2012 Annual Stockholders Meeting Remarks by John S. Watson
By John S. Watson, Chairman and CEO
2012 Annual Stockholders Meeting
San Ramon, California, May 30, 2012
Good morning everyone and welcome to Chevron's 2012 Annual Stockholders Meeting.
The legal requirements for Chevron's annual stockholders meeting have been completed. We look forward to sharing information about our business with you and to a constructive dialog.
I'll begin with a corporate overview and performance highlights. George Kirkland, Chevron's vice chairman and executive vice president of Upstream and Gas, will discuss our major business segments and their future plans. But first, I'd like to acknowledge the nominees for our Board of Directors. They've achieved excellence in their fields, and they expect excellence from us. It is my pleasure to introduce them.
Please stand as I call your name and remain standing until you've all been introduced.
- 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 & Olson.
- Senator Chuck Hagel, distinguished professor at Georgetown University and former senator from Nebraska.
- Rick Hernandez, president and CEO of Inter-Con Security Systems.
- Wick Moorman, chairman, CEO and president of Norfolk Southern Corporation.
- Kevin Sharer, chairman of Amgen.
- 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.
- George Kirkland of Chevron Corporation.
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 John Gross and Jim Henry, partners from PricewaterhouseCoopers. And Douglas Czarnecki, the Inspector of Election.
Thanks to all of you.
Slide: Affordable and Reliable Energy (Content not available)
And now let's turn to our business.
Reliable and affordable energy powers virtually every element of the global economy. And abundant, affordable energy has been behind the great advances in living standards over the past 150 years.
By 2050, it is estimated that the world's population could grow to 9 billion people, and as more of these people aspire to a better quality of life, similar to what you and I enjoy today, the more energy they will use. Accordingly, world energy demand is expected to increase by more than 40 percent by 2035, driven primarily by demand in emerging markets like Asia. And oil and natural gas will deliver the bulk of that energy for the foreseeable future.
So, how does Chevron deliver that energy? Let's start with the basics and how we've ensured that we are getting results the right way.
The foundation of our company is The Chevron Way, a document that explains who we are, what we do, what we believe and what we plan to accomplish. It guides everything we do and establishes a common understanding not only for those of us who work here, but for all who interact with us.
At the heart of The Chevron Way are seven core values — Integrity, Trust, Partnership, Diversity, Ingenuity, High Performance, and Protecting People and the Environment. These values distinguish us and guide our actions. We conduct our business in a socially responsible and ethical manner. We respect the law, support universal human rights and benefit the communities where we work. And we place the highest priority on the health and safety of our workforce and protection of the environment.
Slide: Strong Safety Performance (Content not available)
Chevron has spent decades building a culture of safety and environmental stewardship. We've developed a comprehensive Operational Excellence Management System that rests on a fundamental rule — whatever we do, we'll do it safely, or not at all.
As you can see, we've made significant progress. Every key safety and environmental performance measure has improved steadily over the last decade — and 2011 was another good year statistically. In both of these charts, down is good. The one on the left shows the frequency of injuries that cause a day away from work — and the one on the right shows spill volume. We remain the best in our peer group.
Performance like this isn't luck; it's the product of hard work. Chevron's leadership has dedicated itself to creating a culture of safety. Every member of our workforce — whether Chevron employee or contractor — is empowered to stop work any time they see a condition that presents a risk to people or to the environment. Not only are people expected to stop work when they see a risk, they are rewarded when they do so.
Despite industry-leading performance and our ongoing focus on protecting people and the environment, we're not incident-free. We experienced incidents in 2011 and early 2012. We've learned from these incidents, and we are working to drive these lessons throughout our operations so that we can continue to improve our safety performance. As we move ahead, we will strive to mitigate risks in all that we do because we believe all incidents are preventable and that "zero is attainable."
Now let's take a look at our financial performance.
Slide: 2011 Financial Performance (Content not available)
Here's a snapshot of our 2011 financial results. We had a very good year. The hard work and dedication of our employees around the world has helped us provide consistent results for our stockholders.
We delivered record earnings of $26.9 billion and a 21.6 percent return on capital employed. We also had record cash flow from operations of $41 billion. We continued to fund growth projects and add to our portfolio while keeping our balance sheet sound and flexible with low levels of debt.
Our strong performance continues. In our 2012 first quarter, net income was up from the same quarter last year.
Slide: Earnings Growth Outpaces Peers (Content not available)
Our exceptional financial performance has measured favorably relative to our peers. This chart shows indexed adjusted earnings per share (EPS) growth over the past five years for Chevron and our peers. We're No. 1 by a wide margin.
In fact, if you look at EPS growth of independents and non-energy stocks in the S&P 500 over five- and ten-year periods, you would see a similar pattern. We've grown EPS faster than the vast majority of major equities.
