Report to Stockholders

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

Overview of Downstream

San Ramon, California

It is my pleasure to be with you and report on Downstream's 2004 performance and momentum. This morning, I will discuss our strategy to improve returns and highlight some of Downstream's accomplishments in 2004 as well as our plans for the future.

Downstream comprises ChevronTexaco's refining, fuel and lubricants marketing, trading and transportation activities.

Globally, we manufacture more than 2 million barrels a day of refined products, in 21 wholly owned or joint-venture refineries.

We market motor fuels through more than 25,000 retail outlets and lubricants through a global network. And, each day, we serve millions of customers around the world.

As Peter said, our Downstream strategy is to improve returns by focusing on areas of market and supply strength. Specifically, those areas are the North American West Coast, the U.S. Gulf Coast and Latin America, Asia and sub-Saharan Africa. These are also areas where we hold strong market positions supported by one of our three world-class brands -- Chevron, Texaco and Caltex -- each with a long-established and distinguished legacy.

We maintain a particularly strong position in the Pacific Basin, where we believe the outlook for sustained, significant energy demand growth remains favorable.

Our refining investments are more heavily weighted to this basin compared with our key competitors, and we believe this provides us with a structural advantage. Last year, we strengthened this position by increasing our ownership in the Singapore Refining Company.

Now let's look at some of our 2004 accomplishments.

Downstream achieved record earnings and performance in 2004. Through strong execution of our strategies, we generated significant business improvements which were supplemented by strong market conditions, particularly refining margins.

One area of significant improvement was our refinery utilization rate. This is an industry measure that incorporates the economic value of each refinery process unit. In 2004, our utilization rate was 2 percent higher than in 2003.

We also improved energy efficiency at our operated refineries by 2.5 percent compared with 2003. This is a particularly important achievement in a high fuel price environment.

And we enhanced workforce efficiency through re-designed and standardized processes, reducing maintenance and labor costs.

Turning to Marketing, we continued aggressive efforts to build and leverage our strong brands.

Last July, we regained the right in the United States to market fuels under the Texaco brand and immediately began marketing in the Southeast. Since then, our network has grown from a concept launch to over 1,100 sites currently. This year, we will supply additional sites in the Southeast and West.

We also received important recognition of our Chevron gasoline brand. It was the first in the United States and Canada to qualify as meeting "TOP TIER" criteria, which was established by four of the world's top automakers.

In 2004, the Chevron brand was also identified as "the most powerful brand" in the United States by OPIS, a widely accepted ranking of brand power. Other research finds the Texaco brand is the most preferred brand in the Caribbean and No. 2 in Central America, and Caltex is one of the most preferred brands in our Asia-Pacific market area.

This year, we signed a preliminary agreement with a major Chinese company that will expand our retail network in China, which has a growing economy and is adding 4 million trucks and cars a year to its roads.

We achieved these results while restructuring Downstream from a regional orientation to a global, functional organization.

With this new organization, we are increasing operating efficiencies through greater standardization and the global application of best practices. We are also generating business improvements through global supply chain management and better asset utilization. Our efforts have borne sooner-than-expected results: We have already exceeded our 2005 commitment to deliver pre-tax earnings improvements based on these initiatives.

And there is more to come. As we look ahead, we believe additional opportunities exist to generate further value by integrating efforts between Downstream, Upstream and Gas. For instance, near the Hamaca oil field in Venezuela, we have installed refinery technology that enables extra heavy crude oil to be upgraded and brought to market.

Over the long term, we will continue to look for innovative ways to capture the synergies of being a fully integrated energy company.

Now I will turn the program over to George for his comments on Upstream and Natural Gas.

Read the Overview of Upstream and Gas by George L. Kirkland

Updated: April 2005