2010 Annual Meeting Remarks by John S. Watson

John S. Watson

By John S. Watson, Chairman and CEO
Chevron Corporation

2010 Annual Stockholders Meeting

Houston, Texas, May 26, 2010

Slide: Annual Meeting Title Slide

Good morning and welcome everyone. It's nice to bring our annual meeting back to Houston and to reconnect with employees and community leaders here. Chevron has significant operations in the Houston area, and I know our board appreciates the opportunity to visit those operations and interact with our employees.

This is my first stockholder's meeting as chairman. And I consider it my great honor to lead this company. Chevron produces energy. It's something we all need. It's something the world takes for granted in many cases.

We can't.

Producing energy that people need to heat their homes, cook their food, take their kids to school, run their businesses and live their lives is a great responsibility. Chevron's employees take that responsibility seriously. We're employees of Chevron, but we're neighbors too. We expect that the energy we and our community consume is produced responsibly, reliably and safely. At Chevron, we hold ourselves to that same high standard of excellence.

Expecting excellence from all of Chevron is our board of directors. These are individuals who've excelled in their own right and expect excellence from the company they govern. It's my privilege to introduce our other board nominees now. Please stand as I call your name and remain standing until you've all been introduced:

  • Sam Armacost, retired chairman of SRI International.
  • Linnet Deily, former Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization.
  • Bob Denham, partner in the law firm of Munger, Tolles and Olson.
  • Bob Eaton, retired chairman of the board of management of DaimlerChrysler.
  • Senator Chuck Hagel, distinguished professor at Georgetown University and former senator from Nebraska.
  • Rick Hernandez, president and CEO of Inter-Con Security Systems.
  • 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, president and CEO of Agensys.
  • Kevin Sharer, chairman, CEO and president of Amgen.
  • Dick Shoemate, retired chairman, president and CEO of Bestfoods.
  • John Stumpf, chairman, CEO and president of Wells Fargo & Company.
  • Ron Sugar, retired chairman and CEO of Northrop Grumman Corporation.
  • Carl Ware, retired executive vice president of The Coca-Cola Company.
  • And finally, George Kirkland, vice chairman and an executive vice president of Chevron Corporation, who will join me in today's presentation.

Thank you all for your service. We also 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.

Chevron was formed in 1879. We've succeeded through periods of booming economic growth. We've succeeded through tough times of diminished demand. Through 131 years, we've created value for our stakeholders. That's sustained performance. And you only generate it — decade after decade after decade — if you've built a foundation of safe and reliable operations.

Safety, for us, is a core value. It's part of our culture. We don't just make it our business. We make it our way of life. Our goal is always the same: zero incidents today; zero incidents every day.

I know that the disaster in the Gulf of Mexico is on everyone's mind. It's certainly on mine. Chevron's people and operations weren't directly associated with this tragedy. But an accident like this is personal. Our drillers knew those people who lost their lives on the Horizon. Our sympathies go out to their families and others impacted by this tragedy.

Following the incident, at Chevron we held safety briefings around the world reviewing drilling processes and procedures along with wellcontrol contingency plans. We sent subsea experts to BP's aid, joined a Coast Guard incident command team, and participated in two industry taskforces examining offshore drilling procedures. Last week, those task forces made draft recommendations to Interior Secretary Salazar for improving offshore safety.

We work with risks every day, and we've dedicated our careers to mitigating them. That's why you see us talking about safety every chance we get. We start every meeting with a safety moment.

We do it for one very compelling reason.

Slide: PP&E: Safety

The message on this man's back says it all. We want to go home safe each day. It's serious business. It's why every Chevron employee has what we call "stop-work authority." If employees see a situation that could harm people or the environment, they not only have the authority to stop operations, we expect them to stop or trigger a stop to operations.

It works.

This is a chart in which down is good. In 2009, we were an industry leader in safety. We achieved the best performance in our company's history. We're proud of this achievement. Yet we'll never rest, even when we get to zero.

Slide: PP&E Spills

Let's look at our industry's record on spills. Performance has steadily improved. Over nearly 40 years, industry spills are down almost 80 percent. Chevron has made steady improvements too. For example, between 2004 and 2008 in the Gulf of Mexico, Chevron's average spill volume rate was 7 times lower than the offshore energy industry's average. In 2009, Chevron spilled less than 7 barrels of oil in the Gulf.

But just as in safety, our efforts to improve our environmental performance will never stop. Safe operations are guided by many procedures. One principle underpins them all. And that principle is a mantra with our employees — every task, the right way, every time.

When you have safe, reliable operations, your results show it. To see what I mean, let's look at our 2009 performance.

Slide: Our Results

2009 was another very good year for Chevron. We delivered on key commitments. We advanced our queue of projects and grew production. We maintained our financial strength and generated value for our stockholders.

Let's look at our top-line results. We earned $10.5 billion. That's a 10.6 percent return on capital employed, or ROCE. Over time, our ROCE has been very competitive — averaging 17 percent over the past decade.

We've been prudent with our capital structure. We've used periods of strong cash flow to pay down debt. At year-end, our debt ratio was just over 10 percent. This is a very low and manageable level. We've grown the company without growing debt.

In production growth, we led our competitors. We grew production 7 percent as a result of startups and ramp-ups of major capital projects and through outstanding performance from our base business.

