and crude oil prices, partially offset by higher crude oil volumes.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Income from equity affiliates$555
 $1,195
 $1,883
 $3,765
Income from equity affiliates in the three-monthquarterly period decreased mainly due to lower upstream-related earnings from Tengizchevroil in Kazakhstan, and $56.5 billionlower downstream-related earnings from GS Caltex in South Korea and CPChem. Income from equity affiliates in the nine-month period decreased mainly due to lower upstream-related earnings from Tengizchevroil in Kazakhstan, and lower downstream-related earnings from CPChem and GS Caltex in South Korea.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Other income$426
 $353
 $1,019
 $3,554
Other income for the quarterly period increased due to higher gains on asset sales and a legal settlement, partially offset by an unfavorable swing in foreign currency effects. The nine-month period decreased due to lower gains on asset sales and an unfavorable swing in foreign currency effects.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Purchased crude oil and products$15,842
 $17,447
 $42,345
 $55,181
Purchases decreased $1.6 billion for the quarterly period primarily due to lower refined product and crude oil prices, partially offset by an increase in refined product andhigher crude oil volumes.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Income from equity affiliates$1,195
 $1,912
 $3,765
 $5,543
Income from equity affiliates in the quarterly period decreased mainly due to lower earnings from Tengizchevroil in Kazakhstan and the effect of the sale of Caltex Australia, partially offset by higher earnings from GS Caltex in South Korea. Income from equity affiliates in the The nine-month period decreased mainly due to lower earnings from Tengizchevroil in Kazakhstan, Chevron Phillips Chemical Company LLC, and Angola LNG. Partially offsetting these effects were higher earnings from GS Caltex in South Korea and Petropiar in Venezuela.

31



 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Other income$353
 $945
 $3,554
 $1,956
Other income for the quarterly period decreased due to lower gains on asset sales while the nine-month period increased due to higher gains on asset sales.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Purchased crude oil and products$17,447
 $30,741
 $55,181
 $95,408
Purchases decreased $13.3$12.8 billion in the three-month period and $40.2 billion in the nine-month period, primarily due to lower crude oil and refined product prices, partially offset by an increase inhigher crude oil volumes.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Operating, selling, general and
   administrative expenses
$6,618
 $7,525
 $20,204
 $21,839
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Operating, selling, general and
   administrative expenses
$5,775
 $6,618
 $18,264
 $20,204
Operating, selling, general and administrative expenses decreased $907$843 million between quarterly periods mostly due to lower fuel,employee, transportation, environmental reserve and contract labor, professional services, and materials and supplies expenses.
Expenses decreased $1.6$1.9 billion between the nine-month periods primarily due to lower fuel, construction, repair and maintenance,employee, transportation, contract labor, environmental reserveprofessional services, fuel, and non-operated joint venture expenses, partially offset by higher charges related to employee reductions.materials and supplies expenses.

31



 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Exploration expenses$315
 $366
 $1,982
 $1,475
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Exploration expenses$258
 $315
 $842
 $1,982
The decrease in exploration expenses for the quarterly period was mostlyprimarily due to lower geological and geophysical expenses, and lowerpartially offset by higher charges for well write-offs. The increasedecrease in exploration expenses for the nine-month period was mostlyprimarily due to highersignificantly lower charges for well write-offs, partially offset byand lower geological and geophysical expenses.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Depreciation, depletion and
       amortization
$4,268
 $3,948
 $15,637
 $11,920
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Depreciation, depletion and
       amortization
$4,130
 $4,268
 $15,254
 $15,637
 
Depreciation, depletion and amortization expenses for thein third quarter increased2016 decreased mainly due to higherlower impairment expense related to upstream properties, along with higherexpenses and production levels, partially offset by higher depreciation rates for certain oil and gas producing fields. The nine-month period increaseddecreased mainly due to higher impairment expense related to upstream properties, along with higherlower production levels and higherlower depreciation rates for certain oil and gas producing fields.fields, partially offset by the impairment of a downstream asset.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Taxes other than on income$2,962
 $2,883
 $8,799
 $9,174
Taxes other than on income increased in the quarterly period due to higher fuels taxes. The decrease in the nine-month period was primarily due to lower product and crude oil prices, and the divestment of the Pakistan fuels business at the end of June 2015.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2016 2015 2016 2015
 (Millions of dollars)
Income tax expense (benefit)$(192) $727
 $(1,803) $1,787
The decline in income tax expense (benefit) of $919 million in the quarterly period, and $3,590 million for the nine-month period, is in-line with the decline in total income (loss) before income tax expense, which is primarily due to the effects of lower crude oil prices. Refer also to the discussion of the effective income tax rate in Note 10.

