To Our Stockholders
2010 was an outstanding year for Chevron. Once again our people delivered strong results in a challenging environment. We made significant advances in our queue of major capital projects, exceeded our goals for production growth, restructured our downstream business to enhance competitive performance and maintained our long-term leadership in total stockholder return.
The company's performance was grounded in a strong safety culture, which resulted in our safest year ever. The Macondo incident in the U.S. Gulf of Mexico underscored that safe operations are fundamental to our ability to operate. Following Macondo, we led the industry in working with regulators to enhance operating standards in the Gulf. We remain vigilant about safety, reliability and environmental stewardship wherever we operate.
Our financial performance in 2010 contributed to a very strong balance sheet and competitive returns for investors. Net income in 2010 was $19 billion on sales and other operating revenues of $198 billion. We increased our annual dividend in 2010 for the 23rd consecutive year, initiated a stock repurchase program and maintained leadership in two key measures of financial performance. Return on capital employed was 17.4 percent—a direct outcome of disciplined capital investment—and the company led our major competitors in total stockholder return over the past five years.
Our upstream business continues to deliver major capital projects from our industry-leading queue. Tahiti, our world-class deepwater project in the Gulf of Mexico, marked the first full year of production, and we continued ramp-ups of several new projects, including Frade in Brazil, Tombua-Landana in Angola and our Tengizchevroil joint venture in Kazakhstan. In 2010, total net oil-equivalent production in our upstream business increased 2 percent over 2009, after increasing 7 percent the previous year. We continued to build for future growth by sanctioning development of four large deepwater projects—Jack/St. Malo, Big Foot and Tahiti 2 in the Gulf of Mexico, and Papa-Terra in Brazil.
We also continued building a high-impact natural gas business, most notably in Australia with two world-class liquefied natural gas (LNG) projects, Gorgon and Wheatstone. Construction of the Gorgon facility on Barrow Island progressed toward 2014 startup while Wheatstone engineering work continued. A majority of our equity natural gas resources in both Gorgon and Wheatstone has been committed under long-term LNG sales contracts. Almost half of our natural gas portfolio is located in the Asia-Pacific region, positioning us as a long-term supplier to growing Asian markets.
Our exploration and business development programs created significant growth opportunities in 2010. We added new resource opportunities in China, Liberia, the Black Sea, eastern Europe and Canada. In addition, we acquired Atlas Energy in February 2011 to develop shale gas reserves in the prolific U.S. Marcellus Shale in Pennsylvania, bringing our total acreage additions since late 2009 to 14 million acres.
In our downstream business, we responded to challenging market conditions by restructuring to achieve sustained improvement in competitive performance. We concluded sales of nonstrategic assets and implemented a leaner, more focused and lower-cost downstream organization. We started up projects at our refinery in Pascagoula, Mississippi, our affiliate refinery in South Korea, and at a chemicals facility in Qatar.
Chevron enters 2011 with a $26 billion capital and exploratory budget—a 19 percent increase over 2010 levels and a reflection of our financial strength and unparalleled growth opportunities. Our spending will focus largely on executing upstream crude oil and natural gas exploration and production projects worldwide. Downstream spending will focus on increasing refinery flexibility, product yields and energy efficiency.
At Chevron, technology is directly linked to creating value for our stockholders. Some key focus areas include our i-field™ program, which applies information technology to improve production from mature fields; enhanced heavy oil recovery through advanced steamflood and thermal management; and implementation of our next-generation reservoir simulation technology.
Technological innovation underpins our renewable energy strategy. We are investing in research projects with industry and university partners to explore promising pathways for renewables that may have the potential to be developed profitably at commercial scale. Our energy efficiency business, Chevron Energy Solutions, continues to apply advanced solar and other energy-saving technologies to lower costs for institutional customers. We also are exploring growth opportunities to develop new geothermal prospects in Indonesia and the Philippines.
In addition to operating capabilities, our success going forward is tied to the partnerships we build with our host communities. We focus our community partnerships and investments in three areas—health, education and economic development. We believe these areas are among the most promising avenues for creating mutual benefits for communities and our company. In 2010, we deployed approximately $180 million in community investments worldwide. Notable among our partnerships in 2010 was the launch of the Niger Delta Partnership Initiative, an innovative and multipartner approach to support sustained economic development and conflict resolution in the Niger Delta region. These types of social investments reflect our belief that our success as a business is tied directly to the economic vitality and health of the communities where we operate.
In 2010, we enhanced our core business strategies with three enterprise strategies: People, Execution and Growth. We are focused on recruiting and developing the best people in the business, flawlessly executing our projects and developing opportunities that will create long-term growth for the company. Above all else, the men and women of Chevron will continue to be guided by our company's values—getting results the right way—and our vision to be the company most admired for its people, partnership and performance.
I am confident that as we continue to produce the energy required for economic growth and human progress, our enduring values and proven strategies will continue to benefit our stockholders, our employees, our business partners and our communities.
Thank you for investing in Chevron.
John S. Watson
Chairman of the Board and Chief Executive Officer
February 24, 2011
Posted: April 2011