2009 Annual Meeting Remarks by John S. Watson

John S. Watson

By John S. Watson, Vice Chairman
Chevron Corporation

Opening Remarks and Corporate Overview

San Ramon, California, May 27, 2009

Good morning and welcome.

And thank you for joining us to hear about our 2008 performance. You will also hear how we're managing through this economic downturn, how we're building for the future and how we're committed to creating value for our stockholders.

Slide: Annual Meeting Title Slide

And now I will introduce our nominees for the Board of Directors. Would you please stand as I call your name and remain standing until you have all been introduced.

  • Sam Armacost, chairman of SRI International.
  • Linnet Deily, former Deputy U.S. Trade Representative and retired vice chairman of Charles Schwab Corporation.
  • Bob Denham, partner in the law firm of Munger, Tolles and Olson.
  • Bob Eaton, retired chairman of the board of management of DaimlerChrysler.
  • Frank Jenifer, president emeritus of The University of Texas at Dallas.
  • Senator Sam Nunn, co-chairman and CEO of the Nuclear Threat Initiative and former senator from Georgia.
  • Don Rice, former chairman and current president and CEO of Agensys.
  • Kevin Sharer, chairman, president and CEO of Amgen.
  • Dick Shoemate, retired chairman, president and CEO of Bestfoods.
  • Ron Sugar, chairman and CEO of Northrop Grumman Corporation.
  • Carl Ware, retired executive vice president of The Coca-Cola Company.
  • Not present but participating by phone in our board meeting immediately following is Enrique Hernandez, president and CEO of Inter-Con Security Systems.
  • Me, John Watson, vice chairman of Chevron Corporation.
  • And finally, Dave O'Reilly, chairman and CEO of Chevron.

Thank you all for serving as directors of our great company.

Dave will join me in today's presentation, along with George Kirkland, executive vice president of Upstream and Gas, and Mike Wirth, executive vice president of Global Downstream. We have several corporate officers here today. Would you please stand and be recognized.

Thank you. Now I'd like to introduce:

  • Alan Page and John Gross, partners from PricewaterhouseCoopers.
  • And Douglas Czarnecki, the Inspector of Election.

Thanks to all of you.

I'm very happy to report that 2008 was an outstanding year for Chevron. Let's take a look at a video highlighting some of our accomplishments.

I think you will agree, 2008 was a very strong year for Chevron. Let's take a closer look.

Slide: Getting Results

First, our financial results — 2008 was another year of record earnings. Our reported net income was $23.9 billion — 28 percent higher than the year before. That record income helped boost our return on capital employed to 26.6 percent. We ended 2008 with a total debt ratio of 9.3 percent and total debt of about $9 billion.

Slide: Operational Excellence Safety

Now let's talk about safety. 2008 was the safest year in our history and one of the best in our industry.

Now this is a chart in which down is good. As you can see, we closed the gap in that shaded band, which represents our competitors' safety performance. We are now among the safest operators in the industry.

This month we published our seventh Corporate Responsibility Report. Copies are available just outside the auditorium. The report includes our environmental achievements that have been widely recognized by respected organizations. For instance, Lloyds Register, an independent auditor, confirmed that Chevron's environmental management systems meet all applicable international standards.

We've also met our greenhouse gas emissions goals every year since 2004. And we are ranked No. 1 among U.S. oil and gas companies, and No. 2 worldwide, in the 2008 Carbon Disclosure Leadership Index. The index ranks companies taking “best in class” actions to measure and report carbon emissions.

Slide: Returning Cash to Stockholders

Last year, our strong earnings and cash flow enabled us to fund a robust capital program and, at the same time, return cash to stockholders. We repurchased $8 billion of our common shares and increased our quarterly dividend by 12 percent, marking our 21st consecutive year of increased annual dividend payouts.

Slide: 5-Year Total Stockholder Return

In total stockholder return, 2008 was a difficult year for all of us.

But looking over the sweep of time, stockholder return provides the most meaningful measure of our success. If we look at the five years ending Dec. 31, our total stockholder return averaged 14.8 percent. That's 17 percentage points better than the S&P 500 over the same period.

Slide: Long-Term Oil Supply Challenge

Today's global recession may be the most severe since WWII. And while we don't know the timing of recovery, we know that recovery will come.

And when it does, the world will need more oil. Even if demand were to remain flat until 2015, offsetting natural production declines from today's existing fields will require 30 million more barrels of oil per day.

Think of that as the production from three more Saudi Arabias. To offset those declines, energy producers must continue investing for the long term. But with margins and cash flows low, global investments to increase oil supplies have been declining.

Chevron's investments to provide future supplies haven't. We invest for the long term and continue to invest even when margins and cash flow are low.

Slide: Investing for the Long Term

Our capital and exploratory budget is a good case in point.

In 2009 we plan on investing $22.8 billion — the same amount as in 2008. This money will fund large, multiyear projects that will increase energy supplies and help meet long-term demand.

In other words, we're looking beyond this downturn. We're investing for the future.

About 75 percent of our budget funds oil and gas exploration and production — our upstream business. Another 20 percent funds refining, marketing and transportation — our downstream business.

Slide: Advantages for Challenging Times

Chevron is in a strong position — and better than most of our peers — to succeed through this downturn. This is no accident. We use periods of high oil prices to strengthen our balance sheet and reduce our debt. When oil prices are low, we live within our means and maintain a strong balance sheet.

Having a strong balance sheet is one advantage in today's economy. We have others, too.

  • Our portfolio is less exposed to sectors that are more affected by this downturn, such as chemicals and downstream.
  • We have strong relationships with host governments. That's a vital advantage in all market cycles.
  • And we can sustain investment through the down part of the cycle — where we find ourselves today.

Slide: Right Strategies, Consistent Strategies

These advantages are the result of our four consistent strategies. They are:

  • Grow upstream profitably in core areas
  • Commercialize our natural gas resources
  • Improve downstream returns and selectively grow
  • And invest in renewable energy technologies.

Now we'll describe how we advance these strategies.

To start that off, I'd like to introduce George Kirkland, who will highlight our upstream and natural gas activities.

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

Cautionary Statement

Updated: May 2009