32



 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Taxes other than on income$2,883
 $3,236
 $9,174
 $9,422
Taxes other than on income were down in the quarterly and nine-month periods due to lower crude oil and refined product prices.
 Three Months Ended
September 30
 Nine Months Ended
September 30
 2015 2014 2015 2014
 (Millions of dollars)
Income tax expense$727
 $3,236
 $1,787
 $9,980
Effective income tax rates for the 2015 and 2014 quarters were 26 percent and 37 percent, respectively. For the comparative nine-month periods, the effective tax rates were 25 percent and 39 percent, for 2015 and 2014 respectively. The decrease in the effective tax rate between the quarterly periods primarily resulted from the effects of equity earnings, foreign currency remeasurement and one-time tax benefits, partially offset by the effects of valuation allowances recognized on deferred tax assets. The decrease in the effective tax rate for the nine-month comparative period was primarily due to the effects of equity earnings, foreign currency remeasurement, a reduction in statutory tax rates in the United Kingdom and jurisdictional mix, partially offset by the effects of valuation allowances recognized on deferred tax assets.

33



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

Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30

2015 2014 2015 20142016 2015 2016 2015
U.S. Upstream













Net crude oil and natural gas liquids production (MBPD)505
 464
 502
 454
519
 505
 503
 502
Net natural gas production (MMCFPD)(3)
1,351
 1,278
 1,307
 1,245
1,077
 1,351
 1,144
 1,307
Net oil-equivalent production (MBOEPD)730
 677
 720
 661
698
 730
 694
 720
Sales of natural gas (MMCFPD)3,896
 3,697
 3,937
 4,099
3,263
 3,896
 3,408
 3,937
Sales of natural gas liquids (MBPD)26
 23
 25
 19
37
 26
 29
 25
Revenue from net production              
Liquids ($/Bbl)$41.98
 $87.42
 $45.17
 $90.41
$36.88
 $41.98
 $33.16
 $45.17
Natural gas ($/MCF)$1.96
 $3.46
 $2.05
 $4.09
$1.89
 $1.96
 $1.47
 $2.05
International Upstream              
Net crude oil and natural gas liquids production (MBPD)(4)
1,173
 1,235
 1,231
 1,248
1,142
 1,173
 1,207
 1,231
Net natural gas production (MMCFPD)(3)
3,814
 3,935
 3,923
 3,945
4,036
 3,814
 4,009
 3,923
Net oil-equivalent production (MBOEPD)(4)
1,809
 1,891
 1,885
 1,906
1,815
 1,809
 1,875
 1,885
Sales of natural gas (MMCFPD)4,105
 4,290
 4,225
 4,328
4,306
 4,105
 4,455
 4,225
Sales of natural gas liquids (MBPD)22
 28
 24
 29
21
 22
 23
 24
Revenue from liftings              
Liquids ($/Bbl)$44.85
 $93.45
 $49.05
 $97.74
$41.08
 $44.85
 $36.64
 $49.05
Natural gas ($/MCF)$4.68
 $5.73
 $4.73
 $5.91
$4.18
 $4.68
 $4.01
 $4.73
U.S. and International Upstream              
Total net oil-equivalent production (MBOEPD)(4)
2,539
 2,568
 2,605
 2,567
2,513
 2,539
 2,569
 2,605
U.S. Downstream              
Gasoline sales (MBPD)(5)
637
 629
 624
 611
653
 637
 638
 624
Other refined product sales (MBPD)609
 593
 604
 591
591
 609
 601
 604
Total refined product sales (MBPD)1,246
 1,222
 1,228
 1,202
1,244
 1,246
 1,239
 1,228
Sales of natural gas liquids (MBPD)138
 120
 127
 117
127
 138
 116
 127
Refinery input (MBPD)942
 921
 925
 851
970
 942
 960
 925
International Downstream              
Gasoline sales (MBPD)(5)
325
 319
 345
 317
378
 325
 361
 345
Other refined product sales (MBPD)762
 703
 752
 698
700
 762
 716
 752
Share of affiliate sales (MBPD)416
 483
 422
 471
391
 416
 374
 422
Total refined product sales (MBPD)1,503
 1,505
 1,519
 1,486
1,469
 1,503
 1,451
 1,519
Sales of natural gas liquids (MBPD)57
 55
 66
 55
46
 57
 59
 66
Refinery input (MBPD)777
 838
 778
 819
790
 777
 784
 778
_____________________













(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.
(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.
(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):
(3) Includes natural gas consumed in operations (MMCFPD):






(3) Includes natural gas consumed in operations (MMCFPD):






United States64
 74
 66
 72
46
 64
 61
 66
International412
 436
 429
 456
435
 412
 431
 429
(4) Includes: Canada — synthetic oil
56
 48
 45
 43
Venezuela affiliate — synthetic oil29
 32
 29
 32
(4) Includes net production of synthetic oil:
       
Canada58
 56
 50
 45
Venezuela affiliate29
 29
 28
 29
(5) Includes branded and unbranded gasoline.
              