The strong performance continues. In our 2010 first quarter, net income was up sharply from the year before, and production increased 5 percent. Our strategy to invest in high-quality upstream growth assets is paying off.

To bring to life the operations behind these results, let's watch our Year in Review video.

2009 was truly a year of building legacies for Chevron. 2009 was also a year of economic turmoil. Yet as we saw in the video, our achievements didn't falter. We succeeded through the recession. And one of the ways we did it was by aggressively managing costs.

Slide: Lower Costs

In 2009, we aimed to reduce operating, selling, general and administrative expenses — what we call OPEX — by 10 percent compared with the year before. We exceeded our goal, cutting OPEX by $3.9 billion — or 15 percent.

Some of our cost savings reflected market conditions. Some reflected the absence of a bad storm season. The remainder resulted from reduced expenses. We took selected portfolio actions, increased efficiency and reliability, cut back discretionary spending, and negotiated improved contract terms with suppliers.

All along, we ensured that cutting costs would not sacrifice safety, reliability or maintenance. It did not. In fact, while we cut costs, our global refining system achieved its most reliable year ever.

We are carrying our cost-cutting momentum into 2010.

Slide: Returning Cash to Stockholders

Our solid earnings and cash flow enabled us to fund a robust capital program, and at the same time, return cash to stockholders. Last year, we increased our quarterly dividend by 4.6 percent. This marks our 22nd consecutive year of annual increases — during which dividends grew at an average annual rate of 7 percent.

This year, we maintained the tradition, announcing another quarterly dividend increase in April.

Slide: 5-year Total Stockholder Return

Let's look at the most meaningful measure of a company's success. That's total stockholder return, which is the sum of stock price appreciation and dividends paid out.

In the past 3- and 5-year periods, Chevron led its peers in total stockholder return. Over the same time, we outpaced the S&P 500 by more than 10 percent.

Our strong returns continue. For the 5-year period ending last month, again we were No. 1 in our peer group, and again we outperformed the S&P by more than 10 percent.

That's consistency — in strategies, in execution and in results for stockholders.

It's clear that we've gotten results and benefited stockholders. But getting results isn't enough. How we get results is just as important.

Our Corporate Responsibility report documents some of our achievements. The report also includes third-party evaluations of our operations and environmental achievements. Let me give you examples. Lloyds Register, an independent auditor, validated the integrity of Chevron's health, environmental and safety reporting procedures. The Carbon Disclosure Project, an independent nonprofit organization, gave us the energy sector's top score in its Leadership Index. The index ranks companies taking “best in class” actions to measure and report carbon emissions. And for the fifth consecutive year, we're in the Dow Jones Sustainability Index for North America.

To learn more about these achievements, please pick up a copy of our Corporate Responsibility Report, just outside this auditorium.

We have a lot of achievements we're proud of, and they all have one thing in common. It's called The Chevron Way. Distilled to a phrase, it means that we want results. But we want to get those results the right way.

To us, "the right way" is pretty simple. It means being honest, honoring your agreements, and benefiting your stakeholders. Put another way, it means doing business today in a way that makes you welcome tomorrow.

That's why we adopted a human rights policy last year, underscoring our commitment to playing a positive role where we operate. Our community partnerships are a perfect example. They aim to improve the quality of life where we operate. Let's watch a video about one partnership in particular.

I'm as proud of our Dunoon partnership as I am of dozens of others. Let me tell you about a few more:

We have health programs. We partner with The Global Fund to stem the spread of infectious diseases. In Thailand, we provide AIDS education. In Nigeria, we run an AIDS wellness program for nonprofits and small businesses. In the Philippines, we've helped train 12,000 service providers to detect tuberculosis. In Angola, we're helping the Ministry of Health provide anti-malarial treatment to pregnant women and children.

We have education programs. They range from math and science programs in schools and universities, education for villagers in remote locations, and training for women in sustainable livelihoods.

We have social programs. In Nigeria, we help more than 425 communities decide how to improve their quality of life. It works. Communities that were once hostile toward each other are now working together to build hospitals, introduce electricity and conduct job training.

We have employee contribution and volunteer programs. In two years, employees and Chevron have contributed nearly $50 million to local nonprofits. Here in Houston, employees volunteer more than 25,000 hours a year for about 70 different projects, including the Houston Food Bank and Habitat for Humanity.

As you've seen, we had a very good performance in 2009. We're off to a strong start in 2010. And looking ahead, our outlook for growth is extremely positive.

The world needs energy. And it will need more energy as the global economic recovery takes hold. As we fuel the world's growing economies, our commitment to safe and reliable operations will remain core.

No energy producer can eliminate risk. But we can mitigate risk. It starts by making safety personal. By going to work each day aiming for zero incidents. And by following our safety principles: Do it safely or not at all. There is always time to do it right.

When the investigation into the cause of the Gulf disaster is complete, there will be lessons to learn. Our industry will learn them. Our industry will share them. And we'll make that good safety record you saw earlier even better.

That's how a company formed in 1879 has endured and grown these 131 years. We look forward to more.

Thank you.

Read Vice Chairman and Executive Vice President of Global Upstream and Gas, George Kirkland's Remarks from the 2010 Annual Stockholders Meeting.


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 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. You 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: changing crude-oil and natural-gas prices; changing 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 the 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 other pending or future litigation; the company's future acquisition or disposition of assets and 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 through 32 of the company's 2009 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.

Published: May 2010