CHEVRON CORP (CVX) FY 2022 MD&A

Results of Operations

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.” Earnings are also presented for the U.S. and international geographic areas of the Upstream and Downstream business segments. Refer to Note 14 Operating Segments and Geographic Data for a discussion of the company’s “reportable segments.” This section should also be read in conjunction with the discussion in Business Environment and Outlook. Refer to the Selected Operating Data for a three-year comparison of production volumes, refined product sales volumes and refinery inputs. A discussion of variances between 2021 and 2020 can be found in the “Results of Operations” section on pages 39 through 40 of the company’s 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

U.S. Upstream

U.S. upstream reported earnings of $12.6 billion in 2022, compared with $7.3 billion in 2021. The increase was due to higher realizations of $6.6 billion and higher sales volumes of $380 million, partially offset by higher operating expenses of $1.1 billion largely due to an early contract termination at Sabine Pass and lower asset sale gains of $670 million.

The company’s average realization for U.S. crude oil and natural gas liquids in 2022 was $76.71 per barrel compared with $56.06 in 2021. The average natural gas realization was $5.55 per thousand cubic feet in 2022, compared with $3.11 in 2021.

Net oil-equivalent production in 2022 averaged 1.18 million barrels per day, up 4 percent from 2021. The increase was primarily due to net production increases in the Permian Basin.

The net liquids component of oil-equivalent production for 2022 averaged 888,000 barrels per day, up 3 percent from 2021. Net natural gas production averaged 1.76 billion cubic feet per day in 2022, an increase of 4 percent from 2021.

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International Upstream

International upstream reported earnings of $17.7 billion in 2022, compared with $8.5 billion in 2021. The increase was primarily due to higher realizations of $10.0 billion, lower operating expenses, lower depreciation, depletion and amortization related to end of concessions in Indonesia and Thailand of $1.3 billion and asset sale gains of $220 million. This was partially offset by lower sales volumes of $1.3 billion (also largely associated with the end of concessions in Indonesia and Thailand) and write-off and impairment charges of $1.1 billion. Foreign currency effects had a favorable impact on earnings of $514 million between periods.

The company’s average realization for international crude oil and natural gas liquids in 2022 was $90.71 per barrel compared with $64.53 in 2021. The average natural gas realization was $9.75 per thousand cubic feet in 2022 compared with $5.93 in 2021.

International net oil-equivalent production was 1.82 million barrels per day in 2022, down 7 percent from 2021. The decrease was primarily due to lower production following expiration of the Erawan concession in Thailand and Rokan concession in Indonesia.

The net liquids component of international oil-equivalent production was 831,000 barrels per day in 2022, a decrease of 13 percent from 2021. International net natural gas production of 5.92 billion cubic feet per day in 2022, a decrease of 2 percent from 2021.

U.S. Downstream

U.S. downstream reported earnings of $5.4 billion in 2022, compared with $2.4 billion in 2021. The increase was primarily due to higher margins on refined product sales of $4.4 billion, partially offset by lower earnings from the 50 percent-owned CPChem of $790 million and higher operating expenses of $790 million, largely due to planned turnarounds.

Total refined product sales of 1.23 million barrels per day in 2022 increased 8 percent from 2021, mainly due to higher renewable fuel sales following the REG acquisition and higher jet fuel demand.

International Downstream

International downstream earned $2.8 billion in 2022, compared with $525 million in 2021. The increase in earnings was mainly due to higher margins on refined product sales of $2.7 billion and a favorable swing in foreign currency effects of $50 million between periods, partially offset by higher operating expenses of $650 million, largely due to transportation costs.

Total refined product sales of 1.39 million barrels per day in 2022 were up 5 percent from 2021, mainly due to higher jet fuel demand as travel restrictions associated with the COVID-19 pandemic continue to ease.

All Other

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 2022 decreased $133 million from 2021. The change between periods was mainly due to lower pension settlement expense, loss on early debt retirement and lower interest expense, partially offset by the absence of 2021 favorable tax items and higher interest income. Foreign currency effects increased net charges by $201 million between periods.

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Consolidated Statement of Income

Comparative amounts for certain income statement categories are shown below. A discussion of variances between 2021 and 2020 can be found in the “Consolidated Statement of Income” section on pages 39 and 40 of the company’s 2021 Annual Report on Form 10-K.

Sales and other operating revenues increased in 2022 mainly due to higher refined product, crude oil, and natural gas prices and higher refined product sales volumes.

Income from equity affiliates improved in 2022 mainly due to higher upstream-related earnings from Tengizchevroil in Kazakhstan and Angola LNG and higher downstream-related earnings from GS Caltex in Korea, partially offset by lower earnings from CPChem. Refer to Note 15 Investments and Advances for a discussion of Chevron’s investments in affiliated companies.