             

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Liquidity and Capital Resources
Cash, cash equivalents time deposits and marketable securities totaled $13.27.7 billion at September 30, 20152016, updown $24 million3.7 billion from year-end 20142015. Cash provided by operating activities in the first nine months of 20152016 was $14.9$9.0 billion,, compared with $25.014.9 billion in the year-ago period.period, reflecting lower crude prices. Cash capital and exploratory expenditures decreased $3.8totaled $14.5 billion between periods,in the first nine months of 2016, down $8.3 billion from the year-ago period, reflecting lower activity.
Dividends The company paid dividends of $6.0$6.0 billion to common shareholders during the first nine months of 20152016. In October 2015,2016, the company declared aincreased its quarterly dividend of $1.07by $0.01 per share to $1.08 per common share, payable in December 2015.2016.
Debt and Capital Lease Obligations Chevron’s total debt and capital lease obligations were $35.945.6 billion at September 30, 20152016, up from $27.838.5 billion at December 31, 20142015.
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 for the company's commercial paper program at September 30, 20152016, was $10.6$9.2 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 $14.6$14.1 billion at September 30, 20152016, and $11.8$12.9 billion at December 31, 20142015. Of these amounts, $8.0 billion was reclassified to long-term at both September 30, 20152016, and December 31, 20142015. At September 30, 20152016, 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 September 30, 20152016, the company had $8.0 billion in committed credit facilities with various major banks expiring in December 2016, whichthat enable the refinancing of short-term obligations on a long-term basis. The credit facilities consist of a 364-day facility which enables borrowing of up to $6.0 billion and can be renewed for an additional 364-day period or the company can convert any amounts outstanding into a term loan for a period of up to one year, and a $2.0 billion five-year facility expiring in December 2020. 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 September 30, 20152016. In addition, the company has an automatic shelf registration statement which was recently renewed andthat expires in August 2018 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 AAAA- by Standard and Poor’s Corporation and Aa1Aa2 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 duringDuring extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, the company can also modify capital spending plans to provide flexibility to continue paying the common stock dividend and maintainalso remain committed to retaining 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. No shares were acquired under the program in 2015 or through the first nine months of 2016, and the company does not plan to acquire any shares under the program for the remainder of the year. 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 $1.0$1.2 billion and $1.2 billionat both September 30, 20152016, and December 31, 20142015, respectively.. Distributions to noncontrolling interests totaled $122$57 million during the first nine months of 20152016 compared to $18$122 million for the same period in 20142015.

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Current Ratio — currentCurrent 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 1.31.2 at September 30, 20152016, and 1.31.4 at December 31, 20142015, respectively. The current ratio is adversely affected by the fact that Chevron’s inventories are valued on a last-in, first-out basis. At September 30, 20152016, the book value of inventory was lower than replacement cost.
Debt Ratio — totalTotal debt as a percentage of total debt plus Chevron Corporation Stockholders’ Equity, which indicates the company’s leverage. This ratio was 18.823.7 percent at September 30, 20152016, and 15.220.2 percent at year-end 20142015.
Pension Obligations Information related to pension plan contributions is included on pages 13 and 14 in Note 109 to the Consolidated Financial Statements.
Capital and Exploratory Expenditures Total expenditures, including the company’s share of spending by affiliates, were $25.317.2 billion in the first nine months of 20152016, compared with $29.025.3 billion in the corresponding 20142015 period. The amounts included the company’s share of affiliates’ expenditures of $2.52.7 billion and $2.4$2.5 billion in the 20152016 and 20142015 periods, respectively, which did not require cash outlays by the company. Expenditures for upstream projects in the first nine months of 20152016 were $23.315.6 billion, representing 9291 percent of the companywide total.
Capital and Exploratory Expenditures by Major Operating Area
Three Months Ended
September 30
 Nine Months Ended
September 30
Three Months Ended
September 30
 Nine Months Ended
September 30
2015 2014 2015 20142016 2015 2016 2015
(Millions of dollars)(Millions of dollars)
United States              
Upstream$1,718
 $2,129
 $5,912
 $6,217
$990
 $1,718
 $3,470
 $5,912
Downstream566
 376
 1,382
 1,144
357
 566
 1,110
 1,382
All Other96
 157
 247
 378
62
 96
 137
 247
Total United States2,380
 2,662
 7,541
 7,739
1,409
 2,380
 4,717
 7,541
International              
Upstream5,475
 6,535
 17,431
 20,644
3,649
 5,475
 12,157
 17,431
Downstream109
 208
 298
 623
115
 109
 290
 298
All Other1
 5
 2
 20
2
 1
 3
 2
Total International5,585
 6,748
 17,731
 21,287
3,766
 5,585
 12,450
 17,731
Worldwide$7,965
 $9,410
 $25,272
 $29,026
$5,175
 $7,965
 $17,167
 $25,272


