Chevron Around The World
James N. Sullivan, Vice Chairman of the Board
Annual Meeting of Stockholders
San Francisco, California
My assignment is not exactly a "Mission Impossible." But giving you a closer look at Chevron's worldwide operations is a challenge -- because we have such a great variety of activities in more than 90 countries around the globe.
To cover the whole globe during the next 15 minutes or so, we'll have to move fast. We'll go at the speed of light -- light in the form of the maps and photos that you'll see behind me.
Let's start our trip by getting oriented on this map of the world.
The red dots show our upstream operations in 21 countries. As you'll recall, in the petroleum industry, upstream refers to the exploration and production of crude oil and natural gas.
Next, the green dots show our downstream activities -- refining and marketing -- in 60 countries. Downstream also includes transportation -- in other words, our shipping and pipeline activities. So we'll add some of the major pipelines and shipping routes.
Finally, the yellow dots represent other important operations -- chemicals and coal.
Some people insist on thinking of Chevron as a West Coast company. But this map clearly shows that we have a major international presence.
Let's start our worldwide trip close to home -- in a place where Chevron is well-known -- the Gulf of Mexico.
Chevron has been exploring and producing oil and gas in the Gulf for more than 50 years, and it is still one of our more attractive areas.
Chevron is the top producer in shallow water -- to us, shallow means less than 600 feet -- and has an industry-leading 1.21 million acres of leaseholdings. One of the most promising shallow-water areas is the prolific Norphlet natural gas trend, which stretches some 80 miles from Mississippi to Florida. We plan to drill an additional 15 wells there over the next four years.
Although it may seem odd to say after all the years we've worked there, the Gulf of Mexico is also one of our most exciting new frontier areas. Only recently have technology and experience brought the promising prospects in the gulf's deep waters within reach.
Our premier deep-water endeavor is Genesis. This $750 million project will produce oil and natural gas from what we call a floating spar structure.
Now let me give you an idea of how big that central portion is. Can you see the tiny people down in the right hand corner? This massive spar -- which is under construction in Finland -- is 122 feet across and, when all the sections are assembled, will be 700 feet tall long. It will be anchored in water that's half a mile deep. We're scheduled to have the structure in place and producing by the end of next year.
Chevron is also a leading deep-water leaseholder. In March, we added 75 tracts, bringing our total to more than 300.
Although over the past few years our strategies have emphasized international growth, it's important to remember that about one-third of our net liquids production still comes from the U.S. Chevron is a major producer in many areas in the U.S. -- California, Texas, Louisiana and the Rocky Mountains.
Now, let's travel north to Canada, where another major offshore project is about to make headlines. In just a few weeks, the gigantic Hibernia platform will be towed 200 miles offshore Newfoundland to an area known as Iceberg Alley. This structure -- which is as tall as a 75 story building and weighs as much as six aircraft carriers -- is built to rebound a one-million ton iceberg. First oil is expected before year-end.
Before we cross the Atlantic, let's go south and take a brief look at our South American activities.
Work continues in Venezuela's giant Boscan Field, where some of the world's largest pumping units pull out about 80,000 barrels a day of very heavy crude. Last year, Chevron took over as the field's operator in an innovative alliance with the Venezuelan national oil company.
Chevron also operates in Bolivia Colombia and Peru.
Now, let's cross the Atlantic to Great Britain, where Chevron has many exciting projects under way in the North Sea.
Our Alba Field reached total production of 100,000 barrels of oil a day at year-end. First production from the Britannia gas field -- which lies beneath Alba -- is scheduled to start late next year. Already, most of this gas is sold under long-term contracts.
1996 also marked the end of an important chapter in Chevron's North Sea history. The sale of the aging Ninian field -- along with interests in several smaller fields -- allows us to focus on new growth opportunities. Compared with our major competitors, Chevron now has the youngest set of assets in what is generally considered to be a mature oil and gas province. One of these is a successful appraisal program on the giant Clair field, which lies 40 miles west of the Shetland Islands.
Chevron also has refining and marketing interests in the U.K. with Gulf Oil Great Britain. Chevron and the French oil company, Elf, are currently in discussions to merge their U.K. subsidiaries to form a new, larger company better able to add value and compete in this tough market.
Moving on to the African continent . . . Chevron has extensive operations in four West African nations -- Nigeria, Angola, Congo and Zaire.