Other income increased in 2022 mainly due to a favorable swing in foreign currency effects, higher interest income and lower charges associated with the early retirement of debt, partially offset by lower gains on asset sales.

Crude oil and product purchases increased in 2022 primarily due to higher crude oil, natural gas, and refined product prices.

Operating, selling, general and administrative expenses increased in 2022 primarily due to higher transportation expenses, early contract termination charge at Sabine Pass and costs associated with planned refinery turnarounds.

Exploration expenses in 2022 increased primarily due to higher charges for well write-offs.

Depreciation, depletion and amortization expenses decreased in 2022 primarily due to lower rates and lower production, partially offset by higher impairment and write-off charges.

Taxes other than on income increased in 2022 primarily due to higher taxes on production, partially offset by lower excise taxes.

Interest and debt expenses decreased in 2022 mainly due to lower debt balances.

Other components of net periodic benefit costs decreased in 2022 primarily due to lower pension settlement costs, as fewer lump-sum pension distributions were made in the current year.

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The increase in income tax expense in 2022 of $8.1 billion is due to the increase in total income before tax for the company of $28.0 billion. The increase in income before taxes for the company is primarily the result of higher upstream realizations and downstream margins.

U.S. income before tax increased from $9.7 billion in 2021 to $21.0 billion in 2022. This $11.3 billion increase in income was primarily driven by higher upstream realizations and downstream margins, partially offset by higher operating expenses and lower asset sale gains. The increase in income had a direct impact on the company’s U.S. income tax resulting in an increase to tax expense of $2.9 billion between year-over-year periods, from $1.6 billion in 2021 to $4.5 billion in 2022.

International income before tax increased from $12.0 billion in 2021 to $28.7 billion in 2022. This $16.7 billion increase in income was primarily driven by higher upstream realizations and downstream margins. The increased income primarily drove the $5.2 billion increase in international income tax expense between year-over-year periods, from $4.3 billion in 2021 to $9.6 billion in 2022.

Refer also to the discussion of the effective income tax rate in Note 17 Taxes.

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Selected Operating Data1,2

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Liquidity and Capital Resources

Sources and Uses of Cash The strength of the company’s balance sheet enables it to fund any timing differences throughout the year between cash inflows and outflows.

Cash, Cash Equivalents and Marketable Securities Total balances were $17.9 billion and $5.7 billion at December 31, 2022 and 2021, respectively. Cash provided by operating activities in 2022 was $49.6 billion, compared to $29.2 billion in 2021, primarily due to higher upstream realizations and refining margins. Cash provided by operating activities was net of contributions to employee pension plans of approximately $1.3 billion in 2022 and $1.8 billion in 2021. Proceeds and deposits related to asset sales totaled $1.4 billion in each of the last two years. Returns of investment totaled $1.2 billion and $439 million in 2022 and 2021, respectively. The returns of investment in 2022 were primarily from Angola LNG. As of third quarter 2022, Angola LNG distributions were, and are expected to continue to be, largely reflected in cash flow from operations. Cash flow from financing activities includes proceeds from shares issued for stock options of $5.8 billion in 2022, compared with $1.4 billion in 2021. Future cash proceeds from option exercises are expected to be lower than in 2022.

Restricted cash of $1.4 billion and $1.2 billion at December 31, 2022 and 2021, respectively, was held in cash and short-term marketable securities and recorded as “Deferred charges and other assets” and “Prepaid expenses and other current assets” on the Consolidated Balance Sheet. These amounts are generally associated with upstream decommissioning activities, tax payments and funds held in escrow for tax-deferred exchanges.

Dividends Dividends paid to common stockholders were $11.0 billion in 2022 and $10.2 billion in 2021.

Debt and Finance Lease Liabilities Total debt and finance lease liabilities were $23.3 billion at December 31, 2022, down from $31.4 billion at year-end 2021.

The $8.1 billion decrease in total debt and finance lease liabilities during 2022 was primarily due to the repayment of long-term notes that matured during the year and the early retirement of long-term notes. The company’s debt and finance lease liabilities due within one year, consisting primarily of the current portion of long-term debt and redeemable long-term obligations, totaled $6.0 billion at December 31, 2022, compared with $8.0 billion at year-end 2021. Of these amounts, $4.1 billion and $7.8 billion were reclassified to long-term debt at the end of 2022 and 2021, respectively.

At year-end 2022, settlement of these obligations was not expected to require the use of working capital in 2023, as the company had the intent and the ability, as evidenced by committed credit facilities, to refinance them on a long-term basis.

The company has access to a commercial paper program as a financing source for working capital or other short-term needs. The company had no commercial paper outstanding as of December 31, 2022.