Contingencies and Significant Litigation
MTBE Information related to methyl tertiary butyl ether (MTBE) matters is included on page 1415 in Note 1112 to the Consolidated Financial Statements under the heading “MTBE.”
Ecuador Information related to Ecuador matters is included beginning on page 1415 in Note 1112 to the Consolidated Financial Statements under the heading “Ecuador.”
Income Taxes Information related to income tax contingencies is included on pages 1214 and 1315 in Note 810 and page 1819 in Note 1213 to the Consolidated Financial Statements under the heading “Income Taxes.”
Guarantees Information related to the company’s guarantees is included on page 1819 in Note 1213 to the Consolidated Financial Statements under the heading “Guarantees.”
Indemnifications Information related to indemnifications is included on pages 1819 and 1920 in Note 1213 to the Consolidated Financial Statements under the heading “Indemnifications.”
Off-Balance-Sheet Obligations Information related to the company’s off-balance-sheet obligations is included on page 1920 in Note 1213 to the Consolidated Financial Statements under the heading “Off-Balance-Sheet Obligations.”

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Environmental Information related to environmental matters is included on page 1920 in Note 1213 to the Consolidated Financial Statements under the heading “Environmental.”
Other Contingencies Information related to the company’s other contingencies is included on page 1920 in Note 1213 to the Consolidated Financial Statements under the heading “Other Contingencies.”

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Table of Contents


Item 3.Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended September 30, 20152016, does not differ materially from that discussed under Item 7A of Chevron’s 20142015 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 September 30, 20152016.
(b) Changes in internal control over financial reporting
During the quarter ended September 30, 20152016, 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.



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Table of Contents


PART II
OTHER INFORMATION
Item 1.Legal Proceedings
Government Proceedings On July 29, 2015, the United States Environmental Protection Agency (EPA) notified Chevron that certain Renewable Identification Number (RIN) credits Chevron had submitted for compliance with the federal Renewable Fuel Standard for 2011 were invalid because they were fraudulently generated by a third-party that sold the credits to Chevron. On September 30, 2015, Chevron received a civil penalty demand of $175,923 from the EPA for the submission of the invalid RINs. Resolution of the alleged violation may result in the payment of a civil penalty of $100,000 or more.
As initially disclosed in the Quarterly Report on Form 10-Q for the period ended March 31, 2015, in March 2015, Chevron’s Richmond Refinery received a proposal from the Bay Area Air Quality Management District (BAAQMD) seeking to collectively resolve certain notices of violation issued to the refinery between October 2012 and April 2014 and relating to applicable emission limits, reporting obligations, monitoring requirements, and prohibitions on flaring. The company reached a settlement agreement with the BAAQMD and paid civil penalties totaling $157,000 to resolve the alleged violations.

As initially disclosed in the Quarterly Report on Form 10-Q for the period ended June 30, 2015, on June 12, 2015, the United States Environmental Protection Agency (EPA) alleged that Chevron is obligated to pay stipulated civil penalties in conjunction with commitments Chevron undertook to operate certain air emission control equipment, meet applicable emission limits, meet fuel gas specifications, and conduct specified environmental sampling at its Salt Lake City, Utah refinery pursuant to a Clean Air Act settlement with the EPA. The company reached a settlement agreement with the EPA and paid a civil penalty of $196,500 to resolve the alleged violations.

Other Proceedings Information related to other legal proceedings, including Ecuador, is included beginning on page 1415 in Note 1112 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 September 30, 20152016, does not differ materially from that set forth under the heading “Risk Factors” on pages 2221 through 2423 of the company’s 20142015 Annual Report on Form 10-K.


