Report to Stockholders

By Patricia A. Woertz, Executive Vice President, Global Downstream
ChevronTexaco Corporation

2003 Annual Meeting of Stockholders

Midland, Texas, May 22, 2003

Also see a press release regarding this speech.

I'm very pleased be here with you in Midland and to have the opportunity to talk about ChevronTexaco's downstream operations.

I know this is oil country. But just so there's no misunderstanding: When I speak of "downstream," I'm referring to our traditional refining, marketing and transportation business as well as our global operations of lubricants, trading, aviation, and fuel and marine marketing.

In 2002, downstream faced the lowest margins we had seen in many years. We were impacted not only by high crude oil costs but also by the aftermath of September 11, which severely curtailed demand for lubricants and aviation fuels.

In recent months, margins have rebounded and so has downstream. In the first quarter of 2003, we contributed more than $300 million to after-tax net income.

I want to tell you briefly about some of the steps we're taking to improve the competitiveness and profitability of our business.

Worldwide Downstream

Let me begin with the scope and strength of our operations.

  • With the merger, we now have a downstream presence in 180 countries, serving millions of customers around the world.
  • We also have more than 26,000 employees working in the downstream, which is about half of ChevronTexaco's global work force.
  • Each day, we manufacture more than 2 million barrels of refined products in 23 wholly owned or joint-venture refineries.
  • We market through more than 24,000 retail outlets, with three of the most trusted brands in the industry.
  • With the merger, we were able to establish global businesses for aviation, lubricants, trading and shipping. And we were able to capture major cost savings in the process.

2002 Accomplishments

Although 2002's financial results were disappointing for downstream, we did achieve a number of successes that have built the platform for greater profitability going forward.

Let me tell you about a few of those successes:

  • First is the synergy story: Once the merger was complete, we identified and captured significant savings. And we're convinced we can lower costs even more.
  • Second, our lubricants business doubled its earnings in a tough year. Compared with 2000 and 2001, this was more than the combined earnings for Chevron, Texaco and Caltex. It was a remarkable achievement and another demonstration of the merits of the merger.
  • And third, we improved our crude unit's worldwide utilization rate to 91 percent.

Let me quickly touch on some other important successes:

  • Last year, we were No. 1 in the United States for aviation sales.
  • We had record-high branded gasoline sales in North America.
  • Our shipping operations led the industry in safety.

Building a Highly Competitive Downstream

As we go forward, we intend to build on the successes we've already achieved and to capture the potential we see in other parts of our business.

  • First and foremost, we're committed to operational excellence. As Dave said, that means running our operations safely, reliably, efficiently and with sound environmental stewardship. These are essential building blocks that will give our business a competitive edge (Read Dave O'Reilly's remarks).
  • Second, we're focusing on the most attractive markets. These are the ones where we have a competitive supply position and strong brand recognition.
  • Third, we're holding the line on costs and driving greater efficiencies through the organization.

The merger has given us not only enormous expertise from each of the heritage companies but also tremendous opportunities to share and to implement best practices. Already, we're finding ways to wring out more costs without sacrificing safety, service or quality.

Indeed, the steps we're taking will lead to a much stronger, more competitive business.

Read full text of Chairman David O'Reilly's remarks to 2003 Annual Meeting of Stockholders

Read full text of Vice Chairman Peter Robertson's remarks to 2003 Annual Meeting of Stockholders

Updated: May 2003