2009 Annual Meeting Remarks by Mike Wirth
Mike Wirth, Executive Vice President for Downstream
Overview of Downstream
San Ramon, California, May 27, 2009
Good morning. It's a pleasure to be with you to discuss our downstream. Before I review last year's achievements, let me highlight our key areas of business.
Downstream operations include refining, marketing, lubricants, and supply and trading. In 2008, we refined about 1.9 million barrels of crude oil, and sold about 3.4 million barrels of products, per day. Today we market under the Chevron, Texaco and Caltex brands through more than 22,000 retail stations.
We've concentrated the large majority of our assets in North America and Asia-Pacific. These are the largest markets today and will be the fastest-growing markets tomorrow. In the future, growth in demand will be heavily focused in Asia — and skewed toward diesel and jet fuel.
Both of these long-term trends align well with our strengths.
In 2008 we executed well, and we delivered results. 2008 was Downstream's safest year ever. We continued to streamline our portfolio through asset divestments. And we delivered best-ever reliability exceeding our commitment to improve the utilization of our operated refineries 6 percent versus 2005.
Our return on capital employed improved to better than 14 percent, and we ranked second among the four majors with worldwide downstream operations. The magnitude of our improvement was greater than that of any other competitor.
And we continued to invest in refinery reliability and flexibility.
Going forward, the strategies to strengthen our competitive position focus on four areas — all of which improve our cost structure. Safe and reliable operations deliver consistent performance and reduce the cost of incidents. Investments in flexibility reduce raw material costs — the single largest element of our cost structure. Supply efficiency improvements reduce finished product costs. And high-grading our portfolio — that is, selling off less profitable assets and exiting markets that don't align with our strategy — reduces operating costs and capital employed.
Here's a little more detail about our investments in refinery flexibility and reliability.
At El Segundo in California, projects under construction will improve reliability and increase runs of more economic crudes and yields of high-value products. This multiphase upgrade will be completed by 2011.
At Richmond in California, we're improving crude flexibility, reliability and energy efficiency. Projects include a new hydrogen plant, product upgrading facilities and retiring older units to improve energy efficiency.
At Pascagoula in Mississippi, a project to increase utilization and improve the yield of high-value products will start up next year.
And in South Korea, we're building on the success of the heavy oil upgrade project completed in 2007. The first phase of a second upgrade project should be complete in 2010.
To further improve returns, we're continuing to streamline fuels and lubricants marketing.
Through the end of last year, we reduced our lubricant product line by more than 40 percent versus 2005. By 2010, we expect this reduction to reach two-thirds. These changes simplify operations, reduce costs and boost earnings. And since 2005, we've more than tripled the profitability of our lubricants business.
We're focusing on stronger market positions and withdrawing from weaker ones. Last year we exited more than 20 markets and continued to rationalize our service station network. In 2009, planned market exits will reduce operating expense by $300 million per year and capital employed by nearly $1 billion.
We'll continue these efforts in 2009 and beyond.
Let me wrap up.
We're focused on performance through continual improvement in operational excellence, earnings and returns. Our strategy is concentrated on growth regions of the world and increasing the flexibility and reliability of our refineries. We're improving competitiveness through reducing costs, and sustaining our gains in utilization and application of technology.
I'm convinced our performance will remain strong.
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 press release 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 the company's 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 press release. 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, marketing and chemical margins; actions of competitors or regulators; timing of exploration expenses; timing of crude-oil liftings; 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 or assessments 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; gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S.dollar; 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" on pages 30 and 31 of the company's 2008 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 press release 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," "undeveloped gas resources," "oil in place," "recoverable reserves," and "recoverable resources," among others, may be used in this presentation to describe certain oil and gas properties that are not permitted to be used in filings with the SEC. In addition, SEC regulations define oil-sands reserves as mining-related and not a part of conventional oil and gas reserves.
Updated: May 2009