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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)
July 1 – July 30, 20151,830
 $96.10
 
  
August 1 – August 31, 2015
 
 
  
September 1 – September 30, 2015
 
 
  
Total1,830
 $96.10
 
  
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)
July 1 – July 31, 20167,698
 $104.14
 
  
August 1 – August 31, 2016
 

 
  
September 1 – September 30, 2016
 

 
  
Total7,698
 $104.14
 
  
_______________________
(1) 
ReflectsIncludes common shares repurchased from company employees and directors 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 and director stock options. The options were issued to and exercised by management under Chevron long-term incentive 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, 180,886,291 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. TheNo shares were acquired under the program in 2015, or through the first nine months of 2016, and the company does not plan to acquire any shares under the program in 2015.for the remainder of the year.


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Table of Contents


Item 4.Mine Safety Disclosures
Information concerning mine safety violationsAs of December 24, 2015, Chevron no longer owns or other regulatory matters required byoperates mines for which reporting requirements apply under 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.Act.
 
Item 5.Other Information
As reportedRule 10b5-1 Plan Elections
John S. Watson, Chairman and Chief Executive Officer, entered into a pre-arranged stock trading plan in August 2016. Mr. Watson’s plan provides for the potential exercise of vested, soon-to-expire stock options and the associated sale of up to 125,000 shares of Chevron common stock in March 2017.
Pierre R. Breber, Executive Vice President, Downstream & Chemicals, also entered into a Current Report on Form 8-K, filed withpre-arranged stock trading plan in August 2016. Mr. Breber’s plan provides for the U.S. Securitiespotential exercise of vested stock options and Exchange Commission on September 30, 2015, the company’s Boardassociated sale of Directors amended the company’s By-Lawsup to add Article IV, Section 6,23,000 shares of Chevron common stock between November 2016 and August 2017.
Both trading plans were entered into during an advance notice provision for nominating persons for electionopen insider trading window and are intended to the Board (outsidesatisfy Rule 10b5-1(c) of the proxy access provisionsSecurities Exchange Act of 1934, as amended, and Chevron’s policies regarding transactions in Article IV, Section 7) and for proposing other business (other than proposals intended for inclusion in the company’s proxy materials pursuant to Rule 14a-8) to be considered by stockholders at an annual meeting of stockholders. For a notice to be timely under this advance notice provision, the notice must be delivered to the Corporate Secretary at the principal executive offices of the company no later than the Close of Business (as defined in Article IV, Section 6(c)(ii) of the By-Laws) on the 90th day and no earlier than the Close of Business on the 120th day prior to the first anniversary of the preceding year’s annual meeting. For the company’s 2016 Annual Meeting of Stockholders, to be timely, such notices must be delivered to the Corporate Secretary no later than the close of business on February 27, 2016 and no earlier than the close of business on January 28, 2016.     

39

Table of ContentsChevron securities.


Item 6.Exhibits
Exhibit
Number
Description
(3)By-Laws of Chevron Corporation, as amended, September 30, 2015, filed as Exhibit 3.2 to Chevron Corporation’s Current Report on Form 8-K, filed September 30, 2015, and incorporated herein by reference.
(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)(12.1)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)XBRL Instance Document
(101.SCH)XBRL Schema Document
(101.CAL)XBRL Calculation Linkbase Document
(101.DEF)XBRL Definition Linkbase Document
(101.LAB)XBRL Label Linkbase Document
(101.PRE)XBRL Presentation Linkbase Document
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
CHEVRON CORPORATION
(REGISTRANT)
  
  
 
/S/    JEANETTE L. OURADA
 
Jeanette L. Ourada, Vice President and Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
Date: November 6, 20153, 2016


4138



EXHIBIT INDEX
Exhibit
Number
Description
(3)By-Laws of Chevron Corporation, as amended, September 30, 2015, filed as Exhibit 3.2 to Chevron Corporation’s Current Report on Form 8-K, filed September 30, 2015, and incorporated herein by reference.
(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)(12.1)*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)*XBRL Instance Document
(101.SCH)*XBRL Schema Document
(101.CAL)*XBRL Calculation Linkbase Document
(101.DEF)*XBRL Definition Linkbase Document
(101.LAB)*XBRL Label Linkbase Document
(101.PRE)*XBRL Presentation Linkbase Document
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”
_________________________
 
* Filed herewith.
Copies of any of the above exhibits not contained herein are available to any security holder upon written request to the Corporate Governance Department, Chevron Corporation, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324.

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