The company has an automatic shelf registration statement that expires in August 2023 for an unspecified amount of nonconvertible debt securities issued by Chevron Corporation or Chevron U.S.A. Inc. (CUSA).

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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, CUSA, Noble Energy, Inc. (Noble), and Texaco Capital Inc. Most of these securities are the obligations of, or guaranteed by, Chevron Corporation and are rated AA- by Standard and Poor’s Corporation and Aa2 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, cash that may be generated from asset dispositions, the capital program, lending commitments to affiliates and shareholder distributions. Based on its high-quality debt ratings, the company believes that it has substantial borrowing capacity to meet unanticipated cash requirements. During extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, the company has the ability to modify its capital spending plans and discontinue or curtail the stock repurchase program. This provides the flexibility to continue paying the common stock dividend and remain committed to retaining the company’s high-quality debt ratings.

Committed Credit Facilities Information related to committed credit facilities is included in Note 19 Short-Term Debt.

Summarized Financial Information for Guarantee of Securities of Subsidiaries CUSA issued bonds that are fully and unconditionally guaranteed on an unsecured basis by Chevron Corporation (together, the “Obligor Group”). The tables below contain summary financial information for Chevron Corporation, as Guarantor, excluding its consolidated subsidiaries, and CUSA, as the issuer, excluding its consolidated subsidiaries. The summary financial information of the Obligor Group is presented on a combined basis, and transactions between the combined entities have been eliminated. Financial information for non-guarantor entities has been excluded.

Common Stock Repurchase Program The Board of Directors authorized a stock repurchase program in 2019, with a maximum dollar limit of $25 billion and no set term limits (the “2019 Program”). During 2022, the company purchased 69.9 million shares for $11.25 billion under the 2019 Program. As of December 31, 2022, the company had purchased a total of 131.4 million shares for $18.1 billion, resulting in $6.9 billion remaining under the 2019 Program. The company currently expects to repurchase $3.75 billion of its common stock during the first quarter of 2023 under the 2019 Program and will incur an additional one percent excise tax on such purchases as required by the IRA.

On January 25, 2023, the Board of Directors authorized the repurchase of the company’s shares of common stock in an aggregate amount of $75 billion. The $75 billion authorization takes effect on April 1, 2023 and does not have a fixed expiration date (the “2023 Program”). It replaces the Board’s previous repurchase authorization of $25 billion from January 2019, which will terminate on March 31, 2023, after the completion of the company’s repurchases in the first quarter of 2023.

Repurchases of shares of the company’s common stock may be made from time to time in the open market, by block purchases, in privately negotiated transactions or in such other manner as determined by the company. The timing of the

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repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the company’s shares, general market and economic conditions, and other factors. The stock repurchase program does not obligate the company to acquire any particular amount of common stock and may be suspended or discontinued at any time.

Capital Expenditures Capital expenditures (Capex) primarily includes additions to fixed asset or investment accounts for the company’s consolidated subsidiaries and is disclosed in the Consolidated Statement of Cash Flows. Capex by business segment for 2022, 2021 and 2020 is as follows:

Capex for 2022 was $12.0 billion, 49 percent higher than 2021 due to increased upstream spend in the Permian Basin along with higher spend in downstream, largely related to the formation of the Bunge North America, Inc. (Bunge) joint venture and acquisition of the remaining interest in Beyond6, LLC (Beyond6).

The company estimates that 2023 Capex will be approximately $14 billion. In the upstream business, Capex is estimated to be $11.5 billion and includes more than $4 billion for Permian Basin development and roughly $2 billion for other shale & tight assets. More than 20 percent of upstream Capex is planned for projects in the Gulf of Mexico. Worldwide downstream spending in 2023 is estimated to be $1.9 billion. Investments in technology businesses and other corporate operations in 2023 are budgeted at $0.6 billion. Lower carbon Capex across all segments totals around $2 billion, including approximately $0.5 billion to lower the carbon intensity of Chevron’s traditional operations and about $1 billion to increase renewable fuels production capacity.

Affiliate capital expenditures (Affiliate Capex), which does not require cash outlays by the company, is expected to be $3 billion in 2023. Nearly half of Affiliate Capex is for Tengizchevroil’s FGP / WPMP Project in Kazakhstan and about a third is for CPChem.

Capital and Exploratory Expenditures Capital and exploratory expenditures (C&E) is a key performance indicator and provides the company’s investment level in its consolidated companies. This metric includes additions to fixed asset or investment accounts along with exploration expense for its consolidated companies. Management uses this metric along with Affiliate C&E (as defined below) to manage the allocation of capital across the company’s entire portfolio, funding requirements and ultimately shareholder distributions.