Slide: Superior Dividend Growth (Content not available)
Our dividend growth pattern is also superior. 2011 marked the 24th consecutive year of annual dividend increases. This includes two increases last year, which combined, represented a 12.5 percent increase in the quarterly rate. And we just increased the dividend again, announcing an 11 percent increase in the second quarter dividend. We also have a competitive dividend yield — almost 3.5 percent through May.
There's one more number I think it's important to mention this year — 100. This year Chevron will celebrate its dividend centennial, marking 100 continuous years of regular payments to stockholders.
Slide: Top-Tier Long-Term Results (Content not available)
Our superior earnings growth and the favorable outlook for our business have translated to the ultimate performance measure — total stockholder return, which is the sum of stock price appreciation and dividends paid. Over the past five years, Chevron led our peer group — and by a wide margin. We've also outpaced the S&P 500 return.
Our strong performance is a result of consistent execution of sound strategies that help us advance our priorities.
Slide: Chevron's Priorities (Content not available)
- So let's look at our four key business priorities:
- Run our business safely and reliably, and maintain our execution momentum.
- Advance our upstream long-term growth opportunities.
- Improve the profitability of our downstream operations.
- And continue to create value for our stockholders.
Slide: Investing to Meet Energy Demand (Content not available)
One of the key ways we're able to continue creating value for our stockholders is by funding attractive capital projects that are consistent with these priorities. To help us do precisely that, we've set Chevron's 2012 capital and exploratory program at $32.7 billion.
We have a strong emphasis on oil and gas developments as you can see in this chart that shows spending by category. Upstream investments, including exploration, account for approximately 87 percent of the total program. Downstream investment represents another 11 percent.
We're performing well, have compelling strategies and plans to deliver growth, and we're highly focused on execution to deliver value for our stockholders. Let's watch a video that covers some of the highlights of Chevron's worldwide operations in 2011.
We've talked a lot about how we're working to develop resources from around the world to help meet increased energy demand.
In addition to providing direct economic benefits, we also make significant social investments in the communities where we operate. In fact, in the past six years, we've invested approximately $1 billion in areas focused on health, education and economic development. We also have a comprehensive human rights policy. It reinforces our long-standing commitment to play a positive role wherever we operate. We are on track for full implementation of this policy by 2013. And Chevron was recognized as among the best when it comes to social responsibility in Fortune magazine's annual "World's Most Admired Companies" list.
There are many examples of how we're partnering with communities around the globe to provide sustainable benefits — but I want to highlight just a few.
In Nigeria, our Niger Delta Partnership Initiative (NDPI), which is focused on economic development, conflict resolution and capacity-building, has completed its second year and is making great progress. The NDPI has generated interest among the international donor community, and last year, the U.S. Agency for International Development committed $25 million to jointly support NDPI projects, bringing the total investment to $77 million.
In Angola, where we employ nearly 4,000 people — 88 percent of which are Angolans — our efforts also continue. Since 1989, Chevron and its partners have invested more than $180 million in programs that support health, education, economic, environmental and social needs. In 2011, we worked with our partners to support Angola's first comprehensive sickle cell treatment program.
We're also active in education and economic development in the United States. Between 2009 and 2011, we invested nearly $100 million to improve education in the Unites States through programs like Chevron's California Partnership Initiative.
The California Partnership Initiative supports programs like RichmondBUILD Green Careers Academy, which prepares Richmond residents for jobs in the construction and renewable energy industries. Let's watch a short video that shows how RichmondBUILD is helping some of the members of our local community get back to work.
If you would like to learn more about these and other community projects, you can read more about our partnerships in our Corporate Responsibility Report.
Slide: Success Behind Us, A Decade of Growth Ahead (Content not available)
Chevron is a company with tremendous performance momentum and a unique combination of strengths. Throughout our presentation this morning, we've described how we intend to keep that performance momentum going.
In wrapping up, I'd like to emphasize four key thoughts.
First, everything we do, we will do safely. You can be assured we will build on our reputation of being a safe, reliable and responsible company. Second, we have developed a strong track record of delivering on our commitments, and you can expect us to continue to live up to our commitments. Third, we have an outstanding growth profile for this decade. But we're also looking ahead to the next decade, adding opportunities to our portfolio that are expected to drive yet another generation of profitable growth. And finally, we have the people, portfolio and financial strength to continue delivering superior stockholder value.
Read Vice Chairman and Executive Vice President of Upstream and Gas George Kirkland's Remarks from the 2012 Annual Stockholders Meeting.
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 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 report. 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 rulesetting bodies; and the factors set forth under the heading "Risk Factors" on pages 29 through 31 of the company's 2011 Annual Report on Form 10-K. In addition, such statements could be affected by general domestic and international economic and political conditions. Other unpredictable or unknown factors not discussed in this report could also have material adverse effects on forward-looking statements.
Certain terms, such as "unrisked resources," "unrisked resource base," "recoverable resources" and "oil in place," among others, may be used in this presentation to describe certain aspects of the company's portfolio and oil and gas properties beyond the proved reserves. For definitions of, and further information regarding, these and other terms, see the Glossary of Energy and Financial Terms.
Published: May 2012