CHEVRON CORP | 2013 | FY | 3


Financial and Derivative Instruments
Derivative Commodity Instruments Chevron is exposed to market risks related to price volatility of crude oil, refined products, natural gas, natural gas liquids, liquefied natural gas and refinery feedstocks.
     The company uses derivative commodity instruments to manage these exposures on a portion of its activity, including firm commitments and anticipated transactions for the purchase, sale and storage of crude oil, refined products, natural gas, natural gas liquids and feedstock for company refineries. From time to time, the company also uses derivative commodity instruments for limited trading purposes.
     The company’s derivative commodity instruments principally include crude oil, natural gas and refined product futures, swaps, options, and forward contracts. None of the company’s derivative instruments is designated as a hedging instrument, although certain of the company’s affiliates make such designation. The company’s derivatives are not material to the company’s 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 commodity derivative 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. Depending on the nature of the derivative transactions, bilateral collateral arrangements may also be required.
     Derivative instruments measured at fair value at December 31, 2013, December 31, 2012, and December 31, 2011, 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
Type of
Balance Sheet
At December 31

 
At December 31

Contract
Classification
2013

 
2012

Commodity
Accounts and notes receivable, net
$
22

 
$
57

Commodity
Long-term receivables, net
6

 
29

Total Assets at Fair Value
$
28

 
$
86

Commodity
Accounts payable
$
65

 
$
112

Commodity
Deferred credits and other noncurrent obligations
24

 
37

Total Liabilities at Fair Value
$
89

 
$
149



Consolidated Statement of Income: The Effect of Derivatives Not Designated as Hedging Instruments
 
 
Gain/(Loss)
 
Type of Derivative
Statement of
Year ended December 31
 
Contract
Income Classification
2013

 
 
2012

 
2011

Commodity
Sales and other
operating revenues
$
(108
)
 
 
$
(49
)
 
$
(255
)
Commodity
Purchased crude oil
and products
(77
)
 
 
(24
)
 
15

Commodity
Other income
(9
)
 
 
6

 
(2
)
 
 
$
(194
)
 
 
$
(67
)
 
$
(242
)


The table below represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at December 31, 2013 and December 31, 2012.
Consolidated Balance Sheet: The Effect of Netting Derivative Assets and Liabilities
 
 
Gross Amount Recognized

 
Gross Amounts Offset

 
Net Amounts Presented

 
 Gross Amounts Not Offset

 
Net Amount

At December 31, 2013
 
 
 
 
 
Derivative Assets
 
$
732

 
$
704

 
$
28

 
$
27

 
$
1

Derivative Liabilities
 
$
793

 
$
704

 
$
89

 
$

 
$
89

At December 31, 2012
 
 
 
 
 
 
 
 
 
 
Derivative Assets
 
$
749

 
$
663

 
$
86

 
$
64

 
$
22

Derivative Liabilities
 
$
812

 
$
663

 
$
149

 
$
5

 
$
144

 
 
 
 
 
 
 
 
 
 
 

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."  

Concentrations of Credit Risk The company’s financial instruments that are exposed to concentrations of credit risk consist primarily of its cash equivalents, time deposits, marketable securities, derivative financial instruments and trade receivables. The company’s short-term investments are placed with a wide array of financial institutions with high credit ratings. Company investment policies limit the company’s exposure both to credit risk and to concentrations of credit risk. Similar policies on diversification and creditworthiness are applied to the company’s counterparties in derivative instruments.
     The trade receivable balances, reflecting the company’s diversified sources of revenue, are dispersed among the company’s broad customer base worldwide. As a result, the company believes concentrations of credit risk are limited. The company routinely assesses the financial strength of its customers. When the financial strength of a customer is not considered sufficient, alternative risk mitigation measures may be deployed including requiring pre-payments, letters of credit or other acceptable collateral instruments to support sales to customers.

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