Report to Stockholders
Mike Wirth, Executive Vice President for Downstream
Overview of Downstream
San Ramon, California, May 28, 2008
Good morning. I'm pleased to be here today to discuss downstream's performance.
As Peter and George have noted, our focus on disciplined execution also helped downstream produce strong results in 2007.
Before I discuss last year's achievements, let me highlight key areas of our business. Downstream operations include refining, marketing of fuels and lubricants, and supply and trading.
In 2007, we refined about 1.8 million barrels of crude oil and sold about 3.5 million barrels of products per day. We market under the Chevron, Texaco and Caltex brands through more than 25,000 retail stations. Every day, we supply millions of customers around the world with high-quality products and services.
We're well positioned in key markets.
Asia-Pacific is becoming the dominant energy consumer in the world, growing 90 percent through 2030. And the large demand for energy in the United States will continue.
Our asset portfolio targets these important regions that will deliver strong returns and profitable growth.
We're also expanding integration with our strong upstream position in these regions to capture full value-chain margins.
In 2007 we delivered our best safety results ever.
We completed asset sales in Europe, North America and Latin America.
We made progress in improving refinery reliability.
We delivered a 16 percent return on capital employed in a tough market environment.
And we enhanced the scale and flexibility of our refining system.
Our South Korea joint venture completed its major refinery upgrade on budget and well ahead of schedule. The upgrade, including the installation of one of the world's largest vacuum columns, will lower the refinery's crude costs and increase production of higher-value products.
At El Segundo, we completed the heavy crude project safely and on time. This project will lower crude costs and improve reliability and crude flexibility.
I'm pleased to report that we're making good progress building out the "Reliability Refinery." We've hired reliability experts from the nuclear, chemical and refining industries. In 2007, we trained 700 personnel at our Reliability University.
Advanced designs and technologies are being incorporated into capital projects to ensure long-run reliability of existing and new assets.
Finally, the focus that transformed our safety culture into a top performer is advancing our reliability culture as well.
We continue to align marketing with our refining operations.
Product line and supply chain complexities are being reduced. We're shifting to higher-return distribution channels and restructuring our fuel and lubricants businesses to streamline costs.
Our fuel quality remains unsurpassed due to our unique Techron fuel additive. As reported by the Lundberg Survey, Chevron has maintained its number one status as the "King of brand value" in the United States for five years running.
We will maintain our product quality and brand strengths as the foundation of a more focused and profitable marketing business.
Widening spreads in crude pricing are putting a premium on strategic integration. Building increased integration value strengthens crude realizations for our upstream as well as for our partners. In 2007, we ran 10 equity crudes new to individual refineries.
With the completion of the heavy crude project, El Segundo is running heavy, sour equity crude from the Partitioned Neutral Zone.
In the United Kingdom, we're developing a second Caspian Blend project that could increase runs up to 70 percent of the slate as Tengiz production ramps up.
Our growth investment is focused on projects with strong economic returns and a balance of improving margins and increased refining scale.
At the start of this year, we had two projects under construction — a clean diesel project at Singapore and the Continuous Catalytic Reformer to increase reliability and yield at Pascagoula.
We anticipate sanctioning four more major projects this year, all with 2010 planned startups. This includes a crude flexibility project at Richmond and yield improvement projects at El Segundo, Korea and Pascagoula.
By year-end, we expect to have six different major projects in construction at five facilities.
I'd like to close by summarizing our commitment to deliver world-class safety and improved returns.
Our goal is to be a top competitor at any stage of the business cycle.
Focus, discipline and execution continue to be the keys to superior competitive performance.
We're executing the right strategies, making tangible progress in the business and advancing solid opportunities for growth in volumes and margins.
Thanks for your attention. Now, I'll 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: May 2008