The components of C&E are presented in the following table:

C&E by business segment for 2022, 2021 and 2020 is as follows:

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C&E for 2022 was $12.3 billion, 44 percent higher than 2021 due to increased upstream spend in the Permian Basin along with higher spend in downstream, largely related to the formation of the Bunge joint venture and acquisition of the remaining interest in Beyond6. The acquisitions of Renewable Energy Group Inc. and Noble are not included in the company’s C&E or Capex.

Affiliate Capital and Exploratory Expenditures Equity affiliate capital and exploratory expenditures (Affiliate C&E) is also a key performance indicator that provides the company’s share of investments in its significant equity affiliate companies. This metric includes additions to fixed asset and investment accounts along with exploration expense in the equity affiliate companies’ financial statements. Management uses this metric to assess possible funding needs and/or shareholder distribution capacity of the company’s equity affiliate companies. Together with C&E, management also uses Affiliate C&E to manage allocation of capital across the company’s entire portfolio, funding requirements and ultimately shareholder distributions.

Affiliate C&E, which is the same as Affiliate Capex spend, by business segment for 2022, 2021 and 2020 is as follows:

Affiliate C&E for 2022 was $3.4 billion, 6 percent higher than 2021.

The company monitors market conditions and can adjust future capital outlays should conditions change.

Noncontrolling Interests The company had noncontrolling interests of $960 million at December 31, 2022 and $873 million at December 31, 2021. Distributions to noncontrolling interests net of contributions totaled $114 million and $36 million in 2022 and 2021, respectively. Included within noncontrolling interests at December 31, 2022 is $142 million of redeemable noncontrolling interest.

Pension Obligations Information related to pension plan contributions is included in Note 23 Employee Benefit Plans, under the heading “Cash Contributions and Benefit Payments.”

Contractual Obligations Information related to the company’s significant contractual obligations is included in Note 19 Short-Term Debt, in Note 20 Long-Term Debt and in Note 5 Lease Commitments. The aggregate amount of interest due on these obligations, excluding leases, is: 2023 – $595; 2024 – $536; 2025 – $476; 2026 – $395; 2027 – $340; after 2027 – $3,373.

Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements Information related to these off-balance sheet matters is included in Note 24 Other Contingencies and Commitments, under the heading “Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements.”

Direct Guarantees Information related to guarantees is included in Note 24 Other Contingencies and Commitments under the heading “Guarantees.”

Indemnifications Information related to indemnifications is included in Note 24 Other Contingencies and Commitments under the heading “Indemnifications.”

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Financial Ratios and Metrics

The following represent several metrics the company believes are useful measures to monitor the financial health of the company and its performance over time:

Current Ratio Current assets divided by current liabilities, which indicates the company’s ability to repay its short-term liabilities with short-term assets. The current ratio in all periods was adversely affected by the fact that Chevron’s inventories are valued on a last-in, first-out basis. At year-end 2022, the book value of inventory was lower than replacement costs, based on average acquisition costs during the year, by approximately $9.1 billion.

Interest Coverage Ratio Income before income tax expense, plus interest and debt expense and amortization of capitalized interest, less net income attributable to noncontrolling interests, divided by before-tax interest costs. This ratio indicates the company’s ability to pay interest on outstanding debt. The company’s interest coverage ratio in 2022 was higher than 2021 due to higher income.

Free Cash Flow The cash provided by operating activities less capital expenditures, which represents the cash available to creditors and investors after investing in the business.

Debt Ratio Total debt as a percentage of total debt plus Chevron Corporation Stockholders’ Equity, which indicates the company’s leverage.

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Net Debt Ratio Total debt less cash and cash equivalents and marketable securities as a percentage of total debt less cash and cash equivalents and marketable securities, plus Chevron Corporation Stockholders’ Equity, which indicates the company’s leverage, net of its cash balances.

Capital Employed The sum of Chevron Corporation Stockholders’ Equity, total debt and noncontrolling interests, which represents the net investment in the business.

Return on Average Capital Employed (ROCE) Net income attributable to Chevron (adjusted for after-tax interest expense and noncontrolling interest) divided by average capital employed. Average capital employed is computed by averaging the sum of capital employed at the beginning and end of the year. ROCE is a ratio intended to measure annual earnings as a percentage of historical investments in the business.

Return on Stockholders’ Equity (ROSE) Net income attributable to Chevron divided by average Chevron Corporation Stockholders’ Equity. Average stockholders’ equity is computed by averaging the sum of stockholders’ equity at the beginning and end of the year. ROSE is a ratio intended to measure earnings as a percentage of shareholder investments.

Financial and Derivative Instrument Market Risk

The market risk associated with the company’s portfolio of financial and derivative instruments is discussed below. The estimates of financial exposure to market risk do not represent the company’s projection of future market changes. The actual impact of future market changes could differ materially due to factors discussed elsewhere in this report, including those set forth under the heading “Risk Factors” in Part I, Item 1A.