Average daily production from Chevron's Nigerian fields topped 400,000 barrels last year, of which our share is 40 percent. In addition, construction remains on schedule for a mid-97 start-up of the Escravos Gas Project. This project will supply the Nigerian market, and we've signed a letter of intent to supply gas to Ghana via a pipeline through neighboring Benin and Togo.
To the south, offshore Congo, lies the new Nkossa field, the deepest-water development offshore West Africa. Production started in June, and had reached 80,000 barrels a day by year-end. We own 30 percent of the field.
A few About 9 miles to the west, appraisal work continues on the Moho Field, which is one of the largest deep-water discoveries offshore West Africa.
Construction of the platform for the Kitina field is on schedule, and first oil should start flowing by year-end.
Moving on south, Ken already has told you about our latest Angolan discovery. -- following the same geologic trend -- Production from the numerous fields offshore Angola continues to grow, reaching more than 400,000 barrels a day in 1996. We have a 39 percent interest here. First production is expected by mid-year from two new fields -- Ndola and Sanha -- started last week. By the middle of next year the Nemba/Lomba development will be onstream. And in the next few days, we expect to hear more encouraging news about our deep-water exploration activities offshore Angola.
Chevron's presence in Zaire is much smaller, but still important and profitable. Our share of total crude oil production from eight fields averaged just 11,000 barrels a day.
Outside of North America, most of Chevron's refining and marketing operations are through our Caltex affiliate. This highly successful joint venture operates in 60 countries, most in the fast-growing Asia-Pacific area.
Caltex -- which is 50 percent Chevron owned -- also has a significant presence in Africa -- primarily in the eastern, central and southern portions. Altogether, we have about 1,500 service stations, two refineries and a number of blending plants and terminals.
Moving east, our next stop would be Tengiz in Kazakhstan. Since Ken already has brought you up-to-date on the exciting developments there, I'll head toward the Asia/Pacific region, where Caltex is a major player.
The new 130,000-barrel-a-day Star Refinery in Thailand started up last June and is supplying markets in this growing region.
In Korea, a 50 percent Caltex owned affiliate completed a $1 billion expansion and upgrade of its Yocheon Refinery, nearly doubling its capacity to 600,000 barrels a day. This is now the largest refinery and chemical plant in the Caltex system and one of the largest in the world.
A large part of Caltex's $5 billion, five-year capital expenditure program will go to retail marketing to introduce a bold new Caltex image and station design. This fresh identity for service stations and Star Mart convenience stores is being unveiled country by country over two years.
Our next stop is Indonesia, a major part of our upstream operations since the 1950s, and which today still accounts for about 16 percent of our net liquids production. In 1996, daily crude oil production from Caltex-operated fields averaged 758,000 barrels, about half of Indonesia's total output.
Indonesia is also the site of the giant Duri field, the world's largest steamflood operation. This field already has produced more than 1 billion barrels of oil, and it's estimated that there are still 2 billion barrels left to recover.
Offshore China is another active upstream region. Chevron and its partners are we're producing more than 100,000 barrels a day from four fields in the South China Sea. This is China's largest offshore operation.
In addition, we're exploring for oil and natural gas in three areas -- two in the South China Sea and one in the North China Basin, which is near China's largest onshore oil fields.
Still in the Pacific, let's take a look at our operations in Papua New Guinea. Chevron began production from the Kutubu Project in 1992. Today, our share of production averages about 20,000 barrels a day. In addition, Two nearby fields -- Gobe Main and Southeast Gobe -- are scheduled to start production early next year. Another promising area -- Moran -- is now being tested.
Our final stop before returning to the U.S. is Australia, a busy area for both exploration and production.
The latest development is the discovery of a major natural gas field -- Dionysus -- on the same trend as two other fields in which Chevron holds interests.
Chevron and its partners also are negotiating a 7 million ton $5 million expansion of the huge and highly successful North West Shelf liquefied natural gas project. The expansion, which would nearly double the project's production capacity, could be ready as early as 2003.
In 1995, Caltex merged its Australian operations with Ampol to form the country's largest downstream company, with a 30 percent market share. The company has a network of 2,000 stations and two refineries.
Well -- that takes us around the world . . . and brings us back to the United States and the familiar Chevron hallmark. For most of us, the symbol of our company is the bright, clean Chevron station with its friendly red, white and blue sign.
Our U.S. refining and marketing company operates in an extremely competitive environment. In spite of that, Chevron increased its retail gasoline volumes about 2 percent last year. We were the No. 1 seller in the huge California market and one of the top three sellers in 15 other states.
