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Lease Commitments

3 Months Ended

Mar. 31, 2019

Chevron implemented the new lease standard at the effective date of January 1, 2019. The cumulative-effect adjustment to the opening balance of 2019 retained earnings is de minimis. The company elected the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. By making this election, the company has not applied retrospective reporting for the years 2017 and 2018. The company elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The company elected the package of practical expedients to not re-evaluate existing contracts as containing a lease or the lease classification unless it was not previously assessed against the lease criteria. In addition, the company did not reassess initial direct costs for any existing leases. The company applied the land easement practical expedient.

The company has elected the practical expedient to not separate non-lease components from lease components for most asset classes except for certain asset classes that have significant non-lease (i.e., service) components. The company assessed some contracts, including those for drill ships, drilling rigs, and storage tanks, not previously assessed against the lease criteria, as operating leases under the new standard, increasing the lease commitments by approximately $2 billion.

The company enters into leasing arrangements as a lessee; any lessor arrangements are not significant. Leases are classified as operating or finance leases. Both operating and finance leases recognize lease liabilities and associated right-of-use assets. Operating lease arrangements mainly involve drill ships, drilling rigs, time chartered vessels, bareboat charters, terminals, exploration and production equipment, office buildings and warehouses, and land. Finance leases primarily include facilities and vessels.

Chevron uses various assumptions and judgments in preparing the quantitative data and qualitative information that is material to the company’s overall lease population. Where leases are used in joint ventures, the company recognizes 100% of the right-of-use assets and lease liabilities when the company is the sole signatory for the lease (in most cases, where the company is the operator of a joint venture). Lease costs reflect only the costs associated with the operator's working interest share. The lease term includes the committed lease term identified in the contract, taking into account renewal and termination options that management is reasonably certain to exercise. The company uses its incremental borrowing rate as a proxy for the discount rate based on the term of the lease unless the implicit rate is available.

Details of the right-of-use assets and lease liabilities for operating and finance leases, including the balance sheet presentation, are as follows:



	At March 31, 2019
	Operating Leases			Finance Leases
	(Millions of dollars)
Deferred charges and other assets	$	4,318		$	—
Properties, plant and equipment, net	—			331
Right-of-use assets ⁽¹⁾⁽²⁾	$	4,318		$	331
Accrued Liabilities	1,387			—
Short Term Debt	—			27
Current lease liabilities	1,387			27
Deferred credits and other noncurrent obligations	2,742			—
Long-term Debt	—			259
Noncurrent lease liabilities	2,742			259
Total lease liabilities	$	4,129		$	286

Weighted-average remaining lease term (in years)	5.2			15.8
Weighted-average discount rate	3.1		%	5.0		%

_______________________________________________

⁽¹⁾ Capitalized leased assets of $818 million are primarily from the Upstream segment, with accumulated amortization of $617 million at December 31, 2018.

⁽²⁾ Includes non-cash additions of $455 million and $146 million right-of-use assets obtained in exchange for new and modified lease liabilities in 2019 for operating and finance leases, respectively.

Total lease costs consist of both amounts recognized in the Consolidated Statement of Income during the period and amounts capitalized as part of the cost of another asset. Total lease costs incurred for operating and finance leases during first quarter 2019 were as follows:



	Three Months Ended March 31, 2019
	(Millions of dollars)
Operating lease costs^*	$	587
Finance lease costs	9
Total lease costs	$	596

_______________________________________________

* Includes variable and short-term lease costs.

