2000: Highlights From A Strong Portfolio

By Richard H. Matzke, Vice Chairman of the Board
Chevron Corporation

Annual Meeting of Stockholders

Los Angeles, California

Also see a press release regarding this speech

As usual, we have more good stories to tell about Chevron's portfolio than we can cover in this update. So I'll just hit some of the high points and offer some perspective on the different ways that our company is helping to meet the world's growing demand for energy.

Let's start with a look at the Caspian region.

Slide: Tengiz photo of Train 5 plus location map of Central Asia displaying location of Tengiz Field, CPC pipeline route, and Absheron Block

One of the jewels in the crown is our Tengizchevroil partnership in Kazakhstan. It's the most successful joint venture to date in the former Soviet Union. Chevron owns 50 percent of this massive joint venture.

We recently completed a three-year expansion project, which helped us average almost 230,000 barrels of oil a day last year. That marked the seventh straight year of production increases. And we plan to keep growing.

And while we grow, our project will contribute hundreds of millions of dollars in benefits to Kazakhstan and Russia in the form of jobs, taxes, royalties, purchasing and so on.

Energy development in general and Chevron's activities in particular have made a tremendous contribution to the regional economy -- and this is something that I feel all stockholders can be proud of.

Meanwhile, Chevron and 10 partners are putting the finishing touches on the $2.6 billion, 900-mile-long Caspian pipeline. The planning took awhile, but the construction went smoothly.

This is the crucial link we knew would be needed from our first days in Kazakhstan: a new, state-of-the-art facility that would transport Tengiz crude and other regional production to world markets.

On March 26 of this year, the prime minister of Kazakhstan opened a valve in Atyrau, and the line began to fill with Kazakh oil. By summer, the line will be full, and export sales will begin.

And with an initial capacity of 600,000 barrels a day for the pipeline, regional oil production will have plenty of room to grow.

We're also looking to the future in the deepwater areas of the Southern Caspian Sea. As you can see here on the map, we're currently drilling our first exploratory well in the Absheron Block offshore Azerbaijan.

Let's take a look next at Africa.

In Angola last year, we achieved a record production rate of more than half a million barrels a day. And Chevron remains the top company in this country, operating more than 60 percent of Angola's total production.

But we're not just producing it, we're finding new supplies as well. In fact, we've made six deepwater discoveries since 1996, including two last year.

Meanwhile, in Nigeria, Chevron-operated production rose to 430,000 barrels of oil a day last year. In addition, we won shares of three of the choicest deepwater exploration blocks, covering more than a million acres.

Our Escravos Gas Project continued to handle the natural gas we produce, which helps us avoid flaring.

Last year, we doubled the project's capacity to 285 million cubic feet a day, and we plan to double it again by 2005.

Also in this part of the continent, Chevron manages the West African Gas Pipeline project, one of the region's most significant energy projects.

By 2004, we hope this facility will be delivering Nigerian natural gas to Benin, Togo and Ghana to help generate new supplies of electricity, support new industry and create jobs.

I would add that we signed a new deepwater exploration deal with Equatorial Guinea in 2000, and we expect to drill our first well next year.

Nearby, we've taken a 25 percent share of a project to build a 650-mile pipeline from oil fields in Chad to the coast of Cameroon. In about three years, we expect that line will be shipping nearly a quarter of a million barrels of oil a day to world markets.

We've got good news from Latin America as well.

Back in the mid-1990s, we were a leader in negotiating for new investments in Venezuela, when the government re-opened its oil and gas sector to outside investors.

And today, Chevron is the largest private oil field operator in Venezuela. We operate two oil fields in the Lake Maracaibo area: Boscan and LL-652, which together produced more than 130,000 barrels a day last year.

Some of you will recall that in 1999 we acquired the Petrolera Argentina San Jorge.

With the addition of several new discoveries and acquisitions, we've become one of Argentina's top producers of oil and natural gas.

Our Latin America position was also enhanced during 2000, when we won four promising deepwater blocks in Brazil, covering a combined area of more than 4 million acres. We are drilling our first exploration well there right now.

Turning to Europe, our Britannia Field in the U.K. North Sea, last year reached a peak production level of 820 million cubic feet of natural gas per day.

This is a major asset for our company producing about 8 percent of U.K. gas demand.

Meanwhile, we've expanded development at the nearby Alba Field, and we expect to produce more than 60,000 barrels a day for the next six years.

Not far away, in Norway, we had more good news in 2000, when Chevron won shares of three new offshore blocks. We plan to start exploration drilling later this year.

We now hold interests in seven offshore blocks, so we have plenty of work to do in Norway, and we hold a share of the currently producing Draugen Field as well.

Moving on now to North America, we remain committed and heavily invested in the Gulf of Mexico, still a world-class area of opportunity.

Chevron was the top producer in the shallow-water gulf last year. And we tripled our gas production from Viosca Knoll, one of our key areas, providing new supplies to a gas-hungry nation while adding profits for our stockholders as well.

