chairman's letter


John S. Watson, Chairman of the Board and Chief Executive Officer

to our stockholders

Low commodity prices in 2016 reduced earnings across the industry and reinforced the need for structural reform. With Brent averaging $44 per barrel, Chevron reported a loss of $497 million compared with earnings of $4.6 billion in 2015. It was a year of transition, and Chevron took significant actions to reduce costs and improve net cash flow to ensure our competitiveness in any operating environment.

Our 2016 priorities were to finish projects under construction; reduce capital spending; reduce operating expenses; complete asset sales; and operate safely and reliably. We made substantial progress on these priorities as we worked toward our goal of becoming cash balanced and able to pay the dividend from free cash flow in 2017.

In light of difficult market conditions, we took significant actions to reduce costs and improve net cash flow. We reduced capital and operating expenses by $9 billion through renegotiating contracts with vendors and suppliers, streamlining organizations to reduce our employee and contractor workforce, deferring and canceling projects not economic at low prices, and selling $6 billion in nonstrategic and other assets.

29th consecutive year

2016 marked the 29th consecutive year we increased the annual per-share dividend payout.

The actions we took included thousands of initiatives across the enterprise to prioritize investments, negotiate better rates from vendors and suppliers, and improve drilling and other efficiencies. All of these actions enabled us to increase our annual per-share dividend payout for the 29th consecutive year. Our total stockholder returns outpaced our major competitors by a wide margin last year. In fact, we’re No. 1 in total stockholder return relative to our peers for any cumulative holding period going back 25 years. Our year-end debt ratio was 24 percent.

Operationally, we met a number of milestones, including startup at our Gorgon liquefied natural gas (LNG) project. Gorgon is one of the world’s largest LNG projects, and we expect it to be a significant revenue source for decades. We also achieved startup at Alder in the U.K. North Sea. We brought on line all three trains at the Chuandongbei Project in China. We restarted the Angola LNG project. We achieved natural gas production from the Bangka Field Development Project in Indonesia. And finally, we ramped up our Jack/St. Malo deepwater project in the U.S. Gulf of Mexico.

Our Upstream business, responsible for exploration and production, reported worldwide net production of 2.6 million barrels of oil-equivalent per day. Production increases were offset by asset sales, normal field declines and maintenance-related downtime. We added approximately 1 billion barrels of oil-equivalent (BBOE) of proved reserves in 2016 before asset sales. These equate to approximately 108 percent of net oil-equivalent production for the year. After asset sales, we replaced approximately 95 percent of production. In our exploration program, we added approximately 1.4 BBOE to our resource base.

Our Downstream and Chemicals business, which is responsible for our refining, marketing and chemical manufacturing, achieved its highest refinery utilization in more than 10 years. We also progressed a number of strategic initiatives. For example, we closed the sale of our Hawaii refining and marketing business. We sanctioned the Salt Lake refinery’s alkylation retrofit project using technology we developed to improve the efficiency and safety of this process – technology that we will license to others. We also progressed work on our $6 billion joint-venture U.S. Gulf Coast Petrochemicals Project, which includes a world-scale ethane cracker and polyethylene units, targeted for initial production in 2017.

Midstream and Development secured additional LNG sales commitments for delivery from Australia, despite the challenging market environment. In addition, we made good progress toward scheduled delivery of the fifth and sixth LNG carriers in 2017, to complete the largest shipbuilding program in our history.

Our 2016 health, environment and safety performance set or matched record lows in many of our core safety metrics. We continue to focus on eliminating high-consequence personal and process safety incidents. We also continued our social investments. In 2016, we invested $186 million in global partnerships and programs, complementing our investments in projects and local goods and services that created jobs and generated revenues for the communities where we operate. More details are available in the 2016 Corporate Responsibility Report.

Going forward, we’re committed to continuing to improve free cash flow and returns by focusing on investments that are economic with lower prices and by controlling our capital program. We announced a 2017 capital and exploratory budget of $19.8 billion – 42 percent less than what we spent in 2015 and approximately 12 percent lower than 2016 capital and exploratory investments.

In 2017, we expect Wheatstone, our next major Australian LNG project, to start up and the Mafumeira Sul project in Angola to achieve first oil. In Kazakhstan, our 50 percent-owned affiliate, Tengizchevroil, will be working on a project expected to increase its total production to approximately 1 million barrels of oil-equivalent per day. First oil is planned for 2022. In the Permian Basin, we will continue to focus on shale and tight resource development, capitalizing on efficiencies we’ve already demonstrated in our drilling program there.

I am optimistic about the future. Our products are responsible for the greatest advancements in living standards in recorded history. Energy demand remains strong, and we expect the need for oil and natural gas to continue to grow over the next 20-plus years as the developing world reaches for a better quality of life.

As we work to provide the energy the world needs, we will continue to be guided by The Chevron Way, our roadmap for enabling human progress as the global energy company most admired for its people, partnership and performance. In 2016, we refined our business strategies to address the changing operating environment. We are focused on improving returns on all our assets. We maintained our workforce development programs and university hiring to ensure we have the talented workforce we need in order to deliver these strategies.

I am confident Chevron will remain competitive and at the forefront of an industry that provides the reliable and affordable energy necessary for global economic growth. Thank you for your interest and investment in the company.


John S. Watson

Chairman of the Board and Chief Executive Officer
February 23, 2017 






Posted: April 2017