Chevron Press Release - Derr Calls Employee Efforts Key To Chevron's Strong Financial Performance
SAN FRANCISCO, May 3, 1994 -- Chevron Chairman Ken Derr said today employee teamwork and ingenuity in implementing cost-cutting and other key strategies led to the company's strong financial performance in 1993, despite falling crude oil prices in the second half of the year.
Addressing the company's Annual Meeting of Stockholders, Derr credited vigorous cost-cutting efforts for the company's success in meeting its five-year goal of outperforming major competitors in total stockholder return -- dividends plus stock price appreciation. For the period 1989 through 1993, Chevron posted an average annualized return of 18.9 percent, nearly 2 percentage points higher on an annualized basis than any of the company's peer competitors.
"The key to this accomplishment was a very dramatic company-wide effort to bring down operating costs. And the key to that effort was the tremendous teamwork and ingenuity of our employees," Derr said.
He pointed out that while reported 1993 earnings of $1.3 billion were depressed by special items amounting to $883 million, Chevron's operational earnings (earnings excluding special items) were up 38 percent to more than $2 billion for the full year. Despite a 10 percent decline in crude prices, operational earnings in worldwide exploration and production increased 11 percent over 1992. Operational earnings in worldwide refining and marketing grew 74 percent versus 1992.
As a result of wide-ranging cost-cutting efforts, by the end of 1993 Chevron had reduced overall operating costs by 94 cents per barrel in operating and overhead expenses, equivalent to savings of $1 billion a year when compared with 1991.
Earnings for the first quarter of 1994 also reflected the impact of lower crude prices. But a decline of 17 percent from the 1993 first quarter, Derr said, was partially offset by a 13 percent gain in international oil production and higher U.S. natural gas prices.
He said "the market fundamentals are encouraging for our long-term strategies. We see many opportunities for growth when prices turn upward. Today, more of the world is open to us than ever before."
However, Derr said, aspects of what he called "some unfortunate currents in U.S. energy policy" are cause for concern, especially in the anti-oil attitude that is emerging in a number of policy initiatives.
"I'm especially concerned about various measures designed to force so-called alternative fuels into the market before they really make sense in economic or environmental terms." Behind such moves, he said, are invalid claims about world oil supplies and the effect of fossil fuels on the environment.
He cited improving air quality in the Bay Area and in most other parts of the U.S. as an example of environmental progress that isn't well known by the public. He also pointed to dramatic reductions in pollution from cars. "The fact is that current generation cars running on current generation of fuels (gasoline) have eliminated 96 percent of the tailpipe emissions of their 1960 ancestors," he said. "Over the next five years or so, further modifications of both fuels and vehicles will be able to eliminate most of what remains."
Derr also said that despite some reports, the world has a 50-year stock of proved reserves, an amount that easily doubles considering reasonable estimates of new discoveries and the potential for enhanced oil recovery techniques. "The world is not running out of oil," he said.
Elaborating on Derr's review of the company's financial performance since 1989, Vice Chairmen J. Dennis Bonney and Jim Sullivan described the effectiveness of cost-cutting initiatives in the upstream (exploration and production) and downstream (refining and marketing) businesses of the company.
Bonney said U.S. upstream operation expenses dropped 22 percent from the 1991 peak, which translates into savings of nearly $600 million a year. In addition, upstream operations generated about $1.2 billion in cash in 1993 -- surpassing its goal of $1 billion annually.
He said the U.S. remains an important component of the company's upstream operations with more than 40 percent of Chevron's worldwide net liquids production coming from domestic fields.
Internationally, Chevron has exploration and production operations in 21 countries. Last year, the company recorded a 35 percent increase in total worldwide proved liquids reserves, Bonney said. Increased reserves and production came from many countries, including a number of older producing countries, such as Nigeria, and one of the newest, Kazakhstan.
In addition to citing dramatic sustained cost savings in the downstream sector, Sullivan singled out Chevron Shipping as an industry leader in its commitment to safety and the environment. In 1993, Chevron vessels transported 620 million barrels of crude oil, but released just 3 1/2 barrels -- the equivalent of two and a half drops of water from a backyard swimming pool.
"It's clear that our shipping company has emerged as the role model for operating safety -- both in the industry and for all Chevron business units," Sullivan said.
Updated: May 1994