Report to Stockholders
Mike Wirth, Executive Vice President for Downstream
Overview of Downstream
San Ramon, California, April 25, 2007
Good morning. I'm pleased to be here today to discuss downstream's results.
Focus, discipline and execution are essential for delivering strong competitive performance. Those fundamentals helped drive downstream's strong performance in 2006.
Before I discuss results, let me first review the key parts of our business.
Downstream comprises Chevron's supply and trading, refining, and fuels and lubricants marketing operations.
We conduct business in over 170 countries. We manufacture about 2 million barrels per day of refined products, in 19 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 throughout the world.
Product demand is growing — particularly in the United States and Asia — and refining capacity is constrained.
Companies that are positioned in or near the fastest-growing markets, and who also possess strong refining and supply chain capabilities, will benefit.
Chevron is one of those companies.
We have a particularly strong position in the Pacific Basin and possess superior refining capabilities relative to the industry. We also have three world-class brands.
We believe this combination provides us with a strategic advantage.
2006 was a year of "bests" for downstream: It was our safest year ever, our refinery utilization and energy efficiency were the best ever, and we delivered our best-ever earnings at $4 billion.
We launched projects to selectively grow our manufacturing system.
And we also improved our portfolio through acquisitions and divestments of nonstrategic assets.
Let me go into a bit more detail.
Last year, we set out a commitment to raise refinery utilization 6 percentage points by 2008. We nearly met this commitment in the first year.
Thanks to a lot of hard work, disciplined execution and a focus on root cause, we increased our year-over-year utilization rate 5 percentage points in 2006. We are building what I call the "reliability refinery," by more effectively utilizing existing capacity.
This is a lot less expensive than building new capacity or acquiring facilities. That's why sustaining the "reliability refinery" is my top priority.
Over the next several decades, global demand will continue to increase due to economic and population growth.
We are taking steps to capitalize on this growth. We recently completed a project at our Pascagoula, Mississippi, refinery that increased its gasoline production capacity by 10 percent.
And we acquired a stake in a company in India that is constructing the sixth-largest refinery in the world. This export facility will be completed in late 2008 and will strengthen our position in Asia.
We are also intensely focused on expanding margins.
In the United States, our ability to convert a wide variety of crude oils into clean products is a competitive differentiator. Investments under way at our California refineries will further strengthen this advantage.
To expand margins in the Asia-Pacific, our joint-venture refinery in South Korea is increasing its ability to run heavy crude oils and improve high-value product yields.
To further improve returns, we are creating a more focused footprint — fewer markets but stronger positions in those markets.
Divesting marketing assets generated more than $1 billion in after-tax cash over the past three years.
In Europe, we just sold our 31 percent interest in the Netherlands refinery.
And there's more to come this year. We are in the process of selling our retail fuel business in Uruguay. And we're in discussions regarding the possible sale of our businesses in the Benelux region.
In summary, downstream produced great results in 2006. We're confident we will sustain this progress in 2007 — and it starts with operational excellence.
Achieving world-class operational excellence is a journey. Continual improvement in safety performance over the past five years has made us one of the best, relative to the competition.
This same drive and discipline is being applied to refinery reliability. We are taking a systematic approach that combines advanced capabilities, standardized processes and proactive investment to mitigate risks.
We will pursue targeted growth in scale and flexibility.
Given the outlook of constrained supply, strong demand growth and geopolitical dynamics, scale and flexibility matter.
The resid upgrade project at South Korea is on track for completion at year-end.
At our El Segundo, California, refinery, the heavy sour crude projects are on track for year-end completion.
Focus, discipline and execution are the keys to superior competitive performance. By applying these tenets, Chevron's downstream business will continue to be highly competitive and create long-term value for our stockholders.
Thank you, and now I will turn the meeting over to Dave.
Cautionary Statement Relevant to Forward-Looking Information for the Purpose of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.
This presentation of Chevron Corporation contains forward-looking statements relating to Chevron's operations that are based on management's current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words such as "anticipates," "expects," "intends," "plans," "targets," "projects," "believes," "seeks," "schedules," "estimates," "budgets" and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are crude oil and natural gas prices; refining margins and marketing margins; chemicals prices and competitive conditions affecting supply and demand for aromatics, olefins and additives products; actions of competitors; the competitiveness of alternate energy sources or product substitutes; technological developments; the results of operations and financial condition of equity affiliates; the inability or failure of the company's joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company's net production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather or crude-oil production quotas that might be imposed by OPEC (Organization of Petroleum Exporting Countries); the potential liability for remedial actions under existing or future environmental regulations and litigation; significant investment or product changes under existing or future environmental statutes, regulations and litigation; the potential liability resulting from pending or future litigation; the company's acquisition or disposition of assets; government-mandated sales, divestitures, recapitalizations, changes in fiscal terms or restrictions on scope of company operations; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; and the factors set forth under the heading "Risk Factors" beginning on page 31 of the company's 2006 Annual Report on Form 10-K. In addition, such statements could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed in this presentation could also have material adverse effects on forward-looking statements.
U.S. Securities and Exchange Commission (SEC) rules permit oil and gas companies to disclose only proved reserves in their filings with the SEC. Certain terms, such as "resources," "oil-equivalent resources," "oil in place," "recoverable reserves," and "recoverable resources," among others, may be used in this press release to describe certain oil and gas properties that are not permitted to be used in filings with the SEC.
Updated: April 2007