One of the company's major accomplishments last year was the successful launch of California-mandated reformulated gasoline -- the cleanest, lowest-emission gasoline in the world.
In fact, just a few weeks ago, scientists from the University of California at Berkeley reported that this new gasoline deserves much of the credit for lower air-pollution levels right here in the Bay Area.
And, although many of our competitors had manufacturing production problems, Chevron supplied its customers' needs with gasolines that met the new stringent specifications well in advance of the April deadline.
Chevron's successful alliance with McDonald's continues to progress along, with the addition of one new co-branded site a week. By the end of the year, we should have about 100 sites in operation in 12 Western and Southwestern states.
And did you know that Chevron has the No. 1 selling car line in the U.S.? I'm referring, of course, to our extremely popular -- and profitable -- toy cars, the stars of our award-winning TV commercials.
The first four models -- Wendy Wagon, Tony Turbo, Sam Sedan and Freddie 4-Wheeler -- had sales of more than 700,000 each. In early July, we plan to introduce a police car, Patty Patrol, and Tyler Taxi. Plus, two more models will be ready for a Christmas debut.
That completes our whirlwind world tour of Chevron's upstream and downstream operations. I should emphasize that I've really just hit the highlights in each area. You can find more detailed information in our Annual Report.
Even so, I can't conclude without mentioning a few other Chevron companies.
One is Chevron Chemical, which is making significant, long-term adjustments in its strategies. The chemicals business, as Ken pointed out, is cyclical.
Today, although the chemical industry Chemicals is at the lower part of the cycle, Chevron Chemical is looking ahead and investing to improve its performance over the span of the cycle and to take advantage at the top of the cycle.
The bulk of its U.S. investment is for expansions of its Port Arthur, Texas, ethylene plant and its Pascagoula, Mississippi, paraxylene plant.
Another part of Chemicals' strategy is to expand its international business. Today, international accounts for about 12 percent of Chevron Chemical company's total assets, but over the next five years the plan is to grow that to about 30 percent.
Last month Chevron broke ground for a $650 million petrochemical complex in Saudi Arabia. This plant will use Chevron's proprietary Aromax process technology to make benzene.
In January, the company held another ground-breaking ceremony -- this time for a world-scale lube oil and fuel additives plant in Singapore. When completed late next year, the plant will be a major supplier for the high-growth Asian market.
Chevron is also in the final stage of getting government approvals for its first chemical manufacturing venture in China -- a 100,000 ton-per-year polystyrene plant to supply that country's growing market.
Chevron Pipe Line Company is moving into the international arena. Last month, I attended the dedication of our first international pipeline -- which also is the first-ever liquids petroleum products pipeline to cross the U.S.-Mexican border. The 20-mile, $13-million link between our El Paso Refinery and Juarez has the capacity to move 25,000 barrels a day of gasoline and jet fuel.
Chevron Pipe Line Company will also be responsible for managing Chevron's interest in the $2 billion pipeline project from the Tengiz Field in Kazakhstan to the Black Sea.
The Pittsburg & Midway Coal Company is another Chevron business. One of its strong points is its large holding of environmentally desirable, low-sulfur coal. Although the current abundance of low-cost hydroelectric power in the Western U.S. has put pressure on earnings, the company remains an industry leader in productivity and return on assets.
I'd like to highlight the outstanding safety performance of Chevron Shipping Company. It continues to set the standard for the industry. Last year, Chevron loaded and unloaded the ships of its owned and chartered fleet 600 times, moving nearly 500 million barrels of oil. In all of these operations, a total of only 4 barrels were accidentally released to the sea.
Let me put that into perspective. It would be like pulling into your Chevron station and filling your gas tank 600 times -- almost twice a day for one year -- and spilling only four drops.
A very impressive accomplishment.
Of course, Chevron's interest in protecting the environment applies not just to our shipping company, but equally to all our operations around the world.
Chevron's policy -- called "Protecting People and the Environment" -- is part of our core values. You'll find the essence spelled out in "The Chevron Way." It states -- and I quote -- "We are committed to protecting the safety and health of people and the environment. We will conduct our business in a socially responsible and ethical manner." There's more, which you can read if you pick up a folder on your way out.
Finally . . . I need to point out that all the remarkable projects and accomplishments that I've described this morning are the direct result of the hard and dedicated work of Chevron's employees. My thanks for another year of commitment and operating excellence.
Thank you for your attention . . . and my sincere thanks to all Chevron's stockholders for your continuing support.
Updated: April 1997