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Derivative Commodity Instruments Chevron is exposed to market risks related to the price volatility of crude oil, refined products, natural gas liquids, natural gas, 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 liquids, natural gas, liquefied natural gas and feedstock for company refineries. The company also uses derivative commodity instruments for limited trading purposes. The results of these activities were not material to the company’s financial position, results of operations or cash flows in 2022.

The company’s market exposure positions are monitored on a daily basis by an internal Risk Control group in accordance with the company’s risk management policies. The company’s risk management practices and its compliance with policies are reviewed by the Audit Committee of the company’s Board of Directors.

Derivatives beyond those designated as normal purchase and normal sale contracts are recorded at fair value on the Consolidated Balance Sheet with resulting gains and losses reflected in income. Fair values are derived principally from published market quotes and other independent third-party quotes. The change in fair value of Chevron’s derivative commodity instruments in 2022 was not material to the company’s results of operations.

The company uses the Monte Carlo simulation method as its Value-at-Risk (VaR) model to estimate the maximum potential loss in fair value, at the 95 percent confidence level with a one-day holding period, from the effect of adverse changes in market conditions on derivative commodity instruments held or issued. Based on these inputs, the VaR for the company’s primary risk exposures in the area of derivative commodity instruments at December 31, 2022 and 2021 was not material to the company’s cash flows or results of operations.

Foreign Currency The company may enter into foreign currency derivative contracts to manage some of its foreign currency exposures. These exposures include revenue and anticipated purchase transactions, including foreign currency capital expenditures and lease commitments. The foreign currency derivative contracts, if any, are recorded at fair value on the balance sheet with resulting gains and losses reflected in income. There were no material open foreign currency derivative contracts at December 31, 2022.

Interest Rates The company may enter into interest rate swaps from time to time as part of its overall strategy to manage the interest rate risk on its debt. Interest rate swaps, if any, are recorded at fair value on the balance sheet with resulting gains and losses reflected in income. At year-end 2022, the company had no interest rate swaps.

Transactions With Related Parties

Chevron enters into a number of business arrangements with related parties, principally its equity affiliates. These arrangements include long-term supply or offtake agreements and long-term purchase agreements. Refer to “Other Information” in Note 15 Investments and Advances for further discussion. Management believes these agreements have been negotiated on terms consistent with those that would have been negotiated with an unrelated party.

Litigation and Other Contingencies

Ecuador Information related to Ecuador matters is included in Note 16 Litigation under the heading “Ecuador.”

Climate Change Information related to climate change-related matters is included in Note 16 Litigation under the heading “Climate Change.”

Louisiana Information related to Louisiana coastal matters is included in Note 16 Litigation under the heading “Louisiana.”

Environmental The following table displays the annual changes to the company’s before-tax environmental remediation reserves, including those for U.S. federal Superfund sites and analogous sites under state laws.

The company records asset retirement obligations when there is a legal obligation associated with the retirement of long-lived assets and the liability can be reasonably estimated. These asset retirement obligations include costs related to

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environmental issues. The liability balance of approximately $12.7 billion for asset retirement obligations at year-end 2022 is related primarily to upstream properties.

For the company’s other ongoing operating assets, such as refineries and chemicals facilities, no provisions are made for exit or cleanup costs that may be required when such assets reach the end of their useful lives unless a decision to sell or otherwise decommission the facility has been made, as the indeterminate settlement dates for the asset retirements prevent estimation of the fair value of the asset retirement obligation.

Refer to the discussion below for additional information on environmental matters and their impact on Chevron, and on the company’s 2022 environmental expenditures. Refer to Note 24 Other Contingencies and Commitments under the heading “Environmental” for additional discussion of environmental remediation provisions and year-end reserves. Refer also to Note 25 Asset Retirement Obligations for additional discussion of the company’s asset retirement obligations.

Suspended Wells Information related to suspended wells is included in Note 21 Accounting for Suspended Exploratory Wells.

Income Taxes Information related to income tax contingencies is included in Note 17 Taxes and in Note 24 Other Contingencies and Commitments under the heading “Income Taxes.”

Other Contingencies Information related to other contingencies is included in Note 24 Other Contingencies and Commitments under the heading “Other Contingencies.”

