Last year, I wrote of the challenge ChevronTexaco faced to improve its financial performance. I am pleased to report that we are succeeding. Not only was 2003 one of our best years ever, but we also built a solid foundation that should enable us to deliver sustained, strong performance into the future and continue to achieve our long-stated goal to be No. 1 in total stockholder return among our peer group.

In 2003, net income was $7.2 billion, resulting in a 15.7 percent annual return on capital employed. Our strong cash flow enabled us to reduce debt $3.7 billion, ending the year with a total debt to total debt-plus-equity ratio of 25.8 percent. For the 16th consecutive year, we increased our annual dividend payment. Our financial performance was reflected in our total stockholder return of 35.2 percent in 2003. Since 2000, we have led our largest three competitors in total stockholder return.

Other significant achievements included:

• continuing successes in exploration, with major new discoveries in the deepwater U.S. Gulf of Mexico and Nigeria;
• replacing more than 100 percent of production for the 11th consecutive year;
• achieving significant progress in major upstream projects in Angola, Canada, Chad, Kazakhstan, Nigeria and Venezuela;
• establishing a global natural gas business and achieving milestones in the commercialization of our vast Australian and West African gas resources;
• significantly improving performance in refining and marketing.

Our Strategies — Stepping Up the Pace Our global upstream strategy is to grow profitability in our core areas and build new legacy positions. We are well positioned to do both. Our crude oil and natural gas production is located in large basins around the globe where we have existing infrastructure and are typically one of the top three producers. We have a queue of projects that will add to production throughout the decade and beyond. We hold exploratory acreage in some of the most promising regions of the world, and we are confident we can build on an already successful exploratory program. In 2003, we established a business development group responsible for identifying and developing new, large-scale resource opportunities throughout the world.

Our global natural gas strategy is to commercialize our large equity resource base by targeting the rapidly growing North American and Asian markets. In the Atlantic Basin, we are pursuing several liquefied natural gas (LNG) projects that would supply the first offshore LNG regasification terminal in the United States. In the Pacific Basin, we are expanding our successful LNG business in Australia to supply markets in North America and Asia. We also are moving forward on a gas-to-liquids project in Nigeria.

Our global downstream strategy is to improve future returns by focusing on areas of market and supply strength. Our core areas of operation include the U.S. West Coast, U.S. Gulf of Mexico, Asia and Latin America. In 2003, we initiated a major restructuring of our global downstream operations. We are committed to achieving before-tax profit improvements of $500 million by the end of 2005 through cost reductions, efficiency improvements and the standardization of key work processes.

Delivering Top Performance While we are proud of the value we have created, we recognize that the confidence of stockholders rests in their expectation of future performance, not in past accomplishments.

To deliver the performance you expect, we will continue to focus on operational excellence and capital stewardship. Operational excellence means safe, reliable and environmentally sound execution. 2003 was our safest year ever. Reliability metrics improved in many areas, as did environmental performance. Capital stewardship means making better-quality expenditure decisions and executing projects well. We have made considerable progress in both areas, resulting in improved capital allocation and efficiency over the past three years.

The successes we enjoyed in 2003 came from the contributions of the talented men and women of ChevronTexaco. They embraced the challenge and delivered results — and did so the right way, by acting with integrity and high ethical standards.

Many of our employees work in some of the world's most challenging regions. This year, our company was honored to receive the U.S. Department of State's 2003 Award for Corporate Excellence. The award recognized the sustained efforts of our employees in Nigeria to contribute to a higher quality of life in that country.

125 Years of Progress As we look ahead, we see many opportunities to create ever-higher value for our stockholders, and we are well positioned to compete for those opportunities. We have a strong balance sheet, a portfolio of excellent assets, leading-edge technology, and talented and committed people.

In 2004, we will mark the 125th anniversary of the incorporation of the Pacific Coast Oil Company, the oldest predecessor company of ChevronTexaco. For 125 years, we have produced reliable, affordable energy and have taken pride in knowing that the energy we produce is a building block for economic development and helps improve the standard of living around the world. This anniversary causes us to reflect upon our past accomplishments and successes, but it also reminds us of our responsibility to build for the next 125 years.

Dave O'Reilly Chairman of the Board and Chief Executive Officer
February 25, 2004

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