"2005 was a momentous year," said David O'Reilly, Chevron chairman and CEO. "Through a disciplined approach, we have built very strong and integrated positions in growth areas of the world. We've converted those positions into tangible production growth, and we're creating a platform for sustained performance going forward."
O'Reilly said in a presentation to security analysts today in New York that Chevron has changed dramatically since 1998, with the capacity of producing approximately 2.7 million barrels of oil equivalent per day. The company has tripled in size and has become more balanced geographically. In 1998, almost half of Chevron's production was in North America. Today, that is less than 30 percent, with about 25 percent now in Asia Pacific. "Over this period, our production has grown by two-thirds and our proved reserves have about doubled," added O'Reilly.
Chevron forecasts oil and natural gas production to grow more than 3 percent per year over the next five years, O'Reilly said. He outlined progress the company has made with a strong queue of international upstream projects and noted that Chevron's exploration program has added over 4 billion barrels of resources in the past four years.
"Our success is predicated on our core business strategies," he said. "We are focused on three things: growing upstream profitability in core areas and building new legacy positions, commercializing our equity natural gas resource base, and improving downstream returns in markets with the best fundamentals."
Growing Upstream Profitability
George Kirkland, executive vice president of Global Upstream and Gas, highlighted the company's ability to select and execute major capital projects as a critical element to the company's future growth. The company is developing more than 20 projects with net total capital cost that exceed $1 billion and 45 projects that exceed $500 million. "Not only are they big, they are well-positioned. These projects are strategically located in regions with some of the greatest upstream potential in the world."
Chevron recently announced important milestones for some of its most important capital projects: first oil from the first phase of the $2.3 billion Benguela-Belize Lobito-Tomboco, offshore Angola; construction commencing on the $3.5 billion Tahiti project, deepwater U.S. Gulf of Mexico; commenced engineering work for the Gorgon gas project, offshore Australia; 80 percent project completion of the $5.6 billion Tengiz sour gas injection/second generation plant in Kazakhstan; and a number of key construction milestones for the $5 billion Agbami project offshore Nigeria.
Kirkland also outlined the company's strong exploration results. On average since 2002, the company has discovered over 1 billion barrels of oil equivalent resources per year and has a discovery rate of over 40 percent for the same period, well above the industry average. "In 2005, we had an excellent year where we had 31 discoveries with an almost 60 percent success rate."
Commercialize Global Gas Resource
John Gass, corporate vice president responsible for Chevron's gas business, elaborated on the company's large natural gas resource base and its plan to link these resources to attractive markets. The company is pursuing strategies to develop its resource base through liquefied natural gas (LNG) and gas-to-liquids (GTL) projects.
"The LNG element of our gas strategy is gaining momentum. In just the past year, we've made significant progress," Gass said. On the supply side, Chevron signed heads of agreements with three Japanese utilities for the sale of Gorgon LNG and sanctioned the fifth LNG train at the North West Shelf Venture offshore Western Australia. On the regasification side, the company secured 1 billion cubic feet per day of capacity at the Sabine Pass terminal and filed permits with the Federal Energy Regulatory Commission for the Casotte Landing terminal to be located near the company's Pascagoula, Miss., refinery. As well, the company entered into front-end engineering and design (FEED) on its Angola LNG project and is moving toward FEED with its partners for the Olokola LNG project in Nigeria.
"We are also making significant progress in building a global gas-to- liquids business," added Gass. "GTL's time has come. The technology is viable, and the economics for GTL have dramatically improved." The company broke ground in Nigeria recently on a world-scale GTL plant scheduled to come online in 2009.
Improve Downstream Returns
Mike Wirth, executive vice president of Global Downstream, explained Chevron's plans to boost profitability in downstream operations. "We are squeezing more value out of every barrel; we are increasing flexibility and scale; we are capturing integration value; and we are leveraging technology development to improve returns."
Wirth said his top priority will be to boost utilization of Chevron's refining assets. While a relatively heavy turnaround schedule will affect total utilization in 2006, the company is committed to raising its utilization rate by 6 percent by year-end 2008 as measured by industry benchmarks.
Wirth also outlined his growth plans for Chevron's refineries, including projects under way to increase feedstock flexibility in the United States and Korea, and said the company is evaluating expanding its refinery in Pascagoula, Miss., to become the second-largest in the United States and among the top 10-largest in the world based on crude capacity.
Wirth also commented on the company efforts to increase the flexibility of its refining assets. "The ability to refine increasingly challenged crudes into clean, high-quality products is a critical competitive differentiator. We have run a heavier and more sour crude slate than the rest of the industry, and this has reduced raw material costs versus our peers," Wirth concluded.
O'Reilly closed the presentation: "We have a demonstrated a track record of growth and are well-positioned to deliver this in the future. We are committed to delivering top tier performance to our shareholders."
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