Out in the deepwater, Genesis production hit a record 70,000 barrels a day last year; Gemini averaged 15,000.

Typhoon, our newest deepwater development, is scheduled to start up in the third quarter of this year.

Elsewhere, up in northeastern Canada, the Hibernia Field produced an average of 144,000 barrels per day last year, an increase of nearly 40 percent over the previous year.

We continue to evaluate the nearby Chevron-operated Hebron Field, and we're studying exploration opportunities off the coasts of Newfoundland and Nova Scotia.

In the Northwest Territories, natural gas production from Fort Liard was up to 120 million cubic feet a day by year-end from just two wells. And that was more good news for the fast-growing gas markets in both Canada and the United States.

Also in 2000, Chevron and partners acquired exploration interests in more than a million acres in the Mackenzie Delta, a region of the Northwest Territories with good gas potential.

Indeed, many of the hopes for North America's future supply are riding on this region and Chevron intends to play a key role in making things happen up there.

Let's now take a look at some of our downstream operations.

We strengthened our U.S. marketing position last year as the top supplier of jet fuel and aviation gasoline in the Western states, proving again the value of our strategy to focus this part of our business in growth areas.

Total sales of refined products, mostly gasoline, jet fuel and diesel were up 2 percent, even though gasoline demand was down slightly overall.

As for chemicals, the new Chevron Phillips Chemical Co. began operations on July 1.

This 50/50 joint venture with Phillips Petroleum Co. instantly became one of the top five producers of olefins and a top-five competitor in the aromatics business.

And in a move designed to position itself for long-term growth, Chevron Phillip's first polystyrene plant in China began operations in November.

Let's shift our attention to the Middle East, where Chevron has several interesting projects and initiatives under way.

Our petrochemicals complex at Al Jubail in Saudi Arabia reached its designed production capacity in its first year of operation. And we're building an olefins plant in Qatar, which will produce about a billion pounds each of ethylene and polyethylene per year.

In addition to these strategic downstream projects, we have several additional upstream initiatives under way in the Middle East.

Chevron currently has a long-standing Technical Service Agreement with the Kuwait Oil Co., and we continue to discuss future deals with the Kuwaitis to help them manage and develop their oil and gas fields.

At the same time, we continue to hold discussions with the Saudis on possible upstream projects in that country. And we've been talking with the Iranian National Oil Co. about future opportunities in oil and gas there.

However, as most of you know, Chevron and other U.S.-based companies are currently prohibited from investing in Iran, due to unilateral trade sanctions.

The point is, your company is working on a wide range of opportunities in the Middle East, because we have a lot to offer our future partners there and because the Middle East will remain the world's most important oil-producing region.

I think it's important to also mention the liquefied natural gas (LNG) business, which is much in the news lately.

First of all, in Western Australia, the North West Shelf Venture, in which Chevron is a partner, recently announced a 1.6 billion dollar LNG expansion project, scheduled for start-up in 2004.

In addition to that, Chevron is evaluating the possibility of importing liquefied natural gas to help serve the growing demand for clean energy along the West Coast of North America.

If the project proves to be economically viable, we could supply the LNG from our extensive gas holdings along the west coast of Australia as early as 2005.

The natural gas is liquefied through a process of refrigeration and then transported in LNG ships like the one shown in the slide above. It's a proven technology, especially in Asia, and we'd like to see it work for America as well.

Now let's turn to gas and power. Chevron holds a 26 percent interest in Dynegy, one of the leading natural-gas marketers in North America. Through new power-generation projects and acquisitions, Dynegy brought its total generation capacity to 16,600 megawatts last year.

Of course, every area of the business I've talked about up to now has one thing in common: They all depend on new and innovative technologies.

Our strategy is to identify and capture the best technological developments, both internal and external to Chevron, then apply these new technologies to our key businesses.

For instance, technology plays a key role in optimizing performance in oil and gas reservoirs, which is just a fancy way of saying that we use every technology at our disposal to get as much oil out of the ground as we possibly can.

Industrywide, an average of 70 percent of oil remains locked in the ground, even after years of production by conventional techniques.

Late last year, Chevron and Schlumberger, the oil field services company, launched a multiyear research project to build the next generation of tools that will increase recovery rates from existing oil reservoirs.

Another good technology story is gas-to-liquids. We call it GTL, and it converts natural gas into clean liquid fuels, offering the promise of expanding energy supplies around the globe. Indeed, these fuels could set new global standards for performance and low emissions.

And we're proud to report that Chevron's joint venture with Sasol is building a world-class gas-to-liquids facility in Nigeria, which is scheduled for completion in 2005.

That concludes our look at some of Chevron's newest and brightest prospects.

I think you can see that our portfolio represents tremendous potential for growing our company and building value to our stockholders.

Now, I'd like to turn the podium back to Dave O'Reilly, who will tell you about our strategies and objectives for the year 2001 and beyond.

Updated: April 2001