Environmental Matters

The company is subject to various international and U.S. federal, state and local environmental, health and safety laws, regulations and market-based programs. These laws, regulations and programs continue to evolve and are expected to increase in both number and complexity over time and govern not only the manner in which the company conducts its operations, but also the products it sells. Consideration of environmental issues and the responses to those issues through international agreements and national, regional or state legislation or regulations are integrated into the company’s strategy and planning, capital investment reviews and risk management tools and processes, where applicable. They are also factored into the company’s long-range supply, demand and energy price forecasts. These forecasts reflect long-range effects from renewable fuel penetration, energy efficiency standards, climate-related policy actions, and demand response to oil and natural gas prices. In addition, legislation and regulations intended to address hydraulic fracturing also continue to evolve in many jurisdictions where we operate. Refer to “Risk Factors” in Part I, Item 1A, on pages 20 through 26 for a discussion of some of the inherent risks of increasingly restrictive environmental and other regulation that could materially impact the company’s results of operations or financial condition. Refer to Business Environment and Outlook on pages 32 and 33 for a discussion of legislative and regulatory efforts to address climate change.

Most of the costs of complying with existing laws and regulations pertaining to company operations and products are embedded in the normal costs of doing business. However, it is not possible to predict with certainty the amount of additional investments in new or existing technology or facilities or the amounts of increased operating costs to be incurred in the future to prevent, control, reduce or eliminate releases of hazardous materials or other pollutants into the environment; remediate and restore areas damaged by prior releases of hazardous materials; or comply with new environmental laws or regulations. Although these costs may be significant to the results of operations in any single period, the company does not presently expect them to have a material adverse effect on the company’s liquidity or financial position.

Accidental leaks and spills requiring cleanup may occur in the ordinary course of business. The company may incur expenses for corrective actions at various owned and previously owned facilities and at third-party-owned waste disposal sites used by the company. An obligation may arise when operations are closed or sold or at non-Chevron sites where company products have been handled or disposed of. Most of the expenditures to fulfill these obligations relate to facilities and sites where past operations followed practices and procedures that were considered acceptable at the time but now require investigative or remedial work or both to meet current standards.

Using definitions and guidelines established by the American Petroleum Institute, Chevron estimated its worldwide environmental spending in 2022 at approximately $2.0 billion for its consolidated companies. Included in these expenditures were approximately $0.2 billion of environmental capital expenditures and $1.8 billion of costs associated with the prevention, control, abatement or elimination of hazardous substances and pollutants from operating, closed or divested sites, and the decommissioning and restoration of sites.

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For 2023, total worldwide environmental capital expenditures are estimated at $0.2 billion. These capital costs are in addition to the ongoing costs of complying with environmental regulations and the costs to remediate previously contaminated sites.

Critical Accounting Estimates and Assumptions

Management makes many estimates and assumptions in the application of accounting principles generally accepted in the United States of America (GAAP) that may have a material impact on the company’s consolidated financial statements and related disclosures and on the comparability of such information over different reporting periods. Such estimates and assumptions affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. Estimates and assumptions are based on management’s experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known.

The discussion in this section of “critical” accounting estimates and assumptions is according to the disclosure guidelines of the SEC, wherein:

1.the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters, or the susceptibility of such matters to change; and

2.the impact of the estimates and assumptions on the company’s financial condition or operating performance is material.

The development and selection of accounting estimates and assumptions, including those deemed “critical,” and the associated disclosures in this discussion have been discussed with the Audit Committee of the Board of Directors. The areas of accounting and the associated “critical” estimates and assumptions made by the company are as follows:

Oil and Gas Reserves Crude oil, natural gas liquids and natural gas reserves are estimates of future production that impact certain asset and expense accounts included in the Consolidated Financial Statements. Proved reserves are the estimated quantities of oil and gas that geoscience and engineering data demonstrate with reasonable certainty to be economically producible in the future under existing economic conditions, operating methods and government regulations. Proved reserves include both developed and undeveloped volumes. Proved developed reserves represent volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are volumes expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for recompletion. Variables impacting Chevron’s estimated volumes of crude oil and natural gas reserves include field performance, available technology, commodity prices, and development, production and carbon costs.

The estimates of crude oil, natural gas liquids and natural gas reserves are important to the timing of expense recognition for costs incurred and to the valuation of certain oil and gas producing assets. Impacts of oil and gas reserves on Chevron’s Consolidated Financial Statements, using the successful efforts method of accounting, include the following:

1.Amortization - Capitalized exploratory drilling and development costs are depreciated on a unit-of-production (UOP) basis using proved developed reserves. Acquisition costs of proved properties are amortized on a UOP basis using total proved reserves. During 2022, Chevron’s UOP Depreciation, Depletion and Amortization (DD&A) for oil and gas properties was $10.8 billion, and proved developed reserves at the beginning of 2022 were 6.6 billion barrels for consolidated companies. If the estimates of proved reserves used in the UOP calculations for consolidated operations had been lower by five percent across all oil and gas properties, UOP DD&A in 2022 would have increased by approximately $600 million.

