John S. Watson
By John S. Watson, Chairman and CEO
2013 Annual Stockholders Meeting
San Ramon, California, May 29, 2013
Good morning and welcome to Chevron's 2013 Annual Stockholders Meeting. We look forward to sharing information about our business with you and to a constructive dialog.
I'll begin with a corporate overview and performance highlights. George Kirkland, Chevron's vice chairman and executive vice president of Upstream and Gas, will discuss our major business segments and their future plans. Then I will provide a brief summary before moving onto Matters to Be Voted On, and Q&A.
But first, I'd like to acknowledge the nominees for our Board of Directors. They've achieved excellence in their fields, and they expect excellence from us. It is my pleasure to introduce them.
Please stand as I call your name and remain standing until you've all been introduced.
- Linnet Deily, former Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization
- Bob Denham, partner in the law firm of Munger, Tolles & Olson
- Alice Gast, president of Lehigh University
- Rick Hernandez, president and CEO of Inter-Con Security Systems
- Wick Moorman, chairman, CEO and president of Norfolk Southern Corporation
- Kevin Sharer, former chairman, CEO and president of Amgen
- John Stumpf, chairman, CEO and president of Wells Fargo & Company
- Ron Sugar, retired chairman and CEO of Northrop Grumman Corporation
- Carl Ware, retired executive vice president of The Coca-Cola Company
- George Kirkland of Chevron Corporation
Thank you all for your service. We also have several corporate officers here today. Would you please stand and be recognized. Thank you. Now I'd like to introduce John Gross and Jim Henry, partners from PricewaterhouseCoopers, and Douglas Czarnecki, the Inspector of Election.
Thanks to all of you.
And now let's turn to our business.
In spite of lingering uncertainties, the world economy will continue to grow, and living standards will continue to improve. To fuel these improvements, we'll need affordable energy in all its forms. Over the coming decades, energy demand will grow about 1.5 percent per year, and in all major fuel categories. Oil and gas will continue to represent more than 50 percent of energy supply.
How will Chevron help deliver that energy? Let's start with the basics—how we ensure that we are getting results the right way.
The foundation of our company is The Chevron Way, a document that explains who we are, what we do, what we believe and what we plan to accomplish. It guides everything we do and establishes a common understanding not only for those of us who work here, but for all who interact with us.
We conduct our business in a socially responsible and ethical manner. We respect the law, support universal human rights and help communities where we work. We place the highest priority on the health and safety of our workforce and protection of the environment.
Our systematic approach to protecting people and the environment starts with personal safety.
The chart on the left shows our Days Away From Work due to injury. The orange line shows Chevron's injury rate. The grey band shows our competitors'. Last year, we had 0.03 injuries per 200,000 hours worked. That was world class and the best in our industry.
We also focus on process safety—keeping oil and gas in pipes, tanks and vessels. A key measure is spill volume. In this category, we led the industry. We're proud of our progress, and we are striving to do even better. The stakes are high and tolerance for incidents is low. Our goal is zero, and many business units achieve zero for extended periods of time—even years.
When we do have an incident, as we did last year at our Richmond Refinery, we do a root cause analysis. We learn from it, and we make changes to prevent a recurrence. This culture of learning, adapting and continuously improving is a benchmark of world class Operational Excellence. And, it's part of our culture.
To address the Richmond incident, we implemented a comprehensive set of actions—from changes in training to new inspection protocols to leak response. We've inspected every piping component in the unit where the fire occurred, and every component in the same type of service in the refinery. Where indicated, we replaced pipes. These actions, and others that we've taken, will help build a stronger, more transparent safety culture.
Please read more about our safety and other efforts in our Corporate Responsibility Report. Copies are available outside this room.
Now let's turn to our financial performance.
Here's a snapshot of our 2012 financial results. We had another strong year.
Earnings exceeded $26 billion for the second time, and we posted a return on capital employed approaching 19 percent. High cash flow enabled a $34 billion capital program directed at high-return growth projects. And we're continuing the trend, reporting strong earnings of $6.2 billion for the first quarter of 2013.
We did all this while providing stockholders with competitive distributions and maintaining the industry's strongest balance sheet.