Cash paid for amounts included in the measurement of lease liabilities was as follows:



	Three Months Ended March 31, 2019
	(Millions of dollars)
Operating cash flows from operating leases	$	351
Investing cash flows from operating leases	236
Operating cash flows from finance leases	3
Financing cash flows from finance leases	6

At March 31, 2019, the estimated future undiscounted cash flows for operating and finance leases were as follows:



		At March 31, 2019
		Operating Leases		Finance Leases
		(Millions of dollars)
Year	2019 (remaining months)	$	1,170	$	33
	2020	1,076		31
	2021	859		30
	2022	411		28
	2023	257		27
	2024	153		27
	Thereafter	585		227
	Total	$	4,511	$	403
Less: Amounts representing interest		382		117
Total lease liabilities		$	4,129	$	286

Additionally, the company has $1.0 billion in future undiscounted cash flows for operating leases not yet commenced. These leases are primarily for a drill ship, bareboat charters, and a drilling rig. For those leasing arrangements where the underlying asset is not yet constructed, the lessor is primarily involved in the design and construction of the asset.

At December 31, 2018, the estimated future minimum lease payments (net of noncancelable sublease rentals) under operating and capital leases, which at inception had a noncancelable term of more than one year, were as follows:



		At December 31, 2018
		Operating Leases		Capital Leases ^*
		(Millions of dollars)
Year	2019	$	540	$	30
	2020	492		22
	2021	378		17
	2022	242		16
	2023	166		16
	Thereafter	341		132
	Total	$	2,159	$	233
Less: Amounts representing interest and executory costs				(88		)
Net present values				145
Less: Capital lease obligations included in short-term debt				(18		)
Long-term capital lease obligations				$	127

_______________________________________________

* Excluded from the table is an executed but not-yet-commenced capital lease with payments of $14, $15, $22, $21, $21 and $219 for 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.

Lease Commitments

Details of the right-of-use assets and lease liabilities for operating and finance leases, including the balance sheet presentation, are as follows:



	At March 31, 2019
	Operating Leases			Finance Leases
	(Millions of dollars)
Deferred charges and other assets	$	4,318		$	—
Properties, plant and equipment, net	—			331
Right-of-use assets ⁽¹⁾⁽²⁾	$	4,318		$	331
Accrued Liabilities	1,387			—
Short Term Debt	—			27
Current lease liabilities	1,387			27
Deferred credits and other noncurrent obligations	2,742			—
Long-term Debt	—			259
Noncurrent lease liabilities	2,742			259
Total lease liabilities	$	4,129		$	286

Weighted-average remaining lease term (in years)	5.2			15.8
Weighted-average discount rate	3.1		%	5.0		%

_______________________________________________

⁽¹⁾ Capitalized leased assets of $818 million are primarily from the Upstream segment, with accumulated amortization of $617 million at December 31, 2018.



	Three Months Ended March 31, 2019
	(Millions of dollars)
Operating lease costs^*	$	587
Finance lease costs	9
Total lease costs	$	596

_______________________________________________

* Includes variable and short-term lease costs.

Cash paid for amounts included in the measurement of lease liabilities was as follows:



	Three Months Ended March 31, 2019
	(Millions of dollars)
Operating cash flows from operating leases	$	351
Investing cash flows from operating leases	236
Operating cash flows from finance leases	3
Financing cash flows from finance leases	6

At March 31, 2019, the estimated future undiscounted cash flows for operating and finance leases were as follows:



		At March 31, 2019
		Operating Leases		Finance Leases
		(Millions of dollars)
Year	2019 (remaining months)	$	1,170	$	33
	2020	1,076		31
	2021	859		30
	2022	411		28
	2023	257		27
	2024	153		27
	Thereafter	585		227
	Total	$	4,511	$	403
Less: Amounts representing interest		382		117
Total lease liabilities		$	4,129	$	286



		At December 31, 2018
		Operating Leases		Capital Leases ^*
		(Millions of dollars)
Year	2019	$	540	$	30
	2020	492		22
	2021	378		17
	2022	242		16
	2023	166		16
	Thereafter	341		132
	Total	$	2,159	$	233
Less: Amounts representing interest and executory costs				(88		)
Net present values				145
Less: Capital lease obligations included in short-term debt				(18		)
Long-term capital lease obligations				$	127

_______________________________________________

* Excluded from the table is an executed but not-yet-commenced capital lease with payments of $14, $15, $22, $21, $21 and $219 for 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.