2.Impairment - Oil and gas reserves are used in assessing oil and gas producing properties for impairment. A significant reduction in the estimated reserves of a property would trigger an impairment review. Proved reserves (and, in some cases, a portion of unproved resources) are used to estimate future production volumes in the cash flow model. For a further discussion of estimates and assumptions used in impairment assessments, see Impairment of Properties, Plant and Equipment and Investments in Affiliates below.

Refer to Table V, “Reserve Quantity Information,” for the changes in proved reserve estimates for each of the three years ended December 31, 2020, 2021 and 2022, and to Table VII, “Changes in the Standardized Measure of Discounted Future Net Cash Flows From Proved Reserves” for estimates of proved reserve values for each of the three years ended December 31, 2020, 2021 and 2022.

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This Oil and Gas Reserves commentary should be read in conjunction with the Properties, Plant and Equipment section of Note 1 Summary of Significant Accounting Policies, which includes a description of the “successful efforts” method of accounting for oil and gas exploration and production activities.

Impairment of Properties, Plant and Equipment and Investments in Affiliates The company assesses its properties, plant and equipment (PP&E) for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge is recorded for the excess of the carrying value of the asset over its estimated fair value.

Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters, such as future commodity prices, operating expenses, carbon costs, production profiles, the pace of the energy transition, and the outlook for global or regional market supply-and-demand conditions for crude oil, natural gas liquids, natural gas, commodity chemicals and refined products. However, the impairment reviews and calculations are based on assumptions that are generally consistent with the company’s business plans and long-term investment decisions. Refer also to the discussion of impairments of properties, plant and equipment in Note 18 Properties, Plant and Equipment and to the section on Properties, Plant and Equipment in Note 1 Summary of Significant Accounting Policies.

The company performs impairment assessments when triggering events arise to determine whether any write-down in the carrying value of an asset or asset group is required. For example, when significant downward revisions to crude oil, natural gas liquids and natural gas reserves are made for any single field or concession, an impairment review is performed to determine if the carrying value of the asset remains recoverable. Similarly, a significant downward revision in the company’s crude oil, natural gas liquids or natural gas price outlook would trigger impairment reviews for impacted upstream assets. In addition, impairments could occur due to changes in national, state or local environmental regulations or laws, including those designed to stop or impede the development or production of oil and gas. Also, if the expectation of sale of a particular asset or asset group in any period has been deemed more likely than not, an impairment review is performed, and if the estimated net proceeds exceed the carrying value of the asset or asset group, no impairment charge is required. Such calculations are reviewed each period until the asset or asset group is disposed. Assets that are not impaired on a held-and-used basis could possibly become impaired if a decision is made to sell such assets. That is, the assets would be impaired if they are classified as held-for-sale and the estimated proceeds from the sale, less costs to sell, are less than the assets’ associated carrying values.

Investments in common stock of affiliates that are accounted for under the equity method, as well as investments in other securities of these equity investees, are reviewed for impairment when the fair value of the investment falls below the company’s carrying value. When this occurs, a determination must be made as to whether this loss is other-than-temporary, in which case the investment is impaired. Because of the number of differing assumptions potentially affecting whether an investment is impaired in any period or the amount of the impairment, a sensitivity analysis is not practicable.

A sensitivity analysis of the impact on earnings for these periods if other assumptions had been used in impairment reviews and impairment calculations is not practicable, given the broad range of the company’s PP&E and the number of assumptions involved in the estimates. That is, favorable changes to some assumptions might have avoided the need to impair any assets in these periods, whereas unfavorable changes might have caused an additional unknown number of other assets to become impaired, or resulted in larger impacts on impaired assets.

Asset Retirement Obligations In the determination of fair value for an asset retirement obligation (ARO), the company uses various assumptions and judgments, including such factors as the existence of a legal obligation, estimated amounts and timing of settlements, discount and inflation rates, and the expected impact of advances in technology and process improvements. A sensitivity analysis of the ARO impact on earnings for 2022 is not practicable, given the broad range of the company’s long-lived assets and the number of assumptions involved in the estimates. That is, favorable changes to some assumptions would have reduced estimated future obligations, thereby lowering accretion expense and amortization costs, whereas unfavorable changes would have the opposite effect. Refer to Note 25 Asset Retirement Obligations for additional discussions on asset retirement obligations.

Pension and Other Postretirement Benefit Plans Note 23 Employee Benefit Plans includes information on the funded status of the company’s pension and other postretirement benefit (OPEB) plans reflected on the Consolidated Balance Sheet; the components of pension and OPEB expense reflected on the Consolidated Statement of Income; and the related underlying assumptions.