Per-share earnings are also important. On a five-year indexed measure, you can see we lead by a wide margin. In fact, if you were to look at the same measure across a broad array of industry players, you'd see the same pattern. We lead.
At the same time, we're rewarding our stockholders. Since 2004, when oil prices started appreciating in real terms, we've delivered a double-digit compound annual-dividend growth rate. That's the strongest dividend growth among our peers and nearly double the rate of the S&P 500.
Since 2004, we have repurchased more than $35 billion of Chevron stock, resulting in a 9 percent reduction in shares outstanding.
In 2012, we marked our 25th consecutive year of annual dividend increases. That included last year's annual dividend increase of 13.6 percent. Last month, we marked our 26th consecutive year of annual dividend increases, announcing an 11.1 percent increase in our quarterly dividend.
We've had leading financial performance. George will tell you about our leading operational performance. It should come as no surprise that we also lead in Total Stockholder Return, or TSR.
For the fourth consecutive year, we've led our peer group in five-year TSR. Chevron's five-year TSR was a solid 6.5 percent—well ahead of our nearest competitor and the S&P 500. We also led our peers in TSR for nearly every multiyear period over the past 10 years. This translates to huge value creation for our stockholders.
Year to date, we continue to lead our peers, outpacing the next closest competitor by more than 6 percentage points.
One of the ways we create value for stockholders is by funding high-return capital projects consistent with these priorities. To do that, we've set this year's capital program at $36.7 billion.
Upstream accounts for 90 percent of the total. Downstream and Chemicals accounts for about 6 percent.
More than half of the capital program funds major capital projects for Upstream—principally LNG and deepwater projects that are fueling our growth.
George will discuss our Upstream and Downstream operations in more detail. But first, let's set the stage with a video of 2012 highlights of worldwide operations.
Affordable energy is a cornerstone of human progress and economic prosperity. The energy projects we invest in will produce for decades. They will also generate tax revenue, create local jobs and support local business.
In addition to these economic benefits, we make significant social investments in the communities where we operate. We apply the same fundamental approach to our social investments that we apply to our capital investments. We work with partners to identify needs and determine investments. We focus on outcomes, and projects that will create measurable and enduring value. I'll give you a few examples.
In Richmond, we meet regularly with residents and leaders, and based on their input, we've invested nearly $16 million in job creation, public safety and K-12 education over the past 4 years.
In Angola, Nigeria and South Africa, we've invested more than $29 million in HIV/AIDS programs since 2008.
Around the world over the past seven years, we've invested more than $1 billion in sustainable communities. We've focused on health, education and economic development because we believe these areas have the greatest potential to create sustainable improvement.
Our 58,000 employees strive to make Chevron a force for shared progress and prosperity. And it is with great pride that I will tell you we do.
In wrapping up, I would like to leave you with a few key thoughts.
We are delivering industry-leading results and are doing quite well relative to our competitors. Demand for energy will grow. We're on track to deliver on our 2017 growth target, with more growth to follow. Finally, we're focused on execution. You can have very good plans, but you've got to execute.
We will deliver on our commitments. We will grow. And we will do all of the above safely.
Read Vice Chairman and Executive Vice President of Upstream and Gas George Kirkland's Remarks from the 2013 Annual Stockholders Meeting.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
This presentation 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 such as "anticipates," "expects," "intends," "plans," "targets," "projects," "believes," "seeks," "schedules," "estimates," "budgets" 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, some 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 chemical margins; 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 equity affiliates; 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 net production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather or crude oil production quotas that might be imposed by the Organization of Petroleum Exporting Countries; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant investment or product changes under existing or future environmental statutes, regulations and litigation; 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; the effects of changed accounting rules under generally accepted accounting principles promulgated by rulesetting bodies; and the factors set forth under the heading "Risk Factors" on pages 29 through 31 of the company's 2011 Annual Report on Form 10-K. In addition, such statements 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.
Certain terms, such as "unrisked resources," "unrisked resource base," "recoverable resources" and "oil in place," among others, may be used in this presentation to describe certain aspects of the company's portfolio and oil and gas properties beyond the proved reserves. For definitions of, and further information regarding, these and other terms, see the Glossary of Energy and Financial Terms.