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The determination of pension plan expense and obligations is based on a number of actuarial assumptions. Two critical assumptions are the expected long-term rate of return on plan assets and the discount rate applied to pension plan obligations. Critical assumptions in determining expense and obligations for OPEB plans, which provide for certain health care and life insurance benefits for qualifying retired employees and which are not funded, are the discount rate and the assumed health care cost-trend rates. Information related to the company’s processes to develop these assumptions is included in Note 23 Employee Benefit Plans under the relevant headings. Actual rates may vary significantly from estimates because of unanticipated changes beyond the company’s control.

For 2022, the company used an expected long-term rate of return of 6.6 percent and a discount rate for service costs of 3.5 percent and a discount rate for interest cost of 2.7 percent for the primary U.S. pension plan. The actual return for 2022 was (17.8) percent. For the 10 years ended December 31, 2022, actual asset returns averaged 5.7 percent for this plan. Additionally, with the exception of three years within this 10-year period, actual asset returns for this plan equaled or exceeded 6.6 percent during each year.

Total pension expense for 2022 was $763 million. An increase in the expected long-term return on plan assets or the discount rate would reduce pension plan expense, and vice versa. As an indication of the sensitivity of pension expense to the long-term rate of return assumption, a 1 percent increase in this assumption for the company’s primary U.S. pension plan, which accounted for about 55 percent of companywide pension expense, would have reduced total pension plan expense for 2022 by approximately $75 million. A 1 percent increase in the discount rates for this same plan would have reduced pension expense for 2022 by approximately $177 million.

The aggregate funded status recognized at December 31, 2022, was a net liability of approximately $1.8 billion. An increase in the discount rate would decrease the pension obligation, thus changing the funded status of a plan. At December 31, 2022, the company used a discount rate of 5.2 percent to measure the obligations for the primary U.S. pension plan. As an indication of the sensitivity of pension liabilities to the discount rate assumption, a 0.25 percent increase in the discount rate applied to the company’s primary U.S. pension plan, which accounted for about 63 percent of the companywide pension obligation, would have reduced the plan obligation by approximately $239 million, and would have decreased the plan’s underfunded status from approximately $475 million to $236 million.

For the company’s OPEB plans, expense for 2022 was $89 million, and the total liability, all unfunded at the end of 2022, was $1.9 billion. For the primary U.S. OPEB plan, the company used a discount rate for service cost of 3.1 percent and a discount rate for interest cost of 2.1 percent to measure expense in 2022, and a 5.2 percent discount rate to measure the benefit obligations at December 31, 2022. Discount rate changes, similar to those used in the pension sensitivity analysis, resulted in an immaterial impact on 2022 OPEB expense and OPEB liabilities at the end of 2022.

Differences between the various assumptions used to determine expense and the funded status of each plan and actual experience are included in actuarial gain/loss. Refer to page 90 in Note 23 Employee Benefit Plans for more information on the $3.4 billion of before-tax actuarial losses recorded by the company as of December 31, 2022. In addition, information related to company contributions is included on page 93 in Note 23 Employee Benefit Plans under the heading “Cash Contributions and Benefit Payments.”

Contingent Losses Management also makes judgments and estimates in recording liabilities for claims, litigation, tax matters and environmental remediation. Actual costs can frequently vary from estimates for a variety of reasons. For example, the costs for settlement of claims and litigation can vary from estimates based on differing interpretations of laws, opinions on culpability and assessments on the amount of damages. Similarly, liabilities for environmental remediation are subject to change because of changes in laws, regulations and their interpretation, the determination of additional information on the extent and nature of site contamination, and improvements in technology.

Under the accounting rules, a liability is generally recorded for these types of contingencies if management determines the loss to be both probable and estimable. The company generally reports these losses as “Operating expenses” or “Selling, general and administrative expenses” on the Consolidated Statement of Income. An exception to this handling is for income tax matters, for which benefits are recognized only if management determines the tax position is more likely than not (i.e., likelihood greater than 50 percent) to be allowed by the tax jurisdiction. For additional discussion of income tax uncertainties, refer to Note 24 Other Contingencies and Commitments under the heading “Income Taxes.” Refer also to the business segment discussions elsewhere in this section for the effect on earnings from losses associated with certain litigation, environmental remediation and tax matters for the three years ended December 31, 2022.

An estimate as to the sensitivity to earnings for these periods if other assumptions had been used in recording these liabilities is not practicable because of the number of contingencies that must be assessed, the number of underlying

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assumptions and the wide range of reasonably possible outcomes, both in terms of the probability of loss and the estimates of such loss. For further information, refer to “Changes in management’s estimates and assumptions may have a material impact on the company’s consolidated financial statements and financial or operational performance in any given period” in “Risk Factors” in Part I, Item 1A, on pages 25 and 26.

New Accounting Standards

Refer to Note 4 New Accounting Standards for information regarding new accounting standards.

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Quarterly Results

Unaudited

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[table omitted - see filing]